Print Page - Stock Market Crash Expected In 2008 To Be Worse Than 1929

Crisis may make 1929 look a 'walk in the park'

As central banks continue to splash their cash over the system, so far to little effect, Ambrose Evans-Pritchard argues things are rapidly spiralling out of their control

Twenty billion dollars here, $20bn there, and a lush half-trillion from the European Central Bank at give-away rates for Christmas. Buckets of liquidity are being splashed over the North Atlantic banking system, so far with meagre or fleeting effects.

As the credit paralysis stretches through its fifth month, a chorus of economists has begun to warn that the world's central banks are fighting the wrong war, and perhaps risk a policy error of epochal proportions.

"Liquidity doesn't do anything in this situation," says Anna Schwartz, the doyenne of US monetarism and life-time student (with Milton Friedman) of the Great Depression.

"It cannot deal with the underlying fear that lots of firms are going bankrupt. The banks and the hedge funds have not fully acknowledged who is in trouble. That is the critical issue," she adds.

Lenders are hoarding the cash, shunning peers as if all were sub-prime lepers. Spreads on three-month Euribor and Libor - the interbank rates used to price contracts and Club Med mortgages - are stuck at 80 basis points even after the latest blitz. The monetary screw has tightened by default.

York professor Peter Spencer, chief economist for the ITEM Club, says the global authorities have just weeks to get this right, or trigger disaster.

"The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard," he says.

"They still have another couple of months before this starts imploding. Things are very unstable and can move incredibly fast. I don't think the central banks are going to make a major policy error, but if they do, this could make 1929 look like a walk in the park," he adds.

The Bank of England knows the risk. Markets director Paul Tucker says the crisis has moved beyond the collapse of mortgage securities, and is now eating into the bedrock of banking capital. "We must try to avoid the vicious circle in which tighter liquidity conditions, lower asset values, impaired capital resources, reduced credit supply, and slower aggregate demand feed back on each other," he says.

New York's Federal Reserve chief Tim Geithner echoed the words, warning of an "adverse self-reinforcing dynamic", banker-speak for a downward spiral. The Fed has broken decades of practice by inviting all US depositary banks to its lending window, bringing dodgy mortgage securities as collateral.

Quietly, insiders are perusing an obscure paper by Fed staffers David Small and Jim Clouse. It explores what can be done under the Federal Reserve Act when all else fails.

Section 13 (3) allows the Fed to take emergency action when banks become "unwilling or very reluctant to provide credit". A vote by five governors can - in "exigent circumstances" - authorise the bank to lend money to anybody, and take upon itself the credit risk. This clause has not been evoked since the Slump.

Yet still the central banks shrink from seriously grasping the rate-cut nettle. Understandably so. They are caught between the Scylla of the debt crunch and the Charybdis of inflation. It is not yet certain which is the more powerful force.

America's headline CPI screamed to 4.3 per cent in November. This may be a rogue figure, the tail effects of an oil, commodity, and food price spike. If so, the Fed missed its chance months ago to prepare the markets for such a case. It is now stymied.

This has eerie echoes of Japan in late-1990, when inflation rose to 4 per cent on a mini price-surge across Asia. As the Bank of Japan fretted about an inflation scare, the country's financial system tipped into the abyss.

In theory, Japan had ample ammo to fight a bust. Interest rates were 6 per cent in February 1990. In reality, the country was engulfed by the tsunami of debt deflation quicker than the bank dared to cut rates. In the end, rates fell to zero. Still it was not enough.

When a credit system implodes, it can feed on itself with lightning speed. Current rates in America (4.25 per cent), Britain (5.5 per cent), and the eurozone (4 per cent) have scope to fall a long way, but this may prove less of a panacea than often assumed. The risk is a Japanese denouement across the Anglo-Saxon world and half Europe.

Bernard Connolly, global strategist at Banque AIG, said the Fed and allies had scripted a Greek tragedy by under-pricing credit long ago and seem paralysed as post-bubble chickens now come home to roost. "The central banks are trying to dissociate financial problems from the real economy. They are pushing the world nearer and nearer to the edge of depression. We hope they will eventually be dragged kicking and screaming to do enough, but time is running out," he said.

Glance at the more or less healthy stock markets in New York, London, and Frankfurt, and you might never know that this debate is raging. Hopes that Middle Eastern and Asian wealth funds will plug every hole lifts spirits.

Glance at the debt markets and you hear a different tale. Not a single junk bond has been issued in Europe since August. Every attempt failed.

Europe's corporate bond issuance fell 66pc in the third quarter to $396bn (BIS data). Emerging market bonds plummeted 75pc.

"The kind of upheaval observed in the international money markets over the past few months has never been witnessed in history," says Thomas Jordan, a Swiss central bank governor.

"The sub-prime mortgage crisis hit a vital nerve of the international financial system," he says.

The market for asset-backed commercial paper - where Europe's lenders from IKB to the German Doctors and Dentists borrowed through Irish-based "conduits" to play US housing debt - has shrunk for 18 weeks in a row. It has shed $404bn or 36pc. As lenders refuse to roll over credit, banks must take these wrecks back on their books. There lies the rub.

Professor Spencer says capital ratios have fallen far below the 8 per cent minimum under Basel rules. "If they can't raise capital, they will have to shrink balance sheets," he said.

Tim Congdon, a banking historian at the London School of Economics, said the rot had seeped through the foundations of British lending.

Average equity capital has fallen to 3.2 per cent (nearer 2.5 per cent sans "goodwill"), compared with 5 per cent seven years ago. "How on earth did the Financial Services Authority let this happen?" he asks.

Worse, changes pushed through by Gordon Brown in 1998 have caused the de facto cash and liquid assets ratio to collapse from post-war levels above 30 per cent to near zero. "Brown hadn't got a clue what he was doing," he says.

The risk for Britain - as property buckles - is a twin banking and fiscal squeeze. The UK budget deficit is already 3 per cent of GDP at the peak of the economic cycle, shockingly out of line with its peers. America looks frugal by comparison.

Maastricht rules may force the Government to raise taxes or slash spending into a recession. This way lies crucifixion. The UK current account deficit was 5.7 per cent of GDP in the second quarter, the highest in half a century. Gordon Brown has disarmed us on every front.

cont'd

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In Europe, the ECB has its own distinct headache. Inflation is 3.1 per cent, the highest since monetary union. This is already enough to set off a political storm in Germany. A Dresdner poll found that 71 per cent of German women want the Deutschmark restored.

With Brünhilde fuming about Brot prices, the ECB has to watch its step. Frankfurt cannot easily cut rates to cushion the blow as housing bubbles pop across southern Europe. It must resort to tricks instead. Hence the half trillion gush last week at rates of 70bp below Euribor, a camouflaged move to help Spain.

The ECB's little secret is that it must never allow a Northern Rock failure in the eurozone because this would expose the reality that there is no EU treasury and no EU lender of last resort behind the system. Would German taxpayers foot the bill for a Spanish bail-out in the way that Kentish men and maids must foot the bill for Newcastle's Rock? Nobody knows. This is where eurozone solidarity stretches to snapping point. It is why the ECB has showered the system with liquidity from day one of this crisis.

Citigroup, Merrill Lynch, UBS, HSBC and others have stepped forward to reveal their losses. At some point, enough of the dirty linen will be on the line to let markets discern the shape of the debacle. We are not there yet.

Goldman Sachs caused shock last month when it predicted that total crunch losses would reach $500bn, leading to a $2 trillion contraction in lending as bank multiples kick into reverse. This already seems humdrum.

"Our counterparties are telling us that losses may reach $700bn," says Rob McAdie, head of credit at Barclays Capital. Where will it end? The big banks face a further $200bn of defaults in commercial property. On it goes.

The International Monetary Fund still predicts blistering global growth of 5 per cent next year. If so, markets should roar back to life in January, as though the crunch were but a nightmare. There again, the credit soufflé may be hard to raise a second time.

Housebuilders dig in for deep freeze in residential property

The slide in house prices is gathering pace, a survey suggests today, amid signs that housebuilders are digging in for a prolonged residential property freeze. Tulloch Homes, a medium-sized Scottish housebuilder, pulled plans yesterday for a £200 million flotation, and Taylor Wimpey is understood to have ordered a halt to any new land acquisitions.

Estate agents across the UK have ended the year bemoaning falling prices, buyers in retreat and the declining chance of a speedy sale. The latest survey by Hometrack, the housing data company, suggests that values have fallen by 0.3 per cent since November, the third consecutive monthly fall and the largest in almost two years.

Despite the calming of a once-overheated property market, new buyers are refusing to be enticed out. Their number was down 7.9 per cent this month, after a fall of 9.1 per cent in November and one of 6.4 per cent in October. At the end of a downbeat quarter, owners are tending to keep their homes off the market, with agents reporting 2.5 per cent fewer properties for sale. Agents, who six months ago were able to sell a home in less than six weeks, now say that properties are lingering on the market for an average of 8.3 weeks, the worst figure since the survey began in 2001.

Richard Donnell, the director of research at Hometrack, said: “The second half of the year has seen a major reversal in confidence on the back of higher interest rates and concerns over the outlook for the financial markets.”

Prices are still up 3 per cent compared with a year ago, but that rate of growth represents little more than half the 5.7 per cent reported at the start of the year. Prices are reported to be falling in 30 per cent of postcodes, a significant turnaround since March, when they were rising in 80 per cent of postal areas.

The worst performing areas this year have included South Yorkshire, Nottinghamshire and North Lincolnshire. Oxfordshire recorded the largest fall in values over the past three months, down 1.5 per cent. The strongest growth this year was seen in Central London, where values are up by 9.4 per cent in a year. But prices in Greater London and the South East, which had risen steadily for the first three quarters of the year, fell by 0.4 per cent in a month.

Tulloch abandoned its plans to float on the Alternative Investment Market, blaming the “challenging” housing market and the credit crunch. David Sutherland, the chairman and chief executive, who appointed Close Brothers to advise on the float this year, said: “Now is not the right time for a UK housebuilder to be going ahead with an AIM flotation.”

The Inverness-based Tulloch, which made operating profits of £13.2 million last year, said that it might consider selling a stake to a private equity buyer instead of a flotation.

Taylor Woodrow, one of Britain’s biggest housebuilders, apparently took the decision to freeze all land purchases in mid-October and has completed only on deals agreed before then.

Last week Capital Economics - among the most bearish commentators – said that it expected the present slowdown to persist throughout next year, with a fall of 5 per cent followed by another 8 per cent slide in 2009.

Dollar's fall felt around globe
Weakening U.S. currency harms overseas markets

The sharp decline of the U.S. dollar since 2000 is affecting a broad swath of the world's population, with its drop on global markets being blamed at least in part for misfortunes as diverse as labor strikes in the Middle East, lost jobs in Europe and the end of an era of globe-trotting rich Americans.

It marks a shift for Americans in the global economy. In times of strength, a mightier dollar allowed Americans to feed their insatiable appetite for foreign goods at cheap prices while providing Yankees abroad with virtually unrivaled economic clout. But now, as the United States struggles to fend off a recession, observers say the less lofty dollar is having both a tangible and intangible diminishing effect.

"The dollar was the dominant force in world economics for 100 years -- we had no competition," said C. Fred Bergsten, an American economist and director of the Washington-based Peterson Institute for International Economics. "There was no other economy close to the size of the United States. But all that is now changing."

The dollar is down more than 40 percent against the euro over the past seven years, taking a particularly sharp drop last month. Despite a bit of a rebound in recent weeks, the dollar is still off nearly 12 percent since Jan. 11, when it hit its peak for 2007.

For now, that drop is allowing the U.S. economy to reap rewards. American products have become exceedingly competitive, boosting exports ranging from Caterpillar tractors to Boeing jumbo jets that are now relative blue-light specials in the global marketplace. Using the same logic of chasing cheaper local production costs that has driven many U.S. factories to China, a few iconic European companies, including Airbus, are set to shift some manufacturing lines to the United States.

But for untold millions worldwide, the weak dollar has emerged as a troubling dark spot. Take Ngengi Mungai, a Nairobi coffee exporter trapped between the weaker dollar and the rapidly appreciating Kenyan shilling -- which gained as much as 12 percent against the dollar this year amid an export-driven economic surge across much of Africa. His coffee sales overseas, as with the bulk of global commodities, are priced in weaker dollars. But he must then convert them into stronger shillings to cover his local costs for local labor, materials, even the clothes on his back. It has cut sharply into his annual income.

"Basically," Mungai said, "it's bad."

It has left many wondering whether the dollar has lost its bling for good. Even rapper Jay-Z dissed the dollar in his recent video, "Blue Magic." In scenes celebrating the excess of wealth in Manhattan's shimmering glass canyons, the cameras cut repeatedly not to images of $100 bills -- but of crisp, 500 euro notes.

Though still the primary choice for global reserves and commodities, some countries have begun to diversify their dollar holdings, while a nascent push is afoot to re-price some commodities in currencies other than the dollar. In May, Kuwait dropped its currency peg to the dollar and other oil-rich Gulf states have threatened to follow. Perhaps most telling: In recent months, the euro surpassed the dollar as the currency with the largest global circulation.

In very real terms, it has forced Americans to rethink their lust for foreign goods. Sales of luxury, British-made Jaguars and Land Rovers, for instance, are declining in the United States because of the weak dollar, while fewer North American tourists -- a 10 percent drop in the third quarter of 2007 compared with the same period last year -- treated themselves to trips to England.

The chink in the dollar's armor has dealt a blow to American pride -- at least to the kind of pride that comes with buying power.

Nowhere is that more visible than with Americans overseas. "It's changed our lifestyle," said Lauren Amlani, 48, who moved to Paris from California with her husband and young son in March 2006. "A meal with pizza and drinks for the three of us comes to over $75. That's ridiculous!"

Amlani's husband, Aslam, a project manager at Disneyland Paris, is paid in dollars. To compensate for the plunge of the dollar against the euro, the Amlanis are buying clothes and electronics in the United States and hauling them back to Paris.

With the exception of November, when the dollar dropped sharply after bearish remarks by Chinese officials, the fall has been gradual. It is unclear what will happen in the future. The dollar has fallen because of a combination of fears over the U.S. economy, including the subprime mortgage crisis that may worsen.

Although considered unlikely, analysts say a more rapid decline could prove disastrous. A global run on the dollar would force the Federal Reserve to hike interest rates to prop up the U.S. currency just as lower interest rates may be needed to stimulate the domestic economy.

Already, however, the impact of the weaker dollar is growing. Rolls-Royce has proposed moving some operations from Liverpool to its factory in Mount Vernon, Ohio. Airbus has said it will shift more of its production to the United States, home turf of rival Boeing, to offset the cost of the stronger euro. As the dollar has weakened over the past seven years, Airbus has opened assembly lines and other operations in Wichita and Mobile, Ala.; as well as in Moscow and Beijing.

"Every time the euro increases by 10 cents towards the dollar we lose $1 billion in our operations," said an Airbus official at the company's headquarters in Toulouse, France. "Aircraft are sold in U.S. dollars, but most of our production costs are paid in euros."

Losses in Europe have been blunted, however, because fewer euros now buy more raw materials that continue to be priced in dollars. In addition, the British pound has depreciated recently over investor fears that England's real estate market may be vulnerable to the same factors that caused the subprime mortgage crisis in the United States.

Many nations that have pegged their currencies to the dollar have become boxed in by the Fed's moves to lower interest rates. While that may be wise for policymakers in the United States, where the fear is slipping into recession, it is exactly the wrong medicine for red-hot economies such as those in the Persian Gulf that are in far greater risk of overheating from a massive, oil-fueled economic expansion.

The dramatic surge in oil revenue along with the weakening dollar has sparked a rise in inflation in the Gulf states -- hurting most those who have the least. In recent months, it has wiped out much of the gains from years of hard labor for the thousands of South Asian workers who moved to Dubai for a piece of its multibillion-dollar construction boom. With employers slow to raise salaries as low as $109 a month, workers' savings have diminished in buying power as costs have jumped for vegetables, cooking gas and other essentials. This has triggered wage strikes and a rock-throwing protest this fall that set back construction of the 150-story Burj Dubai, planned to be the world's tallest building.

"We don't have a single penny," said Ram Chandra, a 33-year-old mason who moved to the United Arab Emirates from India five years ago to seek his fortune in a sand-blown and crowded construction camp on the fringes of the desert. Back home in India, where the dollar has fallen 14 percent against the rupee in the past 18 months, the remittances he has sent to his family have steadily lost value.

The declining dollar's role in fueling inflation has become a piÂ¿ata for barbs across the Muslim world, where furious residents and leaders, including Iran's President Mahmoud Ahmadinejad, have sought to turn the weaker greenback into a new rallying point for anti-Americanism. "They get our oil and give us a worthless piece of paper," Ahmadinejad told reporters after the OPEC summit in the Saudi capital of Riyadh last month.

Some countries with strict controls over their currencies have managed to share in the U.S. windfall from the dollar's drop. Vietnam, for instance, where the tightly controlled currency has stayed relatively constant against the dollar, is enjoying an influx of investors fleeing nearby Thailand -- where the baht's sharp rise against the dollar has made doing business there far less attractive.

In China, where the currency still trades on a narrow, government-controlled band linked to the dollar, authorities have resisted global pressure to allow its currency to appreciate faster. The Chinese currency has gained about 11 percent against the dollar since 2005. But by keeping the currency relatively weak, Chinese companies have managed to ride the weak-dollar export boom -- making their products even cheaper in countries where the greenback has sharply dropped.

But now, some in China are turning their noses up at the dollar. Lin Jing, a sales manager at Shanghai Shuangyuan Import & Export Co., which exports garlic oil, said the company has begun to demand euros from its overseas customers instead of dollars. "The use of euros enables us to shy away from losses caused by the conversion between the [Chinese currency] and the weakened dollar," he said.

Quote from: Pastor Roger on December 24, 2007, 02:41:15 PM

The Great Depression in the U.S. is considered to have started at the stock market crash of October 29, 1929. Prior to that time there were indeed financial difficulties in the U.S. but it was considered a recession not a depression. I understand that this can be argued and that many will place a fine line in the difference between a recession and a depression. I also agree that the government waits and extended period of time before declaring either one, supposedly out of fear that people will panic and thereby cause it to escalate. The U.S. has experienced many recessions throughout it's history but only one that led into the full blown depression of the Great Depression.

"Prior to that time there were indeed financial difficulties in the U.S. but it was considered a recession not a depression."

Not true:

Quote from: Mike Moffat link=http://economics.about.com/cs/businesscycles/a/depressions_2.htm

From: http://economics.about.com/cs/businesscycles/a/depressions_2.htm (http://economics.about.com/cs/businesscycles/a/depressions_2.htm): Before the Great Depression of the 1930s any downturn in economic activity was referred to as a depression.

Actually they were referred to as "Panics" in the 1800's. It is largely a matter of semantics. The modern definition is that a recession is "the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out" A depression is "any economic downturn where real GDP declines by more than 10 percent."

There have been a number of depressions in US history - 1819, 1836-37, 1857, 1873, 1893-5, and 1921, but none since the Great Depression of the 1930's.

Employment is a lagging indicator, not a leading one, so unemployment won't start to rise until we are well into a recession. Businesses hesitate to lay off trained employees if they have any hope things may soon turn around, so they wait until it is obvious that things are still declining. Untrained laborers go sooner as they are more easily replaced. Louis Lamour was working at day labor and unskilled jobs in the 1920's, and they were drying up by 1927 - therefore the economy was already in decline by then.

Today there are fewer jobs for unskilled labor, so employment holds up better and longer. Most of the unskilled jobs are held by immigrants, so it is interesting to see some are starting to leave, partly because of a crackdown on illegals, but also because jobs are getting hard to find: "The toughening environment has been coupled with a turndown in the U.S. economy, which has tipped the balance toward self deportation for many illegal immigrants left struggling to find work." From: http://www.reuters.com/article/domesticNews/idUSN2126758320071224 (http://www.reuters.com/article/domesticNews/idUSN2126758320071224)

Whether we go into a depression or just a recession is hard to predict. Usually the bigger the bubble the more disastrous it is when it pops, and the housing bubble was a big one. (The median income is about $25,000 (http://www.ssa.gov/OACT/COLA/central.html (http://www.ssa.gov/OACT/COLA/central.html)) so half of the people can afford less than $625 in monthly payments - far less than what they would have to pay at the inflated housing prices today.) Japan has never yet recovered from the bursting of the housing bubble on which its former "booming" economy was based. Our government has also removed most of the legal safeguards and restraints on the financial system enacted after the Great Depression that prevented it happening again. Nixon debased the currency. Much of our economy is a house of cards. We have largely stopped producing much of value and become a nation of gamblers and speculators. Maybe it won't catch up to us this time, but if the government manages to patch things together they will only be worse a few years from now unless we make fundamental changes in our way of life.

New-home sales plunge by 9%
Lowest level in more than 12 years

Sales of new homes plunged last month to their lowest level in more than 12 years, a grim testament to the problems plaguing the housing sector.

The Commerce Department reported Friday that new-home sales tumbled by 9 percent in November from October to a seasonally adjusted annual rate of 647,000. That was the worst showing since April 1995, when the pace of sales was 621,000.

The sales pace for November was much weaker than economists were expecting. They were predicting sales in the weakest sector of the economy to drop by around 1.8 percent, to a pace of 715,000.

The median sales price of a new home dipped to $239,100 in November. That is 0.4 percent lower than a year ago. The median price is where half sell for more and half for less.

By region, sales fell in all parts of the country, except for the West, where they rose.

New-home sales dropped by 19.3 percent in the Northeast. They plunged by 27.6 percent in the Midwest and they fell by 6.4 percent in the South. However, sales increased by 4 percent in the West.

Over the last 12 months, new-home sales nationwide have tumbled by 34.4 percent, the biggest annual slide since early 1991, and stark evidence of the painful collapse in the once high-flying housing market.

That market has been suffering through a severe slump following five years of record-breaking activity from 2001 through 2005. Sales turned weak as did home prices. The boom-to-bust situation has increased dangers to the economy as a whole and has been especially hard on some homeowners.

Foreclosures have soared to record highs and probably will keep rising. A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Other home buyers were clobbered as low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.

With credit now harder to get to finance a home purchase, the problems in housing have grown worse. Unsold homes have piled up. The problems are expected to persist well into next year.

The housing and mortgage meltdowns have raised the odds that the country will fall into a recession. And, it has given Democrats and Republicans politicians- including those who want to be the next president - plenty of opportunities to spread blame around.

To help bolster the economy, the Federal Reserve has sliced a key interest rate three times this year. Its latest rate cut, on Dec. 11, dropped the Fed's key rate to 4.25 percent, a two-year low. Many economists are predicting the Fed will lower rates again when they meet in late January.

The economy's growth is expected to have slowed to a pace of just 1.5 percent or less in the October-to-December. Analysts believe that the housing and credit troubles will force consumers and businesses to tighten the belts, causing the economy to lose considerable speed. The housing slump has been a drag on overall economic activity, lopping more than a full percentage point off growth during the summer alone.

Stocks drop after oil hits $100
Wall Street concerned about economic slowdown

Stocks skidded lower Wednesday after a weaker-than-expected reading on the manufacturing sector and a spike in oil prices to $100 a barrel triggered concerns of a further slowdown in the overall economy.

The major indexes each lost more than 1 percent. The Dow Jones industrials, which dipped below 13,000 at one point, gave up more than 220 points. It was the blue chip index's biggest point decline for the first day of trading in a new year.

The Institute for Supply Management's report that its manufacturing index fell to 47.7 percent for December from 50.8 percent in November raised concerns that the economy could be slowing at a quicker pace than some investors had estimated. The reading below 50 signals economic contraction, whereas readings over 50 indicate expansion.
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Analysts polled by Thomson/IFR had anticipated that manufacturing would expand modestly in December.

Light, sweet crude rose $4.02 to $100 per barrel on the New York Mercantile Exchange, the first time oil has ever traded in triple digits, following violence in the oil-producing nation of Nigeria, concerns about weather-related stoppages of production in Mexico and speculation that inventory figures will show drops in levels of U.S. supplies.

The reading was unwelcome for investors wading into the first trading session of 2008 and indicated the concerns that weighed on stocks in the second half of 2007 will for now persist.

"It certainly is a soft number and the declines in production and new orders are eye-catching," said Alan Levenson, chief economist at T. Rowe Price Associates Inc. "Over all, the ISM has generally been a decent guide for the economy. This is a sharp decline in one month."

The Dow Jones industrial average fell 220.86, 1.67 percent, to 13,043.96.

Broader stock indicators. The Standard & Poor's 500 index dipped 21.20, or 1.44 percent, to 1,447.16, and the Nasdaq composite index dipped 42.65, or 1.61, to 2,609.63.

Bond prices surged after the ISM report. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.89 percent from 4.03 percent late Monday. The dollar was mixed against other major currencies, while gold prices reached a 28-year high.

Gold prices rallied Wednesday to settle at $860 an ounce after a weak U.S. dollar coupled with a record-setting push to $100 oil spurred demand for the precious metal. The spike surpassed gold's recent high of $850, but still fell short of its all-time high of $875 an ounce set in 1980.

Declining issues outnumbered advancers by about 4 to 3 on the New York Stock Exchange, where volume came to 1.42 billion shares.

The weak manufacturing reading came as Wall Street remains uneasy over the economy, specifically the state of the housing market and tightness in the credit markets brought on by fears of faltering mortgage debt. In addition, the health of the consumer is again in focus as investor are awaiting the government's December employment report, due Friday.

Investors weren't swayed by the release of the Fed's minutes from its Dec. 11 meeting. Central bankers cut rates amid worries about housing, credit and financial markets — and kept all their options open for their next move, according to the minutes.

"We didn't really learn anything new," said Ryan Larson, senior equity trader with Voyageur Asset Management. "The Fed continues to be stuck between a rock and a hard place in terms of fighting inflation and managing U.S. growth."

The arrival of the new year will be accompanied by a return of more of Wall Street's regular players. The recent weeks surrounding the holidays have seen light trading volume, making it hard to draw any meaningful reading on the market's mood. Moves higher or lower tend to be exaggerated amid light sessions.

No sign of retreating for higher food prices
Amount you pay cashier has risen in '07 at more than twice '06 rate

Gloria Ford began noticing a few months back that her grocery costs were spiking, particularly for milk and eggs.

"I've joked, 'Did the chickens go on strike?'" she said last week, fresh from a trip to a Berwyn, Ill., supermarket. Nowadays, she's keeping a sharper eye out for bargains on eggs -- and anything else in the grocery aisles.

That's a good idea because U.S. food prices have risen this year at more than twice the rate of 2006, and at a pace not seen since 1990. The outlook isn't any better. Many economists say this year's estimated price increase of about 5 percent could be part of a trend that threatens to ratchet up food costs for years.

That possibility is rooted partly in the rise of ethanol and partly in strong economic growth in developing nations.

The ethanol industry's voracious appetite for corn ripples through the food chain. Take eggs, for instance. Chickens eat corn, and corn prices have shot up as the ethanol business has blossomed.

Meanwhile, consumers in many developing countries are increasingly finding they have more income to buy more food, and relatively more expensive food, like chicken.

If this year's rise in food prices is indeed part of a long-term trend, lower- and middle-income consumers in particular will feel a pinch in years to come. And U.S. economists might have to rethink the way they view food inflation, which is predicated on the view that food price swings are inherently cyclical and therefore less worrisome than long-term changes.

"The days of cheap food may be over," said Benjamin Senauer, co-director of the University of Minnesota's Food Industry Center.

For decades, food price inflation has usually tracked below the general rate of inflation. And when prices do spike, it's usually because of a short-term issue, like a crop failure.

Indeed, bad weather in Australia is a factor in record wheat prices set this year. Other cyclical issues are at work in the current price rise, particularly soaring energy costs. With oil at almost $100 per barrel, food producers face considerably higher costs to make and transport their goods.

The ethanol expansion isn't a short-term trend, and the industry is using about 25 percent of the U.S. corn crop.

"In the U.S., we've had the biggest corn crop we've had in years -- rail cars are backing up -- but we still have corn at over $4 a bushel," Senauer said. That price rarely topped $3 per bushel over the last decade until this year.

"Corn is at the very core of our food system," Senauer said, in everything from animal feed to soda sweeteners.

Soybean acreage shrinks

As corn prices rise, farmers have an incentive to switch to it from other crops, particularly soybeans. And as soybean acreage has declined this year, soybean prices have hit near-record highs, and soybeans are increasingly being used for biodiesel, another fuel.

"We have never used so much food for fuel," said Michael Swanson, an agricultural economist at Wells Fargo in Minneapolis.

Energy needs will increasingly drive food prices, he said. "There's been a sea change, as much at the ethanol people say it's not true."

The ethanol industry adamantly says it's not driving any food price swings. It maintains that soaring energy costs and rising labor expenses are much bigger issues than corn prices, and it notes that corn or any grain tends to account for only a small component in the overall cost of any food product.

"To blame ethanol for moderately rising food prices is disingenuous at best," said Matt Hartwig, a spokesman for the Renewable Fuels Association, the industry's trade group. "It's a terribly simplistic look at a complex issue."

Adding to that complexity is the growing global demand for food as incomes rise. China and India's rapidly expanding economies get the most attention, but the last five years have been some of the best ever economically in developing nations across the globe, Senauer said.

cont'd

"When people's incomes start to rise, one of the first things they want to spend more money on is better food," he said. "They diversify their diets, and in most cases than means more animal proteins."

Grains, of course, are critical to animal feed. And global grain stocks are being squeezed by the growing demand for food: This year's high corn and wheat prices occurred despite bumper crops.

Food inflation has been a hot issue across the world in 2007, with the term "agflation" often used to describe it in the European press. It has been less of an issue in this country, at least partly because Americans spend less of their budget on food than the rest of the world.

In the U.S. last year, 5.8 percent of household consumption expenditures were allocated to food eaten at home, according to the Department of Agriculture. That compares with 8.7 percent in the United Kingdom, 13 percent in France and 27.8 percent in China.

"We have a fairly affordable food basket in this country," said Paul McNamara, a professor in the University of Illinois' Department of Agricultural and Consumer Economics. "If prices rise, say, 5 percent, rather than 3 percent, it's not the kind of thing where we will be making huge changes."

Still, sustained food price increases likely would affect consumer behavior in the long run, he said. And this year's upswing probably is having an immediate effect on consumers with moderate incomes, he added.

That's the case for Gwendolyn E. Williams of Chicago. "It's hard on seniors with a fixed income, very hard," she said after shopping this week at a Berwyn supermarket.

Williams, 74, said higher prices have changed her shopping habits. For instance, she has bought more powdered milk and powdered eggs this year rather than the fresh varieties. Milk prices have, on average, risen 11 percent this year over last year, while egg prices have soared 29 percent.

Food outside core index

There's a twist to the way food prices are viewed on Main Street and Wall Street.

To the average household, food and energy prices are the most closely watched costs, Senauer said. To economists and the Federal Reserve, they are secondary, non-core aspects of the consumer price index.

Food and beverage costs rose 4.7 percent in November compared with the same month last year, but the core CPI index rose only 2.3 percent during the same time. The core index guides U.S. policies on inflation and gets the most attention in financial markets.

That's because, historically, swings in non-core prices have been short term and cyclical. Thus, they will reverse themselves without requiring any inflation policy shift, or so the idea goes. But if increasing food prices or soaring energy costs become long-term trends, that idea would be weakened.

"It doesn't make sense when you are dealing with structural changes," Senauer said.

Avery Shenfeld, an economist at CIBC World Markets in Toronto, agreed.

"The Fed's focus on core CPI ... made sense in a world in which gasoline or food prices went up and came back down," he wrote in a recent research note.

But if food price increases were not considered cyclical, the way Canada and other countries look at food costs makes more sense. Canada and Australia include foods other than fresh produce in their core measure of inflation, Shenfeld wrote. In Europe, inflation policymakers also take food into account more than in the United States, he wrote.

Delinquencies on Car and Home Equity Loans Hit the Highest Point Since 2001

Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home equity loans, climbed in the summer to their highest point since the country's last recession in 2001.

The American Bankers Association reported Thursday that the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001, when the economy was suffering through a recession.

Payments are considered delinquent if they are 30 or more days past due. The survey is based on information supplied by more than 300 banks nationwide.

Late payments on credit cards, meanwhile, dipped during summer.

The delinquency rate on credit cards dropped to 4.18 percent in the third quarter, down from 4.39 percent in the second quarter.

The association's quarterly survey of consumer loans painted a mixed picture of how people are managing their debt. It suggested that some people feel more squeezed than others.

A severe housing slump and weaker home values have clobbered some homeowners -- making it difficult, or even impossible for some to pay their monthly mortgages. Foreclosures surged to record highs and more homeowners fell behind on their payments during the third quarter of last year, the Mortgage Bankers Association reported last month.

A drop in home prices left some people stuck with balances on their home mortgages that eclipsed the worth of their home. Others got burned when low introductory rates on their mortgages jumped to much higher rates, which they couldn't afford.

"Consumer loans directly related to the housing market were hit the hardest," said James Chessen, chief economist at the American Bankers Association. "We anticipate delinquency rates will continue to rise on these types of loans in the fourth quarter of 2007, reflecting continued weakness in the housing sector."

Late payments on home equity lines of credit jumped to 0.84 percent in the third quarter. That was up from 0.77 percent in the second quarter and was the highest since the final quarter of 1997. The delinquency rate on home-equity loans in the third quarter rose to 2.28 percent, a two-year high.

Meanwhile, the delinquency rate on "indirect" auto loans -- which are arranged through dealerships -- jumped in the third quarter to 2.86 percent, a 16-year high.

Citi loses almost $10 billion
Largest quarterly deficit in bank's 196-year history

Citigroup Inc. lost almost $10 billion in last year's final three months, the largest quarterly deficit in the bank's 196-year history, and slashed its dividend as it recorded a mammoth write-down for bad bets on the mortgage industry.

The nation's largest bank wrote down the value of its portfolio by $18.1 billion. It also boosted loan-loss reserves by $4.1 billion, signaling further problems in its consumer businesses as deflated home prices, high energy and food costs, and rising unemployment weigh on people's ability to make their loan payments.

To bolster its capital, the bank also said Tuesday it has lined up $12.5 billion in new investments from sovereign wealth funds and existing shareholders.

That includes $6.88 billion from the Government of Singapore Investment Corp. for a 4 percent stake. Other investors were Capital Research Global Investors, Capital World Investors, the Kuwait Investment Authority, the New Jersey Division of Investment, shareholder Prince Alwaleed bin Talal of Saudi Arabia and former chief executive Sanford Weill and his family foundation.

The $12.5 billion in fresh equity adds to the $7.5 billion that Citi got in November from the Abu Dhabi Investment Authority in exchange for a 4.9 percent stake in the company.

Citigroup's shares, which were trading around $55 a year ago, fell 70 cents to $28.36 in premarket trading on Tuesday.

The financial services company made no mention in its earnings report about job cuts beyond the 17,000 announced in the spring, a disappointment to some investors who were looking for a big downsizing. That means Chief Executive Vikram Pandit, who replaced Charles Prince in December, hasn't yet decided whether any of the global bank's core operations need to be cut or sold.

Pandit, calling the fourth-quarter results "clearly unacceptable," said in a statement Tuesday that "in an uncertain environment, these actions put us on our 'front foot,' focused on capturing opportunities that earn attractive returns for our shareholders."

The loss for the quarter totaled $9.83 billion, or $1.99 per share, compared with earnings of $5.13 billion, or $1.03 per share, during the same quarter a year earlier. Citigroup's revenue fell to $7.22 billion, down 70 percent from $23.83 billion in the final quarter of 2006.

Citigroup said the 41 percent cut in its quarterly dividend to 32 cents a share from 54 cents—along with the Asian investments and a stock offering of about $2 billion—will help boost its Tier 1 capital ratio, a measure of its financial strength.

Financial companies have been the highest dividend-paying sector in the stock market, but many—including Washington Mutual Inc., National City Corp. and the government-sponsored lenders Freddie Mac and Fannie Mae—have pared those payouts in recent months.

Citigroup's decision to cut its dividend and seek new cash from outside investors was widely anticipated on Wall Street after months of scrutiny over the bank's deteriorating operations. The biggest was Citigroup's bad bets on mortgage-backed bond instruments called collateralized debt obligations. It also was forced to bring $49 billion in hemorrhaging funds known as structured investment vehicles onto its books.

Over the past several weeks, Asian funds have been buying up the battered stocks of struggling U.S. banks. Early Tuesday, Merrill Lynch said it will receive a total of $6.6 billion from the Korean Investment Corp., Kuwait Investment Authority and Japan's Mizuho Corporate Bank—in addition to the $4.4 billion it has already gotten from Singapore's state-run Temasek Holdings.

Pandit said Citigroup would continue to sell off "non-core" assets. The bank has already sold shares in Redecard, a card business in Latin America, and an ownership interest in a unit of the Japanese brokerage Nikko Cordial it bought last year.

Citigroup's $18.1 billion writedown was significantly wider than the $6 billion writedown it took in the third quarter last year, and bigger than the $8 billion to $11 billion it guessed in October that it would take for the fourth quarter.

Citigroup said as of Dec. 31, it had a total of $37.3 billion in direct subprime mortgage exposure, down from $54.6 billion three months prior.

Wholesale prices rise 6.3%
Increase in 2007 was largest in 26 years

Wholesale inflation last year shot up by the largest amount in 26 years while retailers suffered their worst December shopping season in five years as mounting economic woes caused consumers to put away their wallets.

The Labor Department reported that wholesale inflation was up 6.3 percent for all of 2007, reflecting a huge increase for the year in various types of energy costs ranging from gasoline to home heating oil.

Meanwhile, retail sales fell by 0.4 percent in December, the worst showing in six months, the Commerce Department reported. Consumer confidence has plunged, reflecting the worsening housing slump and a lingering credit crisis.

For inflation, the year ended on a more positive note, with wholesale prices falling by 0.1 percent in December. That reflected decreasing costs last month for gasoline and other energy products. It was a significant slowdown after prices had soared by 3.2 percent in November, which had been the biggest one-month increase in 34 years.

The combination of rising inflation pressures and a weak economy represent a dilemma for the Federal Reserve over whether to cut rates to boost economic growth even at the risk of making inflation worse.

Federal Reserve Chairman Ben Bernanke last week sent a strong signal that the Fed is more worried at the moment about weak growth than inflation—given a series of weaker-than-expected data in recent weeks.

The economy skidded to a virtual standstill in the final three months of last year, raising fears the country could fall into a recession, unable to withstand the multiple blows from the prolonged downturn in housing, a severe credit crisis and soaring energy costs.

Already, unemployment is rising. The jobless rate jumped to 5 percent in December, up from 4.7 percent in November. That was the biggest one-month surge in unemployment since October 2001 in the wake of the 2001 terrorist attacks.

The various economic threats have sent consumer confidence plunging and pushed the economy to the top of voters' concerns. Political leaders have responded, with President Bush, Democrats in Congress and presidential candidates from both parties putting forward economic stimulus proposals.

The 6.3 percent increase in the Producer Price Index, which measures cost pressures before they reach the consumer, followed a much more moderate 1.1 percent increase in 2006.

It was the biggest annual price gain since a 6.3 percent rise in 1981, a year when the Federal Reserve was aggressively raising interest rates in a successful effort to combat a decade-long bout of stagflation, rising inflation in conjunction with weak economic growth.

The big increase last year reflected the fact that energy prices rose by 18.4 percent after having declined by 2 percent in 2006. It was the biggest annual increase in energy costs at the wholesale level since they rose by 23.9 percent in 2005.

However, core inflation, which excludes energy and food, was better behaved, rising by 2 percent last year, the same as in 2006. The Fed is closley watching core prices for any signs that the price pressures being seen in energy and food are starting to spread to other parts of the economy.

For December, the 0.1 percent drop in overall prices reflected a 1.9 percent plunge in energy and a 1.3 percent rise in food costs. Outside of food and energy, core inflation posted a moderate 0.2 percent increase.

Newest junk bonds:
U.S. Treasuries?
Medicare, Social Security pose
threat to American debt rating

U.S. Treasuries should be downgraded to junk bond status, not given a "triple-A" government rating, economist John Williams says, supporting a warning issued by Moody's last week that the credit rating of the U.S. government may be plunging in the next decade.

The issue surfaced recently when Reuters published a Moody's warning that in the next 10 years, the credit rating of the United States is at risk of being dropped below triple-A.

"We decided to raise the flag," Tom Lemmon at Moody's told WND, "because the underlying credit rating of the U.S. government faces the risk of downgrading in the next 10 years if solutions are not found to our growing Medicare and Social Security unfunded obligations."

Williams, author of the Internet newsletter ShadowGovernmentStatistics.com, said the credit-rating problem is immediate, not long-term.

"The U.S. Treasury is currently issuing 10-year notes and 30-year bonds," Williams pointed out. "Yes, the U.S. government can always print money, but the question is whether the investors buying these Treasury securities will get paid off when they get their money back."

Williams fears the U.S. is going through a period of "stag-flation," marked by a combination of slower economic growth accompanied by inflation, an economic condition the United States has not faced since the Carter administration and the 1970s.

Additionally, the declining value of the dollar means holders of long-term U.S. Treasury securities are likely to be paid off in dollars of considerably reduced value, compared to the value of the dollar at the time the securities were purchased.

"The total unfunded debt obligations for the federal government, including the net present value of the future Medicare and Social Security unfunded obligations, is now nearly $60 trillion," Williams told WND. "This is more than five times the total Gross Domestic Product of the United States."

"A ratio of 5-to-1 of unfunded debt obligations to GDP is more typical of third-world country than a triple-A rated country, such as the United States is supposed to be," he said.

The credit rating of the United States is critical because the federal government relies on sales of Treasury notes and bonds to finance federal deficits.

U.S. government securities rated as junk bonds will be much more difficult to sell to investors including foreign governments, with the result the bonds will be more expensive for the U.S. to issue, requiring much higher payouts to induce investors and foreign governments to take the added risk of repayment.

"The Bush administration has not succeeded with plans to reform Social Security and has not made serious proposals concerning Medicare, other than to add on a prescription drug benefit," the Moody's Sovereign Credit Analysis for the United States noted last week.

The Democrats taking control of Congress in the November 2006 mid-term elections "ended the prospect of major policy initiatives by the current administration," the Moody's report concluded.

Nor was Moody's confident Democratic presidential candidates had the political will to make the needed reforms to Medicare and Social Security, especially since Hillary Clinton, Barrack Obama and John Edwards have all promised various forms of universal health care which would increase costs by giving government-funded health care to those now uninsured.

Medicare and Social Security had been cited as the largest threats to the long-term financial health of the United States and to the government's triple-A rating, Moody's analyst Steven Hess told Reuters, as Moody's issued the report.

The General Accountability Office has also pushed the same alarm button.

David Walker, Comptroller General of the United States, has warned Congress the federal government's unfunded liabilities in light of growing Medicare and Social Security obligations soon to be due retiring baby boomers was $53 trillion as of Sept. 30, 2007. That was up from $20 trillion as of Sept. 30, 2000, some eight months after George W. Bush took office.

As WND previously reported, the Treasury Department's annual GAAP-accounted 2007 Financial Report of the United States Government suggested the real 2007 federal budget deficit was $4 trillion, not $163 billion previously reported by the Bush administration on a cash accounting basis.

The calculations in the Treasury's 2007 financial report are calculated on a Generally Accepted Accounting Practices basis that includes year-for-year changes in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare.

Under cash accounting, the government makes no provisions for the future Social Security and Medicare benefits in the year in which those benefits accrue.

The approximately 76 million U.S. citizens born between 1945 and 1964 represent some 28 percent of the U.S. population. In 2008, baby-boomers born in 1946 will be able to receive their first Social Security payments, if they opt for early retirement at age 62.

"Simply said, holding revenues constant, required Medicare, Medicaid, and Social Security spending and the related deficit financing costs will far exceed the Government's ability to pay," the Citizens' Guide to the 2007 Financial Report of the United States Government concluded.

"The spending for social insurance programs," the Treasury’s Citizen Guide continued, "is projected to grow at an alarming rate under current law."

The concern about the debt rating of the U.S. makes more problematic the future payment of Medicare, Medicaid and Social Security obligations that today are being accrued by about-to-retire baby boomers.

As the 2007 Financial Report of the United States Government pointed out future Medicare, Medicaid and Social Security obligations are dramatically unfunded at current obligation levels.

Moreover, the future obligations due retiring baby boomers will have to be paid by a smaller group of U.S. workers who will have to pay higher yields to sell downgraded, possibly junk-bond rated U.S. Treasury debt to attract potential buyers, the critics said.

Consumer spending slowdown deepens
'When all is said and done, we have probably entered into a recession'

More evidence of a dramatic slowdown in consumer spending surfaced Monday, as Sears Holdings Corp. warned that a drop in sales would result in a profit shortfall and the world's largest retail trade group issued a downbeat sales forecast for 2008.

Shares dropped among retailers from jewelry chain Zales Inc. to Saks Inc., which operates luxury retailer Saks Fifth Avenue, as the spending malaise appeared to deepen and spread beyond lower and middle-income shoppers to more affluent consumers. The decline in retailers' stocks continued a yearlong downward trend.

Consumer spending, which accounts for two-thirds of the nation's economic activity, had been showing resilience even as gas prices rose and the housing market fell. But recent data point to a sharper pullback, a trend that may tip the economy into recession.

American Express Co., whose customers are generally affluent, said Thursday it expects slower spending and more missed payments on credit card bills to hurt its profit throughout 2008. Upscale jewelry retailer Tiffany Co. cut its 2007 profit outlook on Friday as it reported a 2 percent decline in same-store sales, or sales at stores opened at least a year, during the holiday period.

On Monday, Sears Holdings, which owns Sears and Kmart stores, blamed growing competition, the housing market slump and consumers' credit fears for sales figures that were expected to slash fourth-quarter profit by as much as 57 percent from the year-ago period. Meanwhile, the National Retail Federation predicted retail sales in 2008 will grow at the weakest pace in six years.

The reports come on the heels of sales reports Thursday by major retailers that showed the weakest holiday period since 2002.

"When all is said and done, we have probably entered into a recession. The weakness in the holiday season was the tipping point," said Carl Steidtmann, chief economist at Deloitte Research, who forecasts a decline in consumer spending that takes inflation into account in coming months. It would be the first since 1991, when the savings and loans crisis precipitated a recession.

Steidtmann noted that rising employment and incomes had helped offset surging gasoline prices and mortgage payments, but with the job market showing signs of faltering, shoppers are losing their nerve. On Jan. 4, the Labor Department said hiring practically stalled in December, driving the nation's unemployment rate to a two-year high of 5 percent. For all of 2007, wages increased 3.7 percent, less than the 4.3 percent gain in 2006.

"Consumers are feeling very pinched," Steidtmann added. He said signs the "aspirational luxury" customer is retrenching are disconcerting, though the super wealthy are still spending. Any retrenchment of the affluent has negative consequences not only for stores, but for the boating industry and other luxury sectors, he said.

Some economists, including Rosalind Wells, are not predicting a recession but acknowledge a slowdown.

"The consumer is full of anxiety," said Wells, chief economist at the National Retail Federation, which said total retail sales are slated to grow 3.5 percent in 2008. That's below last year's estimated 4 percent pace and marks the weakest growth since 2002, when retail sales climbed 3 percent. The retail sales figure excludes automobiles, gas stations and restaurants. The final 2007 figure will not be known until Tuesday, when the Commerce Department is slated to report December's total retail sales figures.

Wells believes that further interest-rate cuts, along with a stimulus package from the government, could improve spending in the second half. Still, the worry is that such moves may help the economy, but they could be too late to make shoppers spend again.

Clearly, the holiday season showed shoppers are so financially squeezed, they are not only trading down to cheaper stores such as wholesale clubs but to cheaper brands within stores. Drug store chain Walgreen Co. reported early this month that shoppers are gravitating toward store label brands as they look for value. Grocery chain Supervalu Inc. reduced its full-year profit outlook last week, saying shoppers are focusing on its cheaper brands.

"I don't care whether the economy is in a recession, the consumer is in a recession," said Patricia Edwards, a retail analyst with Wentworth, Hauser and Violich. "When you are not buying name-brand cough syrup, something is going on."

Investors are becoming pessimistic, pushing down stocks among a wide variety of retailers Monday. While Saks' shares rose less than a penny, to $15.94 in trading Monday, Sears' stock plunged 5 percent, or $4.79, to $91.38. Zales' shares fell almost 5 percent, or 64 cents, to $13.08 in Monday trading. The Dow Jones index that tracks retailers' stocks fell about 9 percent in the past month and has fallen 9 percent in the past year.

Edwards and other analysts believe that stores' woes will translate to closings and reduced expansions. She expects mall-based apparel chains such as Gap Inc. and Chico's FAS Inc. to close some stores, while big department chains—including J.C. Penney Co. and Kohl's Inc.—will probably pare their growth.

As for Sears, Edwards noted its future looked more uncertain.

"It's not a fierce enough competitor to make it big" in this economic climate, she added.

Dollar near record low
To within 1 cent of its all-time bottom versus euro

The dollar fell to within a cent of its all-time low versus the euro on speculation U.S. interest rates will drop below those of the 15 nations that share the single European currency for the first time in three years.

The U.S. currency extended three weeks of declines as Federal Reserve officials including Chairman Ben S. Bernanke signaled last week they favor greater ``insurance'' against an economic slowdown amid the slump in the housing market. European Central Bank council member Klaus Liebscher said today he sees ``significant'' upside risks to inflation.

``Interest rates in the U.S. are falling below those in Europe,'' said David Watt, a senior currency strategist at RBC Capital Markets Inc. in Toronto, a unit of Canada's biggest bank by assets. ``There are few reasons to buy the dollar.''

The dollar fell to as low as $1.4915 against the euro, the weakest since declining to a record low of $1.4967 on Nov. 23, and traded at $1.4870 as of 4:02 p.m. in New York, from $1.4776 on Jan. 11. It depreciated to the lowest since Nov. 27 against the yen, trading as low as 107.37 yen, before rebounding to 108.19. Watt said the dollar could weaken to $1.50 per euro this week.

The euro was little changed against the yen at 160.89, from 160.79 on Jan. 11.

Dollar's Decline

The U.S. Dollar Index traded on ICE Futures in New York, which tracks the dollar against six major currencies, touched 75.361, the lowest since Nov. 29. The index fell to 74.484 on Nov. 23, the weakest since the gauge started trading in 1973.

The U.S. currency may fall to $1.55 per euro by the end of the first quarter, London-based Bilal Hafeez, global head of currency strategy at Deutsche Bank AG, the world's largest foreign-currency trader, said in an interview. That compares with a median forecast of $1.47, compiled by Bloomberg from reports by 47 strategists and economists.

The Fed has lowered benchmark borrowing costs by 1 percentage point to 4.25 percent since September while the ECB has increased rates eight times to 4 percent since November 2005. The ECB kept rates unchanged on Jan 10. The euro has risen 15 percent in the past 12 months against the dollar.

Fed funds futures contracts on the Chicago Board of Trade show 52 percent odds the Fed will cut its target rate for overnight bank loans to 3.75 percent at its Jan. 30 meeting. The odds have risen from no chance a month ago. The odds of a decrease to 3.5 percent are 48 percent, compared with zero a week ago.

Yield Spread

The yield spread between German two-year notes and same- maturity Treasuries was 1.13 percentage points, near the widest since November 2002. The ECB is under pressure to keep interest rates unchanged even as inflation of 3.1 percent last month was above its 2 percent ceiling.

Investment banks including UBS AG, the world's second- biggest currency trader, and New York-based Goldman Sachs Group Inc. cut their dollar forecasts last week.

The euro strengthened after reaching a record against the currencies of the region's 24 biggest trading partners. It advanced against all but six of the 16 most-active currencies today. The single currency also climbed to a record 76.08 British pence and was recently at 76 pence, from 75.52 pence on Jan. 11.

The pound declined against 15 of the 16 major currencies even as a report showed U.K. factories increased prices at the fastest annual pace since 1991 in December.

Bank of England

Traders bet the Bank of England will cut interest rates from 5.5 percent to 4.75 percent by September, according to the September 90-day sterling interest-rate futures traded in London. The contract yielded 4.74 percent today, down from 5 percent on Dec. 31.

The common European currency extended gains against the dollar after rising beyond $1.4825 and $1.4850, where orders to buy the euro were placed, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York, the world's largest custodial bank with over $20 trillion in assets under administration. Traders sometimes use automatic instructions to limit losses in case bets go the wrong way.

``Some suggested that it was an Asian trade based on the rumor that the Fed will do an inter-meeting cut today,'' Woolfolk said. ``The expectations of the Fed's interest-rate cuts are undermining the dollar.''

The dollar fell against all 16 most-active currencies before a Commerce Department report economists in a Bloomberg News survey say will show retail sales were unchanged in December. The data will be released tomorrow.

Swiss Franc

The Swiss franc rose to a record against the dollar and the strongest in five months versus the euro as the risk of European companies defaulting on their debt rose, prompting investors to unwind carry trades. The franc gained to as high as 1.0886 per dollar.

``Traders are expecting this week's data to be pretty weak, supporting much more aggressive actions from the Fed,'' said Kathy Lien, chief currency strategist at DailyFX.com in New York.

The Fed is ``ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks,'' Bernanke told the Women in Housing and Finance and Exchequer Club in Washington on Jan. 10.

The dollar also fell against the yen as one-month implied volatility for yen options against the dollar rose to 13.45 percent from 12.13 percent on Jan. 11. Higher volatility may deter so-called carry trades funded in yen as it exposes the bets to greater exchange-rate fluctuation risks.

In carry trades, investors borrow in countries with lower interest rates and invest in those with higher rates, earning the spread between the two. The risk is that currency moves erase those profits. Japan's 0.5 percent interest rate is the lowest among industrialized nations.

Asian stock markets plunge

Asian markets plunged Wednesday on growing speculation the U.S. economy- a vital export market- is sliding into a recession that could lead to a global slowdown.

Investors dumped stocks after an overnight sell-off on Wall Street and on news that Citigroup Inc. had lost nearly US$10 billion in the fourth quarter as it wrote down mountains of bad mortgage assets _ the latest fallout from the credit crisis. Weak U.S. retail sales figures also added to the gloom.

"American financial mismanagement has brought us to this economic meltdown," said Francis Lun, a general manager at Fulbright Securities in Hong Kong. "Asian stock markets are all suffering; nobody has escaped."

In Hong Kong, the benchmark Hang Seng index sank 5.4 percent to 24,450.85, while Tokyo's Nikkei 225 index fell 3.4 percent to close at 13,504.51 points, its lowest in more than two years.

Markets in Australia, China, India, South Korea, New Zealand and the Philippines also dropped sharply on worries about slower growth in the U.S. and uncertainty about the extent of the subprime mortgage crisis.

Concerns about the U.S. financial system were also felt in the currency market, which sent the U.S. dollar below 106 yen, its lowest since May 2005.

Investors saw more damage from the credit crisis when Citigroup said Tuesday it had written down $18.1 billion in bad assets. That help send the Dow Jones industrial average down 277 points, or 2.2 percent, to 12,501.11.

"The fallout from the Citigroup result is significant, with many saying ... there is more bad news to come," said Trent Muller, an ABN Amro Morgan analyst in Sydney. "We will see a bit of panic selling with a lot of investors taking cash off the table today."

There is also growing fear that the Federal Reserve hasn't done enough to keep the U.S. economy going. The central bank has lowered its key interest rate by a full percentage point to 4.25 percent since early August.

Now many investors and analysts believe the Fed will cut rates by a half-point at its Jan. 29-30 meeting.

But some believed the concerns about the U.S. economy were overblown.

However, Ernie Hon, a strategist with ICEA Securities in Hong Kong, said he expected any U.S. economic slowdown would be temporary and have limited impact on Asia. Strong demand from within Asia and the Middle East would offset slowing demand from the U.S., he said, blaming the market drop on investor jitters.

"The recession will only last for one to two quarters because the U.S. will continue to cut rates and inject money into its banking system," he said.

Still, in Tokyo, the region's biggest market, worries about the yen's appreciation contributed to big declines in major Japanese exporters Honda Motor Co., which shed 4.9, and Sony Corp., which plunged 6.8.

In China, the benchmark Shanghai Composite Index fell 2.8 percent to 5,290.60. The index has gained 0.6 percent since the beginning of the year, compared with losses in most other Asian markets.

"The U.S. market certainly influenced mainland Chinese markets due to its impact on Hong Kong shares. That's the main reason for today's decline," said Peng Yunliang, a senior analyst at Shanghai Securities.

But the impact is mainly limited to major bank and insurance companies whose shares are listed in both Shanghai and Hong Kong. Overall, China's share prices have strong support from domestic demand, she said.

"Other stocks like pharmaceuticals, energy, resources and tourism are all continuing to gain thanks to strong demand," Peng said.

Bush calls for $145 billion stimulus package
President sees tax rebates as priority

President Bush on Friday called for about $145 billion worth of tax relief and other incentives to stimulate a sagging economy and fend off a possible recession. He said a growth package must include tax incentives for business investment and “direct and rapid” tax relief for individuals.

Bush said that to be effective, an economic stimulus package would need to roughly represent 1 percent of the gross domestic product — the value of all U.S. goods and services and the best measure of the country’s economic standing. White House advisers say that, in current terms, 1 percent would amount to around $145 billion, which is along the lines of what private economists say should be sufficient to help give the economy a short-term boost.

“Letting Americans keep more of their money should increase consumer spending,” he said.
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Bush said that Congress should work as soon as possible to send him legislation to “keep our economy growing and creating jobs.”

The president and Congress are scrambling to take action as fears mount that a severe housing slump and painful credit crisis could cause people to close their wallets and businesses to put a lid on hiring, throwing the nation into its first recession since 2001.

“This growth package must be big enough to make a difference in an economy as large and dynamic as ours, which means it should be about 1 percent of GDP,” Bush said. He said the package should be built on “broad-based tax relief” that will directly affect economic growth.

Federal Reserve Chairman Ben Bernanke entered the stimulus debate Thursday, endorsing the idea of putting money into the hands of those who would spend it quickly and boost the flagging economy.

The scramble to take action came as fears mounted that a severe housing slump and a painful credit crisis could cause people to clamp down on their spending and businesses to put a lid on hiring, throwing the country into its first recession since 2001.

The president did not push for a permanent extension of his 2001 and 2003 tax cuts, many of which are due to expire in 2010, officials said. That would eliminate a potential stumbling block to swift action by Congress, since most Democrats oppose making the tax cuts permanent.

White House counselor Ed Gillespie said Friday on CNN the White House would still like to see the tax cuts made permanent, but the president believes a stimulus plan needs to be put into place within the next few weeks.

Bernanke voiced his support for a stimulus package in an appearance before the House Budget Committee. He stressed that it must be temporary and must be implemented quickly — so that its economic effects could be felt as much as possible within the next 12 months.

“Putting money into the hands of households and firms that would spend it in the near term” is a priority, he said.

Especially important is making sure a plan can put cash into the hands of poor people and the middle class, who are most likely to spend it right away, he said, though he added that research shows affluent people also spend some of their rebates.

Bernanke declined to endorse any particular approach, but he did say he preferred one that would not have a long-term adverse impact on the government’s budget deficit.

Senior aides to House Democrats and Republicans said in addition to included tax rebates for individuals, the emerging measure would contain tax breaks for businesses investing in new equipment, increases in food stamps, and higher unemployment benefits. They spoke on condition of anonymity, since the talks are ongoing and lawmakers have promised not to reveal details.

House Speaker Nancy Pelosi said she wanted legislation enacted within a month and said the government must “spend the money, invest the resources, give the tax relief in a way that again injects demand into the economy, puts it in the hands of those who need it most and into the middle class ... so that we can create jobs.”

For now, Bernanke was hopeful the country could skirt a dangerous downturn.

“We’re not forecasting recession but, rather, at this point, slow growth,” he told lawmakers. Still, the toll of the housing and credit debacles will be felt into early next year, he added.

US recession fears sink global markets

Asian and European stock markets plunged Monday following declines on Wall Street last week amid investor pessimism over the U.S. government's stimulus plan to prevent a recession.

India's benchmark stock index tumbled 7.4 percent, while Hong Kong's blue-chip Hang Seng index plummeted 5.5 percent to 23,818.86, its biggest percentage drop since the Sept. 11, 2001, terror attacks.

Investors dumped shares because they were skeptical that an economic stimulus plan President Bush announced Friday would shore up the economy, which has been battered by housing and credit problems. The plan, which requires approval by Congress, calls for about $145 billion worth of tax relief to encourage consumer spending.

Concerns about the outlook for the U.S. economy, a major export market for Asian companies, has sent the region's markets sliding in 2008. Just last Wednesday, the Hang Seng index sank 5.4 percent.

"It's another horrible day," said Francis Lun, a general manager at Fulbright Securities in Hong Kong. "Today it's because of disappointment that the U.S. stimulus (package) is too little, too late and investors feel it won't help the economy recover."

Japan's benchmark Nikkei 225 index slid 3.9 percent to 13,325.94 points, its lowest close in more than 2 years. China's Shanghai Composite index plunged 5.1 percent.

The sell-off continued in Europe. Germany's DAX was down 4.2 percent in morning trading, France's CAC 40 slid 4.7 percent, while Britain's FTSE 100 dropped 3.6 percent.

"People are certainly nervous about a potential recession in the U.S. spilling over to the rest of the world," said David Cohen, Director of Asian Economic Forecasting at Action Economics in Singapore.

"Maybe there's still some wariness about politicians are able to come up with a compromise and act sufficiently quickly" on a stimulus package, Cohen said. "I think the impact would be marginal anyway."

Investors took cues from the negative reaction to the president's plan on Wall Street on Friday, when the Dow Jones industrial average slid 0.5 percent to 12,099.30, bringing its loss for the year so far to nearly 9 percent.

Traders also have shrugged assurances from Federal Reserve Chairman Ben Bernanke that the U.S. central bank is ready to act aggressively- which means a likely big interest rate cut later this month- to help the sagging economy.

Some analysts predict that Asia won't suffer dramatically from a possible U.S. recession because increased trade and investment within Asia has made the region less reliant on the United States than in the past. Excluding Japan, 43 percent of Asia's exports go to other nations in the region, Lehman Brothers calculates, up from 37 percent in 1995.

But on Monday, uncertainty and pessimism reigned.

In Tokyo trading, exporters got hit hard, partly because of the yen's recent strength against the dollar. Toyota Motor Corp. lost 3.3 percent and Honda Motor Co. sank 3.4 percent.

In Hong Kong, Bank of China dropped 6.39 percent and China Construction Bank slid 7.83 percent.

In Mumbai, India, the benchmark Sensex index fell 1,353 points, or 7.4 percent- its second-biggest percentage drop ever- to 17,605.35. At one point, it was down nearly 11 percent.

The decline hit companies across the board, with power utility Reliance Energy Ltd. falling 16.4 percent. Major software company Tata Consultancy Services Ltd. slid 7.6 percent

"A gloomy U.S. climate has affected the global markets. Even if those markets recover, it will take sometime for the recovery to reach India because today's fall has been so drastic," said Jayant Pai, of the Mumbai investment company IL&FS Ltd.

Still, Pai and others suggested that the declines could lead to a buying opportunity.

"The sell-off today takes us close to the bottom," she said.

Since the start of the year, Japan's Nikkei index has declined 13 percent, while Hong Kong's blue-chip index is down more than 14 percent. Even China's Shanghai index- which nearly doubled last year- has fallen 6.6 percent since the beginning of the year and nearly 20 percent from its all-time closing high on Oct. 16.

Holiday saves
U.S. markets
Black Monday meltdown in Asia,
Europe spells worsening $ crisis

European, Asian markets suffer worst losses since 9/11
Investors skeptical of efforts by Bush, Fed to bolster U.S. economy

European and Asian stock markets followed Wall Street's declines with major losses, including Hong Kong's biggest drop since the 9/11 attacks.

Hong Kong's Hang Seng index lost 5.5 percent to 23,818.86; the UK'S FTSE-100 dropped 3.9 percent to 5,673.1; France's CAC-40 Index declined 4.5 percent to 4,861.2, while Germany's lost 5.35 percent to 6,922.7.

India's stock index plummeted 7.4 percent.

U.S. exchanges are closed today for the Martin Luther King Jr. holiday.

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Investors reacted with pessimism to President Bush's economic stimulus plan, which calls for $145 billion worth of tax relief to encourage consumer spending and bolster an economy plagued by housing and credit market problems.

Assurances by Federal Reserve Chairman Ben Bernanke that the U.S. central bank likely will respond with a big interest rate cut also did not impress investors.

The Hang Seng index lost 5.4 percent last week amid concerns about the U.S. economy.

"It's another horrible day," said Francis Lun, a general manager at Fulbright Securities in Hong Kong, according to the Associated Press. "Today it's because of disappointment that the U.S. stimulus (package) is too little, too late and investors feel it won't help the economy recover."

Japan's Nikkei 225 index closed at its lowest mark in more than two years, losing 3.9 percent to drop to 13,325.94 points.

"People are certainly nervous about a potential recession in the U.S. spilling over to the rest of the world," said David Cohen, Director of Asian Economic Forecasting at Action Economics in Singapore.

The Dow Jones industrial average lost 0.5 percent Friday, ending at 12,099.30.

The Dow has dropped nearly 9 percent so far this year.

Experts warn of stock market hysteria
Advise against panic, recommend picking up cheap stocks

Markets crashed all across Europe Monday, with Germany's DAX losing 7 percent of its value. But analysts advise against panic -- in fact, they say, now might be a good time to pick up some cheap stocks.

Five percent, 6 percent, 7 percent: For the German DAX stock market index, Monday was a day of steep falls. A €1 billion loss at the bank WestLB, combined with the fears of a global recession (more...), helped push the DAX beneath the psychologically important 7,000-point mark.

It wasn't just the DAX which was hard hit. London's FTSE 100 index also fell 4.5 percent, while in Paris the Cac-40 dropped 4.6 percent. Elsewhere the Tokyo Nikkei 225 index fell by 3.9 percent. US markets were closed for a public holiday, however.

Is the DAX now set to keep falling? No, say experts. "It looks dramatic at the moment, but it is not as bad as it seems," Matthias Jörss, head of equity strategy at the leading private bank Sal. Oppenheim, told SPIEGEL ONLINE. "We have gotten used to rising prices over the years -- especially in Germany. Now we are simply seeing a correction."

There had been signs that a crisis was looming. Every investor knew that the US mortgage crisis was bound to have consequences -- the only question was when. "At the beginning of the year, the market hid all the risks," says Jörss. "It was clear that things were first going to get worse before they got better."

One should not assign too much significance to the current dip, Jörss advises. Stock prices, he points out, are not entirely rational. "If you go onto the trading floor and spread a rumor about a share price, then everyone will believe you," Jörss says. He believes that a further decline in the DAX to 6,600 points is realistic. "If there is bad news, then it can of course go even lower," he says. "But actually we are considering writing reports which are more positive than negative. We are slowly finding many attractive stocks." In other words, prices are so low that it could be worth investing at the moment.

'We Are Seeing an Avalanche'

The trigger for the market crash was the news from WestLB on Monday morning. Over the weekend, the bank had to admit to a billion-euro capital requirement because of misguided investments on the US mortgage market. "At first they gave the impression that they had nothing to do with the cheap loans in the US -- and then suddenly €2 billion were missing (more...)," chides Jürgen Kurz of DSW, a German association which represents private investors. "That unsettles the market tremendously. The result is panic selling like today." Other banking stocks fell into the downward spiral. "What we are seeing is an avalanche," says Kurz.

The crucial question for investors is: What comes next? Kurz sums up investors' concerns: "Have all the banks revealed all their losses -- or is there still something lurking?"

Nevertheless, Kurz himself appears optimistic. "The situation in the real economy is OK. In addition, there is enough liquidity available, including from, among other sources, sovereign wealth funds." This money is looking for places to invest -- and almost automatically flows into the stock market because of low interest rates.

The DSW therefore advises calm. Private investors could even take advantage of the current stock market trough to slowly start buying shares again. "If you're looking at a time horizon of five to six years, you can't go too far wrong with a solid company," says Kurz. "Weak phases are perfectly suited for investing." Only investors who are absolute pessimists should hold off. "But then you basically shouldn't be buying shares," Kurz says.

Kurz considers banks in particular to be "solid companies" whose share prices will rise again. "Banks will still be around in 30 or 40 years. The existing system cannot get by without them." Of course, banks have a tendency to take high risks, he says. "But the business model in itself works. As soon as the risks are out, the institutions will once again make high profits."

Nevertheless, there are certain lessons which should be learned from the current crisis, says the DSW. "We need more transparency and greater responsibility from boards," says Kurz. In addition, he says, risk management must be improved. "It's not acceptable that a bank can take enormous off-balance-sheet risks within the framework of some kind of special purpose entity. These kinds of bodies should not be allowed to exist." The financial authorities should now introduce a strict regulatory framework, he says.

Emergency rate cut prevents market meltdown
U.S. stocks ease from sharp opening drop after global sell-off

In an emergency move, the Federal Reserve lowered its target rate for federal funds by 75 basis points before the New York Stock Exchange opened this morning, hoping to ease investor fears of recession and prevent yesterday's global stock sell-off from spreading to the U.S.

In the first moments after opening, the Dow Jones Industrial Average plunged more than 460 points, dropping sharply to under 12,000. By mid-morning, however, it was trading down just 57 points.

Overnight, stocks closed sharply down in Asia for the second day in a row.

The Nikkei 225 in Japan closed down 5.7 percent, hitting its lowest level since September 2005.

In Hong Kong, the blue-chip Hang Seng index lost 8.65 percent, to close at 21,757.63.

The Bombay Stock Market in India suspended trading for an hour after investors lost some $160 billion in equity value within moments of opening.

European markets are trading higher following the Fed's rate reduction. Britain's FTSE 100 was up 159 points and Germany's DAX index 71 points.

Central bankers are concerned that the worldwide stock sell-off could trigger a panic. On Wall Street, traders worry the Fed's emergency cut today may have limited its options when the Federal Open Market Committee holds its next scheduled meeting Jan. 31.

Lowering rates will pump more liquidity into the market and may take some pressure off homeowners who could face foreclosure as a result of increases in adjustable mortgage rates.

Still, major banks, such as Citibank, and brokerage firms – including Merrill Lynch, Bear Stearns and Morgan Stanley – have sought foreign capital investors, suggesting the crisis is an asset crisis, not a liquidity crisis.

Mortgage foreclosures have caused Collateralized Loan Obligations, or CLOs, held in bank asset portfolios to experience losses that have negatively impacted bank reserves.

Some analysts believe the global problem may not be too little money available to lend at relatively cheap rates. Instead, it could stem largely from the fraudulent and otherwise under-performing securitized loan obligations that Wall Street created and sold to financial institutions for their asset portfolios when former Federal Reserve Chairman Alan Greenspan held rates at historically low levels following 9/11.

Beginning in January 2001, the Fed under Greenspan cut rates 13 times, taking the discount rate, the overnight bank lending rate, from 6.5 percent to 1 percent in June 2003, a 46-year low.

Greenspan held the discount rate at 1 percent for one year, until June 2004, which many believe was behind the housing bubble that now has burst.

Returning to a 1 percent discount rate environment is now virtually unimaginable, especially after the U.S. Labor Department announced consumer prices rose by 4.1 percent in 2007, the fastest pace in 17 years, with increases spurred by higher gasoline and food prices.

As the Fed eases rates, it's likely the dollar will continue its downward spiral. This morning, the euro was up slightly at $1.4624, gaining fractionally against the dollar.

Bush won't rule out bigger stimulus package
White House may agree to go above $150 billion in economic aid

President Bush won’t rule out the possibility of a larger economic stimulus package than the $150 billion program already outlined to reinvigorate the ailing economy, the White House said Tuesday.

Bush last week offered the outline of a short-term economic boost, but the slumping of the global economic market since then has raised the question of whether he’s willing to broaden the package. Word of the administration’s thinking came on the same day that the Federal Reserve announced a three-quarter percentage point cut in a key interest rate to steady the economy.

Discussing the White House’s options, press secretary Dana Perino told reporters: “I’m not going to close the door, but I’m not suggesting that anyone believes it has to be bigger” than the roughly $150 billion figure already discussed. Later, Perino said that at this point the White House has not “seen higher numbers floated by members of Congress” and that Bush believes the growth package he has outlined is “the right amount.”
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The president last Friday put forward the broad outlines of a stimulus plan that would include tax cuts for individuals and businesses. Bush said any plan, to be effective, would need to represent roughly 1 percent of the gross domestic product, or about $140 billion to $150 billion.

On Wall Street, stocks plunged at the opening of trading, propelling the Dow Jones industrials down about 400 points after the Fed’s announcement of its rate cut failed to assuage investors fearing a recession. U.S. markets joined stock exchanges around the globe that have fallen precipitously in recent days amid concerns that a downturn might spread around the world.

U.S. Treasury Secretary Henry Paulson also welcomed the Fed's hefty interest rate cut.

“This is very constructive and I think it shows this country and the rest of the world that our central bank is nimble and can move quickly in response to market conditions,” Paulson said after the Fed cut the benchmark short-term interest rates by three-quarters of a percentage point.

Bush was meeting with congressional leaders at the White House later Tuesday to discuss details of the economic package, which both sides hope to on quickly.

Perino said the White House is not proposing an even bigger economic package at this point, but she declined to rule one out, either. The sharp decline of markets in the United States and around the globe is tied in part to the perception that Bush’s outlined stimulus package would not do enough to avert a recession.

Perino said the White House does not comment on daily fluctuations in the market. But she did say that people should have confidence in the underlying strength and long-term prospects of the U.S. economy.

“We are not forecasting a recession,” Perino said. “Clearly there is a slowdown.”

Earlier Tuesday, Paulson told the U.S. Chamber of Commerce that Congress and the administration need to agree quickly on a package of tax cuts. “Time is of the essence and the president stands ready to work on a bipartisan basis to enact economic growth legislation as soon as possible,” he said.

The Fed’s decision to slash the federal funds rate — the interest that banks charge each other on overnight loans — was the biggest single cut of its kind in recent memory. The Fed cut the rate to 3.5 percent from 4.25 percent — a move that represented the most dramatic signal it could can send of its concern about a recession. It said “appreciable downside risks to growth remain” and held out the prospect of further rate cuts.

Any compromise stimulus package likely would involve tax rebates, business tax cuts and funding for a Democratic-led call for additional food stamp and employment aid. Paulson said he was optimistic the administration and Congress could “get this done long before winter turns to spring.”

The administration’s initial efforts also failed to reassure global stock markets, which plunged Monday on rising fears that trouble in the U.S. economy could translate into weaker economic activity worldwide. U.S. markets were closed Monday for the Martin Luther King holiday.

Both the White House and leading lawmakers already have displayed flexibility not witnessed last year in battles over spending, taxes and children’s health insurance. Lawmakers appearing on weekend televisions talk shows promised bipartisanship.

Bush has advocated a growth package of about $145 billion, centered on tax cuts for business and rebates for individual taxpayers. He did not announce details, but administration officials are focusing on rebates of $800 to $1,600 for individuals and couples and so-called bonus depreciation to allow companies to deduct 50 percent of business investments made this year. He also supports help for small businesses with more generous write-offs on equipment purchases.

On Capitol Hill, talks between Pelosi and House Minority Leader John Boehner, R-Ohio, have focused on smaller tax rebates of perhaps $500 for individuals, bonus depreciation and small business expensing, as well as Democrats’ call for boosts in unemployment benefits, food stamp payments and the Medicaid health care program for the poor and disabled.

The rush to produce an economic stimulus bill comes as recent data on the economy is increasingly negative and as the issue has become a top priority with voters.

Volatile Dow Jones
ends under 12,000
Emergency Fed rate cut
fails to stop panic selling

The Dow Jones Industrial Average closed sharply down 128.11 points yesterday, closing at 11,971.19, the first time the market has closed under 12,000 since Nov. 3, 2006.

In an emergency move before the New York Stock Exchange opened, the Federal Reserve acted to prevent a market meltdown by lowering its target rate for federal funds by 0.75 percentage points.

The Fed hoped its surprise announcement would ease investor fears of recession and prevent Monday's global stock sell-off from spreading to the United States, as stock markets opened Tuesday for the first time this week following the Martin Luther King holiday.

In the first moments after opening yesterday, the Dow Jones Industrial Average plummeted more than 460 points, recovering to narrow losses midday in a volatile session that ended with yet another triple-digit loss.

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In the worst year's opening in history, the Dow is now down 15.5 percent from the historic market peak recorded less than four months ago, on Oct. 9, 2007, when it closed at an all-time high of 14,164.53.

Investors on Wall Street ended the day nervous, resolved to follow overnight markets in Asia and Europe to see if panic selling has subsided.

Yesterday, the Dow futures ended down 155 points, suggesting that stock markets most likely would open down once again today.

Wall Street traders at the close of the market were already jawboning for another .25 percentage point rate cut on Jan. 31, when the Federal Open Market Committee holds its next scheduled meeting.

Still, a series of rate cuts since the mortgage and credit crisis began late last year have not worked to revive stock markets globally, suggesting the crisis is truly an asset crisis, not a liquidity crisis.

Lowering rates will pump more liquidity into the market and lowering rates may take some pressure off certain homeowners who may be more likely to face foreclosures as a result of increases in adjustable mortgages monthly payments should interest rates remain high.

Still, major banks such as Citibank and brokerage firms including Merrill Lynch, Bear Stearns and Morgan Stanley have sought foreign capital investors, suggesting the crisis is an asset crisis, not a liquidity crisis.

In other words, mortgage foreclosures have caused Collateralized Loan Obligations, or CLOs, held in bank asset portfolios to experience losses that have negatively impacted bank reserves.

The global problem may not be a problem of too little money available to lend at relatively cheap rates.

Instead, the current problem more likely results from the fraudulent and otherwise underperforming securitized loan obligations that Wall Street created and sold to financial institutions for their asset portfolios when former Federal Reserve Chairman Alan Greenspan held rates at historically low levels following 9/11.

Beginning in January 2001, the Fed under Greenspan cut rates 13 times, taking the discount rate, the overnight bank lending rate, from 6.5 percent to 1 percent in June 2003, a 46-year low.

Greenspan held the discount rate at 1 percent for one year, until June 2004, a phenomenon many have credited with creating the housing bubble that has now burst, resulting in the CLO asset crisis we have been experiencing with interest rate increases in the first months of current Fed chairman Ben Bernanke's term.

Returning to a 1 percent discount rate environment is now virtually unimaginable, especially after the U.S. Labor Department announced consumer prices rose by 4.1 percent in 2007, the fastest pace in 17 years, with increases spurred by higher gasoline and food prices.

As the Fed eases rates, the likelihood is that the dollar will continue its downward spiral.

The dollar ended lower yesterday against most major currencies, reflecting the concern of world currency markets that lower U.S. rates would make dollar holdings less attractive across the globe.

Wall Street tumbles for a second day
Investors remain nervous about the state of the economy

Wall Street tumbled again Wednesday in another rocky market opening, with investors uneasy about the health of the economy and corporate earnings after disappointing reports from big names like Apple Inc. and Motorola Inc. Bond prices rose sharply as investors sought the safety of government-backed debt.

Wall Street also fell in tandem with markets in Europe, which pulled back after European Central Bank President Jean-Claude Trichet indicated that the ECB would not follow the Federal Reserve’s lead and cut interest rates, according to Dow Jones Newswires. The Fed’s decision Tuesday to cut its federal funds rate by 0.75 basis points to 3.5 percent eventually helped calm U.S. markets, but it was already clear that investors had doubts about the potency of the Fed action. Rate cuts typically take months to work their way into the economy.

Meanwhile, a disappointing forecast from Apple showed how fragile investor sentiment is.
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The maker of the iPod issued a forecast for its fiscal second quarter that said sales would likely grow by 29 percent. The figure would represent faster growth than in earlier years but fell short of what Wall Street had expected.

Apple’s expectations appeared to confirm worries about consumer spending. As consumers account for more than two-thirds of the economy, investors are keen on learning whether retailers and other companies will have a harder time prying open wallets.

Shares of Apple fell $17.26, or 11 percent, to $138.38.

The Dow Jones industrial average was lately down 115.67 points, or 0.97 percent, having lost over 200 points in the early going. The broader Standard & Poor’s 500-stock index was down 13.42 points, or 1.02 percent, while the Nasdaq composite index dropped 32.22 points, or 1.41 percent.

The decline in stock prices, while substantial, still appeared less than the heavy pressure to sell by the opening bell Tuesday. The Dow fell by as much as 465 points in the first minutes of trading Tuesday, but ended the day down 128.11 points, or just over 1 percent.

Bond prices rose sharply, the beneficiary of investors’ search for safer places for their money. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.32 percent from 3.41 percent late Tuesday. The dollar was mixed against other major currencies.

In afternoon trading in Europe, stocks dropped sharply. Britain’s FTSE 100 fell 3.44 percent, Germany’s DAX index fell 4.76 percent, and France’s CAC-40 fell 4.02 percent.

Light, sweet crude oil fell $1.05 to $88.14 per barrel in premarket electronic trading on the New York Mercantile Exchange.

In other corporate news, Motorola fell $1.98, or 16.1 percent, to $10.34 after reporting its earnings fell sharply in the fourth quarter and the maker of mobile phones warned that the recovery in its struggling handset unit will take longer than expected.

United Technologies Corp., one of the 30 stocks that comprise the Dow industrials, said its fourth-quarter earnings rose 23 percent as sales increased across each of its businesses. The results from the parent of names like Sikorsky and Otis topped Wall Street’s forecast, according to Thomson Financial. The stock fell 70 cents to $66.50.

Delta Air Lines Inc., the nation’s No. 3 carrier, reported it was hampered by high fuel prices in the fourth quarter but was able to post a narrower loss on a solid increase in sales. Delta slid 44 cents, or 3 percent, to $14.41.

While investors worldwide remain concerned about the health of the U.S. economy, the Fed’s rate cut and Wall Street’s ability to come off its lows Tuesday helped drive a rebound in Asian trading Wednesday.

Japan’s Nikkei stock average closed up 2.04 percent after falling 5.7 percent Tuesday. Similarly, Hong Kong’s Hang Seng index surged 10.72 percent, showing its biggest gain in 10 years after falling 13.7 percent in the previous two sessions.

Wall Street surges on wild ride
Major indexes at times were down over 2%

Dow closes up 290 after whiplash session

It started with another stomach-turning drop at the open, and a loss of more than 300 points by midday. Then stocks changed course, raced higher and closed with a dramatic gain of nearly 300.

This wasn’t just volatility. This was Wall Street whiplash.

Amid tumbling housing prices, an ongoing credit crisis and growing fears of a recession, turbulence has become a hallmark of Wall Street in recent weeks. And after five straight days of pullbacks, analysts saw some positive signs in Wednesday’s trading.
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Investors certainly found a reason to buy, perhaps encouraged by the Federal Reserve’s unprecedented 0.75-point interest rate cut a day earlier and a widely held bet on another half-point cut next week.

By day’s end, the Dow had swung 631.86 points from its low point to its high — the largest single-day turnaround in more than five years.

“You might say this is a belated reaction to what the Fed did this week, compounded by hopes for the Fed to do more next week,” said Peter Cardillo, chief market economist at Avalon Partners.

The Dow had plunged more than 465 points just after the opening bell Tuesday as the market digested news of the rate cut. But stocks rallied to finish down just 128, then tacked on a 2.5-percent gain on Wednesday.

The Dow Jones industrial average finished the day up 298.98 at 12,270.17. It had been down 323.29 at its low point.

The swing from negative to positive territory of 631.86 points was the largest point move since July 24, 2002, according to Dow Jones Indexes. The largest intraday point swing, a metric that Dow started calculating in 1995, was a 721-point swing on April 14, 2000.

“Volatility is certainly the norm now and not the exception,” said Art Hogan, chief market strategist at Jefferies & Co.

He noted that all but two trading days this year had seen triple-digit swings in the Dow, three of them 300 points.

On Wednesday, traders who bet on the Fed’s target fed funds rate were pricing in a 100 percent chance of a 0.50-percentage-point cut by the central bank when it meets next Tuesday and Wednesday.

Rate cuts are designed to stimulate borrowing and, in turn, business activity and the overall economy. They also will eventually boost profit margins for banks and other lenders, which have been working to lower costs and raise cash levels through layoffs and stock sales after having lost billions of dollars to bad mortgages and mortgage-related investments. Those companies — including Citigroup Inc., Washington Mutual Inc. and Merrill Lynch — were the big winners Wednesday.

“What has happened is the Fed is flooding the system with liquidity and eventually we should see some traction in the economy. And stocks tend to respond first,” said Steve Goldman, chief market strategist at Weeden & Co.

Still, analysts were mindful that in recent months Wall Street has been known to soar one day and succumb the next, and that there are still many economic unknowns for the market to weather. And, given that stocks are so badly beaten down, bargain hunting played a part in Wednesday’s turnaround.

Before Wednesday’s session, the Dow had fallen nearly 10 percent since the start of the year, and it was down more than 15 percent since its record close of 14,164.53 on Oct. 9.

Broader stock indicators also surged Wednesday. The Standard & Poor’s 500 index rose 28.10, or 2.14 percent, to 1,338.60, while the Nasdaq composite index rose 24.14, or 1.05 percent, to 2,316.41.

Advancing issues outpaced decliners by nearly 3 to 1 on the New York Stock Exchange. Consolidated volume came to a heavy 7.33 billion shares, up from 6.33 billion Tuesday.

Bond prices turned lower as stocks rebounded. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell in earlier trading but then recovered to 3.55 percent, up from 3.41 percent late Tuesday.

At its lowest point Tuesday, the Dow was 17.9 percent below its October closing high, meaning that the stock market has come perilously close to the 20 percent threshold that defines a bear market.

Investors may go into the market to be sure they don’t miss out on a rally — or the gains may be knocked down again.

Wall Street faces several months of uncertainty, with the bulk of fourth-quarter earnings reports still to come and economic reports likely to be disappointing. When it’s more clear companies and consumers are spending freely, investors might relax.

However, with consumers burdened by debt and cutting back spending, it’s impossible to predict when that relief will come.

The dollar was mixed against other major currencies Wednesday, while gold prices fell.

Battered small-cap companies — which rely heavily on borrowing to grow their businesses — got a lift Wednesday. The Russell 2000 index of smaller companies rose 21.86, or 3.26 percent, to 693.43.

Before the turnaround in U.S. stocks, European stocks closed sharply lower on economic worries and escalating uncertainty about the European Central Bank’s willingness to lower rates. Britain’s FTSE 100 closed down 2.28 percent, Germany’s DAX index fell 4.88 percent, and France’s CAC-40 fell 4.25 percent.

In earlier Asian trading, Japan’s Nikkei stock average closed up 2.04 percent after falling 5.7 percent Tuesday. Similarly, Hong Kong’s Hang Seng index surged 10.72 percent — its biggest gain in 10 years — after falling 13.7 percent in the previous two sessions.

Wall Street ends wild week as Soros eyes recession
Billionaire investor wants to see power shift from U.S. to China, developing world

In a wild week on Wall Street that saw an emergency .75 percentage point rate cut by the Federal Reserve, a global stock sell-off and four days of triple digit moves on the Dow Jones Industrial Average, the market ended down another 171 points, to close at 12, 207.

Meanwhile, billionaire investor George Soros, a strong supporter of MoveOn.org and leftist political candidates, threw cold water on the World Economic Forum in Davos, Switzerland, by warning a recession in the U.S. and UK will be hard to avoid.

In a separate interview with the BBC, Soros told reporters he viewed with enthusiasm the prospect that a coming recession could seriously weaken the U.S.

"I'm not looking for a worldwide recession," Soros said. "I'm looking for a significant shift of power and influence away from the United States in particular and a shift in favor of the developing world, particularly China."

At the end of last week, the Dow reflected a precipitous loss of nearly 2,000 points from the all-time market high of 14,165 recorded Oct. 9, just four months ago.

Investors today apparently were not cheered by yesterday's bi-partisan congressional agreement to support the Bush administration $150 billion economic stimulus package. The plan would send tax rebates to 117 million families in an effort to boost consumer spending.

Gold surged once again, setting a new record as benchmark gold futures for February for delivery on the New York Mercantile Exchange's COMEX metal division hit an all-time high of $924.30 an ounce.

Gold ended the day with February futures contracts closing at $914 an ounce on the COMEX, up $ 8.20 on the day.

Yesterday, the dollar struggled, registering slight gains against the euro, ending at 75.99 on the U.S. Dollar Index, up only slightly from the all-time low of 74.48 registered on the index in December.

Much of the debate at the World Economic Forum centered on the question of "decoupling," whether the world economy could disengage from a recession in the U.S. to stay healthy, or whether the ailing American economy would inevitably throw the world into a tailspin.

With annual retail consumption in the U.S. estimated at over $9 trillion, compared to slightly more than $1 trillion in China and India combined, most attendees felt a consequence of the increasing economic globalism could easily be a worldwide recession unless Bush administration stimulus efforts were enough to jumpstart the U.S. economy.

Soros, speaking to reporters in Davos, accused Federal Reserve Chairman Ben Bernanke of acting in a "panicky way," cutting rates as much as .75 percentage points this week, according to the Financial Times.

Still, Wall Street investors at market close today strongly encouraged the Fed to cut rates another .25 percentage points at next week's scheduled meeting of the Federal Open Markets Committee.

Gold prices soar as mines go dark in South Africa
'National electricity emergency': Industry shut down, workers could be trapped underground

The price of gold hit a record high Friday as production ground to a halt in South Africa on the back of a spiralling electricity crisis the government has labelled a national emergency.
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The three main companies operating in a country with a long record as the world's biggest gold producer announced they had suspended production because of unreliable energy supplies.

The world's biggest diamond producer, De Beers, also announced suspension of its operations due to the same problem.

The companies said in separate statements they had been notified by state energy utility Eskom that it could not guarantee supplies to their mines, adding they did not know when operations would resume.

Announcements by Gold Fields, Harmony and AngloGold Ashanti propelled the price of the yellow metal to a record high 923.73 dollars, and that of platinum to 1,701 dollars per ounce.

On the London Bullion Exchange, an ounce of gold was traded at 921.25 dollars in the morning.

Tens of thousands of miners in South Africa were Friday told not to bother reporting for shifts in a move the mining companies said would cost hundreds of millions of dollars in production.

A spokeswoman for Harmony, which operates 22 gold mines and employs 43,000 miners, estimated that around 300 kilogrammes (10,600 ounces) of production would be lost after the morning and afternoon shifts were cancelled.

"That's around 600 million rand (85 million dollars / 60 million euros) in today's market," spokeswoman Amelia Soares told AFP.

Ian Cockerill, chief executive of Gold Fields, which produces about 200 kilogrammes a day, said the situation would "have a serious effect on the South African operations and will negatively affect our gold production."

While mines were earlier plagued by short-term power cuts, Soares said this was the first time they had to cease production for a day.

De Beers' spokesman Tom Tweedy said they have reduced power consumption to a "survival load" which has ceased production from its mines.

Tweedy said they only use "sufficient power to avoid risk to employees and property, and to maintain ... the safe underground working conditions".

"Therefore essential ventilation, pumping and lighting and all safety related services will continue while regular operations will cease," he added.

Large parts of Africa's economic powerhouse have been intermittently plunged into darkness in recent weeks as Eskom imposes planned blackouts to conserve dwindling electricity supplies.

The commercial capital Johannesburg has been hardest hit, and analysts have warned of foreign investors taking flight as everything from factory production to traffic regulation has been affected.

Warning of price hikes and quotas to steady supply ahead of the 2010 football World Cup, Public Enterprises Minister Alec Erwin told journalists demand had to be cut.

"It is the view of cabinet that the unprecedented unplanned power outages must now be treated as a national electricity emergency," he said. This had been caused by poor planning and a sudden shortage of coal.

Erwin said the government would introduce incentives and penalties to encourage consumers to switch to gas and solar energy, as well as energy savings measures.

"It is a reality that there will be further significant increases in electricity prices," the minister said. Approval has already been given for an above-inflation tariff hike of 14.2 percent.

Erwin said there was "no question of stopping" large foreign investment projects and said the 2010 football World Cup should not be adversely affected.

"There is no threat to the successful holding of the event as plans to ensure electricity security in that period are well advanced."

Meanwhile, plans to build new power stations and recommission others would be fast-tracked where possible.

U.S. Treasury accused
of depressing gold price
Group charges feds trying to 'conceal
the mismanagement of the U.S. dollar'

The Wall Street Journal has agreed to publish a full-page ad in which the Gold Anti-Trust Action Committee charges the U.S. government surreptitiously utilizes gold reserves to engage in international swaps and other market manipulations.

"Anybody Seen Our Gold?" is the title of the ad, which alleges U.S. gold reserves held at depositories such as Fort Knox and West Point may have been seriously depleted. GATA asserts U.S. gold reserves are being shipped overseas to settle complex transactions utilized by the Federal Reserve and the U.S. Treasury to suppress the price of the precious metal.

"The objective of this manipulation is to conceal the mismanagement of the U.S. dollar so that it might retain its function as the world's reserve currency," the ad copy reads in a pre-publication version GATA provided to WND.

The U.S. Treasury denies the claim, insisting the stock is accounted for regularly.

GATA's chairman, William J. Murphy III, told WND his group was willing to pay the Wall Street Journal's cost of $264,000 to run the ad "to get the message out that the U.S. enters world markets without public disclosure to prop up the dollar and depress the price of gold."

GATA cites as evidence the Federal Reserve Open Market Committee reports dating back to Jan. 31, 1995, showing the U.S. Treasury Department's Exchange Stabilization Fund had undertaken gold swaps.

GATA, a non-profit 501 headquartered in Manchester, Conn., further asserts the federal government strategy to manipulate the price of gold has begun to fail.

"Gold's recent rise toward $900 per ounce shows that the price suppression scheme is faltering," the GATA ad reads. "When it is widely understood how central banks have been suppressing gold, its price may rise to $3,000 or $5,000 an ounce or more."

"The gold reserves of the United States have not been independently audited for half a century," the ad charges.

The U.S. Treasury disagrees.

"While the entire gold stock is not physically re-counted in any one year, over a period of years, by our continuous sampling process, the entire stock has been counted, and is effectively re-inventoried," Rich Delmar, counsel to Treasury's inspector general, told WND in an e-mail.

Delmar explained that the annual Office of Inspector General audits of mint facilities involves a physical inspection of certain vaults, which are subject to a 100-percent bar count and assaying. At the end of the inspection, each vault is sealed.

"During each visit, all previously sealed vaults are checked to ensure that the seals have not been compromised or tampered with," he wrote. "This process is the basis for the conclusion that there has been a complete physical inventory."

Delmar said the OIG's work consists of more than reviewing documents.

"Our auditors physically observe the inventory work done at the mint facilities, and we are responsible for the assay sampling process," he said.

WND asked the Treasury if there is a comprehensive listing and accounting of any encumbrances or other restrictions on the gold in the U.S. Mint that may affect ownership.

"This is not within OIG's purview," Delmar responded. "You may want to ask the mint directly."

'Dodging the question'

Murphy called the response "ridiculous."

"The mint does not make complex gold transactions with other countries," he said. "That is the role for the U.S. Treasury. The mint just houses the gold. The Treasury is dodging the question."

GATA has filed a Freedom of Information Request asking the Fed and Treasury to disclose information on encumbrances and swapping or leasing of U.S. gold.

"The Fed and Treasury have not even acknowledged receiving our FOIA request," Murphy said. "It's idiotic to tell you that the mint would have that knowledge."

Murphy asked, "Is the gold in the mint truly U.S. gold reserves or is it just 'custodial gold' held for some other country? That's why we need to know what encumbrances there are on the gold as well as whether any U.S. gold has been shipped overseas to fulfill swap obligations."

The 2006 annual report published on the website of the U.S. Mint lists KPMG as outside auditor.

The KPMG signed audit report in the 2006 Annual Report of the U.S. Mint takes full responsibility for auditing the balance sheets and includes a statement of the custodial activity of U.S. gold reserves.

According to the balance sheets, custodial gold and silver reserves make up 90 percent of the U.S. Mint's total assets.

Still, there is no specific statement in the U.S. Mint's annual report or the KPMG audit report describing any KPMG involvement in a physical inspection of the gold reserves.

KPMG's role as independent auditor for the U.S. Mint is also confirmed in the 2006 audit report prepared by the Office of Inspector General of the Treasury.

Dan Ginsburg, a KPMG spokesman, declined to provide any detail to WND concerning his company's audit procedures for the U.S. Mint, citing client confidentiality.

Greater force

Craig R. Smith, founder of Swiss America Trading Corp., told WND he accepts the GATA arguments because "there has to be a force greater than normal market conditions that has repressed the price of gold."

Smith noted any number of financial crises since the late 1980s that "should have propelled gold way beyond the 1980 high of $850," including the savings and loan debacle and the birth of the Resolution Trust Corporation, as well as the on-going devaluation of the U.S. dollar against virtually all major foreign currencies.

"Gold has been playing catch-up with current world economic conditions," Smith told WND in an e-mail, "and future movements should easily prove gold to be a great value at $900 an ounce. That price will look cheap going forward as the world starts to turn its back on debt-laden currencies and returns to money with a real value."

But the U.S. Treasury, in a statement on its website, denies the Exchange Stabilization Fund has been used to manipulate gold prices.

"The ESF does not engage in any transactions in the market for any metal such as gold, either in spot markets or in any of its derivative forms," the Treasury statement declares. "We would like to emphasize that the Treasury Department does not seek to manipulate the price of gold or any other metal by intervening in or otherwise interfering with the market."

Yvanka Wallner, advertising sales representative for the Wall Street Journal in New York City, confirmed to WND the GATA ad has been approved by the Journal's lawyers and is being prepared to be run next week.

Swiss America, a WND advertiser, specializes in investment-quality numismatic gold coins.

Gold yesterday closed at an all-time high of $911 an ounce, up $28, on a weaker dollar and higher oil prices.

Things are sounding pretty bad, and I also, believe there's a lot of manipulation. The economy is going from bad to worse. We've just moved to Florida and the foreclosures and stagnation in the housing market is shocking. Also, the way everything seems to be happening 'in concert' is very disturbing.

This from Bill Koenig:

"Although a recession in the developed world is now more or less inevitable, China, India and some of the oil producing countries are in a very strong countertrend. So, the current financial trend is less likely to cause a global recession than a radical realignment of the global economy, with a relative decline of the US and the rise of China and other countries in the developing world.

The danger is that the resulting political tensions, including US protectionism, may disrupt the global economy and plunge the world into recession or worse.

This current fiscal crisis is enormous and deep. No one knows how deep or enormous the fiscal crisis is, but to see President Bush and the Houses leadership act as fast and as cooperatively as they did on the stimulus speaks volumes about the seriousness of the situation."

And this:

"In conference calls to investors last week, banks from JP Morgan, Chase and Co. to PNC Finanacial Services Group, Inc., said they have been exercising more caution with commercial real estate, construction, and other loans.

San Francisco based Wells Fargo & Co. said it is reducing the maximum amount that some small businesses can borrow from a unit that specializes in unsecured loans and credit lines that average less than $20,000. Seattle based Washington Mutual, Inc., which reported a fourth quarter loss of $1.87 billion largely because of mortgage woes, said it was getting tougher on commercial borrowers. (Wall Street Journal)

Seems to be interrelated with the gold/silver/diamond crisis. Looks like we should be getting ready to tighten our belts, and more important, to draw as close as possible to the Word of God, Jesus Christ!

Massive ($7.14 BIL) Fraud uncovered, One guy caused this weeks market crash

By EMMA VANDORE, Associated Press Writer Thu Jan 24, 1:19 PM ET

PARIS - French bank Societe Generale said Thursday it has uncovered a 4.9 billion euro ($7.14 billion) fraud — one of history's biggest — by a single futures trader whose scheme of fictitious transactions was discovered as stock markets began to stumble in recent days.

CEO Daniel Bouton said the trader's motivations were "irrational," netting the trader no personal financial gains. Still, the bank is seeking to have him prosecuted in court.

A person familiar with the case named the trader as Jerome Kerviel. Bank officials said the trader was a Frenchman in his 30s who probably acted alone. The person spoke on condition of anonymity because of the sensitivity of the case.

The bombshell destabilized a major bank already exposed to the subprime crisis. France's second-largest bank by market value said it would be forced to seek euro5.5 billion (US$8.02 billion) in new capital.

Societe Generale filed a complaint Thursday with a court in Nanterre, west of Paris, accusing the trader of fraudulent falsification of banking records, use of such records and computer fraud, the bank said in a statement.

The Paris prosecutor opened a preliminary investigation Thursday based on a complaint filed by a small shareholder concerned about losses incurred because of the fraud, a judicial official said. The Bank of France, the country's central bank, said it was immediately informed of the fraud and was investigating.

Societe Generale's shares, which have lost nearly half their value over the past six months, were suspended in Paris on Thursday morning, then dropped 5.5 percent to 74.77 euros ($108.97) when they resumed trading.

The bank said it detected the fraud — comparable to a full year of its profits in stable times — at its French markets division the weekend of Jan. 19-20.

Once uncovered, Bouton said the bank alerted market regulators and moved immediately to close the trader's positions, incurring heavy losses amid sharp declines on world markets.

"This is a bad time for banks and the industry in general. But detecting the fraud over the weekend was problematic because world stock markets on Monday and Tuesday fell hugely around the world. When the positions had to be unwound, the bank did that in a terrible market of falling equities," said Janine Dow, senior director at Fitch Ratings financial institution group in Paris

"In hindsight, it was this guy's superior knowledge of the control system of every aspect of trading at the bank that allowed him to build up fraudulent positions and hide them," she said.

The bank said the trader had misled investors in 2007 and 2008 through a "scheme of elaborate fictitious transactions." The trader, who was not named, used his knowledge of the group's security systems to conceal his fraudulent positions, the statement said.

The man admitted to the fraud, the bank said, and was being dismissed. Four or five of his supervisors were to leave the group. Bouton offered to resign but the board rejected that.

The trader had worked for the bank since 2000 and earned a salary and bonus of less than euro100,000 (US$145,700), executives said.

"I'm convinced he acted alone," said Jean-Pierre Mustier, chief executive of the bank's corporate and investment banking, who interviewed the trader when the fraud was uncovered.

The trader was responsible for basic futures hedging on European equity market indexes, the company said. That means he made bets on how the markets would perform at a future date.

Until last year, the trader had been betting that markets would fall, but then changed his position at the start of this year to bet they would rise, said Kinner Lakhani, an analyst at ABN Amro in London who specializes in Societe Generale shares, citing the bank's management.

He said there had been "daily rumors" this week that something was afoot at Societe Generale. "The market was sniffing something," he said.

Because the trader previously had worked in trading accounting offices, "he would have known how the risk management worked," Lakhani added. In a conference call with analysts on Thursday, bank officials "talked about this guy bypassing systems and setting up false counter-trades."

Societe Generale said the trader was involved in "plain vanilla" forms of hedging. Futures trading began with selling commodities like sugar or oil to be delivered at a future date, but has expanded enormously to many kinds of extremely complex financial instruments.

The fraud appeared to be the largest ever by a single trader. If confirmed, it would far outstrip the Nick Leeson trading scandal in 1995 that forced the collapse of British bank Barings. Leeson, the bank's Singapore general manager of futures trading, lost 860 million pounds — then worth US$1.38 billion — on Asian futures markets, wiping out the bank's cash reserves. The company had been in business for more than 230 years.

The fraud was not as big as the 1991 scandal that led to the demise of the Bank of Credit and Commerce International. Claims by depositors and creditors there exceeded US$10 billion at the time. International bank regulators seized BCCI, which had headquarters in Luxembourg, London and the Cayman Islands, acting on auditors' reports that described huge losses from illegal loans to corporate insiders and from trading transactions.

Axel Pierron, senior analyst at Celent, an international financial research and consulting firm, was stunned that 13 years after the Barings collapse, something similar has happened.

"The situation reveals that banks, despite the implementation of sophisticated risk management solutions, are still under the threat that an employee with a good understanding of the risk management processes can getting round them to hide his losses," he said.

At Societe Generale, the announcement came on the back of 2.05 billion euros ($2.99 billion) in write-downs linked to subprime-related difficulties and the crisis in financial markets.

The bank is now planning a capital hike in the "following weeks" by selling shares in a rights offer underwritten by JPMorgan Chase & Co. and Morgan Stanley.

The write-down and losses will lead the company to post a net profit of 600 million euros to 800 million euros ($874 million to $1.16 billion) for all of 2007, the Paris-based bank said. Full-year results will be announced Feb. 21. In 2006, net profit was euro5.2 billion.

Massive ($7.14 BIL) Fraud uncovered, One guy caused this weeks market crash (http://news.yahoo.com/s/ap/20080124/ap_on_bi_ge/france_societe_generale_fraud;_ylt=AjU5yVuw5G82deA_A.gNuxms0NUE)

French Trader's Hacking Triggered Econ Crash
Jan 27, 2008

PARIS (AP) ― Societe Generale detailed Sunday how a young trader evaded all its controls to bet some $73 billion - more than the French bank's market worth - on European markets, saying he hacked computers and used other "fraudulent methods" to cover his tracks, causing billions in losses.

The bank says the trader, Jerome Kerviel, did not appear to have profited personally from the transactions and seemingly worked alone - a version of events reiterated Sunday by Jean-Pierre Mustier, chief executive of the bank's corporate and investment banking arm. But, in a conference call with reporters, Mustier added: "I cannot guarantee to you 100 percent that there was no complicity."

French judicial officials, speaking on condition of anonymity because the investigation is continuing, said Kerviel can be held until Monday afternoon. The trader was taken into custody on Saturday and under French law, he must either be released or handed preliminary charges after 48 hours in custody.

Societe Generale said Kerviel misappropriated other people's computer access codes, falsified documents and employed other methods to cover his tracks - helped by his previous experience working in offices that monitor traders.

In a five-page document, Societe Generale also sought to counter the notion that it had disrupted markets by unwinding the massive positions built up by the 31-year-old trader. The bank took three days last week to sell off the contracts on the Eurostoxx, DAX and FTSE indices, but said that it had done so in a "controlled" way.

Societe Generale said Kerviel misappropriated other people's computer access codes, falsified documents and employed other methods to cover his tracks - helped by his previous experience working in offices that monitor traders.

"He had a very good understanding of all of Societe Generale's processing and control procedures," the statement said.

The bank said Kerviel had built up a position worth some $73.5 billion - which was eventually closed or hedged by last Wednesday with a loss of $7.21 billion.

"The position was unwound over three days in a controlled fashion," it said.

Jean-Michel Aldebert, of the Paris prosecutors' office, told reporters Saturday that Kerviel gave himself up of his own free will. The trader had not been seen in public since the bank announced his unauthorized trades in a statement on Thursday.

His motives remained a mystery, and the bank said it appeared that he did not gain personally from the trades. Acquaintances described Kerviel as reserved and considerate, a young man who once taught children judo and held the door for elderly neighbors.

Kerviel had been investing the bank's money by hedging on European equity market indices, meaning he bet on how the markets would perform at a future date.

Germany's Der Spiegel newsmagazine cited unnamed traders as saying Kerviel made a huge gamble on Germany's DAX stock exchange, buying some 140,000 DAX futures. When the exchange dropped, Kerviel racked up losses that amounted by mid-January to around $3 billion, said the report, posted on Der Spiegel's web site.

Societe Generale said it discovered the fraud last weekend and unwound the trader's losing bets starting Monday, when world markets tumbled.

Some experts have suggested Societe Generale may have exacerbated the fall and indirectly led to the U.S. Federal Reserve's subsequent decision to cut rates.

In an interview published Saturday, Societe Generale's chief executive, Daniel Bouton, dismissed as "absurd" the notion that the bank's actions helped fuel the turmoil on world markets.

Bouton said Kerviel had been betting throughout 2007 that markets would fall - a winning position. But the trader had overstepped his authority and was wagering much more money than he should have, Bouton said.

So at the beginning of January, Bouton said, the trader voluntarily created losing positions, to neutralize his earlier gains and cover his tracks.

But this month's quickly dropping markets turned "this sad affair ... into a Greek tragedy: His virtual losing position became huge," Bouton was quoted by Le Figaro as saying.

Despite the bank's losses, which Bouton called "enormous and abnormal," he insisted Societe Generale's viability was not at risk.

Experts and others, including France's prime minister, have questioned whether a single futures trader could have managed such large sums. Some have suggested Societe Generale might have used Kerviel as a scapegoat for other losses, like those related to the subprime crisis.

The bank says the scale of the damage was so great only because of the bad timing of the discovery - right before the worst day in world markets since Sept. 11, 2001. It also fired Kerviel's supervisors.

French Trader's Hacking Triggered Econ Crash (http://cbs2.com/business/Societe.Generale.fraud.2.638859.html)

Dow down despite dramatic rate cut
Analyst says Fed 'architect of the coming deep recession'

Following last week's emergency .75 percentage-point interest rate cut, the Federal Reserve's Open Market Committee today slashed rates another .50 percent in a move designed to ease the mortgage crisis and stimulate the economy.

The Fed hopes the nearly unprecedented 1.25 percent cut in the funds rate in just eight days – lowering it to 3 percent – will ease pressure on upcoming hikes in adjustable rate mortgages.

Within a half hour of the announcement, the Dow Jones Industrial Average rallied to a more than 160-point gain, reflecting the market's enthusiasm for the rate cut. But not all market observers were impressed, and by the end of the day, the Dow finished down 37 points.

While the cut provided an immediate boost to the stock market, it also drove gold higher and the dollar lower.

In the first hour after the announcement, gold soared to $938 an ounce and the dollar sank to $1.49 against the euro, close to the all-time low.

"The Fed is making it appear they are compassionate when really they are the architect of the coming deep recession," contended Michael Bolser, the author of an investment analysis newsletter published daily in conjunction with his website InterventionalAnalysis.com .

Bolser argued that former Federal Reserve chairman Alan Greenspan and high-ranking Treasury officials engineered the mortgage credit bubble by keeping rates artificially low from 1996 onward during the so-called "strong dollar" regime.

"The Fed caused excessive and irresponsible lending in what became the sub-prime mortgage lending crisis," Bolser told WND. "Regardless what anybody says today, the Fed knew violations were happening, and they encouraged risky and even fraudulent lending, with the result that now we have a bursting credit bubble of almost unimaginable size."

Bolser said his hypothesis was that the Fed engineered the bursting of the credit bubble as Greenspan and current Federal Reserve Chairman Ben Bernanke began to raise rates, starting in June 2004 through a series of 16 rate increases, to a high of 5 percent in May 2006.

"I'm ready to conclude the Fed wanted the U.S. economy to fall into a recession, so as to control inflation," Bolser said, "but all along the Fed craved anonymity in the process."

The day on Wall Street began with an announcement by the Commerce Department that U.S. gross domestic product, or GDP, increased in the fourth quarter last year at the remarkably sluggish rate of 0.6 percent, down sharply from 4.9 percent in the prior three months.

Yesterday, the International Monetary Fund issued a major report dramatically downgrading world growth projections.

Buffeted by recent financial market turbulence and a weakening U.S. performance, the International Monetary Fund quarterly update for the world economy projected world growth would slow to 4.1 percent this year, down from an estimated 4.9 percent last year.

Last weekend, according to a report in the Financial Times, Dominique Strauss-Kahn, the managing director of the IMF, warned the World Economic Forum in Davos, Switzerland, that rate cuts alone would not be enough to stave off a severe recession that most likely would spill over into the global economy.

In a dramatic policy turnaround for the IMF, Strauss-Kahn told the Davos audience, "I don't think we would get rid of the crisis with just monetary tools," adding "a new fiscal policy is probably an accurate way to answer the question."

In a Davos panel archived in a video on the IMF website, former U.S. Secretary of the Treasury Lawrence Summers, who served at the end of the Clinton administration, surprised the audience by agreeing with Strauss-Kahn that the proposed Bush administration stimulus package was needed to jump-start the U.S. economy.

Summers, who is considered the academic architect of the strong dollar-weak gold policy implemented by the Clinton administration, has achieved notoriety because of the tough way in which the IMF has tried to discipline countries implementing lax fiscal policies.

Strauss-Kahn and Summers are now arguing for fiscal stimulus in what can be seen as a criticism of the Greenspan-Bernanke policy of weak dollar/strong gold that has placed the world economy at the brink of a possible downturn.

"Ironically, the one-time tax refund the Bush administration is proposing as a fiscal stimulus amounts to offering a pittance to the U.S. public," Bolser said, calling it a "move that is nothing more than media cover to make it appear the Bush administration is compassionate, when really it is not."

Bolser argued that any stimulus to the Dow from today's rate cut would be short-lived in a market being propelled downward by a worldwide asset crisis, not a liquidity crisis.

Arab nations eye control of U.S. companies
Ready to move with $1.7 trillion in windfall profits from oil-price spike

Sovereign Wealth Funds in six Persian Gulf countries – including Kuwait, the United Arab Emirates and Qatar – have now amassed $1.7 trillion, positioning them for attempts to control major banks and securities firms in the U.S.

The funds are ready to invest petrodollar earnings worldwide as their managers examine equity plays on businesses around the globe, Business Week reports.

Sovereign Wealth Funds in the Persian Gulf are comprised of government-controlled investment portfolios amassed largely as a result of the windfall profits from oil climbing to record highs.

Increasingly, U.S. investment bankers are traveling to the Middle East to meet what Business Week calls the "New Kings of Wall Street." The fund managers include:

* Shiek Khalifi Bin Zayed Al Nahyan, chairman and managing director of the $875 billion asset Abu Dhabi Investment Authority that in late November invested $7.5 billion for a 4.9 percent equity stake in Citigroup.

* Bader M. Al Sa'ad is the managing director of the $213 billion asset Kuwait Investment Authority, a fund which has become the cornerstone investor in the Industrial and Commercial Bank of China, China's largest commercial bank.

* Sheikh Hamad bin Jassim bin Jabir Al-Thani is Qatar's prime minister and head of the Qatar Investment Authority, a $50 billion investment fund that in September bought 20 percent of the London Stock Exchange.

* Soud Ba'alawy, the executive chairman of Dubai Group, a financial conglomerate which includes the Dubai Investment Group that through Borse Dubai owns a 19.9 percent stake in Nasdaq, the second largest securities exchange in the U.S.

Among U.S. companies, including many of the largest banks and financial institutions, there are many candidates that now or soon may be more than willing to receive capital infusions from foreign sources, including Middle East Sovereign Wealth Funds.

The Wall Street Journal at the end of December published a list of U.S. companies with earning problems resulting from the sub-prime meltdown, the housing slowdown and the credit crunch experienced as the U.S. economy slowed down in the fourth quarter last year.

The Wall Street Journal list included:

* Ambac Financial Group expected a $5.4 billion pretax write-down in the fourth quarter 2007 and planned to cut its quarterly dividend by two-thirds;

* American International Group, or AIG, saw a $2.54 billion after-tax drop in the value of investments in assets that are backed at least in part by sub-prime mortgages;

* J.P. Morgan Chase reported fourth quarter 2007 net earnings fell 34 percent as it recorded $1.3 billion in markdowns on sub-prime positions and saw higher credit costs;

* Washington Mutual expected to record a fourth quarter 2007 loss on a $1.6 billion goodwill write-down on the value of its home loans business;

* Wells Fargo announced that fourth quarter net income fell 38 percent on a $1.4 billion reserve for credit losses.

* On the list were several financial institutions that have already showed up in the market exploring foreign investment capital, including Bank of America, Bear Stearns, Citigroup, Merrill Lynch and Morgan Stanley.

Equity investments by Sovereign Wealth Funds differ from traditional private or public investment in that the equity purchased is not owned by a private investor or public holder of listed common stock but by a foreign government that owns the stock as a government entity.

Foreign investments in U.S. companies are subject to approval from the Committee on Foreign Investment in the United States, or CIFUS, organized within the U.S. Treasury.

As WND reported, a national outrage broke out in 2006 when a Dubai company, Dubai Ports World, proposed to take over operation of some 22 U.S. ports, as part of an acquisition involving the London-based Peninsular & Oriental Steam Navigation.

In the closing months of last year, foreign investments announced to help major U.S. banks and financial institutions received, by comparison, almost no public outcry. Many believe that's largely because the infusion of foreign capital was perceived by the public as necessary as troubled U.S. financial institutions scrambled to find capital required to continue operations under asset and reserve requirements.

Weak dollar fuels China's buying spree of U.S. firms
Foreign cash ignites political concerns as Beijing money rescues American companies

From his posh office in a coastal city in eastern China, millionaire Zhou Jiaru oversees more than 100 workers at an auto parts refurbishing factory he purchased in a struggling manufacturing town on the other side of the world.

Zhou's new company is in Spartanburg, S.C.

The Chinese entrepreneur bought it from Richard Lovely, a 56-year-old industrial engineer and mechanic who says his business was in dire straits because of competition from abroad.

Zhou's 85 percent stake in the company now known as GSP North America is one example of how the weak dollar and weakening U.S. economy have made the United States a bargain for overseas companies shopping for investments.

In 2007, acquisitions in the United States by foreign ventures hit $407 billion, up 93 percent from the previous year, according to Thomson Financial. The top countries investing were Canada, Britain and Germany; the Middle East and Asia -- especially China -- are quickly catching up.

The biggest deals in recent months have involved Wall Street firms hit by losses from exposure to mortgage-related investment vehicles.

Saudi Prince Alwaleed bin Talal is once again coming to Citigroup's rescue. Canada's Toronto-Dominion Bank is buying an $8.5 billion share of Commerce Bancorp. Singapore's state-run Temasek Holdings purchased a stake in Merrill Lynch valued between $4.4 billion and $5 billion. And the sovereign wealth fund that invests the Chinese government's hard currency is injecting $5 billion into Morgan Stanley, while Citic Securities, a private Chinese firm, is investing $1 billion in Bear Stearns.

But the investment hasn't stopped there. Smaller companies in remote parts of the United States are also being bought out.

"The U.S. dollar is getting weaker and weaker, and many medium to small U.S. companies are in economic crisis. So they need investments from China. It is very good timing," said Yu Dan, a representative for the state of Pennsylvania in China.

Yu, who is one of about 30 people in China who represent American cities and states, said at least six Chinese companies are in the process of closing deals in Pennsylvania. One will make some purchases in the food industry. Another will invest in the wood industry, because as Yu put it, "Pennsylvania has very good hardwood resources, and the aboriginal people in the north Pennsylvania woods are good workers."

Aboriginal people? The Amish, Yu clarified.

As the dollar's value against other currencies fluctuates, the tricky part for foreign investors is buying at the right time. When the dollar is falling, there's a danger in overpaying. The $3 billion stake that China Investment Corp. bought in Blackstone last May, for instance, is now worth closer to $2 billion.

Much of the recent overseas investment in the United States has been driven by sovereign wealth funds backed by foreign states. While these funds comprise only about 1.5 percent of the $165 trillion of global traded securities, they are growing quickly.

The funds -- at least a dozen of which were created since 2000 -- now control about $2.5 trillion. Morgan Stanley's Stephen Jen estimates that their worth will jump to $12 trillion by 2015.

For much of their half-century history, sovereign wealth funds have been seen as ideal investors by many U.S. firms. They have deep pockets and a long-range investment horizon, and they have shown little interest in interfering in the operations of the firms they invest in.

"The vast majority of sovereign wealth funds are long-term investors that tend to take very small stakes in companies without seeking to control or influence companies," said David M. Marchick, head of global regulatory affairs for Carlyle Group, a private-equity firm in the District. "They are just along for the ride."

But as recently as a few years ago, when credit flowed more freely, some members of Congress expressed alarm about acquisitions of strategically important entities like oil companies and ports by outside funds backed by foreign states.

These days, the general weakness in the U.S. economy has touched off a fresh wave of concern.

"Foreign investment, in general, strengthens our economy and creates jobs. But as investments by sovereign wealth funds in American companies increase and the specter of control and undue influence by government entities looms, we have to be careful," said Sen. Charles E. Schumer (D-N.Y.).

Sen. James Webb (D-Va.) said in a statement that "governments are motivated by a broader range of factors than commercial investors."

"While foreign governments may invest money in a country to make a profit, they may also do so in order to further their foreign policy ambitions, to acquire national security assets, or to purchase a stake in strategic industries," Webb said.

The fact that little is known about the funds' assets, liabilities or investment strategies only exacerbates worries.

"Most of them are not transparent and don't seem to be accountable to anybody, including their own people," said Edwin M. Truman, a senior fellow at the Peterson Institute for International Economics, who has testified before Congress about the funds. He said that a large group of sovereign wealth funds is engaged in discussions with the International Monetary Fund to develop a set of best practices for such funds.

Much of the concern about foreign investment has been centered on China, where the line between private industry and state enterprise is often blurry. A 2005 attempt by the China National Offshore Oil Corp. to buy California-based Unocal fell apart because of political opposition.

While the money coming from China is still limited -- $9.6 billion in 2007, up from $66 million the previous year, according to Thomson Financial -- it is reminiscent of the Japanese and German buying sprees of U.S. firms in the 1970s and '80s.

One place where the trend is playing out is South Carolina, where nearly 21 percent of the manufacturing labor force works for foreign companies, the biggest proportion in any state except Hawaii.

It's also a place with high unemployment -- 6.6 percent statewide and 10 to 15 percent in some counties, according to December 2007 figures. South Carolina has also led the fight against outsourcing of jobs overseas. But in recent years the opposite has occurred: Chinese companies have invested in South Carolina -- albeit on limited terms.

Haier, a Chinese appliance maker, has a refrigerator factory in the state. There's also a Chinese-owned chemical factory, printing company and general construction company, among others, that in total employ thousands of South Carolinians, according to John X. Ling, the state's representative in China.

The low cost of land, cheaper than in China's major cities, and electricity -- which tends to be about a third or a fourth the cost in China -- are attractions. So is the idea of being closer to American consumers, their primary customers.

Zhou, 54, who purchased the auto refurbishing company in Spartanburg, said another factor has to do with politics.

"We look at the example of the Japanese company Honda. . . . The U.S. was against the dumping of Japanese cars at low prices, but Honda was not affected because it had operations in the United States," he said.

Zhou is the founder and chairman of Guanshen Auto Parts Manufacturing in Wenzhou, a city about 260 miles southwest of Shanghai that has an almost mythical reputation for capitalist wealth. When U.S. business delegations come to China seeking investments, Wenzhou is a popular stop.

Guanshen Auto is a leading supplier of constant-velocity axles, which transfer power from a vehicle's transmission to its wheels. Lovely's company, Powerline, refurbished old CV axles and sold them.

Zhou made his initial purchase of a stake in Powerline in 2005, a few months after the Chinese government did away with its currency's long-held peg to the dollar and its value began to rise. As the dollar continued to weaken in 2007, Zhou bought more of the company, renaming it GSP North America after the Chinese initials of the parent company. After having paid a total $1.3 million, Zhou now owns 85 percent of the South Carolina factory.

He said that the factory employees were apprehensive about working for a Chinese company. "People objected. When we went to visit the factory, American workers said, 'We work for Chinese now. We don't have face,' " Zhou recalled.

Lovely, who remains chief operating officer of the company and still owns 15 percent, himself was apprehensive. "People said, 'You're very gutsy to do that.' . . . It was hard for other people to understand. People think there's no law over there" in China, he said.

Dick Adams, 57, whom Zhou hired to be in charge of sales and marketing at GSP North America, said the company is proving to employees, the community and the state of South Carolina that they are "good Chinese."

When Zhou took over, he initially operated the factory Chinese-style, 24 hours a day -- with a day shift and a graveyard shift. But the workers complained about working in the middle of the night, so now the factory just keeps regular daytime hours.

"You have Chinese that come in here and just want to take, take, take and not give anything. They'll come in here just to get an order and run away. GSP hasn't done that. They have come and invested millions of dollars in buildings and people and distribution," Adams said.

Next round of gas hikes won't be due to oil
Expensive additive alkylate, which replaced MTBE, in short supply

Get ready for another surge in gasoline prices.

Experts are predicting pump prices, which jumped by almost a dollar a gallon in each of the last two springs in many parts of the United States, will spike again this year as refiners and gas stations switch from winter- to summer-blended fuels.

The increases, starting as early as February in southern California, could push the average national price to a record $3.50 a gallon or more by June.
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That would be 17 percent higher than today's average of just under $3 a gallon, which already is about 80 cents a gallon higher than year-ago levels thanks to the surge of crude oil that took futures prices briefly to $100 a barrel. Prices in urban areas on each coast could approach $4 a gallon.

And the reason for the spring price shocks? Analysts say it's linked to a shortage of alkylate, a little-known and expensive gasoline additive that some in the industry are calling "liquid gold." It has become a must-have ingredient since refiners stopped using MTBE two years ago when the potentially cancer-causing additive was found to be seeping into ground water.

The alkylate shortage has become the most important driver of summer gas prices, said Doug Leggate, an analyst at Citigroup Global Markets. "Supply of (alkylate) will set the price of summer gasoline — not inventory levels," he said.

Oil companies deny they are purposely limiting production of alkylate, which like gasoline, jet fuel and asphalt is a byproduct of the oil refining process. But only recently have some started studying how they can boost output, and alkylate prices today are more than 15 percent higher than spot gasoline prices. That means overall costs will jump when it is added in larger quantities to summer-blend fuel.

Without additives, gasoline doesn't burn completely, increasing tailpipe air pollution. And untreated gas evaporates more quickly in hot weather, potentially causing vapor lock when it changes from a liquid to a gas and blocks fuel lines.

The federal government long ago required refiners to boost the oxygen content of summer-blend gasoline to make it burn more completely, a problem that was solved by adding MTBE and, more recently, ethanol.

But ethanol also has a high evaporation rate, so refiners increasingly have turned to alkylate, which Tom Kloza, publisher and chief oil analyst at the Oil Price Information Service in Wall, N.J., calls the "magic bullet" in making summer gasoline.

Alkylate and other gasoline additives don't raise the same safety issues as MTBE because they don't bond with water as effectively as MTBE did, analysts say.

Demand for alkylate changes with the seasons, falling in autumn and rising in the spring. On average, alkylate makes up about 10 percent of a gallon of gas, though that rises to as much as 15 percent in summer. But making more of it is not as simple as throwing a switch since the underlying chemical properties of oil limit how much of any one refined petroleum product can be produced.

On average, about 44 percent of each barrel of oil ends up as gasoline, 22 percent as diesel fuel and heating oil, 9 percent as jet fuel, and about 4 percent each as heavy fuel oil and liquefied petroleum gas, according to the Energy Department. The remainder is comprised of smaller products and additives.

The refining process is loud, hot and smelly. Boilers separate, or "crack," oil into new substances by subjecting it to high temperatures and pressure. As different products are boiled out, pipes carry them to other boilers or vessels where they're further refined, mixed with other substances or cleaned of pollutants and toxins.

Alkylate is made via a chemical reaction sparked when olefin fluids and isobutane — two of the smaller byproducts of the main gasoline producing unit — are mixed with acid.

"As opposed to the (gasoline unit) that cracks big components into small, this one takes two components and basically combines them," said Mark Fligner, director of planning and economics at Valero Energy Corp.'s refinery in Paulsboro, N.J., across the Delaware river and just south of Philadelphia.

Owners of about two-thirds of U.S. refineries have invested the $100 million or more it takes to add an alkylate unit. The rest have to buy alkylate on the spot market if they want to use it as additive in their gasoline supplies.

Refiners aren't gaming the system, purposely limiting alkylate production to boost gas prices, said John Auers, senior vice president at Turner Mason & Co., a Dallas consultancy. "They're not because they can't," he said. "You can't make more alkylate than you have feedstocks."

But there are tradeoffs that every refiner must weigh. For example, olefins and isobutane are in high demand for use in producing other lucrative products like plastics. Refiners can tweak their main gasoline producing unit to make more olefins and isobutane, but that would cut the gasoline output.
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Alkylate prices have jumped from 77 cents a gallon in the summer of 2001 — when MTBE was still in use — to nearly $3 a gallon at points over the past two summers. Wednesday's price on the spot market was $2.72 a gallon, 40 cents more than the spot price of gasoline, according to Platts. Retail prices for gas are higher because things like state and federal taxes are added. In recent summers, that spot market differential has jumped as high as 60 cents.

Refiners place the blame for spring gas price increases on crude costs, environmental regulations that have increased the overall cost of refining, and their inability to expand or build new refineries fast enough to keep up with gasoline demand.

John Pickering, vice president and general manager at the Paulsboro refinery, said Valero makes enough alkylate to meet its needs, but concedes that there is a national shortage of the additive in the spring and summer.

Other refiners contacted by The Associated Press said they are reluctant for competitive reasons to talk about how they blend gasoline, or whether they face alkylate shortages.

What is known, however, is that refiners are hiring companies such as UOP LLC of Des Plaines, Ill., to determine whether they can increase the capacity of their existing alkylation units. "In the last year or so, there has been a significant uptick (in business)," said Ashis Banerji, director for refining at UOP, which licenses alkylation technology to refiners.

And the 36 percent of domestic refineries that don't have alkylation units are looking at adding them.

"Our impression is that refineries are moving as fast as they possibly can to add alkylation capacity," said Jim Pawloski, business director at UOP competitor DuPont Clean Technologies, a unit of DuPont Co. He said his unit's business has jumped five-fold over the past five years and will likely double again this year.

The steep jump in summer alkylate prices has also caught the attention of at least two companies that used to produce MTBE. Enterprise Products Partners LP and Texas Petrochemicals Inc., both of Houston, say they're closely studying whether to convert idled MTBE plants into alkylate factories.

That also highlights the conundrum that is alkylate: If too many refiners decide to spend big bucks to crank up production, the premium prices now enjoyed by alkylate makers could disappear.

Refiners have to weigh the cost of such an investment against the incremental cost of simply buying the extra alkylate they need. "I'm not sure that it would be economical," said Jeff Hazle, technical director at the National Petrochemical and Refiners Association.

But if production doesn't rise, American motorists will be faced with big jumps in spring gas prices for years to come.

The truth comes out.

Bill Clinton urges slowing economy to fight 'warming'
On campaign trail says 'we have to save the planet for our grandchildren'

Bill: "We Just Have to Slow Down Our Economy" to Fight Global Warming

January 31, 2008 9:26 AM

Former President Bill Clinton was in Denver, Colorado, stumping for his wife yesterday.

In a long, and interesting speech, he characterized what the U.S. and other industrialized nations need to do to combat global warming this way: "We just have to slow down our economy and cut back our greenhouse gas emissions 'cause we have to save the planet for our grandchildren."

At a time that the nation is worried about a recession is that really the characterization his wife would want him making? "Slow down our economy"?

I don't really think there's much debate that, at least initially, a full commitment to reduce greenhouse gases would slow down the economy….So was this a moment of candor?

He went on to say that his the U.S. -- and those countries that have committed to reducing greenhouse gases -- could ultimately increase jobs and raise wages with a good energy plan..

So there was something of a contradiction there.

Or perhaps he mis-spoke.

Or perhaps this characterization was a description of what would happen if there isn't a worldwide effort…I'm not quite certain.

You can watch that one clip HERE or you can watch the whole speech at the website of ABC News' great Denver affiliate KMGH by clicking HERE.

It's worth watching -- he also pushed back against a 9/11 conspiracy theorist heckling him.

"Everybody knows that global warming is real," Mr. Clinton said, giving a shout-out to Al Gore's Nobel Peace Prize, "but we cannot solve it alone."

"And maybe America, and Europe, and Japan, and Canada -- the rich counties -- would say, 'OK, we just have to slow down our economy and cut back our greenhouse gas emissions 'cause we have to save the planet for our grandchildren.' We could do that.

"But if we did that, you know as well as I do, China and India and Indonesia and Vietnam and Mexico and Brazil and the Ukraine, and all the other countries will never agree to stay poor to save the planet for our grandchildren. The only way we can do this is if we get back in the world's fight against global warming and prove it is good economics that we will create more jobs to build a sustainable economy that saves the planet for our children and grandchildren. It is the only way it will work.

"And guess what? The only places in the world today in rich countries where you have rising wages and declining inequality are places that have generated more jobs than rich countries because they made a commitment we didn't. They got serious about a clean, efficient, green, independent energy future… If you want that in America, if you want the millions of jobs that will come from it, if you would like to see a new energy trust fund to finance solar energy and wind energy and biomass and responsible bio-fuels and electric hybrid plug-in vehicles that will soon get 100 miles a gallon, if you want every facility in this country to be made maximally energy efficient that will create millions and millions and millions of jobs, vote for her. She'll give it to you. She's got the right energy plan."

In other Bubba News, Sen. Hillary Clinton, D-NY, told the spectacular Kate Snow yesterday that this is her campaign, not Bill's, and told Nightline anchor Cynthia McFadden last night that she can control him.

(Which begs the question -- does she want to slow down the economy?)

UPDATE: Not so difficult to predict -- the RNC just issued a statement in response to the former President's comment.

“Senator Clinton’s campaign now says we must ‘slow down the economy’ to stop global warming," said Alex Conant, RNC Spokesman. "Clinton needs to come back to Earth. Her ‘tax-it, spend-it, regulate-it’ attitude would really bring the economy crashing down. No amount of special effects will hide Clinton’s liberal record.”

Sen. Clinton's campaign, meanwhile, has a new TV ad that calls her "the person you can depend on to fix the economy and protect our future."

Payrolls decline for 1st time since 2003
Nervous employers cut 17,000 jobs in January

Nervous employers cut 17,000 jobs in January—the first such reduction in more than four years and a fresh trouble sign that the economy is in danger of stalling.

The Labor Department's report, released Friday, also showed that the unemployment rate dipped slightly to 4.9 percent, from 5 percent, as the civilian labor force shrank slightly.

Job losses were widespread. Manufacturers, construction firms and a variety of professional and business services eliminated jobs in January—reflecting the toll of the housing and credit debacles. The government cut jobs, too. All those cuts swamped job gains in education, health care, retailing and elsewhere.

Wage growth also slowed, another indication that employers are tightening their belts amid the economic slowdown.

Although the unemployment rate declined a notch, from 5 percent in December to 4.9 percent in January, the jobless rate—calculated from a different statistical survey than the payroll figures—dipped as people left the labor force for any number of reasons.

Taken together, the figures suggested that employers have grown cautious as they try to cope with fallout from housing and credit problems and rising worry about the ailing economy.

Economists were predicting employers would boost payrolls by around 70,000, and that the unemployment rate would stay at 5 percent.

Fears of a recession have grown.

The White House and Congress are working to enact a package to stimulate the economy. And, the Federal Reserve has gotten much more aggressive—ordering two big interest rate reductions in just over a week.

A severely depressed housing market, hard-to-get credit, turbulence on Wall Street and "some softening in labor markets" were cited by the Fed, when it lowered rates by a bold half point on Wednesday.

The unemployment rate had shot up in December to 5 percent, from 4.7 percent in November. The magnitude of that increase—something not seen since right after the September 2001 terror attacks—sent off alarm bells. In the past, such a big increase in the jobless rate signaled the economy was starting a recession or already in one.

The health of the nation's job market is a critical factor shaping how the overall economy fares. Until now, job and wage growth have helped cushion people from the negative forces coming from the housing bust and credit crunch. If companies continue to cut back on hiring and put a lid on wages, though, that will spell more trouble for the economy.

Dollar approaches record low against euro after rate cuts
'U.S. economy will be slowing at a faster pace than other global economies'

The dollar fell for a second straight week against the euro after the Federal Reserve lowered its benchmark lending rate by a half-percentage point to 3 percent and indicated further cuts in borrowing costs may be needed.

The dollar pared its weekly loss yesterday as an expansion in manufacturing offset the first U.S. decline in jobs in four years and traders balked at bidding the euro above the all-time high. The European Central Bank is forecast to hold its main refinancing rate at a six-year high of 4 percent next week, maintaining the advantage over the Fed's target.

``It looks like the U.S. economy will be slowing at a faster pace than other global economies, clearly dollar- negative,'' said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York.

The dollar dropped 0.8 percent to $1.4802 per euro this week, from $1.4681 on Jan. 25. The U.S. currency came yesterday within a half-cent of the November low of $1.4967 per euro, the weakest level since Europe's currency debuted in 1999. Against the yen, the dollar fell 0.2 percent to 106.49, from 106.72. The euro increased 0.6 percent to 157.67 yen, from 156.68.

The U.S. Dollar Index traded on ICE Futures in New York, which tracks the dollar against six major currencies, fell 0.69 percent this week to 75.45. On Nov. 23, the day the dollar reached the record low versus the euro, the index dropped to 74.48, the weakest level since the gauge started in 1973.

BOJ's Rate

Japan's currency fell 3.2 percent against the New Zealand dollar and 2.6 percent versus the Australian dollar this week as a rally in U.S. stocks prompted investors to borrow in Japan and sell the yen to buy high-yielding assets.

The Bank of Japan's 0.5 percent target lending rate is the lowest among industrialized countries. New Zealand's benchmark is 8.25 percent, while Australia is forecast by economists to increase its target to 7 percent from 6.75 percent next week. In the carry trade, investors get funds in a country with low borrowing costs and buy assets where interest rates are higher. The risk is that fluctuating exchange rates can erase profits.

The Standard & Poor's 500 Index climbed 4.9 percent this week, trimming its yearly loss to 5 percent. The Dow Jones Industrial Average gained 4.4 percent this week.

Payrolls Report

Futures traders increased their bets to the highest level since 2004 that the yen will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show. The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop, known as net longs, was 52,928 on Jan. 29, compared with net longs of 41,842 a week earlier.

The dollar dropped yesterday as low as $1.4949 against the euro after the Labor Department reported U.S. payrolls fell by 17,000 last month after an 82,000 gain in December that was larger than initially reported. After erasing its losses, the dollar rose against the euro on an Institute for Supply Management report showing manufacturing expanded in January.

The Fed on Jan. 30 lowered benchmark interest rates by a half-percentage point, eight days after a three-quarter-point emergency reduction, capping the fastest easing of monetary policy since 1990.

Fed Rate Outlook

The U.S. currency has declined 14 percent during the past 12 months as lower interest rates made dollar-denominated assets less attractive to international investors.

``The uptrend in the euro against the dollar is over because you have already priced in a lot of Fed easing,'' said Larry Kantor, head of research in New York at Barclays Capital Inc. and a former Fed economist.

Interest rate futures contracts on the Chicago Board of Trade show a 70 percent chance the central bank will cut the benchmark rate a half-percentage point by its March 18 meeting and 26 percent odds of a quarter-point reduction.

The ECB will keep its main refinancing rate at 4 percent at a policy meeting on Feb. 7, all 55 economists predicted in a Bloomberg News survey.

While interest-rate futures showed traders expected the ECB to lower its target rate in the second half, ECB council member Nicholas Garganas said on Jan. 31 that the central bank won't consider a rate cut because inflation remains ``a major concern.''

The implied yield on the three-month Euribor contracts expiring in July was 3.925 percent yesterday. That rate averaged 18 basis points more than the ECB's benchmark from 1999 until August, when the collapse of the U.S. subprime-mortgage market sparked a squeeze on credit.

The euro will trade at $1.48 by the end of the first quarter, and drop to $1.40 by year-end, according to the median forecast of 44 economists surveyed by Bloomberg News.

This from Hal Lindsay:

"Venezuelan President, Hugo Chavez, recently issued a call to neighboring countries to join an anti-American military alliance. Chavez says the alliance is needed to guard against a possible US attack or invasion. He said that the US military support for Columbia's fight against guerillas and drug trafficers is a smokescreen to cover their real goal of destroying Latin American unity. On his weekly television program called "Hello President", Chavez warned, '...interfering with Bolivia, Nicaragua or Cuba is also interfering with Venezuela...This is about re-establishing the concept of unity."

Chavez is also actively working to accelerate the decline of the US dollar on the international oil market. Writing for the Associated Press, Ian James said, "Venezuelan President Hugo Chavez urged his Latin American allies on Saturday to begin withdrawing billions of dollars in international reserves from US banks, warning of a looming US economic crisis. Chavez made the suggestion, as he hosted a summit aimed at boosting Latin American integration and countering US influence." In the same article, James wrote that Chavez spoke of a new "...development bank established by he and other leaders."

2 years ago I (Hal Lindsay) was alerted by a well connected intelligence source in that area to watch for this particular development. He warned that preparations were being made by Chavez to attack the US dollar. He said that Chavez, using both his own money and money of the Saudis and other OPEC opperatives was buying up banks all over the Carribbean to establish and control another currency against the dollar. He recently sold off some 15% of Venezuela's oil dollar reserve. This pushed the US dollar even closer to the precipice.

Venezuea is just one of the major oil producing countries that is dumping the dollar in favor of the Euro or sometimes the yen. The Saudis recently refused to cut their interest rates along with the American Federal Reserve Board, a sure sign that the Saudis are preparing to upeg and cut their currency loose from the dollar. This is a move that President Bush has literally bent over backwards to prevent. If the Saudis dump the dollar as the official currency for all trading, it will be an economic coup de gras for America. It will start a stampede of Middle Eastern countries following suit. The OPEC countries of the Middle East hold about 3 1/2 trillion dollars in US currency reserves. China will no doubt follow the herd. China has already threatened to divest its vast dollar holdings in favor of the yen and the Euro.

Financial analysts call this the 'nuclear option' because of the catastrophic effect it will have on the already imperiled US economy.

Iran is already refusing to accept US dollar payments for oil shipments. Russia, the Sudan and South Korea have expressed interest in reducing their investments in the greenback. This whole economic fiasco has been further exacerbated by greedy loan institutions that made unsound and deceptive housing loans, and people who did not really heed the fine print. First time homebuyers, often with insufficient incomes and poor credit, took out interest only loans without accessing the boomerang effect involving the high interest that would come due after a few years. The easy availability of low interest, flexible loans fueled a booming real estate market that pushed the cost of housing beyond all other cost of living indexes. When the interest only period expired, and the principal came due with higher interest rates, tens of thousands of homeowners defaulted. Adding insult to injury, unscrupulous lending institutions bundled these risky and dubious loans and sold them to foreign investment firms. These are just a few of the reasons why, as one financial expert put it, we're experiencing an economic meltdown. And the Feds can't bail us out of this one by printing more fiat money, and lowering interest rates.

This only continues to drive the value of the dollar down in relation to other currencies."

Economist: Expect Fed
to lower Dow to 8,000
Critic claims agreements involving
billions used to shift stock market

Consumers should expect a deep recession, triggered by the "stealth methodology" of the Federal Reserve to "depress" the market even while lowering interest rates in an ostensible effort to stimulate economic growth, an economic analyst is charging.

"The Federal Reserve is directly involved in manipulating the stock market," said economic analyst Mike Bolser in a telephone interview with WND yesterday.

The New York Stock Exchange finished the day down 108.03 points, closing at 12,635.16, much as Bolser predicted, despite recent emergency Fed rate cuts of 1.25 percentage points aimed at stimulating the economy.

"Fed wants the Dow Jones Industrial Average and other financial indicators to descend in a managed way," Bolser said. "The Fed wants to drive the DJIA toward the 8,000 level, or below, in order to help create a deep recession which will have the effect of slowing consumption across the board, and dampening the otherwise harmful effects of inflation.

"A falling DOW is only one element of the recession effects of the excessive Fed-created housing and credit creation, whose bubbles are now bursting," he added.

"Without this recession, we would be on quick trip to hyper-inflation," Bolser, the author of an internationally followed newsletter published in conjunction with his InterventionalAnalysis.com website, said, "and the Fed wants to prevent this."

In his twice-daily subscription newsletter, Bolser has devised a quantitative methodology for utilizing Federal Reserve repurchase agreements to predict upward and downward movements of the DJIA, measured on a 30-day moving average.

Yesterday, Bolser noted the Fed added $18 billion to repurchase agreements, edging the pool up to a total of $153.158 billion in unexpired temporary repurchase agreements.

Repurchase agreements involve a sophisticated use of government securities issued every day by the Fed, but little understood or followed, even by sophisticated investors.

A repurchase agreement, as defined by the Fed, is a government security offered by the federal government to a small list of specified primary government securities dealers, for a limited period of time, usually 28 days or less, with overnight return being the most common.

The government securities are "rented" by the primary dealers and they can be added to the primary dealer's portfolio or collateralized and then used in the open market to implement the Fed's open market policy.

At the end of the repurchase agreement, the Fed obligates itself to take back the government securities from the primary dealers, effectively canceling the contract.

Meanwhile, while holding the government securities let out by the Fed in the repo agreement, primary dealers are free to utilize the liquidity provided by the repurchase agreement to manipulate the economy in accordance with the Fed's true monetary policy, whether publicly declared or not.

Primary dealers use the funds provided by the government securities they hold under the repurchase agreements to buy dollar exchange futures contracts, stock market futures, or to buy commodities contracts, including gold mining shares, all in accord with implementing Federal Reserve monetary policy to manipulate currency, commodity and stock markets up or down, depending what goals the Fed wants to accomplish at any particular time, the economist alleges.

Over the past several months, however, the Fed has implemented a policy to issue smaller amounts of daily repurchase agreements, with the goal of reducing the total pool of repurchase agreements available to the Fed's short list of 20 banks that are qualified by the Fed to serve as primary government securities dealers participating in the Fed's Open Market Operations.

Only the 20 banks specified in the Federal Reserve Bank of New York's list of primary government securities dealers are allowed to participate in Fed repurchase agreements.

"The primary government security dealer banks are like a private club," Bolser told WND. "You get to stay in the club as long as you take the repurchase agreements and enter the markets to implement Fed monetary policy the way the Fed wants it implemented. Violate the unspoken rules, and you risk being thrown out of the club."

Yesterday's $18 billion addition to the repurchase agreement pool caused the total amount of the outstanding repurchase agreement pool to remain below the DJIA 30-day moving average in a clear trend.

Bolser used this data to predict the Fed was manipulating the stock market lower, a controversial prediction when most economists see the Fed's emergency actions to reduce the target Fed Funds rate 1.25 percentage points lower over an eight-day period that ended with last Wednesday's meeting of the Federal Open Market Committee.

"Ultimately, the government is in the business of inflating the dollar," Bolser said, "so the Fed is trying to engineer a recession, in order to cushion the pernicious effects of its own inflation."

"In my view, the government intentionally desires a deep recession not unlike that of the 1930s," he continued. "The Fed, however, dissembles, attempting to display the opposite impression with its rate cuts."

"Cutting rates will not boost the economy in an environment where the credit bubble has burst and banks are afraid to lend," he explained. "But decreasing the repurchase pool will push the economy down, especially when the primary banks execute monetary policy in accordance with the wishes of the Fed to short the market with future contracts that push the indices down."

Bolser argued the Fed's ability to manipulate the market by increasing or decreasing the pool of available repurchase agreements amounts to a "stealth methodology" where the Fed can now depress the market, while implementing a policy of lowering interest rates, which most economists would see as trying to stimulate economic growth and the stock market.

"You have to remember the primary goal of the Fed is to support the bond market, which the Fed has done for quarter century," Bolser stressed. "The Fed needs a strong bond market so the Treasury can sell the enormous amount of Treasury securities, especially to China, that we need to sell to finance what this year may be as large as a $400 billion dollar budget deficit calculated on a cash basis."

"As a result, the friend of the Fed is the bond speculator," he added.

Among the U.S. banks and securities firms currently on the list are Bank of America Securities, Cantor Fitzgerald, Countrywide Securities, Bear Stearns, Daiwa Securities America, Goldman Sachs, Greenwich Capital Markets, HSBC Securities (USA), J.P. Morgan Securities, Lehman Brothers, Merrill Lynch Government Securities, and Morgan Stanley.

Also on the list are France's BNP Paribas Securities, Great Britain's Barclays Capital, Switzerland's Credit Suisse Securities, Japan's Mizuho Securities, and Germany's Dresden Kleinwort Wasserstein Securities.

"These dealers are the foot soldiers of the Fed, as it implements monetary policy," Bolser said.

Studying Bolser’s "Repos/DOW" chart from Dec. 7, 2007, through yesterday, a broad correlation between the downward movement in the Fed repurchase agreements pool totals and the DJIA as seen by tracking the 30-day moving average is clear.

"With this strategy, the Fed hopes we won't experience the extreme 'stag-flation' we had in the late-1970s," he argues. "The Fed hopes to induce a recession to manage downward stock prices and commodity prices, including oil, gold, copper, and lumber, as well as the overall consumer demand for retail goods."

"Stag-flation" is an unusual economic situation combined when economic stagnation is combined with inflation, much as the economy is currently experiencing, such that economists fear we are entering a recession while food and energy prices continue to rise sharply.

Famine fears as energy costs
spill over into food crunch
Oil guru: 'We've never been at a point
in commodities where we are today'

Why the price of 'peak oil' is famine

Vulnerable regions of the world face the risk of famine over the next three years as rising energy costs spill over into a food crunch, according to US investment bank Goldman Sachs.

"We've never been at a point in commodities where we are today," said Jeff Currie, the bank's commodity chief and closely watched oil guru.

Global oil output has been stagnant for four years, failing to keep up with rampant demand from Asia and the Mid-East. China's imports rose 14pc last year. Biofuels from grain, oil seed and sugar are plugging the gap, but drawing away food supplies at a time when the world is adding more than 70m mouths to feed a year.

"Markets are as tight as a drum and now the US has hit the stimulus button," said Mr Currie in his 2008 outlook. "We have never seen this before when commodity prices were already at record highs. Over the next 18 to 36 months we are probably going into crisis mode across the commodity complex.

"The key is going to be agriculture. China is terrified of the current situation. It has real physical shortages," he said, referencing China still having memories of starvation in the 1960s seared in its collective mind.

While the US housing crash poses some threat to the price of metals and energy, the effect has largely occurred already. The slide in crude prices over the past month may have been caused by funds liquidating derivatives contracts to cover other demands rather than by recession fears. Goldman Sachs forecasts that oil will be priced at $105 a barrel by the end of 2008.

The current "supercycle" is a break with history because energy and food have "converged" in price and can increasingly be switched from one use to another.

Corn can be used for ethanol in cars and power plants, for plastics, as well as in baking tortillas. Natural gas can be made into fertiliser for food output. "Peak Oil" is morphing into "Peak Food".

Land use for biofuels has shot up from 12m to more than 80m hectares worldwide over six years. Biofuel provides 3pc of global energy needs, which will rise to an estimated 10.6pc by 2030.

In a pure market, sugar cane would be the only viable biofuel with a cost of $35 a barrel (oil equivalent). The others are sugar beet ($103), corn ($81), wheat ($145), rapeseed ($209), soybean ($232), cellulose ($305).

Subsidies drive the business. The US offers tax relief of $1 a gallon for biodiesel. The EU has a 10pc biofuel target by 2010.

The crop switch comes just as China and India make the leap to an animal-based diet, replicating the pattern seen in Japan and Korea, where people raised their protein intake nine-fold as they became rich. It takes 8.3 grams of soya or corn feed to produce a 1g weight gain in cattle - compared with 3.1g for pigs, 2g for chicken and 1.5g for fish.

Mr Currie said investment cycles in energy typically last about 10 to 12 years as producers struggle to catch up with demand. However, this cycle has been short-circuited by politicians after barely six years.

"The political environment is extremely hostile. The world is looking like the 17th century under mercantilism when countries saw economics as a zero-sum game. They exported as much as they could to get gold, and erected enormous barriers. China looks like that, so does Russia, the Mid-East and most of Africa and Latin America," he said.

While the West has much of the skill for developing energy projects, it is blocked by nationalist petro-states from investing directly.

Buffett bets against the buck
'In the future, I would predict that the U.S. dollar will decline'

U.S. investors worried about a possible recession also need to fret over the weakening dollar, which, if its value continues to slide, would further erode the value of American assets. They should heed Warren Buffett's warning that the greenback has further to fall.

"In the future, I would predict that the U.S. dollar will decline," Buffett, the world's second-richest man, said Wednesday at a Canadian business conference in comments transcribed in the National Post. "I don't know what it will look like in the short term, but force-feeding the rest of the world $2 billion a day is inconsistent with a stable dollar."

It doesn't take a financial genius to see the stiff head winds facing the currency. Like many experts, Buffett points to the U.S.'s gargantuan trading deficit as the heart of the problem. The U.S. has run a deficit every year since 1976, but the gap started ballooning in the mid-1990s as Americans' demand for foreign goods rapidly outpaced foreigners' demand for American goods. The deficit hit a record $758.5 billion in 2006.

The deficit means foreigners are sitting on constantly growing piles of American currency. When they shift their holdings out of dollar-denominated assets, the value of the dollar falls.

The sputtering U.S. economy and the Federal Reserve's rate-cutting campaign are also punishing the buck. They push investors to seek better safety and returns in non-dollar-denominated assets.

Investors should listen to Buffett's thoughts on the currency: He's made part of his sizable fortune by correctly predicting its course before. His Omaha, Neb.-based holding company, Berkshire Hathaway (nyse: BRKA - news - people ), reaped billions earlier this decade after making a huge bet the dollar would fall.

Other currencies are looking more attractive to the Oracle of Omaha. He told the Financial Post Wednesday he made several hundred million dollars betting on the Canadian dollar. Although he already exited the positions, he said he wished he had kept them.

The only current currency position for Berkshire Hathaway is the Brazilian real. It's been another lucrative move for Buffett's holding company. Since May 2004, the value of the Brazilian currency in dollars has increased by over two-thirds.

Investors looking to take a page out of Buffett's book can play foreign currencies with currency trusts that trade on American stock exchanges, like the CurrencyShares Canadian Dollar Trust (nyse: FXC - news - people ). They could also buy American Depositary Receipts for foreign companies, like that of Brazilian miner Companhia Vale (nyse: RIO - news - people ).

Bad sign: Shoppers use gift cards for groceries
Nation's retailers including Wal-Mart post weak January numbers

Here's a sign of how shaky the economy has become: Wal-Mart says its shoppers are redeeming their holiday gift cards for basic items — pasta sauce, diapers, laundry detergent — instead of iPods or DVDs.

Merchants had hoped shoppers armed with gift cards would provide a lift after a dismal holiday shopping season — partly because shoppers tend to spend even more than the value of the card. But that didn't seem to happen last month, and retailers are feeling the pain.

On Thursday, the nation's retailers turned in their worst January in almost four decades as high gas and food prices, a slumping housing market, tighter credit and a tougher job market pushed consumers to the edge.
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Sales at 43 retailers surveyed by the UBS-International Council of Shopping Centers rose just 0.5 percent in January, well below the original 1.5 percent forecast.

The results — based on sales at stores open at least a year — followed an anemic 0.7 percent pace in December and were below the 2.1 percent gain for all of last year.

Jill Panell, a 26-year-old homemaker from Sterling Heights, Mich., was using a $20 Wal-Mart gift card on Thursday to stock up on groceries and pet supplies. She wasn't in the market for a present for herself.

"Twenty dollars at Wal-Mart is easy to spend," she said.

Analysts think it's happening in other stores, too.

"Gift cards are being used as a secondary way to save," said Burt P. Flickinger III, managing director of the New York-based retail consulting firm Strategic Resource Group.

Even at department stores, he said, consumers are using gift cards to buy basic apparel such as socks and lingerie.

The assessment by Wal-Mart Stores Inc., the world's largest retailer, that gift card redemptions were below expectations and people were buying only necessities shook up industry observers. Retailers record gift-card revenue only as cards are redeemed.

"It shows you the level of worry. Even with free money in your hand, (consumers) aren't willing to spend on anything more than necessities," said Michael P. Niemira, chief economist at International Council of Shopping Centers.

Niemira said January's retail sales performance was the weakest for that month since at least 1970, when comparable records started.

Shoppers appear to be looking at gift cards not as "free money" but rather as their "own personal cash," said C. Britt Beemer, chairman of America's Research Group, citing his recent surveys with consumers.

They're also holding on to the gift cards longer this year than last year, he said — 15 percent of the 1,000 consumers his group interviewed said they redeemed their gift cards in December, compared with 33 percent who did so last year.

The retail sales results extended a streak of news that showed more signs of consumer strain. Consumer spending accounts for two-thirds of the nation's economic activity, and it appears to have stalled from an already slowing pace seen over the past year.
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Shoppers have had to contend with rising gas and food prices and a slumping housing market, and there are signs that the job market is becoming a concern as well.

The Labor Department reported Friday that U.S. employers sliced payrolls by 17,000 in January, the first decline in more than four years. The department said Thursday that jobless claims fell last week by 22,000, but that was a decline was smaller than expected.

And if the job market continues to deteriorate, "all bets are off," said Ken Perkins, president of RetailMetrics LLC, a research company in Swampsott, Mass.

While investors are hoping the Federal Reserve can avert a recession with a series of rate cuts, some economists say the moves may be too little, too late.

Analysts also say that while the government's proposed economic stimulus package, which would send rebate checks to more than 100 million Americans, could help re-ignite spending, the lift would be only temporary.

Nonetheless, shares of several retailers rose Thursday as many either confirmed their earnings forecasts or raised them, signaling they were able to control their inventories.

Hot Topic Inc. and Wal-Mart stuck with their outlooks, while Pacific Sunwear, Wet Seal and Gap Inc. raised their profit guidance despite lower sales.

Retailers are expected to offer a better picture of the impact of slower sales and may shed light on gift card redemptions when they report fourth-quarter earnings over the next few weeks.

Department stores and mall-based apparel retailers posted some of the steepest sales declines Thursday. J.C. Penney Co. saw same-store sales at its department stores drop 1.9 percent, though that was better than the 6.3 percent decline expected by analysts polled by Thomson Financial.

Upscale department store Nordstrom suffered a 6.6 percent decline in same-store sales, much worse than the 0.7 percent decrease expected.

Macy's Inc. had already reported a 7.1 percent decrease in same-store sales on Wednesday, worse than expected. Spokesman Jim Sluzewski acknowledged that gift card sales and redemptions were weaker than last year, reflecting the overall slower sales trend. He noted that Macy's doesn't track how shoppers use their gift cards.

Saks Inc. fared better, saying same-store sales rose 4.1 percent, better than the 2.2 percent estimate. But the luxury retailer said shoppers are still shifting more of their spending to sale merchandise.

Discount retailers have held up better as higher-income shoppers shift their spending to less expensive stores. But their traditional customers are cutting back as well. Target Corp. reported a 1.1 percent decline in same-store sales in January, worse than the 0.6 percent decline analysts expected.

Wal-Mart reported a 0.5 percent gain in same-store sales, far below the 2.0 percent increase expected. The company said it continues to do well with basics like groceries but home furnishings remain weak.

At a Wal-Mart in Cheektowaga, N.Y., near Buffalo, shopper LaShari Jackson, 37, said she was "just getting the basics, household stuff." She said she had no plans to look at electronics, CDs or other splurges: "Can't afford it."

US credit crisis escalates as defaults spread

Defaults in the US housing market are spreading from sub-prime to the much larger stock of top-grade housing debt, threatening to set off a wave of even bigger losses for banks and investment funds.

The Mortgage Bankers Association says default rates on all outstanding home loans in the US have reached 7.3pc, the highest level since modern records began in the 1970s.

Arrears on "prime" mortgages have reached a record 4pc, confounding expectations that middle-class Americans with good credit records would be able to weather the storm.

While sub-prime and close kin "Alt A" total $2,000bn (£1,019bn) of debt, the prime market in all its forms is roughly $8,000bn. If prime default rates rise on their current trajectory, they could ultimately cause huge financial damage.

The grim data comes amid further wild ructions this week on credit markets. The iTraxx Crossover index - a risk barometer that measures default insurance for Europe's low-grade bonds - rocketed to a fresh high of 575 yesterday. It is now above the extreme levels seen in August and November.

"We're now at, or close to, historic highs pretty much across the board on the credit indices," said Dr Suki Mann, an expert at Société Générale.

"There's a vicious spiral as banks are having to protect themselves against these market movements by hedging, and that drives the indices even higher. It's not a crunch as such because companies can still borrow if they need to, but nobody is willing to pay these premiums. The market has shut down," he said.

Willem Sels, a specialist at Dresdner Kleinwort, said investors had been rattled by losses of $4.9bn at AIG and by the refusal of Standard Chartered to bail out its failed fund Whistlejacket after a $7.15bn rescue collapsed.

The risk is an avalanche of forced asset sales in the mortgage securities market. "The banks no longer have the luxury to take a long-term view," said Mr Sels. "They themselves face tight liquidity conditions, so they can no longer rescue every single borrower.

"This crisis is not going to stop at mortgages. It is spreading to credit card debt, auto debt, and now student loans. On top of that we think corporate defaults will rise from 1.1pc to between 5pc and 9pc over the next 12 months."

US house prices have fallen by 7.7pc over the past year, according to the Case-Shiller index of the 20 biggest cities. The slide is likely to gather pace as 2.2m mortgages taken out at the height of the credit bubble adjust upwards by 250-300 basis points. Goldman Sachs says house prices may fall by as much as 25pc from peak to trough - creating the worst slump since the Great Depression.

Over 40pc of all mortgages issued from late 2005 to early 2007 are on adjustable rates - a break with the US tradition of fixed-rate borrowing.

Mr Sels said $40bn to $50bn would reset each month from now on, reaching peak pain late this year. "Borrowers never expected to pay the new rates. They assumed they could roll over their mortgages when the time came, but that is now impossible," he said.

"There are very similar problems emerging in Britain, Ireland and Spain. We know from the lending surveys by the Bank of England and the European Central Bank that conditions have tightened a great deal."

Emergency rate cuts by the US Federal Reserve will cushion the blow this year. The federal funds rate has come down from 5.25pc to 3pc since September, and is almost certain to drop further. However, the crisis is now moving with such speed that it may already be too late to avoid a domino effect as one distressed sector topples into the next.

The arrears rate on US auto loans has reached 7.1pc. Defaults on home equity loans have jumped to 5.7pc.

The latest concern is paralysis in the $250bn US market for auction-rate securities (ARS), which fund state governments. A series of deals has failed over the past two weeks. The risk is a slide in ARS prices along the lines of the mortgage debacle, leaving banks with yet another chunk of losses.

Cap and Trade: Solution or Stealth Tax?

Congress is considering several pieces of legislation that would implement a “cap and trade” emissions trading scheme. In early December, the Senate Environment and Public Works Committee approved a bill introduced by Senators Joseph Lieberman (D-Connecticut) and John Warner (R-Virginia). Senator Barbara Boxer has endorsed the bill, America’s Climate Security Act of 2007, saying it’s an ideal framework for dealing with global warming as it “embodies all the key concepts,” and is “the perfect starting point for discussions.”

The Lieberman-Warner bill would place mandatory caps and reductions on greenhouse gases (mainly CO2), as well as caps on industries in the U.S. responsible for emitting 75 percent of greenhouse gases. The system is designed to reduce emissions by 70 percent by 2050. Sounds like a great idea, right? Not so fast.

An April 2007 Massachusetts Institute of Technology report estimated the annual cost of implementing these schemes between $263 billion and $366 billion. The estimated annual cost for a family of four is $3,500 to $4,900, with a disproportionate share from low-income families. In November 2007, the Congressional Budget Office estimated that a modest 15 percent reduction in CO2 emissions would cost consumers $100 billion annually, and similarly found that low-income families would bear the brunt.

In reality, the cap and trade proposals are nothing more than a regressive tax that will cause a massive redistribution of wealth upward, with no real benefit. The proposals would mandate emission reductions (read energy usage), which can only be obtained by curtailing output. The result: economic recession.

_____________________

Cap and Trade: Solution or Stealth Tax?

Congress is considering several pieces of legislation that would implement a “cap and trade” emissions trading scheme. In early December, the Senate Environment and Public Works Committee approved a bill introduced by Senators Joseph Lieberman (D-Connecticut) and John Warner (R-Virginia). Senator Barbara Boxer has endorsed the bill, America’s Climate Security Act of 2007, saying it’s an ideal framework for dealing with global warming as it “embodies all the key concepts,” and is “the perfect starting point for discussions.”

The Lieberman-Warner bill would place mandatory caps and reductions on greenhouse gases (mainly CO2), as well as caps on industries in the U.S. responsible for emitting 75 percent of greenhouse gases. The system is designed to reduce emissions by 70 percent by 2050. Sounds like a great idea, right? Not so fast.

An April 2007 Massachusetts Institute of Technology report estimated the annual cost of implementing these schemes between $263 billion and $366 billion. The estimated annual cost for a family of four is $3,500 to $4,900, with a disproportionate share from low-income families. In November 2007, the Congressional Budget Office estimated that a modest 15 percent reduction in CO2 emissions would cost consumers $100 billion annually, and similarly found that low-income families would bear the brunt.

In reality, the cap and trade proposals are nothing more than a regressive tax that will cause a massive redistribution of wealth upward, with no real benefit. The proposals would mandate emission reductions (read energy usage), which can only be obtained by curtailing output. The result: economic recession.

The Emissions Trading Scheme: The European Experience

In 2004, the European Union adopted the Emissions Trading Scheme as the primary mechanism to ensure compliance of their Kyoto Protocol obligations. Trading of emissions credits began in 2005, with an initial trading period set for 2005-07 and a second one for 2008-12, coinciding with the Kyoto Protocol’s expiration.

The E.T.S was designed to include only large industrial carbon dioxide sources, including the following:
- Combustion installations over 20 megawatts
- Oil refining installations
- Cokes, iron, and steel production
- Lime and cement production
- Glass production
- Ceramics
- Paper and pulp production

Each member state was required to define an allocation plan for emissions credits consistent with its commitment under the Kyoto Protocol, and to comply with E.U. rules on competition and state subsidies.

Despite high hopes, the E.T.S. has not worked. The program will not meet the member states’ obligations under Kyoto, and the price of emissions credits for the first trading period have plunged from around $30 a ton in March 2006 to less than $1 per ton by February 2007. Thus, the cost to companies for exceeding their emissions allowance is essentially zero. Futures prices for emissions credits in the second trading period remain high, due to uncertainties over future allocations, caps, and changes to the program.

Several factors have led to the failure of the first phase. Among the problems: initial caps were set too high (they were estimated at 3 percent higher than actual emissions); the program was too complex; there was no transparency in how the credits were allocated; and there was major inequality among the member states. In some states, the covered industries represented as little as 30 percent of emissions, whereas in others, they accounted for 70 percent.

The E.T.S. has had a number of unintended economic consequences. In Germany, for example, electricity prices rose by almost 25 percent during the first trading period, while German electricity generators earned extra-normal profits of several billion euros. Electricity prices are set to rise 10 percent this winter in the U.K. Cement producers across southern Europe now face competition from Morocco and Algeria, as producers there are not subject to emissions purchase. The net result is increased global emissions and job loss within Europe.

A recent study has suggested that continuation of the E.T.S. through 2012 will result in a net reduction in gross domestic product across the E.U.-15, ranging from 1.3 percent for Great Britain to 3.3 percent for Italy. In other words: recession.

Bank reserves category goes negative
Fed: We are concerned but not alarmed

A new report from the Federal Reserve has confirmed the non-borrowed reserves of U.S. banks plummeted to a negative $18 billion at a recent accounting, reflecting an apparently worsening situation from the negative $8.8 billion reported at the end of January.

The numbers appeared particularly alarming in that the Fed, going back to1959, never before had reported that the non-borrowed reserves of depository institutions had been in the red.

But experts said the assumption bank assets had deteriorated so badly that financial institutions would be bankrupt if the Fed did not provide billions in liquidity to prop up bank balance sheets is alarmist.

Econometrician John Williams, in his subscription newsletter ShadowStats.com, said the negative numbers are a result of how the Fed has chosen to account for lending at a new Federal Reserve discount window, identified as the term auction facility, or TAF.

Technically, a close examination of the Fed data reveals TAF borrowing hit $60 billion in the two-week period ending Feb 13, while required bank reserves were $40 billon, a large part of the explanation why non-borrowed bank reserves were recorded as a negative $18 billion.

In other words, banks still have $40 billion in required reserves, an amount that has remained stable since the beginning of 2007.

Still, Williams reports the appearance of the negative numbers in this report, while not a cause of alarm, should be a cause of concern.

"That lending dwarfs total reserves suggests the banking system remains unstable in its still-unfolding solvency/liquidity crisis," Williams wrote.

If the crisis in bank assets and reserves was over, Williams argues, TAF lending would be at zero, not exploding at the current rate of some $20 billion per month, and banks again would be willing to lend to each other in the overnight markets, the normal method banks used to adjust reserve requirement shortfalls.

As long as the Fed remains willing to provide an almost unlimited amount of liquidity to its TAF auction facility, banks should be able to continue meeting reserve requirements, even if the amount of borrowing from the Fed is at levels previously not experienced.

In a technical note, reported by the Wall Street Journal, the Fed attempted to dispel concern as a "false alarm" by arguing, "The negative level of non-borrowed reserves is an arithmetic result of the fact that TAF borrowings are larger than total reserves."

Put simply, the concern among financial experts is the continuing crisis in mortgage assets, reflected in banks having to discount the value of Collateralized Mortgage Obligations in their asset portfolios.

Collateralized Mortgage Obligations, or CMOs, are securities put together when Wall Street firms package mortgage loans sold by originating financial institutions, features which then are sold back to the financial institutions.

As defaults and foreclosures have grown in the mortgage market, these losses have to be reflected in the CMOs which bundled the mortgage loans together.

Then, as financial institutions bring the CMOs to market and find their value has decreased, these losses must be reflected in the banks writing off the CMO losses, in turn reducing the estimated market value of their assets by the amount of CMO losses written-off.

Testifying before the Senate Committee on Banking, Housing, and Urban Affairs on Feb. 14, Federal Reserve Chairman Ben S. Bernanke acknowledged his continuing concern about the adequacy of bank assets.

He noted some banks have responded to recent losses in their asset portfolios by raising additional capital.

"Notwithstanding these positive factors," Bernanke said, "the unexpected losses and the increased pressure on their balance sheets have prompted banks to become protective of their liquidity and balance sheet capacity and, thus, to become less willing to provide funding to other market participants, including other banks."

Bernanke also noted banks were becoming more restrictive in lending to businesses and households, a factor Bernanke saw as contributing to a worsening outlook for the economy in recent months.

This news is more on the upside...still I wonder if we'll take advantage of it or leave it unexplored like the Alaskan oil fields:

Massive Oil Deposit could Increase US Reserves by 10X

from Next Energy News, February, 2008

"America is sitting on top of a super massive 200 billion barrel Oil Field that could potentially make America Energy Independent and until now has largely gone unnoticed...The Bakken Formation in North Dakota could boost America's Oil Reserves by 10 times...In the next 30 days the USGS (U.S. Geological Survey) will release a new report giving an accurate resource assesment of the Bakken Oil Formation that covers North Dakota and portions of South Dakota and Montana. With new horizontal drilling technology it is believed that from 175 to 500 billion barrels of recoverable oil are held in this 200,000 square mile reserve that was initially discovered in 1951. The USGS did an initial study back in 1999 that estimated 400 billion recoverable barrels were present but with prices bottoming out at $10 a barrel back then the report was dismissed because of the higher cost of horizontal drilling techniques that would be needed, estimated at $20 to $40 a barrel.

It was not until 2007, when the EOG resources of Texas started a frenzy when they drilled a single well in Parshall N.D. that is expected to yield 700,000 barrels of oil, that real excitement and money started to flow in North Dakota. Marathon Oil is investing $1.5 billion and drilling 300 new wells in what is expected to be one of the greatest booms in Oil discovery since Oil was discovered in Saudi Arabia in 1938.

How much of an impact can this discovery have on the United States?

The US imported about 14 million barrels of oil per day in 2007, which means US consumers sent about $340 billion over seas building palaces in Dubai and propping up unfriendly regimes aroung the world. If 200 billion barrels of oil are recovered at $90 a barrel in the high plains the added wealth to the US economy would be $18 trillion dollars which would go a long way in stabilizing the US trade deficit and could cut the cost of oil in half in the long run."

Spike In Unemployment Benefits Seekers
Department Of Labor Reports Rise In Jobless Claims, Further Evidence Of Economic Slowdown

More new people signed up for unemployment benefits last week, fresh evidence that a general economic sluggishness in the country is spilling over into the job market.

The Labor Department reported Thursday that new applications for unemployment benefits rose by 19,000 to 373,000 last week. The increase was larger than many economists were expecting. They were forecasting claims to rise to around 350,000 last week.

Fallout from a housing bust and credit crunch is sapping the economy's strength. The economy barely grew - at 0.6 percent - in the final quarter of last year and is expected to be even weaker in the current January-to-March period. With the economy slowing, companies have been reluctant to hire and want to keep their existing work forces lean.

The U.S. economy skidded to a near halt in the final quarter of last year, clobbered by dual slumps in housing and credit that caused people and businesses to spend and invest more sparingly.

The Commerce Department reported Thursday that the gross domestic product increased at a scant 0.6 percent pace in the October-to-December quarter. The reading - unchanged from an initial estimate a month ago - underscored just how much momentum the economy has lost. In the prior quarter, the economy clocked in at a brisk 4.9 percent pace.

Economists had thought the newly released fourth-quarter GDP would have been bumped up to a 0.8 percent growth rate.

The housing picture looked even more bleak in the new report.

Builders slashed spending on housing projects by a whopping 25.2 percent on an annualized basis in the fourth quarter, the biggest cut in 26 years.

And, even though economic growth slowed, inflation picked up - an ominous mix that could spell further trouble for the economy.

The National Association for Business Economics expects economic growth in the current January-to-March quarter to slow to a meager 0.4 percent pace. Some analysts believe the economy's performance could be even worse and actually shrink during this period. Under one rough rule, the economy would have to contract for six months in a row for the country to be viewed as in a recession.

With risks lurking that the problems could intensify and further hurt the economy, Federal Reserve Chairman Ben Bernanke made clear he stands ready to lower a key interest rate again. The Fed, which started cutting interest rates to bolster the economy in September, has turned much more aggressively recently. In eight days in January, the Fed slashed rates by 1.25 percentage points - the biggest one-month reduction in a quarter-century. Rates are expected to move lower at the Fed's next meeting on March 18.

Bernanke, however, is hopeful that previous rate reductions and the $168 billion economic aid plan of tax rebates for people and tax breaks for business will energize the economy in the second half of 2008.

A gauge of inflation linked to the GDP report showed that "core" prices - excluding food and energy - grew at a rate of 2.7 percent in the fourth quarter. The inflation reading - although unchanged from the government's initial estimate - showed that inflation had picked up sharply from the third quarter's 2 percent pace.

The inflation figure is above the Fed's comfort zone - the upper bound of which is a 2 percent inflation rate.

With inflation rising as the economy slows, fears are increasing that the country may be headed for a bout of stagflation. That's a scenario the country hasn't experienced since the 1970s.

Even though Bernanke has made clear the Fed's top priority - for now - is trying to get the economy back on track, he also says he remains mindful of inflation risks, especially from high energy prices.

Oil prices have reached new record highs, galloping past $100 a barrel in recent days. High energy prices can spread inflation by boosting the costs of a wide variety of other goods and services and can put a further damper on overall economic growth by crimping consumer spending.

Consumers boosted their spending at just a 1.9 percent pace in the fourth quarter. That was down slightly from the government's previous estimate and marked a pullback from the third quarter's 2.8 percent growth rate. Consumer spending accounts for a big share of overall economic activity and thus is a major factor in how the economy fares.

Business spending on equipment and software grew at a 3.3 percent pace in the final quarter of last year. That was lower than the government's initial estimate and marked a deceleration from the third quarter's 6.2 percent growth rate.

There was a bright spot in the report, however. Sales of U.S. goods and services to other countries grew at a 4.8 percent pace in the fourth quarter, better than previously estimated. U.S. exports have been helped by the declining value of the U.S. dollar, which makes U.S. goods less expensive on foreign markets. The U.S dollar dipped to another record low on Thursday in Europe.

For all of 2007, the economy grew by 2.2 percent, the weakest showing in five years. That estimate also was not changed from an earlier reading.

Fallout from a housing bust and credit crunch is sapping the economy's strength. The economy barely grew - at 0.6 percent - in the final quarter of last year and is expected to be even weaker in the current January-to-March period. With the economy slowing, companies have been reluctant to hire and want to keep their existing work forces lean.

US STOCKS-Wall St slides on GDP, Fed warning on banks

Stocks sank Thursday as investors fretted over a rise in unemployment claims and the prospect of more bank failures. The Dow Jones industrial average fell 112 points, breaking its four-day winning streak.

Federal Reserve Chairman Ben Bernanke said in testimony to Congress that while large U.S. banks will likely recover from the recent credit crisis, other banks are at risk of failing. Three small U.S. banks have already failed since the summer, when the lending industry started losing billions of dollars as mortgage defaults soared.

"Implying that some banks may fail stirs concerns for any investor who's familiar with financial and economic history," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. "Investors have been very edgy about credit market conditions and banks' financial conditions. Very edgy. And this doesn't remove that edginess."
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Earlier, stocks had fallen in response to a Labor Department report that first-time unemployment claims rose last week by 19,000 to 373,000, the highest level since late January.

Scott Wren, equity strategist for A.G. Edwards & Sons, said he still believes there's less than a 50 percent chance of a recession, but that it's clear employers are cautious about hiring.

"To consistently see claims up near 400,000, that's pretty telling often-times of a recession," he said.

Following four straight days of gains in the Dow — its longest run of gains so far this year — the blue-chip index sank 112.10, or 0.88 percent, to 12,582.18.

Broader stock indicators also lost ground. The Standard & Poor's 500 index declined 12.34, or 0.89 percent, to 1,367.68, and the Nasdaq composite index lost 22.21, or 0.94 percent, to 2,331.57.

Bernanke offered up some positive comments in his testimony — that most banks will bounce back from their mortgage troubles, that inflation should ease, and that the United States is nowhere near the stagflation scenario of the 1970s. When stagflation is present, the economy remains weak as inflation accelerates.

But Wall Street was skeptical of Bernanke's fairly upbeat take on the economy — particularly as oil and gold hit new records — and latched onto his admission that more banks could fail.

"Bernanke is about as skillful a Fed chairman as I have seen," said Johnson, whose more than four-decade career spans six Fed chairmen. "But these times require a very, very skillful chairman. I don't believe I've seen times as challenging as these."

Crude oil jumped $2.95 to settle at a record $102.59 a barrel on the New York Mercantile Exchange.

Gold prices also spiked to an all-time trading high of $975 an ounce.

Government bonds rose as stocks slumped. The yield on the benchmark 10-year Treasury note, which moves opposite its price, sank to 3.67 percent from 3.85 percent late Wednesday.

Meanwhile, corporate news was gloomy. Sprint Nextel Corp. posted a $29.5 billion loss in the fourth quarter after losing customers and writing down the remaining value of its Nextel Communications buy. It also slashed its dividend. Sprint tumbled 86 cents, or 9.6 percent, to $8.09.

Thornburg Mortgage Inc. plunged after the lender said it has received margin calls — calls for immediate repayment of debt — on a portfolio of securities backed by alt-A mortgages. Alt-A loans are those given to customers with little credit history or minor credit problems.

Thornburg fell $1.78, or 15.4 percent, to $9.76.

And investors remain jittery about the prospect of more problems emerging in the struggling financial sector. A few weeks after French bank Societe Generale revealed a $7 billion loss due to the actions of a rogue trader, New York-based futures and options broker MF Global Ltd. said Thursday it lost $141.5 million after a broker traded more wheat contracts than allowed.

MF Global dropped $8.09, or 27.6 percent, to $21.19.

After the market closed Thursday, Dell Inc. reported a quarterly profit decline that was worse than Wall Street expected. Dell shares fell more than 2 percent in aftermarket trading.

The Russell 2000 index of smaller companies fell 10.72, or 1.50 percent, to 705.72.

Declining issues outnumbered advancers by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.46 billion shares.

Overseas, Japan's Nikkei stock average fell 0.75 percent. Britain's FTSE 100 fell 1.75 percent, Germany's DAX index fell 1.92 percent, and France's CAC-40 fell 1.97 percent.

Home foreclosures climb to record high
More owners falling behind on payments – 'Clearly it's the worst it's been'

U.S. home foreclosures soared to an all-time high in the final quarter of last year and are likely to keep on rising, underscoring the suffering of distressed homeowners and the growing danger the housing meltdown poses for the economy.

The Mortgage Bankers Association, in a quarterly snapshot of the mortgage market released today, said the proportion of all mortgages nationwide that fell into foreclosure shot up to a record high of 0.83 percent in the October-to-December quarter. That surpassed the previous high of 0.78 percent set in the prior quarter.

"Clearly it's the worst it's been," chief association economist Doug Duncan said in an interview with The Associated Press.

In Washington state, the foreclosure rate in the quarter was 0.38 percent.

The report also showed that more homeowners nationwide fell behind on their monthly payments. The delinquency rate for all mortgages climbed to 5.82 percent in the fourth quarter. That was up from 5.59 percent in the third quarter and was the highest since 1985. Payments are considered delinquent if they are 30 or more days past due.

In Washington state, the delinquency rate was much lower. Just 3.23 percent of mortgages were past due. (Numbers for specific counties were not available.)

Nationwide, homeowners with tarnished credit who have subprime adjustable-rate loans were the hardest hit. Foreclosures and late payments for these borrowers also swelled to all-time highs in the fourth quarter.

The percentage of subprime adjustable-rate mortgages that entered the foreclosure process soared to a record of 5.29 percent in the fourth quarter. That was up from 4.72 percent in the prior quarter, which had marked the previous high.

At the same time, 2.9 percent of Washingtonians with subprime adjustable-rate loans entered foreclosure. However this type of loan represents a fraction of the mortgages in Washington state. There are a total of 65,155 subprime adjustable-rate loans on the books in Washington, compared with about 1 million prime loans, the Mortgage Bankers Association reported.

Nationally, late payments by people with subprime adjustable-rate loans skyrocketed to a record high of 20.02 percent in the fourth quarter, up from 18.81 percent — the previous high — in the third quarter.

The association's survey covers almost 46 million home loans nationwide.

"Mortgage credit quality is deteriorating fast," said Mike Larson, a real-estate analyst at Weiss Research.

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The worsening foreclosure and late-payment figures come as fears grow that the country is teetering on the edge of a recession or in one already.

The wave of foreclosures threatens to deepen the already severely depressed housing market. The homes people are forced out of add to the big glut of unsold homes already on the market. That forces even more cutbacks by homebuilders, taking a big bite out of national economic activity. Harder-to-get credit, meanwhile, has thwarted would-be home buyers, aggravating problems in the housing market.

Homeowners with spotty credit histories or low incomes who took out higher-risk subprime adjustable-rate mortgages have suffered the most distress as the housing market went from boom to bust. Initially low interest rates that reset to much higher rates have clobbered these borrowers. With home values dragged down by the slump, many borrowers were left with mortgages that eclipsed the value of their homes.

"Declining home prices are clearly the driving factor behind foreclosures, but the reasons and magnitude of the declines differ from state to state," Duncan said.

In a separate report, Americans' percentage of equity in their homes has fallen below 50 percent for the first time on record since 1945, the Federal Reserve said.

Homeowners' percentage of equity slipped to a downwardly revised 49.6 percent in the second quarter of 2007, and declined further to 47.9 percent in the fourth quarter — the third straight quarter it was under 50 percent. That marks the first time homeowners' debt on their houses exceeds their equity since the Fed started tracking the data in 1945.

Even with relief efforts under way by industry and the government, Federal Reserve Chairman Ben Bernanke earlier this week warned that foreclosures and late payments on home mortgages are likely to rise "for a while longer."

Duncan, at the Mortgage Bankers Association, agreed. "We expect some increases in the next couple of quarters," he said. The economic slowdown, harder-to-get credit and lofty energy prices are adding to the strains, he said.

Against this backdrop, Bernanke called for additional relief and urged lenders to help distressed owners by lowering the amount of their loans. "This situation calls for a vigorous response," Bernanke said in a speech Tuesday.

Bernanke's recommendation for lenders to reduce the amount owed on troubled home loans goes beyond the position staked out by the Bush administration. The Fed chief, however, didn't go as far as to endorse some proposals embraced by Democrats on Capitol Hill.

Among the initiatives promoted by the administration is allowing some homeowners with certain subprime home loans to freeze their interest rate for five years.

California and Florida continued to represent a disproportionate share of the country's new foreclosures. The two states accounted for 30 percent of mortgages starting the foreclosure process, the association said. "In states like California, Florida, Nevada and Arizona, overbuilding of new homes created a surplus that will take some time to work through," Duncan said. That glut has pushed down house prices, he said.

The fallout afflicts neighborhoods, too.

"Foreclosures not only create personal and financial distress for individual homeowners but also can significantly hurt neighborhoods where foreclosures cluster," Bernanke said.

With recession looming, be prepared for layoff
You may feel secure now, but you never know when pink slip is coming

The dreaded “R” word – recession – has been dominating business headlines for months now. More and more economists are predicting bleak economic conditions and weak job growth in the coming months.

On Friday, it was reported that employers slashed 63,000 jobs in February, the most in five years. Do you need any more signs that we are teetering on the verge of recession?

Even if you feel secure in your job at this moment in time, here’s a sobering thought: Because of forces beyond your control, you could be hit with an unexpected layoff at almost any moment.
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For this reason, it’s always a good idea to plan ahead for potential financial emergencies before they strike. The following tips can help.

1. Establish an emergency fund. Set aside enough money to cover your basic living expenses for three to six months. This should give you the ability to pay your rent or mortgage, buy food and repay debts. Consider socking this money away in an online-only, high-yield money market account or a short-term certificate of deposit. For more details about how to choose such an account and earn more interest on your dough, read this past “10 Tips” column on the subject.

2. Live within your means. Try hard not to spend excessively on items and services you don’t truly need. This will make it even easier to build up that emergency fund once and for all. For additional ideas about how to establish an emergency fund, this past “10 Tips” column about how many middle-class families are being squeezed financially could be of help to you.

3. Use credit cards with great caution. Especially if you have a hunch that a layoff might be looming, be extra careful with credit. A credit card can keep you in denial about your true financial situation. Accumulating debt will only add to your stress – and you don’t need any more stress, whether you lose your job or not.

4. Talk about money with your partner. Even when things are going well, it’s common for one partner to be completely unaware that the other partner has different financial priorities and goals. A layoff – or the specter of a layoff – can put the spotlight on such differences and lead to terrible fights. To avoid this, talk honestly and set goals together about how to cope in the coming weeks and months.

5. Tackle high-interest debt. Before a layoff ever strikes, make sure you’re not letting debt hang around for months on a high-interest credit card. Transfer that debt to cards with lower interest rates, or consider paying it off with money from a small closed-end loan from your bank or credit union. Then over the next three months or so, you can concentrate on paying back that lower-interest loan.

6. Network, network, network. Always make a point of getting to know as many people as you can in your line of work. By having plenty of friends and contacts in your industry, you’ll stand a better chance of finding work quickly if you lose your job.

7. Line up a line of credit while you’re still employed. If you own a home and you can see that a job loss might be coming, consider opening a home-equity line of credit and keeping it open. Don’t tap into the line of credit at all; just know that it’s there in case a real emergency hits. Some lenders – but not all – charge an annual maintenance fee in the $75 to $100 range for keeping a line of credit open, but that can be worth it for the peace-of-mind factor.

8. Pursue disability coverage before you lose your job. Personal disability coverage is an important thing to have – and it’s also important to secure coverage based on your current level of income. Apply for such coverage while your income is at its highest. This would involve supplementing the group coverage you may have through your job with individual coverage. If you buy additional coverage on your own, you can take it with you when you change jobs, and it will be tax-free. Comprehensive disability coverage can be very costly, but you can find accident-only disability policies for as little as $25 a month. At least you’d have that much coverage during a bout of unemployment; once you get back on your feet, you could make sure you have disability insurance that covers both accidents and illnesses. For more details about individual disability coverage, visit this About Disability Insurance site and this Insurance Information Institute site.

9. Pursue higher education while you can. Do you work for a large company that offers a “Corporate U,” or for an employer that helps cover education costs at schools in your area? Tap into that resource so you can improve your skills and bolster your resume. Hundreds of corporate university classes have been accredited, meaning you could get college credit for them if you ever enroll in a degree program.

10. Investigate your health insurance policy. Be clear on what your health plan covers, and figure out how much it would cost to extend your employer’s group insurance coverage through the federal program COBRA. Be aware that you would have to pay both the employer and employee shares of the premiums – ouch – but at least you’d get to keep the same coverage.

Gasoline prices hit new high, seen jumping more

U.S. average retail gasoline prices have reached a new high of almost $3.20 per gallon and will likely jump another 20 to 30 cents in the next month, worsening the pain of consumers struggling to make ends meet in an economic downturn.

Gasoline prices are rising sharply as refiners, who have kept prices down in order to compete for sales, become more willing to pass on their higher costs of crude oil, according to an industry analyst on Sunday.

The national average for self-serve regular unleaded gas was nearly $3.20 a gallon on March 7, up about 9.44 cents per gallon in the past two weeks, according to the nationwide Lundberg survey of about 7,000 gas stations. The price has risen 64 cents per gallon in the past 12 months.

"The price increase was entirely due to the higher costs of crude oil," said survey editor Trilby Lundberg.

Although the latest price represents a nominal all-time high, when adjusted for inflation it is a smidgen below the record of $3.18 per gallon reached on May 18, 2007, Lundberg said.

Lundberg said things will likely get worse, with prices at the pump rising 20 to 30 cents per gallon in the next month as refiners begin passing on to customers more of their higher costs for crude oil.

"Should prices indeed rise 20 to 30 cents, they would vastly exceed previous prices on an inflation-adjusted basis," Lundberg said.

Refiners since last spring have deliberately refrained from passing on their higher costs for crude oil, in order to compete for sales, she said.

"But refiner profit margins have become so slim that they will now raise prices to recover their lost margins," said Lundberg. Likewise, she said retailers will also be less willing to hold back from passing on their higher costs to drivers.

Moreover, prices will also rise because of the return to daylight savings time and the approach of warmer weather, Lundberg said.

"Spring demand growth will soak up the current surplus of U.S. gasoline and put more pressure on prices," Lundberg said.

At $3.58 a gallon, the San Francisco Bay Area had the highest latest average price for self-serve regular unleaded gas on March 7, while the lowest price was $2.95 in Cheyenne, Wyoming.

The average U.S. diesel price was $3.80 a gallon in the latest survey, up 22 cents a gallon from two weeks ago, and $1.02 higher than this time last year.

Does The Latest Jobs Report Confirm A Recession?

There is a debate right now in the financial world concerning whether or not the U.S. has entered into a recession, but who is right? Does the government’s latest jobs report, which showed that employers eliminated 63,000 jobs last month, confirm the recession?

Ultimately no one knows exactly when we “officially” enter a recession or not. The government certainly won’t admit to it if we are, and they are going to do their very best to delay any mention of it. To identify whether or not we are truly in a recession, we have to look at the GDP. A recession is defined as two straight quarters with negative GDP growth. The problem is that those numbers are reported so far behind, and then later adjusted (typically for the worse), that by the time we can know what the real numbers are we’ll quite possibly have been in the recession for some time.

The job report came as a surprise to most people, as the official estimates anticipated an increase of around 25,000 jobs. Typically in a recession, jobs are a trailing indicator. It takes some time for businesses to start feeling the effects of a recession which ultimately lead to layoffs. The fact that jobs are declining would typically back up the argument that a recession is already here.

The difference in this jobs report, though, is that the unemployment rate actually fell (to 4.8 percent), which means that people were leaving the work force entirely. The baby boomers are beginning to retire, and so we are entering a period where this will be a common phenomenon. The question we have to ask is whether these jobs will be replaced. If companies are forcing employees into early retirement, or removing the jobs altogether, then it will still have the same net effect as typical job reductions. However, if these companies will eventually replace these retirees with new people, then the outcome is a little different.

My gut tells me that the first possibility (forced early retirement) is very prevalent. I have felt for sometime that we are looking at an unavoidable recession, and to me this is just the first round of “nice layoffs.” I suspect that there will be much harsher ones still to come.

So while this latest jobs report does not “officially” tell us a recession is here (as only the GDP numbers can do that), one can begin to see the writings on the wall. My advice is to start planning for a recession (save your money, “what if” you lose your job, etc), because if you plan and it doesn’t come you are much better off then if you didn’t plan and it does come.

Recession? Maybe worse.
Economy stumbles more
Expert says it could take years to recover
from financial crisis now going global

It was another gloomy day on the financial markets, as more economic indicators suggested America's financial crisis is deepening and spreading globally.

Chrysler told employees worldwide – not just factory workers – to take a mandatory two-week vacation in July.

* The Carlyle Group announced creditors planned to seize the assets of its mortgage-bond fund after it failed to meet more than $400 million in margin calls on mortgage-backed collateral that has plunged in value.

* Gold rose above $1,000 an ounce for the first time as mounting credit-market losses spurred demand for bullion as a haven from the sagging dollar and equities. Silver and platinum also advanced as the dollar dropped below 100 yen for the first time since 1995 and to a record against the euro. Gold is up 37 percent since the Federal Reserve began cutting interest rates in September, sending the dollar tumbling.

* U.S. home foreclosure filings jumped 60 percent and bank seizures more than doubled in February as rates on adjustable mortgages rose and property owners were unable to sell or refinance amid falling prices.

* Retail sales in the U.S. unexpectedly fell in February, indicating that declines in payrolls and home values and a surge in energy costs have pushed the economy into a recession. Sales dropped 0.6 percent, led by auto dealers and restaurants, after a 0.4 percent gain in January, the Commerce Department said. Meanwhile, the Labor Department said jobless benefits rolls climbed to a 2 1/2-year high, and import prices soared 13.6 percent from a year ago, reflecting higher energy costs.

* U.S. import prices rose by a less-than-expected 0.2 percent in February as petroleum prices dipped while export prices increased by a surprisingly strong 0.9 percent as food prices soared, a government report showed today.

* Global writedowns linked to the U.S. sub-prime crisis could reach $285 billion, $20 billion more than expected earlier this year, credit ratings agency Standard & Poor's said in a report published today.

* The Dow and Nasdaq indexes were up slightly after a morning plunge.

Meanwhile, in the March-April edition of Foreign Policy magazine, the chairman of RGE Monitor warns that central banks cannot save the U.S. or the world from the worsening recession. Slashing interest rates is not enough, writes Nouriel Roubini, a professor of economics at New York University's Stern School of Business.

"Central banks don't have as free a hand (as they had in 2001)," he writes. "They are constrained by higher levels of inflation."

He also cautions that stimulus packages, like the one passed by Congress and signed by President Bush, will have little beneficial impact on the stalling economy.

"The United States is facing a financial crisis that goes far beyond the subprime problem into areas of economic life that the Fed simply can't reach," says Roubini. "The problems the U.S. economy faces are no longer just about having enough cash on hand; they're about insolvency, and monetary policy is ill equipped to deal with such problems."

Roubini points out the sorry details all too evident in the day's news – led by millions of households on the brink of default on mortgages.

"When the economy falls further, corporate default rates will sharply rise, leading to greater losses," he writes. "There is also a 'shadow banking system,' made up of non-bank financial institutions that borrow cash or liquid investments in the near term but lend or invest in the long term in non-liquid forms. Take money market funds, for example, which can be redeemed with just one month's notice. Many of these funds are invested and locked into risky, long-term securities. This shadow banking system is therefore subject to greater risk because, unlike banks, they don't have access to the Fed's support as the lender of last resort, cutting them off from the help monetary policy can provide."

Roubini concludes it will "take years to resolve the problems that led to this crisis."

In fact, it's hard to consider solutions when the problems seem to grow worse each day – especially in the area of mortgage foreclosures.

"With declining prices, there is a pervasive problem of not being able to refinance or sell,'' Susan Wachter, professor of real estate at the University of Pennsylvania's Wharton School in Philadelphia, told Bloomberg News. "I'm very concerned. This is continuing to worsen. It tells us that we are not at a bottom.'''

About $460 billion of adjustable-rate mortgages are scheduled to reset this year and another $420 billion will rise in 2011, according to New York-based analysts at Citigroup Inc. Homeowners faced higher payments as fourth-quarter home prices fell 8.9 percent, the biggest drop in 20 years as measured by the S&P/Case-Shiller home price index.

According to Rick Sharga, executive vice president of RealtyTrac, foreclosure filings are likely to be "explosive'' in May and June as more payments jump, after remaining at current levels this month and next. He said there may be between 750,000 and 1 million bank repossessions in 2008. '

February was the 26th consecutive month of year-on-year monthly foreclosure increases, Sharga told Bloomberg News.

Carlyle Capital in default, on brink of collapse
Amsterdam company may have $16.6 billion in assets seized

An affiliate of U.S.-based buyout firm Carlyle Group has defaulted on about $16.6 billion of debt and expects its lenders to seize remaining assets as the global credit crunch tightens around leveraged investors.

The Carlyle Group said in a statement on Thursday that as Carlyle Capital Corp , a fund listed in Amsterdam, was unable to reach a deal with lenders it expected those lenders to take possession of the fund's remaining residential mortgage-backed securities assets.

Carlyle said it had worked "exhaustively" to assist Carlyle Capital and took "extraordinary measures" to help it through its liquidity crisis.

It stressed that Carlyle Capital Corp (CCC) was a separate legal and business entity, and that it believed CCC would not have a measurable impact on Carlyle's other funds, investments and portfolio companies. Carlyle Group said that Carlyle Capital's defaults did not trigger cross-defaults for any Carlyle borrowings.

The Carlyle Group, based in Washington, DC, has more than $75 billion under management. One of the world's largest private equity firms, it owns companies including TV ratings firm Nielsen, doughnut seller Dunkin' Brands and former General Motors unit Allison Transmission.

Carlyle Capital said in New York late on Wednesday that talks with lenders deteriorated after a decline in the value of its mortgage investments, which it said would result in margin calls of $97.5 million on top of the $400 million it was already facing.

A "successful refinancing is not possible," Carlyle Capital said, after trying for the past week to work out a deal with lenders to stave off bankruptcy.

The credit crisis, triggered last year when subprime mortgages made to risky U.S. borrowers went sour, has put increasing pressure on lenders to tighten credit and made it difficult to value collateralized debt, mortgage portfolios and other fixed-income securities -- the investments that Carlyle Capital was set up to invest in.

"We've been expecting, for a while, for the hedge funds to get into trouble," said Andrea Cicione, a credit strategist at BNP Paribas, one of Carlyle Capital's lenders.

"We are in a vicious spiral of unwinding years of increasing leverage in the space of a few weeks," he said, and no one can say how much leverage must be wrung out before the unwinding comes to an end.

Carlyle Capital, based in Britain's offshore dependency of Guernsey, said the only assets it has left are AAA-rated residential mortgage-backed securities, and it expected lenders to foreclose on that collateral.

"It has become apparent to the company that the basis on which lenders are willing to provide financing against the company's collateral has changed so substantially that a successful refinancing is not possible," Carlyle Capital said.

Its shares sank 87 percent to 35 cents, a fraction of their $20 debut price last July. Dutch market regulator AFM said it was monitoring developments closely.

SUPPLY WORRIES

Among the counterparties for Carlyle's repurchasing agreements, Deutsche Bank, Merrill Lynch & Co and Bear Stearns Cos have sold off assets, the Wall Street Journal reported.

A source familiar with the matter told Reuters that Credit Suisse has started selling its CCC assets.

CCC had invested in U.S. prime mortgage-backed securities of Fannie Mae and Freddie Mac, which are high-rated and carry the implicit backing of the U.S. government.

Spreads on these bonds have been widening, however, on fears that investors could dump supply into a saturated market.

Managers at U.S.-based buyout firm The Carlyle Group own about 15 percent of Carlyle Capital Corp, which listed in July 2007 as the credit crisis began spreading through the global financial system.

The Carlyle Group actively participated in the negotiations with lenders and last year extended a $150 million credit line to its affiliate.

According to CCC's annual report, counterparties for its repurchasing agreements as of the end of 2007 were Bank of America, Bear Stearns, BNP Paribas, Calyon, Citigroup, Credit Suisse, Deutsche Bank, ING, JP Morgan, Lehman Brothers, Merrill Lynch and UBS.

CCC is the latest fund or trading firm to encounter problems as a result of the credit market crisis.

New York-based fixed income trader Drake Management said on Wednesday it was considering liquidating all three of its hedge funds. Sources said on Tuesday that hedge fund Blue River Asset Management's main municipal bond fund was liquidating after a sell-off in the bond market.

London-based Peloton Partners, which had held $3 billion in assets, told investors earlier this month it was liquidating its two funds.

Gas, Oil Rise to Records As Dollar Falls
Gas, Oil Prices Advance to Record Highs As the Dollar Weakens, Attracting New Investment

Gas and oil prices jumped again to new highs Thursday as the dollar weakened, although crude's advance was limited by fresh evidence of a U.S. economic slowdown.

At the pump, gas prices surged 2.1 cents overnight to a record national average of $3.267 a gallon, according to AAA and the Oil Price Information Service. Gas prices are likely to rise much higher this spring; estimates range from about $3.50 a gallon in the Energy Department's latest forecast to $3.75 or even $4 a gallon according to some analysts.

Diesel fuel, used to transport the vast majority of the nation's consumer goods, also hit a new record. Diesel prices rose another 3.3 cents overnight to a record average of $3.909 a gallon.

Gas and diesel are following crude, which has risen to records in 12 of the last 13 trading sessions. Analysts blame oil's ascent on weakness in the dollar, which dropped to yet another new low against the euro Thursday. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is weak. Interest rate cuts further weaken the dollar, and have helped fuel oil's rise, especially with another reduction expected next Tuesday at the Federal Reserve's regularly scheduled monetary policy meeting.

Light sweet crude for April delivery rose 41 cents to settle at a record $110.33 a barrel on the New York Mercantile Exchange Thursday after earlier surging to a new trading record of $111.

"This cocktail's been whipped up by the Federal Reserve," said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm.

Analysts said the Commerce Department's report that retail sales fell in February raised new worries that the economy is headed for recession, and might curtail demand for oil. Those concerns limited oil's gains, but analysts expect any oil price weakness to be short-lived, and for oil to maintain its upward track.

For consumers, that means pain at the pump — and in the form of higher prices for food and consumer goods, primarily related to rising fuel costs — will continue into the foreseeable future.

"There's really no end in sight to this," Cordier said.

Other energy futures were mixed Thursday. April gasoline futures fell 4.58 cents to settle at $2.6828 a gallon, while April heating oil futures rose 10.04 cents to settle at a record $3.1248 a gallon after earlier rising to a trading record of $3.1275 a gallon.

April natural gas futures rose 21.9 cents to settle at $10.23 per 1,000 cubic feet. The Energy Department reported that gas inventories fell by 86 billion cubic feet last week, slightly higher than the 83 billion cubic foot withdrawal analysts surveyed by Dow Jones Newswires were expecting.

In London, April Brent crude rose $1.27 to settle at $107.54 a barrel on the ICE Futures exchange.

Stocks tumble on bank-liquidity concerns
Investors worried about plan to ease liquidity at Bear Stearns

Stocks plunged Friday as investors worried that a plan to ease a liquidity crisis at Bear Stearns Cos. indicates how severe credit troubles have become.

Investors were busy examining the plan from JPMorgan Chase & Co. and the New York Federal Reserve to provide secured funding to Bear Stearns for an initial period of 28 days. The move offers Bear Stearns relief from a sudden liquidity crunch and could help instill confidence in the stagnant credit markets.

Bear Stearns shares fell sharply, dragging down other financial companies. There has been speculation this week that Bear Stearns was struggling with liquidity problems.
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The Federal Reserve said Friday it has voted to endorse an arrangement to bolster troubled Bear Stearns Cos. and stands ready to provide extra resources to combat a serious credit crisis.

Stocks showed moderate gains in the early going after a Labor Department report showed the Consumer Price Index remained flat for February. Wall Street has been expecting inflation would show an increase.

But the gains quickly disappeared after investors learned more about how close Bear Stearns appeared to have come to financial implosion.

“The Bear Stearns news reversed the early positive sentiment from the inflation data,” said Peter Cardillo, chief market economist at Avalon Partners. “There had been nervousness about Bear Stearns for some time and now the market’s concerns about the company have been proven true.”

The Dow Jones industrial average was lately down 143.20 points, or 1.18 percent, having lost as much as 300 points earlier in the morning. The broader Standard & Poor’s 500-stock index was lately off 19.44 points, or 1.48 percent, while the Nasdaq composite index slumped 25.41 points, or 1.12 percent.

In economic news, the University of Michigan said its latest consumer sentiment index dipped 0.3 points to 70.5.

President Bush is expected to tell a gathering of economists in New York Friday. He is expected to say that the economy is slowing but nonetheless is fundamentally sound and poised to return to higher growth. No new initiatives should be expected, according to the White House press office.

On Thursday, an anxious stock market rebounded from an early plunge after Standard & Poor’s predicted financial companies are nearing the end of the massive asset write-downs that have pummeled the stock and credit markets for months. The S&P projection gave investors some hope that the seemingly unrelenting losses from the mortgage and credit crisis might indeed be bottoming out.

Stock market investors Friday will have to keep an eye on the dwindling dollar and events in the soaring commodities market, after both gold and oil futures set new records on Thursday and the dollar sank to record lows versus the euro.

There is mounting speculation in the currency markets that global central banks are set to intervene to prop up the ailing dollar. Many analysts are growing convinced that concerted intervention is the only remedy for the currency’s continuing slide.

U.S. interest rates have been cut repeatedly since last fall and the Federal Reserve is widely expected to put in place yet another rate cut on Tuesday, adding more pressure on the dollar.

The rate reductions series make the dollar less attractive to investors than the higher-yield euro. On Thursday new consumer price data from the euro zone made it all but certain that the European Central Bank will not reduce rates any time soon.

Investors also will want to learn the latest news about Carlyle Group’s $22 billion Carlyle Capital fund. On Thursday the fund moved closer to collapse and the co-founder of Carlyle Group, David Rubenstein, pledged to compensate investors.

Fed Pledges to Supply Cash
Fed Endorses Rescue Effort for Bear Stearns and Pledges to Supply Cash to Financial System

The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis.
The action won praise from the administration, with President Bush saying that Fed Chairman Ben Bernanke was "doing a good job under tough circumstances."

The Fed announcement came in a brief two-sentence statement that was issued as stocks were plunging on Wall Street over worries that a plan to ease a liquidity crisis at Bear Stearns Cos. might not work. Federal Reserve Chairman Ben Bernanke, delivering a speech later Friday, told a housing group he had had a "busy morning." He did not elaborate on the Fed's action regarding Bear Stearns.

"The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system," the board said in its statement. It said members had voted unanimously to approve the arrangement, announced by JP Morgan Chase and Bear Stearns earlier.

Delivering a speech on the economy in New York, Bush voiced confidence in the Fed's actions to aggressively cut interest rates and the Fed announcement last week that it would supply up to $200 billion in loans to cash-strapped financial institutions.

"It was a strong action by the Fed and they did so because some financial institutions that borrowed money to buy securities in the housing industry must now repair their balance sheets before they can make further loans," Bush said. "Today's actions are fasting moving, but the chairman of the Federal Reserve and the secretary of the treasury are on top of them and will take the appropriate steps to promote stability in our markets."

The plan announced Friday will supply secured funding to Bear Stearns for an initial period of 28 days, seeking to provide short-term relief for Bear Stearns.

Senior Federal Reserve staffers said the arrangement allows JP Morgan Chase to borrow from the Fed's discount window and put up collateral from Bear Stearns to back up the loans. JP Morgan, a bank, has access to the discount window to obtain direct loans from the Fed, but Bear Stearns, an investment house, does not.

While JP Morgan is serving as a conduit for the loans, the Fed and not JP Morgan will bear the risk if the loans are not repaid, officials said.

This type of procedure, Fed officials said, dates back to the Great Depression of the 1930s but has rarely been used since that time.

In his speech, Bush said the administration had a plan to deal with the problems in credit and housing markets and said he opposed a number of measures pending in Congress to go further by allocating billions of dollars to purchase abandoned and foreclosed home and changing the bankruptcy code to allow judges to adjust mortgage terms.

However, Senate Banking Committee Chairman Christopher Dodd, D-Conn., said the problems at Bearn Stearns, one of the country's largest investment banks, highlighed the need for more aggressive efforts.

"Instead of cheerleading and reacting with tepid measures, the administration should act boldly and decisively to prevent the looming foreclosure crisis from having catastrophic consequences for our economy and our markets," Dodd said in a statement.

Treasury Secretary Henry Paulson praised the Fed's leadership and said that the country's financial system would be able to weather the problems.

"As we have been saying for some time, there are challenges in our financial markets and we continue to address them," Paulson said in a statement. "This is another challenge that market participants and regulators are addressing. We are working closely with the Federal Reserve" and the Securities and Exchange Commission.

Paulson said he appreciated the leadership of the Fed "in enhancing the stability and orderliness of our markets."

The action by the Fed board in Washington represented an endorsement of a rescue effort for Bear Stearns that had already been arranged by JPMorgan and the Federal Reserve's New York regional bank.

It was seen as a last-ditch effort to save the investment bank, which on Friday acknowledged its serious financial problems after a week of denials.

After the situation at Bear Stearns worsened late Wednesday, there were a series of conference calls throughout the day on Thursday with officials from the Fed, the New York Fed and the SEC to assess the potential impact on the broader economy, according to a Treasury official, who spoke on condition of anonymity because of the sensitive nature of the discussions.

This official said that Paulson had been keeping Bush updated on the proposed rescue effort.

JPMorgan Chase is providing an undisclosed amount of secured funding to Bear for 28 days, backstopped by the Federal Reserve Bank of New York.

The Securities and Exchange Commission issued a statement saying it has been "in close contact" with Treasury, the Federal Reserve and the Federal Reserve Bank of New York during discussions concerning an agreement by J.P. Morgan Chase & Co. to provide a secured loan facility to The Bear Stearns Companies.

"We will continue to work closely together in a way that contributes to orderly and liquid markets," the SEC said.

Last week, the Fed announced an industry-wide rescue package that would provide as much as $200 billion in loans to banks and investment houses and allow them to put up risky home-loan packages as collateral. It was the Fed's latest effort to stem a global credit crisis that began last August with rising loan defaults for subprime mortgages, loans provided to borrowers with weak credit histories.

Bear Stearns exposed as a bank saddled with toxic sub-prime debt

Big American finance houses have collapsed before. Continental Illinois required a $4.5bn (£2.25bn) bail-out in 1984 after coming to grief in Texas as the oil boom deflated.

The giant hedge fund Long Term Capital Management was saved by a club of banks in 1998 under the guidance New York Federal Reserve. The fund blew up after Russia's default, which ravaged its portfolio of Danish, Italian and Spanish bonds.

On both occasions the US economy was in rude good health. The damage was quickly contained.

The implosion of Bear Stearns is more dangerous.

A host of other banks, broker dealers, and hedge funds have played the same game, deploying massive leverage at the top of the credit bubble to eke out extra yield. Dozens of them are saddled with the same toxic debt - sub-prime property, credit cards, auto loans, and mountains of unsold paper from the merger boom.

This time the market for default insurance is flashing bright red warning signals across the entire spectrum of US finance.

The swap spreads on Lehman Brothers rocketed to 465 yesterday, mirroring the moves in Bear Stearns debt days before. Fannie Mae and Freddie Mac - the venerable agencies created by Roosevelt that underpin 60pc of the $11 trillion mortgage market - had a heart attack on Monday. Their bonds were in free-fall, threatening to set off another cascade of bank writedowns.

These are not sub-prime outfits. They sit at the apex of the US mortgage credit industry. Hence the dramatic move by the Fed this week to offer a $200bn lifeline, agreeing to accept Fannie Mae and Freddie Mac issues as collateral.

Had the Fed delayed, many traders believe Wall Street would have plunged through resistance levels risking a full-fledged crash.

The 'monoline' bond insurers - MBIA, Ambac, and others - that guarantee most of the $2,600bn market for US municipal bonds have seen their shares collapse by 90pc since the Autumn.

They are still battling to raise enough to capital to save their 'AAA' ratings. Should they fail, the insured bonds will be downgraded in lockstep. Pension funds would be forced to liquidate huge holdings. As New York Governor Eliot Spitzer said before his own liquidation, such an outcome is too dreadful to contemplate.

You have to go back to the banking crisis of the Great Depression to find a moment when the financial system as a whole seemed so close to the precipice.

Although 4,000 US banks failed in the early 1930s (mostly small ones), it was a long-drawn out affair. The bank runs began in the Prairies as falling food prices caused farmers to default in 1930. It seemed to be a local problem.

The crisis reached New York in December 1930 when the Bank of the United States succumbed to panic withdrawals. Legend has it that the 'WASP' clearing banks refused to back a rescue because of the bank's Jewish links.

In those days the contagion spread slowly to the rest of the world. It is much swifter now. The Swiss bank UBS has suffered US sub-prime losses on a scale to match Merrill Lynch and Citigroup, thanks to the curse of mortgage securities.

"We are now experiencing the first truly major crisis of financial globalisation," said the Swiss central bank governor Philipp Hildebrand this week.

"Never before have banks seen such destruction of their balance sheets in such a short time. Moreover, there are signs that the problems are spreading. The risk premiums on commercial property, consumer credit and corporate loans have risen sharply," he said.

Debt levels have been much higher than in the Roaring Twenties; the new-fangled tools of structured credit are more opaque: the $415 trillion nexus of derivative contracts is untested. Nobody knows for sure if the counter-parties are able to deliver on vast IOUs, or whether the construct is built on sand.

What keeps Federal Reserve officials turning at night is fear that the "financial accelerator" will now set off a vicious downward spiral. There is a risk of "very adverse economic outcomes," said Fed vice-chair Don Kohn.

Albert Edwards, global strategist at Societe Generale, said the toppling banks are merely a symptom of a deeper rot. "The banks are not the problem. Nor even the grotesquely leveraged funds. The problem is that an economic bubble financed by ridiculously loose monetary policy is unravelling," he said.

"US house prices have a lot further to fall, which will simply crush the global economy. The lesson from Japan in the early 1990s is that the death dance goes on and on and on," he said.

The Fed blundered badly in the Slump, delaying rate cuts for too long. It allowed the money supply to implode.

It is acting with breath-taking speed this time. Rates have already been cut from 5.25pc to 3pc, and will be slashed again this week. New means of showering liquidity on the banking system are being devised each week.

As luck would have it, the world's greatest expert on the financial causes of depressions - Ben Bernanke - happens to be chairman of the Federal Reserve.

Paulson: Government will act to aid economy
Says Bush administration will 'do what its takes' to stabilize chaotic markets

The Bush administration will "do what its takes" to stabilize chaotic markets and minimize the economic damage, Treasury Secretary Henry Paulson said Sunday after a tumultuous week capped by the government rescue of a teetering investment bank.

All eyes now are on Wall Street as leading financial advisers prepared for a Monday meeting with President Bush and the Federal Reserve weighs another deep interest rate cut Tuesday to stem even more deterioration.

Paulson, in a series of news show appearances, defended the Federal Reserve's extraordinary step Friday to provide emergency financing to one of Wall Street's most venerable firms, Bear Stearns Cos. The central bank's intervention was "the right decision," he said.

The treasury chief sidestepped questions about what would have happened if the Fed had not ridden to the rescue, whether other firms are on shaky ground and the possibility of additional bailouts similar to Bear Stearns'.

At the same time, however, Paulson sought to send a calming message that the administration is on top of the turbulent situation. "The government is prepared to do what it takes to maintain the stability of our financial system," he said. "That's our priority."

Bush planned to meet on Monday with his advisory panel on financial markets, whose members include Paulson and Fed Chairman Ben Bernanke. The panel on Thursday recommended stricter regulation of mortgage lenders as part of a broad effort to prevent a repeat of a credit crisis threatening to drive the country into the first recession since 2001.

Consultations about the Bear Stearns situation continued through the weekend and involved the Treasury Department, the Fed, financial institutions and others. "I've been very involved, you know, been on the phone for a couple days right now helping to work through this," Paulson said. He offered no details.

Economists increasingly believe the spreading fallout from a severe credit crisis has pushed the country into recession. The situation has led to record-high home foreclosures, forced financial companies to take multibillion losses from bad mortgage-linked investments and rocked Wall Street.

"No one is debating the fact that this economy has slowed way down," Paulson said. "We feel it, we know it, the American people know it."

To help shore things up, the Fed is poised to make a big cut to its key interest rate, now at 3 percent. Some economists are predicting a reduction of one-half a percentage point, while others are calling for a more hefty cut of three-quarters to a full percentage point.

The Fed used a Depression-era procedure to come to Bear Stearns' aid along with JPMorgan Chase & Co. Bear Stearns had made a fortune in mortgage-backed securities but faced a possible collapse after those investments soured. Wall Street nose-dived as fears spread about whether other big firms were in jeopardy.

"I really support the Fed's work here," Paulson said during one of his three broadcast appearances. "To me, this was not difficult because the priority in a time like this has got to be the stability of our financial system and minimizing the likelihood that this disruption spills over into the real economy.

Some critics contend the Fed's move was akin to a government bailout—something the administration has repeatedly said it is against.

"We're very aware of moral hazard," Paulson said. "But our primary concern right now—my primary concern—is the stability of our financial system, the orderliness of the markets. And that's where our focus is," he said.

The financial system, he said, is "more fragile than we would like right now."

Asked whether other financial companies may be in a situation similar to Bear Stearns', Paulson did not directly answer. He did seek to strike a confident tone. "Well, our financial institutions, our banks and investments banks are very strong," he said. "And I'm convinced that they're going to come out of this situation very strong."

The government will tackle any other problems that may arise, he said.

"From the beginning I have said, as we work through this period, if this was like other times in the past, there are going to be bumps in the road. There are going to be unpleasant surprises. You are going to find that an institution or so has problems. And when they do have problems, you work to deal with it," Paulson said.

On other matters, Paulson was cool to the need for additional economic stimulus, which congressional Democrats are promoting. A recently enacted aid plan includes tax rebates for people and tax breaks for businesses. Paulson said it should help bolster the economy and produce 500,000 to 600,000 jobs this year.

To Democrats, though, Bush is not doing enough to help.

"We're in the most serious economic problem we've been in in a very long time, much worse than 2001. The president's hands-off attitude is reminiscent of Herbert Hoover in 1929, in 1930," said Sen. Charles Schumer, D-N.Y. "There are lots of things that can be done, particularly on housing. Housing has been the bull's eye of this crisis."

House Speaker Nancy Pelosi, D-Calif., said, "Much of what the administration has done has been too late."

On the plunging value of the U.S. dollar, Paulson stuck to the position of past treasury chiefs when he said a strong dollar is in the national interest. The dollar has dropped to a new low against the euro and a fallen sharply against the Japanese yen. That helps sales of U.S. exports to foreign buyers because it makes U.S. goods less expensive. But the drooping dollar increases inflationary pressures.

Paulson appeared on ABC's "This Week," "Fox News Sunday" and "Late Edition" on CNN. Schumer was on Fox and Pelosi on ABC.

Stocks tumble after Bear Stearns buyout
Bank's meltdown seen as sign that credit crunch worsening

Wall Street fell in temperamental trading Monday as investors grappled with news of JPMorgan Chase & Co. buying the stricken Bear Stearns & Co. in a deal backed by the government. The Dow Jones industrials, down nearly 200 points in the early going, fluctuated into positive territory and then sank again by more than 100 points.

A buyout of Bear Stearns was certainly more appealing than the alternative: letting the investment bank collapse and causing huge losses for anyone linked to it. And some unprecedented moves by the Federal Reserve gave the market a bit of solace on what many predicted would be a day of precipitous losses in the stock market.

Besides supporting the buyout, the Fed lowered the rate it charges to loan directly to banks by a quarter-point on Sunday night — two days before its scheduled meeting Tuesday. The central bank also set up a lending option for firms, including many non-bank financial services firms, to secure short-term loans for a broad range of collateral.
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“This removes the risk of further slides for these companies, the risk that a Bear Stearns incident would happen again,” said Robert Pavlik, portfolio manager at Oaktree Asset Management.

The Fed appears to be pledging to do everything in its power to keep the credit crisis from destroying the financial industry and the economy. Policy makers at the central bank are expected to reduce the target fed funds rate — the rate banks charge each other for overnight loans — by at least a half-point on Tuesday, and perhaps even a full point.

Still, the market remained extremely volatile. The sale of Bear Stearns — and the fact that JPMorgan valued the fifth-largest Wall Street investment bank at a minuscule $2 a share, or $236 million — stirred fear among investors worldwide about other banks’ exposure to the troubled credit markets.

“You’re going to have some very weak players pushed out of business,” said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co. He said JPMorgan’s buy of Bear Stearns and Bank of America Corp.’s acquisition of mortgage lender Countrywide Financial Corp. are probably not the only rescues the industry will witness during this credit crisis.

The Dow fell 128.63, or 1.08 percent, to 11,822.46, after venturing into positive territory.

Broader indexes also dropped in choppy trading. The Standard & Poor’s 500 index fell 24.45, or 1.90 percent, to 1,263.69, while the Nasdaq composite index fell 43.59, or 1.97 percent, to 2,168.90.

JPMorgan was by far the biggest gainer among the Dow components, rising $3.06, or 8.4 percent, to $40.60. The Fed essentially guaranteed JPMorgan that it would backstop any risk involved in taking over the 85-year-old Bear Stearns, which has 14,000 workers worldwide.

Bear Stearns shares fell 88 percent to $3.60 — still above the buyout price, implying that some shareholders believe the deal terms might change. About one-third of Bear Stearns stock is held by its employees.

The pain for stockholders in Bear Stearns, which succumbed to losing bets on souring mortgages for borrowers with poor credit, will be sizable. JPMorgan is buying Bear, including its midtown Manhattan headquarters, for about 1 percent of the investment bank’s worth little more than two weeks ago. Bear Stearns’ buyout arrives after a short-term bailout Friday that JPMorgan led and that the Fed backed.

Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.34 percent from 3.44 percent late Friday.

The dollar sank to a record low against the euro and hit a 12 1/2 year low against the yen, while gold prices surged to another record high.

Light, sweet crude dropped $3.18 to $107.03 per barrel on the New York Mercantile Exchange, after rising to nearly $112 a barrel in premarket trading.

The market’s concern wasn’t limited to the Bear sale. DBS Group Holdings Ltd., a large bank based in Singapore, instructed traders via e-mail Monday to disregard an earlier e-mail barring new transactions with Lehman Brothers Holdings Inc., according to Dow Jones Newswires. Earlier Monday, DBS emailed traders and said not to engage in new transactions with Lehman or Bear, according to two people familiar with the situation, Dow Jones reported.

Lehman fell $11.15, or 28.4 percent, to $28.11.

This week, Lehman and other major investment banks are slated to report quarterly results. Investors will likely be focusing on comments from the companies for insights about their financial well-being.

While investors were focused on the financial sector, fresh economic news offered little solace. The Fed said output at the country’s factories, mines and utilities fell by 0.5 percent in February, the biggest decline last October. Many analysts had been expecting a slight increase of one-tenth of one percent.

The Commerce Department also said Monday the broadest measure of foreign trade fell slightly in 2007 as stronger growth in U.S. exports helped make up for a spiking foreign oil bill. The deficit in the current account, which covers not only goods and services but also investment flows between the United States and other countries, dropped by 9 percent last year to $738.6 billion.

Declining issues outnumbered advancers by 6 to 1 on the New York Stock Exchange, where volume came to 788.3 million shares.

The Russell 2000 index of smaller companies fell 14.35, or 2.16 percent, to 648.55.

Overseas, Japan’s Nikkei stock average fell 3.71 percent, while Hong Kong’s Hang Seng index fell 5.18 percent. In afternoon trading, Britain’s FTSE 100 fell 2.25 percent, Germany’s DAX index dropped 3.09 percent, and France’s CAC-40 lost 2.32 percent.

Fed takes bold steps to ease crisis
Becomes lender of last resort for Wall Street investment houses

Urgently trying to restore confidence in panicked financial markets, the Federal Reserve on Monday became a lender of last resort for Wall Street investment houses.

The central bank, in an extraordinarily rare weekend move, took the bold action Sunday in an attempt to calm the markets. It also approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent, effective immediately.

"These steps will provide financial institutions with greater assurance of access to funds," Federal Reserve Chairman Ben Bernanke told reporters in a brief conference call Sunday evening.

The Fed acted just after JPMorgan Chase & Co. agreed to buy rival Bear Stearns Cos. for $236.2 million in a deal that represents a stunning collapse for one of the world's largest and most venerable investment houses. Just on Friday the Fed had raced to provide emergency financing to cash-strapped Bear Stearns through JPMorgan. Days earlier the Fed announced a set of other unconventional steps to thaw out a credit market in danger of freezing shut.

The Fed's actions come as fears have spread that other financial houses could also be on shaky ground.

"It seems as if Bernanke & Co. are pulling out all the stops to avoid a serious financial market meltdown," Richard Yamarone, an economist at Argus Research, said Sunday evening.

However on world financial markets, Asian stocks plunged Monday after the JPMorgan and Fed announcements. Markets in Australia and New Zealand were also off and European stocks fell in early trading.

Oil prices hit a record in Asian trading as the value of the dollar continued its free fall and U.S. stock index futures were down sharply, suggesting Wall Street would open lower after sinking Friday.

"There is persistent credit uncertainty. Market players have been repeatedly let down which shows the subprime mortgage problems are so deep-rooted," said Atsuji Ohara, global strategist of Shinko Securities in Tokyo.

President Bush has scheduled a White House meeting Monday afternoon with his Working Group on Financial Markets, which includes Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Christopher Cox.

Paulson said Sunday, "I appreciate the additional actions taken this evening by the Federal Reserve to enhance the stability, liquidity and orderliness of our markets."

The new lending facility—described as a cousin to the Fed's emergency lending "discount window" for banks—is geared to give major investment houses a source of short-term cash on a regular basis—if they need it.

That's important because those big investment houses have key roles in the financial system and if one fails or is having difficulty it could put the whole financial system in jeopardy, said Mark Zandi, chief economist at Moody's Economy.com. These big investment houses have complex relationships with many players in the system, including hedge funds, commercial banks and others.

The lending facility will be in place for at least six months and "may be extended as conditions warrant," the Fed said. The interest rate will be 3.25 percent and a range of collateral—including investment- grade mortgage backed securities—will be accepted to back the overnight loans.

The "discount" rate cut announced Sunday applies only to the short- term loans that financial institutions get directly from the Federal Reserve. It doesn't apply to individual borrowers.

The Fed's actions are the latest in a recent string of innovative steps to deal with a worsening credit crisis that has unhinged Wall Street.

The action comes just two days before the central bank's scheduled meeting on Tuesday, where another big cut to a key interest rate that affects millions of people and businesses is expected to be ordered. That key rate is now at 3 percent and is expected to be cut by at least three-quarters of a percentage point on Tuesday.

The Fed said in a statement that the steps are "designed to bolster market liquidity and promote orderly market functioning ... essential for the promotion of economic growth."

Even with the Fed's aggressive moves, economic and financial conditions keep deteriorating. An increasing number of economists believe the country already has slipped into its first recession since Many economists think that the economy is shrinking now in the January-to-March quarter. The first government figures on first- quarter economic activity will be released in late April.

The Fed on Sunday also approved the financing arrangement through which JPMorgan will acquire Bear Stearns. JPMorgan said the Fed will provide special financing for the deal. The central bank has agreed to fund up to $30 billion of Bear Stearns' less liquid assets, according to JPMorgan.

Fed acts to prevent global bank run
Offers to lend money to longer list of firms than ever before

Acting quickly to prevent a run on major global financial firms, the Federal Reserve cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to a longer list of firms than ever before.

The extraordinary weekend moves came as J.P. Morgan Chase sealed a deal to buy Bear Stearns Cos. for just $2 a share backed by up to $30 billion borrowed from the Fed. The Fed board gave its approval to that unique funding arrangement, which guarantees JP Morgan against losses from buying Bear.

The Fed board also approved the creation of a special lending facility through the New York Fed that would be available to members of its primary dealers list, which includes both commercial banks and investment banks. Investment banks, such as Bear Stearns, have not been allowed to borrow directly from the Fed.

JP Morgan has access to the discount window through its Chase Bank subsidiary, but Bear Stearns does not have direct access.

Events have unfolded at warp speed over the past week. On Tuesday, the Fed announced a new lending program for primary dealers in the bond markets, but that program won't go into effect for two more weeks. On Friday, the Fed allowed Bear Stearns to borrow money via JP Morgan in a desperate bid to save the firm, which has been pummeled by losses on exotic securities backed by subprime mortgages.

The Federal Open Market Committee meets on Tuesday. Analysts expect the FOMC to cut the target for the federal funds rate by as much as a full percentage point to 2%. Another cut in the discount rate is also likely.

The new lending program would operate for at least six months, and would offer loans for as long as 90 days, rather than 30 days under the regular discount window. Loans from the new program would be backed by a "broad range of investment-grade debt securities," the Fed said. The interest rate would be the same as the discount rate.

"The Federal Reserve, in close consultation with the Treasury, is working to promote liquid, well-functioning financial markets, which are essential for economic growth," said Fed Chairman Ben Bernanke, in a statement. "These steps will provide financial institutions with greater assurance of access to funds."

Robert Brusca, chief economist at FAO Economics, said the new lending facility created a general way to help other dealers.

"The Fed has more information now that it has seen what Bear Stearns had on its books," Brusca said in an interview.

President Bush will meet with Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Chris Cox on Monday at 2 p.m. Eastenr.
Earlier on Sunday, Paulson went on television to project an image of confidence in the U.S. financial market. He said Washington would do what it takes to foster stability on Wall Street.

Dean Baker, the co-director of the Center for Economic and Policy Research, criticized the Fed's "real turn to secrecy" in the new auction facilities.

The Fed does not reveal the names of firms that borrow funds in the auctions. The purpose was to get around the "stigma" of banks that didn't want to borrow at the discount window because of the questions it would raise about its balance sheet.

But, in an interview, Baker said "now is not the time to shut the doors and keep everything in the dark."

Baker said he sensed a whiff of panic at the Fed and in the Treasury Department.

"The main thing is that they [Fed and Treasury] are really really scared. Telling us that everything is great is an insult to intelligence. They should own up to it and talk seriously to people," Baker said.
Peter Morici, a professor of economics at University of Maryland, criticized the Fed for not imposing meaningful conditions on the financial institutions that it is providing cash.

As a result, banks continue to impose onerous conditions on their innocent customers, he said.

"Today's moves by the Federal Reserve are the desperate acts of failing men," he said.

Below is a list of primary dealers who will be able to borrow directly from the Fed's new program announced Sunday:

BNP Paribas Securities Corp.
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co., Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Countrywide Securities Corporation
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Dresdner Kleinwort Wasserstein Securities LLC.
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
HSBC Securities (USA) Inc.
J. P. Morgan Securities Inc.
Lehman Brothers Inc.
Merrill Lynch Government Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
UBS Securities LLC. End of Story

Foreign investors veto Fed rescue

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 1:13pm GMT 17/03/2008

As feared, foreign bond holders have begun to exercise a collective vote of no confidence in the devaluation policies of the US government. The Federal Reserve faces a potential veto of its rescue measures.

Asian, Mid East and European investors stood aside at last week's auction of 10-year US Treasury notes. "It was a disaster," said Ray Attrill from 4castweb. "We may be close to the point where the uglier consequences of benign neglect towards the currency are revealed."

The share of foreign buyers ("indirect bidders") plummeted to 5.8pc, from an average 25pc over the last eight weeks. On the Richter Scale of unfolding dramas, this matches the death of Bear Stearns.

Rightly or wrongly, a view has taken hold that Washington is cynically debasing the coinage, hoping to export its day of reckoning through beggar-thy-neighbour policies.

It is not my view. I believe the forces of debt deflation now engulfing America - and soon half the world - are so powerful that nobody will be worrying about inflation a year hence.

Yes, the Fed caused this mess by setting the price of credit too low for too long, feeding the cancer of debt dependency. But we are in the eye of the storm now. This is not a time for priggery.

The Fed's emergency actions are imperative. Last week's collapse of confidence in the creditworthiness of Fannie Mae and Freddie Mac was life-threatening. These agencies underpin 60pc of the $11,000bn market for US home loans.

With the "financial accelerator" kicking into top gear - downwards - we may need everything that Ben Bernanke can offer.

"The situation is getting worse, and the risks are that it could get very bad," said Martin Feldstein, head of the National Bureau of Economic Research. "There's no doubt that this year and next year are going to be very difficult."

Even monetary policy à l'outrance may not be enough to halt the spiral. Former US Treasury secretary Lawrence Summers says the Fed's shower of liquidity cannot cure a bankruptcy crisis caused by a tidal wave of property defaults.

"It is like fighting a virus with antibiotics," he said.

We can no longer exclude a partial nationalisation of the American banking system, modelled on the Nordic rescue in the early 1990s.

But even if you think the Fed has no choice other than to take dramatic action, the critics are also right in warning that this comes at a serious cost and it may backfire.

The imminent risk is that global flight from US Treasury and agency debt drives up long-term rates, the key funding instrument for mortgages and corporations. The effect could outweigh Fed easing.

Overall credit conditions could tighten into a slump (like 1930). It's the stuff of bad dreams.

Is this the moment when America finally discovers the meaning of the Faustian pact it signed so blithely with Asian creditors?

As the Wall Street Journal wrote this weekend, the entire country is facing a "margin call". The US has come to depend on $800bn inflows of cheap foreign capital each year to cover shopping bills. They may have to pay a much stiffer rent.

As of June 2007, foreigners owned $6,007bn of long-term US debt. (Equal to 66pc of the entire US federal debt). The biggest holdings by country are, in billions: Japan (901), China (870), UK (475), Luxembourg (424), Cayman Islands (422), Belgium (369), Ireland (176), Germany (155), Switzerland (140), Bermuda (133), Netherlands (123), Korea (118), Russia (109), Taiwan (107), Canada (106), Brazil (103). Who is jumping ship?

The Chinese have quickened the pace of yuan appreciation to choke off 8.7pc inflation, slowing US bond purchases. Petrodollar funds, working through UK off-shore accounts, are clearly dumping dollars amid rumours that Gulf states - overheating wildly - are about to break their dollar pegs. But mostly likely, the twin crash in the dollar and US agency debt reflects a broad exodus by global wealth managers, afraid that America is spinning out of control. Sauve qui peut.

The bond debacle last week tallies with the crash in the dollar index to an all-time low of 71.58, down 14.6pc in a year. The greenback is nearing parity with the Swiss franc - shocking for those who remember when it was 4.375 francs in 1970. Against the euro it has hit $1.57, from $0.82 in 2000. Against the yen it has smashed through Y100. Spare a thought for Toyota. It loses $350m in revenues for every one yen move. That is an $8.75bn hit since June. Tokyo's Nikkei index is crumbling. Less understood, it is also causing a self-reinforcing spiral of credit shrinkage throughout the global system.

Japanese investors and foreign funds are having to close their yen "carry trade" positions. A chunk of the $1,400bn trade built up over six years has been viciously unwound in weeks. The harder the dollar falls, the further this must go.

It is unsettling to watch the world's reserve currency disintegrate. Commodities from gold to oil and wheat are taking on the role of safe-haven "currencies". The monetary order is becoming unhinged.

I doubt the dollar can fall much further. What is it to fall against? The spreading credit contagion will cause large parts of the globe to downgrade in hot pursuit - starting with Europe.

Few noticed last week that the Italian treasury auction was also a flop. The bids collapsed. For the first time since the launch of EMU, Italy failed to sell a full batch of state bonds.

The euro blasted higher anyway, driven by hot money flows. The funds are beguiled by Germany's "Exportwunder", for now. It cannot last. The demented level of $1.57 will not be tolerated by French, Italian and Spanish politicians. The Latin property bubbles are deflating fast.

The race to the bottom must soon begin. Half the world will be slashing rates this year to stave off credit contraction. The dollar will have a lot of company. Small comfort.

Foreign investors veto Fed rescue (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/17/ccview117.xml)

Fed abandons dollar in new round of rate cuts
Reacts to fall of investment giant Bear Stearns, Carlyle Capital Corp.

Wall Street opened Monday nearly 200 points down after a weekend in which Bear Stearns, the 85 year-old securities firm, and Carlyle Capital Corp., an investment fund run by one of the country's largest private equity firms, each went bankrupt..

Over the frantic weekend, the Fed took unprecedented steps to provide almost unlimited lending to prop up anticipated widespread losses in bank asset portfolios.

Yesterday, J.P. Morgan agreed to acquire Bear Stearns for $2 a share, a deal that values Bear Stearns at a mere $236 million, compared to a market capitalization of $3.54 billion only last Friday. By midafternoon trading, the Dow was in positive territory, bolstered in part by J.P. Morgan, the biggest gainer among the index's 30 component stocks.

Bear Stearns continues to face a crisis in an asset portfolio of mortgage-backed securities that was leveraged as high as 30-1 by borrowing, with the borrowed funds also invested in mortgage-backed securities.

Carlyle Capital Corp. has faced much the same problem as its highly leveraged portfolio of $21.7 billion in mortgage-backed securities also faces enormous losses.

For every $1 in capital the Carlyle Capital Corp. raised from investors, another $30 was borrowed from banks to invest, largely in mortgage-backed securities issued by U.S. housing agencies Freddie Mac and Fannie Mae.

As the mortgage market has dropped in value nationwide, mortgage delinquencies and home foreclosures have increased, causing collateralized mortgage-backed securities to drop dramatically in value.

The highly leveraged portfolios held by Bear Stearns and the Carlyle Capital Corp. went into bankruptcy when neither could sell enough of the good mortgage-backed securities in their asset portfolios to pay off the debt service on the bad mortgage-backed securities.

Bear Stearns and the Carlyle Capital Corp. then defaulted when they each were faced with margin calls they could no longer meet, simply because they lacked sufficient capital to maintain the debt service on outstanding loans.

The Federal Reserve, in order to induce J. P. Morgan to acquire Bear Stearns, guaranteed J. P. Morgan it would compensate for any additional losses Bear Stearns incurs in its highly leveraged mortgage-backed securities asset portfolio.

In Carlyle Capital Corp.'s case, the investors in the fund and the banks lending to the fund have absorbed the losses.

Carlyle Group tarnished

The failure over the weekend of the Carlyle Capital Corp. is the most serious financial misstep by the Carlyle Group since its founding in 1987.

With over $81 billion under management, and 575 investment professionals operating out of 21 countries, the Carlyle Group is one of the nation's largest private equity firms.

In 2006, Carlyle Capital Corp. was created as a separate legal entity by the Carlyle Group.

Before the failure of Carlyle Capital Corp., the Carlyle Group had never had a fund go bankrupt.

Six Carlyle Group partners, including co-founder David Rubinstein, own 15 percent of the Carlyle Capital Corp.

The Carlyle Group, shaped largely by former chairman Frank Carlucci, has enjoyed top connections to the presidencies of Bill Clinton, George H. W. Bush and Ronald Reagan, for whom Carlucci served as secretary of defense.

The Carlyle Group has compensated former President George H.W. Bush and former Secretary of State James Baker III for participating in various Carlyle Group deals.

WND previously reported the Carlyle Group has established a team to invest in Mexico. The team includes Mark McLarty, the president of Kissinger McLarty Associates and former chief of staff and special envoy to the Americas for President Clinton.

Fed in dilemma

In an effort to stabilize the stock market, the Fed also took the extraordinary measure of lowering the discount rate by a quarter point, from 3.25 percent to 3.5 percent.

The discount window is a lending facility the Fed uses to lend money to banks on a short term basis, to meet liquidity needs.

Last night, the Fed announced money would be made available to the 20 large investment banks that serve as the "primary dealers" trading Treasury securities directly with the Fed, with no pre-determined limit on the amount of money a bank might borrow.

The idea is to allow the primary dealers to lend to banks on a short-term basis by holding as collateral hard-to-sell instruments in bank asset portfolios, including mortgage-backed securities that may have little or no true market value.

Banks are allowed to include funds borrowed from the Fed or from other banks as the legal reserve they are required to maintain to continue operating.

WND reported the non-borrowed reserves of U.S. banks has plummeted to a negative $18 billion in February, reflecting an apparently worsening situation from the negative $8.8 billion reported at the end of January.

A new Term Auction Facility opened by the Fed at the discount window resulted in $60 billion borrowing by banks in the two-week period ending Feb. 13.

The Fed's decision to make available to banks an almost unlimited amount of borrowed funds reflects the seriousness with which it views the current crisis in bank assets.

As WND reported in August, the Fed was headed for the dilemma it now faces.

If it lowers the federal fund rate, the dollar will suffer on world currency exchange markets. A dollar sell-off risks triggering a new stock market sell-off.

Yet, if the Fed holds or raises rates to support the dollar, it will almost certainly prompt a massive stock market sell-off.

A Fed policy of providing liquidity to banks is tantamount to a decision to abandon the dollar. The dollar was trading today at $1.57 to the euro, a new all-time low, following a close Friday of 71.67 on the U.S. Dollar Index, the lowest maker ever.

Futures markets are now predicting the Federal Open Markets Committee in its meeting tomorrow will lower the federal funds rate a full 1 percent, with the expectation of a cut as much as 1.25 percent before the end of the month.

Bush says White House 'on top of the situation'
President seeks to calm financial markets, praises Federal Reserve actions

President Bush, trying to calm turmoil in financial markets after a dramatic weekend, declared Monday that his administration is “on top of the situation” and dealing decisively with the slumping economy.

“One thing is for certain, we’re in challenging times,” Bush said after meeting with Treasury Secretary Henry Paulson and other senior economic advisers. “But another thing is for certain: We’ve taken strong, decisive action.”

Bush spoke as the financial markets absorbed the stunning news that 85-year-old Wall Street powerhouse Bear Stearns had agreed to be acquired by rival JPMorgan Chase for the fire-sale price of $2 a share. Bear Stearns, which traded at nearly $160 a share less than a year ago, collapsed after losing billions of dollars on mortgage-backed securities.
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Bush commended the Federal Reserve for its urgent actions over the weekend, which included guaranteeing financing for the Bear Stearns deal and making available more credit to Wall Street investment banks. Fed policymakers are scheduled to meet again Tuesday and are expected to lower a key short-term interest rate by as much as three-quarters of a percentage point.

The White House moved quickly to raise Bush’s public profile Monday, and he continued to send an upbeat message, even in acknowledging a downturn that keeps roiling the economy and the country’s people as well.

Bush said “our financial institutions are strong” and “our capital markets are functioning efficiently and effectively.” He praised Paulson for working with the Fed and showing “the country and the world that the United States is on top of the situation.”

Still, Bush said the administration is monitoring economic developments closely.

“When need be, we’ll act decisively in a way that continues to bring order to financial markets,” Bush said.

He did not indicate any other steps the government might take, or when.

“In the long run, our economy is going to be fine,” Bush said. “Right now we’re dealing with a difficult situation.”

Over the weekend the the Fed, which operates independently, approved a cut in its emergency lending rate to financial institutions to 3.25 percent from 3.50 percent.

White House press secretary Dana Perino said Bush had been kept informed of the Fed’s intended actions through a variety of people, but that he was not personally involved in making or approving the decision.

She defended the dramatic intervention on behalf of the financial markets as necessary, even though Bush himself had warned Friday against excessive government intervention in the housing markets. “The concern about possible future market disruptions is real, and a concern not only just to the president but also to world markets,” Perino said.

Global markets plunged Monday, with Tokyo's Nikkei index off nearly 4 percent and major European indices down about 3 percent.

She also said the administration was taking action to help individual homeowners suffering from higher mortgage defaults, and that there is “a responsibility on the part of the media to really explain” that assistance.

Later Monday, Bush met with his Working Group on Financial Markets, which includes Paulson, Federal Reserve Chairman Ben Bernanke and Securities and Exchange Commission Chairman Christopher Cox.

Afterward, Paulson rejected the notion that the government had bailed out Bear Stearns with a $30 billion line of credit for a takeover by JPMorgan Chase. “If you would ask the Bear Stears shareholder in what has happened in terms of their value, I don’t think any of them would think this is a good outcome for them,” Paulson told reporters in the White House driveway.

“This was an easy decision,” he said. “It was the right outcome.”

U.S. loses No. 1 ranking as dollar drops
European Union now has world's biggest economy

The European Union has overtaken the U.S. as the world's No. 1 economy due to the continued dramatic fall of the dollar, according to a Reuters report.

The U.S. Gross Domestic Product, or GDP, for 2007 is officially estimated at $13,843,800 billion. The 2007 GDP for the 15 EU countries is estimated at 8,847,889 billion euros, the report said.

That means when the euro yesterday topped $1.56, the EU officially became the largest economy in the world.

In a Financial Times commentary published Monday, former Federal Reserve chairman Alan Greenspan declared the current financial crisis in the U.S. "is likely to be judged in retrospect as the most wrenching" since the end of World War II.

Greenspan further concluded the U.S. financial crisis will not end until "home prices stabilize and with them the value of equity in homes supporting troubled mortgage securities."

Dollar in crisis

WND has reported the Federal Reserve is in a dilemma. As the Fed continues to lower rates to stimulate the sagging economy, the dollar is increasingly abandoned, hitting new lows almost every day against other major currencies.

If the Fed were to raise rates to prop up the dollar, most Wall Street experts would expect a broad sell-off of U.S. stocks across the board.

Today, before the opening of the New York Stock Exchange, the dollar was trading at a new low, $1.5787 against the euro.

Just yesterday, the dollar hit a new all-time low in foreign currency exchange markets, closing at 71.44 on the U.S. Dollar Index.

Home Equity Foreclosures Hit Bank Assets

Meanwhile, the crisis in the home equity market is spreading to impact major financial institutions.

Over the weekend, the Federal Reserve and the Treasury intervened, guaranteeing J.P. Morgan Chase's bargain basement purchase for a mere $2 per share of then in free-fall Bear Stearns, the 85-year-old Wall Street investment bank that had survived the Depression and two world wars.

Today, Wall Street is pressuring the Federal Reserve's Open Market Committee to drop rates on federal funds as much as 1 percent, a nearly unprecedented one-time adjustment.

Fed Funds rates, now at 3 percent, reached a high of 5.25 percent in January 2007.

Since September, the Fed has been engaged in a series of rate cuts, trying to keep ahead of the developing financial crisis and economic slowdown that began with the downturn in the mortgage markets in the middle of last year.

The real estate bubble developed as Greenspan kept fed funds rates at a historical low of 1 percent throughout much of 2003 and 2004.

The resulting liquidity pumped funds into home equity markets, stimulating dramatic price increases that continued throughout much of 2006. That resulted in abundant cash for mortgage lenders to fund the risky sub-prime market where typically unqualified home buyers were being offered unconventional loans with artificially low mortgage payments in the initial few months.

The nation is now experiencing the fallout of collateralized mortgage obligations in which mortgages packaged as securities and sold to banks as assets were allowed to count in the banks' legal reserve calculations.

A wave of home foreclosures across the nation has caused a resulting failure in the collateralized mortgage securities held by banks.

When the collateralized mortgage obligations are marked to market, many banks across the country are finding they do not have adequate non-borrowed reserves to continue operations under current reserve requirements.

Again, the Federal Reserve has stepped in, providing multiple facilities in which struggling banks can borrow on a short-term basis the reserves needed to continue operating.

In a series of unprecedented moves over the weekend, the Federal Reserve has now made many of these same borrowing facilities available to securities and investment brokerage firms as well as commercial banks.

As WND reported, for the first time since the Federal Reserve has published the data, bank non-borrowed reserves have begun to turn negative, reflecting the increased borrowing banks are utilizing to continue operating.

Dow skyrockets 420 points after Fed move
Biggest one-day point gain for the Dow index in more than five years

Dollar gains ground or is it still a flailing market with a false glimmer of hope.

Wall Street stormed higher Tuesday as investors, optimistic following stronger-than-expected earnings from two big investment banks, were also galvanized by the Federal Reserve’s decision to cut interest rates by three-quarters of a percentage point. The Dow Jones industrial average soared 420 points, its biggest one-day point gain in more than five years.

Many investors were expecting the Fed to cut rates a full point, but appeared to overcome their early disappointment, especially since a 0.75 point cut is still substantial. The central bank’s benchmark fed funds rate is now at 2.25 percent — its lowest level since December 2004, and less than half what it was last summer. The Fed began lowering rates exactly six months ago, after the credit markets seized up due to soaring defaults in subprime mortgages.

In its statement accompanying the rate decision, the Fed said “recent information indicates that the outlook for economic activity has weakened further,” but also that “uncertainty about the inflation outlook has increased.”
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“The Fed once again in the statement showed that it is ready for further action if this were needed,” said Christian Menegatti, lead analyst for online economic research firm RGE Monitor. “It also showed the fact that it’s still paying attention to inflation ... but that it is far from being the primary concern right now. And the market knows that, and it is happy.”

Quarterly results from Lehman Brothers Inc. and Goldman Sachs Group Inc. early Tuesday gave great comfort to a market fearful about investment banks weakening further — and hurting the rest of the economy — due to losing bets on mortgage-backed securities. After Sunday’s news that the stricken Bear Stearns Cos. was being bought by JPMorgan Chase & Co. at a bargain price of $2 a share, both Lehman and Goldman posted quarterly profits early Tuesday that were significantly lower than they were a year ago, but higher than analysts predicted.

“The overwhelming news this morning was the Lehman and Goldman Sachs earnings,” said Jim Herrick, director of equity trading at Baird & Co. “The earnings this morning allayed investors’ fears that there’s going to be a hard collapse.”

Still, while Wall Street’s advance was heartening, investors were well aware that over the past six months, stocks have had many bursts higher, only to give them back at the first sign of credit market or economic trouble.

It will take some time before anyone knows whether the market is back on a true upward track, or is just staging another bear market rally. As market watchers will recall, the Dow jumped 416 points just last Wednesday after a $200 billion loan pledge from the Fed. A great deal of those gains evaporated late last week on worries about Bear Stearns.

After the Fed’s decision was announced, the Dow first gave back half of its 300-point gain, then shot higher, closing up 420.41, or 3.51 percent, at 12,392.66. The Dow’s point gain was the largest point jump for the Dow since a 447-point advance on July 29, 2002.

Broader stock indicators also finished sharply higher. The Standard & Poor’s 500 index rose 54.14, or 4.24 percent, at 1,330.74, and the Nasdaq composite index rose 91.25, or 4.19 percent, to 2,268.26.

Bond prices were mixed after the Fed rate cut. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.45 percent from 3.30 percent late Friday.

It was a good sign that short-dated Treasury prices rose while long-dated bonds fell, said Michael Materasso, senior vice president at Franklin Templeton. “What you’re seeing is an unwinding of this flight-to-quality that we saw last week,” he said, adding that the Fed’s cut and statement indicated that it is willing to act further, but “not panicking.”

After its last scheduled meeting Jan. 30, the Fed reduced rates by a half-point, pointing to not only stressed financial markets, but also tightening credit for businesses and households; a deepening in the housing contraction; and softening in the labor markets. The central bank repeated these concerns in its statement Tuesday.

Data released Tuesday supported the notion that the economy is sliding while costs are rising. The Commerce Department said home construction fell in February: housing starts fell 0.6 percent, while building permits plummeted 7.8 percent.
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Meanwhile, the Labor Department reported a 0.3 percent rise in its Producer Price Index for February, in line with estimates, but the core PPI, which strips out food and energy prices, rose by a greater-than-expected 0.5 percent.

Although the market was clearly upbeat on Tuesday, many on Wall Street have been unsure recently that rate cuts will give the markets and the economy the lift they need; rate cuts usually spur growth, but they also drive down the dollar, which in turn lifts commodities prices. It’s likely that the uncertainty will lead to some more pullbacks until investors have a sense that the economy is indeed recovering.

Wall Street certainly remains nervous about the effect of inflation on cash-strapped homeowners. Still, the Fed’s language about inflation Tuesday could be oddly comforting to investors, who may be relieved that policymakers weren’t so preoccupied with troubles in the credit market as to set aside inflationary concerns.

“They’re saying, ’You’re healthy enough for me to talk about inflation,’ “ said Swiss Re senior economist Arun Raha.

Following the Fed’s move, the dollar regained ground against some major currencies, while gold prices fell and crude oil surged $3.74 to settle at $109.42 a barrel on the New York Mercantile Exchange.

Advancing issues outnumbered decliners by 9 to 1 on the New York Stock Exchange, where volume came to 1.95 billion shares.

The Russell 2000 index of smaller companies rose 31.45, or 4.83 percent, to 681.93.

Financial stocks were the biggest winners Tuesday. Lehman rose $14.74, or 46 percent, to $46.49; Goldman rose $24.57, or 16 percent, to $175.59; and Bear Stearns rose $1.10, or nearly 23 percent, to $5.91.

Delta to cut jobs, U.S. capacity
Offers voluntary severance more than half its work force

Delta Air Lines said Tuesday it will offer voluntary severance payouts to roughly 30,000 employees—more than half its work force—and cut domestic capacity by an extra 5 percent this year as part of an overhaul of its business plan to deal with soaring fuel prices.

Executives at Atlanta-based Delta said in a memo to employees that the airline's goal is to cut 2,000 frontline, administrative and management jobs through the voluntary program, attrition and other initiatives.

Delta spokeswoman Betsy Talton said that if more than that amount agree to take the voluntary severance, that will be allowed. The severance program primarily affects mainline Delta employees. It will not affect Delta pilots, who have a union contract with the company, and employees at Delta regional carrier Comair, which is based in Erlanger, Ky.

One part of the program is for employees who are already eligible for retirement or for those whose age and years of service add up to at least 60, with 10 or more years of service. The other part of the program is an "early-out" offer for frontline employees—such as flight attendants and gate and ticket agents—with 10 or more years of service and for administrative and management employees with one or more years of service.

Delta had 55,044 total full-time employees as of the end of last year.

Oil prices recently cracked $111 a barrel, nearly twice what they were a year ago.

The memo from Chief Executive Richard Anderson and President Ed Bastian did not mention Delta's talks with Northwest Airlines Corp. about a combination that would create the world's largest airline. Bastian was updating investors Tuesday at a conference in New York.

"We're focused on addressing our challenges," Bastian said at the conference. "We're moving quickly. We're focused on performance."

Bastian said Delta will continue to grow internationally. He brushed off concerns raised by one analyst that robust international expansion may be the wrong approach while many corporations are cutting back on travel as the economy weakens.

On Monday, Delta's pilots union said it had told company executives it can't agree on seniority issues with its counterpart at Northwest, raising serious doubts about the prospect of a combination of the two companies.

The disclosure was made in a letter from the head of the pilots union at Delta, Lee Moak, to rank-and-file Delta pilots.

The letter does not mention Northwest by name, but makes references to the other union as the only one Delta pilots have been talking to. Multiple officials close to the talks have said in recent months that the other company was Northwest.

The letter talks about the discussions with the other carrier in the past tense, suggesting at least for now there won't be further talks.

The two carriers don't need a pilot seniority integration deal in advance to move forward with a combination, but Delta Air Lines Inc. executives have said they would not move forward with any combination unless the seniority of their employees was protected.

A Delta-Northwest combination deal could proceed without a pilot seniority agreement, but that would be up to the boards of the two companies.

At least one airline analyst, Calyon Securities' Ray Neidl, sounded doubtful that will happen, at least in the near term.

Bastian said Tuesday that he would not be able to provide details on the consolidation discussions. He said the process Delta's board is conducting to review strategic alternatives is "fluid."

"We are proponents of consolidation, but it does have to be the right deal," Bastian said.

Asked by an analyst why Delta doesn't seem willing to move forward without a pilot deal first, Bastian responded, "No. I'm not going to bite."

Bastian reaffirmed Delta's first-quarter earnings guidance. He said the company will be updating its full-year guidance considering higher fuel costs.

"It is not out of the question for Delta to be profitable this year, albeit it modestly profitable," Bastian said.

U.S. Treasury fears Islamic strings on investments
Requests assurances decisions won't be dictated by sharia law

The U.S. Treasury is struggling with how to handle any political or Islamic ramifications as Persian Gulf sovereign wealth funds look to make substantial investments in capital-poor American banks and securities firms.

The crisis in mortgage-backed securities has created a need for new capital to enter financial markets after major financial institutions such as Bear Stearns and Carlyle Capital Corp. failed over the weekend.

The crisis is an opportunity for sovereign wealth funds that have prospered as the price of oil has soared over $110 a barrel.

WND previously reported sovereign wealth funds in six Persian Gulf countries, including Kuwait, the United Arab Emirates and Qatar, have now amassed $1.7 trillion, positioning them for attempts to control major banks and securities firms in the U.S.

The question is whether political strings will come with the investment from the Islamic oil-rich states.

Since the beginning of the year, Dubai and Abu Dhabi, two of the largest United Arab Emirate states, have been in discussions with the U.S. Treasury, offering reassurances that their investments in U.S. banks and security firms would not impose restrictions usually dictated by Islamic law, commonly know as sharia.

The Wall Street Journal reported today that Abu Dhabi sent last week a three-page letter to U.S. Treasury Secretary Henry Paulson and other Western finance officials spelling out a set of principles that will guide Abu Dhabi's investing philosophy.

The letter marks the first time Abu Dhabi has responded to Treasury requests for reassurance the Islamic states will not use investments in U.S. financial firms to seek political advantage.

The Wall Street Journal reported the letter was also sent to the finance ministers of the other Group of Seven industrialized nations, the International Monetary Fund, the World Bank, the Organization for Economic Cooperation and Development and the European Commission.

On Monday, Dubai announced the launch of the Investment Corporation of Dubai, a new multi-billion dollar sovereign wealth fund positioned to make investments in the global economy.

According to the Telegraph of London, the fund will be chaired by Sheik Mohammad bin Rashid Al Maktoum, the emirate's ruler, but it will be operated separately from Dubai Holdings and Dubai International Capital.

Still, the new fund will be backed by state money, not just the personal wealth of the Maktoum family.

Paulson and Dubai are trying to avoid the repeat of a controversy that developed in 2006 when Dubai Ports World sought to acquire Peninsular & Oriental Steam Navigation, the London-based ports management firm that conducted operations at some 22 U.S. ports.

Still, despite the enthusiasm for foreign capital, the Treasury's effort to work with the Islamic sovereign wealth funds demonstrates, savvy investors in Dubai and Abu Dhabi are likely to be cautious when venturing into the U.S. market at this time.

The problem, they say, is that no one knows for sure whether the crisis triggered initially by mortgage foreclosures in the sub-prime market has peaked.

How many more losses will be realized in mortgage-backed and other loan-based collateralized securities held in bank and investment firm asset portfolios remains to be seen.

The Telegraph noted Qatar's 30 billion pound sovereign wealth fund just bought under 2 percent of Credit Swiss.

While the Qatar Investment Authority plans to spend between 5 billion and 7.5 billion pounds on bank investments over the next two years, the fund plans to avoid U.S. banking stocks for now, due to uncertainty over their exposure to sub-prime loans.

The publication /Business Intelligence in the Middle East reports the Dubai Financial Market's Sharia Board issued yesterday the first Islamic standards for trading shares of DFM companies, another indication Dubai is positioning for a global investment environment dominated by Western standards.

The DFM, first opened March 26, 2000, is a public institution with a corporate body operating independently of the ruling family, organized to operate as a secondary market for the trading of listed securities issued by public shareholding companies.

Following its 2007 annual meeting, the DFM announced its intention to become the world's first Islamic bourse.

Stocks close down sharply amid profit-taking
Dow finishes session off almost 300 points after big rally day before

Stocks pulled back sharply Wednesday, erasing most of the previous session’s big gains as investors grew concerned about high commodities prices and the possibility that banks remain vulnerable to further problems from soured debt. The Dow Jones industrial average fell nearly 300 points after rising 420 on Tuesday.

Some retrenchment was to be expected after the previous day’s huge advance. But the decline also reflects investors’ continuing uneasiness about the world’s financial system and the U.S. economy.

Talk swirled about whether further write-downs are in the offing after Merrill Lynch & Co. filed a lawsuit against a company involved in a debt transaction with the investment bank. Merrill claimed in the litigation that Security Capital Assuance Inc. owed it up to $3.1 billion after backing out of financial transactions.
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News that the government plans to free up billions of dollars at Fannie Mae and Freddie Mac, a move that could help struggling homeowners, for a time helped quell some of the market’s fears. But it couldn’t stave off selling late in the session by investors who have seen big advances evaporate many times during the course of the credit markets crisis and decided to preserve some of their gains.

Investors sent stocks charging higher Tuesday on stronger-than-expected investment bank results and several moves from the Federal Reserve in recent days, including a 0.75 percentage point rate cut aimed at jump-starting the credit markets. The Dow had its second 400-plus point gain in six sessions.

George Shipp, chief investment officer at Scott & Stringfellow, said some investors are still uneasy about the health of the markets. He said back-and-forth days will likely continue as Wall Street tries to feel its way forward.

“Nobody wants to make the first move. There is liquidity on the sidelines. It doesn’t really know what to do right now,” he said, adding that investors are trying to determine whether moves by the Fed and other regulators to stimulate the economy and stabilize the markets will take hold.

“Clearly there is fear. I would say the needle is pointing more toward fear than greed right now,” he said.

According to preliminary calculations, the Dow on Wednesday fell 293.00, or 2.36 percent, to 12,099.66.

Broader stock indicators also declined. The Standard & Poor’s 500 index fell 32.32, or 2.43 percent, to 1,298.42, and the Nasdaq composite index fell 58.30, or 2.57 percent, to 2,209.96.

Bond prices jumped as investors again looked for safety. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.37 percent from 3.50 percent late Tuesday. The dollar was mixed against other major currencies, while gold prices fell sharply.

Light, sweet crude fell $4.94 to settle at $104.48 per barrel on the New York Mercantile Exchange after government figures suggested the high price of oil and gasoline are damping demand for petroleum products.

Investors’ relief over Morgan Stanley follows better than expected earnings news from Lehman and Goldman on Tuesday that gave the Dow its biggest point gain in more than five years. The Dow got an extra boost after the Fed’s rate cut.

Morgan Stanley rose $1.07, or 2.5 percent, Wednesday to $43.93. Lehman fell $3.95, or 8.5 percent, to $42.54, while Goldman declined $8.66, or 4.9 percent, to $166.93.

The Office of Federal Housing Enterprise Oversight, which oversees government-backed Fannie and Freddie, said the changes should result in an immediate infusion of up to $200 billion into the market for mortgage-backed securities. This could mean greater demand for mortgages — an aid for struggling homeowners hoping to refinance at more favorable terms.

Investors were upbeat about the moves at the mortgage companies. Fannie jumped $2.87, or 10 percent, to $31.09, while Freddie rose $3.86, or 15 percent, to $29.88.
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The Fed has slashed key rates by more than half since last summer, when the mortgage crisis claimed its grip on the global credit markets. But the housing and lending industries are still hurting.

Late Tuesday, Visa Inc. launched the largest initial public offering in U.S. history, selling 406 million shares at $44 apiece to raise $17.9 billion. The world’s largest credit card processor is not a lender, and many investors are betting that it will easily survive the faltering U.S. economy and credit climate. The stock traded up $14.49, or 33 percent, at $58.49.

Despite the pullback Wednesday, Bruce McCain, head of the investment strategy team at Key Private Bank in Cleveland, said recent trading — days when stocks didn’t plummet in the face of bad news and rallied on good news — is encouraging because it could signal the market is closer to regaining solid footing.

He said while any placidity in the markets would likely need to last for some time to extinguish some of investors’ fears, he was encouraged by some recent signs of strength in consumer discretionary and financial stocks.

“Those are probably the two most important sectors with respect to this market regaining some confidence and maybe starting to shift gears,” he said.

Wall Street has beaten up stocks like those of financial companies in recent months in favor of energy, materials and industrials. Investors hoping for a change in the winds on Wall Street will be looking for signs that money is moving out of these defensive areas into downtrodden corners of the market, McCain said.

Declining issues outpaced advancers by about 2 to 1 on the New York Stock Exchange, where volume came to 1.56 billion shares.

The Russell 2000 index of smaller companies fell 10.15, or 1.49 percent, to 671.78.

Overseas, Japan’s Nikkei stock average increased 2.48 percent, while Hong Kong’s Hang Seng index rose 2.26 percent. Britain’s FTSE 100 closed down 1.07 percent, Germany’s DAX index fell 0.50 percent, and France’s CAC-40 declined 0.58 percent.

Bernanke: Federal Reserve
caused Great Depression
Fed chief says, 'We did it. …
very sorry, won't do it again'

Despite the varied theories espoused by many establishment economists, it was none other than the Federal Reserve that caused the Great Depression and the horrific suffering, deprivation and dislocation America and the world experienced in its wake. At least, that's the clearly stated view of current Fed Chairman Ben Bernanke.

The worldwide economic downturn called the Great Depression, which persisted from 1929 until about 1939, was the longest and worst depression ever experienced by the industrialized Western world. While originating in the U.S., it ended up causing drastic declines in output, severe unemployment, and acute deflation in virtually every country on earth. According to the Encyclopedia Britannica, "the Great Depression ranks second only to the Civil War as the gravest crisis in American history."

What exactly caused this economic tsunami that devastated the U.S. and much of the world?

In "A Monetary History of the United States," Nobel Prize-winning economist Milton Friedman along with coauthor Anna J. Schwartz lay the mega-catastrophe of the Great Depression squarely at the feet of the Federal Reserve.

Here's how Friedman summed up his views on the Fed and the Depression in an Oct. 1, 2000, interview with PBS:

PBS: You've written that what really caused the Depression was mistakes by the government. Looking back now, what in your view was the actual cause?

Friedman: Well, we have to distinguish between the recession of 1929, the early stages, and the conversion of that recession into a major catastrophe.

The recession was an ordinary business cycle. We had repeated recessions over hundreds of years, but what converted [this one] into a major depression was bad monetary policy.

The Federal Reserve System had been established to prevent what actually happened. It was set up to avoid a situation in which you would have to close down banks, in which you would have a banking crisis. And yet, under the Federal Reserve System, you had the worst banking crisis in the history of the United States. There's no other example I can think of, of a government measure which produced so clearly the opposite of the results that were intended.

And what happened is that [the Federal Reserve] followed policies which led to a decline in the quantity of money by a third. For every $100 in paper money, in deposits, in cash, in currency, in existence in 1929, by the time you got to 1933 there was only about $65, $66 left. And that extraordinary collapse in the banking system, with about a third of the banks failing from beginning to end, with millions of people having their savings essentially washed out, that decline was utterly unnecessary.

At all times, the Federal Reserve had the power and the knowledge to have stopped that. And there were people at the time who were all the time urging them to do that. So it was, in my opinion, clearly a mistake of policy that led to the Great Depression.

Although economists have pontificated over the decades about this or that cause of the Great Depression, even the current Fed chairman Ben S. Bernanke, agrees with Friedman's assessment that the Fed caused the Great Depression.

At a Nov. 8, 2002, conference to honor Friedman's 90th birthday, Bernanke, then a Federal Reserve governor, gave a speech at Friedman's old home base, the University of Chicago. Here's a bit of what Bernanke, the man who now runs the Fed – and thus, one of the most powerful people in the world – had to say that day:

I can think of no greater honor than being invited to speak on the occasion of Milton Friedman's ninetieth birthday. Among economic scholars, Friedman has no peer. …

Today I'd like to honor Milton Friedman by talking about one of his greatest contributions to economics, made in close collaboration with his distinguished coauthor, Anna J. Schwartz. This achievement is nothing less than to provide what has become the leading and most persuasive explanation of the worst economic disaster in American history, the onset of the Great Depression – or, as Friedman and Schwartz dubbed it, the Great Contraction of 1929-33.

… As everyone here knows, in their "Monetary History" Friedman and Schwartz made the case that the economic collapse of 1929-33 was the product of the nation's monetary mechanism gone wrong. Contradicting the received wisdom at the time that they wrote, which held that money was a passive player in the events of the 1930s, Friedman and Schwartz argued that "the contraction is in fact a tragic testimonial to the importance of monetary forces."

After citing how Friedman and Schwartz documented the Fed's continual contraction of the money supply during the Depression and its aftermath – and the subsequent abandonment of the gold standard by many nations in order to stop the devastating monetary contraction – Bernanke adds:

… Before the creation of the Federal Reserve, Friedman and Schwartz noted, bank panics were typically handled by banks themselves – for example, through urban consortiums of private banks called clearinghouses. If a run on one or more banks in a city began, the clearinghouse might declare a suspension of payments, meaning that, temporarily, deposits would not be convertible into cash. Larger, stronger banks would then take the lead, first, in determining that the banks under attack were in fact fundamentally solvent, and second, in lending cash to those banks that needed to meet withdrawals. Though not an entirely satisfactory solution – the suspension of payments for several weeks was a significant hardship for the public – the system of suspension of payments usually prevented local banking panics from spreading or persisting. Large, solvent banks had an incentive to participate in curing panics because they knew that an unchecked panic might ultimately threaten their own deposits.

It was in large part to improve the management of banking panics that the Federal Reserve was created in 1913. However, as Friedman and Schwartz discuss in some detail, in the early 1930s the Federal Reserve did not serve that function. The problem within the Fed was largely doctrinal: Fed officials appeared to subscribe to Treasury Secretary Andrew Mellon's infamous 'liquidationist' thesis, that weeding out "weak" banks was a harsh but necessary prerequisite to the recovery of the banking system. Moreover, most of the failing banks were small banks (as opposed to what we would now call money-center banks) and not members of the Federal Reserve System. Thus the Fed saw no particular need to try to stem the panics. At the same time, the large banks – which would have intervened before the founding of the Fed – felt that protecting their smaller brethren was no longer their responsibility. Indeed, since the large banks felt confident that the Fed would protect them if necessary, the weeding out of small competitors was a positive good, from their point of view.

In short, according to Friedman and Schwartz, because of institutional changes and misguided doctrines, the banking panics of the Great Contraction were much more severe and widespread than would have normally occurred during a downturn. …

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.

Best wishes for your next ninety years.

Today, the entire Western financial world holds its breath every time the Fed chairman speaks, so influential are the central bank's decisions on markets, interest rates and the economy in general. Yet the Fed, supposedly created to smooth out business cycles and prevent disruptive economic downswings like the Great Depression, has actually done the opposite.

Malicious traders try to topple UK bank
'Market abuse': Spread untrue claims institution on brink of collapse

Stock market manipulators yesterday tried to bring down one of Britain’s biggest banks by spreading false rumours through the City.

The Bank of England was forced to issue an unprecedented denial that HBOS was in trouble.

The Financial Services Authority (FSA) said that it would pursue traders guilty of “market abuse” by spreading untrue claims that banks were on the brink of collapse.

The authorities believe that the fear and uncertainty in financial markets are allowing unscrupulous traders to make multimillion-pound profits by whipping up hysteria about the stability of big banks.

Yesterday’s drama began at about 8.30am when rumours started spreading through London’s stock market that HBOS, which owns Halifax, the UK’s biggest mortgage lender, and Bank of Scotland, was about to become another Northern Rock and that it had begged the Bank of England for a multi-billion-pound emergency loan. Within 20 minutes HBOS’s shares had plunged by more than 17 per cent as investors dumped their stakes. An hour later, the Bank of England announced that no bank needed emergency funding, while the FSA issued a statement warning investors to stop spreading false accusations.

It is feared that short-sellers — investors who use falling share prices to make money — were deliberately spooking the market in order to profit from plunging stocks in a practice called trash ’n’ cash.

Rumours that the American investment bank Bear Stearns was short of cash contributed to its near-collapse last week after its lenders were scared into demanding that it repay them immediately.

The warning to speculators came as it emerged that the American financial watchdog was investigating similar activity in the trading of shares of Bear Stearns and Lehman Brothers, another US investment bank heavily exposed to risky American mortgage business.

Andy Hornby, the HBOS chief executive, vehemently denied that the bank needed an emergency loan. He said: “It’s categorically untrue that we’ve approached any central bank for funding.”

Sally Dewar, the FSA’s managing director of wholesale markets, said that a series of “completely unfounded rumours about UK financial institutions in the London market” had been spread over the past few days, usually accompanied by short-selling of the banks’ stocks.

The FSA can listen to office telephone calls and investigate suspicious transactions but has never brought a trash ’n’ cash prosecution.HBOS shares closed 7 per cent down at 446.25p.

Economic winter is on its way

The interesting thing about economics is that it is rather like the weather in some ways. It's easy to read the signs and know that autumn is on the way, but it's very hard to predict the precise date of the season's first snowfall. (In Minnesota, Jack Frost never waits for winter, but shows up on Oct. 24, on average.) And the fact that you may be totally confident that it's going to snow this winter doesn't mean you know if it's going to be an 11-footer like 1995 to 1996 or a measly two-footer like 1958 to 1959.

Like the early leaves of autumn, the first financial institutions are beginning to fall. Globalization and financial innovation have not mitigated economic risk; they have merely allowed the wrinkled whores of Wall Street to conceal the extent of the crises and delay their inevitable day of reckoning. The idea that the various bank failures and last-ditch bailouts taking place everywhere from New York to London and Zurich are the result of unforeseen circumstances is as ludicrous as the idea of taking out an adjustable rate mortgage when mortgage rates are at historic lows. The irresponsible happy talk of the financial media notwithstanding – that are starting to get that same deer-in-the-headlights look they had back in late 2002 – most economically astute individuals have long known that the Greenspan economic regime was not sustainable, despite the present Fed chairman's belief in the efficacy of magic helicopter money. Consider the prophetic statement by Robert Prechter from my 2004 interview with him:

I think we are about to enter a deflation of historic magnitude which equates to a contraction in the overall supply of dollar-denominated credit.

While the plunging dollar and rising gas prices show that the predicted deflation hasn't kicked in yet, the Bear Stearns bailout, the decline in the number of mortgage applications and the increase in the TED Spread to levels that haven't been seen since 1987s Black Monday crash indicate that the contraction in the supply of dollar-denominated credit is already upon us. Simply printing more money is not an option because a Federal Reserve Note is not, technically, a dollar in the sense that it was originally defined – a silver coin of the United States containing 371.25 grains of silver – but merely a promissory note from the Federal Reserve to the U.S. government. When debt is currency, a collapse in debt creation will tend to presage a collapse in currency.

It is, perhaps, worth noting that even if one ignores the collector's value, a single 19th century dollar is now worth $17.54. The idea that the Federal Reserve exists to fight inflation, preserve a strong currency and smooth out the business cycle has everything wildly backwards, as the only things that the Federal Reserve actually does is to create inflation, reduce the value of its own debt currency and exacerbate the business cycle in precisely the manner we are witnessing today.

Although the mainstream economists have finally begun to acknowledge that the U.S. economy is already in the recession that was long proclaimed to be unlikely, the problem is that there are more than a few signs that a true depression is in the works. Murray Rothbard's excellent 1963 book, "America's Great Depression," shows that in direct contrast to the official mythology, the Great Depression was caused by excessively lax monetary policies by the Fed, which responded to the crash in precisely the same manner that the Japanese central bank responded to the 1989 Nikkei crash and the way that the Fed has desperately been attempting to fend off the unavoidable since 1999. The Fed's decision to cut rates tomorrow – and don't be surprised if Bernanke elects to "shock" the markets with a full-point rate cut in excess of the 75 basis-point "surprise" cut everyone is expecting – is rather like giving a dying man a stiff snort of cocaine. It may have a positive effect on the markets for a week or two, but the feeling of invincibility will rapidly dissipate, and within two months we'll be right back where we were, albeit with a few less bullets in Bernanke's gun and less investor confidence than ever. The short-term high may be your last chance to exit on an up note for a while, though, so if you're still in stocks, this will probably be a good time to cut your losses.

All that two decades of frantic bailing out and bubble blowing has accomplished is to enrich a few fortunate investors and delay the inevitable while significantly jacking up the terrible price that Americans will ultimately pay. The business cycle can be influenced, but it cannot be eliminated. For every economic action, there will be an equal and opposite reaction, and since the financial house of cards has been built ever higher and ever more vulnerable during this decades-long period of delay, chances are very high that the collapse will be swifter and more brutal than even the economic pessimists can currently envision. This is far from a failure of the free markets; it is merely more evidence of the futility of central economic planning.

If we are fortunate, it is only a long and hard economic winter that is approaching. If we are unfortunate, it is the financial Fimbulwinter that will precede a political Ragnarok.

Journalist warns taxpayers may pay for Fed's mistakes

Pulitzer Prize-winning journalist Gretchen Morgenson believes the Fed's decision to bail out one of the key players in the country's home mortgage crisis -- Bear Stearns -- may come at taxpayers' expense.

J.P. Morgan's $2-a-share purchase of investment bank Bear Stearns over the weekend came with the aid of $30 billion in financing from the U.S. Federal Reserve to cover potential losses in Bear Stearns' securities holdings. New York Times business columnist Morgenson says the bailout crossed a line, because Bear Stearns -- as she puts it -- "helped create the titanic credit mess we are in."

"Let's say you are a parent ... [and] your son takes the keys to the Porsche, wraps the Porsche around a tree, and then you -- after that -- go out and buy him another Porsche. That's ... what [we mean] when we talk about moral hazard," she explains. "You are basically encouraging bad behavior to continue. You aren't punishing bad behavior.

"So the reckless behavior that Bear Stearns conducted itself in the mortgage arena is essentially ... being rewarded because the Federal Reserve is not backstopping $30 billion of those kinds of loans, and the taxpayer may have to cover that," Morgenson contends.

According to Morgenson, Bear Stearns executives are unlikely to receive excessive compensation packages known as "golden parachutes."

"What we do have to remember is that during the mortgage boom, these executives made tremendous amounts of money -- hundreds of millions of dollars," she points out. "And it was generated by the mortgage boom because that was contributing to Bear Stearns' profits.

"Now that the boom has turned to bust," she continues, "it seems to me only fitting that some of those bonuses be clawed back. Why on earth should they be allowed to keep money that was made on questionable loans and dubious practices?" Morgenson wonders.

The journalist says the Fed had no choice but to intervene because nowadays brokerage firms and big commercial banks are all interrelated, and the Fed needed to ensure that chain remained intact. However, she says the demise of Bear Stearns highlights the failure of regulators to "act before or prevent the train wreck."

Morgenson, who was awarded a Pulitzer Prize in 2002 for her coverage of Wall Street, wrote a column Sunday titled "Rescue Me: A Fed Bailout Crosses a Line."

Truckers ‘going broke’ and threatening to strike

What started as a small, online grassroots effort now appears to have the potential for something bigger.

Dan Little, the owner/operator of a livestock hauling company in Carrollton, Mo., estimated Tuesday that at least 1,000 other truckers from across the United States have committed so far to joining him in a strike on April 1.

Although none of the truckers interviewed Tuesday at the Iowa 80 Truck Stop, Walcott, which is just off Interstate 80 west of Davenport, has heard of the intended strike, some said they would shut down, too.

Weldon Kinnison, a Virginia trucker who was hauling soft drink from Indiana to Denver, heard about the plans for a strike for the first time Tuesday while stopping at Walcott.

“I’m an owner/operator with the American Truckers Association,” he said. “I’d park my truck for a week with the cattle haulers.

“The fuel is too high, and there’s no reason for it. I don’t listen to the CB (radio) that much, but I guess I’ll start now.”

At issue is the rising cost of diesel fuel, which has reached or exceeded $4 per gallon in at least 17 states. But Little does not expect his strike to bring down the per-gallon price of gas, nor does he expect to have any effect on the oil companies.

“What I would personally like to see is our federal and state governments, until our economy recovers, suspend federal and state fuel taxes,” the 49-year-old said. “The second thing I’d like to see is an oversight committee for truck insurance, which is part of what’s taking us down.

“The average owner/operator is paying $600 to $800 a month for truck insurance. It’s based on personal credit, which means the monthly cost is going up for a lot of truckers because their credit is going down.

“Everything in the world is going up (in price), except for what we do. I lose money if I start my truck, and that truck is paid for — free and clear.”

Mike Hills, a driver from Wyoming, Iowa, said he also would shut down to support Little and the others — if he could.

“I can’t strike with them because I’m company,” he said while at the Walcott truck stop. “If I owned the truck, I’d strike with them. As far as I’m concerned, the gas prices are driving the economy.

“It might be a good thing if the drivers strike. They can’t make payments. Maybe if the oil companies bought all the trucks, things would change. Everything in this country is trucked.”

Hills then removed his wristwatch, using it to explain his point of view: “Every piece of this watch was trucked from somewhere. If you can’t keep up with the trucks, we’re all screwed — not just this country, but the world.”

Keith Deblieck, the owner of a trucking company out of Geneseo, Ill., said that, for many drivers, the time for a strike has come.

“They ought to strike,” he said. “We all ought to. They lose money every day they go out.”

But officials from the Owner-Operator Independent Drivers Association are encouraging truckers to find options to a strike. The trade group represents the interests of more than 160,000 small business trucking companies and drivers.

“If we told our operators to shut down, we’d be slapped with a lawsuit because of anti-trust,” said association spokeswoman Norita Taylor, adding that a poor economic outlook and rising fuel prices are creating “a lot of emotions” among truckers.

“It’s hurting these people who are living paycheck to paycheck,” she said. “People are upset. What can we do?”

One thing the association is trying to do is talk to lawmakers and truckers about making sure that surcharges being charged to shippers are getting back to the people who paid for the gas. Surcharges are supposed to compensate for high fuel charges, but they must be negotiated with each shipper, and the truckers who pay at the pump aren’t always first in line to receive the surcharges.

Even when the surcharges do make it back to the driver, they are not enough.

“I turn down loads every day,” Little said. “The loads aren’t the problem — never have been.

“It’s the only thing I know how to do, driving a truck. But I sold my trailer the other day, and I’m not buying another one until something gets done.

“In no way, shape or form do truckers want to hurt this country. My whole deal on this thing is that I’m shutting down on April 1. Call it a strike, a shutdown or just flat-ass going broke.”

Jim Johnston, president of Owner-Operator Independent Drivers Association, warned that a strike “is not the answer,” saying, “Calling for a strike without the support of the majority would show weakness rather than strength, and the result would be increased economic hardship to the small percentage of truckers who do participate in the shutdown with no gains to justify their sacrifice.”

Little said he has no other choice.

“Our federal government is subsidizing railroads, airlines, banks and farmers,” he said. “Meanwhile, we’re being taxed to death.”

Ohio: 1 in 10 people on food stamps
Caseloads almost double since 2001, highest number in state history

Food stamps double since '01
But price of food means they don't go as far now

Nearly one in 10 Ohioans now receives food stamps, the highest number in the state's history.

Caseloads have almost doubled just since 2001, with 1.1 million residents now collecting benefits, according to the Ohio Department of Job and Family Services.

Low wages, unemployment and the rising cost of groceries, gasoline and other necessities are to blame for financial hardships facing many Ohio families.

Caseloads have been rising steadily in the past seven years, said Brian Harter, spokesman for the state agency which oversees the food-stamp program.

"Look at unemployment during this time," he said.

Ohio's jobless rate is 5.3 percent, up from 4.4 percent in 2001.

"The economy and loss of manufacturing jobs are at the root of what's going on. But lately (it's) the rising cost of transportation and food -- people who were barely getting by, are not getting by," said Jack Frech, director of the Athens County Department of Job and Family Services.

"It has pressed folks to the edge to have to rely on food stamps."

Advocates estimate another 500,000 Ohioans are eligible but not enrolled in the food-stamp program.

Individuals in households with incomes up to 130 percent of the federal poverty level and with assets no greater than $2,000 in most cases are eligible for food stamps. That's earnings of no more than $22,880 a year for a family of three.

Recipients receive $100 a month. The federal government pays for the benefits while the state covers administrative costs.

But as the price of milk, fruits and other groceries climb, advocates say, recipients can buy less and less with that $100.

"Food stamps provide only about $1 per person, per meal. Who in the world is buying groceries with that?" asked Lisa Hamler-Fugitt, executive director of the Ohio Association of Second Harvest Food Bank.

On average, food stamps are now providing less than two weeks of groceries.

"There's the presumption that folks have the cash to make up the rest. Well, they don't," Frech said.

Not surprisingly, food pantries and soup kitchens across the state have been reporting record demands. Like the families they serve, they, too, cannot keep pace.

In central Ohio, demand at the Mid-Ohio Food Bank in January was up 14 percent over the same period a year ago, with 120,000 requests for food.

The increased demand coupled with rising food costs and fewer donations have forced the food bank to reduce the five-day supply of food it had been giving out to a three-day supply.

"Milk is up 25 percent," said Mid-Ohio president Matt Habash. "Applesauce, a big staple at food banks, has gone from $9 to $15 a case."

In other areas of the state, pantries with their supplies depleted have been forced to temporarily close.

"The shortages," Hamler-Fugitt said, "are a double whammy for people who have been relying on food stamps and pantries."

Food prices soaring worldwide
'Demand is very strong. Supply is constrained. It is as simple as that'

If you're seeing your grocery bill go up, you're not alone.

From subsistence farmers eating rice in Ecuador to gourmets feasting on escargot in France, consumers worldwide face rising food prices in what analysts call a perfect storm of conditions. Freak weather is a factor. But so are dramatic changes in the global economy, including higher oil prices, lower food reserves and growing consumer demand in China and India.

The world's poorest nations still harbor the greatest hunger risk. Clashes over bread in Egypt killed at least two people last week, and similar food riots broke out in Burkina Faso and Cameroon this month.

But food protests now crop up even in Italy. And while the price of spaghetti has doubled in Haiti, the cost of miso is packing a hit in Japan.

"It's not likely that prices will go back to as low as we're used to," said Abdolreza Abbassian, economist and secretary of the Intergovernmental Group for Grains for the U.N. Food and Agriculture Organization. "Currently if you're in Haiti, unless the government is subsidizing consumers, consumers have no choice but to cut consumption. It's a very brutal scenario, but that's what it is."

No one knows that better than Eugene Thermilon, 30, a Haitian day laborer who can no longer afford pasta to feed his wife and four children since the price nearly doubled to $0.57 a bag. Their only meal on a recent day was two cans of corn grits.

"Their stomachs were not even full," Thermilon said, walking toward his pink concrete house on the precipice of a garbage-filled ravine. By noon the next day, he still had nothing to feed them for dinner.

Their hunger has had a ripple effect. Haitian food vendor Fabiola Duran Estime, 31, has lost so many customers like Thermilon that she had to pull her daughter, Fyva, out of kindergarten because she can't afford the $20 monthly tuition.

Fyva was just beginning to read.

In the long term, prices are expected to stabilize. Farmers will grow more grain for both fuel and food and eventually bring prices down. Already this is happening with wheat, with more crops to be planted in the U.S., Canada and Europe in the coming year.

However, consumers still face at least 10 years of more expensive food, according to preliminary FAO projections.

Among the driving forces are petroleum prices, which increase the cost of everything from fertilizers to transport to food processing. Rising demand for meat and dairy in rapidly developing countries such as China and India is sending up the cost of grain, used for cattle feed, as is the demand for raw materials to make biofuels.

What's rare is that the spikes are hitting all major foods in most countries at once. Food prices rose 4 percent in the U.S. last year, the highest rise since 1990, and are expected to climb as much again this year, according to the U.S. Department of Agriculture.

As of December, 37 countries faced food crises, and 20 had imposed some sort of food-price controls.

For many, it's a disaster. The U.N.'s World Food Program says it's facing a $500 million shortfall in funding this year to feed 89 million needy people. On Monday, it appealed to donor countries to step up contributions, saying its efforts otherwise have to be scaled back.

In Egypt, where bread is up 35 percent and cooking oil 26 percent, the government recently proposed ending food subsidies and replacing them with cash payouts to the needy. But the plan was put on hold after it sparked public uproar.

"A revolution of the hungry is in the offing," said Mohammed el- Askalani of Citizens Against the High Cost of Living, a protest group established to lobby against ending the subsidies.

In China, the price hikes are both a burden and a boon.

Per capita meat consumption has increased 150 percent since 1980, so Zhou Jian decided six months ago to switch from selling auto parts to pork. The price of pork has jumped 58 percent in the past year, yet every morning housewives and domestics still crowd his Shanghai shop, and more customers order choice cuts.

The 26-year-old now earns $4,200 a month, two to three times what he made selling car parts. And it's not just pork. Beef is becoming a weekly indulgence.

"The Chinese middle class is starting to change the traditional thought process of beef as a luxury," said Kevin Timberlake, who manages the U.S.-based Western Cattle Company feedlot in China's Inner Mongolia.

At the same time, increased cost of food staples in China threatens to wreak havoc. Beijing has been selling grain from its reserves to hold down prices, said Jing Ulrich, chairwoman of China equities for JP Morgan.

"But this is not really solving the root cause of the problem," Ulrich said. "The cause of the problem is a supply-demand imbalance. Demand is very strong. Supply is constrained. It is as simple as that."

Chinese Premier Wen Jiabao says fighting inflation from shortages of key foods is a top economic priority. Inflation reached 7.1 percent in January, the highest in 11 years, led by an 18.2 percent jump in food prices.

Meanwhile, record oil prices have boosted the cost of fertilizer and freight for bulk commodities—up 80 percent in 2007 over 2006. The oil spike has also turned up the pressure for countries to switch to biofuels, which the FAO says will drive up the cost of corn, sugar and soybeans "for many more years to come."

In Japan, the ethanol boom is hitting the country in mayonnaise and miso, two important culinary ingredients, as biofuels production pushes up the price of cooking oil and soybeans.

A two-pound bottle of mayonnaise his risen about 10 percent in two months to as much as 330 yen (nearly $3), said Daishi Inoue, a cook at a Chinese restaurant.

"It's not hurting us much now," he said. "But if prices keep going up, we have no choice but to raise our prices."

Miso Bank, a restaurant in Tokyo's glitzy Ginza district, specializes in food cooked with miso, or soybean paste.

"We expect prices to go up in April all at once," said Miso Bank manager Koichi Oritani. "The hikes would affect our menu. So we plan to order miso in bulk and make changes to the menu."

Italians are feeling the pinch in pasta, with consumer groups staging a one-day strike in September against a food deeply intertwined with national identity. Italians eat an estimated 60 pounds of pasta per capita a year.

cont'd

The protest was symbolic because Italians typically stock up on pasta, buying multiple packages at a time. But in the next two months pasta consumption dropped 5 percent, said farm lobbyist Rolando Manfredini.

"The situation has gotten even worse," he said.

In decades past, farm subsidies and support programs allowed major grain exporting countries to hold large surpluses, which could be tapped during food shortages to keep prices down. But new trade policies have made agricultural production much more responsive to market demands—putting global food reserves at their lowest in a quarter century.

Without reserves, bad weather and poor harvests have a bigger impact on prices.

"The market is extremely nervous. With the slightest news about bad weather, the market reacts," said economist Abbassian.

That means that a drought in Australia and flooding in Argentina, two of the world's largest suppliers of industrial milk and butter, sent the price of butter in France soaring 37 percent from 2006 to 2007.

Forty percent of escargot, the snail dish, is butter.

"You can do the calculation yourself," said Romain Chapron, president of Croque Bourgogne, which supplies escargot. "It had a considerable effect. It forced people in our profession to tighten their belts to the maximum."

The same climate crises sparked a 21 percent rise in the cost of milk, which with butter makes another famous French food item—the croissant. Panavi, a pastry and bread supplier, has raised retail prices of croissants and pain au chocolat by 6 to 15 percent.

Already, there's a lot of suspicion among consumers.

"They don't understand why prices have gone up like this," said Nicole Watelet, general secretary at the Federation of French Bakeries and Pastry Enterprises. "They think that someone is profiting from this. But it's not us. We're paying." Food costs worldwide spiked 23 percent from 2006 to 2007, according to the FAO. Grains went up 42 percent, oils 50 percent and dairy 80 percent.

Economists say that for the short term, government bailouts will have to be part of the answer to keep unrest at a minimum. In recent weeks, rising food prices sparked riots in the West African nations of Burkina Faso, where mobs torched buildings, and Cameroon, where at least four people died.

But attempts to control prices in one country often have dire effects elsewhere. China's restrictions on wheat flour exports resulted in a price spike in Indonesia this year, according to the FAO. Ukraine and Russia imposed export restrictions on wheat, causing tight supplies and higher prices for importing countries. Partly because of the cost of imported wheat, Peru's military has begun eating bread made from potato flour, a native crop.

"We need a response on a large scale, either the regional or international level," said Brian Halweil of the environmental research organization Worldwatch Institute. "All countries are tied enough to the world food markets that this is a global crisis."

Poorer countries can speed up the adjustment by investing in agriculture, experts say. If they do, farmers can turn high prices into an engine for growth.

But in countries like Burkina Faso, the crisis is immediate.

Days after the riots, Pascaline Ouedraogo wandered the market in the capital, Ouagadougou, looking to buy meat and vegetables. She said a good meal cost 1,000 francs (about $2.35) not long ago. Now she needs twice that.

"The more prices go up, the less there is to meet their needs," she said of her three children, all in secondary school. "You wonder if it's the government or the businesses that are behind the price hikes."

Irene Belem, a 25-year-old with twins, struggles to buy milk, which has gone up 57 percent in recent weeks.

"We knew we were poor before," she said, "but now it's worse than poverty."

Oil tops $107 after Iraqi pipeline bombed
Buying spree also spurred by anemic dollar, U.S. inventory data

Oil prices were steady Thursday after easing slightly from highs prompted by the bombing of a key Iraqi pipeline.

Crude prices, which already spiked by nearly $5 on Thursday because of an anemic dollar and lower U.S. fuel inventories were briefly propelled higher by the second bombing in a week in Basra, where Iraqi security forces have been clashing with Shiite militia fighters before falling back to closing levels.

After moving up by more than a dollar and topping the $107 mark, light, sweet crude for May delivery was lately down 8 cents to fetch $105.82 a barrel by afternoon European electronic trading on the New York Mercantile Exchange. The contract rose $4.68 to settle at $105.90 a barrel Wednesday.
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The market was apparently reassured by comments from Oil Minister Hussein al-Shahristani, who said that ongoing clashes would not affect oil exports and drilling operations. But with an average of 1.54 million barrels a day transiting the southern city last month, an official, who demanded anonymity because he was not authorized to comment, acknowledged that the blast could impact crude sales.

Iraq’s average production for February was 2.4 million barrels per day. Exports averaged 1.93 million barrels per day during that month.

Basra Rumaila South and North oil fields produce around 1.3 million barrels per day. The city also is home to one of Iraq’s three largest oil refineries, the Shuaiba refinery which has a capacity of 160,000 barrels a day but has been functioning below capacity at about 100,000 barrels per day.

Wednesday’s spike followed the release of data by the U.S. Energy Department’s Energy Information Administration, showing that U.S. stockpiles of gasoline, heating oil and diesel fuel fell more than forecast last week.

Levels are still higher than in past years. But the inventory report stoked worries that stockpiles of gasoline are falling right when analysts would like to see them rising — in advance of peak summer driving season. Gasoline inventories slid 3.3 million barrels last week, more than four times the decline analysts had expected.

“The gasoline stock movement was probably quite supportive, it’s the second week in a row now we’ve seen a larger than expected drop in U.S. gasoline stocks,” said Mark Pervan, a commodity strategist at ANZ Bank in Melbourne, Australia.

The EIA reported that U.S. refinery activity also dropped, which analysts attributed to some refiners cutting gasoline production due to low profit margins. Despite the most recent declines, gasoline inventories are 9 percent higher than a year ago.

“(Gasoline) stock levels are at a higher than normal level, so they’ve pulled back on production, and this is why we’ve seen a fairly sharp drop in (refinery) utilization rates,” Pervan said.

Valero Energy Corp. cut output at its Corpus Christi, Texas, refinery due to high supplies and falling demand, Dow Jones Newswires reported Wednesday. While gas prices are near records, they have not kept pace with crude’s recent rally.

“Refinery runs are now at the lowest level since the end of October 2005,” noted Vienna’s JBC Energy, in its daily newsletter.

Crude oil inventories, meanwhile, were unchanged. Analysts surveyed by Dow Jones Newswires had expected crude supplies to rise 1.7 million barrels.

Pervan warned that the steadiness in crude oil inventories despite a decline in refinery utilization was an indication that U.S. crude demand was falling, which could lead to a drop in oil prices in the weeks ahead.

“What the U.S. is doing is to try to match their crude oil stocks to the low refinery capacity by pulling back on their imports,” Pervan said. “That should start to manifest itself in lower oil prices in the near term.”

Oil prices were also supported by U.S. economic news. The Commerce Department said new home sales fell last month to a 13-year low, and that orders for durable goods fell in February when analysts had expected an increase.

Many investors view weak economic news as a sign that the U.S. Federal Reserve will cut interest rates more sharply than expected later this year. Lower interest rates tend to further weaken the dollar, which boosts oil prices.

In other Nymex trading, heating oil futures rose by over a penny to $3.0584 a gallon (3.8 liters.) Gasoline prices, meanwhile underwent a significant correction, losing more than 3 cents to sell at $2.7080 a gallon. Natural gas futures dropped by over 16 cents to $9.406 per 1,000 cubic feet.

In London, Brent crude gained 31 cents to trade at $104.30 a barrel on the ICE Futures exchange.

Wall Street's crisis
hits small business
Some firms having problems obtaining loans,
others being informed of reduced credit lines

The ripple effect of the financial turmoil on Wall Street is spreading more deeply into the American economy.

The local hardware store is finding it more difficult to get the loan it needs to buy its summer gardening merchandise. Ivy-covered colleges and universities are finding that donors have second thoughts about contributions until the stock market quiets down. Some small businesses that count on using credit cards to finance their business are getting letters informing them of reductions in their credit lines or increases in their rates.

"Wall Street's woes are increasingly giving Main Street the blues," says Mark Zandi, chief economist at Moody's Economy.com.

One sign of the blues on Main Street: consumer-confidence surveys. On Tuesday, the Conference Board said that consumer confidence had dropped to a level not seen since the recessions of 1980 and 1973.

"The plunge is directly related to the turmoil in the financial system," says Mr. Zandi.

Economists are particularly concerned about one development: CIT Group, a commercial finance company that lends to small business, used a $7.3 billion line of credit from banks because it was having trouble selling its debt.

"CIT does lending to Main Street business," says Fred Dickson, market strategist at D.A. Davidson & Co. in Lake Oswego, Ore.

CIT, for its part, says it is looking to sell some nonstrategic assets or business lines and is looking for additional capital. "We recognize that given the current market environment, we need to operate a smaller, more focused company," writes Mary Flynn, a spokeswoman, in an e-mail.

Limited credit availability

Strains on CIT could pose just one more challenge for small to medium-size businesses, which are finding it increasingly tough to get loans. "Bank lending to small business is freezing in place," says George Cloutier, a small-business expert and chairman of American Management Services, a consulting group. "Availability of credit to small and mid-sized companies has almost dried up."

The decline in housing prices isn't helping either, in that many small-business people use their homes as collateral for loans, says Michael Leonard, executive director of the greater Richmond Small Business Development Center in Virginia. "What we're finding is that clients already somewhat highly leveraged are finding it difficult to get new money."

Small-business owners are also increasingly running into late-paying clients, he says. "They need to borrow money to bridge that gap as well," he says.

Business surveys seem to be mixed on the issue of the availability of credit. Last month, a survey conducted for the National Federation of Independent Business found no problem getting credit, says Bill Dunkelberg, chief economist for the organization. "We've been doing the surveys for 35 years, and when things get tough, our members let us know," he says.

But a survey done in 2007 for the National Small Business Association (NSBA) found that just 67 percent of respondents said they could obtain adequate financing, compared with 76 percent in 2000. The largest source of financing for the small-business members: their credit cards.

That's the case for Marilyn Landis, chairman of NSBA and owner of Basic Business Concepts Inc. in Pittsburgh. Ms. Landis is expanding her business, which provides temporary chief financial officers for companies not large enough for a full-time CFO. She applied twice for a line of credit and instead was sent a credit card.

Recently, Landis has been traveling weekly to New England as part of the expansion of her business, so she has run up her credit-card balances. "Much larger monthly balances – even though I pay off the card every month – triggered a change in my credit score," says Landis, a former banker. "One card company cut my credit line in half. Another card company raised my finance charge from 3.99 percent to 23.99 percent."

Impact on universities

Educational institutions have also been encountering challenges. Last week at a dinner in New York, many of the presidents or chancellors of eight universities said that the turmoil in the credit markets was affecting their institutions. G.P. "Bud" Peterson, chancellor of the University of Colorado, Boulder, said he was expecting a significant contribution from an alumnus. But out of the blue, his potential donor said he wanted to wait until the financial markets settled down.

Rebecca Chopp, president of Colgate University in Hamilton, N.Y., said her graduates sometimes have landed jobs at Bear Stearns, an investment bank that will disappear after an emergency merger with JPMorgan Chase.

Lois DeFleur, president of the State University of New York at Binghamton, recounted how more students are coming in for financial aid because their parents' financial situations have changed.

The credit-market turmoil also means some states and other municipal borrowers are paying more interest on some debt. For example, the state of Wisconsin is in the process of restructuring $945 million in short-term borrowings. In the past, the debt carried interest rates in the 5 to 6 percent range. But last month, it spiked up to 10 to 11 percent. To remedy that, on April 1, the state will issue longer-term debt for most of the prior short-term borrowings.

It's still too early to know if it will cost the taxpayers of Wisconsin more money to borrow. But in any event, other costs exist. "At the moment, there are some additional transaction costs and enhancement costs we had not planned on doing," says Frank Hoadley, state director of finance.

'Silent' famine sweeps globe
Rice, fertilizer shortages, food costs, higher energy prices equal world crisis

From India to Africa to North Korea to Pakistan and even in New York City, higher grain prices, fertilizer shortages and rising energy costs are combining to spell hunger for millions in what is being characterized as a global "silent famine."

Global food prices, based on United Nations records, rose 35 percent in the last year, escalating a trend that began in 2002. Since then, prices have risen 65 percent.

Last year, according to the U.N. Food and Agriculture Organization's world food index, dairy prices rose nearly 80 percent and grain 42 percent.

"This is the new face of hunger," said Josetta Sheeran, director of the World Food Program, launching an appeal for an extra $500 million so it could continue supplying food aid to 73 million hungry people this year. "People are simply being priced out of food markets. ... We have never before had a situation where aggressive rises in food prices keep pricing our operations out of our reach."

The WFP launched a public appeal weeks ago because the price of the food it buys to feed some of the world's poorest people had risen by 55 percent since last June. By the time the appeal began last week, prices had risen a further 20 percent. That means WFP needs $700 million to bridge the gap between last year's budget and this year's prices. The numbers are expected to continue to rise.

The crisis is widespread and the result of numerous causes – a kind of "perfect storm" leading to panic in many places:

* In Thailand, farmers are sleeping in their fields because thieves are stealing rice, now worth $600 a ton, right out of the paddies.

* Four people were killed in Egypt in riots over subsidized flour that was being sold for profit on the black market.

* There have been food riots in Morocco, Senegal and Cameroon.

* Mexico's government is considering lifting a ban on genetically modified crops, to allow its farmers to compete with the United States.

* Argentina, Kazakhstan and China have imposed restrictions to limit grain exports and keep more of their food at home.

* Vietnam and India, both major rice exporters, have announced further restrictions on overseas sales.

* Violent food protests hit Burkina Faso in February.

* Protesters rallied in Indonesia recently, and media reported deaths by starvation.

* In the Philippines, fast-food chains were urged to cut rice portions to counter a surge in prices.

* Millions of people in India face starvation after a plague of rats overruns a region, as they do cyclically every 50 years.

* Officials in Bangladesh warn of an emerging "silent famine" that threatens to ravage the region.

According to some experts, the worst damage is being done by government mandates and subsidies for "biofuels" that supposedly reduce carbon dioxide emissions and fight climate change. Thirty percent of this year's U.S. grain harvest will go to ethanol distilleries. The European Union, meanwhile, has set a goal of 10 percent bio-fuels for all transportation needs by 2010.

"A huge amount of the world's farmland is being diverted to feed cars, not people," writes Gwynne Dyer, a London-based independent journalist.

He notes that in six of the past seven years the human race has consumed more grain than it grew. World grain reserves last year were only 57 days, down from 180 days a decade ago.

One in four bushels of corn from this year's U.S. crop will be diverted to make ethanol, according to estimates.

"Turning food into fuel for cars is a major mistake on many fronts," said Janet Larsen, director of research at the Earth Policy Institute, an environmental group based in Washington. "One, we're already seeing higher food prices in the American supermarket. Two, perhaps more serious from a global perspective, we're seeing higher food prices in developing countries where it's escalated as far as people rioting in the streets."

Palm oil is also at record prices because of biofuel demands. This has created shortages in Indonesia and Malaysia, where it is a staple.

Nevertheless, despite the recognition that the biofuels industry is adding to a global food crisis, the ethanol industry is popular in the U.S. where farmers enjoy subsidies for the corn crops.

Another contributing factor to the crisis is the demand for more meat in an increasingly prosperous Asia. More grain is used to feed the livestock than is required to feed humans directly in a traditional grain-based diet.

Bad weather is another problem driving the world's wheat stocks to a 30-year low – along with regional droughts and a declining dollar.

"This is an additional setback for the world economy, at a time when we are already going through major turbulence," Angel Gurria, head of the Organization for Economic Co-operation and Development, told Reuters. "But the biggest drama is the impact of higher food prices on the poor."

According to the organization, as well as the U.N., the price of corn could rise 27 percent in the next decade.

John Bruton, the European Union's ambassador to the U.S., predicts the current trend is the beginning of a 10-15 year rise in food costs worldwide.

The rodent plague in India occurs about every half century following the heavy flowering of a local species of bamboo, providing the rodents with a feast of high-protein foliage. Once the rats have ravaged the bamboo, they turn on the crops, consuming hundreds of tons of rice and corn supplies.

Survivors of the previous mautam, which heralded widespread famine in 1958, say they remember areas of paddy fields the size of four soccer fields being devastated overnight.

In Africa, rats are seen as part of the answer to the food shortage. According to Africa News, Karamojongs have resorted to hunting wild rats for survival as famine strikes the area.

Supplies of fertilizer are extremely tight on the worldwide market, contributing to a potential disaster scenario. The Scotsman reports there are virtually no stocks of ammonium nitrate in the United Kingdom.

Global nitrogen is currently in deficit, a situation that is unlikely to change for at least three years, the paper reports.

South Koreans are speculating, as they do annually, on how many North Koreans will starve to death before the fall harvest. But this year promises to be worse than usual.

Severe crop failure in the North and surging global prices for food will mean millions of hungry Koreans.

Roughly a third of children and mothers are malnourished, according to a recent U.N. study. The average 8-year-old in the North is 7 inches shorter and 20 pounds lighter than a South Korean child of the same age.

Floods last August ruined part of the main yearly harvest, creating a 25-percent shortfall in the food supply and putting 6 million people in need, according to the U.N. World Food Program.

Yesterday, the Hong Kong government tried to put a stop to panic-buying of rice in the city of 6.9 million as fears mounted over escalating prices and a global rice shortage. Shop shelves were being cleared of rice stocks as Hong Kong people reacted to news that the price of rice imported from Thailand had shot up by almost a third in the past week, according to agency reports.

Global food prices are even hitting home in New York City, according to a report in the Daily News. Food pantries and soup kitchens in the city are desperately low on staples for the area's poor and homeless.

The Food Bank for New York City, which supplies food to 1,000 agencies and 1.3 million people, calls it the worst problem since its founding 25 years ago.

Last year, the Food Bank received 17 million pounds of food through the Emergency Food Assistance Program, less than half of the 35 million pounds it received in 2002. And donations from individuals and corporations are also down about 50 percent, according to the report.

High gas prices, increased food production costs and a move to foreign production of American food are contributing to the problem.

Congress offers solution to housing meltdown
But does it prevent foreclosures or bail out lenders?

With the foreclosure crisis reaching unprecedented levels in the United States, Senate Republican Minority Leader Mitch McConnell and Senate Majority Leader Harry Reid have reached an agreement to craft a bi-partisan housing bill aimed at helping families facing the loss of their home.

Critics watching the Senate forge the plan, however, question whether the bill would help families facing foreclosure or the lenders facing financial losses on repossessions.

Jennifer Morris, McConnell's press secretary, confirmed to WND today Senate Banking Committee chairman Christopher Dodd, D-Conn., and the committee's ranking Republican, Sen. Richard Shelby of Alabama, held closed door meetings throughout the day finalizing the language of a bill to bring to the floor of the Senate.

Late today, Dodd and Shelby announced that final language on the Foreclosure Prevention Act of 2008, the proposed legislation, had been delayed until tomorrow.

But summary points released by Dodd and Shelby included $4 billion in Community Development Block Grant Funds to be used by communities hardest hit by foreclosures and delinquencies to purchase foreclosed homes at a discount and to rehabilitate or redevelop the homes to stabilize neighborhoods and stem the losses in house values of neighboring homes.

Until language of the compromise bill is available, it remains unclear whether the $4 billion in grants would be available to prevent any families from losing their homes or would be available for community purchase only after foreclosed homes had been repossessed by lenders.

The compromise legislation also would provide $100 million in additional funding for the Neighborhood Reinvestment Corp. to be used this year.

A position paper released by McConnell's office called for state housing finance agencies to issue up to $10 billion in tax exempt bonds with the proceeds being used to refinance subprime mortgages.

Other key features sought by McConnell include providing $15,000 tax credits for the purchase of a home in or approaching foreclosure and extending the current three-month delay of any looming foreclosure for a returning GI deployed overseas to six months.

The compromise language released by Dodd and Shelby today suggested the bill would delay foreclosures on returning GIs deployed overseas to nine months.

Also proposed in the compromise legislation were reforms to the Federal Housing Administration program, extending various limits to qualify additional families for FHA loans.

"The package that we agreed to is not perfect, nor will it solve all the problems that the economy and the American homeowners are facing today," said a joint statement released by Dodd and Shelby. "But it is an important step, and sends a strong message to the American people that Congress is willing to put aside our partisan differences and come together to tackle the challenges at hand."

Realty Trac reported foreclosure filings during 2007 were up 75 percent from 2006, with more than 1 percent of all U.S. households in some stage of foreclosure during the year.

Last week, the Wall Street Journal reported 2 percent of all home loans were in foreclosure, double the rate over the past 28 years and the highest foreclosure rate since the Mortgage Banking Association began collecting data in 1979.

According to Realty Trac, the top 10 states reporting foreclosures in Dec. 2007 were, in order: Nevada, California, Florida, Colorado, Arizona, Michigan, Ohio, Georgia, Illinois, and Massachusetts.

The Denver Post reported yesterday home foreclosure liquidators are offering dispossessed homeowners as much as $900 simply for agreeing to leave the property without stealing appliances or otherwise damaging or vandalizing the property in their anger and frustration.

In one anecdote, the Denver Post told the story of a little girl who had written a note in a walk-in closet, "Dear Bedroom, I'm going to miss you. When I get older, I’ll buy you back."

The Cleveland Plain Dealer reported yesterday Ohio has launched a program where 1,100 lawyers from across the state have volunteered under a "Save the Dream" program to provide free legal assistance to Ohioans making under $54,000 a year who are in danger of losing their homes.

The paper disclosed data compiled by the Ohio Supreme Court showed more than 83,000 foreclosures were filed during 2007, the most in the history of the Buckeye State, while Cleveland, Akron, Toledo, Dayton, Columbus and Cincinnati were all ranked among the top 50 cities in the country in foreclosed properties.

The Federal Reserve Bank of New York has posted a dynamic map of subprime mortgage conditions in the United States, displaying statewide, county specific and zip code variations the condition of securitized, owner-occupied subprime mortgage loans.

On Monday, the New York Times reported the Congressional Budget Office is projecting a record 28 million Americans will receive food stamp assistance in 2008.

The Times also reported one in eight Michigan residents, 12.5 percent, are now receiving food stamps.

200,000 U.S. banking jobs at risk from subprime crisis
'There's no horizon yet that anybody can see. New events keep rolling out'

If you work in the finance industry, look for ways to hold on to your job. And if you want a job in banking, well, you might want to look somewhere else.

The U.S. financial industry has been shedding jobs at a record clip, and some analysts predict the pace will accelerate over the next 18 months as banks cut costs in the face of the housing market slump and the weak economy.

Analysts at the financial research firm Celent LLC said in a report Tuesday that it expects the U.S. commercial banking industry — essentially, all companies that lend or collect deposits — to lose 200,000 of its 2 million jobs over the next 12 to 18 months.

An annual loss of 200,000 jobs at the nation's commercial banks would be an unprecedented number.

In 2007, the entire financial services sector — which consists of mostly commercial banks — announced job cuts that totaled a record 153,000, according to the job placement consultancy Challenger, Gray & Christmas Inc. More than half of those cuts were in the mortgage lending business and occurred all over the country, particularly in New York and California.

Octavio Marenzi, the head of Celent's financial consultancy unit, said more layoffs are inevitable as the subprime crisis hits other parts of the banking industry and spreads beyond mortgages to mortgage-related products, such as home equity loans, and other types of lending, such as credit cards.

"The banking industry over the past 40 years has never seen a downturn in its revenue growth," Marenzi said. "In 2008, it looks like it will decrease for the first time in living memory. They're going to have to respond with severe cost cutting."

The credit crisis began in earnest last summer when the markets tightened up at the sight of spiking subprime mortgage defaults.

"There's no horizon yet that anybody can see," said John Challenger, who runs outplacement consulting firm Challenger, Gray & Christmas. "New events keep rolling out … suggesting that there's more to come."

Financial services companies announced in January that they were cutting 16,000 U.S. jobs, and companies said in February that they were trimming 6,000 more, Challenger said.

Those figures are below last year's peak in August, when companies announced they were cutting nearly 36,000 jobs, but analysts expect further bloodletting in the coming months.

Many banks that have reported huge losses have so far not announced significant layoffs outside the mortgage area, Challenger said.

And Celent's estimate does not include the securities industry, which currently employs some 800,000 people — more than it ever has, after a multiyear hiring spree, Marenzi said.

The investment bank Bear Stearns Cos. has 14,000 staffers, and JPMorgan Chase & Co., the company buying the investment bank, has not yet announced how much of that staff it intends to keep.

Meanwhile, Citigroup Inc. officially announced in January that it was cutting 4,200 jobs globally, mostly in its investment banking business, but said there are more layoffs to come.

Gas prices rise to new record
Fuel now above $3.30 a gallon – crude costs also rising

Retail gas prices surged to a new record above $3.30 a gallon Friday and appear poised to rise further in coming weeks as gasoline supplies tighten.

Oil prices, meanwhile, supported the gas price rally by jumping more than $2 a barrel after a dismal employment report sent the dollar lower.

At the pump, gas prices rose 1.4 cents overnight to a national average of $3.303 a gallon, according to AAA and the Oil Price Information Service. That’s the latest in a series of records, and about 60 cents higher than a year ago.
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While oil’s surge above $100 over the last month has boosted gas prices so far this year, analysts now expect gas prices to continue rising regardless of what direction crude takes. The Energy Department expects prices to peak near $3.50 a gallon later in the spring, but many analysts predict the spike could approach $4.

That’s because gasoline supplies are falling, in part because producers are cutting back on output of the fuel due to the high cost of crude — the more expensive crude is, the more refiners have to pay and the lower their profits are. They’re also in the process of switching over from producing winter grades of gasoline to the less polluting but more expensive grade of fuel they’re required to sell in the summer.

“That cuts back on some of the supply and helps to pump up the price,” said Mike Pina, a spokesman for AAA.

The margin between the price refiners pay for crude and receive for selling the products they make from it is around $11 to $12 a barrel right now, according to the Oil Price Information Service. However, that margin has occasionally slipped into negative territory in recent weeks and is well below margins of $37 a barrel refiners earned last spring.

On Thursday, ConocoPhillips said high crude prices were significantly hurting its refining margins. Last week, Valero Energy Corp. cut output at its Corpus Christi, Texas, refinery due to high supplies and falling demand. Analysts believe many other refiners are adopting similar tactics.

Friday’s price spike is a sign those cutbacks may be working, giving everyone in the supply chain, from refiners to retailers, the ability to raise prices to try to boost margins. Many gas retailers say they make more on the sale of coffee and sundries in their convenience stores than from selling gasoline.

Of course, that’s not good news for consumers also paying higher food prices and watching their home values slide. Food prices are high due in part to diesel prices, which held steady overnight at a national average of $4.023 a gallon, near recent records.

High oil prices are also hurting airlines. Aloha Airlines shut down and ATA Airlines filed for bankruptcy protection in recent weeks, citing high fuel prices as a cause of their failures.

In futures trading, meanwhile, oil futures rose Friday after the Labor Department said employers cut payrolls by 80,000 jobs last month, much more than analysts had expected. The unemployment rate rose to 5.1 percent. That news sent the dollar lower and pushed light, sweet crude for May delivery up $2.40 to settle at $106.23 a barrel on the New York Mercantile Exchange. Gasoline futures for May delivery rose 3.24 cents to settle at $2.7567 a gallon.

Gasoline futures were also boosted Friday by a fire that shut down part of a Los Angeles refinery.

Much of crude’s price moves in recent months have been tied to the dollar. Many investors view crude, gold and other hard commodities as hedges against a falling dollar and rising prices. Also, crude becomes less expensive for overseas investors when the dollar is falling.

In other Nymex trading Friday, May heating oil futures rose 6.93 cents to settle at $2.9921 a gallon, while May natural gas futures fell 9.5 cents to settle at $9.322 per 1,000 cubic feet.

In London, May Brent crude futures rose $2.38 to settle at $104.90 a barrel on the ICE Futures exchange.

Huge job losses set off recession alarms
'It is now very clear that the fat lady has sung for the economic expansion.'

It's no longer a question of recession or not. Now it's how deep and how long. Workers' pink slips stacked ever higher in March as jittery employers slashed 80,000 jobs, the most in five years, and the national unemployment rate climbed to 5.1 percent. Job losses are nearing the staggering level of a quarter-million this year in just three months.

For the third month in a row total U.S. employment rolls shrank - often a telltale sign that the economy has jolted dangerously into reverse.

At the same time, the jobless rate rose three-tenths of a percentage point, a sharp increase usually associated with times of deep economic stress.

The grim picture described by the Labor Department on Friday provided stark evidence of just how much the jobs market has buckled under the weight of the housing, credit and financial crises. Businesses and jobseekers alike are feeling the pain.

"It is now very clear that the fat lady has sung for the economic expansion. The country has slipped into a recession," said Stuart Hoffman, chief economist at PNC Financial Services Group. Indeed, there is widening agreement that the first recession since 2001 has arrived. Even Ben Bernanke, in a rare public utterance for a Federal Reserve chairman, used the "r" word, acknowledging for the first time this week that a recession was possible.

Job losses were widespread last month, hitting workers at factories, construction companies, retailers, banks, real-estate firms and even temporary-help agencies. Also mortgage brokers, hotels, computer design shops, accounting firms, architecture and engineering companies, legal services, airlines and other transportation as well as telecommunications companies.

Those cuts swamped employment gains elsewhere, including at hospitals and other heath-care sites, educational services, child day-care providers, bars and restaurants, insurance companies, museums, zoos and parks. And the government, which is almost always up.

In fact, private employers have shed jobs for four straight months, though December showed an overall gain for the economy because the government increase outweighed the private loss.

March's losses were the most since the same month in 2003, when companies were still struggling to recover from the last recession. Adding to the angst: Revised figures showed losses were actually deeper than first reported for both January and February.

All told, the economy now has lost 232,000 jobs in the first three months of this year.

On Wall Street, investors took the weak employment figures in stride. The Dow Jones industrials lost just 16.61 points, while other indexes edged higher.

All the economy's problems are forcing people and businesses to hunker down, crimping spending and hiring, a vicious cycle.

"Across the board, businesses have become very, very conservative," said Joel Naroff, president of Naroff Economic Advisors. More downbeat about their own sales prospects because of cautious consumers, employers are cutting back. "It only makes sense for them to run leaner if we are going into a recession or already in one" as Naroff now believes.

The new employment figures were much weaker than economists were expecting. They were anticipating a drop of 50,000 payroll jobs.

Michael Gregory, senior economist at BMO Capital Markets Economics, said the employment report was "emitting recession signals."

The national unemployment rate of 5.1 percent, relatively modest by historical standards, is nonetheless the highest since September 2005, following the devastating blows of the Gulf Coast hurricanes.

Some groups are feeling more of the strains from the economy's current woes. The unemployment rate for Hispanics, for instance, jumped to 6.9 percent in March, the highest in over four years. The rate for blacks climbed to 9 percent, a two-month high.

With the public on edge, Congress, the White House and presidential contenders are scrambling to come up with their own relief plans to stem record-high home foreclosures and stabilize housing - even as they engage in a political blame game.

Democrats want more economic assistance, including extending unemployment benefits. The Bush administration has resisted, saying the government's $168 billion stimulus package of tax rebates for people and tax breaks for businesses will be sufficient once it kicks in.

"We don't like to see one job lost, let alone 80,000," Commerce Secretary Carlos Gutierrez said in an interview with The Associated Press. "These are challenging times," he said. Gutierrez was hopeful the economy would turn around in the second half of this year, given the relief efforts by the government and the Federal Reserve. "We'll get through this."

Democrats were skeptical of the administration's efforts.

"Our economy is spiraling downward," said presidential contender Hillary Rodham Clinton. "It is time for this administration to put ideology aside and get serious about stemming this crisis."

Barack Obama said, "Instead of doing nothing for out-of-work Americans, we need a second stimulus that extends unemployment insurance and helps communities that have been hit hard by this recession."

Republican John McCain said the unemployment news "underlines the need to focus on innovation, which grows the economy and creates an urgent need for effective worker retraining."

Given the worsening employment situation, the Federal Reserve probably will lower a key interest rate, now at 2.25 percent, later this month.

The Fed has taken a number of extraordinary actions recently - slashing interest rates, providing financial backing to JP Morgan's takeover of troubled Bear Stearns and opening an emergency lending program for big investment houses. All the actions were aimed at limiting damage to the national economy.

With the pace of hiring slowing, the number of unemployed people increased to 7.8 million in March.

Workers with jobs saw modest wage gains. Average hourly earnings for jobholders rose to $17.86 in March and are up 3.6 percent over the past 12 months. With lofty energy and food prices, workers may feel like their paychecks are shrinking. If the job market continues to falter, wage growth probably will slow, too, making consumers even less inclined to spend, which would further hurt the economy.

Many analysts believe the economy shrank in the first three months of this year and could still be ebbing now. The government will release its estimate of first-quarter economic growth later this month. Under one rough rule, if the economy contracts for six straight months it is considered in a recession. When a determination is made by a panel of experts about when a recession has started and ended - it is usually done well after the fact.

Bernanke and the Bush administration are hopeful the economy will improve in the second half of this year. Even so, Bernanke predicted this week that the unemployment rate would rise further. Some analysts say it could climb to 5.75 percent or higher this year.

Advises Hoffman: "If you've got a job, hang on to it the best you can."

This is part of an article from Koenig's Eye View:

by Bill Wilson

"Connecting the Dots - Rising food prices type-and-shadow of ancient prophecies of the One World Order

The types and shadows of ancient end time Biblical prophecies are in play as America's leadership accelerates the sell out of the moral and economic backbone of the United States - the middle class - in order to establish the foundation of the One World Order.

One such example is the rising cost of food prices that have been triggered by government policies and could result in a food shortage never before seen since the Pilgrim's first winter.

Jesus Christ warned of the beginning of sorrows in Matthew 24:7 (NKJV) "For nation shall rise against nation, and kingdom against kingdom; and there shall be famines, and pestilences, and earthquakes in various places."

And the Apostle John wrote in Revelation 6:5-6, "So I looked, and behold a black horse, and he who sat on it had a pair of scales in his hand. And I heard a voice in the midst of the four living creatures saying, 'A quart of wheat for a denarius, and three quarts of barley for a denarius; and do not harm the oil and the wine."

This end-time prophecy is speaking of extraordinarily high prices for food staples that hurt the poor and middle class - all but those who can afford oil and wine.

Government policies, based on scare tactics over the shrill cry against the scientifically unfounded global-warming fraud - are causing drastic increases in food prices. The government has mandated that oil companies increase the ethanol content in gasoline, which has encouraged expanded corn production at the expense of other staples.

It is estimated that the total cost for wheat, corn, and soy products, will be 61.7 billion dollars more in the 2008 crop year than in 2006. In 2007 the cost of eggs rose 40 percent, milk increased by 26 percent, and white bread went up nearly 20 percent. These costs will continue to rise as oil prices rise and as more ethanol is required in the gasoline mix.

The cost of producing ethanol includes using gas or oil for distillation and processing. In addition, vehicles using ethanol experience a 20 to 30 percent decline in gas mileage. So the net benefit of using ethanol is a huge loss, especially when one considers the collateral costs of rising food prices. There is absolutely no reason to follow such a flawed policy with such dangerous consequences.

The One World Order, which will require the 'Mark of the Beast' to even buy or sell, will depend heavily on control of the poor. And the wealthiest nation in the world, America, must be brought to it's knees for the One World Order to advance. Yes, prophecy will be fulfilled, but we can determine our place in it. Now is the time to choose that."

From Bill Koenig:

"The Associated Press reported on Saturday, March 29, that the Bush administration would propose a sweeping overhaul of the way the government regulates the nations financial services industry from banks and securities firms to mortgage brokers and insurance companies.

The plan would give major new powers to the Federal Reserve.

The Fed would be given broad authority to oversee financial market stability. That would include new powers to examine the books of any institution deemed to represent a potential threat to the proper functioning of the overall financial system.

On Saturday, March 29, a German magazine reported that the financial market crisis could cause losses of up to $600 billion in banks and other financial institutions worldwide, citing an internal report by financial watchdog BaFin.

The $600 billion represents a worst case scenario for losses linked to the financial turmoil sparked by the meltdown in the U.S. subprime mortgage market, DerSpiegel magazine said in a story released in advance of a publication on Monday.

Also, on Monday, U.S. Treasury Secretary Hank Paulson proposed a set of sweeping changes to the nation's financial system including broad expansion of the Federal Reserve's powers, in what could become the biggest regulatory overhaul of Wall Street since the Great Depression.

On Wednesday, Federal Reserve Chairman Bernacke all but said that the U.S. economy is in a recession.

Perspective: The Bush Administration's plans to give broad expansion of the Federal Reserve's powers to an entity that is not part of our Federal government, whose monetary policies are directly responsible for the S & L crisis of the late 80's and early 90's, the dotcom bust of 2000 and today's subprime fiasco, is very questionable.

Today we have fewer banks in the United States, a number that dropped considerably with the S & L crisis, and this number is expected to drop much further with the subprime shakeout - leaving even less competition for the big banks.

Plus, the Federal Reserve is funding the major bank acquisitions of Wall Street firms and other financial entities - which will make them even larger and eventually provide fewer options for the American public.

"Government has a responsibility to make sure our financial system is regulated effectively," Paulson said. "And in this area we can do a better job."

Yes, that is correct, Secretary Paulson, but the Federal Reserve is not government. It is a non-government entitiy, a third party, and you want to give it oversight over taxpayer funded regulatory branches of the Federal Government?

Paulsons plan would eventually have the Federal Reserve serve as a financial markets moderator which would step in if the nation's markets were again threatened by an episode like the near collapse of Bear-Stearns.

Greenspan: U.S. in recession
'I have no regrets on any of the Federal Reserve policies that we initiated'

Former Federal Reserve Chairman Alan Greenspan said on Tuesday the U.S. economy was in recession, and said it would be appropriate to tap public funds to resolve the mortgage-related crisis that has helped pull the economy under.
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In an interview with CNBC television in which he defended his chairmanship of the U.S. central bank against charges that his policy missteps had laid the groundwork for the current crisis, Greenspan said Fed decisions on his watch were rationally constructed based on evidence at the time.

"I have no regrets on any of the Federal Reserve policies that we initiated back then because I think they were very professionally done," Greenspan said.

It is unfair to hold his Fed to task for the housing bubble or the current crisis in credit markets, because global market forces were at work to keep long-term interest rates low, not just Fed policies that brought short-term U.S. interest rates down to multi-decade lows, he said.

"Clearly, certain of our anticipations of what would happen as a consequence of those policies were off but there's no way of avoiding that," he said.

Greenspan went farther than the Fed has by saying outright that the economy is in a recession, although he said it is too soon to say how deep or prolonged the downturn will be.

"Consumers are beginning to shrink in, the automobile markets are beginning to contract, production is beginning to ease, and we are in the throes of recession," he said.

The U.S. economy will not stabilize until housing markets recover, Greenspan said. To speed that process, the Bush administration should look to the 1980s savings and loan crisis for lessons on settling the crisis by committing taxpayers' money to the project.

"I think if you're going to deal with a situation like this it's an issue for appropriated funds of the Treasury to set up something like the Resolution Trust Corporation, which as you remember was very successful in resolving the S&L crisis," Greenspan said.

The RTC was set up to liquidate assets of troubled savings and loan associations that had been declared insolvent by the Office of Thrift Supervision. It operated between 1989 and 1995 and closed or helped resolve hundreds of thrifts, many of which had gotten into trouble through sloppy lending practices.

The Bush administration so far has adamantly refused to commit public money to help settle a housing crisis in which millions of Americans are expected to lose their homes through foreclosure.

Greenspan has in recent days made a series of public statements defending his record at the Fed in light of criticism that a long period of low interest rates and a laissez-faire oversight approach led to reckless market behavior that resulted in the sharp housing correction and the ongoing credit freeze.

The Financial Times this week published an article of his entitled, "The Fed is blameless on the property bubble."

In an interview with The Wall Street Journal, Greenspan said, "I was praised for things I didn't do. I am now being blamed for things I didn't do."

Greenspan's office did not respond to a request for an interview on Tuesday.

Fed auctions another $50 billion
To cash-strapped banks in battle against credit squeeze

The Federal Reserve, still working to combat the effects of a severe credit squeeze, said Tuesday it had auctioned another $50 billion to cash-strapped banks. Meanwhile, the International Monetary Fund warned that further actions are needed globally to prevent more wrenching problems.

The Fed auction marked the ninth in a series that began in December that so far have pumped $310 billion in short-term loans into the nation's banking system.

Meanwhile, the 185-nation IMF delivered its most detailed review yet of the global credit crisis that hit last August. It said Tuesday that governments must be prepared to do more to support the global financial system if conditions worsen.

"Markets remain under considerable strain" from a variety of forces such as weakened balance sheets from increased bad loans, the IMF said in a report prepared for meetings this week in Washington of the IMF and its sister lending institution, the World Bank.

The global credit crisis is expected to be a top agenda item at those discussions. The IMF report urged policymakers in the United States and other nations to consider what else needs to be done.

"The critical challenge now facing policymakers is to take immediate steps to mitigate the risks of an even more wrenching adjustment, including by preparing contingency and other remediation plans, while also addressing the seeds of the present turmoil," the IMF said.

Federal Reserve Chairman Ben Bernanke and his colleagues hope that the increased resources being supplied in the Fed auctions will encourage banks to keep lending to consumers and businesses and alleviate the economic drag from a severe credit squeeze that began last August.

In a related move, the European Central Bank, which serves the 15 nations that use the euro as their common currency, announced Tuesday that it had auctioned $15 billion in short-term credit to European banks. It was the sixth auction conducted in tandem with the Fed as the two central banks continue to coordinate their efforts to battle the credit crisis.

Bernanke told Congress last week that it was possible that all the blows the economy has sustained from the credit crisis, a prolonged housing slump and now rising unemployment could push the country into a recession. But he said he still believed that the period of weakness would be short-lived and the economy would resume stronger growth in the second half of this year.

The Fed has been holding its auctions to supply direct loans to commercial banks every two weeks starting in December.

The auctions are only one of a number of emergency procedures the central bank has employed to battle the credit crisis, which claimed its biggest victim last month with the forced sale of Bear Stearns, the nation's fifth largest investment bank, to JP Morgan Chase & Co.

In addition to the auctions which supply loans for 28 days to commercial banks, the Fed announced last month that it was employing Depression-era provisions to allow investment banks to borrow directly from the Fed. Previously, only commercial banks had that privilege.

This week's auction, which was held on Monday with the results announced Tuesday, attracted 79 bids seeking a total of $91.6 billion.

WaMu gets $7 billion infusion, cuts jobs, sees loss
Largest U.S. savings-and-loan to close its 186 stand-alone home lending offices

Washington Mutual Inc (NYSE:WM - News), the largest U.S. savings and loan, said on Tuesday it obtained a $7 billion capital injection from private equity firm TPG Inc and other investors, but that mortgage problems will lead to a $1.1 billion quarterly loss and the elimination of 3,000 jobs.

The thrift also plans to close its 186 stand-alone home loan offices and stop offering home loans through brokers. It will instead offer mortgages through its retail branches, where some of the affected mortgage employees will be offered jobs, spokesman Derek Aney said.

WaMu, as the thrift is known, said it expects a first-quarter loss of $1.40 per share, more than twice the 51 cents that analysts on average expected.

The Seattle-based thrift expects to set aside $3.5 billion in the quarter for loan losses, nearly twice what it previously projected, and said net charge-offs will total $1.4 billion.

WaMu will also reduce its quarterly dividend per share to 1 cent from 15 cents, saving $490 million a year. The cut is the second in four months.

"These companies are getting serious," said James McGlynn, a portfolio manager at Summit Investment Partners in Southlake, Texas. "They are bringing in capital, (and) getting out of businesses where they weren't efficient. It just seems like they are getting their comeuppance."

Shares of WaMu fell 73 cents, or 5.6 percent, to $12.39 in morning trading. They had risen 29 percent on Monday, after news of the thrift's plans to raise $5 billion first surfaced.

WaMu joined more than a dozen commercial and investment banks to seek cash from outside investors in the last year, following more than $200 billion of write-downs and credit losses tied to the nation's housing and credit crisis.

The thrift lost $1.87 billion in the fourth quarter, hurt by exposure to housing markets such as California and Florida.

While the thrift last year pared its exposure to subprime and other risky home loans, it didn't do so fast enough.

In a statement, Chief Executive Kerry Killinger said: "This substantial new capital -- along with the other steps we are announcing today -- will position us for a return to profitability as these elevated credit costs subside."

Killinger was not immediately available for further comment.

BONDERMAN REJOINS BOARD

In the capital-raising, WaMu sold about 176 million shares at $8.75 each, for gross proceeds of $1.54 billion. It also sold $5.5 billion of convertible preferred shares with an initial conversion price of $8.75.

David Bonderman, a founding partner of TPG and a director of WaMu from 1996 to 2002, will rejoin WaMu's board. Larry Kellner, the chief executive of Continental Airlines Inc (NYSE:CAL - News), will become a board observer, at TPG's request, WaMu said.

The investment could signal confidence in the banking system, but would expose TPG to losses if WaMu's business sours further.

"It's a sign of smart money making a major bet in what they hope is a bottom in real estate," said Robert Stovall, a strategist at Wood Asset Management in Sarasota, Florida.

It was not immediately clear which other investors were involved in the transaction, or how much each invested. Neither TPG nor Continental was immediately available for comment.

Last year, WaMu was the nation's sixth-largest U.S. mortgage lender and 11th-largest subprime lender, according to the newsletter Inside Mortgage Finance.

The thrift's other units include retail banking, commercial banking and credit cards. To shore up capital, WaMu in the fourth quarter cut its dividend 73 percent and sold $3.9 billion of preferred shares.

Goldman Sachs & Co., Lehman Brothers Inc and the law firm Simpson Thacher & Bartlett LLP assisted WaMu on the TPG-led transaction. Credit Suisse and the law firm Cleary Gottlieb Steen & Hamilton LLP advised TPG.

Citigroup, Wells Fargo to loan less?
Ex-chairman of FDIC: 'This is a nightmare for the country'

Bank holding companies including Citigroup Inc., Bank of America Corp. and Wells Fargo & Co. have the thinnest safety cushion against losses in seven years.

The margin may erode further in coming weeks. Credit ratings on $704 billion of bonds have been cut this year following the collapse of the U.S. housing market. Sheila Bair, chairman of the Federal Deposit Insurance Corp., said last week that downgrades may compromise bank capital ratios enough that some of the largest institutions will no longer be considered well capitalized.

Falling below a regulatory benchmark that is intended to maintain a minimum level of capital to protect depositors against losses would subject banks to more scrutiny from regulators than they have ever experienced.

``This is a nightmare for the country,'' said William Isaac, who was chairman of the FDIC from 1981 to 1985. Banks will ``raise what capital they can, then they'll slow down their growth and stop lending, and what should be a mild recession becomes a much more serious one.''

The biggest danger to the economy is that to preserve their ratios, banks will cut off the flow of credit, causing a decline in loans to companies and consumers. Banks have already raised $136 billion in capital, based on data compiled by Bloomberg, and cut dividends. More stock sales and payout reductions are likely to follow, says analyst Meredith Whitney at Oppenheimer & Co.

`Institutional Panic'

The credit crunch has already cost the world's biggest financial companies about $232 billion and forced a government bailout of New York-based Bear Stearns Cos., the fifth-largest U.S. investment bank. The International Monetary Fund said last week that banks were in the worst financial crisis since the Great Depression.

``Banks have to maintain their ratios,'' said Dennis Santiago, chief executive officer of Institutional Risk Analytics, a Torrance, California-based research firm that monitors banking statistics. ``This is an institutional panic. At what point will consumers feel the panic? I don't know.''

The banks need to shore up the ratio of the value of their common stock, preferred shares, retained earnings and loss reserves to the total of risk-adjusted assets, which are affected by credit ratings. To be considered a ``well capitalized bank'' by U.S. regulators, an institution can't have more than 10 times its capital in risk-weighted assets. More than 99 percent of American banks qualify as well capitalized.

Washington Mutual

As a group, regulated banks had a total risk-based capital ratio of 12.79 percent at the end of last year, according to data compiled by Bloomberg. The figure was the lowest since 2000, before the last U.S. recession.

Washington Mutual Inc., the largest U.S. savings and loan, got $7 billion capital injection today from a group led by private equity firm TPG Inc., the Seattle-based company said today. The Seattle-based institution's total risk-capital ratio was 12.35 percent.

Pittsburgh-based PNC Financial Services Group Inc.'s banking unit had a 10.24 percent total risk-capital ratio at the end of 2007, according to the FDIC. Cleveland-based National City Corp.'s banking unit had a ratio of 10.31 percent.

Citi's Ratio

The holding companies for Citigroup, Bank of America and Wells Fargo have the lowest ratios in at least the five years that the Federal Reserve has been tracking the data.

Citigroup, based in New York, had stock, retained earnings and preferred shares in 2007 equal to 10.7 percent of its risk- weighted assets. That's down from 12.02 percent in 2005. Wells Fargo, based in San Francisco, was at 10.68 percent, down from 11.76 percent, and Charlotte, North Carolina-based Bank of America, 11.02 percent, down from 11.08.

By contrast, the average ratio for the nation's 66 biggest bank-holding companies was 11.63 percent. New York-based JPMorgan Chase & Co., the third-biggest U.S. bank holding company, had a ratio of 12.57 percent, up from 12.04 percent. The measurements are so important that JPMorgan obtained an exemption from the Fed last week so it could exclude from risk-weighted assets certain securities in the planned takeover of Bear Stearns.

`When Tide Goes Out'

Spokesmen for the 10 biggest bank holding companies, including Citigroup, Bank of America and Wells Fargo, declined to comment for this story, some citing rules restricting what they can say in the days leading up to financial reports. One factor affecting Bank of America's capital ratio was its October purchase of LaSalle Bank for $21 billion.

The FDIC's Bair said last week that ratings changes will probably lower bank capital ratios for some U.S. banks.

``It's a big concern,'' Bair said in an interview April 3. ``We are dealing with an unprecedented situation.''

cont'd

How much commercial banks have already cut back on lending will be known in mid-April when most report earnings.

``All I know is the first-quarter reports are going to be pretty bad, and there's a lot more to come,'' said L. William Seidman, who was chairman of the FDIC from 1985 to 1991. ``Our experience was that if the economy got in trouble, it took at least a year for the banks to get into trouble.''

Fed Chairman Ben Bernanke described bank capital requirements in congressional testimony April 2 as ``the nub of the problem'' and said U.S. institutions had ``hunkered down'' and were lending less.

28,000 Securities

Falling below the required capital levels would also hinder banks' ability to take over other banks and raise deposit insurance rates, according to the FDIC and the Office of the Comptroller of the Currency.

``The important thing to remember about capital ratios is that they are minimums,'' said Ralph Sharpe, a lawyer at Venable LLP in Washington, who was director of the OCC's enforcement and compliance division from 1984 to 1994. ``In good times everybody looks good, but when the tide goes out, you see who is not wearing their bathing suit.''

Moody's Investors Service, Standard & Poor's and Fitch Ratings have lowered investment-grade ratings on more than 28,000 mortgage- and asset-backed securities since the first of the year. In March alone, more than $134 billion in such securities were downgraded enough to change risk weightings on bank balance sheets, according to data compiled by Bloomberg.

Risk Weighting

Some of the downgrades have been dramatic. S&P on April 1 slashed its rating on tranches of Citius II Funding Ltd. and Fox Trot CDO Ltd. by 14 levels to B from AAA and cut another tranche from Fox Trot CDO by 15 steps to CCC from AA.

Banks are required to put different risk weightings on assets ranging from government notes to mortgage securities to corporate bonds and cash. A $100 million mortgage-backed security with an AAA or AA rating counts as $20 million for the bank's risk-adjusted asset total. Securities with top credit ratings are considered most likely to be repaid and count for less risk.

If the same security's rating fell to BBB+ on Fitch's or S&P's scale, the risk weighting would rise to 100 percent, or the full $100 million, because of an increased likelihood of default. When ratings companies differ on the grade given to a mortgage-or asset-backed security, regulators use the lowest one.

All corporate bonds have a risk weighting of 100 percent, no matter what their rating, because of their perceived risks, while cash and government securities carry no weight.

Zero Risk

At the end of last year, Citigroup, for instance, owned $552 billion of securities weighted at zero risk and $523 billion at 20 percent. It also held $320 billion with risk weightings of 50 percent and $881 billion at 100 percent, according to data filed with the Federal Reserve.

To maintain the ratio of 10 percent when a $100 million AAA security is dropped to BBB, a bank's needed capital would rise to $10 million from $2 million. An institution can raise the $8 million by selling stock or preferred shares. The bank can also compensate by selling the security, or cutting back on other lending.

Regulators focus on two more measures in gauging the health of financial institutions. Well-capitalized banks must have Tier One capital, which excludes subordinated debt and some preferred shares, of at least 6 percent of risk-weighted assets. Additionally, Tier One capital can't fall below 5 percent of total tangible assets, not adjusted for risk and excluding goodwill, or the extra value of acquired assets.

Investment banks, such as Goldman Sachs and Morgan Stanley, both based in New York, have different regulatory requirements and aren't subject to the same minimums.

Tier One

To bolster their capital ratios, banks have been raising money for months, including a $19 billion initial public offering of Visa credit cards, which was owned by a bank group.

Citigroup has so far been the biggest seeker of capital, generating $30.4 billion through the sale of shares, preferred stock and bonds convertible into equity. Chief Financial Officer Gary Crittenden said in January that the program ``addresses this potential shortfall under multiple scenarios.''

A risk-based capital ratio lower than 10 percent automatically pulls a bank into a lower regulatory category, called ``adequately capitalized.'' By itself, that wouldn't set off runs on teller windows, said Isaac, the former FDIC chairman. Individual depositors will rely on FDIC insurance to protect their savings while larger business clients will examine the overall health of the bank, Isaac said.

``Bragging Rights'

``It does affect bragging rights,'' Isaac said. ``A lot of banks want to be able to say `we're well-capitalized by regulatory standards.''

Smaller banks, which own fewer mortgage-backed securities and do more direct real-estate lending, are already feeling the pain. Fremont General Corp., a former subprime mortgage lender, has until May 26 to generate new funds or find a buyer after it was deemed undercapitalized by regulators. Its total capital risk ratio was 9.21 percent.

National City is in talks to sell itself to KeyCorp, a rival bank that's also based in Cleveland.

The number of lenders on the FDIC's ``problem'' bank list rose to 76 on Dec. 31 from 50 a year earlier. In 1990, the total reached 1,500. Three FDIC-insured banks failed in 2007, the first since June 2004. The agency hired as many as 138 examiners for a division that manages shutdowns and liquidations of failed banks, agency spokesman Andrew Gray said.

Warning: Trade deficit
may trigger depression
Economists: It's de-industrializing America,
leading nation toward 2nd-rate power status

America is selling its birthright not for a mess of pottage, but for a mess of Chinese junk, and the resulting "unsustainable" trade deficit is leading "to the collapse of the dollar, depression and conversion of the United States to a second-rate power," says a new book written by three generations of a family of economists.

"Not only will the United States feel the pain, but other countries will as well," write Raymond, Howard and Jesse Richman in "Trading Away Our Future." "Because other countries are dependent upon the U.S. dollar as a reserve currency and because they are dependent on exports to the United States to sustain their own economies, the eventual collapse of the dollar could wreak havoc on the economies of the whole world."

While some other economists have claimed there is no danger from a trade deficit that has reached nearly $60 billion, and some have even suggested they represent a blessing for Americans, the authors strongly disagree.

"A basic principle of economics is that there is no free lunch," they write. "Those who think that the Chinese, Japanese, Saudis, et al, are giving the United States a free lunch when they sell more than they buy are engaged in short term thinking that ignores huge long term costs."

The book is released at a time when more Americans are searching for answers about the stumbling state of the economy – with the dollar declining, foreclosures rising and credit tightening.

The Richmans tie the growing trade deficit to the "de-industrialization" of America.

"The financial flows that sustained these deficits did not go to expand the U.S. capital stock – they mostly financed consumption of foreign goods," they explain. "Japan and China and other Pacific Rim nations stole industry after industry from the United States. America's manufacturing investment declined so much that by 2004 and 2005, net investment in American manufacturing actually went into negative territory, meaning that U.S. manufacturers were not even investing enough to replace wearing out machinery and plants. The U.S. manufacturing workforce declined steadily, so that by 2007 over a fifth of the U.S. manufacturing jobs that would have existed given balanced trade had been lost. Those losing their manufacturing jobs often took less skilled jobs in the service sector, causing media wages to stagnate. In 2007, the United States was in a much weaker position to compete in world markets and the dollar had nowhere to go but down."

It's not just a lack of foresight by American policy makers that has created the problem, the authors write. It is also a conscious policy of some foreign countries to practice neo-mercantilism – with the U.S. as the target.

"Beginning in the late 1990s, China copied the policy that had converted Japan from a weak and backward economy to a world powerhouse," they say. "In recent years, more and more countries have been joining the bandwagon, with the United States as their primary target. They have been accumulating dollar assets in order to manipulate currency values and preserve the conditions that produce trade surpluses for them and trade deficits for us."

Adding to the problem, the authors write, was the emergence of a blind ideological commitment across the American political spectrum to "free trade" that really wasn't free at all.

"As advocates of free markets, we generally approve of relying on the free play of market forces to provide the highest level of welfare for Americans," they write. "But we discovered that free trade, normally beneficial, had become an ideology blinding the United States establishment from seeing key causes of the trade deficits and their disastrous consequences. The trade deficits are sustained by government policies, both U.S. government tax policies and foreign government mercantilist policies, not by the free play of market forces."

The authors believe the situation can still be reversed, preserving American dominance of the world economy.

"If not, then resolutely non-democratic China will dominate," they say. "The world's future is in the balance."

Food costs rising fastest in 17 years
Analysts expect data this week to show situation getting worse

Steve Tarpin can bake a graham cracker crust in his sleep, but explaining why the price for his Key lime pies went from $20 to $25 required mastering a thornier topic: global economics.

He recently wrote a letter to his customers and posted it near the cash register listing the factors—dairy prices driven higher by conglomerates buying up milk supplies, heat waves in Europe and California, demand from emerging markets and the weak dollar.

The owner of Steve's Authentic Key Lime Pies in Brooklyn said he didn't want customers thinking he was "jacking up prices because I have a unique product."

"I have to justify it," he said.

The U.S. is wrestling with the worst food inflation in 17 years, and analysts expect new data due on Wednesday to show it's getting worse. That's putting the squeeze on poor families and forcing bakeries, bagel shops and delis to explain price increases to their customers.

U.S. food prices rose 4 percent in 2007, compared with an average 2.5 percent annual rise for the last 15 years, according to the U.S. Department of Agriculture. And the agency says 2008 could be worse, with a rise of as much as 4.5 percent.

Higher prices for food and energy are again expected to play a leading role in pushing the government's consumer price index higher for March.

Analysts are forecasting that Wednesday's Department of Labor report will show the Consumer Price Index rose at a 4 percent annual rate in the first three months of the year, up from last year's overall rise of 2.8 percent.

For the U.S. poor, any increase in food costs sets up an either-or equation: Give something up to pay for food.

"I was talking to people who make $9 an hour, talking about how they might save $5 a week," said Kathleen DiChiara, president and CEO of the Community FoodBank of New Jersey. "They really felt they couldn't. That was before. Now, they have to."

For some, that means adding an extra cup of water to their soup, watering down their milk, or giving their children soda because it's cheaper than milk, DiChiara said.

U.S. households still spend a smaller chunk of their expenses for foods than in any other country—7.2 percent in 2006, according to the USDA. By contrast, the figure was 22 percent in Poland and more than 40 percent in Egypt and Vietnam.

In Bangladesh, economists estimate 30 million of the country's 150 million people could be going hungry. Haiti's prime minister was ousted over the weekend following food riots there.

Still, the higher U.S. prices seem eye-popping after years of low inflation. Eggs cost 25 percent more in February than they did a year ago, according to the USDA. Milk and other dairy products jumped 13 percent, chicken and other poultry nearly 7 percent.

USDA economist Ephraim Leibtag explained the jumps in a recent presentation to the Food Marketing Institute, starting with the factors everyone knows about: sharply higher commodity costs for wheat, corn, soybeans and milk, plus higher energy and transportation costs.

The other reasons are more complex. Rapid economic growth in China and India has increased demand for meat there, and exports of U.S. products, such as corn, have set records as the weak dollar has made them cheaper. That's lowered the supply of corn available for sale in the U.S., raising prices here. Ethanol production has also diverted corn from dinner tables and into fuel tanks.

Soybean prices have gone up as farmers switched more of their acreage to corn. Drought in Australia has even affected the price of bread, as it led to tighter global wheat supplies.

The jump has left people in the food business to do their own explaining. Twin Cafe Caterers in lower Manhattan posted a letter on its deli cooler: "Due to the huge increase of the gas, the electricity, the water and all the other utilities, we had to raise the prices a little bit." It went on to say that all its food prices have risen, too.

Wonder Bagels, in Jersey City, N.J., posted a letter from its wheat supplier, A. Oliveri & Sons, saying the recent situation was unprecedented.

"The major mills across the country are using words like 'rationing' and 'shortages' if things continue," it said. "We will sweat out the summer together, hoping there will be some flour left to purchase at any price."

The letter called for an immediate halt to exports and a change in farm policy, "stop paying farmers NOT to grow crops." A new farm bill, stalled in Congress, would expand farm subsidies if it passes, however.

For some Americans, the resulting increases might be barely perceptible. The Cheesecake Factory raised prices by 1.5 percent at the end of February, Applebee's by 3 percent.

But for the poorest U.S. families, the higher costs may mean going hungry. A family of four is eligible for a maximum $542 a month in food stamps, which never lasted the whole month before, Food Bank of New Jersey's DiChiara said.

"Now food stamps go fewer and fewer days of the month," she said.

The Food Bank recently got a letter of its own from a key vendor. Its grim message: Sorry, but the prices they charge the Food Bank would be increasing 20 percent, due to food inflation.

Retailing Chains Caught in a Wave of Bankruptcies

The consumer spending slump and tightening credit markets are unleashing a widening wave of bankruptcies in American retailing, prompting thousands of store closings that are expected to remake suburban malls and downtown shopping districts across the country.

Since last fall, eight mostly midsize chains — as diverse as the furniture store Levitz and the electronics seller Sharper Image — have filed for bankruptcy protection as they staggered under mounting debt and declining sales.

But the troubles are quickly spreading to bigger national companies, like Linens ‘n Things, the bedding and furniture retailer with 500 stores in 47 states. It may file for bankruptcy as early as this week, according to people briefed on the matter.

Even retailers that can avoid bankruptcy are shutting down stores to preserve cash through what could be a long economic downturn. Over the next year, Foot Locker said it would close 140 stores, Ann Taylor will start to shutter 117, and the jeweler Zales will close 100.

The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.

Retailing is a business with big ups and downs during the year, and retailers rely heavily on borrowed money to finance their purchases of merchandise and even to meet payrolls during slow periods. Yet the nation’s banks, struggling with the growing mortgage crisis, have started to balk at extending new loans, effectively cutting up the retail industry’s collective credit cards.

“You have the makings of a wave of significant bankruptcies,” said Al Koch, who helped bring Kmart out of bankruptcy in 2003 as the company’s interim chief financial officer and works at a corporate turnaround firm called AlixPartners.

“For years, no deal was too ugly to finance,” he said. “But now, nobody will throw money at these companies.”

Because retailers rely on a broad network of suppliers, their bankruptcies are rippling across the economy. The cash-short chains are leaving behind tens of millions of dollars in unpaid bills to shipping companies, furniture manufacturers, mall owners and advertising agencies. Many are unlikely to be paid in full, spreading the economic pain.

When it filed for bankruptcy, Sharper Image owed $6.6 million to United Parcel Service. The furniture chain Levitz owed Sealy $1.4 million.

And it is not just large companies that are absorbing the losses. When Domain, the furniture retailer, filed for bankruptcy, it owed On Time Express, a 90-employee transportation and logistics company in Tempe, Ariz., about $30,000.

“We’ll be lucky to see pennies on the dollar, if we see anything,” said Ross Musil, the chief financial officer of On Time Express. “It’s a big loss.”

Most of the ailing companies have filed for reorganization, not liquidation, under the bankruptcy laws, including the furniture chain Wickes, the housewares seller Fortunoff, Harvey Electronics and the catalog retailer Lillian Vernon. But, in a contrast with previous recessions, many are unlikely to emerge from bankruptcy, lawyers and industry experts said.

Changes in the federal bankruptcy code in 2005 significantly tightened deadlines for ailing companies to restructure their businesses, offering them less leeway.

And the changes may force companies to pay suppliers before paying wages or honoring obligations to customers, like redeeming gift cards, said Sally Henry, a partner in the bankruptcy law practice at Skadden, Arps, Slate, Meagher & Flom and the author of several books on bankruptcy.

As a result, she said, “it’s no longer reorganization or even liquidation for these companies. In many cases, it’s evaporation.”

Several of the retailers that filed for Chapter 11 bankruptcy protection over the last eight months, like the furniture sellers Bombay, Levitz and Domain, have begun to wind down — closing stores, laying off workers and liquidating merchandise.

In most cases, the collapses stemmed from a combination of factors: flawed business strategies, a souring economy and banks’ unwillingness to issue cheap loans.

Bombay, a chain with 360 stores, was considered a success in the furniture world, after its sales surged from $393 million in 1999 to $596 million in 2003.

Then the chain decided to move most of its stores out of enclosed malls into open-air shopping centers. It started a children’s furniture business, called BombayKids. And it started carrying bigger items, like beds and upholstered couches, with higher prices than its regular furniture.

Consumers balked at the changes, hurting Bombay’s sales and profits at the same time that its expenses for the ambitious new strategies began to grow. The timing was unenviable: By early 2007, the housing market began to falter, so purchases of furniture slowed to a trickle.

The company was running out of money, but banks refused to lend more. “They did not want to take the chance that we might not repay the loans,” Elaine D. Crowley, the chief financial officer, said in an interview.

In September 2007, Bombay filed for bankruptcy protection. The highest bid for the company came from liquidation firms, who quickly dismembered the 33-year-old chain. Bombay, which once employed 3,608, now has 20 employees left. “It is very difficult and sad,” Ms. Crowley said.

The bankruptcies are putting a spotlight on a little-discussed facet of retailing: heavy debt.

Stores may appear to mint money by paying $2 for a T-shirt and charging $10 for it. But because shopping is based on weather patterns and fashion trends, retailers must pay for merchandise that may sit, unsold, on shelves for long periods.

So chains regularly borrow large sums to cover routine expenses, like wages and electricity bills. When sales are strong, as they typically are during the holiday season, the debts are repaid.

Fortunoff, a jewelry and home furnishing chain in the Northeast, relied on $90 million in loans to help operate its 23 stores, using merchandise as collateral.

But by early 2008, as the housing market struggled, the chain’s profits dropped, meaning its collateral was losing value and the amount it could borrow fell.

In better economic times, the banks might have granted Fortunoff a reprieve. But with a recession looming, they refused, forcing it to file for bankruptcy in February. In filings, the chain said it was “facing a liquidity crisis.” (Fortunoff was later sold to the owner of Lord & Taylor.)

Plenty of retailers remain on strong footing. Arnold H. Aronson, the former chief executive of Saks Fifth Avenue and a managing director at Kurt Salmon Associates, a retail consulting firm, said the credit tightness and consumer spending slowdown have only wiped out the “bottom tier” companies in retailing.

“This recession dealt the final blow to these chains,” he said. But several big-name chains are looking vulnerable. Linens ’n Things, which is owned by Apollo Management, a private equity firm, is considering a bankruptcy filing after years of poor performance and mounting debts, though it has additional options, people involved in the discussions said Monday.

Whether more chains file for bankruptcy or not, it will be hard to miss the impact of the industry’s troubles in the nation’s malls.

J. C. Penney, Lowe’s and Office Depot are scaling back or delaying expansion. Office Depot had planned to open 150 stores this year; now it will open 75.

The International Council of Shopping Centers, a trade group, estimates there will be 5,770 store closings in 2008, up 25 percent from 2007, when there were 4,603.

Charming Shoppes, which owns the women’s clothing retailers Lane Bryant and Fashion Bug, is closing at least 150 stores. Wilsons the Leather Experts will close 158. And Pacific Sunwear is shutting a 153-store chain called Demo.

Those decisions were made months ago, when it was unclear how long the downturn in consumer spending might last. If March was any indication, it is nowhere near over. Sales at stores open at least a year fell 0.5 percent, the worst performance in 13 years, according to the shopping council.

Wholesale prices soar in March
Nearly triple expected rate as costs of energy, food both climbed rapidly

Inflation at the wholesale level soared in March at nearly triple the rate that had been forecast as energy prices kept rising and food costs posted a much bigger jump than anticipated.

The Labor Department reported Tuesday that wholesale prices rose by 1.1 percent last month, the largest increase since a 2.6 percent rise last November. The November gain in the Producer Price Index was the biggest one-month jump in 33 years.

Analysts had expected a much more moderate 0.4 percent rise in wholesale prices for the month. However, food costs, which had fallen by 0.5 percent in February, leapt by 1.2 percent last month, propelled upward by big gains in vegetables and beef and the biggest increase in rice prices in more than five years. Those were far higher increases in food prices than expected.

Core inflation, which excludes energy and food, was better behaved last month, rising by just 0.2 percent, down from a worrisome 0.5 percent rise in February.

But with the crude oil price rising to a record close of $113.79 per barrel on Tuesday, analysts said consumers should be braced for more bad inflation news to come.

"Wholesale prices are rising and the consumer should expect more shocks at the supermarket and the gas station," said Joel Naroff, chief economist at Naroff Economic Advisors.

The surge in energy and food costs is coming just as unemployment is rising and many economists believe the country has fallen into a recession, developments that have taken a toll on President Bush's approval ratings. Seven out of 10 Americans now disapprove of Bush's handling of the economy, an all-time high, according to the latest Washington Post-ABC News poll.

Democrats, hoping to win the White House in November, said the string of bad economic statistics showed how Americans were hurting.

"As the paychecks of middle class families get smaller and their homes lose value, their wallets are being further emptied by the skyrocketing everyday costs of gas and food," said Sen. Charles Schumer, D-N.Y.

For the past 12 months, wholesale prices are up by 6.9 percent and core inflation is up by 2.7 percent, the biggest year-over-year increase in nearly two years.

With the economy slowing and inflation rising, some analysts are concerned the country could be facing another bout of stagflation, the malady that last occurred in the 1970s when economic growth stagnated but inflation kept rising.

Such a development would put the Federal Reserve in a bind. The central bank has been cutting interest rates to combat the current slowdown, but if inflation pressures keep rising, it might be forced to stop cutting interest rates for fear that it would make inflation worse.

For March, energy prices jumped 2.9 percent, the biggest increase since November. The price of gasoline was up 1.3 percent while natural gas rose by 4.2 percent. Home heating oil shot up by 13.1 percent and diesel fuel, used to power the nation's trucking fleet, increased by 15.3 percent.

Outside of food and energy, the price of soap and detergent jumped 2 percent, the biggest gain in more than two years, while pet food increased by 1.3 percent.

However, the price of new cars dropped by 0.2 percent and the cost of light trucks was down 0.3 percent, indicating the struggles automakers face as a weak economy dampens demand.

The government will report on consumer prices Wednesday. Analysts said they still expect this report would show a moderate increase of 0.3 percent.

US Foreclosure Filings Jump in March

Foreclosure Filings Against US Homeowners Soar 57 Percent in March; Bank Repossessions Surge

The onslaught of homes facing foreclosures has yet to ebb, a research report showed Tuesday, with bank repossessions skyrocketing last month as more troubled homeowners mailed in their keys and walked away.

And the worst isn't over: the wave of adjustable-rate loans resetting to higher rates will crest in May and June. And that's expected to push more homeowners into default and foreclosure in the third and fourth quarters of this year, according to RealtyTrac Inc. of Irvine, Calif.

"Once we're through that batch of loans, the worst will have been worked through the system," said Rick Sharga, RealtyTrac's vice president of marketing.

The number of U.S. homes receiving at least one foreclosure filing jumped 57 percent in March to 234,685, compared with 149,150 properties a year earlier. Filings include default notices, auction sale notices and bank repossessions.

The overall foreclosure rate is 5 percent higher than in February, which saw an unexpected month-to-month decline over January. March marked the 27th consecutive month of year-over-year increases in national foreclosure filings.

That meant one in every 538 households received a filing during the month. Forty-four percent were households that slipped into default for the first time and more than a fifth were homes banks took back.

Lenders took possession of homes at a sharply higher rate, up 129 percent over last year, as more homeowners relinquished their homes, said Sharga. Banks repossessed 51,393 properties nationwide, many of them without a public foreclosure auction.

"In a lot of cases, banks worked something out with the owner in advance and took back the keys and deed. For a homeowner, it's not as embarrassing and it's a little less of a blemish on their credit record compared to a foreclosure," Sharga said.

He estimates between 750,000 and 1 million bank-owned properties will hit the market this year, or about a quarter of the homes up for sale. In some areas, these properties will continue to slow sales and depress prices further.

Declining home prices and stricter lending requirements have exacerbated the foreclosure environment. Homeowners stuck in unmanageable mortgages aren't able to sell their homes or refinance into cheaper loans before their mortgage payments reset higher.

Nevada clocked in the worst foreclosure rate for the 15th straight month. Last month, one in every 139 households received a foreclosure-related notice, nearly four times the national rate. The number of properties with a filing increased 24 percent over February and 62 percent over the previous March.

California had the second-highest foreclosure rate in the country. One in every 204 California households received a foreclosure-related notice. The state had 64,711 properties facing foreclosure, the most of any state and more than double last year's total.

In Florida, 30,254 homes reported at least one filing, down nearly 7 percent from February, but up 112 percent from the year before.

Rounding out the states with the highest foreclosure rates were Arizona, Colorado, Georgia, Ohio, Michigan, Massachusetts and Maryland.

National news media burying amazing oil breakthrough?
Man working to convert all that grows into fuel surprised by 'inattention'

It could potentially be one of the biggest energy breakthroughs in history – genetically manipulating bacteria to quickly convert anything that grows out of the Earth into oil. But the biggest names in the national media have thus far not provided any coverage of this possible solution to skyrocketing gas prices and Ameria's long-term energy security.

A WND story last month introduced to the nation a new technique where altered bacteria "rapidly digest" everything from grass clippings and wood chips, turning them into hydrocarbons for fuels such as gasoline and diesel. If done on a large scale, it could provide billions of barrels of renewable oil every year.

One reader, Joe Russo of Fairbanks, Alaska, called it "the biggest story we've seen in a decade, yet the cable and mainstream news networks haven't even picked up on it."

The apparent inattention comes as a big surprise to the agricultural researcher pioneering the process, J.C. Bell, the CEO of Bell Bio-Energy, Inc.

"We've been on several radio stations, but nothing really national," he said. "We haven't talked to anybody. Nobody's called us – nobody from the Associated Press or CNN or Fox News Channel, which kind of surprised us. We thought it would generate something."

Bell gave an overview of his plans today at the U.S. Defense Department's Worldwide Energy Conference & Trade Show in Arlington, Va., where more than 750 Air Force, Army, Navy, Marine, Coast Guard and federal organizations were represented.

"He was very well-received there," said Wesley Cox, owner of WCGA Radio, a news/talk station in St. Simons Island, Ga.

Cox complains, "The mainstream media has been ignoring systematically the facts about energy creation and use, and they've been doing it for years."

He thinks believability could be a factor when it comes to the lack of national coverage.

"It's a lot easier to not run a story than it is to run a story that's not proven yet."

Bell's bacterial discovery has already been published in two Georgia newspapers – the Tifton Gazette and the Macon Telegraph – but neither report was picked up by the Associated Press, despite those papers being members of the news cooperative.

WND contacted the bureau chief at the AP's Atlanta office, who said, "I can't give you an answer as to why, because this is the first I've heard of it. We'll look into it and see what's going on."

Reporter Jana Cone, who documented Bell's claims for the Tifton paper, was also at a loss to explain why the AP neither picked up the story nor assigned its own writer.

"I have no explanation except people don't think it's possible," Cone said. "All of our stuff is available to them, and they pick up stories as they wish. If what [Bell] says is a fact, it could be absolutely huge."

Bell maintains with just 2 billion tons of biomass, his process can produce 5 billion barrels of oil each year naturally, with no negative impact on the environment.

"That's 5 billion barrels of oil that can be produced from just trash," he said.

Despite the national media's silence, Bell is moving forward with plans to make his process a reality.

"It's not even theory anymore," he told WND. "Now we're just engineering. We are within a very few days of announcing the location of our first pilot plant."

The process of converting biomass into energy is not in dispute scientifically.

"Yes it can be done, but you have to do it economically," said Dr. Art Robinson, a research professor of chemistry at the Oregon Institute of Science and Medicine who publishes the Access to Energy newsletter. "These other ways [of producing energy] work; the only question is if they're competitive in price. Any hydrocarbon under pressure and temperature can turn into oil."

Robinson added, "We only have two competitive ways of making energy at low costs: hydrocarbons [oil, gas, coal and methane clathrate] and nuclear, and both are demonized to the point that our country is in trouble."

For the third straight day today, oil prices settled at a record high, gushing to a record $115.07 a barrel at one point. Gasoline prices have also been surging along with crude. AAA reports gasoline prices hit a new record of $3.399, up more than a penny from the previous day's price of $3.386.

WORLD BANK LEADER URGES ACTION ON FOOD

Associated Press

WASHINGTON - The president of the World Bank on sunday urged immediate action to deal with mounting food prices that have caused hunger and deadly violence in several countries.

Robert Zoelick said the international community has "to put our money where our mouth is" and act now to help hungry people. "It is as stark as that."

He rapidly called on gobernments to rapidly carry out commitments to provide the UN World Food Program with $500 million in emergency aid it needs by May 1.

He said the bank is granting an additional $10 million to Haiti for feeding programs, "and I understand others are looking to help."

"It is critical that governments confirm their commitments as soon as possile and others begin to commit," Zoellick said. Prices have only risen further since the WFP issued that appeal, so it is urgent that governments step up, he said.

After a meeting of the bank's policy-setting committee. Zoelick said that the fall of the government in Haiti over the weekend after a wave of deadly rioting underscores the importance of quick international action. A UN police officer was killed Saturday in Haiti's capital.

Zoellick said that international finance meetings are "often about talk," but he noted a "greater sense of intensity and focus" among ministers; now, he said they have to "translate it into greater action."

Zoellick said the bank was responding to needs in a mumber of other ountries with conditional cash transfer programs, providing food in workplaces and seeds for planting in the new season.

He said a rough analysis the bank estimates that a doubling of food prices in the past three years could potentially push people in low income countries deeper into poverty.

"This is not just a question of short term needs, as improtant as they are," Zoellick said. "This is about ensuring that future generations don't pay a prcie too."

Zoellick spoke as the bank and its sister institution, the International Monetary Fund, wound up two days of meetings that dealt with the financial crises roiling global markets andd rising food and energy prices.

The head of the IMF also sounded the alarm on food prices, warning that if they remain high there will be dire consequences for people in many developing countries, especially in Africa.

Dominique Strauss-Kahn said progress in recent years on development can be destroyed by rising food prices, which can lead to starvation and shake the stability of gobernments, even if they have nothing to do with the increase in food cost. "we are facing a huge problem," he said. Strauss-Kahn had said Saturday that the problem could also create trade imbalances that would impact major advanced ecomomies, "so it is not only a humanitarian question."

He said if the price spike continues, "Thousands, hundreds of thousands of people will be starving."

(.....In my own opinion these same hundreds of thousands of hungry people who are eating dirt to survive, will also be rioting and unseating 'innocent' governments. It seems 'famine' is rearing it's ugly head!)

Wall St. braces for thousands of pink slips
Fri Apr 18, 2008 5:54pm EDT

NEW YORK (Reuters) - Citigroup Inc, Merrill Lynch & Co and Wachovia Corp this week announced 12,400 job cuts, and the number of pink slips is likely to rise as losses mount and the economy works its way out of its malaise.

So far this year, 36,000 job cuts have been announced in the U.S. financial services sector, according to job placement consultancy Challenger, Gray & Christmas, Inc. The figure does not include Citi's announcement on Friday to cut another 9,000 jobs.

Job losses will surge well beyond the current level, given that the latest data does not account for widely expected cuts among the 14,000 employees at Bear Stearns Cos following the investment bank's pending takeover by JPMorgan Chase & Co.

The cuts will have an oversized impact on New York City, whose fortunes are closely tied to Wall Street. Everything from Manhattan real estate prices to high-end restaurants and private car services could come under severe pressure, as highly paid investment bankers and traders face job losses.

The securities industry accounts for almost 35 percent of all salaries and wages in the city. Many bankers and brokers earn a base salary of $200,000 or more, and get even bigger bonuses.

"It is almost inevitable that we are going to see significant layoffs," said Octavio Marenzi of financial consulting firm Celent.

Citigroup's latest job cuts, as it posted a $5.11 billion quarterly loss on Friday after taking billions of dollars of write-downs related to mortgages and turmoil in the credit markets, follow its announcement in January to cut 4,200 jobs.

On Thursday, Merrill, the world's largest brokerage, announced $9.7 billion in write-downs, on top of $25 billion taken in the second half of last year.

Merrill said it planned to cut an additional 2,900 jobs. In the first quarter, Merrill slashed about 1,100 positions.

Wachovia, the fourth-largest U.S. bank, said this week it plans to eliminate 500 jobs from its corporate and investment banking division.

But as the wave of loan losses continues to grow in a slowing U.S. economy and still-tight credit conditions, Wall Street may be in for a rude awakening.

Global financial institutions have so far sustained well over $200 billion of write-downs and credit-related losses, with the ailing U.S. housing market a central catalyst.

Billionaire investor George Soros last week said global losses are likely to top $1 trillion from the subprime mortgage crisis, which he called the "worst financial crisis of our lifetime."

Already, Marenzi expects at least 100,000 job losses at U.S. commercial banks, or companies that lend or collect deposits. That figure could rise to between 150,000 and 200,000 in the next 12 to 18 months, he said.

"Banks have been reluctant to reduce headcount because they are waiting for a turnaround," Marenzi said. "I don't think we will see a huge uptick, and if anything, conditions are actually deteriorating, not improving," he added.

In 2007, the entire U.S. financial services sector, consisting mostly of commercial banks, announced a record 153,105 job cuts, according to Challenger, Gray & Christmas.

Job losses in London's financial district, the City, are likely to hit 40,000 due to fallout from the U.S. subprime mortgage crisis and global credit crunch, analysts at JPMorgan recently projected, doubling their previous estimates.

Wall St. braces for thousands of pink slips (http://www.reuters.com/article/ousiv/idUSN1827726720080418)

Sister Barbara,

I think that we are watching many things progress TOWARD Bible Prophecy. We should all know that it will be at GOD'S Appointed Time. Nothing will be able to slow or hasten that time. I, for one, think that time will be soon, and I anxiously await the GLORIOUS APPEARING OF OUR LORD AND SAVIOUR, JESUS CHRIST! Many sweet Christians will Love HIS APPEARANCE and are watching and waiting - READY!

Love In Christ,
Tom

1 Thessalonians 4:13-18 NASB
But we do not want you to be uninformed, brethren, about those who are asleep, so that you will not grieve as do the rest who have no hope. For if we believe that Jesus died and rose again, even so God will bring with Him those who have fallen asleep in Jesus. For this we say to you by the word of the Lord, that we who are alive and remain until the coming of the Lord, will not precede those who have fallen asleep. For the Lord Himself will descend from heaven with a shout, with the voice of the archangel and with the trumpet of God, and the dead in Christ will rise first. Then we who are alive and remain will be caught up together with them in the clouds to meet the Lord in the air, and so we shall always be with the Lord. Therefore comfort one another with these words.

1 Corinthians 15:50-58 NASB
Now I say this, brethren, that flesh and blood cannot inherit the kingdom of God; nor does the perishable inherit the imperishable. Behold, I tell you a mystery; we will not all sleep, but we will all be changed, in a moment, in the twinkling of an eye, at the last trumpet; for the trumpet will sound, and the dead will be raised imperishable, and we will be changed. For this perishable must put on the imperishable, and this mortal must put on immortality. But when this perishable will have put on the imperishable, and this mortal will have put on immortality, then will come about the saying that is written, "DEATH IS SWALLOWED UP in victory. "O DEATH, WHERE IS YOUR VICTORY? O DEATH, WHERE IS YOUR STING?" The sting of death is sin, and the power of sin is the law; but thanks be to God, who gives us the victory through our Lord Jesus Christ. Therefore, my beloved brethren, be steadfast, immovable, always abounding in the work of the Lord, knowing that your toil is not in vain in the Lord.

Gas could hit $10 per gallon
Analysts see considerably more pain at pump than most drivers realize

Get ready for another economic shock of major proportions — a virtual doubling of prices at the gas pump to as much as $10 a gallon.

That's the message from a couple of analytical energy industry trackers, both of whom, based on the surging oil prices, see considerably more pain at the pump than most drivers realize.

Gasoline nationally is in an accelerated upswing, having jumped to $3.58 a gallon from $3.50 in just the past week. In some parts of the country, including New York City and the West Coast, gas is already sporting a price tag above $4 a gallon. There was a pray-in at a Chevron station in San Francisco on Friday led by a minister asking God for cheaper gas, and an Arco gas station in San Mateo, Calif., has already raised its price to a sky-high $4.62.

In Manhattan, at a Mobil gas station at York Avenue and East 61st Street, premium gas is now $4.03 a gallon. Two days ago, it was $3.96. Why such a high price? "Blame the people at STOPEC (he meant OPEC) and the oil companies," an attendant there told me.

These increases are taking place before the all-important summer driving season, signaling even higher prices ahead.

That's also the outlook of the Automobile Association of America. "As long as the price of crude oil stays above $100 a barrel, drivers will be forced to pay more and more at the gas pump," a AAA spokesman, Troy Green, said.

Oil recently hit an all-time high of nearly $120 a barrel, more than double its early 2007 price of about $50 a barrel. It closed Friday at $118.52.

The forecasts calling for a jump to between $7 and $10 a gallon are based on the view that the price of crude is on its way to $200 in two to three years.

Translating this price into dollars and cents at the gas pump, one of our forecasters, the chairman of Houston-based Dune Energy, Alan Gaines, sees gas rising to $7-$8 a gallon. The other, a commodities tracker at Weiss Research in Jupiter, Fla., Sean Brodrick, projects a range of $8 to $10 a gallon.

While $7-$10 a gallon would be ground-breaking in America, these prices would not be trendsetting internationally. For example, European drivers are already shelling out $9 a gallon (which includes a $2-a-gallon tax).

Canadians are also being hit with rising gas prices. They are paying the American-dollar equivalent of $4.92 a gallon, and they're being told to brace themselves for prices above $5.65 a gallon this summer.

Early last year, with a barrel of oil trading in the low $50s and gasoline nationally selling in a range of $2.30 to $2.50 a gallon, Mr. Gaines — in an impressive display of crystal ball gazing — accurately predicted oil was $100-bound and that gasoline would follow suit by reaching $4 a gallon.

His latest prediction of $200 oil is open to question, since it would undoubtedly create considerable global economic distress. Further, just about every energy expert I talk to cautions me to expect a sizable pullback in oil prices, maybe to between $50 and $70 a barrel, especially if there's a global economic slowdown.

While Mr. Gaines thinks there could be a temporary decline in the oil price, he's convinced an overall uptrend is unstoppable. In fact, he thinks his $200 forecast could be conservative, and that perhaps $250 could be reached. His reasoning: a combination of shrinking supply and increasing demand, especially from China, India, and America.

Mr. Brodrick's $200 oil forecast is largely predicated on a combination of pretty flat supply and rip-roaring demand. Other key catalysts include surging demand in China and India, where auto sales are booming, and major supply disruptions in Nigeria and also in Mexico, our second-largest source of oil imports, where oil production has fallen off a cliff.

More factors include the ever-present danger of additional supply disruptions from volatile countries in the Middle East that are not our allies, and the unwillingness of SUV-loving Americans to trim their unquenchable thirst for foreign oil. Likewise, for the first time, emerging markets this year will use more oil than America.

Gas hits $3.60 a gallon, crude nears $120 on supply outages

Gas prices hit $3.60 a gallon and oil futures rose to their own new record near $120 a barrel on Monday as labor actions overseas threatened crude supplies. Oil prices later retreated to close up only slightly as the dollar stabilized against foreign currencies.

At the pump, the national average price Americans pay to gas up rose 0.4 cent overnight to a record $3.603 a gallon, according to a survey of stations by AAA and the Oil Price Information Service. While prices are 66 cents higher than a year ago, their rate of increase has slowed some since last week, when prices jumped more than 2 cents a day several times.

That could suggest that a price peak is near, analysts said.

"I've got to think we're close to the end on increases," said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Cambridge, Mass.

However, Lynch thinks prices could rise another 10 cents to 15 cents before they reach that peak and begin falling.

Gas prices are rising in part because refiners are making the seasonal switch-over from making winter-grade gasoline to the more expensive, but less polluting, fuel they must sell during the summer. Supplies tend to fall while refiners are doing this as they try to sell off all of their winter gasoline.

But short supplies of a key ingredient used in the manufacture of summer grade gas have contributed to the increases, as has an intentional slowing of gasoline production by many refiners due to low profit margins on the fuel. Refiners have to buy the crude they turn into gasoline and other fuels, and crude prices have risen much faster over the past year than gas prices.

Light, sweet crude for June delivery rose to a record $119.93 a barrel in electronic trading on the New York Mercantile Exchange overnight on concerns about supply disruptions in the U.K. and Nigeria. Prices later retreated to settle up 23 cents at $118.75 a barrel after the dollar stabilized against the euro.

When the dollar holds its ground, commodities such as oil become less effective hedges against inflation. Many analysts believe oil's meteoric rise from around $65 a barrel a year ago is due in large part to a protracted decline in the value of the greenback.

Energy investors will be closely watching the Federal Reserve's decision Wednesday on interest rates; lower rates tend to weaken the dollar. If, as expected, the Fed lowers a key interest rate by another quarter percentage point and signals that it will temporarily hold off on any future rate cuts, the dollar could strengthen, and oil might fall.

"A quarter point cut could suggest ... we're getting to a point where the dollar might bottom out," Lynch said.

An unexpectedly large cut, or a suggestion that rates might be cut further, however, could fuel oil to new heights.

Meanwhile, labor actions that cut crude supplies from the North Sea and Nigeria supported prices Monday. BP PLC on Sunday shut down the Forties Pipeline System that carries more than 700,000 barrels of oil a day to the U.K. because of a 48-hour walkout by employees at a refinery in central Scotland.

"With the refinery being shut down, it will affect supplies from the North Sea, and that has a potentially significant impact," said David Moore, a commodity strategist with the Commonwealth Bank of Australia in Sydney. "That comes at the same time that there's production disruptions from Nigeria, so the combined effect of those is the immediate factor that's put pressure on oil prices."

In Nigeria, workers at an ExxonMobil Corp. joint venture cut production by an unspecified amount to demand more pay. The company notified clients it may not be able to meet its contractual obligations to supply oil, but said some production was not affected. Militant attacks on oil infrastructure have also cut production of Nigeria's light, sweet crude, which is easily refined. After years of attacks, Nigeria's output is dropping and the country can produce only about 75 percent of its official capacity of 2.5 million barrels per day.

In other Nymex trading Monday, May gasoline futures fell 2.3 cents to settle at $3.0307 a gallon, and May heating oil futures fell 0.4 cent to settle at $3.2988 a gallon.

Oil futures climb past $120 to a fresh record
Prices up a second day on Nigerian supply concerns, weak U.S. dollar

Crude futures climbed to uncharted territory in New York Monday as concerns about supply disruptions in Nigeria and weakness in the U.S. dollar lifted prices past $120 a barrel in electronic trading.

Crude oil for June delivery climbed as high as $120.21 a barrel in electronic trading on the New York Mercantile Exchange. The contract was last up $3.43, or 3%, at $119.75 after peaking at $120 in regular trading.

"Nigerian oil off the market and increasing tensions with Iran seem to be the flavor of the day," said Phil Flynn, a vice president at Alaron Trading.

Nigeria's rebel group Movement for the Emancipation of the Niger Delta, MEND, said Sunday it was responsible for an attack on a Shell oil flow station in the south of the country, according to media reports. Shell confirmed the attack and said that some oil production had been closed down, according to reports.

In recent months, MEND has claimed responsibility for a series of attacks on oil facilities in the Niger Delta.

And "with last week's bullish headlines from the U.K. out of the way, Nigeria is the lingering hotspot the markets will be focusing on," said Edward Meir, an analyst at MF Global, in a research note.

Meanwhile, "the dollar is getting smoked," contributing to oil's rally, said Flynn, in emailed comments.
On the currency markets, the dollar fell against most of its major counterparts. The dollar index, which tracks the performance of the greenback against a basket of other major currencies, dropped 0.3% to 73.26.

On Friday, crude rallied $3.80, or 3.4%, to end at $116.32 a barrel, boosted by news reports that Turkish planes bombed bases of separatist Kurds in northern Iraq.

Also on the Nymex Monday, June reformulated gasoline gained 6.3 cents at $3.03 a gallon and June heating oil rose 1 cent at $3.22 a gallon.

June natural gas climbed 21 cents to stand at $10.99 per million British thermal units.

Chicken, pork prices
to rise in next wave?
'American consumers are only
just beginning to feel the impact'

Americans may be getting another helping of food inflation, and it seems likely to come from higher prices for chicken and pork.

Overall food inflation could double this year, lifted by the rising costs of fuel, corn and soybeans, some analysts predict.

Food inflation hit 4 percent last year, up from 2.4 percent in 2006. While beef prices were already high, chicken and pork prices didn't reflect record costs for feed and fuel. That's poised to change as chicken and pig producers who have been losing money slaughter more animals to decrease the supply and raise the prices they can charge.

Higher food inflation would further challenge shoppers who are already limiting themselves to sale items and store brands as they contend with the worst food inflation since 1990.

Mary Lee Rydzewski, a retired Amtrak engine dispatcher who lives in Cheshire, Conn., says she has already switched to store brands and sale items because of higher food prices. If they increase more, she plans to cut back again.

But Karen Leedahl, a pastor who lives in Latrobe, Penn., said she always bought store brands and shopped for sale goods. Two weeks ago, she started walking more than a mile round-trip to the grocery store instead of driving.

If prices increase more, "I'm kind of in trouble," she said. "I was already trying to save."

U.S. shoppers spent 5.8 percent of their income on food in 2006, according to the U.S. Department of Agriculture—a lower proportion than any other nation. In the United Kingdom, consumers spent 8.7 percent of their income on food, and in most of the world it's at least 10 percent.

But the U.S. portion seems certain to rise, as chicken and pig producers say prices have to go up as feed costs increase.

"American consumers are only just beginning to feel the impact of sharply higher food prices," said Pilgrim's Pride Corp. Chief Executive Clint Rivers. The nation's largest chicken producer posted a wider quarterly loss Monday as it paid more for feed and took a restructuring charge.

Tyson Foods Inc., the world's biggest meat producer, forecasts that its expenses will rise $1 billion this year, including $600 million for corn and soybean meal and $100 million on grain. The balance will come from higher prices for cooking oil, breading and fuel costs, the company said. Last week Tyson reported a $5 million second-quarter loss and withdrew its earnings outlook, saying feed prices were too volatile.

"I think food inflation has got to go up," said C. Larry Pope, president and chief executive of Smithfield Foods Inc., the world's largest pork producer, in a recent speech. "Everything that uses wheat, everything that uses corn, everything that uses corn syrup has got to go up."

The exception may be beef, as already high beef prices may not see the increases that chicken and pork could, said Jim Hilker, an agricultural economist at Michigan State University. "I'm not sure beef prices will go up a lot, but they won't come back down."

Pork farm losses, though, may total $3.8 billion for 2008, one-quarter of total production, according to Chris Hurt, an agricultural economist at Purdue University. He calls the industry "a financial disaster in progress."

It will be easier for publicly traded meat producers to weather a money-losing quarter than for farmer Bill Tentinger in LeMars, Iowa. Tentinger said he expects to spend $85 per hundredweight feeding his hogs this year; at current levels, they will fetch prices in the mid $40s.

"Take that figure, times 10,000 hogs, and see if you can eat breakfast decent in the morning," said Tentinger, 59.

The biggest driver to prices is grain costs, which have been affected by the rise in ethanol production and strong export demand due to the weak dollar. Corn costs have more than doubled over the last two years from $2.50 a bushel to $6. That has added $6 billion to chicken farmers' annual feed bills, according to the National Chicken Council, a trade group.

As a result, companies are slaughtering animals to tighten supply. The move will temporarily increase supply, lowering prices, but as farms herds and flocks get smaller, it will raise prices.

Fieldale Farms Corp., a privately held chicken producer, is cutting its production by 5 percent starting in the middle of the month. Tom Hinsley, senior vice president, said he expects higher chicken prices by midsummer.

"They will have to rise, big-time, otherwise, there will be no chicken," Hinsley said.

Pilgrim's Pride said it plans to reduce weekly chicken processing by 5 percent in the second half of the year, and keep production down until margins improve. Smithfield said in February that it would slaughter 4 percent to 5 percent of its breeding sows.

A smaller breeding population and a wave of expected hog farm failures will boost pork prices by 2009, Hurt predicted. He estimates 6 percent to 8 percent of breeding sows will need to be slaughtered to support prices.

The government is giving pork producers a hand by taking some pork off the market. Agriculture Secretary Ed Schafer last week announced a government plan to buy up to $50 million of pork for child nutrition and domestic food assistance programs—at the urging of the National Pork Producers Council.

For Tim Bierman, a third-generation farmer in Larrabee, Iowa, pork price increases can't come soon enough.

Bierman spent a recent morning alternately calling and texting his commodities broker from the seat of his tractor, trying to cut the loss he'll take on his 9,000 pigs by hedging the cost of feed on the futures market.

"We're trying to cover ourselves on the futures, if not to turn a profit, then to lose less than we would if we did nothing," said Bierman, 47.

Meat and poultry executives have also come out against federal ethanol mandates, which they say are driving the cost of corn higher. On Monday, Senate Republicans asked environmental regulators to halt the ethanol expansion plans amid the rising food prices.

The U.S. Department of Agriculture predicts overall food prices could increase another 4 percent to 5 percent in 2008. But consultant Jim Hertel, of Willard Bishop food retail consultants in Barrington, Ill., thinks that high commodity and fuel prices, plus demand from India and China, could push food inflation anywhere from to 7 percent to 10 percent.

Hertel is counseling his grocery store clients on price-increase strategies. One piece of advice—don't make your store brands too cheap. Shoppers who buy them are looking for a 20 percent discount, so stores that price them 30 percent cheaper are losing money.

"We haven't seen hard-core food inflation for 30 years," he said. That's not only a challenge for shoppers, it's a challenge for retailers, he said. "A lot of people who knew what to do, who learned their lessons in the late 70s or early 80s, they're retired at this point, if they're lucky."

Saudis to increase output by 300,000 barrels a day
Came at request of 'about 50 customers worldwide' – most of extra oil going to U.S.

Saudi Arabia announced Friday that it will boost oil production by about 300,000 barrels a day to meet increased demand from customers next month. The announcement came after President Bush met with Saudi King Abdullah to appeal for help in bringing down oil prices that are hitting record highs.

The Saudi increase is a modest one and appeared unlikely to have much effect on crude oil prices. But with the president under pressure at home to show he is fighting to lower gas prices, the gesture gave Bush a face-saving benefit from a day-long meeting with Saudi leaders.

In a news conference after the meeting, Saudi Oil Minister Ali al-Naimi said the increase went into effect Saturday and would raise output to 9.45 million barrels a day in June.

"On May 10, we increased our response to our customers by 300,000 barrels because they asked for it," Naimi said. "So our production for June will be 9.45 million barrels per day." He said that the increase came at the request of "about 50 customers worldwide" and that most of the extra oil would go to the United States.

Earlier, Bush's national security adviser, Stephen J. Hadley, said Naimi and other Saudi officials told Bush that they were doing all they can to increase production but suggested that other factors are keeping prices high.

"What they're saying to us is . . . Saudi Arabia does not have customers that are making requests for oil that they are not able to satisfy," Hadley said. He told reporters that the Saudis indicated they are willing to put oil on the market in amounts sufficient to meet their customers' demands.

Even if they increase production, Hadley quoted the Saudis as telling Bush, that would not dramatically reduce gasoline prices in the United States. The officials told Bush they are doing "everything they can do" at present and are investing in ways to increase oil production in the future, Hadley said.

The Saudis are saying that "if our customers come to us and say they have a shortage of crude oil, we will meet that request," Hadley said.

It was not immediately clear why Hadley did not mention the 300,000 barrels-a-day increase when he briefed reporters on Bush's meeting with Abdullah.

Bush met with Abdullah in Saudi Arabia in January and pushed for more oil production then as well, but the Saudis rebuffed the request.

News of the production increase appeared to have little effect today on crude oil prices, which continued to climb. The price of a barrel of light, sweet crude for June delivery was up $2.20 to $126.29 in trading on the New York Mercantile Exchange at closing this afternoon after spiking at a record $127.82 a barrel earlier in the session. Oil prices currently are about 30 percent higher than they were in January. The national average for regular gasoline now stands at $3.78 a gallon.

Saudi Arabia often adjusts its oil production to meet demand, which is set to rise in the United States with the advent of the peak summer driving season.

In part for that reason, oil industry analysts doubted that the Saudi announcement amounted to much more than a gesture.

"It's just a token increase, but it shows that the Saudis realize just how important it is for the president to not come back empty-handed," said Peter Beutel, president of Cameron Hanover Inc. in New Canaan, Conn., according to Bloomberg news service. "This is about a lot more than oil; the special relationship between the countries is at stake."

"It's a way to raise production without raising production," said Phil Flynn, an analyst at Alaron Trading Corp., the Associated Press reported. "I think it was a way to save face."

Bush flew to the Saudi capital from Jerusalem on Friday, turning his attention not only to the rising price of oil but to the looming threat from Iran, two of the big issues on the agenda for his meeting with Abdullah.

U.S. officials and other experts said the king probably was most interested in discussing Iran. The leaders of this Sunni-dominated kingdom are deeply concerned about what they see as the aggressive actions of Shiite Iran in Lebanon, Iraq and elsewhere in the Middle East, and they have been pushing the administration to be more assertive in confronting Tehran.

Briefing reporters following Bush's meetings with Abdullah this afternoon, Saudi Foreign Minister Saud al-Faisal made clear the Saudi disappointment with Bush's speech Thursday to the Israeli Knesset. Bush touched only lightly on the Palestinian quest for a state of their own, while paying homage to the 60th anniversary of the Jewish state.

"We are well aware of the special U.S.-Israeli relationship," Saud said. But he added: "Stressing the right of a nation to exist should not strike out or revoke the rights of other nations." The Palestinians "are in dire need to enjoy their rights," he said.

Before Bush arrived, the White House announced that the two nations had negotiated four "critical agreements to strengthen the protection of energy resources, enhance peaceful nuclear cooperation, broaden the fight against global terrorism and bolster nonproliferation."

The White House said Saudi Arabia will join the 70-nation Global Initiative to Combat Nuclear Terrorism and the 85-nation Proliferation Security Initiative. The United States will work with the Saudis to help protect the kingdom's vast energy resources and infrastructure and to develop civilian nuclear power to be used in medicine, industry and power generation.

Briefing reporters before the trip, Hadley said Bush has made clear to the Saudis and other oil suppliers that "as they consider their pricing policies and as they consider their production targets, they need to take into account the economic health of the global community; need to take into account the economic health of their customers who pay these prices."

But Hadley also sought to dampen expectations. "Capacity is limited in the international market. It just is," he said. "Capacity is limited in the Middle East. There are limits to how much that production can be ramped up without enormous investments of dollars and enormous investments of time."

Administration officials, including Vice President Cheney, have lauded the Saudis for making billions of dollars in investments to expand their capacity in recent years. The Saudis now pump about 9.2 million barrels of oil a day, and they have an overall capacity to pump about 11 million daily.

"The Saudis are doing all you can reasonably expect," said J. Robinson West, chairman of PFC Energy in Washington, adding that the kingdom sees an inconsistency between the United States demanding more production and not opening itself to more drilling.

But Youssef M. Ibrahim, a freelance writer and consultant who specializes in oil, said in an interview that the Saudis should be able to do more but don't want to. "They have plenty of money -- there is no reason for them to increase production to get new income," he said. "They don't feel any compelling need to help out. They see Bush as leaving. It's his last nine months."

Congress vs. OPEC: Flexible-fuel cars

An engineer and energy authority says the Organization of Petroleum Exporting Countries (OPEC) led by Saudi Arabia wants to drive the world into an economic depression with the eventual goal of establishing a worldwide Islamic caliphate

Dr. Robert Zubrin has a Ph.D. in nuclear engineering and is president of Pioneer Astronautics, an aerospace engineering firm. He recently published Energy Victory: Win the War on Terror by Breaking Free of Oil. He believes the OPEC cartel has consciously decided to restrict the production of oil in the face of growing world demand, and that this year the U.S. is going to spend $1 trillion on oil, most of which is going into the pockets of the cartel.

"They'll use part of it to fund terrorism internationally," he says, "and they're putting the rest into a giant takeover fund called sovereign wealth funds, which they will use to take over the companies that they wreck as they push us into recession. They'll take over these companies at a fraction of their value; 10 cents on the dollar," Zubrin contends.

The author argues that the power of the OPEC cartel must be destroyed internationally -- and that the U.S. Congress can help. He urges Congress to make "flex-fuel" the international standard and force gasoline to compete at the pumps.

"The United States Congress can effectively destroy OPEC with the stroke of a pen, simply by passing a law requiring that every new car sold in the United States gives the consumer fuel choice. That is, [to] be a fully flex-fueled car able to run not just on gasoline but on methanol and ethanol," Zubrin explains.

According to Zubrin, a Senate bill cosponsored by Senators Evan Bayh (D-Indiana) and Kansas Republican Sam Brownback (R-Kansas) would do just that and crash the price of oil to $50 a barrel.

Flexible-fuel vehicles, or FFVs, according to the U.S. Department of Energy, are designed to run on gasoline or a blend of up to 85% ethanol (E85), and have been produced since the 1980s. The DOE says while FFVs experience no loss in performance when operating on E85, they typically get fewer miles per gallon because an equal amount of gasoline contains more energy.

Oil crisis triggering
scramble for seabed
Fevered effort for control going on in secret
at little known office of U.N. in New York

A fevered scramble for control of the world's seabed is going on - mostly in secret - at a little known office of the United Nations in New York.

Bemused officials are watching with a mixture of awe and suspicion as Britain and France stake out legal claims to oil and mineral wealth as far as 350 nautical miles around each of their scattered islands across the Atlantic, Pacific, and Indian oceans. It takes chutzpah. Not to be left out, Australia and New Zealand are carving up the Antarctic seas.

The latest bombshell to land on the desks of UN's Commission on the Limits of the Continental Shelf is a stack of confidential documents from the British Government requesting an extension of UK territorial waters around Ascension Island, St Helena and Tristan da Cunha.

The three outposts between them draw big circles in the Mid and South Atlantic, covering unexplored zones that may one day offer deep reserves of crude oil and gas.

A similar request has already been made for eastward expansion from the Falklands and South Georgia - much to the fury of Argentina. "If the British do not change their approach, we shall have to interpret it as aggression," said President Nestor Kirchner, before he handed power to his wife Cristina.

Ascension Island - famed for its enormous green turtles - is a dusty cluster of 44 volcanoes, covered with cinder. It is barely big enough to host America's "Wideawake" airfield and a tracking station for Ariane 5 space rockets. First garrisoned by the British in 1815 to keep an eye on Napoleon, it now boasts 1,100 hardy souls. St Helena - the "Atlantic Alcatraz" - is yet more remote, if greener.

The forgotten relics of the Empire make Britain a player in the marine race. There are the waters off the Falkland Islands and South Georgia, already home to a clutch of oil exploration companies; the Pitcairn Islands in the Pacific; Diego Garcia in the Indian Ocean; and a string of outposts such as Montserrat, the Caymans, the British Virgin Islands, the Turks and Caicos, and Bermuda.

The French "Outre-Mer" is a bigger network - from the Isles Crozet to Saint-Paul and Kerguelen in the southern seas, to Clipperton off western Mexico. They too have been busy at the UN, requesting an extension of their zone off French Guiana and New Caledonia.

All the maritime powers are nibbling gingerly at the edges of Antarctica, though the Antarctic Treaty bans fresh claims on the world's last pristine landmass.

The two-page summary of Britain's submission to the UN gives little away. It merely notes that the UK is providing information on the limits of shelf "beyond 200 nautical miles", adding that there will be further requests. A Foreign Office spokesman said the motive was to "protect the environment".

Greenpeace demurs. "It is a grab for resources. These countries are in a panic about commodity prices and now view the seas as key to their national security," said Charlie Kronick, the group's climate chief.

The Law of the Sea allows the maritime powers to claim 200 miles of waters around their islands. They can win an extension to 350 miles if the geology of the seabed fits a set of complex technical conditions.

The requests are studied by a panel of world experts, and usually granted on a strict scientific basis. This is not conducted like the Eurovision Song Contest, where imperialists score "nul points".

The deadline expires in May 2009, so there is now a rush to stake out claims. If countries waive their right, the area from 200 to 350 miles automatically returns to the world community: claim it now, or lose it forever.

In a sense, the system is deeply unfair. China gets virtually nothing. Poor landlocked countries get absolutely nothing. Yet the old powers - after enjoying the fruit of imperial rule for four centuries - enjoy a second bite of the cherry. "The sea goes to the most powerful states that were able to colonise the remote parts of world. That's the way the law is," said Martin Pratt, head of the international boundaries unit at Durham University.

Nobody has ever explored these regions thoroughly for oil and minerals, although Mr Pratt said there was a burst of interest 20 years ago in "polymetallic nodules" - boulders of manganese, and such, on the sea floor. Commodity prices did not stay high enough to make it worthwhile investing, and the waters were mostly too deep.

That calculus is now changing fast as oil futures contracts for 2016 vault to $135 a barrel. The International Energy Agency warns that world output will fall far short of the estimated 116m barrels per day by 2030 unless there is massive investment.

The technology of deep-water drilling is improving in leaps and bounds. Three-dimensional seismic imaging can look through the salt canopies that cover up reserves and play havoc with exploration.

The ageing North Sea rigs drill to around 3,000ft: the Jack 2 test well, run by a consortium of oil companies, plunges through 7,000ft of water and 20,000ft of sea floor into the entrails of the earth below the Gulf of Mexico.

The state-of-the-art fields off Angola may soon be routinely drilling at near 9,000ft. It is no longer far-fetched to imagine rigs drilling as deep as 15,000ft, once oil companies learn to cope with crude gushing out at temperatures of 300C.

Shell and Lasmo explored the Falklands in the 1990s, but gave up when crude prices crashed to $10 a barrel. Nothing much came to light. Desire Petroleum, Rockhopper, Borders & Southern and Falkland Oil and Gas are all probing again. Desire plans to start drilling this year. "A working hydrocarbon system in the North Falkland Basin has been established," it said.

Dr Phil Richards from the British Geological Survey - who helped to prepare the UK's extension claim - doubts stories that the area could hold 60bn barrels of oil (Saudi Arabia purports to have 260bn).

"That is not credible. It is based on how much oil the rocks are potentially capable of holding. We won't know how much there is until we actually drill. All we have so far are educated guesses," he said.

Mr Richards denies that the Government is privy to secret discoveries. "There are no vast reserves that we know about. But who knows, it may come good for our grandchildren," he said.

Is it in the interests of mankind to tap deep-sea reserves? We may have no choice. The world has consumed one trillion barrels of oil already. The second trillion is located but not yet tapped, and will take us to 2035 or so. The third trillion eludes us. Any suggestions?

General Motors closing 4 truck, SUV plants
Surging fuel prices hasten dramatic shift to smaller vehicles

General Motors is closing four truck and SUV plants in the U.S., Canada and Mexico, affecting 10,000 workers, as surging fuel prices hasten a dramatic shift to smaller vehicles.

CEO Rick Wagoner said Tuesday before the automaker's annual meeting in Delaware the plants to be idled are in Oshawa, Ontario; Moraine, Ohio; Janesville, Wis.; and Toluca, Mexico. He also said the iconic Hummer brand will be reviewed and potentially sold or revamped.

Wagoner said the GM board has approved production of a new small Chevrolet car at a plant in Lordstown, Ohio, in mid-2010 and production of the Chevrolet Volt electric vehicle in Detroit.

Wagoner announced the moves in response to slumping sales of pickups and SUVs brought on by high oil prices. He said a market shift to smaller vehicles is permanent.

GM shares rose 25 cents, or 1.4 percent, to $17.69 in morning trading.

The cuts will affect 10,000 hourly and salaried workers. Many will be able to take openings created when 19,000 more U.S. hourly workers leave later this year through early retirement and buyout offers.

Wagoner said the company has no plans to allocate products to the four plants in the future.

"We really would not foresee the likely prospect of new products in the plants that we're announcing today that we'll cease production in," he told a Moraine, Ohio, city official who asked a question in a telephone conference call.

More cuts will be announced later. Wagoner said GM will consolidate engine, transmission and other parts operations to go with the assembly plant actions.

The actions add to a string of plant closures by the Big Three in the last several years. GM, Ford Motor Co. and Chrysler LLC have announced the shutdown of 35 plants since 2005, according to Sean McAlinden, chief economist with the Center for Automotive Research in Ann Arbor. Along with 35 additional closures at GM and Ford's chief suppliers, Delphi Corp. and Automotive Components Holdings LLC, he said the total hourly and salaried jobs eliminated comes to 149,000.

In that same time period, foreign automakers have built or announced plans to build five U.S. assembly plants, he said. In 2007, foreign auto companies employed 113,000 people in the U.S., a number McAlinden projects will rise to 152,000 by 2011.

The Oshawa truck plant, which builds the Chevrolet Silverado and GMC Sierra pickups, likely will be shuttered next year. The Moraine plant near Dayton, will stop making Chevy TrailBlazer and other mid-size SUVs in 2010 "or sooner if demand dictates," Wagoner said. In Janesville, the plant that builds medium-duty trucks and big SUVs like the Chevrolet Tahoe, will cease production starting at the end of 2009, finishing in 2010 or sooner if demand stays weak. In Toluca, production of medium-duty trucks will end by the end of 2008, Wagoner said.

The moves will save the company $1 billion per year starting in 2010. Combined with previous efforts, GM by 2011 will have cut costs by $15 billion a year over in 2005, Wagoner said.

Wagoner said General Motors Corp.'s board approved the production schedule of the Chevrolet Volt, and the company plans to bring the plug-in electric car to showrooms by the end of 2010.

Fully charged, the Volt could drive about 40 miles without using any gasoline, and a small conventional engine would recharge the vehicle, extending its range and allowing it to get the equivalent of 150 miles per gallon. GM plans to sell about 100,000 Volts a year by 2012.

Wagoner said the change in the U.S. market to smaller vehicles likely is permanent. "We at GM don't think this is a spike or a temporary shift," Wagoner said.

On the Hummer, Wagoner said GM is "undertaking a strategic review of the Hummer brand, to determine its fit with GM's evolving product portfolio" in light of changing market conditions.

"At this point, we are considering all options for the Hummer brand... everything from a complete revamp of the product lineup to partial or complete sale of the brand," he said.

Detroit's automakers have been making the shift to more fuel-efficient vehicles, but not at the pace that matches consumers' drive to hybrids and high mileage models made overseas. Gas prices have accelerated the retreat from trucks and sport utility vehicles, leaving the Big Three at the most critical crossroads in 30 years.

The U.S. market is difficult for every automaker, with consumer confidence weak and 2008 sales expected to be the lowest in more than a decade. But it is most difficult for the Detroit Three, who have relied more heavily on sales of trucks and SUVs than their foreign counterparts. Trucks make up 70 percent of Chrysler LLC's U.S. sales, for example, compared to 41 percent at Toyota Motor Corp.

GM President and Chief Operating Officer Fritz Henderson said the new small car to be built in Lordstown would get 9 miles per gallon better fuel economy than the company's current small cars, the Chevrolet Cobalt and Pontiac G5 when equipped with a manual transmission. The most efficient Cobalt now gets 36 miles per gallon on the highway, although Henderson would not give a total mileage number.

It would be powered by a 1- to 1.4-liter four-cylinder gasoline engine that could be turbocharged for additional power, GM said. The new engine would be built in Flint.

Henderson said the plant closure measures would reduce the company's capacity to produce pickups and large SUVs by 700,000 per year, about 35 percent.

He also said GM is planning for gasoline prices to stay around $4 per gallon for the foreseeable future, "with a bias upwards."

When asked if GM should have moved more quickly to smaller vehicles, Henderson said he doesn't spend time looking in the rearview mirror.

"There's not much I can do about what I didn't do in the past," he said.

Pete Hastings, senior analyst with Memphis, Tenn.-based Morgan Keegan & Co., said GM's moves are painful yet prudent.

"It's a permanent shift, and they're right to recognize it," he said. "But is it enough? It's a bit early to tell. ... That's the hard part of gauging where we are in the economy -- and how deep or strong the shift in demand is for more fuel-efficient vehicles."

Analyst Kevin Tynan of New York-based Argus Research Corp. said the Detroit Three automakers have been "caught with the market running away from them." While he recognizes GM's plight and efforts to overcome it, he still questions the aggressive push to market with the Volt, which is demanding heavy investment at a time when money is tight.

"It's very bad timing, very late in the game to be making big bets," he said. "At the same time, you don't have a choice."

The announcement is an economic blow to Janesville, which long has been entwined with automaking. The sprawling GM plant has survived the Depression, a world war and GM's major layoffs in the 1980s, but it will not escape the latest round of corporate belt-tightening.

"There were some tears and a lot of people were kind of ticked off, but it's part of the business," said Scott Lambert, 39, who has worked at the plant for 13 years.

He said he was headed to buy an atlas to figure where other GM plants were that might be hiring.

The plant, GM's oldest, opened in 1919 and long was the largest employer in Janesville, a city of 60,000 about 100 miles northwest of Chicago. But cutbacks have shrunk the work force to about 2,600, so it's no longer the city's biggest employer.

Detroit-based GM also has just emerged from a spate of labor problems, with two local union strikes at key factories and a nearly three-month strike at key parts maker American Axle and Manufacturing Holdings Inc.

GM said in a recent regulatory filing the strikes will cost it a total of $2 billion before taxes in the second quarter.

AP Business Writers Emily Fredrix in Janesville, Wis., and Jeff Karoub in Detroit and AP Auto Writer Dee-Ann Durbin in Detroit contributed to this report.

Unemployment rate hits 5.5% as 49,000 jobs lost
Biggest monthly increase in more than 2 decades

The unemployment rate surged to 5.5 percent in May from 5 percent, the largest monthly spike in more than two decades, as the economy shed 49,000 jobs for a fifth month of decline, the Labor Department reported on Friday.

Economists construed the weak monthly jobs report as an indication of the pain assailing tens of millions of Americans amid an economic downturn that most experts assume is a recession.

The labor market is continuing to deteriorate, eroding the size of paychecks, just as gasoline and food prices surge, and as the declining value of real estate erodes the wealth and credit of many households.

“It’s unambiguously ugly,” said Robert Barbera, chief economist at the research and trading firm ITG. “The average American already knows that gas prices are up a ton and its really hard to find a job. Sally and Sam on Main Street are already well aware of this, and that’s why sentiment surveys are lower than they were in each of the last two recessions.”

On Wall Street, stock markets were down sharply in morning trading as investors saw in the weak job numbers signs that the overall economy could remain mired in trouble for some time.

The spike in the jobless rate also ratcheted up the policy debate in Washington, where the White House has pledged to veto a supplementary Iraq war financing bill that includes an expansion of unemployment benefits. The White House has opposed the bill for imposing deadlines on the withdrawal of troops.

Among the 8.55 million people who were unemployed in May, 1.55 million had been unemployed for 27 weeks or longer. Federal unemployment benefits currently expire after 26 weeks. The bill approved by the Senate and facing a vote in the House would add another 13 weeks of cash assistance.

“It would show a new level of callousness by Congress, a new level of disconnect between Washington and the rest of the country, not to pass an extension now,” said Andrew Stettner, executive director of the National Employment Law Project, a national advocacy group for the unemployed.

The White House argues that jobless benefits have never been extended with the unemployment rate this low, a position that White House spokesman Tony Fratto said remained in place even after Friday’s report.

The leap in the unemployment rate also appeared to cool talk that the Federal Reserve might soon begin inching up interest rates in an effort to choke off rising prices for gasoline, food and other goods, and to support the weak dollar. The Fed policy board meets again at the end of the month.

“I don’t think we’ll be seeing Ben Bernanke defending the dollar anytime soon,” said Michael T. Darda, chief economist at the research and trading firm MKM Partners, who has worried that the Fed has stoked inflation by lowering interest rates too aggressively. “The Fed more than anything else puts emphasis on the labor market indicators. This will make it very difficult for the Fed to take back the easing in an expeditious fashion.”

For six months, the Fed has been steadily lowering interest rates, which tends to spur borrowing and investment, in an effort to bolster the economy. As inflation fears have grown, so have calls in some quarters that the Fed alter its course. That conversation has been amplified by talk on Wall Street that the economy appeared to be stabilizing, and banks were past the worst of their mortgage-related woes.

But Friday’s report injected a substantial note of gloom into that view.

“We simply haven’t had five months of net job losses without being in a recession,” said Jared Bernstein, senior economist at the labor-oriented Economic Policy Institute in Washington.

The details of the report fleshed out how economic troubles that began with the fall of real estate prices and then spread to the construction industry have continued to ripple out to other areas of the economy. Many homeowners who are no longer able to borrow against the values of their houses have been cutting their spending, shrinking sales at shopping malls, grocery stores and home improvement outlets. That has prompted to businesses to cut payrolls, taking more purchasing power out of the economy.

Construction again led the way down in May, shedding 34,000 more jobs, according to the report. Profession and business services — which includes lawyers, accounts, architects and management consultants — declined by 39,000.

Manufacturing lost 26,000 jobs as the sector continued its steady decline. Retail payrolls shrunk by 27,000 jobs, and transportation and warehousing by 10,500.

Health care remained a rare bright spot, adding 33,900 jobs in May, while restaurants and bars added 11,400 jobs

The jobs picture has turned particularly mean for more vulnerable segments of the population, with the unemployment rate among African-Americans leaping to 9.7 percent in May from 8.6 percent in April .

Over the same period, joblessness among those aged 16 to 19 climbed to 18.7 percent from 15.4 percent, underscoring why many economists predict this will be the weakest summer job market for teenagers in at least 60 years.

The White House and some economists questioned the validity of the spike in unemployment, noting that most of results from a surge in people entering the labor force. Some suggested that this meant that the Labor Department may have miscalculated its seasonal adjustments for graduating college students entering the market, inflating the numbers of those seeking work.

“I think this move is exaggerated,” Mr. Darda said, who noted that new unemployment claims, while recently crossing above 370,000 a week, are still not consistent with such a dramatic surge in joblessness. “This is strange.”

Even at 5.5 percent, the unemployment rate remains relatively low by historical measures, the White House noted.

But others said the report appeared to catch up with other indicators, like several years of weak hiring, that have made a search for a job far more difficult than the simple unemployment figure reflects.

The unemployment rate does not count people who have given up looking for work. The percentage of working age-Americans employed dropped to 62.6 percent in May, down from 63 percent a year earlier. And years of weak hiring have made some companies so lean that they have few people left to cut.

“Companies didn’t have so many people on the payrolls to shrink in the first place,” Ed McKelvey, an economist at Goldman Sachs, said.

In recent months, many companies have been cutting the working hours of those on their payrolls and generally avoiding layoffs, while hoping that the economy would improve. That trend held up in May, as those working part-time because they could not find full-time work or because of slack business nudged up from 5.22 million to 5.23 million.

But that was a much smaller increase than the previous month. The slowing of that trend, coupled with a net loss of jobs, was taken by some economists that businesses are running out of hours they can cut: Now, they are faced with the possibility of layoffs.

“This is what happens when an economy grows solidly below trend for six months,” said Mr. Bernstein. “Employers cut back first on hours, then on jobs.”

Oil prices skyrocket, taking biggest jump ever
Speculative bubble? Futures surged more than $10 a barrel, or almost 8%, to $138

The rise in oil prices turned into a stampede on Friday with futures jumping a staggering $11 a barrel to set a record above $138 a barrel. The unprecedented surge came as the dollar fell sharply against the euro and a senior Israeli politician once again raised the possibility of an attack against Iran.

Friday’s jump capped a second day of strong gains on energy markets, and fed suspicions that commodities might be caught in an investment bubble.

Oil prices have doubled in the last 12 months, and are up 42 percent since the beginning of the year. Oil futures surged $10.75, or 8 percent, to $138.54 a barrel on the New York Mercantile Exchange, their biggest jump since contracts began trading in 1983. The record rise brought a two-day jump of more than $16 a barrel, after Thursday’s 5.5 percent gain.

“This market is going to shoot itself in the foot,” said Adam Robinson, an energy analyst at Lehman Brothers. “It is searching for a price that will build a safety cushion in the system — either as inventories or as spare capacity. This takes time. But the market has gotten extremely impatient and is not willing to wait.”

The latest jump came as the dollar lost more than 1 percent against the euro amid bleak economic news that fanned recession fears. The unemployment rate surged to 5.5 percent in May, the government said, the biggest increase in more than two decades.

Friday’s negative news pricked a budding sentiment on Wall Street that the financial system was on the mend, and stocks fell sharply. The Dow Jones industrials lost 394.64 points, or 3 percent, to 12,209.81, with financial stocks showing the biggest declines. The broader Standard and Poor’s 500-stock index fell 3 percent, its biggest drop since February.

The pronounced volatility in energy markets in recent weeks continued to puzzle traders. Prices kept rising despite a lack of shortages in the market and strong evidence of lower consumption in industrialized countries. But investors are caught in a bullish mood, focusing on the perceived risks to future oil supplies and the growth in oil demand from emerging economies, where fuel prices are subsidized.

Even as uncertainties abound about the fundamentals of the energy market, geopolitical tensions in the Middle East regained center stage after Israel’s transportation minister and a deputy prime minister, Shaul Mofaz, said Friday that an attack on Iran’s nuclear sites looked “unavoidable” if Iran did not abandon its nuclear program.

Iran is the second-largest oil producer within the OPEC cartel and exports nearly two million barrels a day. Because the world has few supplies to spare, any interruptions in Iran’s exports could push prices to higher levels. The world currently has about three million barrels a day of spare capacity, and consumes 86 million barrels a day of oil.

“The return of the Iranian risk premium calls for a careful assessment of the potential oil supply impact of military strikes on Iran,” said Antoine Halff, an analyst at Newedge, an energy broker. The “comments bring home the point that the dispute over Iran’s nuclear program remains unresolved and that the risks of military confrontation are indeed increasing.”

Investors also reacted to the latest forecast by a large Wall Street bank that oil prices would keep rising. Morgan Stanley predicted that prices would spike to $150 a barrel in the next month because of strong demand in Asia.

The threat of a strike by Chevron’s workers in Nigeria also raised concerns that some production could be shut down. A similar strike by Exxon Mobil workers last April, which lasted a week, reduced Nigerian output by 800,000 barrels a day, or nearly a third of the country’s daily exports.

A strike may delay the start of Chevron’s 250,000 barrels-a-day Agbami project, the country’s largest offshore venture, which is to begin June 15.

One view gaining ground is that the commodity market is caught in a speculative bubble akin to the recent housing bubble or the technology bubble of the late 1990s. That theory was raised by politicians in Washington and by OPEC producers, who blame speculators for the staggering oil rally. Speaking before Congress recently, George Soros, a prominent hedge fund investor, said the current oil markets presented some characteristics of a bubble.

“I find commodity index buying eerily reminiscent of a similar craze for portfolio insurance, which led to the stock market crash of 1987,” Mr. Soros said this week. But he cautioned that an oil market crash was not imminent. “The danger currently comes from the other direction. The rise in oil prices aggravates the prospects for a recession.”

But many analysts say that fundamentals, not speculation, are driving prices.

“I don’t know how else to say it, this is not a bubble,” Jan Stuart, global oil economist at UBS, said. “I think this is real. There is a whole bunch of commercial buyers out there who are spooked and are buying. You are an airline, right now, you’re scared. I don’t see who would buy at these prices unless they need to.”

Jeffrey Harris, the chief economist at the Commodity Futures Trading Commission, who was speaking before a Senate committee last month, said he saw no evidence of a speculative bubble in commodities. Instead, Mr. Harris pointed to a confluence of trends that has contributed to the oil price rally, including a weak dollar, strong energy demand from emerging economies, and political tensions in oil-producing countries.

“Simply put, the economic data shows that overall commodity price levels, including agricultural commodity and energy futures prices, are being driven by powerful fundamental economic forces and the laws of supply and demand,” Mr. Harris said. “Together these fundamental economic factors have formed a ‘perfect storm’ that is causing significant upward pressures on futures prices across the board.”

Freaky Friday on Wall Street
Dow's 395-point drubbing is biggest 1-day point loss in 15 months

Dark day on Wall Street
The Dow's 395-point drubbing is its biggest one-day point loss in 15 months, after crude prices' largest one-day advance ever and a poor jobs report.

Stocks tanked Friday, with the Dow industrials shedding 395 points, after oil prices spiked more than $11 a barrel and the May jobs report showed a big jump in the unemployment rate.

Bond prices surged, as investors sought safety in government debt, while the dollar tumbled versus the yen and euro.

The Dow Jones industrial average (INDU) lost 395 points, or 3.1%, its biggest one-day decline on both a point and percentage basis since February of 2007, at the start of the subprime mortgage crisis.

The broader Standard & Poor's 500 (SPX) index lost 3.1%, while the Nasdaq composite (COMP) lost 3%. Both saw their biggest one-day declines on both a point and a percentage basis in more than four months.

The unemployment rate shot up to 5.5% in May from 5.0% in April, the government reported, marking the biggest one-month surge in over 20 years. The report was a clear indication that the economy could be in a recession after all, despite some recent bets that one could be narrowly avoided.

As rattling as the unemployment number was, the stock market was even more spooked by the spike in oil prices, said Bill Stone, chief investment strategist at PNC Wealth Management.

"I think more than anything, it's the shock of oil prices being up this substantially two days in a row," Stone said.

Crude jumped more than $16 in two sessions, with prices settling up $10.75 to $138.54 a barrel Friday on the weak dollar and in response to a Morgan Stanley note that said oil could hit $150 a barrel by July 4.

The spike exacerbated worries about consumer spending, already stretched as gas prices near a national average of $4 a gallon.

"You're definitely seeing the fear trade today, with the dollar down, commodity prices up and bonds rallying," Stone said.

Stocks could be vulnerable to further declines in the week ahead, after the S&P 500 closed below a key technical level that has previously given a floor to the selling. Traders said stocks could be in danger of moving back to the lows of March and January, which were seen as something of a bottom after months of stock declines.

Jobs market deteriorates: The unemployment rate surged to 5.5% from 5.0%, beating forecasts for a rise to 5.1% and showing the biggest one-month jump since 1986.

The spike really caught people by surprise, said Stuart Hoffman, chief economist at PNC Financial Services Group. He said the report makes it clear that at least for so-called Main Street and the labor market, "we are in a recession, regardless of how we economists define it."

He was referring to the fact that GDP has been limping higher and the economy has not been officially declared to be in a recession by the National Bureau of Economic Research.

However, with non-farm payrolls dropping for a fifth consecutive month, it feels to many people like it's a recession, he said. Employers cut 49,000 from their payrolls, the report showed, versus forecasts for a decline of 60,000.

Dollar falls, oil spikes: The dollar continued its slide versus the euro on the weak jobs report and comments Thursday that the European Central Bank could potentially raise interest rates. The dollar also tanked versus the yen.

The dollar's decline contributed to a rally in dollar-traded commodity prices, with U.S. light crude oil for July delivery settling at $138.54 a barrel, a jump of $10.75. The increase was the biggest single-day price gain since record-keeping began in 1983 - taking out the previous session's record.

Oil prices spiked to a record trading high of $139.12 after the close, before pulling back a bit.

Gold and other commodities rallied too. COMEX gold for August delivery rose $23.50 to settle at $899 an ounce.

Gas backs off record: The national average price for a gallon of regular unleaded gas fell to $3.986 from the previous day's record of $3.989, AAA reported. Gas prices had set new records for 28 of the previous 29 days.

Other markets: Treasury prices rallied, lowering the yield on the 10-year note to 3.93% from 4.05% late Thursday. Bond prices and yields move in opposite directions.

On the move: Stock declines were broad based, with all 30 Dow issues falling.

The Dow's financial components were hit the hardest, with American Express (AXP, Fortune 500) and Citigroup (C, Fortune 500) both down 5%, and Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) down more than 4%.

AIG (AIG, Fortune 500) slumped more than 7% on reports that the Securities and Exchange Commission is looking into whether the insurer overstated the value of contracts connected to subprime markets, something AIG denies. Additionally, it was reported that federal prosecutors have asked the SEC for material related to the investigation.

Other big blue-chip losers included General Motors (GM, Fortune 500), down nearly 5%, and Boeing (BA, Fortune 500), down 5.4%.

Intel (INTC, Fortune 500), Oracle (ORCL, Fortune 500), Cisco (CSCO, Fortune 500) and Qualcomm (QCOM, Fortune 500) were among the biggest technology decliners.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by over 4 to 1 on 1.48 billion shares. On the Nasdaq, decliners topped advancers by nearly 4 to 1 on volume of 2.20 billion shares.

Stocks spiked Thursday on a surprise dip in weekly jobless claims, stronger-than-expected May retail sales and a merger in the telecom sector. But the advance was short-lived as Friday's barrage of discouraging economic news and spiking oil prices brought out the sellers

Floods send corn, ethanol soaring

Corn futures rose to another record high and ethanol prices surged to a two-year high on Friday as storms lashing the US Midwest raised the specter of a crop that will be too small to satisfy demand for food, feed and biofuel.

The seventh straight surge in corn prices further squeezed margins for US ethanol producers, who are scaling back unprofitable operations and also face flooding at distilleries that turn corn from nearby farms into the biofuel.

Flood waters have inundated fields throughout the corn belt. Especially worrisome for the crop, were cresting rivers in Iowa and Illinois, the top two growing states.

At the Chicago Board of Trade, July corn closed up 22-3/4 cents, or 3%, at $US7.31-3/4 a bushel, after peaking at $US7.37. The contract for July 2009 hit $US7.81-1/2, the highest price for any corn contract.

''They are looking for crop conditions to decline. In Iowa and the southern half of Illinois and Indiana, it's bad ... there will be holes in the crop,'' said Dan Cekander, an analyst for Newedge Trading.

The overflowing Cedar River forced the evacuation of downtown Cedar Rapids, which with a population 200,000, is Iowa's second largest city.

Flooding has also swamped parts of other big agricultural states, including Minnesota, Wisconsin, Michigan, Missouri and Kansas, hurting crops at a time that demand for food and fuel is soaring globally.

The upper Mississippi River was closed to barge traffic and the 300-mile (480 km) stretch of the most important US waterway for getting grain to export terminals, may be cut off for several weeks.

Corn prices have jumped 22% this month and are up nearly 90% from a year ago, putting increasing financial pressure on livestock feeders, exporters, ethanol and biodiesel makers and, ultimately, on grocery shoppers and commuters.

The nearby CBOT ethanol contract rose 4% to $US2.799 per gallon, striking its highest level since July 2006.

The spot ethanol price in the Midwest rose from $US2.37 per gallon on Monday to bids and offers at $US2.69/$US2.71 on Friday.

Prices were lifted by a Citi Investment Research report that said five small to mid-sized US ethanol plants were forced to shut and 2 billion to 5 billion gallons of ethanol could go offline in coming months due to high corn prices.

US food and grains company Archer Daniels Midland said on Friday it closed its Cedar Rapids, Iowa ethanol plant because of local water use constraints due to flooding.

POET Chief Executive Jeff Broin told Reuters in an interview that the largest US ethanol company would not cut production even though some rail lines had been flooded and some of its plants were losing money as feedstock corn prices soar.

''We have plants both slightly below and above break-even today. Certainly, these are not the best of times,'' he said.

Pavel Molchanov at Raymond James and Associates in Houston estimated that average US producers now lose 8 cents for every gallon of ethanol distilled, compared with a profit margin of 20 cents two weeks ago. Besides higher corn prices, margins also have been squeezed by two-year highs for natural gas, which fires most ethanol plants.

Steve Sorum, Project manager at the Nebraska Ethanol Board said that water was seeping into plants where it should not and reported that one fermentation tank at a plant under construction in Aurora, Nebraska collapsed due to strong winds.

The United States has an ethanol production capacity of about 8.8 billion gallons per year from 154 distilleries.

''Right now, producer margins are so poor, growing conditions are bad,'' said one Midwest oil dealer. ''From a price perspective, this thing can only go higher.''

''Even with imports coming from Brazil and the Caribbean basin, it still says this goes higher,'' he added.

On the New York Mercantile Exchange, July crude ended down $US1.88, or 1.37%, at $US134.86 per barrel, on a stronger dollar and a report that Saudi Arabia was considering increasing output.

It's amazing, Pastor Roger, how much has happened since you opened this thread in Dec. 2007!

Here's more from Bill Koenig:

"Stocks off 2.2 Trillion This Year (USA Today)

NEW YORK - Hurt by a record setting run for crude oil and renewed concerns about the health of the banking sector, Wall Street ended a dismal second quarter Monday with blue chip stocks on the cusp of their first bear market in almost six years.

After a 10.2 percent drop last month, its biggest June loss since the Great Depression, the Dow Jones industrial average is now at 11,350, or 19.9 percent below its October all time high. The Dow is flirting with its first bear market - a drop of 20 percent or more - since the 2000-2002 bursting of the Internet bubble.

The US stock market has lost $2.2 trillion in value this year - $1.4 trillion in June alone, says Dow Jones Indexes. "Talk about a tough month," says Sam Stovall, chief strategist at Standard and Poor's.

Connecting the dots - A defining moment for you and your children

by Bill Wilson, KIN Senior Analyst

In the winter of 1777, the Continental Army was encamped at Valley Forge. It was cold. Men were freezing, hungry, bloody, beaten and battle weary. The winter was particularly harsh. Threadbare and without food, the Continental Army experienced desertions, disease, despair and death. It was a grim picture for America.

As George Washington observed, 'If the Army does not get help soon, in all liklihood it will disband.'

But as men drew upon their faith, and as they contemplated their duty amid their misery, the weather began to break and they began to train. Clothing and food began to trickle in, and the turning point for America was birthed out of the hearts of those men.

In July, 1863, America was torn apart by civil war. Under the comman of Robert E. Lee, the south attacked the north in a colossal battle at Gettysburg. Men fought in stifling heat. The smell of gunpowder, blood, sweat and death permeated the air above the screams of the wounded and the sounds of death and destruction. Again, it was a grim picture for America.

Nearly 50,000 Americans on both sides were killed, wounded or captured during the battle. This horror among brothers and countrymen was the turning point to a war that divided America and threatened to destroy the nation.

Today America faces another defining moment. Islamists control the lifeblood of the American economy - oil. Anti-Americans, who hold views counter to the founding priciples of the United States, are trying once again to destroy the nation through killing it's unborn; destroying its morals with same sex marriage; curtailing freedom of speech; and pressuring Americans to give up their faith in God, turn to nature worship, and become part of a one-world order.

The Anti-Americans have tried to capture the country by using political correctness as their moral highground and undermining the nation's moral fiber through teaching a pagan path to eternity.

This is a war more insidious than the Revolutionary or Civil Wars, for it is a war won or lost by the will of the souls it seeks to destroy. It is a war against an enemy that destroys righteousness and questions acts of valor. And every American is a participant. Unless the righteous arise and take action, the nation is lost.

It is time that we draw upon the Spirit of God in us to participate, motivate, activate and reclaim this nation from imposters and traitors - so that the great valor of those that went before us will not be in vain."

Fannie and Freddie Shares Slide, Dragging Down Stocks

Fannie Mae and Freddie Mac shares plummeted again on Friday morning — and the broader stock market followed suit — as concern mounted that the government will be forced to take over the beleaguered mortgage finance companies, which some investors fear are at risk of default.

Even after a week of unprecedented losses, the companies’ declines on Friday were the sharpest yet: Freddie Mac shares were down 45 percent from Thursday’s closing price, to $4.42 a share, and Fannie Mae stock fell 39 percent to $8.06 a share.

Less than an hour after the markets opened, Henry M. Paulson, the Treasury secretary, said a government bailout was not an immediate possibility.

“Our primary focus is supporting Fannie Mae and Freddie Mac in their current form,” Mr. Paulson said in a statement. “We are maintaining a dialogue with regulators and with the companies.”

The companies currently operate with an implicit, but not assured, government guarantee.

The remarks did not appear to placate investors, who accelerated the sell-off that began at the market’s open. Investors were running scared across the board, sending the Dow Jones industrial average down 185 points and the Standard & Poor’s 500-stock index down 1.5 percent in morning trading.

Adding to the pain was a $5 surge in the price of oil, which reached another record in overnight trading, touching $147 a barrel, on concern over recent tensions in the Middle East.

Investment banks and other financial firms led the day’s declines, with Lehman Brothers, itself the subject of meltdown rumors over the last few weeks, losing 16 percent in early trading.

Lehman’s stock has lost 33 percent of its value in the past week alone, and is on track for its worst weekly streak since the investment house went public in 1994. The perceived risk that the bank will default on its loans also rose on Friday, as measured by the market for so-called credit default swaps.

Freddie Mac stock has lost nearly 70 of its value in the last week alone. Fannie Mae shares have fallen 55 percent during that period. Both companies’ shares are trading at their lowest levels in nearly two decades.

Though shares of Fannie and Freddie are quickly declining, investors appear to be less concerned that the companies will be forced to default on their loans. The perceived risk of buying debt from the companies fell on Friday, as measured by the yield on the 10-year Fannie Mae note, which declined relative to its comparable Treasury bill.

Investors may be feeling more confident that, even if the companies fail, the government would step in and guarantee their outstanding obligations.

Senior Bush administration officials are already considering a plan to have the government take over one or both of the companies and place them in a conservatorship if their problems worsen, according to people briefed about the plan.

Under a conservatorship, shares of Fannie and Freddie would be worth little or nothing, and any losses on mortgages they own or guarantee — which could be staggering — would be paid by taxpayers.

The government officials said that the administration had also considered calling for legislation that would offer an explicit government guarantee on the $5 trillion of debt owned or guaranteed by the companies. But that is a far less attractive option, they said, because it would effectively double the size of the public debt.

The officials involved in the discussions stressed that no action by the administration was imminent and that Fannie and Freddie are not considered to be in a crisis situation. But in recent days, enough concern has built among senior government officials over the health of the giant mortgage finance companies for them to hold a series of meetings and conference calls to discuss contingency plans.

Feds seize bank after run of withdrawals
Takeover of IndyMac follows second-biggest failure in U.S. history

The federal government took control of Pasadena-based IndyMac Bank on Friday in what regulators called the second-largest bank failure in U.S. history.

Citing a massive run on deposits, regulators shut its main branch three hours early, leaving customers stunned and upset. One woman leaned on the locked doors, pleading with an employee inside: "Please, please, I want to take out a portion." All she could do was read a two-page notice taped to the door.

The bank's 33 branches will be closed over the weekend, but the Federal Deposit Insurance Corp. will reopen the bank on Monday as IndyMac Federal Bank, said the Office of Thrift Supervision in Washington. Customers will not be able to bank by phone or Internet over the weekend, regulators said, but can continue to use ATMs, debit cards and checks. Normal branch hours, online banking and phone banking services are to resume Monday.

Federal authorities estimated that the takeover of IndyMac, which had $32 billion in assets, would cost the FDIC $4 billion to $8 billion. Regulators said deposits of up to $100,000 were safe and insured by the FDIC. The agency's insurance fund has assets of about $52 billion.

IndyMac's failure had been widely expected in recent days. As the bank was shuttering offices and laying off employees to cope with huge losses from defaulted mortgages made at the height of the housing boom, nervous depositors were pulling out $100 million a day. The bank's stock price had plummeted to less than $1 as analysts predicted the company's imminent demise.

The takeover of IndyMac came amid rampant speculation that the federal government would also have to take over lenders Fannie Mae and Freddie Mac, which together stand behind almost half of the nation's mortgage debt.

Shares of the two mortgage giants have nose-dived this week and fell again Friday, helping to drag down the Dow Jones industrial average 128.48 points, or 1.1%, to close at 11,100.54. Investors and analysts are concerned that the two government-chartered companies need to raise billions of dollars to offset expected losses stemming from mortgage defaults, but will be unable to do so in the private market. Officials in Washington spent most of Friday trying to knock down rumors of a government bailout.

IndyMac, which once employed 10,000, fell prey to a classic run on the bank, and regulators singled out Sen. Charles E. Schumer (D-N.Y.) as having helped to fuel massive withdrawals. On June 26, Schumer said in letters to the FDIC, the OTS and two other federal agencies that IndyMac might have "serious problems" with its loan holdings.

"I am concerned that IndyMac's financial deterioration poses significant risks to both taxpayers and borrowers," he wrote. The bank "could face a failure if prescriptive measures are not taken quickly."

That public warning prompted depositors to pull $1.3 billion out of accounts between June 27 and Thursday.

"This institution failed today due to a liquidity crisis," John M. Reich, director of the OTS, said at a news conference Friday afternoon. "Although this institution was already in distress, the deposit run pushed IndyMac over the edge."

Schumer said in a statement that the cause of IndyMac's failure was "poor and loose lending practices" that should have been prevented by more active regulation. Later, a Schumer spokesman said: "Mr. Reich, a political appointee, should be spending less time playing politics and more time doing his job."

IndyMac is the second-largest financial institution failure in U.S. history, following only Continental Illinois Bank, which had assets of about $40 billion before it was shuttered in 1984. It is the fifth FDIC-insured failure of the year. Reich emphasized that though other financial institutions remained on the agency's danger list, he believed most of them would be able to work their way back to solvency.

"The IndyMac situation is unique. It does not signal a direction for the industry as a whole," he said.

IndyMac's board boasts a number of California luminaries. Among the directors, according to a proxy statement the company filed in March, is Pat Haden, 55, a former star quarterback for USC and the Los Angeles Rams, who has been a partner of Riordan, Lewis & Haden, the investment firm founded by former Los Angeles Mayor Richard Riordan, since 1987.

Other directors include Lyle E. Gramley, 81, a former governor of the Federal Reserve; Bruce G. Willison, 59, former dean of the Anderson Graduate School of Management at UCLA; and Lydia H. Kennard, 53, former executive director of Los Angeles World Airports, which operates Los Angeles International.

IndyMac had been operating under close regulatory scrutiny since January, when the OTS determined that the company was in ill health. The bank lost $614.8 million in 2007 and $184.2 million during the first quarter of this year, largely as the result of souring home loans.

IndyMac, which posted $342.9 million in profit in 2006, had been a leader in so-called alt-A mortgages, which were made to borrowers with decent credit who often weren't required to verify their income to get the loan. That year, the company's stock price peaked at $50 a share, valuing IndyMac at a tidy $3.5 billion.

However, as the real estate market slowed, the company's loan losses ballooned. In its March report to regulators, the company said that 8.86% of its loans were delinquent, up from 1.51% the year before. By the end of 2007, the company's shares were selling for $6. They closed at 28 cents Friday.

IndyMac, which has been selling and closing offices, revamped its business to focus solely on so-called conforming loans, which are relatively small-balance mortgages made to people with good credit and that can be immediately resold on the secondary market. Reich said it was unclear whether the moves would have proved sufficient to save the troubled thrift.

"Would the institution have failed without the deposit run?" he said. "We will never know."

At 3 p.m. Friday, IndyMac shut the doors to its main branch in Pasadena, three hours early, leaving customers angry and surprised. Georgi Arnold of El Monte had come to deposit $230 into her checking account but wasn't allowed inside. "I am livid," said Arnold, 32. "I'm glad I closed my savings account already."

Arnold said she had "a few thousand dollars" in the bank, money she uses for her children, small bills and vacations. "Best believe first thing come Monday I'll be drawing out all my money and closing my account because this is ridiculous," she said.

Jagdish Belgaum rushed to the bank after hearing the news, only to be locked out. The 42-year-old South Pasadena resident said he had about five CD accounts totaling just under $100,000.

"Luckily I don't need the money right away," said Belgaum, a chief technology officer at a medical management company. "I'm more afraid of the long line on Monday. That's why I came running."

IndyMac announced Monday that it was laying off 3,800 employees. FDIC spokesman David Barr said Friday outside IndyMac headquarters that "the bulk of the employees will be needed to run this as a full-service bank."

But a handful of employees who were leaving the building appeared to be preparing for the worst, lugging boxes of belongings and saying goodbye to one another. One woman carried out a potted plant. Regulators said they hoped to sell the bank within 90 days.

The FDIC has set up a toll-free phone line -- (866) 806-5919 -- and a page on its website -- www.fdic.gov/bank/individual/failed/IndyMac.html -- for bank customers to obtain information.

IndyMac Bank is the main subsidiary of IndyMac Bancorp. It was unclear what would happen to the holding company in light of the seizure.

Pastor Roger, I've got to thank you for always taking the time to share these articles with us!! You and the other Admins are truly watchmen on the the wall.

I, for one, really appreciate these 'alarms' that are being sounded while most of America sleeps. Events are happening at break-neck speed and the eerie similarity to the Great Depression should make us all stop and take inventory of our own situations and what will be around us in the coming months!!

Only a few short months ago, we got the DVD's from a Prophecy Conference that was held in February 2008, here in Florida. I'd like to quote a few of the speakers who were discussing the economy and future of the US:

Chuck Missler:
"...as you look at our predicament in America, it's far more serious than most people have any idea. One example - do you realize that the Bush Administration has borrowed more money than all 42 administrations in the history of this country combined! You add up all the borrowing from all the previous administrations, you come to $1.01 trillion. The Bush administration, just in the last 4 years has borrowed $1.05 trillion.

Daniel Walker, Comptroller of the Currency, is going around the country trying to get the people to get on the case of their Congressmen, cause unless they do something different, the dollar has not much life left in it.

The Financial Times in London published a month ago, the prediction that the US dollar has maybe 5 years left. The next day Merril-Lynch put out a press release that there were only 4 years left for the dollar. We need to understand Robert Pastor and all that background because we know what the plan is - and that's 2010 for the Amero.

The financial predicament of America is serious. But they're gonna scotch tape this thing through the election in 2008 - and I think we're all agreed about the dismal line up of candidates. But candidly, you could put Clark Kent in the White House and it wouldn't make any difference - because whoever steps into that oval office is gonna step into quicksand - because 80% of our short term T-bills have to be rolled over between now and 2010. Our livlihoods depend on borrowing, and I don't mean just individually but collectively. The Treasury has to raise $3 billion per day to keep America afloat. We are in very, very serious shape. And this isn't even being discussed intelligently in any of the campaigns...

David Reagan:

I just wanted to take a minute to underscore what Chuck said about the economy. I think that we are headed for the greatest economic meltdown in the history of the world, that'll make the Great Depression look like a picnic. And it's because our economy is driven by greed, and the manifestation of that is debt, debt, debt. We are in the greatest debt in the history of mankind, both government and personal. In this country people have got their credit cards maxed out, living in houses they cannot afford. We have demands for gov't handouts and politicians that are willing to respond to those demands.

We have absolutely unbridled gov't. spending, Pork Barrel is the highest its ever been in the history of this nation. The Bush administration has failed to control the economy, and the spending of money has been completely out of control.

But you don't really have to know anything about the economy to know that we're headed for an economic meltdown. All you have to know is something about God's Word. God says, 'You will have no other gods before ME'. Most of America worships at the altar of the almighty dollar, that is our god. It is becoming increasingly our god. But our God is a jealous God, and sooner or later He's gonna touch the dollar and the dollar is going to be worthless.

I would recommend to all of you that you set as one of your major goals to get out of debt, and to stay out of debt, because those who are out of debt are gonna survive this, others are not.

Chuck Missler:

So then we say, 'OK what are we gonna do about it?' We feel a little out of touch with being able to influence. I think there's something for each of us that's far more important than the ballot box. That's the prayer closet. One of the things we need to do personally, each one of us, is to figure out 'What has God called you to do?'

While we talk alot about the mega-churches and the emerging church - there's more people going out the back door than the front door. There are people that are looking to be participants, not spectators to what God is doing. And where are they doing it? There's something you don't see in the statistics and that's in the homes. Across America, we're discovering, there's a groundswell of people who are meeting in small groups, 6 to 12 typically, to study the Word. Now many of them love their churches for lots of good reasons, so its not in lieu of church, but in addition. Their frustration is they really want to get into the Word of God more seriously so they meet during the week - some in neighborhoods, some businessmen, etc.

As I watch this groundswell, as a return to the homes, I'm intriqued in several ways. Because I recall J. Vernon McGee, who was a pretty center line, Word of God kind of guy. He made a prediction several years ago that the real body of Christ in America will ultimately have to go underground, because the attack against them will come from large denominational churches. At the time that startled me. But seeing some of the changes in some of the churches it begins to make sense.

Now, through the internet, we have unbelievable resources available to us, and we're able to fellowship without borders. And I believe one of the things God has called us to do, He's called us to develop this worldwide internet fellowship before these hard times that are before us. After a 60 year ministry, I believe that God is putting new wine in new skins. And as I watch what I think is coming, I think anyone that thinks the next 10 or 20 months is going to be smooth sailing is underinformed. The kind of trauma that's coming on our culture is more serious finacially, culturally, and many ways.

But that's good news! That may sound strange but it is, because that's good news for the kingdom. People who are complacent and apathetic today, within a matter of months, not years, are gonna be desparately looking for answers. And what you and I need to do is to prepare ourselve to provide those answers. All of us need to go forth from here with some kind of personal calling, we've all been called to some specific ministry. We need to ask what God wants us to do each day in terms of the challenges, these dismal circumstances, are gonna provide for us.

It can be the most exciting time of our lifetime, from a kingdom point of view, if we've done our homework!!!

Absolutely right, Pastor Roger!

What I posted was from this past February during a question/answer type period. Thanks for clarifying, I only picked out a small portion of a 3 day conference and I can see it wasn't really clear.

There was alot more said about the 'wrong' candidates but wasn't sure if I should post it. It was in a Christian spirit and it was true but wasn't sure I wanted to go there. There was a lot of talk about that candidates stand on abortion and gay marriage and how they could not ever support such people (in Feb. there were still 2 candidates, Hillary and Obama). There was also a reference to a website by an African American Pastor who does not support abortion and couldn't support a candidate that did - his site is called 'Obamanation' (I thought that expressed his sentiments very clearly.)

The people they quoted for the 4-5 year period was for illustration, but they were warning that things might only get to the elections and that this year was going to bring gigantic changes. I wish they'd have another conference to get more information - it was very interesting. But, as you said, it is unfolding exponentially, right before our eyes, only a few months later.

They also further discussed exactly what you spoke of - that's how Foreign Governments are buying up US institutions and businesses like there was a 'fire sale', and how we were loosing our beloved country, while most aren't aware of what is happening around them. Also, that as a believer in the Word of God it is now hard to even identify with what we see going on in this country, that it has changed so much in our lifetime.

Basically, they were warning us back in February to get ready for what's happening now and worse, and what we should do as Christians to help with the wreckage. So if we strive to live according to what is written in the Bible, and hold it dear to our hearts, and we watch this culture degenerate into something that's totally foreign to us, we realize this country is divided - and Jesus said, '...a house divided against itself cannot stand.'

So there'll only be one kingdom we'll be able to identify with and that is the Kingdom of God.

Bill Cloud said:

"...if we've received this seed (the Bible), we're supposed to produce the fruit of this seed. And it might mean that what we consider bad things will happen to good people. But I want to remind you very quickly...Joseph went to prison because he did the right thing. But had he not gone to prison, he could not have interpretted the dream of the cup bearer. And if he had not interpretted that dream, then he couldn't have been summoned before Pharoah to interpret his dream - in other words, what he considered to be a bad thing was only God bringing about His purposes of restoring things back to the way they were supposed to be. The brothers became one, and all things were put back to the way God intended."

Kinda helps me keep things in perspective.

Quote

So then we say, 'OK what are we gonna do about it?' We feel a little out of touch with being able to influence. I think there's something for each of us that's far more important than the ballot box. That's the prayer closet. One of the things we need to do personally, each one of us, is to figure out 'What has God called you to do?'

Brothers and Sisters,

The above paragraph hit me as speaking truthful volumes. I can't remember which post I clipped this from, so I apologize for that. For Christians, we should know that we can't rescue this evil world from it's path of destruction. OFTEN, we should remember and give thanks that GOD has already rescued us from the curse of sin and death. Our focus is JESUS CHRIST and GOD'S Will for whatever hours, days, months, or years we have left in this lost and dying world. Christians still have work to do or GOD would have already taken us home. Some are still accepting CHRIST as LORD over their lives.

The Holy Bible tells us what is definitely going to happen in this evil world. There is urgency for many things left to be done. This is a time for Strength in CHRIST and standing up. We have the most priceless "commodity" left on this earth that has the power to actually help people in a PERMANENT WAY: GOD'S WORD - THE GOSPEL OF THE GRACE OF GOD! We already know what's going to happen on this earth, but we also know there is MUCH MORE than the temporary and horrible things that are GOING TO HAPPEN! There is a much bigger question we can ask our friends, family, and strangers we have never met: WHERE WILL YOU SPEND ETERNITY? We already know there is much more than just this short life in this evil and dying world because we already HAVE IT!: ETERNAL LIFE IN JESUS CHRIST - OUR LORD AND SAVIOUR FOREVER!

Is there room at the CROSS for more? YES!

Have the lost done things too horrible to be forgiven? NO!

Did JESUS CHRIST love them enough to die on the CROSS for their sins? YES!

Are any of us worthy of HIS GIFT, GRACE, LOVE, and SALVATION? NO!

Is it TOO LATE to beg GOD for forgiveness and ask JESUS CHRIST to pull us out of the stinking pit of sin that IS an ETERNAL CURSE OF PUNISHMENT? NO! - It's not too late! Do it right now - tomorrow might be too late!

GOOD NEWS!

1: Romans 3:10 NASB as it is written, "THERE IS NONE RIGHTEOUS, NOT EVEN ONE; THERE IS NONE WHO UNDERSTANDS, THERE IS NONE WHO SEEKS FOR GOD; ALL HAVE TURNED ASIDE, TOGETHER THEY HAVE BECOME USELESS; THERE IS NONE WHO DOES GOOD, THERE IS NOT EVEN ONE."

2: Romans 3:23 NASB for all have sinned and fall short of the glory of God,

3: Romans 5:12 NASB Therefore, just as through one man sin entered into the world, and death through sin, and so death spread to all men, because all sinned--

4: Romans 6:23 NASB For the wages of sin is death, but the free gift of God is eternal life in Christ Jesus our Lord.

5: Romans 1:18 NASB For the wrath of God is revealed from heaven against all ungodliness and unrighteousness of men who suppress the truth in unrighteousness,

6: Romans 3:20 NASB because by the works of the Law no flesh will be justified in His sight; for through the Law comes the knowledge of sin.

7: Romans 3:27 NASB Where then is boasting? It is excluded. By what kind of law? Of works? No, but by a law of faith.

8: Romans 5:8-9 NASB But God demonstrates His own love toward us, in that while we were yet sinners, Christ died for us. Much more then, having now been justified by His blood, we shall be saved from the wrath of God through Him.

9: Romans 2:4 NASB Or do you think lightly of the riches of His kindness and tolerance and patience, not knowing that the kindness of God leads you to repentance?

10: Romans 3:22 NASB even the righteousness of God through faith in Jesus Christ for all those who believe; for there is no distinction;

11: Romans 3:28 NASB For we maintain that a man is justified by faith apart from works of the Law.

12: Romans 10:9 NASB that if you confess with your mouth Jesus as Lord, and believe in your heart that God raised Him from the dead, you will be saved;

13: Romans 4:21 NASB and being fully assured that what God had promised, He was able also to perform.

14: Romans 4:24 NASB but for our sake also, to whom it will be credited, as those who believe in Him who raised Jesus our Lord from the dead,

15: Romans 5:1 NASB Therefore, having been justified by faith, we have peace with God through our Lord Jesus Christ,

16: Romans 10:10 NASB for with the heart a person believes, resulting in righteousness, and with the mouth he confesses, resulting in salvation.

17: Romans 10:13 NASB for "WHOEVER WILL CALL ON THE NAME OF THE LORD WILL BE SAVED."

Thanks be unto GOD for HIS unspeakable GIFT!, JESUS CHRIST, our Lord and Saviour forever!

Amen, blackeyedpeas!!

As we see the darkness approaching, His light within us will get brighter and brighter if we share it with the lost during these strange times. There will be so many out there that need to hear about His love. Jesus told us to 'make disciples of all nations' and we need to do what He directed!

Donald Perkins said:

"We need to let the times be a catalyst for evangelism. We're seeing birth pains that will produce an eternal kingdom. Scripture has revealed to us how the times are going to look. But the birth pains must come in order for that baby to be delivered. And what we need to do as Christians, because we know the times are short, is we need to allow God to use us as never before. We need to ask God 'what do you want me to do in these latter days to reach a dying world?'

As for the church, we win, it's a win/win situation for us. So I want as many people as I can find to win like I'm gonna win. That means I want to be an effective evangelist to reach a dying world who needs Jesus Christ!"

David Reagan:

"My major concern these days is not the Presidential election, my major concern these days is one of the surest signs of the time that Jesus is coming soon, and that is the abysmal condition of the church. The church today is up to its ears in apostacy, the Bible predicts that will be the case in the end times. It is rampant. When you have a person like Bishop Spawn writing books saying that Jesus was not born of a virgin, Jesus was not resurrected, etc.

Let me tell you, there is no group in America today that is immune to apostacy, that is immune to deception. We never thought we'd reach the point where Southern Baptists would be divided over the inerrancy of the Bible. Where a break away Southern Baptist group would hold a convention in Atlanta and have as its keynote spiritual speakers 3 people, Jimmy Carter, Al Gore and Bill Clinton!!! We are talking about apostacy beyond anything we can imagine these days!

We wouldn't think that Calvary Chapel would have a pastor come from Dallas, Texas, and hold a press conference, and say at that press conference '...there are many roads to god, and all of them are by good works...' Then set up tables in his Calvery Chapel where people can go and worship Greek orthodox icons. Thank God, he was defrocked!! But that is the kind of apostacy we're seeing...

I want to encourage you to do something - I want to encourage all of you to be Bereans. Become familiar with the Bible, and then test everything by Gods Word. The average professing Christian cannot test the Word because they don't know the Word.

Whenever I feel like it's all going down the drain, when I look at the choices we have for President, when I look at the apostacy in the church, I have to go back to Psalm 2, it's my cornerstone. You know why? Because it says that when all of the nations of the world are in revolt against God, which they are right now, it says 'God sits in the Heavens laughing'!!

He is not laughing because He doesn't care. He is laughing because HE has the wisdom, and the power to orchestrate all the evil of mankind to the Triumph of Jesus Christ!!!!!!!!!!

Maranatha!!!"

Joe Van Koevering:

"Behold what manner of love the Father hast bestowed upon us!! That WE should be called the sons of God! And therefore the world knowest us not, because it knew Him not. Beloved now are WE the sons of God, and it doth not yet appear what we shall be. But we know that when He shall appear we shall be like Him, for we shall see Him as He is. And every man that hath this hope in Him, purifieth himself, even as He is pure."

White House: Bush to lift offshore drilling ban
Congress must still lift legislative ban before offshore drilling can start

In another push to deal with soaring gas prices, President Bush on Monday will lift an executive ban on offshore drilling that his stood since his father was president. But the move, by itself, will do nothing unless Congress acts as well.

The president plans to officially lift the ban and then explain his actions in a Rose Garden statement, White House press secretary Dana Perino said.

There are two prohibitions on offshore drilling, one imposed by Congress and another by executive order signed by former President Bush in 1990. The current president, trying to ease market tensions and boost supply, called last month for Congress to lift its prohibition before he did so himself.

But Perino said Bush no longer wants to wait. She pinned blame on the leaders of the Democratic Congress, noting that no action has been taken on this issue.

“They haven’t even held a single hearing,” Perino said. “So we are going to move forward, and hopefully that will spur action by the Congress.”

Asked if Bush’s action alone will lead to more oil drilling, Perino said, “In terms of allowing more exploration to go forward? No, it does not.”

The president, in his final months of office, has responded to record gas-prices with a series of proposals, including more oil exploration. None would have immediate impact on prices at the pump, according to White House officials, who say there is no quick fix. But starting action now would help, they say.

Bush’s proposal echoes a call by Republican presidential candidate, Sen. John McCain, to open the Continental Shelf for exploration.

Congressional Democrats have rejected the push to lift the drilling moratorium, accusing the president of hoping the U.S. can drill its way out a problem.

Bush says offshore drilling could yield up to 18 billion barrels of oil over time, although it would take years for production to start. Bush also says offshore drilling would take pressure off prices over time. In addition, the president has proposed opening the Arctic National Wildlife Refuge for drilling, lifting restrictions on oil shale leasing in the Green River Basin of Colorado, Utah and Wyoming and easing the regulatory process to expand oil refining capacity.

Congressional Democrats, joined by some GOP lawmakers from coastal states, have opposed lifting the prohibition that has barred energy companies from waters along both the East and West coasts and in the eastern Gulf of Mexico. A succession of presidents, from Bush’s father — George H.W. Bush — to Bill Clinton, have sided against drilling in these waters, as has Congress each year for 27 years. Their goal has to been to protect beaches and coastal states’ tourism economies.

Quote from: Barbara on July 14, 2008, 10:42:39 AM

Let me tell you, there is no group in America today that is immune to apostacy, that is immune to deception. We never thought we'd reach the point where Southern Baptists would be divided over the inerrancy of the Bible. Where a break away Southern Baptist group would hold a convention in Atlanta and have as its keynote spiritual speakers 3 people, Jimmy Carter, Al Gore and Bill Clinton!!! We are talking about apostacy beyond anything we can imagine these days!

We wouldn't think that Calvary Chapel would have a pastor come from Dallas, Texas, and hold a press conference, and say at that press conference '...there are many roads to god, and all of them are by good works...' Then set up tables in his Calvery Chapel where people can go and worship Greek orthodox icons. Thank God, he was defrocked!! But that is the kind of apostacy we're seeing...

"Behold what manner of love the Father hast bestowed upon us!! That WE should be called the sons of God! And therefore the world knowest us not, because it knew Him not. Beloved now are WE the sons of God, and it doth not yet appear what we shall be. But we know that when He shall appear we shall be like Him, for we shall see Him as He is. And every man that hath this hope in Him, purifieth himself, even as He is pure."

AMEN SISTER BARBARA!

YES - we are seeing things I never dreamed we would see, and things are getting worse. Of course, GOD told us it would get worse, so there really shouldn't be many surprises. We'll still be shocked the longer we're here, but we already know what happens. This evil world appears to be in overdrive now, so I really doubt that we'll be here that much longer. And, I feel pretty certain that things for many Christians around the world will get pretty ugly and dangerous. This is already a true statement in many parts of the world. We can watch the same thing beginning to happen in our part of the world. May GOD give us guidance and courage to remain standing until the last moment.

Love In Christ,
Tom

Christian Quotes 82 - "So we are we left with Judeo-Christian values
and secular left values. The latter, as noted, hold sway among the
world's elites. But they are personally so unfulfilling and morally so
confused that they cannot work. Western Europe will hopefully awaken
to this fact as its socialist economies fail and as it realizes that
you cannot fight faith (radical Islam) with no faith (secularism). ...
The Judeo-Christian value system is not only the best value system for
humanity; it is the only viable one. If we do not promote it, moral
chaos will ensue. And we can't promote it if we don't know what it
is." -- Dennis Prager

This recession could easily tip into a depression
The experience of the 1930s makes me think that the present downturn will be relatively long and difficult

Today I am celebrating my 80th birthday, an age that seems less formidable when one has reached it than when one can see it only from afar.

I was born on July 14, 1928, about 15 months before the American boom of the 1920s came to its rather abrupt end. Like everyone else, I am naturally curious to see whether the global credit crunch is going to be a brief interruption in global prosperity, or the prelude to a longer and deeper depression.

I cannot claim to have clear memories of the 1929 Wall Street Crash, which occured when I was 1year old, or of Britain leaving the gold standard in 1931, when I was 3 years old.

I do however, remember newspaper articles about the later stages of the Depression. In the 1930s, my parents read The Times, the Financial Times and the Daily Mail.

I can remember the news stories of the Jarrow march of the unemployed. I also remember discussing with my mother a lead story which reported that farm workers' pay was to be raised 6d (2p) to what would now be £1.50 a week. The depression was a fact of existence in the North Somerset coalfield up to the outbreak of war in 1939.

Fortunately, there has only been one Great Depression in my lifetime, but there has also been a Great Inflation. In 2006 Pickering and Chatto, which I refounded in the 1980s, had the good timing to publish a three-volume History of Financial Disasters, under the general editorship of Mark Duckenfield.

His introduction to the 1929 crash on the New York Stock Exchange makes an important point: “Most of the stock market's loss in value took place in later years as the Depression deepened. Three years after its initial crash and shortly before the 1932 election, the Dow Jones Industrial Average had fallen to 34, a loss of more than 90 per cent in less than three years. The Dow did not return to its 1929 peak of 381 until a quarter of a century later at the end of 1954.”

On that basis, stock markets would get back to their 2007 levels in 2032.

There are various ways of measuring a recession. These are reasonably useful when applied to minor fluctuations of the stock market, or to minor adjustments of the world economy. But the big booms and slumps need to be measured by their broader impact over time.

The Great Depression can be regarded as lasting for ten years from 1929 to 1939; the Great Inflation ran for a similar period, from 1973 to 1982. Even these dates could be challenged, since both events were preceded by a build-up of debt and other warnings of trouble. Both were followed by aftershocks.

One can even argue about the correct date to take as the starting point of the present recession. It was certainly preceded by two great American bubbles, the dot-com bubble of the late 1990s and the US housing bubble of this century. On one view, the present recession began on August 7, 2007 - only a year ago - when the sub-prime mortgage crisis came to the surface. That date could also be used to mark the bursting of the US housing bubble, which is still having so damaging an impact on mortgage banking.

Alternatively, one could reasonably start the present recession from the bursting of the dot-com bubble itself, which was the beginning of a bear market on Wall Street. That happened in the early months of 2000, already eight years ago. If this is a depression, it is a matter of choice whether one regards it as one or eight years old.

A big inflation has many of the same consequences as a big depression. That is why many people made a dangerous mistake in the early 1970s. They saw that inflation was the immediate threat and assumed that it would raise the value of capital assets while liquidating debts. In fact, it raised interest rates on debt and actually reduced the value of many capital assets.

The inflation of the price of oil after 1973 was accompanied by a collapse of the British property market and the insolvency of the secondary banking sector in London. It is obvious that a big depression is bad for investors; a big inflation is bad for them as well.

The present recession has some characteristics which make me think that it will be a relatively long one. The recession is centred on banking and property. In an ordinary recession, one has to wait for consumers to regain their confidence, which, in turn restores the confidence of business. Now one has to wait for the bankers as well. At present, banks are too anxious even to lend to each other, let alone to expand consumer credit or business loans.

This recession has produced a succession of nasty surprises. Things are always proving to be worse than anyone had expected. Last week the crisis spread to the American mortgage giants Fannie Mae and Freddie Mac, created by President Roosevelt in 1938.

These are far bigger than the investment bank Bear Stearns and Northern Rock put together. They have brought the crisis from the level of billions of dollars, to the level of trillions. No doubt they will be saved because the US would be bust if they went down. But you cannot save six- trillion-dollar institutions without suffering on a large scale.

The debt crisis, the banking crisis, the property crisis, the oil crisis, the shift to Asia, the bear market in stocks, are huge global adjustments that have all come together at the same time.

If my birthday does not prove to be another Black Monday on Wall Street, I shall think myself rather lucky. There is now a momentum of negative events sweeping away financial flood defences; in the 1930s that force overturned democratic governments as easily as it overturned banks.

Before we get back to balance, we may see dramatic changes in politics, as well as in business and finance.

Oil drops below $130 for first time in a month
Massive natural gas sell-off, U.S. economic concerns help drive market

Oil prices fell below $130 a barrel for the first time in more than a month Thursday, as a dramatic slide entered a third day along with a sharp sell-off in natural gas.

The declines accelerated amid growing concerns about the weakening U.S. economy.

“The entire buillish scenario ... is starting to crack,” said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.

Light, sweet crude for August delivery dropped $5.31 to settle at $129.29 a barrel on the New York Mercantile Exchange. Prices have fallen more than $15 in just the past three days.

Natural gas futures for August delivery fell more than 8 percent Thursday, marking their biggest one-day drop in nearly a year, according to Nathan Golz, researcher at Wachovia Securities in St. Louis. Prices for the key heating, cooking and power generation fuel have tumbled more than 20 percent since their peak before the Fourth of July, and are now trading at their lowest point since April.

A number of market observers say there was nothing supporting the run up in natural gas prices, which peaked in early July, and that this week’s sell-off of oil has only helped speed the declines.

“Any time oil goes up or down on Nymex, it’s going to have a carry-over effect on natural gas,” said Michael Rieke, senior managing editor for power and gas at energy research firm Platts.

The immediate cause of Thursday’s sharp natural gas decline was a larger-than-expected build of U.S. supplies.

The Energy Department’s Energy Information Administration said in its weekly report that natural gas inventories held in underground storage in the lower 48 states rose by 104 billion cubic feet to more 2.31 trillion last week. Analysts had been expecting supplies to grow by only 86 billion to 91 billion cubic feet, according to a Platts survey.

Oil prices fell more than $10 over the previous two days on growing concerns that inflation and other economic concerns could reduce demand for crude. A surprisingly large gain in oil and refined fuel inventories in the U.S. prolonged the sell-off, because it suggested more supplies were heading into storage rather than consumers’ fuel tanks.

Reports of a pre-dawn explosion that damaged an oil pipeline in Nigeria’s restive south — the sort of threat to supply that has helped fuel crude’s recent rally — did little to prop up prices Thursday.

A Nigerian military official said the blast on a pipeline owned by Agip, a subsidiary of the Italian energy giant Eni SpA, “affected output,” although he did not say by how much.

Col. Chris Musa, head of the Bayelsa State military, also did not say how severe the damage was, and declined to comment on what might have caused the explosion or whether it had resulted in any casualties.

The company said a sudden drop in pressure led it to halt production on pipelines carrying 47,000 gallons of oil a day.

Attacks on oil industry infrastructure in the past two years have slashed oil output by almost a quarter in Nigeria, Africa’s top crude producer.

At the gas pump, prices held steady at a record $4.114 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express. Diesel rose to a new record of $4.845, up more than half a penny.

In other Nymex trade, heating oil fell 6.62 cents to $3.7748 a gallon, while gasoline futures gained slipped fell 9.92 cents to $3.1802.

Brent crude for September delivery fell 51 to $135.30 on the ICE Futures Exchange in London.

US faces global funding crisis, warns Merrill Lynch

The US Treasury is running out of time before foreign patience snaps, writes Ambrose Evans-Pritchard

Merrill Lynch has warned that the United States could face a foreign "financing crisis" within months as the full consequences of the Fannie Mae and Freddie Mac mortgage debacle spread through the world.

The country depends on Asian, Russian and Middle Eastern investors to fund much of its $700bn (£350bn) current account deficit, leaving it far more vulnerable to a collapse of confidence than Japan in the early 1990s after the Nikkei bubble burst. Britain and other Anglo-Saxon deficit states could face a similar retreat by foreign investors.

"Japan was able to cut its interest rates to zero," said Alex Patelis, Merrill's head of international economics.

"It would be very difficult for the US to do this. Foreigners will not be willing to supply the capital. Nobody knows where the limit lies."

Brian Bethune, chief financial economist at Global Insight, said the US Treasury had two or three days to put real money behind its rescue plan for Fannie and Freddie or face a dangerous crisis that could spiral out of control.

"This is not the time for policy-makers to underestimate, once again, the systemic risks to the financial system and the huge damage this would impose on the economy. Bold, aggressive action is needed, and needed now," he said.

Mr Bethune said the Treasury would have to inject up $20bn in fresh capital. This in turn might draw in a further $20bn in private money. Funds on this scale would be enough to see the two agencies through any scenario short of a meltdown in the US prime property market.

He said concerns about "moral hazard" - stoked by hard-line free-marketeers at the White House and vocal parts of the US media - were holding up a solution. "We can't dither. The markets can be brutal. We have to break the chain of contagion before confidence is destroyed."

Fannie and Freddie - the world's two biggest financial institutions - make up almost half the $12 trillion US mortgage industry. But that understates their vital importance at this juncture. They are now serving as lender of last resort to the housing market, providing 80pc of all new home loans.

Roughly $1.5 trillion of Fannie and Freddie AAA-rated debt - as well as other US "government-sponsored enterprises" - is now in foreign hands. The great unknown is whether foreign patience will snap as losses mount and the dollar slides.

Hiroshi Watanabe, Japan's chief regulator, rattled the markets yesterday when he urged Japanese banks and life insurance companies to treat US agency debt with caution. The two sets of institutions hold an estimated $56bn of these bonds. Mitsubishi UFJ holds $3bn. Nippon Life has $2.5bn.

But the lion's share is held by the central banks of China, Russia and petro-powers. These countries could all too easily precipitate a run on the dollar in the current climate and bring the United States to its knees, should they decide that it is in their strategic interest to do so.

Mr Patelis said it was unlikely that any would want to trigger a fire-sale by dumping their holdings on the market. Instead, they will probably accumulate US and Anglo-Saxon debt at a slower rate. That alone will be enough to leave deficit countries struggling to plug the capital gap. "I don't see how the current situation can continue beyond six months," he said.

Merrill Lynch said foreign governments had added $241bn of US agency debt over the past year alone as their foreign reserves exploded, accounting for a third of total financing for the US current account deficit. (They now own $985bn in all.) By most estimates, China holds around $400bn, Russia $150bn and Saudi Arabia and other Gulf states at least $200bn.

Global inflation is now intruding with a vengeance as well. Much of Asia is having to raise rates aggressively, drawing capital away from North America. This may push up yields on US Treasuries and bonds, tightening the credit screw at a time when the US is already mired in slump.

Russia's deputy finance minister, Dmitry Pankin, said the collapse in the share prices of Fannie and Freddie over the past week was irrelevant because their debt has been effectively guaranteed by the US government under the rescue package.

"We don't see a reason to change anything because the rating of the debt of those agencies hasn't changed," he said.

Foreign policy experts doubt that the picture is so simple. Russia is likely to use its $530bn reserves as an implicit bargaining chip in high-stakes diplomacy, perhaps to discourage the US from extending Nato membership to the Ukraine and Georgia.

Vladimir Putin, now Russia's premier, has stated repeatedly that his country is engaged in a new Cold War with the United States. It is clear that Moscow would relish any chance to humiliate the United States, provided the costs of doing so were not too high for Russia itself.

China is regarded as a more reliable partner, with a greater desire for global stability. Treasury Secretary Hank Paulson has intimate relations with the Chinese elite, dating from his days at Goldman Sachs when he visited the country over 70 times.

Brad Setser, from the US Council on Foreign Relations, said the Chinese have a stake in upholding Fannie and Freddie, not least to ensure that their loans are "honoured on time and in full".

David Bloom, currency chief at HSBC, said fears that regional banks could start toppling after the Fed takeover of IndyMac last week were now the biggest threat to the dollar.

"We have a pure dollar sell-off," he said. "It's a hating competition: at the moment the markets hate the dollar more than they hate the euro, even though German's ZEW confidence indicator was absolutely atrocious."

Arabs buying out collapsing Western banks
'The specter of foreign takeovers of 'national' symbols will be hard to accept'

First it was Citibank. Now it's Barclay's and New York City's Chrysler Building skyscraper. Muslim Arabs are buying out collapsing Western banks and businesses and gaining growing international power, but some Arab investors are worried their investments may go down the drain with the American economy.

The current financial crisis in the United States has spread to other countries because of a massive debt that was not backed by enough real and liquid collateral. Banks and businesses gasping for financial breath are up for sale at basement prices, but no one is certain if the basement is the bottom.

"The possibility remains that more Arab white knights will be sought to rescue ailing financial institutions," wrote Dr. Mohammed Ramady, a former banker and Visiting Associate Professor at the King Fahd University of Petroleum and Minerals in the Financial Adviser magazine. He said he fears that Arab investors will end up chasing their investments with more money to keep them from going under.

The Abu Dhabi Investment Council of the oil-rich United Arab Emirates kingdom of Abu Dhabi last November announced it was bailing out the mammoth Citibank financial institution, formerly headed by Bank of Israel Governor Prof. Stanley Fischer, with $7.5 billion.

Next in line was Britain's Barclay's Bank, which raised $9 billion from investors in the oil-rich kingdom of Qatar and in Asian countries. The Abu Dhabi Investment Council last month forked out approximately $800 million for a 75 percent stake in New York City's 1,046-foot-tall Chrysler Building, which was the world's tallest building for a year until the Empire State Building surpassed it in the 1930's.

The purchase of American banks by foreigners has been blocked in the past by security and political considerations, but the barriers have come down, wrote Dr. Ramady. "How long this lasts is only a matter of guesswork, as once again, the specter of foreign takeovers of 'national' symbols will be hard to accept," he added.

The latest American symbol to go down the drain is the Anheuser-Busch beer brewer. The Times of London wrote, "The weak dollar and weak economy mean the United States is up for sale. Japs are conquering the car industry. Arabs just bought part of the Chrysler Building. Jeez, they even tried to buy the ports a while back. Whatever next? A hijab on the Statue of Liberty?"

In a more serious vein, The Australian editor-at-large Paul Kelly wrote earlier this month that the foreign investments, headed by Arabs, signal a major change in international power.

"The energy, financial and political woes that grip the U.S. signal a decisive shift in world power, mocking the liberal delusion that Barack Obama or John McCain can return American prestige and power to its pre-Bush year 2000 nirvana," he wrote. "There is no such nirvana. There is instead a new reality: the greatest transfer of income in human history [and] the rise of a new breed of wealthy autocracies that cripple U.S. hopes of dominating the global system and demands on the U.S. to make fresh compromises in a world where power is rapidly being diversified."

Flynt Leverett, former director of Middle East Affairs on the National Security Council, thinks that "the international economic position of the United States has deteriorated substantially since the new millennium."

In the current issue of The American Interest, Gal Luft, from the Institute for the Analysis of Global Security, warned that OPEC's Arab countries could potentially "buy the Bank of America with two months' worth of production and General Motors with six days' worth."

The growing Arab takeover of American businesses continues unhindered. The giant Dow Chemical company and a Kuwaiti company have agreed to set up world headquarters for their joint petrochemical venture in Dearborn, Michigan, which has a high concentration of American Arabs.

The Abu Dubai Investment Council years ago entered the international media business, buying a nine percent stake in Reuters News Agency, which usually reports with an open anti-Israeli bias.

However, Abu Dhabi's' director of international affairs, Yousef al Otaiba, has reassured American officials that its purchase of Citibank will not be used to exert political pressure on the U.S. He wrote the Treasury Department, "It is important to be absolutely clear that the Abu Dhabi government has never and will never use its investment organizations or individual investments as a foreign policy tool."

Congress to increase gas tax by 10 cents?
Highway Trust Fund shortfall, fear of lost construction jobs fuels talk of hike

The political vision of a summer gas tax holiday died a quick death in Congress, losing to a view that federal excise taxes on gasoline and diesel fuel will have to go up if they go anywhere.

Despite calls from the presidential campaign trail for a Memorial Day-to-Labor Day tax freeze, lawmakers quickly concluded - with a prod from the construction industry - that having $9 billion less to spend on highways could create a pre-election specter of thousands of lost jobs.

Now, lawmakers quietly are talking about raising fuel taxes by a dime from the current 18.4 cents a gallon on gasoline and 24.3 cents on diesel fuel.

With gas prices setting records daily, Republican presidential hopeful John McCain and former Democratic candidate Hillary Rodham Clinton called for a 90-day suspension of the federal fuel tax to give drivers a little relief at the pump. The fuel taxes go into the Highway Trust Fund, which is used for road construction and repair and mass transit.

Clinton suggested making up for the loss by imposing a windfall profit tax on oil companies, an idea that Republicans rejected. McCain said the money could come out of the general Treasury fund, in effect adding to the federal deficit, and is still getting mileage from the idea.

"Some economists don't think much of my gas tax holiday," he said in a speech this month. "But the American people like it, and so do small business owners."

Barack Obama, the likely Democratic nominee, opposed the idea from the beginning and the White House gave it a cold shoulder. Depriving the 52-year-old Highway Trust Fund of $9 billion at a time when it is heading into the red doomed the notion of a gas tax holiday in Congress.

The chairman of the House Transportation and Infrastructure Committee, Rep. James Oberstar, and the chairman of the highway subcommittee, Rep. Peter DeFazio, presented fellow lawmakers with a list of how many jobs and how much money each state would lose. It ranged from $30 million and 1,000 jobs in Vermont to $664 million and 23,000 jobs in California.

"Because the trust fund is already looking at a looming shortfall, it would have moved project cancellations into the construction season," DeFazio, D-Ore., said in an interview. He said it was "highly unlikely" that oil companies would have passed savings along to consumers.

Just three years ago, that trust fund enjoyed a surplus of $10 billion. Even without a tax freeze, the fund is projected to finish 2009 with a deficit of $3 billion. That that could grow as Americans drive less and buy less gas because of higher pump prices.

The consequence is that only about $27 billion in federal money will be available next year to states and local governments for new infrastructure investment even though the current highway act calls for spending $41 billion a year. For many, the solution is to raise rather than suspend or cut federal fuel taxes, which haven't changed since 1993.

The Transportation Construction Coalition, a group of industry companies and unions, said that if Congress does not do something about the shortfall, states will lose about one-third of their road and bridge money in the budget year starting Oct. 1. That would put 485,000 more jobs at risk.

That message carried the day this summer. But now Congress has the bigger task of dealing with the short-term deficit crisis in the fund and coming up with a new spending plan, including revisiting the gas tax issue, when the current six-year, $286 billion highway-transit act expires in September 2009.

Senate Democrats in May tried to add $5 billion to an aviation overhaul bill to replenish the highway trust fund next year; Republicans objected. Democrats tried again in June, but this time for $8 billion; Republicans objected to that, too.

Congress should first reduce spending on pet projects, known as earmarks, argued Sen. Jim DeMint, R-S.C. "I'm not going to let the Senate spend all this money when nobody is looking, especially when we refuse to stop wasting billions of taxpayer dollars on earmarks."

Oberstar, D-Minn., said his committee is working on the next long-term highway bill. He estimated it will take between $450 billion and $500 billion over six years to address safety and congestion issues with highways, bridges and transit systems.

"We'll put all things on the table," Oberstar said, but the gas tax "is the cornerstone. Nothing else will work without the underpinning of the higher user fee gas tax."

At the very least, the gas tax should be indexed to construction cost inflation, DeFazio said.

The nonpartisan National Surface Transportation Policy and Revenue Study Commission concluded in a report this year that the U.S. needs to spend $225 billion annually over the next 50 years to create a highway and transit system capable of sustaining strong economic growth. Current spending, at federal, state and local levels, is about $90 billion a year.

Among other revenue-raising possibilities, the commission recommended gradually increasing the current federal fuel taxes to 40 cents a gallon.

The American Road & Transportation Builders Association is calling for a 10-cent-a-gallon raise and indexing the tax to inflation. With construction costs soaring because of competition for building materials from China and other developing nations, the tax rate would have to be about 29 cents a gallon to achieve the same purchasing power as the 18.4-cent rate imposed in 1993, the association says.

Including state and local levies, people in the U.S. pay about 47 cents on average in taxes for a gallon of gasoline. Fuel in many European countries costs $8 to $9 a gallon, with half or more of that going to taxes.

Other ideas that will be on the table when lawmakers write a bill next year including more toll roads and public-private partnerships, congestion pricing and user fees where drivers pay a tax based on how many miles they drive.

Finance prof: GM, Ford
'on verge of bankruptcy'
'Both are in very serious shape
and the markets reflect that'

General Motors Corp. and Ford Motor Co., the two biggest U.S. automakers, have about a 46 percent chance of default within five years, according to Edward Altman, a finance professor at New York University's Stern School of Business.

``Both are in very serious shape and the markets reflect that,'' Altman, the creator of the Z-score mathematical formula that measures bankruptcy risk, said in an interview with Bloomberg Television. The model shows that these companies are ``on the verge of bankruptcy,'' he said.

The Z-scores for GM and Ford give both a bond rating equivalent to a CCC ranking, though GM is in slightly worse condition than Ford, Altman said. GM reported a $38.7 billion loss in 2007, the biggest in its 100-year history, and hasn't posted a profit since 2004. The scores are based on the companies' finances at the end of the first quarter.

Moody's Investors Service said July 15 it may cut GM's Caa1 senior unsecured debt rating because the Detroit-based automaker's plan to raise at least $15 billion by suspending its dividend, cutting management payroll by 20 percent and selling assets may not be enough to offset losses. Standard & Poor's also said in June it may lower GM's B rating. Altman said the plan to raise $15 billion may improve GM's outlook.

Ford, based in Dearborn, Michigan, is rated Caa1 by Moody's and B by S&P, which said in June that Ford's rating may also be cut.

Ability to Refinance

``The thing that triggers a default in almost all cases is running out of cash and not being able to refinance,'' Altman said in an interview prior to his television appearance. ``You're not going to go bankrupt as long as you can refinance short-term liabilities. You will go bankrupt if you can't.''

In 2005, Altman said GM had a 47 percent chance of default within five years.

GM Chief Executive Officer Rick Wagoner said in an interview July 15 that the company has the ability to raise cash, and he called bankruptcy ``a bad idea.'' Ford has said it had access to $40.6 billion in funds as of March 31, including credit lines.

GM's $3 billion of 8.375 percent bonds due in 2033 rose 0.5 cent today to 58.5 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt yields 14.6 percent, or 994 basis points more than similar-maturity Treasuries. A basis point is 0.01 percentage point.

``I would not put money with GM right now because the downside is so great relative to the upside, relative to the yield,'' said Altman, speaking in New York. ``Your downside is probably 60 percent on the debt. The risk reward ratio is pretty poor.''

Wachovia loses $8.9 billion, eliminates 10,000 positions
Chairman: 'These bottom-line results are disappointing and unacceptable'

Wachovia Corp. reported a surprisingly large second-quarter loss Tuesday, deflating Wall Street's hopes that the nation's big banks are weathering the credit crisis well. The bank said it lost $8.86 billion, is slashing its dividend and eliminating 10,750 positions after losses tied to mortgages soared.

Even excluding one-time items, the results substantially missed analysts' estimates.

But by the afternoon its stock joined a modest Wall Street rally and rose as much as 13 percent -- after its shares sank to mid-1991 levels in premarket trading, and after Wachovia's new CEO said he plans to cut $2 billion of expenses by the end of next year and sell parts of the fourth-biggest U.S. bank.

Its shares rose $1.19, or 9 percent, to $14.37 in afternoon trading.

"Our reported results today are clearly a disappointing performance for which we take responsibility," said Wachovia's Chief Executive Bob Steel on a conference call with analysts. "We are serious about getting on top of these issues quickly and we believe we have a good grasp of the challenges facing the economy, the industry and Wachovia."

Three rating agencies -- Moody's Investors Service, Standard & Poor's and Fitch Ratings -- downgraded their ratings on Wachovia's debt, citing increased expectations of losses in the bank's mortgage portfolio and its reduced flexibility to raise new capital.

Wachovia said it lost the equivalent of $4.20 per share in the April-June period. In the same timeframe last year, the bank earned $2.34 billion, or $1.22 per share.

Excluding $6.1 billion in write-downs to the value of its intangible assets and merger-related and restructuring charges of $128 million, Wachovia lost $2.67 billion, or $1.27 per share. Second quarter results include the bank's October acquisition of A.G. Edwards Inc., which the bank said the merger is proceeding as planned and is 40 percent complete.

Analysts on average expected a loss of 78 cents per share on revenue of almost $8.4 billion.

Earlier this month, the Charlotte-based bank had projected a $2.6 billion to $2.8 billion quarterly loss, equal to $1.23 to $1.33 per share, excluding goodwill items.

"Wachovia's new management has pulled its head of out the sand and is fully acknowledging the problems not challenges," said Bart Narter, senior analyst at Celent, a Boston-based financial research and consulting firm. "While the company's wealth management, corporate and investment banks, and capital management groups all had more encouraging results than the general bank, the general bank is the bulk of Wachovia and it isn't performing well."

Wachovia cut its quarterly dividend to 5 cents per share from 37.5 cents, which will conserve approximately $700 million of capital per quarter. In April, Wachovia slashed its dividend 41 percent.

Steel, who replaced ousted Ken Thompson earlier this month, said it was "clearly prudent and necessary" to further cut the dividend.

"While this is a difficult decision, it is the best course for our shareholders over the long term," he said.

Steel said the company is moving to "sell selected non-core assets" and reduce the number of business customers who only use the bank for loans rather than other services. Wachovia expects to cut expenses during the second half of this year by $490 million and then reduce 2009 spending by $1.5 billion.

As part of that plan, Wachovia said it would lay off 6,350 workers, affecting more than 5 percent to fits roughly 120,000 employees. A majority of those jobs will come from the mortgage area, Steel said.

Wachovia also said it will also eliminate 4,400 open positions and contractors. The bank has already cut 2,000 retail mortgage jobs, it said.

During the quarter, the Wachovia boosted its provision for loan losses to $5.57 billion from $179 million a year ago, and added $4.2 billion to its reserves for bad loans.

Results also included a $975 million charge related to the tax treatment of leveraged leases, $936 million of losses from disrupted capital markets, a $590 million charge for other legal matters, and $391 million of losses on securities sales.

Wachovia's current problems stem largely from its acquisition of mortgage lender Golden West Financial Corp. in 2006 for roughly $25 billion at the height of the nation's housing boom. With that purchase, Wachovia inherited a deteriorating $122 billion portfolio of Pick-A-Payment loans, Golden West's specialty, which let borrowers skip some payments.

Wachovia's increase in loan loss reserves included $3.3 billion related to the "Pick-a-Payment" mortgage portfolio. In April, the bank tightened underwriting standards, and last month it stopped offering an option on "Pick-A-Payment" loans that let borrowers pay less than the interest owed. On Monday, Wachovia said it will stop offering home loans through brokers.

Wachovia said it is setting aside $10.96 billion for credit losses, up from $6.77 billion in the first quarter and $3.55 billion a year earlier. Net charge-offs, loans it doesn't think are collectable, increased more than eight-fold from a year earlier to $1.31 billion.

Profits in consumer and business banking, Wachovia's largest unit, fell 23 percent to $1.12 billion, hurt by rising credit costs, mainly for mortgages.

The corporate and investment banking unit had a $209 million profit, down 73 percent, reflecting write-downs tied to subprime mortgages, commercial mortgages, non-subprime debt and consumer mortgages.

Capital management profit fell 5 percent to $297 million, hurt by the liquidation of an Evergreen Investments fund, while wealth management profit rose 9 percent to $98 million.

Washington Mutual reports loss of $3.3 billion
Bank continues to face mounting losses stemming from bad mortgages

Washington Mutual Inc. said Tuesday it lost a staggering $3 billion during the second quarter as it increased its loss reserves to more than $8 billion to cover souring loans in its mortgage portfolio.

For the April to June period, the bank reported a loss of $3.33 billion, or $6.58 per share, compared with a profit of $830 million, or 92 cents per share, in the year-ago period.

Results include a previously disclosed, one-time reduction of $3.24 per share related to the company's $7.2 billion capital raise in April. Excluding the reduction, the loss per share was $3.34.

Analysts polled by Thomson Financial, on average, expected a loss of $1.05 per share. Analyst estimates typically exclude one-time, unusual charges.

WaMu's loan loss reserves increased by $3.74 billion to $8.46 billion. The company set aside a total of $5.9 billion during the quarter to cover bad loans, compared with $372 million in the same quarter of last year. The increase reflects falling home prices, increased delinquencies, reduced availability of credit and the weakening economy, the bank said.

Total net charge offs, or loans written off as unpaid, increased to $2.17 billion, while nonperforming assets grew to 3.62 percent of total assets as of June 30, from 2.87 percent at the end of the first quarter.

WaMu said it shortened the time used to evaluate default frequencies in its prime mortgage portfolio to a one-year period from a three-year period. Early-stage delinquencies for the subprime and home equity portfolios showed signs of stabilization, the bank said.

Net interest income, or income generated from loans and deposits, rose 13 percent to $2.3 billion from $2.03 billion. Noninterest income, or income generated from fees and other charges, dropped 68 percent to $561 million from $1.76 billion in the same quarter last year.

The company's tangible equity to total tangible assets capital ratio increased to 7.79 percent during the quarter, up from 6.40 percent in the first quarter. Additionally, WaMu said it ended the quarter with more than $40 billion of readily available liquidity.

WaMu became one of the first retail banks to seek outside cash in the wake of the credit crisis when it agreed to sell equity securities to an investment fund managed by TPG Capital and to other investors this spring, raising $7.2 billion in fresh capital.

WaMu shares surged in afternoon trading ahead of the earnings report, rising 34 cents, or 6.2 percent, to close at $5.82. Shares continued to rise in aftermarket trading, gaining 41 cents, or 7 percent, to $6.23. Shares are down about 57 percent for the year.

Are feds stockpiling survival food?
'These circumstances certainly raise red flags'

A Wall Street Journal columnist has advised people to "start stockpiling food" and an ABC News Report says "there are worrying signs appearing in the United States where some … locals are beginning to hoard supplies." Now there's concern that the U.S. government may be competing with consumers for stocks of storable food.

"We're told that the feds bought the entire container of canned butter when it hit the California docks. (Something's up!)," said officials at Best Prices Storable Foods in an advisory to customers.

Spokesman Bruce Hopkins told WND he also has had trouble obtaining No. 10 cans of various products from one of the world's larger suppliers of food stores, Oregon Freeze Dry.

He said a company official told him on the telephone when he discussed the status of his order that it was because the government had purchased massive quantities of products, leaving none for other customers.

That, however, was denied by Oregon Freeze Dry. In a website statement, the company confirmed it cannot assure supplying some items to customers.

"We regret to inform you Oregon Freeze Dry cannot satisfy all Mountain House #10 can orders and we have removed #10 cans from our website temporarily," the company tells frustrated customers. "The reason for this is sales of #10 cans have continued to increase. OFD is allocating as much production capacity as possible to this market segment, but we must maintain capacity for our other market segments as well."

The company statement continues, "We want to clarify inaccurate information we’ve seen on the Internet. This situation is not due to sales to the government domestically or in Iraq. We do sell products to this market, but we also sell other market segments … The reason for this decision is solely due to an unprecedented sales spike in #10 cans sales.

"We expect this situation to be necessary for several months although this isn’t a guarantee. We will update this information as soon as we know more. We apologize for this inconvenience and appreciate your patience. We sincerely hope you will continue to be Mountain House customers in the future," the company statement said.

But Hopkins wasn't backing away from his concerns.

"The government just came in and said they're buying it. They did pay for it," he told WND about the summertime shipment of long-term storage butter. "They took it and no one else could have it.

"We don't know why. The feds then went to freeze dried companies, and bought most of their canned stock," he said.

A spokeswoman for Oregon Freeze Dry, sales manager Melanie Cornutt, told WND that the increasing demand for food that can be stored has been on the rise since Hurricane Katrina devastated large sections of the Gulf Coast, cutting off ordinary supply routes.

"We are currently out of stock on our cans. We are not selling any of our cans," she confirmed.

She then raised the issue of government purchases herself.

"We do sell to the government [but] it is not the reason [for company sales limits]," she said.

Officials with the Federal Emergency Management Agency told WND whatever government agency is buying in a surge it isn't them. They reported a stockpile of about six million meals which has not changed significantly in an extended period.

But Hopkins said it was his opinion the government is purchasing huge quantities of food for stockpiles, and Americans will have to surmise why.

"We don't have shelters that [are being] stocked with food. We're not doing this for the public. My only conclusion is that they're stocking up for themselves," he said of government officials.

Blogger Holly Deyo issued an alert this week announcing, "Unprecedented demand cleans out major storable food supplier through 2009."

"It came to our attention today, that the world's largest producer of storable foods, Mountain House, is currently out of stock of ALL #10 cans of freeze dried foods, not just the Turkey Tetrazzini. They will NOT have product now through 2009," she said.

"This information was learned by a Mountain House dealer who shared it with me this morning. In personally talking with the company immediately after, Mountain House verified the information is true. Customer service stated, 'I'm surprised they don't have this posted on the website yet.' She said they have such a backlog of orders, Mountain House will not be taking any #10 can food requests through the remainder of this year and all of the next.

"Mountain House claims this situation is due to a backlog of orders, which may very well be true, but who is purchasing all of their food? This is a massive global corporation.

"One idea: the military. Tensions are ramping up with Iran and news segments debate whether or not we will implement a preemptive strike in conjunction with Israel," she wrote.

Hopkins raised some of the same concerns, suggesting a military conflict could cause oil supplies to plummet, triggering a huge increase in the cost of food – when it would be available – because of the transportation issues.

The ABC report from just a few weeks ago quoted Jim Rawles, a former U.S. intelligence officer who runs a survival blog, saying food shortages soon could become a matter of survival in the U.S.

"I think that families should be prepared for times of crisis, whether it's a man-made disaster or a natural disaster, and I think it's wise and prudent to stock up on food," he told ABC.

"If you get into a situation where fuel supplies are disrupted or even if the power grid were to go down for short periods of time, people can work around that," he said. "But you can't work around a lack of food – people starve, people panic and you end up with chaos in the streets."

At his California ranch, the location of which is kept secret, he said, "We have more than a three-year supply of food here."

In the Wall Street Journal, columnist Brett Arends warned, "Maybe it's time for Americans to start stockpiling food.

"No, this is not a drill," he wrote.

His concern was about various food shortages around the globe, and the fact that in a global market, prices in the U.S. reflect difficulties in other parts of the world quickly.

Professor Lawrence F. Roberge, a biologist who has worked with a number of universities and has taught online courses, told WND he's been following the growing concern over food supplies.

He also confirmed to WND reports of the government purchasing vast quantities of long-term storable foods.

He said that naturally would be kept secret to avoid panicking the public, such as when word leaks out to customers that a bank may be insolvent, and depositors frantically try to retrieve their cash.

"[These] circumstances certainly raise red flags," he said.

Senate GOP hands Dems oil ultimatum
Would block other bills if refuse to vote on expanding offshore drilling

Senate Republicans have threatened to block nearly all other bills pending before the August recess if Democrats refuse to vote with them on expanding offshore drilling.

Senate Minority Leader Mitch McConnell (R-Ky.) said bills that do not pertain to energy can wait until after the August recess, with gas prices now surpassing $4 per gallon. McConnell and top Republicans indicated Wednesday they would oppose any procedural votes to take up other legislation, which require 60 votes to succeed.

“We think there is nothing more important that we can do right now than to deal with the Number One issue of the country,” McConnell said. “This is the biggest issue since terrorism right after 9/11. People are pounding on their desks, saying, Why don’t these people get together and do something about this problem?”

The hardball tactics reflect Republican confidence that they can pull off a major election-year victory with gas prices at record highs, after they have been battered at the polls and have lost on several recent high-profile legislative battles.

Majority Leader Harry Reid (D-Nev.) planned for the Senate this week to pass a bill targeting market speculation on oil futures, which both sides blame for playing a role in driving up gasoline prices.

Following swift Senate action on the narrow energy bill, Reid wanted the Senate to approve a massive defense authorization bill, an overhaul of the Consumer Product Safety Commission, legislation to protect reporters’ sources, an extension of expiring energy tax incentives, and a major package of 33 bills held up by Sen. Tom Coburn (R-Okla.).

But Republicans are planning to keep the Senate on the energy issue until their demands are resolved. The massive housing-rescue package might be the only other measure that gets valuable floor time before the August recess.

Democrats say the GOP is intentionally prolonging the debate in order to score political points by insisting on more than two dozen amendments to the oil-speculation bill. Democrats, who say opening up new lands won’t affect prices for a decade and are concerned about its environmental impacts, have offered the GOP one amendment to the oil-speculation bill.

But the GOP is positioning itself as the party willing to do whatever it takes to lower gas prices. The Republicans say Democrats are scared to cast votes on new drilling in the face of voter anger over high gasoline prices, and they point to the majority’s decision to scrap appropriations bills to avoid a debate over lifting the congressional ban on drilling along the Outer Continental Shelf.

McConnell said the Senate will be in session in September and will have time then to finish outstanding issues.

“Our goal is to stay on the subject that the American people are demanding that we do something about and finish the job,” McConnell said.

His deputy, Minority Whip Jon Kyl (R-Ariz.) said the GOP would object to any motions to proceed to other measures in order “to keep the energy bill on the floor to pass a good energy bill.”

Rodell Mollineau, a Reid spokesman, shot back at the Republican threat.

“Why would Sen. McConnell’s statement be any different than his posture on most every other bill to come through the Senate?” Mollineau said. “Bush-McCain Republicans have conducted 83 filibusters so far this year and have blocked six attempts this summer to address the energy crisis. Their feigned outrage would be laughable if it wasn’t at the expense of millions Americans suffering at the pump.”

I posted this article elsewhere but I think that it needs to go here also. What we are seeing here is not only a move toward socialism but a move that will cause the poor in the U.S. to be even poorer. It is not a solution but rather an act that will bring more poverty around the entire world. This money taken from all in the U.S. will not go into the hands of the needy in other countries but rather it will end up in the hands ruthless government.

_________

Obama's $845 billion U.N. plan
forwarded to U.S. Senate floor
'Global Poverty Act' to cost
each citizen $2,500 or more

The U.S. Senate soon could be debating whether you, your spouse and each of your children – as well as your in-laws, parents, grandparents, neighbors and everyone else in America – each will be spending $2,500 or more to reduce poverty around the world.

The plan sponsored by Sen. Barack Obama, the presumptive Democratic nominee for the office of president, is estimated to cost the United States some $845 billion over the coming few years in an effort to raise the standard of living around the globe.

S.2433 already has been approved in one form by the U.S. House of Representatives, and now has been placed on the Senate Legislative Calendar for pending debate.

WND previously has reported the proposal demands the president develop "and implement" a policy to "cut extreme global poverty in half by 2015 through aid, trade, gotcha120" and other programs.

Cliff Kincaid at Accuracy in Media has published a critique asserting that while the Global Poverty Act sounds nice, the adoption could "result in the imposition of a global tax on the United States" and would make levels "of U.S. foreign aid spending subservient to the dictates of the United Nations."

He said the legislation, if approved, dedicates 0.7 percent of the U.S. gross national product to foreign aid, which over 13 years he said would amount to $845 billion "over and above what the U.S. already spends."

The plan passed the House in 2007 "because most members didn't realize what was in it," Kincaid reported. "Congressional sponsors have been careful not to calculate the amount of foreign aid spending that it would require."

A recent statement from Obama's office noted the support offered by the Senate Foreign Relations Committee.

"With billions of people living on just dollars a day around the world, global poverty remains one of the greatest challenges and tragedies the international community faces," Obama said. "It must be a priority of American foreign policy to commit to eliminating extreme poverty and ensuring every child has food, shelter, and clean drinking water. As we strive to rebuild America's standing in the world, this important bill will demonstrate our promise and commitment to those in the developing world.

"Our commitment to the global economy must extend beyond trade agreements that are more about increasing profits than about helping workers and small farmers everywhere," he continued.

"Not one dime would go to fixing America," the commentary said.

Obama has continued to lobby for such massive expenditures on his campaign stops. During an address as recently as last week, he said, "I'll double our foreign assistance to $50 billion by 2012, and use it to support a stable future in failing states, and sustainable growth in Africa; to halve global poverty and to roll back disease."

Beck and Kincaid pointed out that the plan not only commits the U.S. to the anti-poverty spending proposal, it also adopts for the U.S. the United Nations Millennium Development Goal, which includes a variety treaties and protocols advocated by the U.N.

Objections have remained strong. On a posting also available at the All American blogger, a commentator warned that the U.S. has yet to be able to win its own war on poverty.

"On January 8, 1964, President Lyndon Johnson declared "all-out war on human poverty and unemployment in these United States." This "all-out war" would last through the presidencies of Nixon, Ford, Carter, Reagan, H.W. Bush, Clinton, and George W. Bush. We have spent billions of dollars fighting this war, and what have we achieved?"

He continued, "Very little. In 1964, there were 36 million Americans living in poverty, or about 19 percent of the population. In the 40 years between 1964 and 2004: ... poverty never measured less than 11 percent of the population. In 1983, under President Reagan, poverty registered 15.2 percent; in 1993, at the beginning of Bill Clinton's presidency, poverty was measured at 13.7 percent of the population. In 2004, under George W. Bush, a president often accused by the political Left as not caring about the poor, the poverty rate declined to 12.7 percent. Still, some 37 million Americans remain poor."

Despite that performance, "Obama is ready to take the fight global," said commentator Duane Lester.

"In addition to seeking to eradicate poverty, that declaration commits nations to banning 'small arms and light weapons' and ratifying a series of treaties, including the International Criminal Court Treaty, the Kyoto Protocol (global warming treaty), the Convention on Biological Diversity, the Convention on the Elimination of All Forms of Discrimination Against Women, and the Convention on the Rights of the Child," he wrote.

Tom DeWeese at NewsWithViews said the plan "is very telling" about what Obama would do as president.

DeWeese, president of the American Policy Center, warned the over-arching plan includes the ideals of consolidating all international agencies under the U.N., regulation by the U.N. of all corporate environmental issues, license fees charged by the U.N. to use air, water and natural resources, a restructuring that would give hand-picked non-governmental organizations huge influence, authorize a standing U.N. army and require registration of all arms.

Quote from: Pastor Roger on July 25, 2008, 10:35:37 AM

Collectively, the U.N. isn't even close to reaching the maturity and intelligence levels of the Three Stooges. They don't have any business running or managing ANYTHING! We could also take a sampling from various prisons and have a much higher level of HONESTY! Sadly, a troop of baboons could run the world better than the U.N., so these plans are INSANE!

Arctic has '90 billion barrels of oil'
Energy-rich region has as much undiscovered gas as all reserves known to exist in Russia

The Arctic holds as many as 90bn barrels of undiscovered oil and has as much undiscovered gas as all the reserves known to exist in Russia, US government scientists have said in the first state assessment of the region.

The estimates could fuel the race among polar nations, such as Russia, the US, Denmark, Norway and Canada, vying for control of the region, though the study said Russia and the Alaska platform appeared to have the most undiscovered resources.

Alaska's large estimated holdings are likely to stir the debate about opening protected areas of the state to development.

The 90bn barrels of undiscovered oil the US Geological Survey believes the Arctic holds is 13 per cent of the world's undiscovered oil - about the known reserves of the United Arab Emirates. The 1,669,000bn cubic feet of natural gas are equivalent to 30 per cent of undiscovered gas reserves.

"The extensive Arctic continental shelf may constitute the geographically largest unexplored prospective area for petroleum remaining on earth," the USGS said. Its report only makes estimates based on conventional resources recoverable through a well bore; there could be more trapped in heavy sands or shale.

Last August, Russia planted its flag on the seabed 4km under the North Pole, raising fears of a rush to grab the Arctic's mineral resources. Denmark in May called a summit of the five Arctic powers to try to reiterate the countries' commitment to the UN's Law of the Sea Convention that governs territorial waters.

Yet Donald Gautier, a USGS scientist, said most of the undiscovered resources were in areas already under territorial claims, and the Pole itself did not appear "very interesting" for fossil fuels.

Commercial interest in exploiting the Arctic has increased with Royal Dutch Shell, the Anglo-Dutch energy group, pushing to help Russia develop gas from the Yamal region, and Total having won the right to do so at Russia's giant Shtokman gas field.

In the US, companies are pushing into Arctic Alaska, while Denmark has drawn interest in exploring off Greenland.

Mr Gautier said: "Only Arctic Alaska really booms out.'' It shows the most promise for oil resources, while Russia shows the most for natural gas.

Consultants Wood Mackenzie in 2006 estimated the Arctic basins, including those being developed, held 233bn barrels of discovered oil and gas and another 166bn that had yet to be found, most of it gas.

Feds take over 2 more western banks
28 branches close for weekend, to reopen as Mutual of Omaha

The 28 branches of 1st National Bank of Nevada and First Heritage Bank, operating in Nevada, Arizona and California, were closed Friday by federal regulators.

The banks, owned by Scottsdale, Ariz.-based First National Bank Holding Co., were scheduled to reopen on Monday as Mutual of Omaha Bank branches, the Federal Deposit Insurance Corp. said.

The FDIC said the takeover of the failed banks was the least costly resolution and all depositors - including those with funds in excess of FDIC insurance limits - will switch to Mutual of Omaha with "the full amount of their deposits."

The FDIC also said accountholders can access their funds during the weekend by writing checks or using ATM or debit cards.

As of June 30, the closed banks had total assets of $3.6 billion. That's down from $4.1 billion six months earlier. Most of the assets are in 1st National while First Heritage accounts for $254 million.

Calls to 1st National were referred by a receptionist to Joe Martony, an executive vice president in Scottsdale, Ariz. Martony didn't return repeated calls to his office.

In Nevada, 1st National has 10 branches and employs about 350 people. Five of its branches are in Las Vegas, three are in the Reno-Sparks area, one is in Carson City and one is in Laughlin. Notices of the closure were being posted late Friday.

Fifteen 1st National branches are in Arizona, while Newport Beach-based First Heritage has three branches in Southern California.

Bill Uffelman of the Nevada Bankers Association said Friday the FDIC action "is a reflection of the times for the banks. It's a poor economy."

Uffelman cautioned against the sort of consumer concern that prompted many customers of IndyMac Bank branches to wait for hours in line to withdraw funds across Southern California last week after that bank was seized by federal regulators. All FDIC-insured bank deposits are guaranteed by the FDIC up to $100,000, he noted.

Gov. Jim Gibbons said the bank takeover will be closely monitored in Nevada "to ensure there's minimal disruption to business and that employees' jobs are protected as much as possible."

Arizona Gov. Janet Napolitano spokeswoman Shilo Mitchell said in a statement that the FDIC's takeover of 1st National is not indicative of the overall banking climate in Arizona.

"It's very important that Arizonans know that their deposits are secure," said Felecia Rotellini, superintendent of Arizona Department of Financial Institutions. "They are well-managed and the 1st National Bank of Arizona issues should not cause any panic in Arizona."

Some more on these companies:

Employers in Florida passing off bad checks on employees is hardly news. It's happened to my sister-in-law, who when she complained to a nursing supervisor, was then threatened with having immigration sicd on her. How very nice, a threat of a lawyer getting involved got the threats stopped. Except the employer tried to pass another bad check off to Leonette. The second time, we checked with the bank before depositing it. What some employers will try doing.

Note- My sister-in-law was hired from the Philippines to work as a nurse at a Miami Beach Nursing home for two years. The corporation who wrote Leonette's checks was based out of Illinois.

I digress from what is happening in Orlando at present. United Cities Corp. in addition to paying employees with bogus checks(They had invalid routing numbers, not insufficient funds), its owner Angel Cruz, printed its own currency. "The United States Private Dollar". We're talking six billion dollars worth of funny money. Taking the words 'screw your employees' to a new level. Don't you just love Florida.

Note- I do admit, anyone taking privately issued money, has to be pretty gullible. That doesn't mean this story isn't amusing. Feel free to disagree.

Linked to- Bright & Early, Bullwinkle, Perri Nelson, The World According to Carl,

The federal government is investigating a Kissimmee company for issuing "worthless checks," which its employees have tried to deposit at area banks.

Several employees of United Cities Corp. said they went to work for the company through its nonprofit partner with the promise of great salary and benefits, including a 30-year contract, new car, health insurance and payment of their debts.

The workers received compensation in the form of checks from United Cities, but those checks were rejected as fraudulent by local banks after the employees deposited them.

"They accused me of fraud," said William Feliciano, who worked as a human-resources director at the nonprofit partner, JC Consultores Laborales. "They expelled me from the bank."

An alert sent last week by Department of the Treasury's Office of the Comptroller of the Currency to all national banks and the Federal Reserve said United Cities "has been issuing worthless checks drawn on an unknown entity" by using an invalid routing number.

"These valueless instruments," the alert said, "have been presented for deposit at a number of U.S. banks."

Such alerts warn financial institutions in fraud cases.

"We are telling banks not to cash these things," agency spokesman Kevin Mukri said.

In addition to the checks, Angel Cruz, who owns United Cities, said he intends to issue a new currency -- dubbed "The United States Private Dollar" -- and he has already printed $6 billion worth.

Orlando and Miami officials with the U.S. Secret Service, which investigates counterfeit currency, said a probe of United Cities is under way. U.S. attorney's offices in both cities also are working the case.

"It's currently under investigation," said Jim Glendinning, assistant special agent-in-charge with the Secret Service's Orlando field office.

United Cities and nonprofit officials did not return calls Wednesday for comment on the federal probe, but in previous statements they defended their project.

"This project seeks to strengthen the economy," said Josefina Calderon of Kissimmee, the nonprofit's president.

Employees interviewed by the Sentinel said United Cities recruited more than 30 area Hispanics to provide a range of counseling and clerical services in JC Consultores Laborales. They said they believed in Cruz's plan to launch a new currency that he claimed would rival the U.S. dollar. Cruz said his currency is backed by the assets of a consortium of partners and the future earnings of United Cities' employees. He also touts his plan on his Web site with photos of the currency and a video of the money being manufactured.

"We were able to print over 6 billion dollars of our currency," said Cruz, who blamed banks for blocking his project. "The tellers, the branch managers and some of the agencies are not educated well enough as to know how the Federal Reserve works. . . . We sent information to the president of the United States and every other agency under the sun telling them we were doing this." Already, some of the agency's employees have been burned by their belief in United Cities.

Feliciano, 72, a retired social worker whose duties at the nonprofit include marriage counseling, said he accrued earnings of about $14,000 for 21/2 months' work.

Bank of America froze, and later closed, Feliciano's account after he deposited a paycheck from United Cities. He had to borrow to pay the mortgage on his Kissimmee condo.

Washington Mutual also has rejected checks and frozen accounts, because it considers the checks "fraudulent," spokeswoman Nova Barnett said.

Although there are legal "local currencies" in a few places throughout the U.S., they are usually accepted only by a network of merchants willing to take them -- such as Walt Disney World issuing and taking in "Disney Dollars" at its parks and hotels.

Cruz has said his plan is to take his currency one step further, to mainstream banks and other financial institutions.

So far, however, those who became employees of JC Consultores Laborales and were paid with checks backed by the private dollar have encountered problems with banks, creditors and utilities refusing to honor their checks. Several of those reached said they continue to believe in the project.

After receiving about a dozen payments in checks from United Cities, Kissimmee Utility Authority issued a warning to its customers that they risk having their services shut off if they pay with those checks.

"We know Disney issued currency like this, with the 'Disney Dollars' a while ago," spokesman Chris Gent said. "But everyone knows you can't come and pay your utilities with the Mickey Mouse dollars."

Don't be lulled by dropping gas prices
Renews call for pressuring Congress to drop pumping limits

Gasoline prices may be dropping, but Americans should not be lulled into complacency, says WND Editor Joseph Farah, who renewed his call for pressuring Congress to drop its moratorium on offshore drilling and its ban pumping oil in Alaska's ANWR nature reserve.

"It will be a shame if Americans don't hold Congress' feet to the fire before members quietly adjourn for the year," Farah says. "This is an election year and the Democratic majority is clearly out of step with the will of the people on this issue. But the people's will must be expressed clearly and forcefully."

U.S. retail gasoline prices fell sharply in the last two weeks, just below $4 a gallon, in line with retreating crude oil markets. The U.S. average retail price for self-serve, regular unleaded gasoline fell to $3.9959, off nearly 12 cents in the past two weeks, according to the Lundberg Letter's nationwide survey of about 7,000 gas stations.

Oil has doubled in price over the past year, triggering inflation and pinching U.S. consumers who are dealing with a depressed housing market, job uncertainty and soaring food costs.

Farah is calling on Americans to flood Congress with e-mails, phone calls, letters and text messages demanding action that can lead the country in the direction of energy independence.

"Right now, that means lifting the moratorium," he says. "That's the first step. If we can't agree on that as Americans today, then we are in for a long period of national economic decline. If we can't push Congress to do the right thing with even a strong majority of Democrats behind us, then this country is simply no longer a place where the will of the people means anything."

Farah's goal is to force Congress to act in the next two months – before it adjourns for the year.

Farah's plan is simple: "I want to bring Congress to its knees," he says. "I want to melt down their phones. I want to flood their e-mail boxes. I want to hold them as political hostages. The ransom demand is to unleash the free market to begin exploring and pumping domestic crude oil and getting it to market as fast as possible. We've got 73 days to make our voices heard. Let's make history by bringing this recalcitrant body of elitists into compliance with the will of the people and the rule of law."
After eagerly waiting for someone else to take the lead on demanding action of Congress, Farah came to the conclusion no one else was going to do it.

"We're running out of time," Farah says. "If we let these rascals, these scoundrels, leave town before they lift all their ridiculous bans and restrictions on drilling for domestic oil, this country is headed for a major recession. Even worse, we'll head into a new year and a new presidency with the Washington elite thinking they put one over on us again."

Farah says the only thing that can prevent the disaster of gasoline prices of $6, $7, even $8 a gallon in the near future is a general uprising of the American people.

Besides the call to action, Farah is also devoting the current issue of Whistleblower magazine, the monthly print complement to WND, to the critical topic of "the energy independence revolution."

"It's time to stop business as usual," he says. "Every day, you need to make some phone calls, you need to write some emails, you need to use Skype and text messages and even send some letters through the Post Office. This grass-roots movement has to build steadily for the next 73 days. We cannot allow Congress to adjourn without lifting the ban on drilling in ANWR, off shore and on public lands under which we know there are vast reserves of oil."

Farah says it's a national emergency and needs to be treated as such.

"I hope radio talk show hosts across the country will embrace this bipartisan, non-partisan movement," he says. "There is no question in my mind this is what the American people want. Now it's just time for them to impose their will on their elected representatives who, in their chauffeured limousines and taxpayer-supported travel, are hopelessly out of touch with their constituents, with people who are finding it difficult to make ends meet."

Farah says he is convinced Congress will act only if the people steamroll members into action. He points to the way the Dubai port deal and so-called "comprehensive immigration reform" were killed by popular uprisings in recent years.

"We can make this happen, again," he says. "But this time, we won't just be stopping something bad from happening. We will be doing something that is very good for the country – something that will improve the lives of all of us, something that will improve national security, something vital for the future of the nation."

Congress is set to adjourn on or about Oct. 3.

"I'm going to do everything in my power to push Congress into action in the next 73 days," Farah says. "I know I can't do it by myself. But I know if the American people get mobilized nothing can stop them. You have to let members of Congress know you are serious. You have to persuade them and their staffs they are not returning to Washington next year if they fail to act in America's interest before they leave town."

Before then, you can reach members of the House by calling 202-224-3121 or 202-225-1904. The official House website contains web pages for all members and includes email addresses for most.

You can reach members of the U.S. Senate by calling 202-224-3121. The official Senate website also contains web pages for all members and includes email address for some.

The shocking truth about inflation
Government says rate is low, so why do food and energy cost so much?

Why is it that the federal government says the U.S. has virtually no inflation – less that 2 percent – but everything keeps getting more expensive, especially food and gasoline?

Today, gasoline is well above $3.00 a gallon. "Sticker shock" comes not just from the cost of buying a new car, but from the $50.00 or more it costs to fill up the gas tank, even if you don't own an SUV.

You’re lucky if $100 buys two bags of groceries at the supermarket, even if you avoid the filet mignon.

Take a family of four to a movie theater to see a first-run film and it can cost $75 even in the Midwest. You will shell out somewhere between $6.00 and $9.00 just for one adult ticket, and you can end up spending somewhere between $65 to $75 total if all you do is spring for the luxury of popcorn and sodas.

Still, the U.S. Department of Labor's Bureau of Labor Statistics reported in August 2007 a remarkably low inflation rate of only 1.7 percent.

Solving this riddle – that is, why everything costs so much when the government tells us inflation rates are low – is simple:

The Bureau of Labor Statistics lies.

Inflation numbers are intentionally manipulated to keep cost-of-living numbers low.

If the average chief executive officer cooked balance sheet numbers the way the U.S. Bureau of Labor Statistics calculates the Consumer Price Index, the CEO would be in jail, even without Sarbanes-Oxley reporting standards.

Why does the federal government lie about inflation?

Again, the direct answer is simple.

Telling the truth about inflation would require the Federal Reserve to raise interest rates and that would be bad for economic growth.

Besides, hundreds of billions of dollars in government entitlement payment outflows depend on the inflation number.

For instance, federal law mandates that Social Security checks increase thanks to "cost-of-living adjustments," or COLAs, that are supposed to compensate for inflation.

So, higher inflation numbers cost the federal government millions more in increased Social Security payments.

But when the Bureau of Labor Statistics intentionally rigs the Consumer Price Index calculations to low-ball the inflation rate, Social Security entitlement payments are kept level.

As a result, retirees quietly lose billions of dollars that should have been paid out, had the cost of living numbers been reported honestly. But the government saves the expense.

How does the federal government manipulate inflation numbers?

The Consumer Price Index, or CPI, is the central statistic the federal government uses to calculate inflation.

The CPI is a complex government statistic that was introduced in the 1920s to track the market cost of a "basket of goods and services."

Beginning during the Carter administration, federal economists cleverly redefined the CPI, with the goal of removing from the index expensive items, including food and energy, that would push the CPI higher.

Today, the Federal Reserve when setting interest rates focuses on a variation of the CPI that measures "core inflation."

According to the Forbes "Investopedia," core inflation excludes items such as food and energy because food and energy "face volatile price movements."

In other words, since food and energy prices can spike upwards, as they have this year, the Bureau of Labor Statistics calculates "core inflation" without food and energy prices, under the rationale that food and energy price spikes are merely temporary price shocks that would distort the measurement of underlying long-term inflation.

To a family faced with paying rising food costs to feed the kids and skyrocketing gas costs just get to work, the definition of "core inflation" at 2 percent is a joke, not at all reflective of the increased dollars the family has to shovel out just to get by.

Even more disturbing, the Bureau of Labor Statistics' calculation of "core inflation" is not limited merely to throwing food and energy prices out of the CPI.

The price of any good or service in the CPI market basket prone to spiking can be thrown out, under the rationale that the items with the largest price changes reflect passing market disequilibrium that would distort the measurement of long-term trends.

When removing expensive items from the CPI market basket of goods and services was not enough to depress inflation numbers, the Bureau of Labor Statistics innovated even more, changing the "weighted factors" used in calculating CPI statistics, so the results end up under-reporting the true inflation people experience in everyday living.

Econometrician John Williams maintains a website and publishes a newsletter devoted to tracking federal government manipulations of economic statistics.

Williams estimates that current Social Security payments are roughly half of what they should be if the U.S. Bureau of Labor Statistics reported the Consumer Price Index honestly.

Many of the CPI manipulations were masterminded by Alan Greenspan, chairman of the Board of Governors of the Federal Reserve from 1987 under President Reagan to 2006 under President George W. Bush.

Williams points out that one of Greenspan's manipulations of the CPI involved the consideration that when steak got too expensive, the consumer would substitute hamburger for the steak. So, Greenspan argued, the inflation measure should reflect the costs of buying hamburger, not steak.

"Of course, replacing hamburger for steak in the calculations would reduce the inflation rate," Williams commented, "but it represented the rate of inflation in terms of maintaining a declining standard of living. Cost of living was being replaced by the cost of survival."

"The old system told you how much you had to increase your income in order to keep buying steak," Williams noted. "The new system promised you hamburger, and then dog food, perhaps, after that."

Williams properly concluded that Greenspan's arguments violated the "intent and common usage of the inflation index."

"The CPI was considered sacrosanct within the Department of Labor, given the number of contractual relationships that were anchored to it," Williams wrote. "The CPI was one number that never was to be revised, given its widespread usage."

Williams calculates that the manipulations of the CPI index cause inflation to be under-reported by as much as 7 percent.

The results of this under-reporting are dramatic, with the compounding effect just since the early 1990s reducing annual cost-of-living adjustments in Social Security by more than a third.

Greenspan's recently released autobiographical book, "The Age of Turbulence," openly admits how political the calculation of inflation is.

He notes that Richard Nixon imposed wage-and-price controls in 1971, even though the rate of inflation then was less than 5 percent.

Greenspan argues that the 4.5 percent inflation we experienced for the half century since we abandoned the gold standard may become the norm for the future, with the unfortunate consequence that such a high rate means we will see our saved dollars lose half their purchasing power "in fifteen years or so."

At the height of the gold standard, between 1870 and 1913, just prior to World War I, the cost of living as calculated by the Federal Reserve Bank of New York rose only 0.2 percent annually, Greenspan notes.

The dilemma the Fed faces under our fiat currency system is that to keep inflation truly low, the Fed has to keep interest rates high.

"Yet to keep the inflation rate down to a gold standard level of under 1 percent, or even a less draconian 1 to 2 percent range," Greenspan wrote, "the Fed, given my scenario, would have to constrain monetary expansion so drastically that it could temporarily drive up interest rates into the double-digit range not seen since the days of Paul Volcker."

High interest rates constrict the money supply, make borrowing difficult, and generally depress economic growth.

Greenspan's own solution was to keep interest rates artificially low, as low as the 1 percent interest rates Greenspan in 2003 aspired to hold that low for years – while simultaneously rigging the CPI numbers.

The Greenspan years can be characterized as a strategy of lying about inflation to avoid the adverse political consequences of being honest and facing the true cost-of-living music.

By lying about inflation, Greenspan justified 1 percent interest rates, which in 2003 were the lowest rates in 45 years, in a determined plan to keep the economy growing while he was at the helm.

But one result of the Greenspan liquidity party was to fuel real inflation.

So, when you wonder why food and gasoline cost so much when the government says inflation is low, just remember: You are being lied to – something we suspect you figured out long ago, just by going to the supermarket and the gas station.

Reid, Pelosi ready to compromise
Democrat leadership running scared on growing demand for oil

Are the Democratic leaders in Congress nervous about the growing grass-roots demand for lifting restrictions on domestic oil drilling?

Consider this: Senate Majority Leader Harry Reid has himself proposed a plan to open new areas for oil exploration – outraging senior members of his own caucus.

House Speaker Nancy Pelosi, ever aware of the way average Americans are being squeezed at the gas pump and through rising inflation due to higher energy prices, is supporting the plan.

While the proposal is drawing shrieks from those Democrats occupying safe seats in the House and Senate, it shows how vulnerable congressional Democrats might be to an uprising from voters in November.

The legislation, drafted by Reid and Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, D-N.M., would open nearly a billion new acres off the coast of Alaska to study for drilling. It would also dramatically accelerate oil leases in the western and central Gulf of Mexico.

"I am unalterably opposed to drilling,” said Sen. Frank Lautenberg, (D-N.J., a member of the Environment and Public Works Committee, who cited a massive oil spill that closed nearly 100 miles of the Mississippi River last week.

Sen. Maria Cantwell, D-Wash., urged Reid to be "very careful about drilling off the coast of Alaska."

Sen. John Kerry, D-Mass., has one the opposite direction from Reid and Pelosi – sponsoring legislation to ban drilling in the North Aleutian Basin, an area that Congress has already opened to oil leasing.

Pelosi told The Hill that lawmakers should focus on the National Petroleum Reserve on Alaska's North Slope instead of offshore.

"There are tens of millions of barrels in the reserve," she said. "If you want oil in Alaska, drill there."

Rep. Peter Fazio, D-Ore., is among those who believe Democratic leaders haven't been rigid enough in opposing drilling.

"Some people are just scared of the accusation that not leasing more has an impact on oil prices," he said.

Quote from: Pastor Roger on July 28, 2008, 11:19:40 AM

If there is anyone that is not quite sure what to say in an email or letter the following is what I am sending and have suggested for others already.

Even though gas prices have fallen recently action needs to be taken and soon to prevent them from climbing back up again. As my Representative in the U.S. House I strongly encourage you to take immediate action on this crisis that is hurting all of your constituents especially those on low and fixed incomes. This fuel crisis is causing un-needed financial stress and needs to have an immediate fix as well as a long range fix. It requires the immediate actions of all the U.S. Representatives, the U.S. Senators and the President.

I strongly urge you to take immediate action by lifting the ban on drilling in ANWR, off shore and on public lands under which we know there are vast reserves of oil before this current session ends.

Respectfully your constituent,

(don't forget to "sign" your name(s) even on the email)

I've only received an answer on this email from one person so far. Sen Obama and it's obvious that it is a form letter and that no one really read what I had to say. Go figure.

This is the response:

Thank you for advising me to oppose efforts to limit domestic oil and gas exploration as a method to address high gas prices. I was glad to hear from you.

I agree we must seek new domestic sources of energy as part of a comprehensive strategy to reduce our dependence on petroleum imports. Drilling in the Arctic National Wildlife Refuge, or in restricted areas of the Outer Continental Shelf, however, are not the solution to the broader, multifaceted strategy needed. We should continue to look for new sources of domestic natural gas and oil production, but not unless the pursuit of alternative fuels and energy efficiency is conducted at far greater levels than has been done in the past, or we will never free our nation from the influence of global oil markets.

With regard to natural gas, the bulk of established recoverable reserves -- more than 80 percent according to a February 2006 U.S. Minerals and Management Service’s Report to Congress -- is located in areas already open to drilling. The 2005 Energy Policy Act created the largest federal natural gas R&D program ever established, providing $50 million annually for 10 years to improve access in ultra-deepwater and unconventional onshore gas resources. A study conducted by the National Petroleum Council identifies these unrestricted areas as the most likely sources of gas to meet future demands, and the U.S. Energy Information Administration, which provides the official energy statistics of the U.S. Government, predicts up to a 20 percent increase in gas supplies by 2025 from these open sources.

With regard to oil, the Energy Information Administration reports that drilling in the Outer Continent Shelf in the Pacific, Atlantic and eastern Gulf regions in areas that are not open to drilling “would not have a significant impact on domestic crude oil and natural gas production or prices before 2030. Leasing would begin no sooner than 2012, and production would not be expected to start before 2017. Because oil prices are determined on the international market, however, any impact on average wellhead prices is expected to be insignificant.” To view the full report, you can visit:

http://www.eia.doe.gov/oiaf/aeo/otheranalysis/ongr.html

In addition, a House and Senate Joint Economic Committee analysis found that drilling in the Arctic National Wildlife Refuge could reduce fuel prices between 1 to 4 cents by 2018, an amount that could be reduced should the Organization of Petroleum Exporting Countries (OPEC) choose to limit oil production -- a strategy they have employed in the past. I have enclosed this study for your reference.

The solution to mitigating gas price shocks, therefore, is further distancing the nation from OPEC pricing and making a long-term transition to alternative energy sources and improved conservation or development of oil and natural gas substitutes. Without this approach, oil and gas drilling will only postpone what will be a major crisis -- far worse than current conditions.

In the short term, however, I have worked to address the unchecked speculation that is occurring in our energy markets and contributing to the fuel price volatility experienced by motorists. On June 12, 2008, I joined my colleague Senator Dick Durbin in introducing S. 3130, a bill to increase transparency in the oil futures markets by providing greater resources to the Commodity Futures Trading Commission to detect and punish price manipulation and excessive speculation. This bill also moves the CFTC inspector general out of the CFTC Chairman’s office, and stops speculators from escaping U.S. regulations by manipulating the use of foreign markets.

Again, Roger, thank you for contacting me. You can rest assured that I will continue to work with my colleagues to develop policies that will lead to true energy independence while ensuring environmental sustainability.

IF YOU WANT A RECESSION...

Michael Boskin, writing in this morning's Wall Street Journal calls "Obamanomics" a "recipe for recession." Obama's tax policies are extreme to a degree we have not seen in this country in a long time:

The top 35% marginal income tax rate rises to 39.6%; adding the state income tax, the Medicare tax, the effect of the deduction phase-out and Mr. Obama's new Social Security tax (of up to 12.4%) increases the total combined marginal tax rate on additional labor earnings (or small business income) from 44.6% to a whopping 62.8%. People respond to what they get to keep after tax, which the Obama plan reduces from 55.4 cents on the dollar to 37.2 cents -- a reduction of one-third in the after-tax wage!

As Boskin points out, with a Democratic Congress writing tax legislation things could get even worse:

On economic policy, the president proposes and Congress disposes, so presidents often wind up getting the favorite policy of powerful senators or congressmen. Thus, while Mr. Obama also proposes an alternative minimum tax (AMT) patch, he could instead wind up with the permanent abolition plan for the AMT proposed by the Ways and Means Committee Chairman Charlie Rangel (D., N.Y.) -- a 4.6% additional hike in the marginal rate with no deductibility of state income taxes. Marginal tax rates would then approach 70%, levels not seen since the 1970s and among the highest in the world. The after-tax return to work -- the take-home wage for more time or effort -- would be cut by more than 40%.

That would, obviously, devastate the economy. Worse, it is unfair. It is simply immoral for the state to confiscate 70% of anyone's income. It would be deeply ironic if, at a time when the rest of the world is moving toward greater freedom in the form of lower tax rates, the United States were to regress to a state worse than the 1970s. Yet that is exactly what Barack Obama promises.

Falling oil prices: The downside
Lower prices mean less pain at the pump - but tougher times ahead for the economy.

Oil prices are falling sharply, and that's good news. But not nearly as good as you might think.

No doubt the drop, down to $120 by mid-day Monday, gives strapped consumers relief at the gas pump. Prices have dropped below $4 a gallon and could be headed toward $3.50, going by trading in wholesale futures markets. Any decline will be welcomed by Americans struggling under the burden of falling house prices, rising layoffs and stagnant wages.

But falling oil prices also suggest that the recession the U.S. has so far avoided is well on its way, as consumers pull back from the spending spree that drove economic growth earlier this decade. A weakening economy will mean more layoffs, further pressuring already reduced spending.

"There is no doubt that with gasoline prices dipping below $3.90 a gallon we have a bit of a reprieve on the energy front," Merrill Lynch economist David Rosenberg wrote in a report Monday, "but the reality is that this is a chicken and egg game because the decline is reflecting the consumer recession."
Energy use down

Perhaps the biggest factor behind the recent 18% drop in the price of a barrel of crude is sinking North American demand. Federal Highway Administration data show the number of miles driven in the U.S. dropped from year-ago levels for the seventh straight month in May.

May's decline was the third-largest monthly drop on record since 1942, says Stephen Schork, editor of the Schork Report energy and shipping newsletter in Villanova, Pa.

Americans are driving 4% less now than they were a year ago, Rosenberg writes, while energy use in inflation-adjusted terms has dropped 2% - an event he calls "extremely rare."

The pullback comes after the recent crude-price surge - the cost of a barrel doubled between Labor Day of 2007 and July 11 - seriously damaged the industrial economy, which despite its long decline remains a crucial source of better-paying jobs.

General Motors (GM, Fortune 500) on Friday posted a $15.5 billion second-quarter loss, as sales plunged 18% from a year ago. The company and rival Ford (F, Fortune 500) have slashed truck production, laid off thousands of workers and refocused on smaller cars as buyers flee the light trucks that had made the companies so much money.

Americans' decision to drive less comes at a time of rising stress. The economy has been hemorrhaging jobs and real wages, adjusted for inflation, have been flat to lower for a decade. Americans have enjoyed a rising standard of living in the meantime by borrowing - but with banks choking on subprime mortgages gone bad, the loan window is closing. Rosenberg calls a recent rise in the savings rate "a vivid sign that frugality is now replacing frivolity."

Meanwhile, the weak economy is spurring more companies to cut back. Outplacement firm Challenger Gray & Christmas said Monday that layoff announcements jumped 26% from a month ago in July. The unemployment rate recently hit a four-year high at 5.7%.
How low can it go?

One unhappy fact is that a drop in the price of oil won't bring back many of the jobs lost over the past year to the energy-cost surge. Even were gas to fall to $3 a gallon - a move that is by no means assured - no one is going to beat a path to the dealership to buy pick-ups and SUVs that are now, in many cases, being phased out. GM recently announced plans to shut four SUV plants.

On a happier note, there is hope that the decline in oil prices has just begun. While Schork says it's anyone's guess where crude will trade - "By the end of the third quarter, there's a good chance oil could be below $100 a barrel, and a good chance it could be above $150," he says - others see a chance that the commodity, having enjoyed a head-spinning runup, could also drop more than anyone expects. Economist Jim Griffin notes at the ING Investment Weekly that crude's rally earlier this year became "nearly parabolic" - a sign that the decline could be steep.

Now a return to double-digit oil may not rescue the Hummer. But as the government's fiscal stimulus program did earlier this year, it could give consumers a little more change in their pockets, either to spend, salt away - or pay down their debts.

Stocks fall on jobless data, Wal-Mart sales
Unemployment claims jump, sales at largest retailer slightly rise

Wall Street retreated Thursday after weekly unemployment claims jumped to a six-year high and Wal-Mart Stores Inc. and other retailers reported disappointing sales, touching off renewed fears that a pullback in consumer spending will damage the economy. The Dow Jones industrials fell about 120 points.

The Labor Department said the number of newly laid off people seeking jobless benefits increased by a seasonally adjusted 7,000 to 455,000 last week, the highest level since late March 2002. Wall Street had expected new claims to rise to around 430,000.

Wal-Mart, the world's largest retailer, said same-store sales, or stores open at least one year, rose 3 percent in July as consumers began using up their government stimulus checks. Analysts who follow the important measure of a retailer's health had expected a 3.4 percent rise, on average.

Financial stocks also lost ground after insurer American International Group Inc. reported that it lost more than $5 billion in the second quarter. The stock was by far the steepest decliner among the 30 that make up the Dow industrials.

In midfternoon trading, the Dow fell 123.02, or 1.06 percent, to 11,533.05. The pullback follows a two-day rally in the Dow of more than 370 points.

Broader indicators also slid. The Standard & Poor's 500 index fell 11.73, or 0.91 percent, to 1,277.46, and the Nasdaq composite index fell 5.77, or 0.24 percent, to 2,372.60.

Bonds rose as investors sought the protection of government debt. The yield on the benchmark 10-year Treasury note, which moves opposite its prices, fell to 4.00 percent from 4.05 percent late Wednesday. The dollar was lower against other major currencies, while gold prices rose.

The employment data Thursday indicated that the labor market continues to weaken. The number of people continuing to collect unemployment benefits rose for the week ending July 26 to the highest level since early December 2003. In recent weeks, General Motors Corp., Weyerhaeuser Co., and Starbucks Corp. have all announced job cuts, sending more people to the unemployment lines.

Stocks briefly came off their lows after the National Association of Realtors said its seasonally adjusted index of pending sales for existing homes rose 5.3 percent to 89 from a downwardly revised figure of 84.5 for May. Despite the June increase, the index sits 12 percent below year-ago levels. Economists surveyed by Thomson/IFR had predicted the index would fall to 84.3.

Jerry Webman, chief economist at Oppenheimer Funds Inc., said swift pullback in stocks after the day’s economic readings illustrates the fragility of investor sentiment. He said the market’s volatility reflects an undercurrent of uncertainty and efforts by some traders to capitalize on shifts in the mood.

“We react very strongly to bits of news,” he said. “The whipsaw danger is pretty high here.”

In corporate news, American International Group fell $4.71, or 16 percent, to $24.38 after the world’s largest insurer reported its loss and said weakness in the credit markets has erased several billions of dollars in value from its credit default swaps portfolio and other investments.

Citigroup Inc. fell 72 cents, or 3.7 percent, to $18.98 after federal and state regulators announced settlements Thursday in which the company will repurchase more than $7 billion in auction-rate securities and pay $100 million in fines. The company neither acknowledged nor denied wrongdoing under the settlements. New York Attorney General Andrew Cuomo had threatened to charge Citigroup with fraudulent sales of auction-rate securities and with the destruction of key documents.

The latest worries about financials offered an unwelcome reminder of the trouble companies are having with bad debt on their balance sheets. Tightness in the credit markets makes it hard for companies to unload and even value mortgages and other paper. And the reports of rising unemployment Thursday only added to fears that defaults on mortgages and other borrowings aren’t likely to end soon as consumers continue to struggle.

The results from Wal-Mart and other retailers only fanned concerns about consumer spending, which accounts for more than two-thirds of U.S. economic activity.

Wal-Mart, also a Dow stock, fell $3.33, or 5.5 percent, to $57.43 after reporting its July sales.

Other retailers’ reports disappointed Wall Street. Target Corp. fell $1.50, or 3.1 percent, to $46.51, while Macy’s Inc. fell 63 cents, or 3.2 percent, to $19.06.

Among technology names helping check the Nasdaq’s losses, Intel Corp. rose $1.01, or 4.4 percent, to $23.81, while Microsoft Corp. advanced 50 cents $27.52.

Fears of global slowdown buck up the dollar

The dollar climbed to eight-week highs against the euro and seven-month highs agains the yen as fears of a global slowdown helped the dollar continue its rally.

The dollar climbed to eight-week highs against the euro and seven-month highs agains the yen as fears of a global slowdown helped the dollar continue its rally.

The dollar rose to 109.54 Japanese yen from 108.17 yen late Tuesday.

Meanwhile the 15-nation euro dropped to $1.5420 from $1.5473 after going as low as $1.5396, and the British pound sank to $1.9475 from $1.9562 ahead of interest-rate decisions by the European Central Bank and Bank of England Thursday.

The dollar gained as gloomy economic signs came in from abroad.

The Japanese government said a monthly index of business conditions was worsening, setting off the yen decline, said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon Corp.

Meanwhile, the German government said industrial orders dropped unexpectedly in June, with orders from elsewhere in Europe leading a decline that underlined pessimism about the outlook for the continent's biggest economy. Orders dropped 2.9 percent in June, following a 1.4 percent drop in May, the Economy Ministry said.

Ashraf Laidi, a currency strategist at CMC Markets, said the decline, the seventh in a row, along with a leaked report by German newspaper Sueddeutsche Zeitung claiming that German second-quarter GDP likely shrunk by 1 percent, would weigh on the European Central Bank at its Thursday meeting.

"The hawkish rancor of (ECB President) Jean-Claude Trichet is likely going to be toned down considerably," Woolfolk said. Rate-hike talk will be cast aside, and Great Britain may signal future rate cuts, he said. "The ECB and Bank of England don't have much to cheer about."

The ECB is expected to keep its benchmark rate unchanged at 4.25 percent, given the 4.1 percent inflation in the 15-nation euro zone, while the BoE is expected to keep its rate steady as well, at 5 percent.

The Federal Reserve left the benchmark U.S. federal funds rate unchanged at 2 percent on Tuesday. Before rising inflation forced a pause in June, the Fed had cut rates seven times since the fall in hopes of reviving the flagging U.S. economy.

Talk of the Fed hiking rates had driven the dollar higher over the past three weeks, but Tuesday's announcement hinted that a weak economy was still a risk, and many analysts talked down the chance of a rate hike.

Higher interest rates abroad can push down the dollar, as investors transfer their funds from American assets to overseas, where they can get higher returns on their investments.

Meanwhile, oil futures touched below $118 a barrel Wednesday, while gold dropped below $880 an ounce. Commodity-exporting countries whose currencies were buoyed as long as commodities shot higher, such as Canada and Australia, have seen the value of their dollars eroded.

The dollar rose to 1.0477 Canadian dollars from 1.0428, circling year highs. The Australian dollar, meanwhile, fell to its lowest point in more than four months, to 90.62 U.S. cents.

In other New York trading, the dollar climbed to 1.0602 Swiss francs from 1.0539 francs.

"It is not simply a dollar rally but a sell-off in the Europeans," said Woolfolk.

Oil Prices Tumble Again; Stock Markets Surge

Oil prices resumed their descent Friday as a strengthening dollar and worries about economic growth offset supply concerns over a sabotaged pipeline in Turkey.

The sharp drop in oil prices helped to drive up the Dow Jones industrial average by almost 230 points. The oil price decline eased worries over a quarterly loss from the mortgage finance company, Fannie Mae, that was more than triple what Wall Street expected.

A strengthening dollar helped lower the price of a barrel of oil. Light, sweet crude fell $3.93 to $116.09 on the New York Mercantile Exchange. The dollar strengthened against the euro and yen after the European Central Bank and the Bank of England left their benchmark interest rates unchanged .

“The dollar is a factor, but the dominant factor is the perception that high oil prices coupled with slower economic growth in developed countries will curb oil demand,” said David Moore, a commodity strategist at Commonwealth Bank of Australia in Sydney. “Oil prices are still at very high historical levels.”

Oil had risen $1.14 Thursday to close at $120.02 a barrel after Turkey’s state-run news agency, Anatolia, said the pipeline, attacked by the separatist group Kurdistan Workers’ Party, could be shut down for up to 15 days. The pipeline can pump slightly more than 1 million barrels a day, or more than 1 percent of the world’s daily crude output.

On Wall Street, investors welcomed the Friday’s drop in oil prices, which helped to offset new concerns about the housing sector and the economy touched off by the Fannie Mae results.

Wall Street appeared unfazed by the Labor Department’s report showing that workers’ efficiency grew at a slightly slower pace in the second quarter as companies sought to produce more with smaller work forces. Perhaps balancing the report, gains in wages and benefits also slowed. Keeping compensation in check can help contain inflation.

The Dow rose about 233 points, or 2.03 percent after falling nearly 225 points on Thursday.

Broader indicators also rose Friday. The Standard & Poor’s 500 index rose 1.75 percent, and the Nasdaq composite index advanced 1.91 percent.

The Labor Department reported that the amount an employee produces for every hour on the job grew at an annual rate of 2.2 percent in the second quarter. Economists surveyed by Thomson Financial had predicted growth would come in at 2.7 percent, up from 2.6 percent in the first quarter.

Unit labor costs slipped to a 1.3 percent pace in the second quarter, down from 2.5 percent in the first quarter. Wall Street hopes companies can keep a cap on worker pay to avoid rising prices and weakening economic growth.

Fannie Mae reported a loss of $2.3 billion, or $2.54 a share. Analysts surveyed by Thomson Financial had expected a loss of 68 cents a share. The company also said it would cut its quarterly dividend to 5 cents from 35 cents. Fannie Mae shares fell 8 percent.

In addition, the bond insurer MBIA rose 11 percent after reporting that its second-quarter earnings rose because of unrealized gains on credit derivatives. MBIA said the weakness in the housing and mortgage markets was consistent with its earlier projections.

It seems that ANWR is a solution to many of the economic problems in the U.S. in more ways than just providing more oil to bring the prices of oil and gas down.

The National Defense Council Foundation

ANWR

Alaska is not the only state that would benefit from the development of Alaska’s oil
and gas resources.

The fact is that new jobs would be created in all 50 states and the District of Columbia by
developing ANWR’s oil and bringing Alaskan gas to the lower 48 states.

California which currently has 1,166,500 citizens out of work would gain 334,435 new
jobs – reducing the ranks of that state’s unemployed by more than 28.7%.

Washington State, with 234,000 unemployed would gain 139,089 jobs reducing the
number of its residents out of work by 59.4%.

The job creation is not limited to the West or to oil producing states.

Pennsylvania gains 142,539 new jobs, a number equal to almost 41% of its 347,800
unemployed.

New York, with 571,600 residents out of work gains 93,356 new jobs reducing
unemployment by over 16.3%.

New Jersey, with 271,000 unemployed will see 39,136 new jobs and Illinois which has
415,200 unemployed gains 40,609 jobs.

Overall, the U.S. will gain 2,210,418 jobs as a result of Alaskan resource development –
1,074,640 from oil development and 1,135,778 from gas development.

Federal and state coffers would also benefit.

When oil production reaches its peak, states would gain over $3 billion a year in new
revenues. Federal coffers would be enriched by over $2.8 billion. Alaskan gas production
would generate almost $1.7 billion in new state revenues and add almost $1.1 billion to
federal receipts. Taken together, these come to $4.7 billion in new state revenues and
$4.1 in new federal revenues.

Over the first fifteen years of production, economic activity associated with ANWR oil
production would generate almost $29.2 billion in new Federal revenues and almost
$31.4 billion in new state revenues for a total of over $60.5 billion.

Our perilous oil import dependence would be reduced.

In June, 2003 the U.S. imported 65.5% of its crude oil and refined products, with 18% of
imports coming from the Persian Gulf. ANWR production could replace more than 70%
of the oil imported from that unstable region. Alaskan natural gas production could add at
least 1.1 Trillion Cubic Feet to 1.5 Trillion cubic feet per year to U.S. natural gas
supplies.

For more information and totals by states see:

http://www.anwr.org/docs/ANWR_jobs_brief.pdf

Another excellent place for more information on this including statements from the Inupiat Eskimoes see:

http://www.anwr.org/

Plenty of interesting reading there on all of ANWR and Alaska.

COULD A LAND SWAP SOLVE THE ANWR STANDOFF?

Congress has repeatedly refused to allow drilling on the 2,000 acres set aside for that purpose in the Arctic National Wildlife Refuge, a tiny portion of tundra in a 19-million-acre preserve. That parcel had been created with the specific intent of extracting oil from the area when ANWR first received its federal protection, but environmentalists have continually blocked oil companies through other federal action. Sean Parnell, the Lieutenant Governor of Alaska, has a proposal to end federal oversight on that stretch of barren land:

Sean Parnell, lieutenant governor and a Republican candidate for the U.S. House of Representatives, proposed a land swap as a way of opening the Arctic National Wildlife Refuge.

“I propose a land swap of 2,000 acres of state land to the federal government in exchange for 2,000 acres of the coastal plain in ANWR into state hands,” Parnell said at a press conference Tuesday in Fairbanks.

Parnell said he could work with Gov. Sarah Palin and the administration to identify the 2,000 acres of state land that would be traded, perhaps extending a portion of ANWR by 2,000 acres.

Could this defuse the controversy? In a land swap, the federal government would not lose an inch of overall land. If Alaska offered adjoining land from an area with actual wildlife on it, it would serve to bolster the preserve’s actual mission. The state would then take responsibility for the parcel where oil extraction would take place, and Alaska would have little trouble overcoming any objections from state groups to get oil flowing as soon as possible from that spot.

Normally, Congress would not be likely to let go of such a potentially lucrative spot, nor would the opponents of drilling on ANWR be willing to stand aside as the parcel passes out of their control. However, the energy debate this year has had a significant effect on both Capitol Hill and the American electorate. The latter is angry over the former’s unwillingness to increase domestic production, and while voters remain ambivalent about ANWR, the momentum for drilling there has grown tremendously this summer.

A land swap would allow Congress to graciously eliminate ANWR as an ongoing issue. Enough Democrats in both chambers want to get this debate in their rear-view mirrors, and a land swap would allow them to save face, especially if it added more significant preserve space to ANWR. Parnell may have a compromise that will allow everyone, perhaps even the environmentalists, to declare a victory on ANWR.

Troubled U.S. bank list grows to 117
'Assets of problem institutions also will continue to rise'

The number of US banks on a "problem list" grew to 117 in the second quarter from 90 in the first three months of the year, the banking industry regulator said Tuesday.

The list of troubled banks is now the largest since mid-2003, according to the Federal Deposit Insurance Corporation, which insures bank deposits and can take over insolvent banks.

Total assets of problem institutions increased to 78 billion dollars by June 30 from 26 billion in the first quarter, according to the FDIC, which noted that 32 billion of that total came from California-based IndyMac Bank, taken over by the regulator in July.

"More banks will come on the list as credit problems worsen," FDIC chairman Sheila Bair said.

"Assets of problem institutions also will continue to rise."

Bair also announced that in early October the FDIC will consider a plan to replenish the agency's fund, which experienced a large drop to cover losses at IndyMac and other bank failures.

The plan "likely will include an increase in the premium rates that banks pay into the fund," she said. "And we'll be proposing changes to the current assessment system that will shift a greater share of any assessment increase onto institutions that engage in high-risk behavior to encourage and reward safer behavior."

The FDIC said profits for its 8,400 member banks plunged 86.5 percent in the second quarter compared with a year ago to 5.0 billion dollars. With the exception of the fourth quarter of last year, the latest earnings were the lowest for the industry since the fourth quarter of 1991.

"By any yardstick, it was another rough quarter for bank earnings, but the results were not unexpected as the industry coped with financial market disruptions, the housing slump, worsening economic conditions and the overall downturn in the credit cycle," said Bair.

Oil rises as Gustav nears U.S.
Investors worry that Tropical Storm Gustav could damage oil facilities in the Gulf of Mexico. Energy Department reports decline in crude and gas supplies.

Oil prices ticked higher on Wednesday as Tropical Storm Gustav approached the Gulf of Mexico and the dollar fell against the euro.

U.S. crude was up 90 cents to $117.17 a barrel by 1:06 p.m. ET on the New York Mercantile Exchange.

Oil had traded as high as $119.63 a barrel during the session, but gave back some of those gains as the dollar rebounded.

Gustav: Worries about the approach of Tropical Storm Gustav eclipsed any reactions to a government petroleum inventory report showing a decline in oil and gas stockpiles. Crude had been trading up $2.04 a barrel just before the report's release.

The National Hurricane Center projected Gustav could strengthen as it passes over Haiti, and touch the Louisiana coast by Monday.

Gustav had been downgraded from a Category 1 hurricane as it passed over the island nation. However, the Hurricane Center cautioned that Gustav could gain steam on Wednesday as it moves out into the warm waters of the Gulf.

Gulf infrastructure: Oil platforms in and around the Gulf of Mexico account for more than a quarter of U.S. oil production. They are also vulnerable to extreme storms such as hurricanes.

Hurricanes Katrina and Rita in 2005, both of which reached Category 5 strength before making landfall, destroyed 113 offshore oil and natural gas platforms and damaged 457 pipelines, according to the government.

Unless Gustav bypasses the Gulf, it could reach Category 3 or 4, said Brian Wimer, senior meteorologist with AccuWeather.com.

"Once [Gustav] gets into the Gulf of Mexico, conditions are favorable for further strengthening," he noted.

Oil giant Royal Dutch Shell PLC (RDS) said it could begin evacuating workers on Wednesday. And Exxon Mobil (XOM, Fortune 500) said it was monitoring the storm closely.

"One of the most menacing aspects of Gustav is that it's approaching over a three-day weekend," said James Cordier, founder of OptionSellers.com in Tampa, Fla.

Investors usually buy and hold going into a weekend, just in case disaster strikes, sending prices higher. Because Monday is Labor Day, the U.S. market is closed longer than usual.

Inventories: Investors practically ignored a government inventory report showing a decline in crude and gasoline supplies.

The Energy Department said that stockpiles of unused crude fell by 100,000 barrels and gasoline stockpiles fell by 1.2 million barrels last week.Economists had expected crude supplies to rise by 1.5 million barrels, and gas to fall by 2.8 million, according to a survey from Platts, the energy research arm of McGraw Hill Cos.

Supplies of distillates, which are used to make diesel fuel and heating oil, remained unchanged.

Over the past several weeks, the Energy Department has reported unexpected buildups and drawdowns in supplies of petroleum commodities. Investors had been paying particularly close attention to gasoline stocks.

Supply estimates are "an imprecise science," said Tom Orr, head of research for financial services firm Weeden & Co. Weekly supplies depend heavily on weather patterns and on whether or not tankers are able to deliver their cargos.

Dollar: Oil got a boost from a weaker dollar during Wednesday's session, but pulled back slightly as the dollar market reined in its losses.

Oil prices have risen and fallen very closely in relation to the dollar over the past several months.

Oil is traded in U.S. dollars. So when the dollar loses strength, oil becomes cheaper for foreign investors. Many also purchase oil and other commodities as a hedge against inflation.

The dollar fell in value against the 15-nation euro Wednesday as investors mulled the possibility that inflation is coming under control, but losses were lower around 1:00 p.m. ET.

Over the past several weeks the dollar has gained strength against the euro as investors worried that economic trouble may cause the European Central Bank to cut a key interest rate in order to keep cash flowing through the economy.

Some investors are starting to feel that the monetary policies are where they should be, and that "discussions about declining rates in Europe are premature," said Orr.

Crude was higher earlier in the day as dollar values deteriorated, but then prices pulled back as the dollar's losses shrank.

The dollar strengthened on Tuesday as Gustav moved into the Caribbean, keeping prices from rising too much, but the dollar reversed on Wednesday, taking that pressure away.

Demand: Oil prices have fallen more than 20% since hitting a record high of $147.27 on July 11.

Investors worries that high oil prices had cut into consumption as businesses reigned in spending and consumers drove less.

Retail gasoline prices have followed crude, sliding to a nationwide average of $3.667 a gallon on Wednesday.

This is not going to help the economy in the least bit.

Union strikes Boeing: 27,000 walk out
Workers shut aircraft maker that holds key place in job market, economy

Workers at Boeing walked off the job on Saturday after nearly two days of around-the-clock talks failed to avert what could one of the nation's most disruptive strikes in more than a decade.

About 25,000 members of the International Association of Machinists in the Seattle area and another 2,250 in Oregon and Kansas started striking at 12:01 a.m. PT.

The company had offered union members raises over the next three years totaling 11% of current pay. Boeing also offered bonuses and pension improvements it said would give the typical worker about $34,000 in additional pay and benefits during that time.

"We are certainly disappointed," said Boeing spokesman Tim Healy. "We were certainly hopeful that members would look at that offer and the amount of money they would have in their pocket over the next three years, and that they would vote in their best interests."

But the union argues that contract changes demanded by the company would weaken job security and cause more work to be outsourced to contractors and suppliers, as well as drive up members' out-of-pocket health care costs.

"The details in the contract language is something we can't live with," said Connie Kelliher, a union spokeswoman. "We heard again and again from rank and file, 'The best pay and benefits are no good if you're not on the payroll tomorrow to collect them.' "

Workers voted 80% against the company's final offer on Wednesday and 87% in favor of a strike. They had been set to walk off the job early Thursday morning, but the union agreed to participate in two days of federally mediated talks at the request of Washington Gov. Chris Gregoire.

Talks took place at Walt Disney World in Florida, where the union was holding its regularly scheduled convention.

"If this company wants to talk, they have my number, they can reach me on the picket line," said a statement to members from Tom Wroblewski, the head of the bargaining team.

Boeing (BA, Fortune 500) said it would not try to assemble planes during the strike. Healy said the company stands ready to resume talks whenever the union is willing.

"Over the past two days, Boeing, the union and the federal mediator worked hard in pursuing good-faith explorations of options that could lead to an agreement," said Scott Carson, president and chief executive of Boeing Commercial Airplanes, on Friday. "Unfortunately, the differences were too great to close."
Dreamliner delivery at risk

The strike will push back delivery of the first of the fuel-efficient 787 Dreamliner jets, which are in strong demand by airlines struggling to deal with high fuel prices.

The Dreamliner, for which Boeing has taken about 900 orders from 58 airlines worldwide, is already two years behind its original delivery schedule. In April, Boeing was forced to push back its first delivery target until the third quarter of 2009.

The job action could cost Boeing an estimated $100 million a day in revenue and perhaps $7 million a day in net income, according to financial analysts. The company's revenue in the first half of the year was nearly $33 billion and net income was $2 billion.

Boeing has a history of rocky labor relations with its unionized workers, who struck three years ago for 28 days. The contract that ended that strike did not include many of the provisions the union had opposed, but it also did not include increases in base wages other than previously-negotiated cost-of-living adjustments.

That contract was reached at a time when airlines with about half of U.S. capacity were in bankruptcy protection and industry losses were continuing to mount.

Since then strong sales and production at Boeing have led to record profits at the aircraft maker.

The size of Boeing's unionized workforce has grown in the face of the strong demand, up by nearly half during the life of the contract. At a time when employers nationwide have trimmed more than 600,000 jobs from payrolls in the face of a weakening U.S. economy, Boeing is adding dozens of workers a day, according to the union.

Starting workers earn just under $9 an hour in base wages, according to Kelliher, the union spokeswoman. The typical Machinist at Boeing earns about $27 an hour, or $54,000 a year before benefits and overtime, according to the union. The most senior union members earn about $35 an hour, or just over $70,000 a year before benefits and overtime.

Exports of aircraft have become important to the U.S. economy, which as seen huge trade deficits that only recently started to retreat due to lower demand for imports by U.S. consumers and stronger demand for U.S. goods due partly to a weaker dollar.

In the first half of 2008, total U.S. civilian aircraft exports rose 14% to nearly $25 billion, and parts exports for those aircraft other than engines rose nearly 11% to more than $10 billion.

Last fall, the United Auto Workers union staged brief strikes at General Motors and Chrysler LLC over the companies' efforts to shift the responsibility for retiree health care costs to union-controlled trust funds rather than the companies' battered finances.

A strike by 87,000 workers at Verizon Communications in August 2000 failed to shut down the company. The last time that a strike larger than the walk-out at Boeing shut down a company's operations for an extended period was the 14-day strike at United Parcel Service by the Teamsters union in 1997.

FDIC shutters Silver State Bank of Nevada
Son of presidential nominee John McCain was reportedly former board member; closing marks the 11th bank failure this year.

Regulators on Friday shut down Silver State Bank, saying the Nevada bank failed because of losses on soured loans, mainly in commercial real estate and land development.

It was the 11th failure this year of a federally insured bank.

Nevada regulators closed Silver State and the Federal Deposit Insurance Corp. was appointed receiver of the bank, based in Henderson, Nev. It had $2 billion in assets and $1.7 billion in deposits as of June 30.

Andrew K. McCain, a son of Republican presidential nominee John McCain, sat on the boards of Silver State Bank and of its parent, Silver State Bancorp, starting in February but resigned in July citing "personal reasons," corporate filings with the Securities and Exchange Commission show. Andrew McCain also was a member of the bank's audit committee, responsible for oversight of the company's accounting.

The younger McCain, who is the chief financial officer of Hensley & Co., the beer distributorship of which Cindy McCain is chairwoman, is the Arizona senator's adopted son from his first marriage.

Andrew McCain's position on the Silver State board and departure were first reported Friday by The Wall Street Journal online.

Silver State Bank ran into difficulty because of a substantial amount of "poor-quality loans primarily related to real estate development" in southern Nevada and other distressed markets, FDIC spokesman David Barr said.

"When the housing market slowed down, people who bought raw land to build new homes didn't need that land so they couldn't do anything with it and repay their loans. So those loans went bad," Barr said.

Silver State Bancorp recently reported a net loss for the second quarter of $73.2 million, or $4.84 a share, compared with net profit of $6.2 million, or 44 cents a share, in the same period last year.

Construction and development loans have been the fastest-growing category of troubled loans for U.S. banks, and many banks have heavy concentrations of them in their lending portfolios, according to the FDIC. Some small banks are considered especially vulnerable. Delinquent loan payments and defaults by commercial and residential developers have surged to the highest levels since the early 1990s - the latter part of the savings and loan crisis.

The FDIC said Silver State Bank's insured deposits will be assumed by Nevada State Bank of Las Vegas. Its branches will reopen Monday as offices of Nevada State Bank in Nevada and National Bank of Arizona in Arizona.

The agency said depositors of Silver State Bank will continue to have full access to their deposits.

The 11 failures so far this year compare with three for all of 2007, and federal banking officials have said that more banks are in danger of collapse.

Silver State Bank has operated 13 branches in the greater Las Vegas area and four in the greater Phoenix-Scottsdale area of Arizona as well as loan offices in Nevada, Utah, Colorado, Washington, Oregon, California and Florida.

The FDIC estimated its resolution will cost the deposit insurance fund between $450 million and $550 million.

Regular deposit accounts are insured up to $100,000.

There were about $20 million in uninsured deposits held in roughly 500 accounts at Silver State that potentially exceeded the insurance limit, the FDIC said.

Concern has been growing over the solvency of some banks amid the housing slump and the steep slide in the mortgage market. The pressures of tighter credit, tumbling home prices and rising foreclosures have been battering many banks, large and small, across the nation.

The largest bank failure by far this year has been that of savings and loan IndyMac Bank, which was seized by regulators on July 11 with about $32 billion in assets and deposits of $19 billion.

The seizure of Pasadena, Calif.-based IndyMac, which was the largest regulated thrift to fail in the United States, prompted hundreds of angry customers to line up for hours in Southern California to demand their money. IndyMac also was the second-largest financial institution to close in U.S. history, after Continental Illinois National Bank in 1984.

The FDIC has been operating the bank, now called IndyMac Federal Bank, under a conservatorship.

The FDIC plans to raise insurance premiums paid by banks and thrifts to replenish its reserve fund after paying out billions of dollars to depositors at IndyMac. The fund, currently at $45 billion, is expected to take a hit from IndyMac of $4 billion to $8 billion.

Federal officials expect turbulence in the banking industry to continue well into next year, and more banks to appear on the FDIC's internal list of troubled institutions.

Of the 8,500 or so FDIC-insured banks in the country, 117 were considered to be in trouble in the second quarter -- the highest level in about five years and up from 90 in the first quarter. The agency doesn't disclose the banks' names.

U.S. government takes control
of Fannie Mae, Freddie Mac
Teetering mortgage giants hold interest
in almost half of American mortgages

The Bush administration’s seizure of troubled mortgage giants Fannie Mae and Freddie Mac is potentially a $200 billion bet that it will help reverse a prolonged housing and credit crisis.

The historic move announced Sunday won support from both presidential campaigns, but private analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence.

Officials announced that both giant institutions were being placed in a government conservatorship, a move that could end up costing taxpayers billions of dollars. Treasury Secretary Henry Paulson said allowing the companies to fail would have extracted a far higher price on consumers by driving up the cost of home loans and all other types of borrowing because the failures would “create great turmoil in our financial markets here at home and around the globe.”

Mark Zandi, chief economist at Moody’s Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That’s because investors will be more willing to buy the debt issued by Fannie and Freddie — and at lower rates — since the federal government is now explicitly standing behind that debt.

“Effectively, the federal government has now become the nation’s mortgage lender,” he said. “This takes a major financial threat off the table.”

Futures on all major stock indexes rose about 2 percent in electronic trading Sunday night, another sign of investor relief about the takeover plan

The companies, which together own or guarantee about $5 trillion in home loans, about half the nation’s total, have lost $14 billion in the last year and are likely to pile up billions more in losses until the housing market begins to recover.

The Treasury Department said it was prepared to put up as much as $100 billion over time in each of the companies if needed to keep them from going broke, in exchange for senior preferred stock. Treasury will immediately be issued $1 billion of such stock from each company, which will pay 10 percent interest. Further purchases of preferred stock will be triggered if quarterly audits find that the companies’ capital cushion is below prudent standards.

The government, which will receive warrants representing ownership stakes of 79.9 percent in each company, is hoping that its moves will reassure nervous investors that they can continue to buy the debt of the two companies.

“Allowing the companies to fail or further deteriorate would damage our home mortgage market, and could weaken other credit markets that are unrelated directly to housing,” President Bush said in a statement released Sunday afternoon. “Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth.”

Democratic presidential nominee Barack Obama issued a statement agreeing that some form of intervention was necessary, and promised, “I will be reviewing the details of the Treasury plan and monitoring its impact to determine whether it achieves the key benchmarks I believe are necessary to address this crisis.”

Republican presidential nominee John McCain also voiced support while his running mate, Alaska Gov. Sarah Palin, said that Fannie and Freddie “have gotten too big and too expensive to the taxpayers. The McCain-Palin administration will make them smaller and smarter and more effective for homeowners who need help.”

The conservatorship will be run by the Federal Housing Finance Agency, the new agency created by Congress this summer to regulate Fannie and Freddie, a move taken at the same time that Congress greatly expanded the power of the Treasury Department to make loans to the two companies and purchase their stock.

The executives and board of directors of both institutions are being replaced. Herb Allison, the former head of the TIAA-CREF retirement investment fund, was selected to head Fannie Mae, and David Moffett, a former vice chairman of US Bancorp, was picked to head Freddie Mac.

Paulson was careful not to blame Daniel Mudd, the outgoing CEO of Fannie Mae, or Freddie Mac’s departing CEO Richard Syron for the companies’ current problems. While both men are being removed as the top executives, they have been asked to remain for an unspecified period to help with the transition.

Fannie and Freddie both purchase home loans from banks and then repackage those loans as mortgage-backed securities which they either hold on their own books or sell to investors around the globe. This process provides banks with more money to make more home loans, greatly expanding home ownership.

The impact of the government takeover on existing common and preferred shares, which have slumped in value in the last year, will depend on how investors react to Paulson’s assertion that they must absorb the cost of further losses first. Under the plan, dividends on both common and preferred stock would be eliminated, saving about $2 billion a year.

After the Treasury Department’s announcement, credit rating agency Standard & Poor’s downgraded Fannie and Freddie’s preferred stock to junk-bond status, but reaffirmed the U.S. government’s triple-A rating.

The Federal Reserve and other federal banking regulators said in a joint statement Sunday that “a limited number of smaller institutions” have significant holdings of common or preferred stock shares in Fannie and Freddie, and that regulators were “prepared to work with these institutions to develop capital-restoration plans.”

The Fed released a letter from Fed Chairman Ben Bernanke to James Lockhart, the director of the Federal Housing Finance Agency, in which the Fed chief said he concurred in Lockhart’s decision to take control of Fannie and Freddie saying the action “will help ensure the safe and sound operation of the enterprises.”

Analysts were split on how much the takeover could eventually cost taxpayers although they all agreed the up-front costs will be substantial, possibly hitting $100 billion as the Treasury is called upon to bolster the capital cushions at both institutions.

However, if the plan does the trick of stabilizing the housing market and home prices stop falling and rebound, then the assets of both Fannie and Freddie should rise in value and the government should be able to sell off the companies and recoup its investments.

cont'd

But it could take a long time to work through that process given all the headwinds facing housing at the moment from the plunge in home prices to soaring defaults on mortgages which are dumping more homes on an already glutted market. The weak economy has pushed unemployment to a five-year high of 6.1 percent, further reducing demand for homes.

“I think the government will end up having to put in far more money then they are planning right now (given all the problems facing housing) but the important thing is the agencies have been taken over by the government,” said Sung Won Sohn, an economics professor at California State University Channel Islands. “That means there will be less panic in financial markets.”

Under government control, the companies will be allowed to expand their support for the mortgage market over the next year by boosting their holdings of mortgage securities they hold on their books from a combined $1.5 trillion to $1.7 trillion. Starting in 2010, though, they are required to drop their holdings by 10 percent annually until they reach a combined $500 billion.

In addition, officials said the Treasury Department plans to purchase $5 billion in mortgage-backed securities issued by the two companies later this month, the first of a series of purchases planned by the government in an effort to bolster for these securities, which was badly shaken a year ago when the credit crisis first erupted with soaring defaults on subprime mortgages.

Paulson said that it would be up to Congress and the next president to figure out the two companies’ ultimate structure and the conflicting goals they operated under — maximizing returns for shareholders while also being required to facilitate home buying for low- and moderate-income Americans.

“There is a consensus today ... that they cannot continue in their current form,” he said.

Members of Congress will be watching in the coming months to see how the takeover works, but more housing legislation appears unlikely until next year given the few weeks remaining both Congress quits to hit the campaign trail.

Sen. Charles Schumer, D-N.Y. said the intervention was sparked by worries within the Bush administration that foreign governments would stop holding Fannie and Freddie’s debt. “This was the prudent course to take,” he said.

Senate Banking Committee Chairman Chris Dodd, D-Conn., announced his committee would hold hearings on the takeover to address a number of unanswered questions so that the American people will know “if this unprecedented proposal will help keep mortgages affordable, stabilize the markets and protect taxpayer interests.”

Lockhart said that all lobbying activities of both companies would stop immediately. Both companies over the years made extensive efforts to lobby members of Congress in an effort to keep the benefits they enjoyed as government-sponsored enterprises.

Sunday’s actions followed a series of meetings Paulson had with Bush and other top administration economic officials with Bush relying heavily on the judgment of Paulson, who was the head of investment giant Goldman Sachs before he joined the Cabinet in 2006.

“It is really an assent to Hank’s direction, guidance and judgment,” said a senior administration official, who spoke on condition of anonymity to discuss behind-the-scenes deliberations.

OPEC considers cutting oil production
Reduction unthinkable just a few weeks ago

With oil prices off nearly 30 percent from their highs of almost $150 a barrel, OPEC oil ministers are considering what was unthinkable just a few weeks ago -- cutting back output to prop up the price of crude.

No one is predicting much of a cutback -- if any at all. Still, such a move would not even have been thought of with oil prices setting record after record back in July.

But the bull run appears to have paused, if not ended, which means a new look at options for Tuesday's meeting of the 13 ministers at OPEC's Vienna headquarters.

Since crude surged to a record $147.27 a barrel on July 11, it has tumbled by over $40, or more than 27 percent. Back then, OPEC's main concern was pushing back against arguments from the U.S. and other key consumers that an output increase was needed to end rocketing prices. Oil ministers insisted there was adequate supply to meet demand, and blamed speculators and a weak U.S. dollar for crude's stellar rise.

But now, the greenback has strengthened, world demand has decreased due to creaky economies, traders' appetites for commodities have cooled -- and suddenly the market appears to have turned bearish. Oil markets, however, will also be keeping a close eye on Hurricane Ike, which on Sunday was an extremely dangerous Category 3 storm projected to move into the oil-producing Gulf of Mexico after passing over Cuba.

Light, sweet crude for October delivery fell $1.66 to settle at $106.23 a barrel Friday on the New York Mercantile Exchange -- its lowest close since early April.

The downward spiral has led to calls from OPEC price hawk Iran -- the group's second-largest producer -- to reduce output from the nearly 30.5 million barrels a day being pumped last month by the organization's members.

Not far behind is Venezuela. While moderating recent demands for immediate output cuts, Venezuelan Oil Minister Rafael Ramirez has drawn the line at $100 per barrel of oil. Anything below that should serve as a wake-up call for OPEC to tighten the spigots, he says -- sentiment that is shared by other OPEC members.

Still, a major cutback is unlikely without Saudi compliance, and the Saudis -- de-facto OPEC policy setters who are now producing nearly a third of total OPEC output -- have given no hint they favor that option. Saudi Oil Minister Ali Naimi has instead talked about a floor of $80 as the red line for action.

OPEC has reason to be cautious.

Despite their precipitous fall, prices remain 14 percent higher this year than in 2007, and a barrel of benchmark crude still fetches four times what it did five years ago.

Any OPEC move Tuesday to pare back output would result in a howl of protest from the U.S. and other major consumers, and give a larger platform to Republican presidential candidate John McCain and Barack Obama, his Democratic counterpart, to call for reduced dependence on foreign oil.

Additionally, OPEC understands that high prices drive down demand and will likely try to find a balance between high profits and a price that the market can accept.

In a forecast last month, OPEC predicted that the world's forecast appetite for oil for this year overall will have fallen by 30,000 barrels a day and noted that world demand growth next year will be "the lowest since 2002." And on Wednesday, the U.S Energy Administration reported a 3.5 percent drop for products including gasoline and other oil-based products compared with last year.

Such factors have led some experts to predict OPEC would opt for no change.

"The ministers will hold the status quo (although) there is going to be the usual jawboning from the usual suspects" for a cutback, said oil analyst and trader Stephen Schork. Even now, "oil is by no means cheap and that is certainly adding a lot of pressure to the (world's) economies -- the smarter ones, the Saudis, the Qataris the Kuwaitis are aware of this."

Others think that OPEC, which accounts for about 40 percent of world oil production, will compromise between doing nothing -- thereby chancing a further erosion in prices -- and slashing boldly -- thereby risking skyrocketing prices and an ensuing fallback in demand.

That middle way would mean agreeing to pare away at overproduction without reducing the overall output quota of 27.3 million barrels a day set in November for the 12 OPEC members under production limits.

Energy analyst Catherine Hunter of Global Insight estimates overproduction at between 600,000 and 800,000 barrels a day and says this is the likely "first target of cuts." And because most of the extra production comes from Saudi wells, such a move could be easily accepted by most OPEC members.

"Ultimately, OPEC wants to know what the market will bear," she wrote in a recent analysis, adding that with the world's developed economies expected to perform poorly -- and a resulting overspill to East Asian markets -- "the answer may well be, not much."

Chip Hodge, portfolio manager with MFC Global Investment Management, also thinks that if OPEC issues a call for cuts it will be in overproduction, adding the organization has little additional wiggle room.

"Oil prices are still higher than where they were a year ago," he said. "They just don't have much to complain about."

Will government bailouts spell end of dollar?

We have seen, in the dead of night, three major government bailouts in the last year, none of which had more than a few days' positive effect on the markets. Each was done by powerful men in powerful places in the wee, small hours. At the end of the next day, a few were made rich while the many were handed the bill.

First there was Bear Stearns. Then IndyMac bank. Fannie and Freddie followed rapidly. All engineered on Sundays while the markets were closed.

How many more bailouts have to occur before someone asks the questions no one wants to ask? Is this a systemic problem and where does it end?

It is no surprise to those of us who warned about the drunken credit binge on Wall Street that the day of reckoning would come. What we never anticipated was the reward in store for the gluttons who caused the damage.

Bear Stearns was sold to JPMorgan on March 17; billions of equity was transferred to the balance sheet of one of the top five banks in America while the liabilities were guaranteed by the government (a.k.a. the taxpayers). Through the use of very complicated devices the government moved to save the system. The executives of Bear walked away with bonuses and severance packages. Disaster temporarily averted.

On July 11, IndyMac was taken over by the government due to a "run on the bank" which depleted deposits literally overnight. With $100 million leaving each day, the feds had no option other than to shut the doors. The $52 billion FDIC rescue fund was tapped for $4 billion-$8 billion to pay off depositors and 4,000 employees lost their jobs overnight as IndyMac became runnerup to the largest bank collapse in history (Continental Bank in 1984). Net result: The banking system is saved for the time being.

Fannie and Freddie were seized by regulators Sunday after weeks of speculation that both were suffering losses far beyond their ability to cover. Voices like Bill Gross from PIMCO, with $800 billion in bonds, made clear their intention to stop buying bonds unless the Treasury acted to provide an implicit guarantee for all Fannie and Freddie obligations.

By Monday morning, Gross and his firm are $8 billion richer and the American taxpayers take on potentially $200 billion-$700 billion in losses. I guess the slogan "E pluribus unum" took on a whole new meaning as 300 million of us (the many) united, involuntarily, to give PIMCO (the one) a whole lot of money.

This is not unusual. The market rallied 300 points only to give it back the next day. But Fannie and Freddie did not fail – in the technical sense.

Is the system broken? And if so, who benefits as a result? Did Paulson and Gross identify a weakness and capitalize on it?

If the problems we are now witnessing are systemic and can potentially develop into a far worse crisis than anyone expected, what level of loss should the public be responsible for? Should we the people be on the hook for an unlimited amount of liability while not participating in any of the reward? At its face that seems very unfair, but as I was told at an early age, life is not always fair.

There is an even bigger question in all of this. How many commercial banks, investment banks and mortgage guarantors can the government take over before we as a country are forced to create money to meet all the obligations represented by these takeovers? It is not as if the government has surpluses from which to draw all the needed capital to meet these obligations. We will have to borrow or print it.

What if General Motors, Ford and Boeing need to be bailed out? What about airlines, drug companies, insurance companies ... shall I go on? We cannot and should not adopt a bailout mentality without first considering the long-term ramifications for the country as a whole.

Currently we are running about a $500 billion dollar annual budget deficit. This will be added to the national debt which currently stands at $9.6 trillion. Will we just run the national debt to $15 trillion, $20 trillion? And that doesn't even take into account the off-budget debt, reflected in future Medicare and Social Security obligations, which now exceeds $50 trillion. At what point will the U.S. dollar have any value if we can never pay any of it back?

The U.S. dollar has always been the currency the world turns to when there is trouble. The dollar has always represented safety, but can it maintain that trust if we just continue to print, borrow and move dollars around from balance sheet to balance sheet ad infinitum?

I have asked a number of questions so at this point it is appropriate to offer some answers.

We cannot continue employing the broken business model our current financial system represents. It doesn't work. We cannot leverage, inflate and deflate forever. There comes a day of reckoning when people will not tolerate the abuse of a system to enrich a few while decimating many.

I see vulnerability in America that must be addressed and time is of the essence.

For the first time in the post-World War II era, the American dollar is susceptible to competition from a currency based in an identifiable and universally accepted value. A currency that cannot be created out of thin air. Is such a currency available? Not yet. But you know the old saying, "Necessity is the mother of invention."

Right now the world has three very strong and prosperous countries competing on the world stage with huge amounts of capital, natural resources and gold that could easily, if they so chose, create a currency much like Europe did in the euro. But this time it could be backed with oil and gold.

Russia, China and the Arab nations are sitting on an enormous amount of oil, gold and U.S. dollars. What if those nations forged agreements (much like NATO, WTO, etc.) and offered an "ARC" dollar fully backed by gold or oil? (The holder of the currency could actually exchange the currency for a specified amount of gold or oil.)

A note is a promise to pay. For years in America a Federal Reserve Note (currency) was a promise to pay gold and silver at the Treasury. Today it is a note to pay debt. Debt that is exploding and can apparently be wiped away by the Fed overnight or, worse yet, transferred to the backs of American workers in the form of tax on future labor. But what if a group of nations offered a currency that had no recurring liability attached to it but actual "money" in the form of the ultimate currency (gold) or the ultimate natural resource (oil)?

In the past I would have viewed such a prospect as preposterous. Today it may well become a reality. Currently talks are under way with the Gulf Monetary Authority for just such a system.

If we think the government is capable of bailing everything and everyone out of every financial mess that may occur then we are fools. And perhaps we are being viewed as such by very hostile nations that would welcome the deterioration of our position on the world stage and would not flinch at our total demise.

In short, we have fattened our hearts in the day of slaughter and now is the time to acknowledge and accept that each of us is solely responsible for our own future. Not the government. The time of discussing the problems has come and gone. Now is the time to devise a plan and put it into action.

With gold and silver trading at levels 10 percent below stupid, it is time to put 10-20 percent of total assets into tangibles. Understand that the only answer to avoiding a meltdown is either a new currency or runaway inflation. To quote Harry Shultz, "If Bush bails them all out, the die will be cast for inflation unseen in the West since 1923 Germany. If no bail:1929. Gold helps you out either way."

You can either ignore the obvious or act upon it.

Ignorance is produced in ignoring the facts. It makes one ignorant. Acting upon the facts makes one wise, which is wisdom. This will be a time when many will prefer to deny what they see around them and hope against hope that the system will fix itself.

It will not.

The best analogy I can give is a person (the system) having a massive heart attack, a heart attack resulting from years of abuse of the victim's own body. He is rushed to the hospital where the doctors (the Fed) work feverishly to save his life. They are successful and the patient lives. The doctors then sit the patient down and explain that while they saved his life, without major lifestyle changes the patient will have another heart attack and die. He must immediately stop smoking, eliminate fatty foods and exercise daily. The patient refuses.

Thus is our system. This is not the first crisis. It will not be the last. The system is not willing to do what is necessary to get better.

Black Monday! Mortgage crisis tumbles market 500 points
Lehman Brothers bankrupt as drop is biggest since 9/11

The Dow Jones Industrial Average plummeted 504.48 points today, the biggest single-day drop since the terrorist attacks of Sept. 11, 2001, and closed under 11,000 at 10,917.51 as Wall Street firm Lehman Brothers, the nation's fourth largest investment bank, filed for bankruptcy amid worries about the health of other key financial institutions.

The last time Dow Jones plummeted so precipitously was Sept. 17, 2001, the first day Wall Street markets opened following the terrorist attacks on the World Trade Center and the Pentagon.

Lehman Brothers' failure was a key to the drop. A Bank of America plan to acquire Lehman fell apart when the Federal Reserve backed off issuing a guarantee to finance the acquisition, similar to the guarantee the Fed had issued to induce J.P. Morgan Chase to purchase bankrupt Wall Street investment bank Bear Stearns in March.

Lehman, a 158-year-old firm that survived the railroad bankruptcies of the 1980s and the Great Depression of the 1930s, lost 94 percent of its market value this year and was forced into Chapter 11 after Barclays Plc and Bank of America broke off acquisition talks yesterday.

Uncertainly reigned for its tens of thousands of workers.

But Lehman was not the only company causing alarm. In a separate deal, Bank of America moved to acquire 94-year-old Merrill Lynch for $50 billion in a deal to give the nation's largest bank Merrill Lynch's premier retail investment banking network.

Bank of America's chief executive Ken Lewis said the acquisition involves "every nook and cranny of the financial system, from credit cards and auto loans to bond and stock underwriting, capital markets, and advisory companies," according to the Wall Street Journal.

In January, Bank of America acquired troubled mortgage company Countrywide Financial Corp. for $4 billion.

And in yet a third financial crisis today, the Federal Reserve has asked Goldman Sachs and J.P. Morgan Chase to make $70 billion-$75 billion in loans available to AIG, the nation's largest insurer, as state and federal officials scrambled to help the company come up with as much as $40 billion to help prevent a downgrading of its credit rating, an outcome that could prove fatal to the firm, according to the Wall Street Journal.

New York Gov. David Paterson confirmed that state officials are working with AIG on a plan that would allow the firm to borrow $20 billion against the assets of the firm.

As WordNetDaily's "Red Alert" subscription newsletter reported yesterday, financial markets remain uncertain how many of the nation's largest financial institutions are facing possible bankruptcy over losses in their mortgage-related portfolios.

Washington Mutual's board also fired Kerry Killinger, the bank's chairman, after 18 years of expansion from a sleepy West Coast savings and loan to the nation's largest thrift with an aggressive but poorly managed real estate financing arm.

Washington Mutual, headquartered in Seattle, has approximately $180 billion of mortgage-related loans, with a potential loss of $9 billion to $14 billion this year.

Since the collapse of the sub-prime home-loan market last year, the world's largest banks and brokerage firms have reported more than $510 billion of write-downs and credit losses on securities tied to mortgages, according to Bloomberg.

Today's shock waves that undercut Lehman, Merrill Lynch, AIG and Washington Mutual have left Wall Street experts uncertain whether the bottom of the mortgage crisis had yet been reached.

Former Federal Reserve chairman Alan Greenspan said yesterday the country is mired in a "once-in-a-century" financial crisis that is now more than likely to spark a recession, according to an Associated Press report.

In an interview with CNBC, Wilbur Ross, chairman and chief executive of W. L. Ross & Co., said he sees possibly as many as a thousand bank closures in the coming months.

Democratic presidential nominee Sen. Barack Obama took the Lehman bankruptcy as a political opportunity, charging that the upheaval on Wall Street was "the most serious financial crisis since the Great Depression" and blamed the financial woes on Republican Party economic policies supported by his Republican opponent Sen. John McCain.

McCain countered with a statement that the Wall Street turmoil underscores the need to overhaul "the outdated and ineffective patchwork quilt of regulatory oversight in Washington."

"It is essential for us to make sure that the U.S. remains the pre-eminent financial market of the world," said a statement issued by his presidential campaign. "This will be a highest priority of my administration. In order to do this, major reform must be made in Washington and on Wall Street."

Who's next to fall
from Wall Street?
Insurance company AIG struggles for survival
as Lehman Brothers, Merrill Lynch 'disappear'

Insurer American International Group Inc struggled for survival a day after a financial tsunami swept away investment bank Lehman Brothers and forced the sale of rival Merrill Lynch in the biggest financial industry shake-up since the Great Depression.

AIG scrambled for a financial lifeline on Monday after investment bank Lehman Brothers Holdings Inc failed to find a rescuer and Merrill Lynch & Co Inc agreed to be taken over by Bank of America Corp.

The U.S. Federal Reserve has hired investment bank Morgan Stanley to review options for AIG -- which has lost some 92 percent of its value so far this year -- a person familiar with the situation said Monday.

AIG's precipitous stock decline has led ratings agencies to threaten downgrades that could force it to post more collateral and nullify insurance contracts, possibly setting in motion a chain reaction that could threaten its survival.

In an ominous sign, two ratings agencies went ahead with downgrades after the market closed on Monday.

"AIG seems to be the next guy on the chopping block," said Tom Sowanick, chief investment officer at Clearbrook Financial LLC in Princeton, New Jersey.

Again seeking a private solution to Wall Street's woes, the Fed had asked JPMorgan Chase & Co and Goldman Sachs Group Inc to explore arranging $70 billion to $75 billion in loans to support AIG, among other financing options, another person familiar with the situation said.

Fearing a financial meltdown, the U.S. presidential candidates sparred Monday over who could best restore the system's health, with Republican John McCain pledging reform and Democrat Barack Obama saying hands-off Republican policies were the problem.

U.S. stocks tumbled across the board, with the Dow Jones industrial average dropping 504 points as Wall Street had its worst day since markets reopened after the September 11 attacks.

There was speculation that Wall Street's worsening meltdown could prompt the Fed to act.

U.S. short-term interest rate futures rose sharply Monday, reflecting the higher prospects for a rate cut at or before Tuesday's Federal Reserve policy meeting.

And there were signs of widening macroeconomic shockwaves that could see a worsening of the credit crunch that has already threatened to worsen the housing downturn at the root of Wall Street's troubles.

"Capital markets have been quite difficult, and this is just going to make it more so," General Motors Corp President and Chief Operating Officer Fritz Henderson told the Reuters Autos Summit in Detroit.

Darkening one of the few bright spots from the weekend's mayhem, Bank of America -- which would surpass Citigroup Inc as the country's largest bank by assets with the planned takeover of Merrill -- saw its shares plunge.

"The concern for Bank of America is the debt that they are acquiring," said Marc Pado, U.S. market strategist at Cantor Fitzgerald & Co in San Francisco.

"Secondly, is it too big of a purchase? They are dealing with Countrywide right now. Did they need to be dealing with this as well? There's some concern they might have bit more than they could chew."

Late on Sunday, the Fed said for the first time it would accept stock in exchange for cash loans and 10 of the world's top banks agreed to establish a $70 billion emergency fund, with any one of them able to tap up to one-third of that. But the market shrugged off those moves.

The Dow Jones industrial average closed down 4.4 percent, while the Standard & Poor's 500 Index lost 4.7 percent.

Lehman shares fell 95 percent to 18 cents, even as the once proud bank moved to sell 100 percent of its investment management unit and had a potential list of buyers, including private equity firms Bain Capital, Hellman & Friedman and Clayton Dubilier & Rice.

The events signaled a seismic shift in Wall Street's power structure, with big-name investment banks biting the dust and major banks with large deposit bases surviving.

"It's a return to pure capitalism, the survival of the fittest. The government can't and won't bail everybody out," said Justin Urquhart Stewart, investment director at 7 Investment Management in London.

"Investors will now retreat to the trustworthy banks, though that's not a phrase that trips off the tongue easily nowadays."

'SHELL-SHOCKED'

Scores of Lehman employees showed up at dawn at the company's New York headquarters, many dressed casually. Most carried duffel bags and suitcases, as if they were planning to pack up and leave.

Merrill workers were also uncertain about their future.

New York Gov. David Paterson said Wall Street might lay off 40,000 workers in a worst-case scenario.

"Everybody has been shell-shocked," a Merrill trader said on his way into the headquarters building. "Nobody thought we'd be bought by Bank of America in a million years. At least we won't be bankrupt. It should be a interesting day at work."

AIG could be the next U.S. financial giant to run into serious trouble.

U.S. Treasury Secretary Henry Paulson, who shocked many on Wall Street by insisting there would be no taxpayer funds to help Lehman, said at a news briefing there were private-sector talks under way in New York on AIG that had nothing to do with any government bridge loan.

"What's going on in New York is a private sector effort, again, focused on dealing with an important issue that's, I think, important that the financial system work on right now, and there's not more I can say than that," he said.

The state of New York, where AIG is based, did its best to bolster the stricken insurer with a complex asset swap giving it a $20 billion lifeline, but its longer-term rescue depended on additional funding.

The cost to insure the debt of AIG also surged on Monday. AIG's credit default swaps jumped to 33.5 percent of the sum insured paid upfront, plus annual premiums of 5 percent for five years, from 13 percent upfront on Friday, according to Markit Intraday.

In a move likely to drive that cost up further on Tuesday, Fitch Ratings downgraded AIG's debt to "A" from "AA-" and A.M. Best cut its financial strength rating.

U.S. bank shares tumbled in the wake of the Lehman news, with Washington Mutual Inc down 27 percent and Wachovia Corp losing 25 percent. Morgan Stanley was down 13.5 percent, and Citigroup lost 15 percent.

Even Goldman Sachs, Wall Street's No. 1 investment bank which is set to report quarterly earnings on Tuesday, saw a 12 percent drop in its shares.

Merrill shares rose as much as 33 percent to $22.68 before closing at $17.06, up a penny on the New York Stock Exchange. The Bank of America offer was worth $29 a share when it was announced, almost $12 above Merrill's closing price on Friday.

Lehman's bankruptcy petition followed three days of talks between various bank CEOs and regulators at the Fed's fortress- like building in lower Manhattan.

Wall Street plunges despite AIG bailout
Commerce Department reports drop in new home construction

Wall Street plunged again Wednesday, with anxieties about the financial system still running high after the government bailed out insurer American International Group Inc. The Dow Jones industrial average dropped about 300 points.

The Federal Reserve is giving a two-year, $85 billion loan to AIG in exchange for a nearly 80 percent stake in the company after it lost billions in the risky business of insuring against bond defaults. Wall Street had feared that the conglomerate, which has its tentacles in various financial services industries around the world, would follow the investment bank Lehman Brothers Holdings Inc. into bankruptcy. The ramifications of the world’s largest insurer going under likely would have far surpassed the demise of Lehman.

“People are scared to death,” said Bill Stone, chief investment strategist for PNC Wealth Management. “Who would have imagined that AIG would have gotten into this position?”
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He said the fear gripping the market reflects investors’ concerns that AIG wasn’t able to find a lifeline in the private sector and that Wall Street is now fretting about what other institutions could falter.

The two independent Wall Street investment banks left standing — Goldman Sachs Group Inc. and Morgan Stanley — remain under scrutiny, as does Washington Mutual Inc., the country’s largest thrift bank. Morgan Stanley revealed its quarterly earnings early late Tuesday, posting a better-than-expected 7 percent slide in fiscal third-quarter profit. It insisted that it is surviving the credit crisis that has ravaged many of its peers.

Lehman filed for bankruptcy protection on Monday, and by late Tuesday had sold its North American investment banking and trading operations to Barclays, Britain’s third-largest bank, for the bargain price of $250 million. Over the weekend, Merrill Lynch, the world’s largest brokerage, sold itself in a last-ditch effort to avoid failure to Bank of America Corp.

In midafternoon trading, the Dow fell 299.79, or 2.71 percent, to 10,759.23 after earlier being down nearly 400. After a nosedive Monday, the index is down more than 5 percent on the week, and has fallen more than 23 percent since reaching a record close of 14,164.53 on Oct. 9 last year.

Broader stock indicators also plunged. The Standard & Poor’s 500 index dropped 44.94, or 3.70 percent, to 1,168.66, while the Nasdaq composite index fell 89.10, or 4.04 percent, to 2,118.80.

The stock market is likely to see heavy back-and-forth movement as traders continue to assess the flood of news that has poured in over the past several days.

On Monday, the Dow lost 504 points, the largest tumble since its drop following the September 2001 terror attacks. On Tuesday, it rose 141 points, after the Fed decided to leave interest rates unchanged.

“It’s still uncertain ground we’re treading. We just have to move on a daily basis,” said Jack A. Ablin, chief investment officer at Harris Private Bank.

The government took other measures Tuesday to help alleviate the turmoil in the markets. The Treasury said it will start selling bonds for the Fed to aid it with its lending efforts, while the Securities and Exchange Commission said it will strictly prohibit naked short-selling starting Thursday.

Short-selling is when traders borrow shares of a stock they expect to fall and sell them — if the stock does indeed fall, the traders buy the cheaper shares to cover the borrowed ones and profit from the difference. Naked short-selling occurs when sellers don’t actually borrow the shares before selling them; it’s a practice some say is partially responsible for the huge drop in the shares of investment banks like Lehman, Merrill Lynch and Bear Stearns Cos., which JPMorgan Chase & Co. bought earlier this year.

Bond prices wavered Wednesday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, slipped to 3.41 percent from 3.43 percent late Tuesday. The dollar was lower against other major currencies.

Gold prices surged as nervous traders sought safety. Gold jumped $86.30, or 11 percent, to $866.80 an ounce on the New York Mercantile Exchange.

Crude oil rebounded $4.74 to $95.89 a barrel on the Nymex after the government reported a drop in domestic crude and gas inventories. Oil dropped by about $10 a barrel on Monday and Tuesday amid concerns that economic weakness will hurt demand.
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Among financial names getting hit, Goldman Sachs fell $32.25, or 24 percent, to $100.76 and Morgan Stanley fell $10.70, or 37 percent, to $18.

“People are afraid of the unknown and they don’t know what’s on the books of these companies,” said Joe Saluzzi, co-head of equity trading at Themis Trading. “The first reaction in a situation like this is to sell.”

Saluzzi noted that surging gold prices and other measures of investors jitters indicate that anxiety is building.

News moving the markets
Fed steps in to rescue ailing insurer AIG
Barclays grabs key Lehman assets
Housing construction falls to 17-year low
Price of oil rebounds after two-day tumble
Morgan Stanley weighing possible merger

“There is a lot more fear today than there was on Monday and Tuesday,” he said.

Indeed, the Chicago Board Options Exchange’s volatility index, known as the VIX, and often referred to as the “fear index,” jumped 12 percent Wednesday.

Saluzzi is somewhat optimistic that the nervousness could be nearing a crescendo, which could squeeze out more investors and then clear the way for a snapback rally.

But the woes of the financial sector could also exacerbate problems facing other parts of the economy, given that individuals and businesses rely on the nation’s money centers.

Federal bank insurance fund dwindling
Could be forced to tap tax dollars through Treasury Department loan

Banks are not the only ones struggling in the growing financial crisis. The fund established to insure their deposits is also feeling the pinch, and the taxpayer may be the lender of last resort.
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The Federal Deposit Insurance Corp., whose insurance fund has slipped below the minimum target level set by Congress, could be forced to tap tax dollars through a Treasury Department loan if Washington Mutual Inc., the nation's largest thrift, or another struggling rival fails, economists and industry analysts said Tuesday.

Treasury has already come to the rescue of several corporate victims of the housing and credit crunches. The government took over mortgage finance companies Fannie Mae and Freddie Mac, and helped finance the sale of investment bank Bear Stearns to J.P. Morgan Chase & Co.

Eleven federally insured banks and thrifts have failed this year, including Pasadena, Calif.-based IndyMac Bank, by far the largest shut down by regulators.

Additional failures of large banks or savings and loans companies seem likely, and that could overwhelm the FDIC's insurance fund, said Brian Bethune, U.S. economist at consulting firm Global Insight.

"We've got a ... retail bank run forming in this country," said Christopher Whalen, senior vice president and managing director of Institutional Risk Analytics.

Treasury Secretary Henry Paulson said Monday that the country's commercial banking system "is safe and sound" and that "the American people can be very, very confident about their accounts in our banking system." FDIC officials also have said 98 percent of U.S. banks still meet regulators' standards for adequate capital.

But fear is growing on Main Street as well as Wall Street about the likelihood of multiple bank failures and the strain that would put on the FDIC.

The fund, which is marking its 75th anniversary this year with a "Face Your Finances" campaign, is at $45.2 billion — the lowest level since 2003. At the same time, the number of troubled banks is at a five-year high.

FDIC Chairman Sheila Bair has not ruled out the possibility of going to the Treasury for a short-term loan at some point. But she has said she does not expect the FDIC to take the more drastic action of using a separate $30 billion credit line with Treasury — something that has never been done.

The FDIC's fund is currently below the minimum set by Congress in a 2006 law. The failure of IndyMac Bank in July cost $8.9 billion.

Next month, Bair plans to propose increasing the premiums paid by banks and thrifts to replenish the fund. That plan is likely to be approved by the FDIC board, which consists of her, Comptroller of the Currency John Dugan, Thrift Supervision Director John Reich and two other officials.

Bair also is considering a system in which banks with riskier portfolios would be charged higher premiums, raising the possibility those costs could be passed on to consumers.

A Washington Mutual failure would dwarf the largest bank collapse in U.S. history — Continental Illinois National Bank in 1984, with $33.6 billion in assets.

By comparison, WaMu and its subsidiaries had assets of $309.73 billion as of June 30 and IndyMac had $32 billion when it shut down.

Arthur Murton, director of the FDIC's insurance and research division, said that when large institutions have failed in recent years, the hit to the fund has been about 5 to 10 percent of the company's assets.

Standard & Poor's Ratings Service late Monday cut its counterparty credit rating on WaMu to junk, action that followed downgrades by both Moody's and Fitch last week. Concern about the Seattle-based thrift, which has significant exposure to risky mortgage securities and other assets, has grown in recent weeks, and the company's stock price has plummeted.

WaMu responded Monday by saying that it did not expect the S&P downgrade to have a material impact on its borrowings, collateral or margin requirements. The bank said its capital at the end of the third quarter on Sept. 30 is expected to be "significantly above" required levels and that its outlook for expected credit losses is unchanged.

Some analyst estimates put the cost of a WaMu failure to the FDIC at more than $20 billion, but other experts say it is very difficult to predict. Unknown, for example, is the amount of advances that institutions may have taken from one of the regional banks in the Federal Home Loan Bank system. Banks and thrifts have significantly increased their requests for advances, or loans, from the 12 regional home loan banks since the mortgage crisis began last year.

These amounts aren't publicly disclosed but must be repaid if a bank or thrift fails, notes Karen Shaw Petrou, managing partner of Federal Financial Analytics.

If the FDIC doesn't have enough cash to cover the initial costs of a bank or thrift failure, one option would be short-term loans from the Treasury. That last happened in 1991-92, during the last part of the savings and loan crisis, when the FDIC borrowed $15.1 billion from the Treasury and repaid it with interest about a year later.

Based on projections of possible scenarios of bank failures, "between the (insurance) fund that we have now and our ability to draw on the resources of the industry ... we do have the resources" needed, Murton said Tuesday.

Though short-term borrowing from Treasury for working capital may be possible, he said, tapping the long-term credit line is unlikely.

But Whalen said the Federal Reserve, the Treasury and Congress should "immediately devise" and announce a plan to backstop the FDIC with up to $500 billion in borrowing authority to meet cash needs for closing or selling failed banks.

"While the FDIC already has a credit line in place and this figure may seem excessive — and hopefully it is — the idea here is to overshoot the actual number to reinforce public confidence," Whalen wrote in a note to clients. "Simply having Treasury Secretary Hank Paulson or Ben Bernanke making hopeful statements is inadequate. Like it says in the movies: 'Show us the money.'"

Before Congress passed the law overhauling deposit insurance in 2006, about 90 percent of all insured banks and thrifts — considered to have adequate capital and to be well managed — paid no premiums to the FDIC. Today, all of them do.

There were 117 banks and thrifts considered to be in trouble in the second quarter, the highest level since 2003, according to FDIC data released last month. The agency doesn't disclose the names of institutions on its internal list of troubled banks. On average, 13 percent of banks that make the list fail. Total assets of troubled banks tripled in the second quarter to $78 billion, and $32 billion of that coming from IndyMac Bank.

Last month, Bair called those results "pretty dismal," but said they were not surprising given the housing slump, a worsening economy, and disruptions in financial and credit markets. "More banks will come on the (troubled) list as credit problems worsen," he said. "Assets of problem institutions also will continue to rise."

Obama adviser spun Enron-like accounting scandal
Former Fannie Mae CEO to repay millions in bonuses, stock options

Former Clinton administration budget adviser and current Obama housing adviser Franklin Raines perpetrated an Enron-like accounting scandal as chief executive officer of Fannie Mae, resulting in his receiving millions in compensation over a six-year period.

Raines and two other top Fannie Mae executives agreed to pay $24.7 million, including a $2 million fine, to settle a civil lawsuit filed in December 2006. It accused Raines and the two other executives of manipulating Fannie Mae earnings, allowing executives to pocket hundreds of millions in bonuses from 1998 to 2004, according to the Associated Press.

The AP also reported Raines was forced to give up Fannie Mae stock options valued at $15.6 million as part of the settlement.

As recently as July 17, the Washington Post ran a profile piece on Raines claiming he "has been quietly constructing a new life for himself," in which Raines takes "calls from Barack Obama's presidential campaign seeking his advice on mortgage and housing policy matters."

Prior to the settlement, the Office of Federal Housing Enterprise Oversight, known as OFHEO, the government regulator that oversees Fannie Mae and Freddie Mac, had sought $100 million against Raines and the other two executives, plus restitution totaling more than $115 million in bonus money tied to the accounting scheme manipulation.

Fannie Mae separately paid a $400 million civil fine in a settlement with OFHEO and the Securities and Exchange Commission in an agreement to make top-to-bottom changes in its accounting procedures to avoid future Raines-like accounting manipulation scandals.

The Securities and Exchange Commission's top account accused Fannie Mae under Raines' leadership of misstating earnings for three and a half years, leading to an estimated $9 billion earnings restatement that wiped out 40 percent of Fannie Mae's profits from 2001-2004, according to Business Week.

Central to the Raines accounting scandal was a strategy to "cook the books" of Fannie Mae to show the type of earnings that would trigger hundreds of millions of bonuses to Raines and other key Fannie Mae executives.

When the scandal surfaced, Raines resigned from Fannie Mae in December 2004, with a $19 million severance package, according to the Associated Press.

The Raines scandal surfaced in 2004 when charges Fannie Mae accounting manager Roger Barnes had been making since 1999 surfaced. He said Fannie Mae had been manipulating its earnings through "cookie jar" accounting to justify payment of hundreds of millions of dollars in bonuses to top executives.

In his 26-page testimony before OFHEA, Barnes detailed multiple Fannie Mae deviations for Generally Accepted Accounting Practices, or GAAP, and his repeated efforts to bring these irregularities to a wide range of Fannie Mae managers and executives, all without positive result.

Barnes said he left Fannie Mae in October 2003 because he felt "forced out" once it excluded him from working on the OFHEA investigation.

"As a result of Fannie Mae's refusals to take the concerns I had raised about financial and accounting practices seriously, and the retaliation I faced for raising these concerns, I had no choice but to separate from the Company in October 2003," Barnes said on page 25 of his written Oct. 6, 2004, testimony to the Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises of the U.S. House of Representatives Committee on Financial Services.

Still, the OFHEA report on the Raines scandal cited Barnes 34 times in the first 80 pages of its 200-page report.

Barnes, an African American, reportedly received a $1 million settlement after threatening a whistleblower lawsuit citing racial discrimination, according to USA Today.

U.S. to bail out foreign banks?
'They have the same impact on the American people as any other institution'

In a change from the original proposal sent to Capitol Hill, foreign-based banks with big U.S. operations could qualify for the Treasury Department’s mortgage bailout, according to the fine print of an administration statement Saturday night.

The theory, according to a participant in the negotiations, is that if the goal is to solve a liquidity crisis, it makes no sense to exclude banks that do a lot of lending in the United States.

Treasury Secretary Henry Paulson confirmed the change on ABC's "This Week," telling George Stephanopoulos that coverage of foreign-based banks is "a distinction without a difference to the American people."

"If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution," Paulson said.

"That's a distinction without a difference to the American people. The key here is protecting the system. ... We have a global financial system, and we are talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will. But, remember, this is about protecting the American people and protecting the taxpayers. and the American people don't care who owns the financial institution. If the financial institution in this country has problems, it'll have the same impact whether it's the U.S. or foreign."

The legislative outline that went to Capitol Hill at 1:30 a.m. Saturday had said that an eligible financial institution had to have “its headquarters in the United States.” That would exclude foreign-based institutions with big U.S. operations, such as Barclays, Credit Suisse, Deutsche Bank, HSBC, Royal Bank of Scotland and UBS.

But a Treasury “Fact Sheet” released at 7:15 Saturday night sought to give the administration more flexibility, with an expanded definition that could include all of those banks: “Participating financial institutions must have significant operations in the U.S., unless the Secretary makes a determination, in consultation with the Chairman of the Federal Reserve, that broader eligibility is necessary to effectively stabilize financial markets.”

The major change in the suggested eligibility requirements is the biggest change that Treasury publicly made after a day of briefings and conversations with Capitol Hill, and is likely the first of many.

Aspects of the $700 billion, two-year proposal that are still under negotiation include what, if anything, will be added to the administration’s simple but sweeping proposal. And the parliamentary route, such as what committees or hearings might be involved, has not been finalized.

House Financial Services Committee Chairman Barney Frank (D-Mass.) has a hearing scheduled for Wednesday that is likely to focus on the proposal.

Under what congressional officials called a likely scenario, the measure could go to the House floor on Thursday, with passage expected the same day.

The Senate could take the package up as soon as Friday and send it to President Bush for his signature, although the Senate schedule is less predictable and had not been determined.

Officials expect passage by huge margins in both chambers because Paulson and Federal Reserve Chairman Ben Bernanke have told congressional leaders the country’s financial stability depends on it.

House Democrats plan to insist on adding protections for homeowners facing foreclosure. They also want to add a measure to help homeowners facing bankruptcy and an executive compensation restriction designed to prevent golden parachutes for the heads of troubled institutions.

Sen. Barack Obama (D-Ill.), who was supportive of the bailout concept in a statement released Friday, believes that “whatever gets done in Congress has to protect Main Street,” senior adviser Stephanie Cutter said on MSNBC on Saturday.

On “Fox News Sunday,” Paulson told Chris Wallace that he would resist the Democrats' desired limits on executive compensation.

"If we design it so it's punitive and institutions aren't going to participate, this won't work the way we need it to work," Paulson said. "Let's talk executive salaries: There have been excesses there. I agree with the American people. Pay should be for performance, not for failure. We've got work to do in that regard. We need to do that work. But we need this system to work. And so reforms need to come afterwards. My whole objective with the plan we have is to give us the maximum ability to make it work.”

And the secretary told NBC’s Tom Brokaw on “Meet the Press” that he doesn’t want new regulations simultaneously: “That's not doable to do that immediately. But we very much need new regulations.”

Senate Banking Committee Chairman Chris Dodd (D-Conn.) told Stephanopoulos on ABC: “If we’re going to spend taxpayer money to get rid of bad debt in these places, what is the reciprocal obligation … from the firms? … I think there’s going to be a strong interest to deal with the Main Street aspects.”

Appearing with him, House Republican Leader John A. Boehner of Ohio retorted: “We’ve already dealt with that, when we had the housing bill last summer. I didn’t vote for it, because it’s $300 billion bailout for scam artists and speculators and others around the housing industry. But there are a lot of tools in there to help the Federal Housing Administration deal with the foreclosure problem that’s out there. We need to rise above partisan politics … and deal with this as adults.”

This fits right in with the Jerome Corsi "Red Alert" article on "The coming 1-world currency"

http://forums.christiansunite.com/index.php?topic=22303.msg257480#msg257480

Central banks may expand range of collateral: Nikkei

Central banks in the United States, Europe and Japan will consider taking foreign-denominated assets as collateral in an effort to provide liquidity for battered financial markets, the Nikkei newspaper said on Sunday.

Currently most central banks only accept assets denominated in their home currency as collateral, the paper said. If central banks were to accept assets denominated in other currencies, cash-strapped firms would be able to get funds easier, it said.

Six central banks, including the U.S. Federal Reserve, the Bank of Japan, the European Central Bank, and the Bank of England are discussing a potential rule change, the Nikkei said.

The paper did not quote any sources and no one was immediately available at the Bank of Japan for comment, however BOJ Governor Masaaki Shirakawa said earlier this week the move was under consideration.

"Regarding cross-border collateral, as I have said before in a number of speeches, it is an issue being considered among central banks and the BOJ is also part of this and is considering it," Shirakawa told a news conference on Wednesday.

In Japan, foreign financial companies have been unable to fully access the offered liquidity because their yen-denominated assets are limited, Nikkei said.

Overseas investors, including hedge funds, hold only 7 percent of outstanding Japanese government bonds, it said.

Some central banks, including the Bank of England, do accept some foreign-denominated assets as collateral, but the discussions are aimed at widening that, the paper said.

The world's top central banks joined forces on Thursday to throw a multibillion-dollar lifeline to global markets in a push to free up bank-to-bank lending frozen by upheavals on Wall Street.

Jimmy Carter started the rot that led to the present financial crisis

A Stop The ACLU article:

Much as Bush-hating media members conveniently ignore historical events that led to the invasion of Iraq in March 2003, their current finger-pointing at the White House, John McCain, and all Republican politicians for the collapse of the financial services industry lacks any honest assessment of decades-old legislation that laid the groundwork for today’s problems. In particular, 1977’s Community Reinvestment Act which required banks and savings institutions to make loans to the lower-income areas in the communities they served.

Despite how integrally tied the current crisis is to this bill enacted by a Democrat-controlled Congress and signed into law by Jimmy Carter, no major media outlet other than Investor’s Business Daily and National Review Online mentioned it during last week’s market meltdown. Going against the grain was a highly-informative editorial by IBD Thursday:

Quote

To hear today’s Democrats, you’d think all this started in the last couple years. But the crisis began much earlier. The Carter-era Community Reinvestment Act forced banks to lend to uncreditworthy borrowers, mostly in minority areas. Age-old standards of banking prudence got thrown out the window. In their place came harsh new regulations requiring banks not only to lend to uncreditworthy borrowers, but to do so on the basis of race.

These well-intended rules were supercharged in the early 1990s by President Clinton. Despite warnings from GOP members of Congress in 1992, Clinton pushed extensive changes to the rules requiring lenders to make questionable loans. [...] Failure to comply meant your bank might not be allowed to expand lending, add new branches or merge with other companies. Banks were given a so-called “CRA rating” that graded how diverse their lending portfolio was. [...] In the name of diversity, banks began making huge numbers of loans that they previously would not have. They opened branches in poor areas to lift their CRA ratings.

Meanwhile, Congress gave Fannie and Freddie the go-ahead to finance it all by buying loans from banks, then repackaging and securitizing them for resale on the open market. That’s how the contagion began. With those changes, the subprime market took off. From a mere $35 billion in loans in 1994, it soared to $1 trillion by 2008.

Readers are strongly encouraged to review this entire fact-filled piece to not only better understand the roots of today’s financial crisis, but also to get a sense as to just how absurd media accusations of this all being Bush and McCain’s fault are.

That said, from 1989 through 1995, I managed branches for two savings and loans: Imperial Savings, which got taken over by the Resolution Trust Corporation during the S&L bailout, and; Great Western Bank which eventually was purchased by Washington Mutual. The pressure to comply with CRA was astounding, especially at Great Western as it was expanding throughout the country. Its ability to acquire other institutions was directly related to its CRA rating.

With this in mind, IBD’s views concerning this matter are spot on raising a very important question: if the role of news media is to inform the public, why does a LexisNexis search indicate that as this crisis came to a head last week, its connection to CRA, Jimmy Carter, and Bill Clinton was almost completely ignored?

Would such a revelation make it difficult for Obama-loving press outlets to point fingers at George W. Bush and, more importantly, John McCain? Yes, that’s a rhetorical question.

Bailout bickering triggers triple-digit loss
Oil prices rocket $25; gold trades above $900

The Dow Jones Industrial Average dropped 372.75 points today, closing at 11,015.69, amidst bickering over the government's proposed $700 billion bailout of Wall Street and concerns Democrats in Congress will block quick action until the Bush administration agrees to limit the compensation of the chief executives of financial institutions that participate in the bailout.

Both Sens. John McCain and Barack Obama expressed reservations about the Bush administration's proposed bailout, raising questions about congressional oversight assurances and concerns that the plan would give unprecedented power to U.S. Treasury officials to oversee a wide range of financial services companies, including banks, brokerage firms and mortgage-originators.

Nervous investors buffeted by yet another volatile triple-digit downward swing on Wall Street fled to gold, with gold closing at $903.50 an ounce, gaining $38.50 on the day.

Oil also gained more than $25 a barrel, the largest one-day gain ever, as oil-producing countries worried that the Wall Street bailout will result in a weakened dollar.

Crude oil for October delivery settled at $120.92 a barrel at 2:46 p.m. on the New York Mercantile Exchange, the highest settlement price since Aug. 21, according to Bloomberg.

The dollar today weakened the most against the euro since January 2001, based on concerns that the bailout will require the U.S. government to take on an unprecedented amount of debt, dramatically increasing the federal deficit, while forcing the federal government into a unprecedented intervention in the private economy.

The dollar hit $1.4866 to the euro, the lowest point since Aug. 22. The dollar has lost more than 6 percent versus the euro since touching a one-year high of $1.3882 on Sept. 11, according to Bloomberg.

Alan Ruskin, head of international currency strategy for North America at RBS Greenwich Capital Markets Inc. in Greenwich, Conn., expressed concern the dollar may slide as much as $1.50 against the euro in the next several weeks.

Last week, investors who have become accustomed to thinking of money market funds as virtually as safe as bank deposits were rudely reminded that money market funds typically carry no federal deposit guarantee.

Money market funds in the U.S. suffered an estimated $197 billion outflow last week as the par value of a few funds "broke the buck" and returned less than $1.00 a share in the once-considered safe-haven $3.4 trillion money fund industry, according to the Financial Times in London.

Goldman Sachs and Morgan Stanley shook Wall Street by announcing they have abandoned the idea of continuing operations as investment banks, preferring instead to apply to the Federal Reserve to be regulated as commercial banks.

These decisions effectively ended the model of Wall Street in which investment firms were distinct from banks, raising new questions of the future of the financial services industry in the United States.

The 1999 repeal of the Depression-Era Glass-Steagall Act during the Clinton administration eliminated the wall that had kept investment banks and depository institutions distinct, allowing banks and investment firms to merge.

Yet what the new structure of the financial services industry will look like in a world where Bear Stearns and Lehman Brothers are bankrupt and gone remains an open question.

WND's Red Alert subscription newsletter warned readers the stock market volatility of what is being called the "Panic of '08" likely will continue as long as investors remain uncertain and fearful.

The Bush administration is certain to apply continued pressure on Congress in an attempt to get a bailout plan passed this week.

Calm is unlikely to return to the stock market until investors become convinced Congress will not long debate or delay the passage of at least the fundamental components of the proposed $700 bailout plan in a form acceptable to the Bush administration, even if many fundamental questions remain to be debated until after the Nov. 4 election.

An Amnesty for Stupidity
by Patrick J. Buchanan

09/23/2008

Is it fair that businessmen who fail in neighborhood stores have to close shop and often sell their homes, while Wall Street titans are spared the consequences of monumental stupidity and greed?

No, it is not fair. Yet, Treasury's Hank Paulson may be right. To save the sheep who might have been wiped out in a general financial panic, we may have to save the pigs.

Life is unfair, said JFK.

Yet, this is going to be the mother of all bailouts. Paulson will be voted by Congress authority to spend $700 billion, 5 percent of our gross domestic product, to buy all that toxic paper stinking up the books of our biggest banks.

And this is not the first such bailout of foolish and incompetent financiers and politicians.

In 1975, when its cravenness to extortionate union demands had bankrupted New York, the Big Apple had to be rescued by Gerald Ford.

Marion Barry's Washington, D.C., was next in line at the cashier's window.

In the Reagan era, it was Chrysler. Later that decade, Citibank, Chase-Manhattan and Bank of America were staring into the abyss, as Latin American regimes, to whom they had lent scores of billions, were balking at paying their debts. Uncle Sam stepped in.

Then came the Mexican and Asian financial crises and the U.S.-IMF bailouts of the 1990s. The Mexican bailout was as much a rescue of Goldman-Sachs as Mexico City, as Treasury Secretary Bob Rubin's old firm was choking on all its Mexican paper.

The great myth is that these 1990s bailouts were models of U.S. financial statesmanship and great successes. The reality is the U.S. workers took it in the neck.

For the countries bailed out, like Mexico, Thailand, Indonesia and South Korea, were forced to devalue. This radically reduced the wages of their workers relative to American workers, creating incentives for U.S. manufacturers to shut plants here and move them abroad. The devaluations also slashed the price of foreign goods relative to U.S. goods. Imports flooded in.

Who ultimately paid for the Mexican bailout? Florida tomato growers wiped out by Mexican producers, the price of whose tomatoes was chopped two-thirds by the devaluation. U.S. autoworkers who saw Ford and Delphi plants shuttered as new Ford and Delphi plants opened in Mexico. U.S. textile workers whose mills closed and jobs vanished.

Middle-class American families have paid and paid -- in lost jobs, lower wages, a falling median income -- to save the big banks from the consequences of their follies. And those bank bailouts are behind the trade deficits that set five records in the Bush era, reached 6 percent of GDP, forced huge U.S. borrowings from abroad and ravaged the dollar.

Having bailed out Latin America, Mexico, Asia and their U.S. creditors, we now find our own country in trouble. And how are our allies reacting?

"Europeans on left and right ridicule U.S. money meltdown," ran the Los Angeles Times headline. Italy's finance minister compares us to corruption-ridden Albania, where "a nationwide pyramid scheme cost hundreds of thousands of people their savings and ignited anarchic civil conflict" in the 1990s.

How will the bailout work? Will every bank that brings in toxic paper be able to dump it on the Treasury? Will the Treasury buy securities based on subprime U.S. mortgages from foreign banks? Apparently so. What about mortgage-backed securities held by U.S. companies and individual investors? Is there to be a general amnesty for bad judgment, or just a bankers amnesty?

About one thing we may be sure. The U.S. deficit and national debt are going to soar. The credit rating of the United States, as this nation of non-savers has to borrow abroad to save its banks, and their banks, is going to fall. We are going to be a poorer nation and people.

As for the promises and plans of Barack Obama and John McCain -- be it for national health insurance or middle-class tax cuts -- they are going by the wayside. For the United States is as bankrupt as Lehman Brothers, with this difference: Uncle Sam can still borrow from abroad because foreigners see many juicy U.S. assets they would like to take off our hands with their hoards of ever-cheapening U.S. dollars.

Looking at the federal budget -- the five or six major items are Social Security, Medicare, Medicaid, defense and interest on the debt. All are going up, as tax revenues fall. Add the cost of two wars and a bailout of U.S. banks that some estimate will cost $1 trillion to $2 trillion, and we appear to be looking at budget deficits ad infinitum.

"There is a great deal of ruin in a nation," Adam Smith once consoled a friend who lamented that Britain would be ruined if the 13 Colonies were lost.

We are about to test Smith's proposition

They Gave Your Mortgage to a Less Qualified Minority
by Ann Coulter

09/24/2008

On MSNBC this week, Newsweek's Jonathan Alter tried to connect John McCain to the current financial disaster, saying: "If you remember the Keating Five scandal that (McCain) was a part of. ... He's really getting a free ride on the fact that he was in the middle of the last great financial scandal in our country."

McCain was "in the middle of" the Keating Five case in the sense that he was "exonerated." The lawyer for the Senate Ethics Committee wanted McCain removed from the investigation altogether, but, as The New York Times reported: "Sen. McCain was the only Republican embroiled in the affair, and Democrats on the panel would not release him."

So John McCain has been held hostage by both the Viet Cong and the Democrats.

Alter couldn't be expected to know that: As usual, he was lifting material directly from Kausfiles. What is unusual was that he was stealing a random thought sent in by Kausfiles' mother, who, the day before, had e-mailed: "It's time to bring up the Keating Five. Let McCain explain that scandal away."

The Senate Ethics Committee lawyer who investigated McCain already had explained that scandal away -- repeatedly. It was celebrated lawyer Robert Bennett, most famous for defending a certain ~~horny hick~~ president a few years ago.

In February this year, on Fox News' "Hannity and Colmes," Bennett said, for the eight billionth time:

"First, I should tell your listeners I'm a registered Democrat, so I'm not on (McCain's) side of a lot of issues. But I investigated John McCain for a year and a half, at least, when I was special counsel to the Senate Ethics Committee in the Keating Five. ... And if there is one thing I am absolutely confident of, it is John McCain is an honest man. I recommended to the Senate Ethics Committee that he be cut out of the case, that there was no evidence against him."

It's bad enough for Alter to be constantly ripping off Kausfiles. Now he's so devoid of his own ideas, he's ripping off the idle musings of Kausfiles' mother.

Even if McCain had been implicated in the Keating Five scandal -- and he wasn't -- that would still have absolutely nothing to do with the subprime mortgage crisis currently roiling the financial markets. This crisis was caused by political correctness being forced on the mortgage lending industry in the Clinton era.

Before the Democrats' affirmative action lending policies became an embarrassment, the Los Angeles Times reported that, starting in 1992, a majority-Democratic Congress "mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains."

Under Clinton, the entire federal government put massive pressure on banks to grant more mortgages to the poor and minorities. Clinton's secretary of Housing and Urban Development, Andrew Cuomo, investigated Fannie Mae for racial discrimination and proposed that 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low- to moderate-income borrowers by the year 2001.

Threatening lawsuits, Clinton's Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn't a joke -- it's a fact.

When Democrats controlled both the executive and legislative branches, political correctness was given a veto over sound business practices.

In 1999, liberals were bragging about extending affirmative action to the financial sector. Los Angeles Times reporter Ron Brownstein hailed the Clinton administration's affirmative action lending policies as one of the "hidden success stories" of the Clinton administration, saying that "black and Latino homeownership has surged to the highest level ever recorded."

Meanwhile, economists were screaming from the rooftops that the Democrats were forcing mortgage lenders to issue loans that would fail the moment the housing market slowed and deadbeat borrowers couldn't get out of their loans by selling their houses.

A decade later, the housing bubble burst and, as predicted, food-stamp-backed mortgages collapsed. Democrats set an affirmative action time-bomb and now it's gone off.

In Bush's first year in office, the White House chief economist, N. Gregory Mankiw, warned that the government's "implicit subsidy" of Fannie Mae and Freddie Mac, combined with loans to unqualified borrowers, was creating a huge risk for the entire financial system.

Rep. Barney Frank denounced Mankiw, saying he had no "concern about housing." How dare you oppose suicidal loans to people who can't repay them! The New York Times reported that Fannie Mae and Freddie Mac were "under heavy assault by the Republicans," but these entities still had "important political allies" in the Democrats.

Now, at a cost of hundreds of billions of dollars, middle-class taxpayers are going to be forced to bail out the Democrats' two most important constituent groups: rich Wall Street bankers and welfare recipients.

Political correctness had already ruined education, sports, science and entertainment. But it took a Democratic president with a Democratic congress for political correctness to wreck the financial industry.

Quote from: blackeyedpeas on September 25, 2008, 02:35:39 AM

Brother, sadly I agree with you. The BEST fixes will only result in less misery. Regardless, the politicians need to get busy with fixes and forget about politics as usual. If they can't put partisan differences aside and work together to lessen this crisis, the coming negatives will simply be worse. If these clowns can't work together on something this serious, they need to be removed and replaced with people who can. It's time to forget about political parties and GO TO WORK FOR THE COUNTRY!

I have been convinced for some time now that many of those in office in congress are ones that want this to happen. After all many of them are those that wanted our government toppled and replaced back in the 60's.

Quote from: grammyluv on September 25, 2008, 02:58:14 AM

Amen to both. Did anyone see the presidents speech tonight? Amazingly it was on the only channel that I DO get. However, I must of missed something because I really didn't hear much of a solution. He said "recession" which I thought was minimizing the situation and then at the end he kind of gave encouragement to the effect of: "Don't worry people, it'll all be okay" at which time I felt wind being blown up my backside.

Yes, I did see that. Keep in mind that a part of his job is to keep the people from panicking. If people did panic as they did at the start of the Great Depression then it wouldn't matter what Congress does or does not do. Such a situation would be much worse than it was back then as there are so many more people now. He has to do and say what is necessary to keep people calm.

Quote from: grammyluv on September 25, 2008, 03:00:53 AM

Ever notice that when you use spell check and Obama's name is anywhere around it will ask you about it? Spell check must think we mean Osama.....and maybe we do! ;D :o ;D

;D ;D Yes, I have noticed that also but then my spell check also highlights Osama. I don't think it likes either one. Perhaps it's a morally correct spell checker. :D :D

I posted news the other day on how Congress plans to allow the drilling ban law expire. Apparently that is not totally true according to this bit of news:

Steny Hoyer: Psst: We’ll Get A Ban On Drilling Next Year

Update: While searching Thomas for what Congress did yesterday, I ran across this gem

Quote

H.R.7051 : To prohibit issuance of any lease or other authorization by the Federal Government that authorizes exploration, development, or production of oil or natural gas in any marine national monument or national marine sanctuary or in the fishing grounds known as Georges Bank in the waters of the United States. Sponsor: Rep Markey, Edward J. [MA-7] (introduced 9/24/2008) Status: Referred to the House Committee on Natural Resources.

It’s not the first time he has done something like this (H.R. 5588), but, it shows some little stealth actions to make sure there is no drilling.

Yet another example of how much the Democrats really care about the prices American’s pay at the pump

Quote

House Majority Leader Steny Hoyer (D-Md.) told CNSNews.com on Wednesday that restoring the ban on new offshore oil drilling leases “will be a top priority for discussion next year” if the Democrats retain control of Congress.

“I am sure it will be a top priority for discussion next year,” Hoyer said when CNSNews.com asked him if Democrats would fight to restore the ban.

Hey, $5 gas that is increasingly hard to find is no big deal to elected Democrats. I wonder how the average Democrat voter looks at this, as they attempt to even find gas at high prices.

Quote

If the ban does expire on Tuesday, as expected, most U.S. waters 3 miles or more off the beach will be legally eligible for federal offshore oil drilling leases.

Officials from the U.S. Interior Department, which oversees federal offshore leases, told CNSNews.com on Monday that even without the ban other existing laws and regulations mean it will take at least 5 years before new leases are actually issued.

Doesn’t nationalized healthcare sound wonderful in light of that time frame? Government at its finest.

Lawmakers: Wall Street rescue accord reached
Dodd, Frank: Agreement in principle, expect passage of bill within days

Key Republicans and Democrats reported agreement Thursday on an outline for a historic $700 billion bailout of the financial industry, but there was still resistance from rank-and-file House Republicans despite warnings of an impending panic.

“I now expect we will, indeed, have a plan that can pass the House, pass the Senate, be signed by the president and bring a sense of certainty to this crisis that is sill roiling in the market,” Sen. Bob Bennett, R-Utah, said as members of both parties emerged from a two-hour negotiating session.

Negotiators planned to present the outline at a White House meeting later Thursday with President Bush and the rivals to replace him, Republican John McCain and Democrat Barrack Obama.
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“We’re very confident that we can act expeditiously,” said Sen. Chris Dodd, D-Conn., the Banking Committee chairman.

Not everyone in the closed-door talks was as optimistic. Rep. Spencer Bachus of Alabama, the only House Republican in the bargaining meeting, stopped short of saying he agreed with the other lawmakers on an imminent deal.

“There was progress today,” said Bachus, the senior Republican on the House Financial Services panel.

Later, he issued a statement saying he was not empowered to strike any deals and there was “no agreement other than to continue discussions.”

Both houses’ Republican leaders, Rep. John Boehner and Sen. Mitch McConnell, also issued statements saying there was no agreement.

Still, the White House called the announcement “a good sign that progress is being made.”

“We’ll want to hear from (Treasury) Secretary (Henry) Paulson and take a look at the details. We look forward to a good discussion at the meeting this afternoon,” said Tony Fratto, the deputy White House press secretary.

A Treasury spokeswoman said the proposal was being reviewed there.

On Wall Street, stock prices were up late in the trading day, but not by as much as earlier in the day.

The core of the plan proposed by the administration just a few days ago envisions the government buying up sour assets of shaky financial firms in a bid to keep them from going under and to stave off a potentially severe recession.

Obama and McCain called for a bipartisan effort to deal with the crisis, little more than five weeks before national elections in which the economy has emerged as the dominant theme.

McCain on Wednesday asked Obama to agree to delay their first debate, scheduled for Friday, to deal with the meltdown. Obama said the debate should go ahead.

Congressional negotiators said Thursday there were few obstacles to a final agreement, although no details of an accord were immediately available.

“There really isn’t much of a deadlock to break,” said Rep. Barney Frank, D-Mass, chairman of the House Financial Services Committee.

But there were fresh signs of trouble in the House Republican Caucus. A group of GOP lawmakers circulated an alternative designed to attract private money back into the credit markets with less government intrusion.

Under that proposal, the government would provide insurance to companies that agree to hold frozen assets, rather than purchase them directly as envisioned under the administration’s plan. The firms would have to pay insurance premiums to the Treasury Department for the coverage.

“The taxpayers haven’t done anything wrong,” said Rep Eric Cantor, R-Va., adding that rather than require them to bear the cost of the bailout, the alternative “pretty much puts the burden on Wall Street over time.”

Boehner, R-Ohio, the minority leader, was huddling with McCain on the rescue. When asked whether the GOP presidential nominee could corral restive Republicans to support the plan, Boehner said, “Who knows?”

Bush told the nation in a televised address Wednesday night that passage of the package his administration has proposed was urgently needed to calm the markets and restore confidence in the reeling financial system.

House Speaker Nancy Pelosi, D-Calif., said Bush’s agreement with Democrats on limiting pay for executives of bailed-out financial institutions and giving taxpayers an equity stake in the companies cleared a significant hurdle.

It was not immediately clear how lawmakers had resolved differences over how to phase in the unprecedented cost — a step demanded by Democrats and some Republicans who want stronger congressional control over the bailout — without spooking markets. The idea of letting the government take an ownership stake in troubled companies as part of the rescue, rather than just buying bad debt, also has been a topic of intense negotiation.

Frank told The Associated Press Thursday both elements would be included in the legislation.

Bush acknowledged Wednesday night that the bailout would be a “tough vote” for lawmakers. But he said failing to approve it would risk dire consequences for the economy and most Americans.

“Our entire economy is in danger,” he said.

165 economists rip bailout plan
Contend administration proposal has 3 pitfalls

At least 165 economists have signed a letter to Congress members warning of three pitfalls in the Bush administration's $700 billion proposal to deal with the Wall Street crisis.

The economists say they are well aware of the current financial situation and agree there's a need for bold action but ask Congress "not to rush."

They urge lawmakers to hold appropriate hearings and "to carefully consider the right course of action."

The three problems with the plan proposed by Treasury Secretary Henry Paulson, the economists say, are its fairness, ambiguity and long-term effects.

President Bush was joined today by presidential candidates John McCain and Barack Obama at an emergency White House meeting on the plan. Key members of Congress said this morning they had struck a deal in principle, but the outcome of the proposal is unclear. Participants in the White House meeting called it extremely contentious.

The proposal allows the government to buy the faulty mortgage-based assets of severely weakened financial institutions to prevent them from collapsing and setting off a chain of events that would affect citizens, including depletion of retirement accounts, rising home foreclosures, bankrupt businesses and lost jobs.

The economists contend the plan is unfair, because it's a "subsidy to investors at taxpayers' expense."

"Investors who took risks to earn profits must also bear the losses," the economists say in their letter. "Not every business failure carries systemic risk. The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise."

The plan is ambiguous, they contend, as neither "the mission of the new agency nor its oversight are clear."

"If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards," the letter states.

If the plan is enacted, the economists argue further, "its effects will be with us for a generation."

"For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity," they say. "Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted."

The signatories as of this morning were:

Acemoglu Daron (Massachussets Institute of Technology)
Adler Michael (Columbia University)
Admati Anat R. (Stanford University)
Alvarez Fernando (University of Chicago)
Andersen Torben (Northwestern University)
Barankay Iwan (University of Pennsylvania)
Barry Brian (University of Chicago)
Beim David (Columbia University)
Berk Jonathan (Stanford University)
Bisin Alberto (New York University)
Bittlingmayer George (University of Kansas)
Boldrin Michele (Washington University)
Brooks Taggert J. (University of Wisconsin)
Brynjolfsson Erik (Massachusetts Institute of Technology)
Buera Francisco J.(UCLA)
Carroll Christopher (Johns Hopkins University)
Cassar Gavin (University of Pennsylvania)
Chaney Thomas (University of Chicago)
Chari Varadarajan V. (University of Minnesota)
Chauvin Keith W. (University of Kansas)
Chintagunta Pradeep K. (University of Chicago)
Christiano Lawrence J. (Northwestern University)
Cochrane John (University of Chicago)
Coleman John (Duke University)
Constantinides George M. (University of Chicago)
Crain Robert (UC Berkeley)
Culp Christopher (University of Chicago)
De Marzo Peter (Stanford University)
Dubé Jean-Pierre H. (University of Chicago)
Edlin Aaron (UC Berkeley)
Eichenbaum Martin (Northwestern University)
Ely Jeffrey (Northwestern University)
Eraslan Hülya K. K.(Johns Hopkins University)
Faulhaber Gerald (University of Pennsylvania)
Feldmann Sven (University of Melbourne)
Fernandez-Villaverde Jesus (University of Pennsylvania)
Fox Jeremy T. (University of Chicago)
Frank Murray Z.(University of Minnesota)
Fuchs William (University of Chicago)
Fudenberg Drew (Harvard University)
Gabaix Xavier (New York University)
Gao Paul (Notre Dame University)
Garicano Luis (University of Chicago)
Gerakos Joseph J. (University of Chicago)
Gibbs Michael (University of Chicago)
Goettler Ron (University of Chicago)
Goldin Claudia (Harvard University)
Gordon Robert J. (Northwestern University)
Guadalupe Maria (Columbia University)
Hagerty Kathleen (Northwestern University)
Hamada Robert S. (University of Chicago)
Hansen Lars (University of Chicago)
Harris Milton (University of Chicago)
Hart Oliver (Harvard University)
Hazlett Thomas W. (George Mason University)
Heaton John (University of Chicago)
Heckman James (University of Chicago - Nobel Laureate)
Henderson David R. (Hoover Institution)
Henisz, Witold (University of Pennsylvania)
Hertzberg Andrew (Columbia University)
Hite Gailen (Columbia University)
Hitsch Günter J. (University of Chicago)
Hodrick Robert J. (Columbia University)
Hopenhayn Hugo (UCLA)
Hurst Erik (University of Chicago)
Imrohoroglu Ayse (University of Southern California)
Israel Ronen (London Business School)
Jaffee Dwight M. (UC Berkeley)
Jagannathan Ravi (Northwestern University)
Jenter Dirk (Stanford University)
Jones Charles M. (Columbia Business School)
Kaboski Joseph P. (Ohio State University)
Kaplan Ethan (Stockholm University)
Karolyi, Andrew (Ohio State University)
Kashyap Anil (University of Chicago)
Keim Donald B (University of Pennsylvania)
Ketkar Suhas L (Vanderbilt University)
Kiesling Lynne (Northwestern University)
Klenow Pete (Stanford University)
Koch Paul (University of Kansas)
Kocherlakota Narayana (University of Minnesota)
Koijen Ralph S.J. (University of Chicago)
Kondo Jiro (Northwestern University)
Korteweg Arthur (Stanford University)
Kortum Samuel (University of Chicago)
Krueger Dirk (University of Pennsylvania)
Ledesma Patricia (Northwestern University)
Lee Lung-fei (Ohio State University)
Leuz Christian (University of Chicago)
Levine David I.(UC Berkeley)
Levine David K.(Washington University)
Linnainmaa Juhani (University of Chicago)
Lucas Robert (University of Chicago - Nobel Laureate)
Luttmer Erzo G.J. (University of Minnesota)
Manski Charles F. (Northwestern University)
Martin Ian (Stanford University)
Mayer Christopher (Columbia University)
Mazzeo Michael (Northwestern University)
McDonald Robert (Northwestern University)
Meadow Scott F. (University of Chicago)
Mehra Rajnish (UC Santa Barbara)
Mian Atif (University of Chicago)
Middlebrook Art (University of Chicago)
Miguel Edward (UC Berkeley)
Miravete Eugenio J. (University of Texas at Austin)
Miron Jeffrey (Harvard University)
Moretti Enrico (UC Berkeley)
Moriguchi Chiaki (Northwestern University)
Moro Andrea (Vanderbilt University)
Morse Adair (University of Chicago)
Mortensen Dale T. (Northwestern University)
Mortimer Julie Holland (Harvard University)
Muralidharan Karthik (UC San Diego)
Nevo Aviv (Northwestern University)
Ohanian Lee (UCLA)
Pagliari Joseph (University of Chicago)
Papanikolaou Dimitris (Northwestern University)
Paul Evans (Ohio State University)
Peltzman Sam (University of Chicago)
Perri Fabrizio (University of Minnesota)
Phelan Christopher (University of Minnesota)
Piazzesi Monika (Stanford University)
Piskorski Tomasz (Columbia University)
Rampini Adriano (Duke University)
Reagan Patricia (Ohio State University)
Reich Michael (UC Berkeley)
Reuben Ernesto (Northwestern University)
Roberts Michael (University of Pennsylvania)
Rogers Michele (Northwestern University)
Rotella Elyce (Indiana University)
Ruud Paul (Vassar College)
Safford Sean (University of Chicago)
Sandbu Martin E. (University of Pennsylvania)
Sapienza Paola (Northwestern University)
Savor Pavel (University of Pennsylvania)
Scharfstein David (Harvard University)
Seim Katja (University of Pennsylvania)
Shang-Jin Wei (Columbia University)
Shimer Robert (University of Chicago)
Shore Stephen H. (Johns Hopkins University)
Siegel Ron (Northwestern University)
Smith David C. (University of Virginia)
Smith Vernon L.(Chapman University- Nobel Laureate)
Sorensen Morten (Columbia University)
Spiegel Matthew (Yale University)
Stevenson Betsey (University of Pennsylvania)
Stokey Nancy (University of Chicago)
Strahan Philip (Boston College)
Strebulaev Ilya (Stanford University)
Sufi Amir (University of Chicago)
Tabarrok Alex (George Mason University)
Taylor Alan M. (UC Davis)
Thompson Tim (Northwestern University)
Tschoegl Adrian E. (University of Pennsylvania)
Uhlig Harald (University of Chicago)
Ulrich, Maxim (Columbia University)
Van Buskirk Andrew (University of Chicago)
Veronesi Pietro (University of Chicago)
Vissing-Jorgensen Annette (Northwestern University)
Wacziarg Romain (UCLA)
Weill Pierre-Olivier (UCLA)
Williamson Samuel H. (Miami University)
Witte Mark (Northwestern University)
Wolfers Justin (University of Pennsylvania)
Woutersen Tiemen (Johns Hopkins University)
Zingales Luigi (University of Chicago)

Critics of U.S. gloating over 'crumbling capitalism'
U.N. denounces 'unbridled greed and irresponsibility of the powerful

As the US sought to find a way out of the financial crisis, its critics at the United Nations were gloating over what they described as the crumbling of US capitalism.

Miguel D’Escoto Brockmann, the former Sandinista revolutionary in Nicaragua who is now serving as president of the UN 192-nation General Assembly, broke with protocol in his opening speech to denounce the “unbridled greed and irresponsibility of the powerful.”

“More than half the world’s people languish in hunger and poverty while more and more money is spent on weapons, war, luxuries and totally superfluous and unnecessary things,” he said.

Cristina Kirchner, Argentina’s Pernonist president, said the world could no longer talk of the “Tequila Effect” or “Caipirinha Effect” emanating from developing nations such as Mexico or Brazil. “Now we should talk about the ’Jazz Effect’ coming from the centre of the world’s leading economy,” she said.

President Mahmoud Ahmadinejad of Iran, meanwhile, baldly proclaimed: “The American Empire is reaching the end of the road.”

Even friends of the United States took aim at greed on Wall Street. “We must not allow the burden of the boundless greed of a few to be shouldered by all,” President Luiz Inacio Lula da Silva of Brazil told the assembly.

President Barrat Jagdeo of Guyana complained: “There is clear evidence that many of the standards and much of the scrutiny that are applied routinely to smaller countries were not applied to some larger countries which actually pose much greater systemic risk.”

Philippines President Gloria Macapagal Arroyo said “economic uncertainty has moved like a terrible tsunami around the globe, wiping away gains, erasing progress - not just here in Manhattan island, but also in the many islands of the Philippines.” “Just when we thought the worst had passed, the light at the end of the tunnel became an oncoming train, hurtling forward with new shocks to the global financial system.”

Ban Ki-moon, the UN secretary-general, told the visiting leaders: “We need a new understanding on business ethics and governance, with more compassion and less uncritical faith in the ‘magic’ of markets. President Nicholas Sarkozy of France called for a wholesale overhaul of the “crazy” financial system. “Let us rebuild together a regulated capitalism in which whole swathes of financial activity are not left to the sole judgment of market operators,” Mr Sarkozy said.

The financial crisis put actor Michael Douglas, who proclaimed “Greed is Good” the film “Wall Street”, in an awkward spot. Appearing at a press conference on nuclear disarmament, Douglas was asked about his role as Gordon Gekko. “Are you saying, Gordon, that greed is not good?” a reporter asked. “I’m not saying that,” Douglas replied. “And my name is not Gordon. He’s a character I played 20 years ago.”

Statement By McCain Campaign On Negotiations

John McCain’s decision to suspend his campaign was made in the hopes that politics could be set aside to address our economic crisis.

In response, Americans saw a familiar spectacle in Washington. At a moment of crisis that threatened the economic security of American families, Washington played the blame game rather than work together to find a solution that would avert a collapse of financial markets without squandering hundreds of billions of taxpayers’ money to bailout bankers and brokers who bet their fortunes on unsafe lending practices.

Both parties in both houses of Congress and the administration needed to come together to find a solution that would deserve the trust of the American people. And while there were attempts to do that, much of yesterday was spent fighting over who would get the credit for a deal and who would get the blame for failure. There was no deal or offer yesterday that had a majority of support in Congress. There was no deal yesterday that included adequate protections for the taxpayers. It is not enough to cut deals behind closed doors and then try to force it on the rest of Congress — especially when it amounts to thousands of dollars for every American family.

The difference between Barack Obama and John McCain was apparent during the White House meeting yesterday where Barack Obama’s priority was political posturing in his opening monologue defending the package as it stands. John McCain listened to all sides so he could help focus the debate on finding a bipartisan resolution that is in the interest of taxpayers and homeowners. The Democratic interests stood together in opposition to an agreement that would accommodate additional taxpayer protections.

Senator McCain has spent the morning talking to members of the Administration, members of the Senate, and members of the House. He is optimistic that there has been significant progress toward a bipartisan agreement now that there is a framework for all parties to be represented in negotiations, including Representative Blunt as a designated negotiator for House Republicans. The McCain campaign is resuming all activities and the Senator will travel to the debate this afternoon. Following the debate, he will return to Washington to ensure that all voices and interests are represented in the final agreement, especially those of taxpayers and homeowners.

____________

John McCain made an urgent appeal to House Republicans at their 9:30 leadership meeting Friday morning.

A senior House GOP leadership aide involved in the negotiations described McCain’s message this way, “We need a deal. We need a deal. We need a deal.”…

House Republicans seem poised to cave on this (says one House Republican, “We don’t want to be seen as obstructionists”), although they have been assured that some of their ideas can be incorporated into the final deal.

Specifically, House GOP leaders want the bill to include federal mortgage insurance as an alternative to the wholesale buying of mortgage securities.

The largest bank failure in US history

WaMu failure raises the stakes even higher

Both major-party presidential candidates, in Washington on the proposed Wall Street bailout and perhaps headed to Mississippi for their first debate tonight, have weighed in on the latest sign of how bad the financial crisis is -- the federal takeover Thursday night of Washington Mutual, the largest bank failure in US history.

"The government-brokered sale of Washington Mutual is the latest sign of the perilous situation facing our financial system and our economy. Although Americans with deposits at Washington Mutual should rest assured that they are safe under this arrangement, the failures of our financial institutions threaten economic instability, jobs, and the incomes of American families. This is a time to rise above politics for the good of the country. We cannot risk an economic catastrophe. This is not a Democratic problem or a Republican problem – this is an American problem. Now, we must find an American solution," Democrat Barack Obama said in his statement.

Republican John McCain issued this statement: "Today's financial crisis threatens all Americans and the sale of Washington Mutual is just the latest indicator of the stresses in our financial markets that threaten to cut off the credit needed by our families, businesses, and state and local governments. I am committed to working with all parties of good faith in both houses of Congress, the Administration, and among Democrats and Republicans to reach an agreement to stabilize our financial markets. We can do so in a timely and effective fashion while protecting the taxpayer from excessive demands on their strained checkbooks. It is our obligation to restore the confidence of Americans in these valuable institutions, and demonstrate to taxpayers that Washington will be capable of addressing great national problems."

McCain's camp also issued a memo Thursday night disputing reports -- and accusations from Democrats -- that McCain torpedoed a tentative bailout deal on Thursday:

"Despite today's news reports, there never existed a 'deal,' but merely a proposal offered by a small, select group of Members of Congress. As of right now, there exists only a series of principles, including greater oversight and measures to address CEO pay. However, these principles do not enjoy a consensus in Congress.

"At today's cabinet meeting, John McCain did not attack any proposal or endorse any plan. John McCain simply urged that for any proposal to enjoy the confidence of the American people, stressing that all sides would have to cooperate and build a bipartisan consensus for a solution that protects taxpayers.

"However, the Democrats allowed Senator Obama to run their side of the meeting. That did not work as the meeting quickly devolved into a contentious shouting match that did not seek to craft a bipartisan solution.

"At this moment, the plan that has been put forth by the Administration does not enjoy the confidence of the American people as it will not protect that taxpayers and will sacrifice Main Street in favor of Wall Street.

"The bottom line is that as of tonight, there are not enough Republican or Democrat votes for the current plan. However, we are still optimistic that a bipartisan solution will be found. Republicans and Democrats want a deal that will protect the taxpayers."

Deal reached on financial markets bailout
$700-billion deal aimed at saving the nation's shaky economy from collapse

Congressional negotiators and the Bush administration's top Treasury officials go to work Sunday on settling the final details of a historic $700 billion Wall Street bailout aimed at keeping credit flowing and saving the nation's shaky economy from collapsing into a crippling recession.

"We've made great progress. We have to get it committed to paper so that we can formally agree," House Speaker Nancy Pelosi, D-Calif., told reporters in announcing the tentative deal shortly after midnight Sunday.

Congressional leaders hope to have a House vote on the measure Monday, with a vote in the Senate coming later.
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All sides expressed optimism and Senate Majority Leader Harry Reid, D-Nev., said he expected an announcement soon.

"We've still got more to do to finalize it, but I think we're there," said Treasury Secretary Henry Paulson, who participated in the negotiations in the Capitol.

'Worked out everything'
"We worked out everything," said Sen. Judd Gregg, R-N.H., the chief Senate Republican in the talks.

Under the plan, the federal government would purchase mortgage-backed securities and other bad debts held by banks and other investors. The money should help troubled lenders make new loans and keep credit lines open. The government would later try to sell the discounted loan packages at the best possible price.

At the insistence of House Republicans, some of the program's $700 billion would be devoted to a program that would encourage holders of distressed mortgage-backed securities to keep them and buy government insurance to cover defaults.

The legislation would place "reasonable" limits on severance packages for executives of companies that benefit from the rescue plan, said a senior administration official who was authorized to speak only on background.

It also calls for the financial sector to help make up the difference if the government does not recoup its investment in five years, the official said, but details remained unclear.

Also, the government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies' future profits.

Help for homeowners

To help struggling homeowners, the plan would require the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.

Despite the changes made during an intense week of negotiations, the heart of the program remains President Bush's original idea: spend billions of taxpayer dollars to buy mortgage-backed securities whose value has plummeted.

It was not immediately clear how many House Republicans might vote for the measure. With the election five weeks away, Democrats have said they would not push a plan that appeared sharply partisan in nature.

Obama responds
Democratic presidential candidate Barack Obama supported the agreement but lay the blame for the crisis on irresponsibility in the financial industry as well as poor government oversight.

"The breakthrough between Congress and the Administration is the culmination of a sorry period in our history, in which reckless speculation and greed on Wall Street and lax oversight from Washington led to a meltdown of our financial markets," he said in a statement.

The agreement was necessary, however, Obama said.

"But regardless of how we got here, a failure to deal with the current crisis would have devastating consequences for our economy, costing millions of Americans their jobs and retirement security," he added.

By JULIE HIRSCHFELD DAVIS, Associated Press Writer
2 minutes ago

WASHINGTON - Key lawmakers who struck a post-midnight deal on a $700 billion bailout for the financial industry predicted Sunday it would pass Congress, putting in place the largest government intervention in markets since the Great Depression.

Negotiators sought to iron out the final shape of the legislation and it still had to be reviewed by House Republicans, whose fierce opposition to a federal rescue nearly torpedoed an emerging bipartisan pact late in the week.

But officials in both parties were hopeful for a House vote Monday, and the two presidential candidates said they probably would support it.

Under the rescue plan, the government would pump as much as $700 billion into beleaguered financial firms that are starving for cash, taking over huge amounts of devalued assets from the companies in the hopes of unlocking frozen credit.

The proposal is designed to end a vicious downward spiral that has battered all levels of the economy, in which hundreds of billions of dollars in investments based on mortgages gone bad have cramped banks' willingness to lend.

"This is the bottom line: If we do not do this, the trauma, the chaos and the disruption to everyday Americans' lives will be overwhelming, and that's a price we can't afford to risk paying," Sen. Judd Gregg, the chief Senate Republican in the talks, told The Associated Press on Sunday. "I do think we'll be able to pass it, and it will be a bipartisan vote."

A breakthrough came when Democrats agreed to incorporate a GOP demand — letting the government insure some bad home loans rather than buy them — designed to limit the amount of federal money used in the rescue.

Another important bargain, vital to attracting support from centrist Democrats and Republicans who are fiscal hawks, would require that the government, after five years, submit a plan to Congress on how to recoup any losses.

The presidential nominees came behind the outlines of the bailout.

"This is something that all of us will swallow hard and go forward with," said Republican Sen. John McCain of Arizona. "The option of doing nothing is simply not an acceptable option."

His Democratic rival, Illinois Sen. Barack Obama, sought credit for taxpayer safeguards added to the initial proposal from the Bush administration. "I was pushing very hard and involved in shaping those provisions," he said.

House Republicans said they're still reviewing the plan.

"We are not ready to say that a deal is done," Rep. Eric Cantor, R-Va.

Congressional leaders announced a tentative deal in the early hours of Sunday morning after marathon negotiations at the Capitol.

"We've still got more to do to finalize it, but I think we're there," said Treasury Secretary Henry Paulson, who also participated in the negotiations in the Capitol.

Executives whose companies benefit from the rescue could not get "golden parachutes" and would see their pay packages limited.

The government would receive stock warrants in return for the bailout relief, giving taxpayers a chance to share in financial companies' future profits.

To help struggling homeowners, the plan requires the government to try renegotiating the bad mortgages it acquires with the aim of lowering borrowers' monthly payments so they can keep their homes.

"Nobody got everything they wanted," said Democratic Rep. Barney Frank of Massachusetts, chairman of the House Financial Services Committee. He predicted it would pass, though not by a large majority.

Gregg, R-N.H., said he thinks taxpayers will come out as financial winners. "I don't think we're going to lose money, myself. We may, it's possible, but I doubt it in the long run," he said.

Frank appeared on C-SPAN, Obama was on CBS' "Face the Nation," McCain spoke on "This Week" on ABC and Cantor was on "Late Edition" on CNN.

Day of Reckoning
by Patrick J. Buchanan

How did the United States of America, the richest nation on earth, whose economy represents 30 percent of the Global Economy, arrive at the precipice of a financial panic and collapse?

The answer lies in the abject failure of both America's financial elite and the political elite of both parties -- the same elites now working together to determine how much of our wealth will be needed to bail the nation out of the crisis of their own creation.

Big Government is riding to the rescue -- saddlebags full of our tax dollars -- to save us from the consequences of the stupidity and folly of Big Government. New York and Washington, the twin cities responsible for the crisis, are now being hailed by the media as the 7th Cavalry, coming to rescue a beleaguered nation. Continued

Had there not been a steady and constant infusion of easy money and credit into the U.S. economy by the Fed, for years on end, a housing bubble of the magnitude of the one that has just exploded could never have been created.

Had the politicians of both parties not coerced and pressured banks, S&Ls, Fannie Mae and Freddie Mac to make all those sub-prime mortgages, then to tie this rotten paper to good paper, convert it into securities and sell to banks all over the world, there would have been no global financial crisis.

Had they seen this coming and acted sooner, the Federal Reserve and U.S. Treasury would not today, like Henny Penny, be crying, "The sky is falling!" and the end times are at hand, unless we give them 5 percent of our gross domestic product to buy up suspect securities backed by sub-prime mortgages.

Consider what the "Paulson Plan" of Treasury Secretary Hank Paulson, against which Sen. Richard Shelby and the House Republicans rebelled, entails.

Since Americans save nothing and have to borrow from abroad to finance our trade and budget deficits, wars and foreign aid, what the secretary proposes is this: that Congress authorize the Treasury to spend $700 billion to buy up the toxic paper on the books not only of U.S. banks, but of foreign banks operating in the United States. According to The Washington Times, the Treasury would also be authorized to buy up securities backed by rotten auto loans, student loans and credit card debts.

Thus America would be borrowing from China, Japan and the Middle East to tidy up the balance sheets of the banks of China, Japan and the Middle East. And all the rotten paper will be offloaded onto U.S. taxpayers, who hopefully will be able to recoup some of their losses, because some of the paper will be good.

Why should we do this? Because otherwise there will be a financial panic, followed by a market collapse, wiping out pensions, 401Ks, portfolios and defined benefit plans of Middle America, forcing millions into bankruptcy and millions more to put off retirement and continue working until they drop.

In a democracy, it is said, you get the kind of government you deserve. But what did the American people do to deserve this? What did they do to deserve the quality of financial, corporate and political leadership that marched them into this mess -- and that today postures as their rescuers?

Consider what this mess has already cost taxpayers: $29 billion to buy the rotten paper of Bear Stearns so J.P. Morgan would buy the investment bank; $85 billion for 80 percent of AIG to nationalize it; $150 billion in a stimulus package to flood the nation with cash; perhaps $300 billion to bail out Fannie Mae and Freddie Mac; and now $700 billion to begin taking the toxic paper off the hands of America's big banks.

And even if this is passed, say Paulson and Fed Chairman Ben Bernanke, there is no guarantee this will resolve the crisis. If the $700 billion is not provided and the toxic paper is not pulled off the books of the world's banks by U.S. taxpayers, however, we face an almost certain collapse, surging bankruptcies, rising unemployment, a shrinkage of GDP and a recession, if not worse.

Yet, the fellows who tell us we face a financial mushroom cloud over every American city if we do not act at once to provide the $700 billion did not see this coming and can make no guarantee that this will succeed and end the crisis.

Nevertheless, it must be done, and done now, as collapse is imminent.

Looking at all the money being ladled out by the U.S. government to prevent a collapse, and the diminished revenue coming in, it is hard to see how America avoids future deficits that reach $1 trillion a year. These will imperil both the dollar itself and the ability of the United States, which saves nothing, to borrow from the rest of the world. The downsizing of America is at hand.

Yes, indeed, we have arrived at the Day of Reckoning for Uncle Sam.

Quote

A summary of the tentative agreement released by Ms. Pelosi’s office said the plan “gives taxpayers an ownership stake and profit-making opportunities with participating companies; puts taxpayers first in line to recover assets if a participating company fails; (and) guarantees taxpayers are repaid in full — if other protections have not actually produced a profit.” (See Ms. Pelosi’s summary.)
Additionally, the summary said the legislation will expand the range of firms that can sell troubled assets to the government to include pension plans, local governments and community banks serving “low- and middle-income families.” …

The summary issued by Ms. Pelosi’s office said the legislation will include provisions giving Treasury the ability to work with cash-strapped homeowners whose mortgages are purchased by the federal government to refinance into a more affordable mortgage. Other foreclosure-prevention measures included in the agreement are an extension of the tax holiday for homeowners who face foreclosure, as well as a tax break for community banks who held shares of Fannie Mae and Freddie Mac. The rescue plan will allow affected banks to take an immediate tax deduction on losses from investments in the two firms, which were taken over by the federal government earlier this month.

Lawmakers also included provisions allowing them to keep a close eye on the Treasury program, including a bipartisan oversight board appointed by members of both parties in Congress, an inspector general to monitor Treasury decisions, and regular audits from the Government Accountability Office. Additionally, Treasury will be required to make transactions made through the troubled asset program available publicly online. Unlike the original Treasury proposal, which would have given the department legal immunity in the program, the tentative agreement reached late Saturday allows for judicial review of Treasury decisions.

Most of the pork got stripped from it too, so thats good.

Quote

The funding of the Housing Trust Fund, the slush fund that feeds ACORN and La Raza, is out. You can thank House Republicans for enough obstructionism to get that result. Other changes made to the final version of the bailout, according to a source on the Hill, were the removal of several provisions:

Provision to provide unions and other activist groups with proxy access for corporate boards
Provision to mandate shareholder votes on compensation issues (union priority)
Diversion of funds into a housing fund to support left-wing activist groups like ACORN
A provision to allow trial judges to arbitrarily adjust mortgages, creating bonanza for trial lawyers
A provision to require the government to sell to state and local governments at a discount homes the government acquires as a result of foreclosure

So far it looks like like a decent proposal. The bill is still being reviewed though and isn't finalized yet.

US ‘will lose financial superpower status... The world will never be the same again'

Prophecy News Watch

The US will lose its role as a global financial “superpower” in the wake of the financial crisis, Peer Steinbrück, the German finance minister, said on Thursday, blaming Washington for failing to take the regulatory steps that might have averted the crisis.

“The US will lose its status as the superpower of the world financial system. This world will become multipolar” with the emergence of stronger, better capitalised centres in Asia and Europe, Mr Steinbrück told the German parliament. “The world will never be the same again.”

His were the most outspoken comments by a senior European government figure since Wall Street fell into chaos two weeks ago.

He later told journalists: “When we look back 10 years from now, we will see 2008 as a fundamental rupture. I am not saying the dollar will lose its reserve currency status, but it will become relative.”

The minister, who has spearheaded German efforts to rein in financial markets in the past two years, attacked the US government for opposing stricter regulations even after the subprime crisis had broken out last summer.

The US notion that markets should remain as free as possible from regulatory shackles “was as simplistic as it was dangerous”, he said.

But Mr Steinbrück had warm words for the US’s crisis management in the past fortnight, including the government’s planned $700bn rescue package for the financial sector. Washington, he said, had earned credit for acting not just in the US interest but also in the interest of other nations.

Yet he repeated Germany’s refusal to mount a similar rescue operation using taxpayers’ money to acquire toxic assets. “This crisis originated in the US and is mainly hitting the US,” he said. In Europe and Germany, such a package would be “neither sensible nor necessary”.

The US, Mr Steinbrück said, had failed in its oversight of investment banks, adding that the crisis was an indictment of the US two-tier banking system and its “weak, divided financial oversight”.

He blamed Washington for refusing to consider proposals Berlin had made as it chaired the Group of Eight industrial nations last year. These proposals, he said, “elicited mockery at best or were seen as a typical example of Germans’ penchant for over-regulation”.

His comments followed calls this week by Nicolas Sarkozy, the French president and current holder of the European Union presidency, for an emergency G8 meeting on the crisis.

Mr Steinbrück’s proposals include a ban on “purely speculative short selling”; a crackdown on variable pay for bank managers, which had encouraged reckless risk-taking; a ban on banks securitising more than 80 per cent of the debt they hold; international standards making bank managers personally responsible for the consequences of their trades; and increased co-operation between European supervisors.

Following a meeting with Christine Lagarde, his French counterpart, in Berlin, he said France and Germany would set up a working group of treasury, central bank and supervisory authority officials that would consider tougher regulation of short selling.

Quote from: Pastor Roger on September 28, 2008, 12:32:29 PM

THE ENEMY WITHIN

“A nation can survive its fools, and even the ambitious. But it cannot survive treason from within. An enemy at the gates is less formidable, for he is known and carries his banner openly. But the traitor moves amongst those within the gate freely, his sly whispers rustling through all the alleys, heard in the very halls of government itself.

For the traitor appears not a traitor; he speaks in accents familiar to his victims, and he wears their face and their arguments, he appeals to the baseness that lies deep in the hearts of all men. He rots the soul of a nation, he works secretly and unknown in the night to undermine the pillars of the city, he infects the body politic so that it can no longer resist. A murder is less to fear.” — Cicero (106-43 BC)

I think this says nearly everything, but I do have a few things to add. We don't have any reason to trust anyone - not the people who caused the mess and NOT the ones trying to fix the MESS! ADD ABSOLUTE CORRUPTION AND ORGANIZED CRIME AS THE TWO MOST MAJOR PLAYERS BEFORE AND AFTER THE CRISIS! WE MIGHT JUST BE WATCHING THE LAST MAJOR RIP-OFF OF A DYING REPUBLIC!

We've not been given anything to trust. Regardless of what the DC clowns put on paper, we will still have no idea how the money will be spent and what effect it will have. There is still a DON'T THINK, DON'T LOOK, DON'T QUESTION, DO IT NOW MENTALITY THAT CON-MEN LOVE! It has all the looks of a CRIME IN PROGRESS! CRIMINALS HAVE ALREADY GOTTEN THE BIGGEST PAYDAY IN HISTORY, AND THAT CAN'T BE DENIED! IS THIS A SECOND PAYDAY FOR THE CRIMINALS OF THE SAME MAGNITUDE? I don't know, but there is no reason to TRUST ANYTHING! I don't know much at all, but I don't LIKE any of it! What do I know? I am thinking that the explanations for what happened and the recommendations for how to fix it should be coming from various PRISONS! The more I see - THE WORSE IT GETS! I would understand NO! VOTES on this quite easily.

Hello Pastor Roger and All,

I watched most of this today and have BIGGER questions now than I did before the vote. It's almost as if the democrats took actions to make sure this didn't pass. If not, the speech of Pelosi right before the vote was INSANE! NOW it's supposed to be the republicans fault that this didn't pass. Let's forget about the 94 democrats who voted against this AND the 90% of the people calling in who were against this.

I'm going to guess that most folks think there are RATS in the soup, and there are. The remaining question is: How many RATS are in the soup that we don't know about? In terms of blame, there is plenty of blame to go around, but folks with common sense would all list: mortgage lenders, Treasury, Wall Street, the House, the Senate, and the Whitehouse. Maybe we should forget about the BLAME game for now and start with filing CRIMINAL CHARGES against everyone who violated the law. We are going to hear about many people going to PRISON, but that won't fix the problem even if they confiscate everything the criminals own (not even close). AND, there are RATS still in the soup who won't be charged with any criminal offenses. Many RIGHTS, WRONGS, AND ETHICAL CONCERNS involved are NOT currently covered by criminal law.

Any way we look at this, the taxpayers have already been taken for 1 TRILLION DOLLARS. If the bailout is done, that will mean the taxpayers have been taken for 2 TRILLION DOLLARS. Is there more that needs to be bailed out that we don't know about? WHY NOT? How many bailouts have already been done before this one? Did they work, and was that all? NO! I think it is fair to say that the RESULT will be HORRIBLE with or without the bailout. Has anything been said about regulatory actions to prevent something like this from happening again? WE MUST AT LEAST PUT THE CRIMINALS IN JAIL AND GET THE RATS OUT OF THE SOUP! There are probably other things that MUST be done sooner or later, and the taxpayers aren't going to like it. This is really a GROSS understatement! The taxpayers aren't going to TOLERATE THIS, and the taxpayers will eventually DEMAND full ACCOUNTABILITY! Criminals should NOT be given access to taxpayer MONEY!

Brothers and Sisters,

The following article is all over the Internet and in a host of newspapers today. It's probably close to the truth. Read it for what it's worth and you decide. It's a highly popular article right now, so I doubt you'll be able to miss it one way or another.
_______________________________________________

THEY GAVE YOUR MORTGAGE TO A LESS QUALIFIED MINORITY
by Ann Coulter
September 24, 2008

On MSNBC this week, Newsweek's Jonathan Alter tried to connect John McCain to the current financial disaster, saying: "If you remember the Keating Five scandal that (McCain) was a part of. ... He's really getting a free ride on the fact that he was in the middle of the last great financial scandal in our country."

McCain was "in the middle of" the Keating Five case in the sense that he was "exonerated." The lawyer for the Senate Ethics Committee wanted McCain removed from the investigation altogether, but, as The New York Times reported: "Sen. McCain was the only Republican embroiled in the affair, and Democrats on the panel would not release him."

So John McCain has been held hostage by both the Viet Cong and the Democrats.

Alter couldn't be expected to know that: As usual, he was lifting material directly from Kausfiles. What is unusual was that he was stealing a random thought sent in by Kausfiles' mother, who, the day before, had e-mailed: "It's time to bring up the Keating Five. Let McCain explain that scandal away."

The Senate Ethics Committee lawyer who investigated McCain already had explained that scandal away -- repeatedly. It was celebrated lawyer Robert Bennett, most famous for defending a certain horny hick president a few years ago.

In February this year, on Fox News' "Hannity and Colmes," Bennett said, for the eight billionth time:

"First, I should tell your listeners I'm a registered Democrat, so I'm not on (McCain's) side of a lot of issues. But I investigated John McCain for a year and a half, at least, when I was special counsel to the Senate Ethics Committee in the Keating Five. ... And if there is one thing I am absolutely confident of, it is John McCain is an honest man. I recommended to the Senate Ethics Committee that he be cut out of the case, that there was no evidence against him."

It's bad enough for Alter to be constantly ripping off Kausfiles. Now he's so devoid of his own ideas, he's ripping off the idle musings of Kausfiles' mother.

Even if McCain had been implicated in the Keating Five scandal -- and he wasn't -- that would still have absolutely nothing to do with the subprime mortgage crisis currently roiling the financial markets. This crisis was caused by political correctness being forced on the mortgage lending industry in the Clinton era.

Before the Democrats' affirmative action lending policies became an embarrassment, the Los Angeles Times reported that, starting in 1992, a majority-Democratic Congress "mandated that Fannie and Freddie increase their purchases of mortgages for low-income and medium-income borrowers. Operating under that requirement, Fannie Mae, in particular, has been aggressive and creative in stimulating minority gains."

Under Clinton, the entire federal government put massive pressure on banks to grant more mortgages to the poor and minorities. Clinton's secretary of Housing and Urban Development, Andrew Cuomo, investigated Fannie Mae for racial discrimination and proposed that 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low- to moderate-income borrowers by the year 2001.

Instead of looking at "outdated criteria," such as the mortgage applicant's credit history and ability to make a down payment, banks were encouraged to consider nontraditional measures of credit-worthiness, such as having a good jump shot or having a missing child named "Caylee."

Threatening lawsuits, Clinton's Federal Reserve demanded that banks treat welfare payments and unemployment benefits as valid income sources to qualify for a mortgage. That isn't a joke -- it's a fact.

When Democrats controlled both the executive and legislative branches, political correctness was given a veto over sound business practices.

In 1999, liberals were bragging about extending affirmative action to the financial sector. Los Angeles Times reporter Ron Brownstein hailed the Clinton administration's affirmative action lending policies as one of the "hidden success stories" of the Clinton administration, saying that "black and Latino homeownership has surged to the highest level ever recorded."

Meanwhile, economists were screaming from the rooftops that the Democrats were forcing mortgage lenders to issue loans that would fail the moment the housing market slowed and deadbeat borrowers couldn't get out of their loans by selling their houses.

A decade later, the housing bubble burst and, as predicted, food-stamp-backed mortgages collapsed. Democrats set an affirmative action time-bomb and now it's gone off.

In Bush's first year in office, the White House chief economist, N. Gregory Mankiw, warned that the government's "implicit subsidy" of Fannie Mae and Freddie Mac, combined with loans to unqualified borrowers, was creating a huge risk for the entire financial system.

Rep. Barney Frank denounced Mankiw, saying he had no "concern about housing." How dare you oppose suicidal loans to people who can't repay them! The New York Times reported that Fannie Mae and Freddie Mac were "under heavy assault by the Republicans," but these entities still had "important political allies" in the Democrats.

Now, at a cost of hundreds of billions of dollars, middle-class taxpayers are going to be forced to bail out the Democrats' two most important constituent groups: rich Wall Street bankers and welfare recipients.

Political correctness had already ruined education, sports, science and entertainment. But it took a Democratic president with a Democratic congress for political correctness to wreck the financial industry.

I've gotta say I also believe there's a much bigger agenda. It is interesting in light of the Corsi book that the dollar is being devalued in a 'crisis' situation. Maybe my husband and I are a little less trusting but we believe this was planned and have been putting money aside for awhile now, getting ready for this type of situation.

We've seen so many warnings in the past 2 years. We pulled out of the stock market and have kept money aside for just this type of scenario. But like you, blackeyedpeas, we don't know what will happen with our pension - so far we'll be getting paid this week. We've also been getting before God, knowing that this could very well be the beginning of really bad times ahead, we know we may be tightening our belts and heading back to work.

From the Hal Lindsey Report this week:
"The book of Revelation predicted that there will come a time when the ultimate government leader takes total control of the lives of the world's citizens. And it predicts that this will be done through economics. But Americans have scoffed at that concept, 'we're free' we say, 'we have rights, we control our own destiny'. The events of the past week are beginning to prove otherwise...Fannie Mae and Freddie Mac own half of the mortgages in the US, the gov't has now assumed those mortgages, even if only for a few months or years, that means the chances are good that the US gov't actually owns your house, right now. Government programs seem to never go away once instituted, and it's likely that the global economy will continue in a long downturn - so government control of homes and mortgages is probably going to increase and be there to stay.

...What if some time in the future an administration comes into power that is dedicated to putting every citizen on an 'equal footing', giving everyone guaranteed education, health care, housing and income. In essence, redistributing the wealth so that we're all equal. What better way to start than tweeking your mortgage so that eventually a major part of the population are forced to become tenants of a Federal landlord. Those who may think this sounds far fetched, the initial groundwork for this has been laid this week - and it's all in the name of maintaining stability in the financial markets. So you see, the ability of one man to control the lives of billions of people doesn't sound as nonsensical today as it did a month ago..."

Before the socialists can get you to buy into government protection, they must convince you that the private sector, even the responsible private sector, is your enemy. 'Free enterprise is the source of your financial troubles,' they'll say. And it helps their cause when greedy corporate types fulfill their expectations, then they present bigger government as the solution.

Just this week Rep. Barney Frank said, "The private sector got us into this mess. The government has to get us out of it."

Like an actor reading from a script. This is the same Barney Frank that said in 2003 to those trying to impose regulations on Fannie and Freddie, "These two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

All this reminds me of something Thomas Jefferson warned against. He said:

"If the American people ever allow private banks to control the issuance of their currencies", (a perfect description of the Federal Reserve System), "first by inflation and then by deflation, the banks and the corporations that grow up around them will deprive the people of all their prosperity until their children will wake up homeless on the continent their fathers conquered."

Who can possibly deny that the way is being prepared for the emergence of the man who will finally bring sanity to the situation. He will lead us back from the coming global meltdown. His name - the antichrist."

So many situations seem to be converging at the same time: the near collapse of our economy, the unprecedented elections in our country, the potential acquisition of nukes in Iran who wants to wipe Israel off the face of the earth, the political upheaval in Israel and possible elections there; the Russian aggression, etc., etc., etc. Things are happening so fast it is hard to keep up with it all - it is CHAOS!

But we know that God is going to lead and guide us in these times. People have been through far more. The people of this country are strong and have more wisdom than the politicians give us credit for. We are hard working. Our work ethic is what built this country and made it strong. But there are, I believe, evil agendas behind the scenes - could this be the beginning of the Trib? We'll be watching and trusting in Christ, because we know we can do all things thru Christ who strengthens us!!!!!!!!!!

The Bailout and Socialism

I don’t know much on economics, but I know enough to know that a partially socialized system created this mess and bailing it out with money from my pocket will only encourage what caused it in the first place. It won’t fix anything, only dip more into socialism and actually make things worse. You can’t fix bad government with more government…or as Ronald Reagan said, “government is not the solution…government is the problem.” A real economist explains it much better:

Quote

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This “moral hazard” generates enormous distortions in an economy’s allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street’s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration’s claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

Oct 1, 3:36 AM EDT
Senate to vote on financial rescue plan

WASHINGTON (AP) -- President Bush's plan to rescue U.S. financial markets is headed for a Senate vote Wednesday night after leaders there agreed to add tax breaks for businesses and the middle class and increase deposit insurance in an attempt to revive the legislation rejected by the House.

The surprise move by Majority Leader Harry Reid, D-Nev., and Minority Leader Mitch McConnell, R-Ky., appeared likely to win a big vote in the Senate that would put pressure on the House to go along and send the measure to the White House.

Democratic presidential nominee Barack Obama and his GOP rival, John McCain, planned to fly to Washington for the Senate vote, as did Democratic vice presidential nominee Joe Biden.

Adding a set of popular business tax breaks and legislation to prevent more than 20 million middle-class taxpayers from feeling the bite of the alternative minimum tax promised to win House GOP votes for the plan even as it angered moderate "Blue Dog" Democrats concerned about the tax cuts adding to the deficit.

House Speaker Nancy Pelosi, D-Calif., issued a statement that suggested she does not like the move but did not reveal her plans. Another House vote on the rescue plan could come by week's end.

"The Senate will vote tomorrow night and the Congress will work its will," Pelosi said Tuesday. The expected support of both Obama and McCain, however, makes it difficult for Pelosi to ship the measure back to the Senate with a different set of vote-getting add-ons.

The Senate legislation also will contain an increase in the government's $100,000 cap on insured bank deposits, part of a move by lawmakers, Bush and the two presidential candidates to try to reassure markets that the plan will pass this week.

The measure failed in the House on Monday in a stunning vote that shook the stock and credit markets. Though the Dow Jones industrials rebounded Tuesday, supporters of the administration's plan said passage by week's end still was a must.

The House vote was a stinging setback to leaders of both parties. The administration's proposal, still the heart of the legislation under consideration, would allow the government to buy bad mortgages and other deficient assets held by troubled financial institutions. If successful, advocates of the plan believe, that would help lift a major weight off the already sputtering national economy.

Bush renewed his efforts Tuesday, speaking with McCain and Obama and making another statement from the White House. "Congress must act," he declared.

The tax plan passed the Senate last week on a 93-2 vote. It included AMT relief, $8 billion in tax relief for those hit by natural disasters in the Midwest, Texas and Louisiana, and some $78 billion in renewable energy incentives and extensions of expiring tax breaks. All told, it would cost about $112 billion over five years.

In a compromise worked out with Republicans, the bill does not pay for the AMT and disaster provisions, but does have revenue offsets for part of the energy and extension measures.

Earlier Tuesday, House Democratic leaders discussed adding an extension of unemployment benefits, while Republicans pressed to make it easier for financial institutions to hold questionable long-term assets. House Democratic Whip James Clyburn, D-S.C., floated the idea of boosting a recently passed property tax deduction for homeowners who don't itemize on their returns.

The Capitol was mostly quiet because of the Jewish new year, but there were plenty of behind-the-scenes talking and telephone conference calls on the bailout.

Senate Banking Committee Chairman Christopher Dodd, D-Conn., emerged from one meeting to tell told reporters, "I'm told a number of people who voted 'no' yesterday are having serious second thoughts about it."

Reid and McConnell appeared in the early evening to enter into the Senate agreement on the floor. The idea took House Democratic leadership offices by surprise but it was unclear whether Pelosi was truly sandbagged. Aides to Reid and Pelosi clammed up when asked whether they were in synch on the Senate power play.

The move to temporarily raise the federal deposit insurance limit, now $100,000 per account, to $250,000 won bipartisan support. McCain and Obama both endorsed the change, as did the agency that runs the program.

Federal Deposit Insurance Corp. Chairwoman Sheila Bair said the move could help ease a crisis of confidence in the banking system.

NEW YORK TIMES

Fannie Mae Eases Credit To Aid Mortgage Lending

By STEVEN A. HOLMES
Published: September 30, 1999

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.

The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''

Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.

In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.

''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''

Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.

Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.

Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.

Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.

In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.

Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.

In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.

The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.

Brothers and Sisters,

Please read the article ABOVE AGAIN! READ IT SLOWLY AGAIN!

Please keep in mind that there are no secrets in this day and age of mass communications. Something this HUGE is impossible to LIE about because all kinds of documentary evidence exists to nail down exactly what happened and when. However, we have piles of politicians who have lined their pockets with CASH since the above article was written. It was DIRTY, involved PAY-OFFS, involved FRAUD, involved MASSIVE CAMPAIGN CONTRIBUTIONS, involved what's known as GRAFT, involved what's known as ORGANIZED CRIME, involved what's known as CRIMINAL CONSPIRACY, and currently involves BLATANT LIES from those that are responsible and those that knew about it!

If you can add two plus two, you should be able to figure out what happened and when. There's tons of documentary and video evidence of nearly all stages. It's not hard to determine that HIGH RANKING GOVERNMENT OFFICIALS knew about this problem YEARS AGO and did absolutely NOTHING! A ten-year-old with a Big-Chief writing tablet and a number two pencil could have figured out this was ORGANIZED CRIME if given just a few minor details. A smart ten-year-old would come to the same conclusion without the pencil and pad! BUT, THE BEST FROM WALL STREET RAN THIS AND GOT BY WITH IT BECAUSE CONGRESS AND A PRESIDENT TOLD THEM TO! CONGRESS AND HIGHER POLITICIANS TOLD THEM TO BECAUSE THEIR POCKETS WERE LINED WITH BIG BUCKS CONSTANTLY!

This MASSIVE CON GAME worked beyond anyone's wildest imagination, so groups around the country signed on to make it bigger. They might have called themselves COMMUNITY ORGANIZERS! ACORN was one such group, and the first proposed BAILOUT had ACORN getting 20 BILLION MORE DOLLARS! I really made this math problem more simple than adding two plus two. If you get a little bit more information between the time of this article and now, DO YOU SUPPOSE THAT YOU CAN FIGURE THIS OUT?

Greens Exploit Wall Street Bailout

Will the Wall Street bailout be the beginning of the New (Green) Deal?

Environmental activists are trying to figure out ways to advance their global-warming-regulation agenda by exploiting the current financial crisis, including the Wall Street bailout bill to be voted on by the House.

The good news for them is that they may not need to succeed, since someone with a very Green agenda will be in charge of implementing the bill should it become law.

As reported by Carbon Control News (Sep. 24), "Environmentalists and some Democrats are seizing upon the financial sector crisis to call for major federal investments in energy efficiency and improvements in the electricity grid as a way to address climate change and spur a lagging economy."

Michael Moynihan, former Clinton administration economic adviser and director of the Green Project for the New Democrat Network, has called for a national infrastructure bank to fund clean energy projects.

Following up on this idea, two house Democrats introduced a bill last week to establish a "Clean Energy Investment Bank."

Although Moynihan claims this would be an improvement over the current earmark system, the bank seems to be little more than a permanent Green earmark.

The activist group Friends of the Earth (FoE) is lobbying for the Treasury Department to conduct global-warming impact reviews under the National Environmental Policy Act (NEPA) — the federal law requiring federal agencies to conduct environmental-impact studies of their actions.

Through its citizen-lawsuit provisions, the Greens often use NEPA to block energy, highway and logging projects that involve federal agencies and lands.

FoE claims that as the Treasury Department becomes a significant shareholder in financial institutions that it bails out, it would be obligated to carry out environmental impact studies since, to some extent, the activities of those financial institutions would also be activities of the Treasury Department.

"Subjecting entities that receive financial backing from taxpayers to NEPA could provide a hook for environmentalists to force greater scrutiny of actions by those entities that increase greenhouse gas emissions, including the underwriting of fossil fuel projects," reported Carbon Control News (Sep. 26)

Anti-nuclear Greens are trying to use the recent bankruptcy of Lehman Brothers to block the construction of the first nuclear reactor built in the U.S. in 30 years.

This column previously reported on how the Greens are trying to stop Maryland from permitting the construction of a third reactor at Constellation Energy's Calvert Cliffs power plant by arguing that emission-less nuclear power actually worsens global warming.

Lehman's bankruptcy raised concerns about the financial health of Constellation, leading to a buy-out offer from the Warren Buffet-led Mid-American Energy Holdings Company.

The Greens called for the project to be halted "in light of the nation's worsening financial crisis and serious concerns about the stability of the company building the project," according to Carbon Control News (Sep. 26).

Monday's rejection of the Wall Street bailout bill by the House has opened the door for the alternative-energy industry to again try to renew the tax credits about to expire for wind power projects such as the Pickens Plan.

The Senate bill passed Wednesday night extends the much-lobbied-for tax credit.

New York Times columnist Thomas Friedman called on Congress to "Green the Bailout" (Sep. 28).

Friedman quoted a green-collar jobs proponent who said, "You can't base a national economy on credit cards. But you can base it on solar panels, wind turbines, smart biofuels and a massive program to weatherize every building and home in America."

Finally, even if none of these provisions make it into the bailout bill, the Greens will likely be able to count on Treasury Secretary Hank Paulson to implement their agenda for them.

The former head of Goldman Sachs — who simultaneously headed up the Nature Conservancy and recently told Fortune magazine that action on global warming is crucial to the U.S. — is no stranger to using "other people's money" to implement the Green agenda on land secured by distressed debt.

Paulson could use bailout money to purchase debt securities that are secured by property either coveted by Greens or targeted for energy or natural resource development projects that the Greens oppose.

Once the U.S. Government owns the securities (and, thereby, the property) an omnipotent Paulson could essentially take the land out of circulation by "preserving" it as public land.

He could even claim — through the economic device of "contingent valuation" — that the acquired land has more value as pristine public land than as, say, an energy or logging project.

Contingent valuation uses opinion surveys to value intangible assets for which there is no market, such as scenic views and crystal-clear air.

Respondents are asked hypothetical questions like, "How much would you pay to preserve a seashore view from oil drilling?" or "How much is it worth to keep a forest pristine and un-logged?"

Though the whole process is pretend — the respondents know they won't actually spend any of their own money for this preservation — the government uses the method to establish monetary values of preserved lands.

It doesn't take too much imagination to see how contingent valuation could be used to gin up phony bailout profits through land preservation.

Paulson has already said that he would bequeath the bulk of his fortune — in the neighborhood of $500 to $800 million — to Green causes.

Imagine what he would be willing to do with your money.

THE BOSTON GLOBE
JEFF JACOBY
Frank's fingerprints are all over the financial fiasco

By Jeff Jacoby , Globe Columnist | September 28, 2008

'THE PRIVATE SECTOR got us into this mess. The government has to get us out of it."

That's Barney Frank's story, and he's sticking to it. As the Massachusetts Democrat has explained it in recent days (http://ap.google.com/article/ALeqM5ioHc80xKMiATnqCpK0cDKJzk_nPQD93BUTS01), the current financial crisis is the spawn of the free market run amok, with the political class guilty only of failing to rein the capitalists in. The Wall Street meltdown was caused by "bad decisions that were made by people in the private sector," Frank said; the country is in dire straits today "thanks to a conservative philosophy that says the market knows best." And that philosophy goes "back to Ronald Reagan, when at his inauguration he said, 'Government is not the answer to our problems; government is the problem.' "

In fact, that isn't what Reagan said. His actual words were (http://www.reaganfoundation.org/reagan/speeches/first.asp): "In this present crisis, government is not the solution to our problem; government is the problem." Were he president today, he would be saying much the same thing.

Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits -- many of whom have been learning lately just how pitiless (http://edition.cnn.com/2008/BUSINESS/09/15/lehman.merrill.stocks.turmoil/index.html) the private sector’s discipline can be -- they weren't the ones who "got us into this mess." Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism (http://query.nytimes.com/gst/fullpage.html?res=950DE1DF1E39F932A3575AC0A96F948260&sec=&spon=&pagewanted=all) and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act (http://www.federalreserve.gov/dcca/cra/), empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

All this was justified as a means of increasing homeownership among minorities and the poor. Affirmative-action policies trumped sound business practices. A manual issued by the Federal Reserve Bank of Boston advised mortgage lenders to disregard financial common sense. "Lack of credit history should not be seen as a negative factor," the Fed's guidelines (http://www.bos.frb.org/commdev/commaff/closingt.pdf) instructed. Lenders were directed to accept welfare payments and unemployment benefits as "valid income sources" to qualify for a mortgage. Failure to comply could mean a lawsuit.

As long as housing prices kept rising, the illusion that all this was good public policy (http://articles.latimes.com/1999/may/31/news/mn-42807) could be sustained. But it didn't take a financial whiz to recognize that a day of reckoning would come. "What does it mean when Boston banks start making many more loans to minorities?" I asked in this space in 1995. "Most likely, that they are knowingly approving risky loans in order to get the feds and the activists off their backs . . . When the coming wave of foreclosures rolls through the inner city, which of today's self-congratulating bankers, politicians, and regulators plans to take the credit?"

Frank doesn't. But his fingerprints are all over this fiasco. Time and time again (http://www.wsj.com/article/SB122091796187012529.html?mod=most_emailed_day), Frank insisted that Fannie Mae and Freddie Mac were in good shape. Five years ago, for example, when the Bush administration proposed much tighter regulation of the two companies, Frank was adamant (http://query.nytimes.com/gst/fullpage.html?res=9E06E3D6123BF932A2575AC0A9659C8B63&sec=&spon=&pagewanted=all) that "these two entities, Fannie Mae and Freddie Mac, are not facing any kind of financial crisis." When the White House warned (http://www.whitehouse.gov/cea/gsemankiw_speech_nov_6_2003.html) of "systemic risk for our financial system" unless the mortgage giants were curbed, Frank complained (http://www.iii.co.uk/investment/detail/?display=discussion&code=cotn%3AFNM&it=ye&action=detail&id=2395631) that the administration was more concerned about financial safety than about housing.

Now that the bubble has burst and the "systemic risk" is apparent to all, Frank blithely declares: "The private sector got us into this mess." Well, give the congressman points for gall. Wall Street and private lenders have plenty to answer for, but it was Washington and the political class that derailed this train. If Frank is looking for a culprit to blame, he can find one suspect in the nearest mirror.

Lawmaker Accused of Fannie Mae Conflict of Interest

Friday , October 03, 2008
By Bill Sammon

WASHINGTON —
Unqualified home buyers were not the only ones who benefited from Massachusetts Rep. Barney Frank’s efforts to deregulate Fannie Mae throughout the 1990s.

So did Frank’s partner, a Fannie Mae executive at the forefront of the agency’s push to relax lending restrictions.

Now that Fannie Mae is at the epicenter of a financial meltdown that threatens the U.S. economy, some are raising new questions about Frank's relationship with Herb Moses, who was Fannie’s assistant director for product initiatives. Moses worked at the government-sponsored enterprise from 1991 to 1998, while Frank was on the House Banking Committee, which had jurisdiction over Fannie.

Both Frank and Moses assured the Wall Street Journal in 1992 that they took pains to avoid any conflicts of interest. Critics, however, remain skeptical.

"It’s absolutely a conflict," said Dan Gainor, vice president of the Business & Media Institute. "He was voting on Fannie Mae at a time when he was involved with a Fannie Mae executive. How is that not germane?

"If this had been his ex-wife and he was Republican, I would bet every penny I have - or at least what’s not in the stock market - that this would be considered germane," added Gainor, a T. Boone Pickens Fellow. "But everybody wants to avoid it because he’s gay. It’s the quintessential double standard."

A top GOP House aide agreed.

"C’mon, he writes housing and banking laws and his boyfriend is a top exec at a firm that stands to gain from those laws?" the aide told FOX News. "No media ever takes note? Imagine what would happen if Frank’s political affiliation was R instead of D? Imagine what the media would say if [GOP former] Chairman [Mike] Oxley’s wife or [GOP presidential nominee John] McCain’s wife was a top exec at Fannie for a decade while they wrote the nation’s housing and banking laws."

Frank’s office did not immediately respond to requests for comment.

Frank met Moses in 1987, the same year he became the first openly gay member of Congress.

"I am the only member of the congressional gay spouse caucus," Moses wrote in the Washington Post in 1991. "On Capitol Hill, Barney always introduces me as his lover."

The two lived together in a Washington home until they broke up in 1998, a few months after Moses ended his seven-year tenure at Fannie Mae, where he was the assistant director of product initiatives. According to National Mortgage News, Moses "helped develop many of Fannie Mae’s affordable housing and home improvement lending programs."

Critics say such programs led to the mortgage meltdown that prompted last month’s government takeover of Fannie Mae and its financial cousin, Freddie Mac. The giant firms are blamed for spreading bad mortgages throughout the private financial sector.

Although Frank now blames Republicans for the failure of Fannie and Freddie, he spent years blocking GOP lawmakers from imposing tougher regulations on the mortgage giants. In 1991, the year Moses was hired by Fannie, the Boston Globe reported that Frank pushed the agency to loosen regulations on mortgages for two- and three-family homes, even though they were defaulting at twice and five times the rate of single homes, respectively.

Three years later, President Clinton’s Department of Housing and Urban Development tried to impose a new regulation on Fannie, but was thwarted by Frank. Clinton now blames such Democrats for planting the seeds of today’s economic crisis.

"I think the responsibility that the Democrats have may rest more in resisting any efforts by Republicans in the Congress or by me when I was president, to put some standards and tighten up a little on Fannie Mae and Freddie Mac," Clinton said recently.

Bill Sammon is FOX News' Washington Deputy Managing Editor.

Koenig's Eye View October 3, 2008

Executive Summary

by Bill Koenig

While Russia and it's Islamic allies are tightening the noose around oil supplies and are developing extraordianary weapons buildups, the American landscape has been inundated with the proposed $700 billion plus bail out of Wall Street, which in reality is a government takeover of both real property and the financial industry.

The senate, with only 25 dissenters, passed a bill that would make America a socialist nation. It abandons the practices of the free market; and despite hundreds of thousands of phone calls from constituents demanding they vote against this government power grab, these senators ignored the wishes of the people they represent and voted for socialism. They behaved just like the Politburo of the former Soviet Union.

...The next step may be government control of what takes place in homes with government owned mortgages. Can anyone spell "separation of church and state"?

Bailout Consequences

- Bank of America, J P Morgan Chase, Citibank and Wells Fargo (with the purchase of Wachovia) will now account for just under 40% of all bank deposits in the US

- "These three entities will be so large that it's virtually unthinkable to let them fail," said David Ruder, a professor emeritus of law at Northwestern University and former chairman of the Securities and Exchange Commission

- This means taxpayers will essentially become guarantors for each company's global operations

- Bank of America owns Countrywide, the largest mortgage company in the US, and Merril-Lynch -- one of the largest Wall Street investment firms

- JP Morgan Chase has just taken over Washington Mutual (WAMU), the largest savings and loan in the US

- Citibank bought Wachovia Bank, the nations fifth largest bank

- The two largest remaining Wall Street firms, Goldman Sachs and Morgan Stanley, have now become banks

- These financial organizations will cast long shadows over the markets for credit cards, mortgages and retail brokerage services

- The US Federal Gov't will now have $5 trillion of home mortgages under control, just short of 50% of the US $11.5 trillion mortgage market

- The Federal Gov't has given AIG an $85 billion loan and taken 80% ownership in the largest insurance company in the world

- Congress is over it's head, it doesn't have a clue what it is doing with the nation's finances. the federal gov't budget under Bush has climbed to $3 billion per year; the federal deficit is $9.8 trillion and climbling

-

Dollar reaches 13-month high against euro
Credit crisis causes currency tumble across Atlantic

The euro slid to a 13-month low against the dollar as a deepening credit crunch forced European governments to pledge bailouts of troubled banks and increase protection for depositors.

The 15-nation currency fell to the lowest in more than two years versus the yen as Germany joined with banks and insurers to bail-out property lender Hypo Real Estate Holding AG and Belgium announced a revised deal to rescue Fortis, the largest Belgian financial-services firm. The yen also gained against the Australian and New Zealand dollars as investors pared holdings of higher-yielding currencies funded with Japan's currency.

``Everything coming out has been fairly euro-negative,'' said Alex Sinton, a senior currency dealer at ANZ National Bank Ltd. in Auckland. ``The euro zone is the second domino of the globe to be falling over after the U.S.''

The euro declined to $1.3648 at 9:45 a.m. in Tokyo from $1.3772 late in New York on Oct. 3. It earlier reached 1.3610, the lowest since Sept. 5, 2007. The euro fell to 141.97 yen, the weakest since May 18, 2006, and traded at 142.61 yen from 145.11 yen. The dollar bought 104.46 yen from 105.32 yen.

Against the pound, the euro fell to 77.15 pence, the lowest since March 14. It also declined to 1.5379 Swiss francs, the weakest in more than six months.

The German government and the country's banks and insurers agreed on a 50 billion euro ($68 billion) rescue for Hypo Real Estate after an earlier bailout faltered.

European Bailouts

BNP Paribas SA, France's biggest bank, will take control of Fortis's units in Belgium after a government rescue of the Brussels and Amsterdam-based company failed.

The yen rose to 79.11 per Australian dollar from 81.48 late in New York on Oct. 3. It also advanced to 68.23 versus the New Zealand dollar from 69.76 and to 51.0898 against the Brazilian real from 51.5240.

Japan's currency was the best-performer in September and the only currency to appreciate against the dollar as a credit market collapse drove Lehman Brothers Holdings Inc. into bankruptcy and sent bank borrowing costs in Europe to record highs.

Deutsche Bank AG, the biggest trader of foreign exchange, says the yen will rise 5 percent in coming months. New York- based Morgan Stanley is telling clients to buy the currency versus the euro and pound.

Unbeatable Yen

After seven years of providing the cheapest source of funds for investors buying higher-yielding New Zealand dollars, Australian dollars and Brazil reais, the yen is appreciating as $587 billion of subprime mortgage-related losses force banks to restrict credit. It strengthened 4.4 percent on a trade-weighted basis in September, according to the Bank of Japan's effective exchange rate, the most since August 2007, when the seizure in capital markets began.

``We are in a multi-year trend reversal,'' said Paresh Upadhyaya, a senior vice president at Putnam Investment LLC in Boston who helps manage $50 billion in currency assets. ``We are going to see a global central bank easing cycle. The yen is the place to be in this environment of economic slowdown and heightened volatility.''

Futures traders increased their bets that the yen will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

Currency Futures

The difference in the number of wagers by hedge funds and other large speculators on an advance in the yen compared with those on a drop -- so-called net longs -- was 43,022 on Sep. 30, compared with net longs of 31,939 a week earlier.

The dollar fell for a fourth day against the yen on speculation reports will show a deepening slump in the U.S. economy. Pending home sales fell 1.1 percent in August after a 3.2 percent decline in the previous month, according to a Bloomberg News survey. The National Association of Realtors will release the data on Oct. 8.

The U.S. Congress approved a financial-market bailout on Oct. 3, authorizing the government to spend as much as $700 billion buying troubled assets from financial institutions reeling from record home foreclosures.

``It's unwise to buy a currency which is both in recession and having a banking crisis,'' Peter Pontikis, a treasury strategist at Suncorp-Metway Ltd. in Brisbane. ``What's not going to help the bullish case in at least the short-term is that they have an as yet unresolved banking cloud over the U.S. system.''

The dollar will weaken to $1.45 per euro over the next month, he said.

European governments scramble to save banks
Financiers 'feeling the wind of default blowing from the other side of the Atlantic'

Germany became the latest country to move to allay fears about the financial meltdown, enhancing a rescue plan for Hypo Real Estate AG and guaranteeing private bank accounts as European governments scrambled on their own Sunday to save failing banks.

Chancellor Angela Merkel said that no citizen should fear for the safety of their investments. Hours later, her government announced a new bailout package totaling 50 billion euros ($69 billion) for Hypo Real Estate, Germany's second-biggest commercial property lender.

Hypo said an original euro35 billion ($48 billion) rescue plan fell apart after private lenders withdrew support, a key element to the proposal that had already been approved by the EU.

The deal was on top of the guarantees of private accounts. German Finance Ministry spokesman Torsten Albig said the unlimited guarantee covered some 568 billion euros ($785 billion) in savings and checking accounts as well as time deposits, or CDs.

At the same time, Belgian Prime Minister Yves Leterme said that France's BNP Paribas SA had committed to taking a 75-percent stake in Fortis NV.

Leterme said the Belgian and Luxembourg governments would, in turn, take a blocking minority share in BNP Paribas.

The deal came after two days of closed-door talks between the Paris-based bank, Fortis and government authorities in an effort to restore confidence in the company before markets open Monday.

In Iceland - particularly hard-hit by the credit crunch - government officials and banking chiefs were discussing a possible rescue plan for the country's overstretched commercial banks.

British treasury chief Alistair Darling said he was ready to take "pretty big steps that we wouldn't take in ordinary times" to help the country weather the credit crunch.

In the past year the government has nationalized struggling mortgage lenders Northern Rock and Bradford & Bingley.

"The European banking industry is feeling the wind of default blowing from the other side of the Atlantic," said Axel Pierron, senior vice president at Celent, a Boston, Massachusetts-based financial research and consulting firm.

The erosion has also injured overall confidence and caused concern among investors, politicians and the European public.

The leaders of Germany, France, Britain and Italy met Saturday to discuss the meltdown that has leapfrogged across the Atlantic from the U.S. to Europe, but shied away from action on the scale of the massive $700 billion bailout passed by the U.S. Congress on Friday and later signed into law by President Bush.

Their failure to agree to an EU-wide plan showcased the divisions in Europe on how to deal with the crisis.

France had suggested a multibillion-euro (multibillion-dollar) EU-wide government bailout plan, but backed off after Germany said banks must find their own way out.

French President Nicolas Sarkozy's top adviser, Claude Gueant, insisted that a "common European plan" had come out of the summit.

"What is certain and what the citizens of France and Europe must know is that their (banking) establishments won't be left in difficulty," he told Europe-1 radio on Sunday.

Icelandic banks expanded rapidly after deregulation of the domestic financial market in the 1990s and now have combined foreign liabilities in excess of 100 billion euros ($138 billion) - dwarfing the tiny country's gross domestic product of 14 billion euros ($19 billion euros).

The government last week took over Iceland's third-largest bank, Glitnir, a decision that prompted major credit ratings agencies to downgrade both Iceland's four major banks and its government credit rating.

Looming large was a growing sense that the Federal Reserve and Europe's major central banks - which have been flooding euros and dollars to banks that have grown increasingly unwilling to lend money even to themselves - were ready to institute emergency cuts to their benchmark interest rates this week.

None of the banks, including the European Central Bank and Bank of England, have commented on potential rate hikes or cuts. But analysts believe the Bank of England, which meets this Thursday, will likely lower its rate below 5 percent. The ECB left its rate unchanged at 4.25 percent on Thursday, but opened the door to a rate cut.

Robert Brusca, chief economist at the New York-based Fact and Opinion Economics, said that the ECB does issue such a cut it would a be a sign "that they're really, really scared."

Dow dips below 10,000 for 1st time since 2004
European governments move to limit damages from financial crisis

Financial markets took a bleak view of the future Monday, seeing contagion in a credit crisis that threatens to cascade through economies globally despite government efforts to provide relief. The Dow Jones industrials skidded more than 500 points and fell below 10,000 for the first time in four years, while the credit markets remained under strain.

Investors around the world have come to the sobering realization that the Bush administration's $700 billion rescue plan won't work quickly to unfreeze the credit markets. Global banks, hobbled by wrong-way bets on mortgage securities, still remain starved for cash as credit has dried up.

That's caused stocks to plunge in the U.S., Europe and Asia, and drove investors to sink money into the relative safety of U.S. government debt. Fears about a global recession also caused oil to drop below $90 a barrel; and the benchmark index that gauges fear in the market jumped to the highest level in its 18-year history.
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"The fact is people are scared and the only thing they're doing is selling," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. "Investors are cleaning out portfolios and getting rid of everything because nothing seems to be working."

The selling was so extreme that only 98 stocks rose on the NYSE — and 3,092 dropped. That's a telling sign considering the stock market is considered a leading economic indicator, with investors tending to buy and sell based on where they believe the economy will be in six to nine months.

Monday's steep decline on Wall Street indicates that investors are becoming more convinced that the country is leading a prolonged economic crisis that is spreading to other nations. Over the weekend, governments across Europe rushed to prop up failing banks, while the governments of Germany, Ireland and Greece also said they would guarantee bank deposits.

As the U.S. tries to shore up its battered banking system, the German government and financial industry agreed on a $68 billion bailout for commercial-property lender Hypo Real Estate Holding AG. And France's BNP Paribas agreed to acquire a 75 percent stake in Fortis's Belgium bank after a government rescue failed.

The Fed also took fresh steps to help ease seized-up credit markets. The central bank said Monday it will begin paying interest on commercial banks' reserves and will expand its loan program to squeezed banks.

Slide show
Image: Pedestrians walk past an electronic board showing the Hang Seng Index outside a bank in Hong Kong
Red zone
From Japan to Germany, stockbrokers around the world grapple with volatile stock markets.

more photos

In midday trading, the Dow Jones industrial average fell 516 points, dropping below 10,000 for the first time since Oct. 29, 2004. At one point, the Dow was down nearly 600.

Broader indexes also tumbled. The Standard & Poor's 500 index shed 60 points; and the Nasdaq composite index fell 113 points. The Russell 2000 index of smaller companies dropped 26.33, or 4.25 percent, to 593.07.

In Asia, the Nikkei 225 closed 4.25 percent lower. Europe's stock markets also declined, with the FTSE-100 down 5.20 percent, Germany's DAX down 7.07 percent, and France's CAC-40 down 9.04 percent.

Preparing for financial apocalypse, Americans stock up

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Some are hunkering down for the economic apocalypse. Others say they are merely stocking up on essentials for a worst-case scenario. In Marysville — and across the country — September's financial disasters have been driving Americans into survival supply stores for Meals Ready-to-Eat, and other emergency goods for long-term storage.

"I've been selling ammo cans by the pallet," says Tom King, owner of Sutter Surplus Sales on D Street.

Many of his customers, he says, "are gearing up to raise their own food and put up security fences. They're telling me to be ready."

"Granted," he says, "they are the extremists."

But precautionary measures are no longer the domain of survivalist regulars.

After the S&P 500's blue-chip index lost 9 percent on Monday — the biggest one-day percentage drop since 1987's Black Monday — Campbell Soup Co. stood tall as the lone sell-off survivor. That fact left one financial strategist, quoted in U.S. News & World Report, to quip, "If you have no confidence in your banking system ... the only thing you can have confidence in is the ability to build a bunker."

At the Ready Store, an Online operation based in Salt Lake City, water filters are at a premium. So are MREs, a key food source for military personnel during training and combat deployments.

"In the last two weeks," says Jonathan Dick, the company's sales and marketing manager, "we've sold 200 percent above normal levels in just about everything."

Hurricane Ike, which reached land Sept. 12, continues to play a big role on both the demand and supply ends of the business, especially when it comes to MREs.

The Federal Emergency Management Agency bought an unprecedented number of the pre-packaged, add-hot-water-and-eat meals from one of two primary wholesale suppliers in the days just after the storm struck the Gulf Coast.

FEMA also bought 13 truckloads of MREs from Ki4U.com, a distributor out of Gonzales, Texas.

"Inventory is shrinking here faster than this page can be updated," reads the explanation on that company's Web site. A seller of anti-radiation pills, fallout shelters and nerve gas detectors, Ki4U.com advertises such information as, "The Good News About Nuclear Destruction."

But Dick says his own spike in sales owes more to bank failures and their aftermath, than to hurricane survivors or the truly paranoid.

"With natural disasters, you see increases in short-term survival sales," he says. "People are trying to get through the next three days."

But since mid-September, people have been ordering a six-month or a year's supply of food, he says.

"We had a record day yesterday," Dick says of Monday, which saw a failed bailout proposal in Congress and plummeting action on Wall Street. Customers told him, "What if I lose my job and I lose my life savings and I don't have any money to buy food?"

"It's not just extremist people," Dick says. "There's a lot of uncertainty out there right now."

For King and his Marysville store, sales of hunting and camping gear are flat for this time of year.

But on Tuesday, he had only two MREs left on the shelf and no way of getting more. He sells the packs for $10 a-piece, and now steers customers to dehydrated foods, also a big seller at the Ready Store.

Sales of duffel bags and other carrying bags also have been remarkably brisk in recent days, King says.

Many of his customers, especially those from the Sierra foothills, he says, mention the current financial crises as their primary reason to stock up on such items.

"They think the polarization between the haves and have-nots is going to be very extreme," King says. And when limited resources become even more valuable, "they'll need to stay mobile."

The only place unaffected by financial turmoil: Iraq

By David Goldstein, McClatchy Newspapers Mon Oct 6, 7:25 PM ET

WASHINGTON — Fear and uncertainty were hot commodities in global markets Monday.

Stocks plummeted and currencies fell as shock waves from the Wall Street meltdown continued to reverberate across financial capitals.

The Mexican peso plunged to its lowest level in years. Its stock market dropped 5.4 percent.

Brazil and Russia temporarily halted trading after a series of steep drops on their exchanges.

Meanwhile, Sweden , Denmark and Austria joined Ireland and Germany on a growing list of European countries that have pledged to guarantee bank deposits to tamp down consumer worries.

"This is a stampede," said Valerie Plagnol , chief strategist at CM-CIC Securities in Paris .

On the very day that Washington began to unfold the $700 billion economic rescue mission, foreign governments and investors seemed resigned to a long period of tight credit and turmoil.

Russia suspended its benchmark RTS stock index twice on Monday, as it fell 19.1 percent, its worst ever one-day drop. It had already halted trading three times last Friday, hoping to slow sliding shares and capping the market's worst week in nearly a decade.

Russia on Monday also shut down its second major market, the Micex, three times. It had fallen nearly 19 percent.

The global credit crunch has compounded Russia's financial woes. It's already reeling from the one-two punch of falling oil prices and the loss of billions in foreign investment after the August war with Georgia .

In Latin America , the U.S. financial crisis caused trading on Brazil's stock exchange to be halted twice on a day when the value dropped by 8 percent.

In Argentina , stocks fell 10 percent, and currencies across the region tumbled against the dollar.

"The turmoil is really starting to hit Latin America ," Jane Eddy , a senior regional specialist for ratings agency Standard & Poor's . "You have stock market drops, currencies weakening and credit really drying up. Everyone is on hold waiting to see what will happen over the next two weeks."

The uncertainty comes at a time when Latin America has been enjoying its strongest sustained economic growth in 25 years. The region grew by 5.7 percent in 2007 and was projected to grow by about 4.5 percent in 2008.

Thomaz Teixeira , a stock analyst at Socopa Corretora in Sao Paulo , said investors were not necessarily in a "panic."

"But they're selling for the sake of selling at whatever price," he said. "In time, though, we believe that the market will heal."

In South Africa , the stock market hit its lowest mark in more than eight years. Banks in Zimbabwe ran out of cash after depositors tried to pull out their money.

In Pakistan , already embattled on the political front, the rupee hit a new low against the dollar. With its currency having lost 21 percent of its value already this year, Standard & Poor's warned that the country was close to bankruptcy.

Next door, in India , stocks fell nearly 5.8 percent, the lowest close in two years. The index has shed more than 42 percent of its value this year, with foreign investors leading the retreat.

In response, the capital market regulator lifted curbs Monday on overseas investors to halt record sales by offshore funds.

In the Middle East , Kuwait pumped $374.3 million into the banking systems Monday and Saudi Arabia injected more $26 million into its stock market, local newspapers reported.

Apparently immune to all the turbulence was Iraq . The government has little if any investments in the institutions affected by the crisis and a barely functioning stock market. Most Iraqis keep their money in their homes rather than trust banks.

"We don't believe it will affect our bank balance," said Minister of Industry Fawzi Hariri . "In the short term we'll be one of the least affected nations."

The Iraqi government has more than $25 billion in cash reserves. Even with oil prices dropping below $90 a barrel, the Iraqis forecast oil revenues to be in the neighborhood of $80 billion .

The only place unaffected by financial turmoil: Iraq (http://news.yahoo.com/s/mcclatchy/20081006/wl_mcclatchy/3065233)

Dow below 9,000 in late afternoon trading
Tech overshadowed by weak financials, energy, health care

A runaway train of a sell-off turned the anniversary of the stock market peak into one of the darkest days in Wall Street history Thursday, driving the Dow Jones industrials down a breathtaking 679 points and deepening a financial crisis that has defied all efforts to stop it.

Stocks lost more than 7 percent, $872 billion of investments evaporated, and the Dow fell to 8,579. When the average crashed through the 9,000 level for the first time in five years in the final hour of trading, sellers had only begun to hit the gas pedal.

As bad as the day was, even worse was the cumulative effect of a historic run of declines: The Dow suffered a triple-digit loss for the sixth day in a row, a first, and the average dropped for the seventh day in a row, a losing streak not seen since 2002.
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“Right now the market is just panicked,” said David Wyss, chief economist at Standard & Poor’s in New York. “Nobody wants to take on any risk. Everybody just wants to get their money and put it under the mattress.”

It all took place one year to the day after the Dow closed at its record high of 14,164. Since that day, frozen credit, record foreclosures, cascading job losses and outright fear have seized the market and sapped 39 percent of its value.

Paper losses for the year add up to an staggering $8.3 trillion, according to figures measured by the Dow Jones Wilshire 5000 Composite Index, which tracks 5,000 U.S.-based companies representing almost all stocks traded in America.

It was the second straight day that Wall Street was rocked by a final-hour sell-off, but this one was particularly shocking.

Most of the day was relatively calm, and the trading floor was quieter than usual because of the Jewish holiday of Yom Kippur. Wall Street awoke to news the federal government was brandishing a new weapon against the financial crisis — considering seeking an equity stake in major U.S. banks in order to stabilize them.

But that step appeared to be as ineffectual as the others Washington has rolled out in recent weeks, including a $700 billion bailout of the financial industry, a coordinated interest rate cut by central banks around the world and direct lending by the Federal Reserve to private companies to provide them with short-term cash.

Acquiring a stake in the banks would be yet another startling intervention by the government in the free market, but economists said President Bush was left with little choice because of the credit markets, where tight lending has choked off the everyday cash that is the lifeblood of the economy.

“In normal times, this would be out of the question, but in the present dire situation, I think the government should be employing all the powers that it can,” said Sung Won Sohn, an economics professor at California State University, Channel Islands.

After the closing bell, shellshocked traders and bankers gathered at Bobby Van’s Steakhouse and downed beers and drinks to chase the ghastly numbers. One Wall Streeter joked things had gotten so bad that he should apply for a job as a waiter.

“It was an ugly day, there’s no ways to put it,” said another customer, Alan Valdes, director of floor operations for Hallard, Lyons. “Guys were frustrated, just fed up. ... We’re in an area no one has been in since 1930.”

Wall Street has been teetering on the brink of panic for a month now, vulnerable to any bad news. Thursday’s sell-off was triggered when a major credit rating agency put General Motors Corp. and its finance affiliate under review to determine whether it should be downgraded.

Stock in GM, one of the 30 components of the Dow Jones industrials, lost 31 percent of its value and closed at $4.76 — its lowest in more than half a century, since the Korean War began.

For the Dow, it has been nothing short of a free fall:

* The average is down 2,338 points, or 21 percent, in the last four weeks, since the Lehman Brothers bankruptcy escalated a long-running credit crunch into a full-fledged crisis.
* The point decline Thursday was the third-worst in Dow history. The worst, 778 points, came less than two weeks ago.
* Of the last 19 trading days, there have been 11 triple-digit losses — including the unprecedented six straight. The six gains have all been triple-digits, and only one of them was enough to make up the losses of the day before.
* The Dow now stands only about 1,300 points above its lowest close of the bear market that followed 9/11. In a market as volatile as this, that gap can be closed in a couple of trading days, or less.

In fact, triple-digit declines can happen almost in an instant.
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On Thursday, the Dow was above 9,200 after 1:30 p.m. and still above 9,000 after 3 p.m. The pressure to sell was so intense that the Dow kept dropping precipitously for 10 minutes after the 4 p.m. closing bell as the day’s losses were tabulated.

In percentage terms, the drop in the Dow exceeded the day the markets reopened after the Sept. 11, 2001, terrorist attacks. It was not close to the 22.6-percent decline on Black Monday in 1987, the last stock market crash.

Still, it is becoming increasingly clear that Washington has ever fewer places to reach in its toolbox to stop, or perhaps even slow, the crisis. Among the options still left are buying up foreclosed properties and making direct loans to homeowners, both of them hard for free-market supporters to swallow.

Speaking in the afternoon before the market closed, President Bush told an audience on the South Lawn of the White House that the economy was going through a “very tough stretch.” But, he said: “I’m confident in our economy’s long-term prospects.”

After the market closed, the White House said Americans should remain confident despite the market plunge, and Bush planned to speak from the Rose Garden on Friday morning — though he was not expected to unveil any new policy proposals.

House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid asked Bush on Thursday to call an emergency meeting of the G-8 industrial nations’ heads of state to address the continuing global credit freeze and instability in world markets. The G-8 comprises France, Germany, Italy, Great Britain, Japan, the United States, Canada and Russia.

In the markets Thursday, the broader stock indicators registered similar declines to the Dow’s. The Standard & Poor’s 500 index fell 7.6 percent to the 909 level, and the Nasdaq composite index fell 5.5 percent to 1,645.

Meanwhile, the credit markets remained stubbornly locked-up. The benchmark rate that banks charge each other for loans, known as Libor, rose to 4.75 percent from 4.52 percent a day earlier, signaling banks are still afraid to make loans because they worry they won’t be paid back.

“The story is getting to be like that movie Groundhog Day,” said Arthur Hogan, chief market analyst at Jefferies & Co. “Everything we’re seeing is historic. The problem is historic, the solutions are historic, and unfortunately, the sell-off is historic. It’s not the kind of history you want to be making.”

Adding to Wall Street’s nervousness, a ban on short selling — a process in which investors borrow shares of stock and essentially bet the value will fall — expired.

With three and a half weeks before voters elect Bush’s successor, there was also no immediate comment on the Wall Street action from the presidential candidates, Democratic Sen. Barack Obama and Republican Sen. John McCain.

Earlier in the day in Dayton, Ohio, Obama took aim at McCain’s plan to have the government absorb the full cost of renegotiating mortgages for borrowers under strain from the dramatic decline of the values of their homes.

McCain rolled out the idea at the second presidential debate earlier this week, a forum in which he also told voters it was important to have a steady hand in the White House during a time of economic crisis.

Five Million Illegals Have Illegal Mortgages in U.S.A.!

A single report by KFYI radio of Phoenix, Arizona highlights a shocking claim made by the Department of Housing and Urban Development (HUD). HUD says that five million illegal aliens hold illegal mortgages. This is just one more example of the lax lending laws put into place by Democrats like Barney Frank that have contributed to this economic crisis. One would think this would be big news. But, so far we have only this one report to cover it.

There have been earlier stories of home flipping schemes that made liberal use of illegal aliens as straw buyers and the FBI has followed numerous cases to prosecution and conviction. But the Old Media have not done much with this story.

KFYI reports that these fraudulent straw purchases of mortgages by illegal aliens has affected every state in the union.

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One illegal alien was arrested this year in Tucson after allegedly using a stolen social security number to buy two homes and rack up over $780,000 in bad debt.

Some five million fraudulent home mortgages are in the hands of illegal aliens, according to the U.S. Department of Housing and Urban Development.

It’s not known how many of those have contributed to the subprime housing mortgage meltdown, but it has affected every state, including Arizona.

The problem began years ago when banks were forced to give mortgages without confirming social security numbers or borrower identification. As a result, illegal immigrants were able to obtain home mortgages which they could not afford.

Lax immigration laws have also helped make this crime easy to perpetrate.

In 1965 a Democrat Controlled Congress under President Lyndon Johnson passed the concept of “chain” immigration into law. A later commission named the Hesburgh Commission convened during Ronald Reagan’s first term, found that this concept statistically allowed each single immigrant to bring into this country 84 of his family members. Of course, all these people have to live somewhere making such fraudulent mortgages quite attractive.

What illegal struggling to survive is going to pass up a free house that he can move into without having to present any identification, proof of employment, financial history or even a down payment?

It isn’t impossible for a foreigner to get a mortgage in the U.S., of course. There is a way but it requires a lot of proof and paperwork.

Quote

“Known as ITIN mortgages because applicants must have an individual taxpayer identification number, the fixed-rate loans are designed for immigrants who can prove they are creditworthy and pay taxes even though they don’t have legal permanent residency in the U.S…. The mortgages represent a fraction of the $2.8 trillion mortgage market. ”

This story should be in every paper and on every TV news cast.

World Bank under cyber siege in 'unprecedented crisis'
Computer repository of sensitive data about economies of every nation raided repeatedly

The World Bank Group's computer network — one of the largest repositories of sensitive data about the economies of every nation — has been raided repeatedly by outsiders for more than a year, FOX News has learned.

It is still not known how much information was stolen. But sources inside the bank confirm that servers in the institution's highly-restricted treasury unit were deeply penetrated with spy software last April. Invaders also had full access to the rest of the bank's network for nearly a month in June and July.

In total, at least six major intrusions — two of them using the same group of IP addresses originating from China — have been detected at the World Bank since the summer of 2007, with the most recent breach occurring just last month.

In a frantic midnight e-mail to colleagues, the bank's senior technology manager referred to the situation as an "unprecedented crisis." In fact, it may be the worst security breach ever at a global financial institution. And it has left bank officials scrambling to try to understand the nature of the year-long cyber-assault, while also trying to keep the news from leaking to the public.

The crisis comes at an awkward moment for World Bank president Robert Zoellick, who runs the world's largest and most influential anti-poverty agency, which doles out $25 billion a year, and whose board represents 185 member nations. This weekend, the bank holds its annual series of meetings in Washington — and just in advance of those sessions, Zoellick called for a radical revamping of multilateral organizations in light of the global economic meltdown.

Zoellick is positioning himself and the bank as an institution that can help chart a new path toward global financial stability. But that reputation, more than ever, depends on the bank's stable information infrastructure.

The fact that the information vaults of the World Bank have been repeatedly pried open won't help Zoellick's case.

While it remains unclear how much data has been pilfered from the bank, it's a lot. According to internal memos, "a minimum of 18 servers have been compromised," including some of the bank's most sensitive systems — ranging from the bank's security and password server to a Human Resources server "that contains scanned images of staff documents."

One World Bank director tells FOX News that as many as 40 servers have been penetrated, including one that held contract-procurement data.

Despite the gravity of the break-ins, the bank is trying hard to pretend to outsiders it didn't happen. "There were attempts to hack the bank's computer systems last summer," says a World Bank spokesman. "However, there was no compromise of confidential information." Requests for on-the-record interviews with Zoellick and other top officials were declined.

Meanwhile, the bank's treasurer, Kenneth G. Lay, has been briefing Zoellick's senior management team regularly on the situation since April.

Other bank officials are also sleuthing. The bank's chief information officer, Guy De Poerck, has engaged Price Waterhouse Coopers to do a confidential million-dollar assessment that is expected to tell him what's going on in his own department. And a 22-page internal report by a computer security company named MANDIANT, dated August 18, fleshes out many details of the June-July breaches. But very few people have ever seen the report, and nobody has been permitted to retain a paper copy.

At the same time, De Poerck has been downplaying the problem to the bank's 10,000 rank-and-file staffers as mere intrusion "attempts" in his e-mails. Yet most of those staffers have been asked to change their password three times in the past three months.

"As previously reported in mid-July," CIO De Poerck and a senior bank treasury official wrote in an August announcement to employees, "we would like to reassure you that there is no evidence that Bank staff personal information is at risk from the recent external attempts."

It's unclear how that statement squares with an internal memo to De Poerck a month earlier revealing that a sensitive Human Resources server "that contains scanned images of staff documents" had been successfully breached. De Poerk declined to comment to FOX News about any of these details.

In reality, the situation is serious enough that federal investigators have been called in. "We're not talking about hackers playing games or messing up our website," insists a senior member of the bank's IT department at its Washington headquarters. "It's about the FBI coming last summer and saying, 'You should take a look at your systems because we think something weird is going on.' It's about the intruders knowing what information they wanted — and getting to it whenever they wanted to. They took our existing data stores and organized them in a way that they could be easily accessed at will."

In plainspeak: "They had access to everything," says the source. "They had the keys to every room at the bank. And we can't say whether they still do or don't until we fully and openly address what's happening here."

The data raids are not a matter of stealing inconsequential bits and bytes. The World Bank's data center is literally a treasure trove of vital financial information from around the globe. As a clearinghouse for financial data from both governments and companies, the bank's computers could provide intruders with both a financial and intelligence gold mine — from inside information on bids and contracts to the minutes of confidential board meetings.

If the bank takes a position in a currency, for example, that currency usually moves in response to the bank's actions. Stocks and bonds can also swing up and down based on World Bank announcements. "If you know beforehand that the bank is going to put an order in for oil pipelines in Chad or healthcare systems in India, you can actually make a good amount of money," says one insider.

Although the bank typically provides only a fraction of the financing for a project, its influence on those projects is immense. Private corporations see the bank's stamp of approval as a guarantee that their own larger investments will be safe — and profitable. Knowing in advance what projects the bank's board will reject could be just as profitable.

Some insiders fear that contractors — perhaps even governments — might be seeking advance knowledge on the status of the bank's anti-corruption probes. "The bank knows the books of countries almost as well as the countries do — including the corruption at times," says one insider.

The first breach of the bank's secrets was discovered in September, 2007, after the FBI —while at work on a different cybercrime case — notified the bank that something was wrong. The feds pointed to a part of the bank's network that led out of the Johannesburg hub of the International Finance Corp. (IFC), a bank arm that lends to the private sector.

Within a week of the tip, teams of bank investigators sent to Johannesburg discovered that intruders had gained full and total access to all of IFC's worldwide information — including all incoming and outgoing e-mail — for at least six months. "They were downloading everything and anything," says one insider, who says that IFC's monitoring systems were extremely weak. "They [intruders] had full access."

Investigators discovered that the intruders were using a so-called "cluster" of IP addresses from Macao, China. But since those addresses can be spoofed (i.e., disguised) the discovery doesn't prove that the breaches actually originated in China. Nonetheless, bank officials and its executive director for China clashed behind closed doors over whether or not China's government is involved in the break-ins.

cont'd

Bank sources tell FOX News that Johannesburg is one of several secret "hubs" containing a "common data store" (or CDS) that the World Bank Group has established around the globe. In layman's terms, a CDS is the cyber-world's version of a bomb shelter where every piece of an organization's data is replicated and backed up in case of a data-wipeout at headquarters in Washington. While it's known that IFC data was accessible at the hub, it remains unclear if all World Bank Group data was compromised there.

The second major breach — of the bank's treasury network in Washington — was discovered in April 2008. The World Bank's Treasury manages $70 billion in assets for 25 clients — including the central banks of some countries. It carries out substantial collaborations with the world's finance ministers on public wealth and debt management, runs an active bond-trading desk in Washington, and does everything from currency trading to capital markets financings.

After a forensic analysis of the treasury breach, bank investigators discovered that spy software was covertly installed on workstations inside the bank's Washington headquarters — allegedly by one or more contractors from Satyam Computer Services, one of India's largest IT companies.

The software — which operates through a method known as keystroke logging — enabled every character typed on a keyboard to be transmitted to a still-unknown location via the Internet.

Upon its discovery, insiders report, bank officials shut off the data link between Washington and Chennai, India, where Satyam has long operated the bank's sole offshore computer center responsible for all of the bank's financial and human resources information.

Satyam was also banned from any future work with the bank. "I want them off the premises now," Zoellick reportedly told his deputies. But at the urging of CIO De Poerck, Satyam employees remained at the bank as recently as Oct. 1 while it engaged in "knowledge transfer" with two new India-based contractors.

Satyam — one of the largest and most prestigious IT companies in India — is publicly listed on the NYSE and boasts having $2 billion in sales and more than 150 Fortune 500 companies as clients. In 2003, Satyam — it means "truth" in Sanskrit — won a much-heralded and lucrative five-year "sole source" contract to design, write and maintain all of the World Bank's information systems.

The contract — which began at $10 million and grew to more than $100 million by 2007 — was suddenly not renewed this year. Satyam so far declines to comment.

Then came the June-July breaches in Washington. They were similar to the Johannesburg attack, as the same group of IP addresses from Macao were used.

This time, however, the cyber-burglars used a different spyware. They broke into an external server run by the bank's private sector development unit. They were able to acquire passwords — including the password for the systems administrator.

That enabled them to jump into the servers at MIGA, the bank's giant insurance arm. It was there that they captured the security administrator's password as he was logging on to his computer.

It took ten days for bank officials to detect that they'd been invaded. Once they did, they shut down all external servers, except for e-mail — which it turns out the invaders were already using as their entrance point. By the end of July the invaders "had completely mapped out the topography of the bank's information systems," says one expert — "where everything was, the types of servers, and the types of files on the servers."

What the intruders did with all that information is the World Bank's most sensitive and painful mystery. It has clearly left the institution in a highly vulnerable position.

And the same may go for bank president Zoellick. Bank insiders say that he needs desperately to get the security of his own house in order. Despite the vast sums that the Bank spends on data and data storage, its information systems are deeply in disarray.

Today the total cost to maintain the bank's information infrastructure is at least $280 million per year. But according to one disgruntled bank staffer, "We don't even have an internal search engine that works."

The truly alarming fact, however, is that someone — or many people — seem to know their way around the bank's most valuable resource very well, even though they aren't supposed to be there at all.

UPDATE: After FOX News published its story, a World Bank spokesman issued the following statement:

"The Fox News story is wrong and is riddled with falsehoods and errors. The story cites misinformation from unattributed sources and leaked emails that are taken out of context.

"Like other public and private institutions, the World Bank has repeatedly experienced hacking attacks on its computer systems and is constantly updating its security to defeat these. But at no point has a hacking attack accessed sensitive information in the World Bank's Treasury, procurement, anti-corruption or human resources departments."

Countries at risk of bankruptcy from Pakistan to Baltics
Specter raised of strategic crisis in some of world's most dangerous spots

A string of countries face the risk of "going bust" as financial panic sweeps Asia, Eastern Europe, and Latin America, raising the spectre of a strategic crisis in some of the world's most dangerous spots.

Nuclear-armed Pakistan is bleeding foreign reserves at an alarming rate leading to fears that it could default on its loans.

There are mounting fears that Ukraine, Kazakhstan, and Argentina could all now slide into a downward spiral towards bankruptcy, while western banks exposed to property bubble across Eastern Europe have seen their share price crushed.

The markets are pricing an 80pc risk that Ukraine will default, based on five-year credit default swaps (CDS) – an insurance policy on a country being able to pay its debts.

The country's banking system has begun to break down after years of torrid credit growth; its steel mills are shutting as demand collapses; and the political crisis is going from bad to worse.

President Viktor Yushchenko dissolved parliament this week in a dispute that risks bitter conflict with the country's Russian bloc. Diplomats fear Moscow could be drawn into the crisis – or even use it as a pretext to occupy territory in a replay of the Georgia invasion this summer.

Ukraine's government seized Prominvestbank this week, suspending payments to creditors. It closed the Kiev stock market, which has fallen 73pc this year.

Emerging market stocks have been tumbling since their peak in October, when investors were still betting that rising stars such as the BRICs (Brazil, Russia, India, China) were now strong enough to shake off a US crisis. That illusion has been shattered.

The International Monetary Fund said it is mobilising a "rapid-fire" fund worth several hundred billion dollars to stop a domino collapse across the developing world.

The trigger for the latest round of capital flight has been the lightning implosion of Iceland. BNP Paribas warned clients yesterday that the island is heading for "sovereign default" with contagion risks for other economies that have been living beyond their means on foreign credit.

Hungary had to intervene yesterday to prop up its markets following a run on country's biggest lender OTP. The Budapest bourse fell 13pc. The treasury had to scrap a bond auction.

The most new mortgages in Hungary are in Swiss francs, leaving the homeowners facing a vicious squeeze as the forint plunges against the franc.

In Pakistan, the rupee has fallen to an all-time low. Standard & Poor's downgraded the country's sovereign debt to near write-off levels of CCC-plus. The central bank's foreign reserves have fallen to $4.7bn (£2.73billion).

"The danger of default is hovering," said Professor Kaisar Bengali from Karachi University.

"Pakistan may not be able to re-pay its debt or import anything," he said, adding that the country cannot assume that it will be bailed out for strategic reasons.

Default risk on Kazakhstan's top banks has risen to 70pc as property bubble bursts in the former Soviet republic and reliance in foreign credit comes back to haunt.

The country has mortgaged its future to oil prices, which crashed below $80 a barrel yesterday as the whole nexus of commodities (except gold) buckled in a wave of forced selling.

Analysts warn that it is leading indicator for what could happen if Russia if crude falls much further.

Oil plunges to 13-month low on global crisis
Investors worry about the impact of a severe international downturn

The stunning collapse in oil markets accelerated Friday, sending a barrel of crude plunging below $78 as investors grow more pessimistic about resolving a mushrooming global economic crisis.

Oil hasn’t been this cheap in 13 months — a rare silver lining for consumers amid a rapidly imploding financial landscape.

Crude prices have almost been cut in half since surging to a record near $150 barrel over the summer.
Story continues below ↓advertisement

Energy experts believe prices could go even lower.

Friday’s steep losses came as Wall Street capped its worst weekly drop ever with another wild session. The Dow Jones industrial average fell as much as 700 points earlier in the day before gyrating in and out of positive territory and later finishing the day down 128 points.

The frenzied trading weighed heavily on oil markets, sending prices plummeting more than $9 a barrel at one point.

“There’s so much fear out there and that’s really gripping the oil market. People are just afraid to hold a position so they’re closing out and selling off,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts.

Light, sweet crude for November delivery ended the day $8.89 lower at $77.70 a barrel on the New York Mercantile Exchange. It was the lowest settlement price for a front-month crude contract since Sept. 10, 2007.

“As long as this financial crisis continues, we could see prices go down into the $60 range,” Lynch said.

Oil has now lost 47 percent of its value since hitting a record $147.27 on July 11 as a deepening credit crisis sparked by the subprime mortgage fiasco wreaks havoc around the globe and drives down energy demand.

Investors have shrugged off an array of market-stabilizing efforts by world governments, including a $700 billion U.S. financial rescue plan, several bank bailouts and a coordinated interest rate cut by the Federal Reserve and central banks around the globe.

Underscoring Americans’ waning appetite for fuel, a gallon of regular gasoline dropped 5.3 cents overnight to a new national average of $3.35 a gallon, according to auto club AAA, the Oil Price Information Service and Wright Express.

Prices dipped below $3 a gallon on average in Kansas, Missouri and Oklahoma. If crude keeps falling, the rest of country should see sub-$3 gasoline in the next few weeks if not sooner, experts say.

Oil market traders got more proof that energy demand is falling away across the globe.

The International Energy Agency on Friday cut its global oil demand forecasts for this year and 2009, pointing to the worsening economic conditions and the tight credit supply.

The Paris-based energy watchdog cut its forecast for oil demand this year by 240,000 barrels per day, and slashed its 2009 forecast by 440,000 barrels per day. The IEA now expects global oil demand to total 86.5 million barrels per day this year and 87.2 million barrels per day next year.

“The fundamental game for oil has changed. In the last decade, oil went up because of strong global economic growth. That story for the near term is over, so everybody has to re-evaluate,” said Phil Flynn, energy analyst at Alaron Trading Corp. in Chicago.

OPEC signaled it may tighten output to put a floor under falling prices, but it didn’t seem to matter.

The Organization of the Petroleum Exporting Countries said Thursday it will hold a special meeting Nov. 18 to discuss how the economic crisis is affecting oil prices. The head of Libya’s national oil company, Shukri Ghanem, called on oil producing nations to cut output.

Many doubt that an OPEC cut would reverse the extreme downward momentum on oil. OPEC’s decision last month to cut production by 520,000 barrels a day did little to stop the losses.

Flynn said another output cut “may actually accelerate the slide.”

“What’s driving this market right now is fear of demand destruction and lack of credit,” he said. “If you can’t borrow money to buy crude, then demand falls more and so do prices.”

In other Nymex trading, heating oil futures lost 20.86 cents to settle at $2.21 a gallon, while gasoline futures fell 22.03 cents to settle at $1.807 a gallon. Natural gas futures fell 29 cents to settle at $6.535 per 1,000 cubic feet.

In London, November Brent crude lost $8.57 to settle at $74.09 a barrel on the ICE Futures exchange.

China stiffing America
for $100 billion in debt
Yet U.S. taxpayers helping Beijing
as part of trillion-$ credit bailout

While Chinese companies are in line to benefit directly from U.S. taxpayers' $700 billion-plus bailout of Wall Street, Fannie Mae, Freddie Mac and other financial institutions, Beijing is stiffing the U.S. for $100 billion or more in unpaid debt.

The status of the Chinese economy, including its repudiated debt, has prompted one analyst to warn of an "ominous threat" involving China's finances and suggest the possibility of "a dramatic reversal" for the "so-called Chinese Miracle."

"One of the greatest problems facing China is the government's failure to acknowledge and effectively address the true extent of state institutions' bad debt," Kevin O'Brien writes in an article titled, "Reassessing China's Sovereign Risk: Emerging Global and Domestic Trends Threaten the 'Chinese Miracle."

O'Brien's report was published at a website for the Global Association of Risk Professionals, a not-for-profit independent trade association of risk management practitioners around the world. It has 77,000 members from fields such as banking, investment management and academics.

One problem that should be addressed, he writes, is the $260 billion in sovereign debt owed U.S. and other investors which China has said it simply won't repay.

"The repayment obligation was inherited by the People's Republic of China, when the communists took control in 1949. The successor government doctrine of settled international law affirms continuity of obligations among international recognized successive governments," O'Brien said.

"The PRC is the internationally recognized successor government … which contracted the credit sovereign debt … and which had a loan agreement that states that such debt is intended to be 'a binding engagement upon the Republic of China and its successors.'"

The bonds, however, were excluded from a 1979 settlement of Chinese debts and in 1987, China even "concluded a discriminatory settlement accord with bondholders in Great Britain – an agreement that excluded from settlement any bonds held by non-UK citizens."

Then in 2006, the Chinese Ministry of Finance issued an official communiqué addressed to "the Embassy of the United States of America in China," in which the Chinese government formally repudiated China's defaulted full faith and credit sovereign debt and announced that it would not repay any debt held by American citizens, O'Brien said.

The repudiation still stands, even though the China Economic Review confirmed that major Chinese banks own $8 billion in Fannie Mae and Freddie Mac securities that are the targets of bailout provisions.

"Bank of China said last month it owned $7.5 billion in Fannie and Freddie bonds," the report continued. "The bank also held $5.2 billion in mortgage-backed securities guaranteed by the two agencies."

Those owners will be among the beneficiaries of the overall bailout plan assembled by the government and funded by taxpayers to "rescue" bad debt created by an agenda of loaning money to "subprime" recipients who may not have had the wherewithal to repay the loans.

Recipients of the U.S. taxpayers' generosity also may include various private Chinese interests with investments in American real estate and mortgage.

As recently as three weeks ago, China Investment Corp. was in active discussions to buy into U.S. financial institutions, including Morgan Stanley.

All the while Congress has been aware of the Chinese default but unwilling to mandate action.

Elton Gallegly, a California Republican in Congress, called it the "China debt syndrome."

"After Saddam Hussein's government was replaced in Iraq, China demanded that the new government pay off the debt Saddam's regime ran up against China. China prevailed and is getting 100 percent of the more than $10 billion Iraq owes it," he said in a recent commentary.

"China, however, refuses to recognize the debt its current government inherited when the communists took control in 1949. That debt includes about $260 billion on bonds issued by the former Republic of China. Of that, more than 300 American citizens are owed nearly $100 billion from bonds on which the People's Republic of China has defaulted," the congressman wrote.

"It's time China owned up to its international obligations. Pressure is the only thing China understands. And pressure works. Americans weren't the only ones owed billions when the communists seized control. British citizens were among the bondholders communist China had been ignoring. That lasted until 1987, when Great Britain enacted a law denying Chinese access to British capital markets and China responded by negotiating a settlement to pay off the bonds," he wrote.

Now, he said, China is in negotiations with France on defaulted bonds but "continues to ignore the United States."

He said worse than the actual monetary loss is the message that suggests China "does not have to play by the rules when it competes in the global economy. This helps explain Beijing's refusal to abide by trade agreements, the manipulation of its currency, its underwriting of the genocidal regime in Sudan and its financial relationship with the terrorist-sponsoring government in Iran."

"To that list we can add China’s refusal to crack down on the widespread theft of intellectual property. The piracy of U.S. movies, books, music and other products is costing Americans billions of dollars each year," he said.

China, meanwhile, is boasting of its economy growth and influence. On a Chinese-promoted website today the headlines bragged: "China ranks among the world’s top 30 economies," "China Investment Corp to start investing in Japan stocks" and "China's ship industry strives for No. 1 spot."

A resolution similar to Gallegly's also has been introduced in the Senate. The plan by Sen. James Inhofe, R-Okla., targets China's attempt "to conceal its defaulted government debt from investors."

"The Senate measure labels China's present 'investment-grade' credit rating as artificial and in testimony before the Senate Banking Committee, SEC Chairman Christopher Cox acknowledged that wrongful actions by a credit rating agency may subject the agency to revocation of its SEC registration," an announcement said.

At Washington Watch, the criticism focused on the U.S. credit rating agencies that have allowed the situation to remain under the radar.

"In China's instance, the three largest rating agencies (Standard & Poor's, Moody's and Fitch) are accused of intentionally violating their published criteria and metrics," said the report. "Sovereign Advisers, a risk metrics firm assisting the defaulted creditors of the Chinese government, has performed comprehensive research on this matter and has provided the U.S. Congress and the Securities and Exchange Commission with evidence suggesting that the actions of Standard & Poor's and Moody's were intentionally designed to conceal the Chinese government's debt repudiation and establish an artificial sovereign benchmark in order to increase ratings revenue from expanded securities issuance by Chinese corporations."

On the Washington Watch website, several participants in an online discussion expressed concern over the situation.

"It is about time the PRC was made to pay for their financial indiscretions from the past," said one.

"The situation is crystal clear," said another. "China has an obligation and if it wishes to operate globally it must meet this and any other obligations."

"If it walks like a duck, quacks like a duck, looks like a duck. China's credibility should be disclosed so investors are aware of the risk. China needs to pay its debts," added another.

Gallegly's effort also was to encourage that knowledge among investors.

"This action will put all investors on notice that China has refused to honor its obligations in contravention of international law," he wrote. "It will also encourage China to negotiate in good faith with American bondholders to settle their claims on defaulted bonds."

O'Brien called China's actions "selective default."

He said that's "a practice whereby a government selectively defaults on one specific class of full faith and credit soverereign obligations … yet honors repayment to selected creditors of a separate class.."

"China's refusal to honor repayment of its full faith and credit sovereign debt to American bondholders is best characterized by a statement that appeared in a recent news article: 'When it comes to territory, China claims Tibet and Taiwan based on historical claims predating the current communist government assuming power, but when it comes to debts owed to American citizens, it's a different story," he wrote.

WND reported in 2007 about the influence China wielded over the American dollar because of its investments in financial instruments.

WND also has reported extensively on a long list of defective and even dangerous products that have been exported from China to the U.S.

Fannie, Freddie to Buy $40 Billion a Month of Troubled Assets

Federal regulators directed Fannie Mae and Freddie Mac to start purchasing $40 billion a month of underperforming mortgage bonds as the Bush administration expands its options to buy troubled financial assets and resuscitate the U.S. economy, according to three people briefed about the plan.

Fannie and Freddie began notifying bond traders last week that each company needs to buy $20 billion a month in mostly subprime, Alt-A and non-performing prime mortgage securities, according to the people, who asked not to be identified because the plans are confidential. The purchases would be separate from the U.S. Treasury's $700 billion Troubled Asset Relief Program.

The Federal Housing Finance Agency, which placed the two companies in conservatorship on Sept. 7, directed them last month to start increasing their purchases of loans and mortgage-backed securities as the Treasury seeks to absorb underperforming and illiquid assets from financial companies.

``For now, they're under conservatorship and they have to be used to keep the flow of capital going to the housing market,'' former Treasury Secretary Lawrence Summers said in an interview on Bloomberg Television's ``Conversations with Judy Woodruff.'' ``They're important to maintaining the flow of government finance'' and need to be used actively, he said.

Adding underperforming assets to Fannie and Freddie's combined $1.52 trillion mortgage portfolios would come at a time when the two mortgage-finance companies already hold as much as $210 billion of bad debt that may be eligible itself for the Treasury's relief program, their regulator said Oct. 5.

A spokesman for Washington-based Fannie, Brian Faith, and Doug Duvall at McLean, Virginia-based Freddie wouldn't comment.

Overall Goal

Neither Fannie nor Freddie has turned a profit in the past year, accumulating $14.9 billion in combined quarterly losses, largely related to bad subprime and Alt-A mortgage assets.

FHFA spokeswoman Stefanie Mullin declined to comment on the details of the program. Treasury spokeswoman Jennifer Zuccarelli wasn't immediately available to comment.

``The overall goal of the program will be to contribute greater stability and liquidity in the mortgage market, which should enhance consumers' access to mortgage financing and ultimately result in reduced mortgage interest rates,'' FHFA Director James Lockhart said in a Sept. 19 statement.

Subprime loans were given to borrowers with poor or limited credit records or high debt burdens. Alt-A loans were made to borrowers who wanted atypical terms such as proof-of-income waivers, without sufficient compensating attributes. About 35 percent of subprime loans in non-agency mortgage securities are at least 60 days late, while 15 percent of Alt-A loans are, according to a Sept. 9 report by FTN Financial Capital Markets.

Growth

Non-agency, or private-label, bonds are issued by banks and don't carry guarantees by Fannie, Freddie or government-agency Ginnie Mae. Freddie held about $207 billion in non-agency debt in its $760.9 billion portfolio as of August, according to its latest monthly volume summary. Fannie had about $104 billion of such securities in its $759.9 billion portfolio in August.

Regulators initially restricted Fannie and Freddie's growth when they seized control of the government-sponsored enterprises Sept. 7. To ``promote stability'' and lower mortgage costs to borrowers, Treasury Secretary Henry Paulson said the two would be allowed to ``modestly increase'' their mortgage portfolios to as much as $1.7 trillion through the end of next year and said they would no longer be run ``to maximize shareholder returns.''

Less than two weeks later, Fannie and Freddie were told to ramp up their mortgage bond purchases as the financial crisis deepened and credit activity came to near standstill.

Fannie and Freddie which own or guarantee almost half of the $12 trillion U.S. home loan market, were given access to $200 billion in emergency Treasury financing as part of their rescue package. The companies may also be able to sell their bad debt to the Treasury through its $700 billion financial-rescue program signed into law Oct. 3.

FHFA has said the companies plan to release third-quarter results next month as scheduled. Analysts surveyed by Bloomberg project losses for both Fannie and Freddie at least through 2009.

Pastor Roger and All,

The government ship is sinking, mainly because members of government kept drilling BIG HOLES in the hull of the ship. Their MESS is HUGE and it might even be intentional. I'm not one of those doom and gloom folks, but I think the ship is going to SINK. As Christians, we still have GOD, and we are held in the MIGHTY HANDS of GOD. BUT, things are still going to be rough and times are going to be hard!

Things as we knew them are gone, and we might or might not recover. I still think the first order of business should be to prosecute everyone who committed crimes. That includes everyone, regardless of how high their office is or was. Probably only GOD knows what's left to work with. We haven't deserved GOD'S Blessings, so we shouldn't dare try to blame GOD. I don't think that anyone knows yet how hard things are going to get, and I don't think our CORRUPT POLITICIANS can fix things. Regardless of how the coming election goes, I think they will simply preside over a sinking ship. We are now reaping what was sown, and I think that the same is true for the entire world. Let's just face the TRUTH: THIS WORLD IS CORRUPT AND EVIL MORE BY THE DAY! It is getting RIPE for the HOLY AND RIGHTEOUS WRATH OF ALMIGHTY GOD. The time may not be now, but I think that the time is soon.

Brothers and Sisters, we should have already separated ourselves from this world anyway because it isn't our HOME. Biblical teaching tells us not to love this world or the things in it. Our HOPES are ETERNAL IN CHRIST and NOT subject to change or failure. Maybe the hard times will draw us closer to CHRIST. Further, we don't know how much longer Christians will be on this earth. Regardless, we should further separate ourselves from the EVIL of this world. I'm not hinting that we should stop or slow down the work we do for the LOST - just the opposite. NOW more than ever, we should yield ourselves to GOD for HIS Use. We need to do MORE for the LOST - not less. We should know that the time remaining to help the LOST is limited. Our FULLNESS OF JOY should be based and centered on JESUS CHRIST - not this world.

Love In Christ,
Tom

Favorite Bible Quotes - 1 Corinthians 1:21-24 NASB
For since in the wisdom of God the world through
its wisdom did not come to know God, God was
well-pleased through the foolishness of the
message preached to save those who believe. 22 For
indeed Jews ask for signs and Greeks search for
wisdom; 23 but we preach Christ crucified, to Jews
a stumbling block and to Gentiles foolishness, 24
but to those who are the called, both Jews and
Greeks, Christ the power of God and the wisdom of
God.

Financial crisis reshapes world order
David R. Sands
October 12, 2008

As shell-shocked central bankers and finance ministers gather in Washington to confront the world's financial meltdown this weekend, that grinding noise in the background is the sound of the global balance of power shifting.

In sharp contrast to past crises — from the Latin American debt problems of the 1980s to the Asian and Russian currency collapses of the 1990s — the emerging markets of the developing world boast the strong balance sheets and deep financial pockets while the United States and Western Europe lurch from crisis to crisis.

"In a very bizarre way, roles have been reversed in the global economy," said Alex Patelis, head of international economics at Merrill Lynch. "The typical troublemakers of the global economy, the emerging markets, are actually now the world's creditors.

"We do need a new world financial order, and we will probably get one as a side effect of this crisis," he said.

Treasury Secretary Henry M. Paulson Jr. gave a clear signal of the new pecking order last week on the sidelines of the annual Washington meetings of the World Bank and the International Monetary Fund (IMF).

With world financial markets reeling, Mr. Paulson said, he was following up an emergency meeting Friday of finance ministers from the traditional Group of Seven industrial powers — Britain, France, Canada, Germany, Japan, Italy and the United States — with a larger gathering Saturday of the so-called Group of 20, which includes China, India, Russia and Brazil.

The meeting was designed to "coordinate [policies] to lessen the effects of global market turmoil and the economic slowdown on all of our countries," Mr. Paulson said.

Before the meeting, President Bush issued a plea for nations to work together to address the crisis, avoiding the go-it-alone protectionist trade strategies that worsened conditions during the Great Depression.

"In an interconnected world, no nation will gain by driving down the fortunes of another. We are in this together. We will come through it together," Mr. Bush said during an appearance in the Rose Garden after a private White House meeting with ministers and officials from nearly a dozen nations and international organizations.

"There have been moments of crisis in the past when powerful nations turned their energies against each other or sought to wall themselves off from the world. This time is different," he said.

French Finance Minister Christine Lagarde said the rapid spread of U.S. credit, stock and asset woes to markets around the world in recent weeks demonstrated that developing countries can never fully decouple their economies from the West.

"The effects [of the crisis] have spread around the globe, so the emerging markets have to be represented," she said Friday.

With China and other Asian markets supplying much of the liquidity that keeps the U.S. economy afloat, analysts say, the economic meltdown could signal a rearrangement of the pecking order at institutions like the IMF and World Bank that has been largely unchanged since the end of World War II.

Robert B. Zoellick, the American head of the World Bank, argued explicitly last week for a larger "steering group" of countries to replace the long dominance of Western industrial powers at the World Bank and IMF.

"The G-7 is not working," he said. "We need a better group for a better time."

Developing countries have not been immune to the recent market shocks.

The MSCI Emerging Markets Index fell 21 percent last week to 583.32, the biggest weekly loss since the index was established in 1988. Stock markets in Brazil, Russia, Indonesia and elsewhere were forced to shut down at times in the face of steep sell-offs.

But with bulging government coffers and relatively small exposure to the imploding U.S. mortgage market, countries such as China, India and Russia enter a period of deep global uncertainty from a position of strength.

China's Academy of Social Sciences estimated Friday that the country's gross domestic product will grow at a 9.5 percent rate next year, down only slightly from the 10.1 percent clip this year, even as major Western economies are bracing for severe recessions.

Although India's currency has come under pressure in recent weeks, the country's banks have not been "seriously affected" by the global credit crisis, Rakesh Mohan, deputy governor at the Reserve Bank of India, told IMF officials in a speech Friday.

Like several emerging Asian economies that largely steered clear of the U.S. mortgage troubles, "India has by and large been spared of global financial contagion due to the subprime turmoil," Mr. Mohan said.

Merrill Lynch's Mr. Patelis noted one remarkable turnaround. In 1998, a bankrupt Russian government was forced to accept an international bailout after the ruble collapsed.

Ten years later, Moscow, flush with petrodollars, is considering a massive bailout loan to Iceland, once one of the West's wealthiest countries, after the collapse in recent days of Iceland's three largest banks.

Philip Stephens, a columnist with the Financial Times, said the rise of China and other emerging economies comes as no surprise. But the events of the past week, he said, have punctured the hopes of policymakers in Washington and Western Europe that they could shape the global order "in their own image."

"For more than two centuries, the U.S. and Europe have exercised an effortless economic, political and cultural hegemony," he wrote. "That era is ending."

Financial crisis reshapes world order (http://www.washingtontimes.com/news/2008/oct/12/financial-crisis-reshapes-world-order/)

A Socialist Tsunami

By INVESTOR'S BUSINESS DAILY
October 10, 2008 4:20 PM PT

The Crash: "Why has the market dropped so much?" everyone asks. What is it about the specter of our first socialist president and the end of capitalism as we know it that they don't understand?

The freeze-up of the financial system — and government's seeming inability to thaw it out — are a main concern, no doubt. But more people are also starting to look across the valley, as they say, at what's in store once this crisis passes.

And right now it looks like the U.S., which built the mightiest, most prosperous economy the world has ever known, is about to turn its back on the free-enterprise system that made it all possible.

It isn't only that the most anti-capitalist politician ever nominated by a major party is favored to take the White House. It's that he'll also have a filibuster-proof Congress led by politicians who are almost as liberal.

Throw in a media establishment dedicated to the implementation of a liberal agenda, and the smothering of dissent wherever it arises, and it's no wonder panic has set in.

What is that agenda? It starts with a tax system right out of Marx: A massive redistribution of income — from each according to his ability, to each according to his need — all in the name of "neighborliness," "patriotism," "fairness" and "justice."

It continues with a call for a new world order that turns its back on free trade, has no problem with government controlling the means of production, imposes global taxes to support continents where our interests are negligible, signs on to climate treaties that will sap billions more in U.S. productivity and wealth, and institutes an authoritarian health care system that will strip Americans' freedoms and run up costs.

All the while, it ensures that nothing — absolutely nothing — will be done to secure a sufficient, terror-proof supply of our economic lifeblood — oil — a resource we'll need much more of in the years ahead.

The businesses that create jobs and generate wealth are already discounting the future based on what they know about Obama's plans to raise income, capital gains, dividend and payroll taxes, and his various other economy-crippling policies. Which helps explain why world stock markets have been so topsy-turvy.

But don't take our word for it. One hundred economists, five Nobel winners among them, have signed a letter noting just that:

"The prospect of such tax-rate increases in 2010 is already a drag on the economy," they wrote, noting that the potential of higher taxes in the next year or two is reducing hiring and investment.

It was "misguided tax hikes and protectionism, enacted when the U.S. economy was weak in the early 1930s," the economists remind us, that "greatly increased the severity of the Great Depression."

We can't afford to repeat these grave errors.

Yet much of the electorate is determined to vote for the candidate most likely to make them. If he wins, what we consider to be a crisis in today's economy will be a routine affair in tomorrow's.

A Socialist Tsunami (http://www.ibdeditorials.com/IBDArticles.aspx?id=308530365266606)

Chrysler, GM discuss merger, acquisition

By TOM KRISHER, AP Auto Writer Sat Oct 11, 5:45 PM ET

DETROIT - For General Motors Corp. to acquire Chrysler LLC and all of its warts, GM would have to get desperately needed cash. Lots of it, according to industry analysts.
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With both automakers struggling to survive amid slumping sales, a slowing global economy and an unprecedented credit crunch, it's unclear whether Chrysler's majority owner, Cerberus Capital Management LP, would be willing to pay up, or whether the federal government might even get involved to save one or both struggling automakers.

"There's got to be more in it for GM than just Chrysler," said Erich Merkle, an auto industry analyst with Crowe Horwath LLP, an accounting and consulting firm. "If you put two auto companies together, both that are losing money, both that are losing market share, you've just got an auto company that's losing market share faster and losing more money."

GM and Cerberus, which owns 80.1 percent of Chrysler, have held preliminary talks about an acquisition or other combination of the two automakers, according to a person familiar with the discussions who did not want to be identified because the talks have not been made public.

A tie-up between the automotive giants would be historic for the industry and solidify GM's position as the global sales leader, which it has been in danger of losing to Toyota Motor Corp. GM and Toyota finished 2007 essentially even in vehicles sold worldwide.

GM and Chrysler already have a joint venture with BMW AG making a hybrid gas-electric powertrain. While melding the companies could save money by combining management, engineering, manufacturing and administrative staffs, analysts say consolidation would bring more costs, and the rewards probably wouldn't come for several years.

That might be too late for both automakers.

Auburn Hills-based Chrysler, a privately held company, doesn't have to open its books, but it lost at least $510 million in the first quarter and $1.6 billion last year. Its sales are down 25 percent so far this year, the worst drop of any major automaker.

Detroit-based GM is burning up more than $1 billion in cash per month, with several analysts predicting it will reach its minimum operating cash level of $14 billion sometime next year. Sales are down 18 percent, and the company has lost $57.5 billion in the past 18 months, largely because of tax accounting changes.

All of this comes as U.S. sales have slowed to their lowest point in 15 years, making bankruptcy possible for all of the cash-strapped Detroit Three if things don't turn around soon enough.

Not exactly the prime scenario for a GM-Chrysler combination, said analyst Kevin Tynan of New York-based Argus Research Corp.

"Even though you're getting the rationalization of folding the two businesses together, it doesn't make sense at this time," he said. "There's got to be some sort of outside motivation for them to do that sort of deal, especially in this market."

That outside motive, analysts speculated, could be the federal government, which would inherit massive pension liabilities if either company went under.

In exchange for taking on Chrysler, analysts envisioned that GM could be given access to low-rate emergency borrowing from the Federal Reserve's discount window, used in normal times by banks.

GM, though, said it is not going to the Fed at present.

"We're not actively pursuing anything at this time," said Greg Martin, GM's Washington spokesman.

The Wall Street Journal reported late Friday that Cerberus might trade Chrysler for GM's 49 percent stake in GMAC Financial Services. Cerberus bought 51 percent of GM's former financial arm for $14 billion in 2006, but since then GMAC has suffered because of bad mortgage loans.

GMAC could look good to Cerberus now, Merkle said, because its insurance and auto businesses are profitable, and the federal government may take on its bad mortgages through the $700 billion financial bailout plan approved earlier this month.

If a merger were to go through, GM could move quickly to cut costs and save billions, said Van Conway, a mergers and acquisitions expert and partner with Birmingham, Mich.-based Conway & MacKenzie. The company would have to calculate whether it has enough cash to stay alive and fund the deal, he said.

If the numbers work, a lean, merged automaker would be in a strong position to make money once the U.S. market recovers and people start buying vehicles again, Conway said.

"You want to be the last man standing here because the car market is going to come back," he said.

Tynan estimated GM could save more than $5 billion a year by running the two companies as one, but said it could take years to realize the savings.

"Over the short term there's very little in the way of consolidation that could occur," said Michael Robinet, vice president of global forecast services for CSM Worldwide, an auto industry consulting company based in Northville, Mich.

Renault and Nissan are still completing their consolidation, even though the companies joined in 1999, he said.

A combined GM-Chrysler would have too much factory capacity, too many brands and too many dealers, the analysts said.

"Adding three more brands (Chrysler, Dodge and Jeep) to their mix and another company that's very heavy in the area of truck production and sales, I don't know how that can be a good thing," Merkle said.

Neither GM nor Chrysler would confirm that they've talked, but each said discussions between automakers are routine. There also were reports Saturday that Chrysler was in talks with Nissan-Renault, and The New York Times reported that GM had approached Ford Motor Co. about a merger earlier in the year, but Ford wanted to stay independent.

Merger talk among the Detroit Three is not new. GM talked with DaimlerChrysler AG in 2007 about acquiring Chrysler before Cerberus bought its stake in a $7.4 billion deal. The talks fell through when GM decided it should concentrate on cost savings and efficiencies by globalizing its own operations.

Cerberus and Daimler confirmed last month that they are in talks for the private equity firm to acquire Daimler's remaining 19.9 percent Chrysler stake.

The Journal said the talks between GM and Chrysler are on hold for now due to recent turmoil in the financial markets.

The auto industry has been hit hard in recent weeks by the effects of the credit crisis, prompting GM and Ford to issue statements Friday to dispel the notion that they might be headed for bankruptcy.

GM and Ford shares were battered with the rest of the stock market this week, falling to lows not seen in decades. GM shares lost about half of their already-depressed value during the week, closing at $4.89 on Friday. Ford shares fell similarly, ending the week at $1.99.

Chrysler, GM discuss merger, acquisition (http://news.yahoo.com/s/ap/20081011/ap_on_bi_ge/gm_chrysler_merger_talks)

Quote from: blackeyedpeas on October 12, 2008, 10:12:31 PM

The government ship is sinking, mainly because members of government kept drilling BIG HOLES in the hull of the ship. Their MESS is HUGE and it might even be intentional.

It at least does look as though it was intentional. After all they want it to look like capitalism doesn't work so that they can more easily put socialism in it's place. Even if it is intentional I am reminded of the words of Jesus Christ on the cross, "they know not what they do" because in the long run they actually don't know what they are doing. All of this is playing into the hands of the devil just as God said that mankind would do.

Quote from: blackeyedpeas on October 12, 2008, 10:12:31 PM

Probably only GOD knows what's left to work with. We haven't deserved GOD'S Blessings, so we shouldn't dare try to blame GOD. I don't think that anyone knows yet how hard things are going to get, and I don't think our CORRUPT POLITICIANS can fix things. Regardless of how the coming election goes, I think they will simply preside over a sinking ship. We are now reaping what was sown, and I think that the same is true for the entire world. Let's just face the TRUTH: THIS WORLD IS CORRUPT AND EVIL MORE BY THE DAY! It is getting RIPE for the HOLY AND RIGHTEOUS WRATH OF ALMIGHTY GOD. The time may not be now, but I think that the time is soon.

Brothers and Sisters, we should have already separated ourselves from this world anyway because it isn't our HOME. Biblical teaching tells us not to love this world or the things in it. Our HOPES are ETERNAL IN CHRIST and NOT subject to change or failure. Maybe the hard times will draw us closer to CHRIST. Further, we don't know how much longer Christians will be on this earth. Regardless, we should further separate ourselves from the EVIL of this world. I'm not hinting that we should stop or slow down the work we do for the LOST - just the opposite. NOW more than ever, we should yield ourselves to GOD for HIS Use. We need to do MORE for the LOST - not less. We should know that the time remaining to help the LOST is limited. Our FULLNESS OF JOY should be based and centered on JESUS CHRIST - not this world.[/b]

Amen, brother. I'm looking forward to the time in which He will fix all these problems and more.

Bush announces expanded bank bailout details
Will spend $250 billion to buy stock in banks, take other bold steps

President Bush said Tuesday his administration will spend $250 billion this year to purchase stock in banks and take a number of other bold steps in an effort to combat a global credit crisis that is threatening to push the U.S. into a deep recession.

In a speech from the White House lawn, Bush said the government's role will be limited and temporary and "these measures are not intended to take over the free market, but to preserve it."

"I know Americans are deeply concerned about the stress in our financial markets and the impact it's having on their retirement accounts and 401(k)s and college savings and other investments," Bush continued.

"I recognize that the action leaders are taking in Washington and European capitals can seem distant from those concerns but these efforts are designed to directly benefit the American people by stabilizing our overall financial system and helping our economy recover."

Bush announced the new initiatives early Tuesday after executives of the country's biggest banks were summoned to a remarkable meeting at the Treasury Department on Monday. Treasury Secretary Henry Paulson basically told the bank CEOs that they had to accept the government stock purchases for the good of the U.S. economy.

The administration plans to spend $250 billion of the $700 billion government rescue program passed by Congress on Oct. 3 to make stock purchases this year. The first purchases will be in nine large banks, officials said. The industry and government officials spoke on condition of anonymity because the details were yet to be formally released.

The decision represents a remarkable turnaround for the $700 billion rescue program, already the largest bailout in U.S. history. As the plan sped through Congress, the administration said the money was needed to purchase bad mortgage-related assets that are weighing on the books of financial institutions, never mentioning direct stock purchases.

However, as the financial crisis gained new intensity last week, sending U.S. stocks down by a record amount, the administration decided to shift focus and adopt a bolder program modeled more along the lines of bank rescue efforts being put together in Britain and other European countries.

Major stock markets around the world surged higher Monday as traders began to hear of new actions being taken in Europe, where governments put $2.3 trillion on the line Monday in guarantees and other emergency measures to save banks there.

On Wall Street, the Dow Jones industrial average soared by a one-day record of 936 points. But all the stock gains came after staggering losses in the previous week and economists said more rough days can be expected until there are clearer signs that the credit crisis is lessening.

While the administration refused to provide details in advance of Bush's appearance, industry and government officials who were briefed on the proposals said the stock purchase was aimed at bolstering depleted capital reserves as a way of getting the institutions to resume more normal lending patterns.

After the purchase of preferred stock in nine large banks, the program is expected to be expanded to many others. Among the initial banks participating will be all of the country's largest institutions, including Citigroup Inc., Wells Fargo & Co., JPMorgan Chase & Co., Bank of America Corp. and Morgan Stanley, said one official, with each institution expected to receive billions of dollars in return for the sale to the government of preferred shares.

The advantage to the taxpayer is that if the rescue plan works, then the shares can be sold for more than the government initially paid, providing a profit on the transaction.

Bush will certify Tuesday that another $100 billion is needed from the $700 billion rescue program. That would leave the final $350 billion to be spent, probably by the next president.

In addition to the stock purchases, the Federal Deposit Insurance Corp. will temporarily provide insurance for loans between banks, charging the banks a premium for doing so, the officials who were briefed on the program's details said.

This FDIC program would take the form of providing insurance for new "senior preferred" debt that one bank would lend to another. This debt would be insured by the FDIC for three years, helping to unlock bank-to-bank lending, which has fallen dramatically because of fears about repayment in the face of billions of dollars of bank losses because of bad loans, primarily in mortgages.

The officials said the FDIC would remove for a period the current $250,000 limit on FDIC insurance on bank deposits for non-interest-bearing accounts. This primarily would benefit businesses who use non-interest-bearing accounts to run their companies. That money now would be insured, removing the need for companies to juggle funds among multiple bank accounts to stay under the $250,000 limit.

Congress, as part of the bailout bill, temporarily boosted the deposit insurance cap from $100,000 to $250,000, an action that will not be affected by the new program.

The $700 billion rescue program will continue to feature the purchase by the government of banks' bad assets, but the administration decided to place greater emphasis on the stock purchase program after doubts were raised about how long it might take to get the asset purchase program up and running.

Democrats in Congress, while supportive of Paulson's desire to expand the program, complained Monday that not enough strings were being attached, such as restricting excessive compensation for Wall Street executives who raked in millions of dollars in bonuses by pursuing risky investment strategies that now have helped push the U.S. financial system to the brink.

The government should purchase only stock in financial firms that agree to cut dividends paid to shareholders, adhere to strict limits on executive compensation and curb their use of exotic investment strategies, Sen. Charles Schumer of New York, chairman of the Joint Economic Committee, argued.

Worried about the slumping U.S. economy only three weeks from the elections, House Republicans and Democrats on Monday pushed for fresh action to prevent a serious downturn. Democrats scheduled hearings to consider a postelection stimulus package that could cost as much as $150 billion. Republicans called for more tax cuts and energy exploration.

In a campaign speech in Ohio, Democratic presidential nominee Barack Obama proposed a 90-day moratorium on home foreclosures at some banks and a two-year tax break for businesses that create new jobs. His Republican opponent, John McCain, promised a change in direction from the Bush administration's economic policies.

The administration on Monday announced a series of steps to get the rescue program under way, including selecting a team of interim managers, picking an outside firm to help run the program and choosing a prominent New York law firm to draw up guidelines for how the stock purchase program will work.

The Next Banking Bomb?

cbsnews.com

“This bill will, in my judgment, raise the likelihood of future massive taxpayer bailouts. …if you want to gamble, go to Las Vegas. If you want to trade in derivatives, God bless you.”

That was North Dakota Senator Byron Dorgan’s statement on the floor of the Senate - not this week or last, or even during the last six months as Wall Street collapsed - but back in 1999.

Four years later in a letter to shareholders, billionaire investor Warren Buffett followed with his own warning, calling derivatives “weapons of financial mass destruction” controlled by “madmen.”

While financial experts were concerned with the housing bubble and mortgage-backed securities, Dorgan and Buffett were focused on what many now believe may be the next big shoe to drop - the credit derivatives market, better known as credit default swaps.

What worries financial insiders most is the $54.6 trillion of risky credit derivatives concentrated among the few banks left standing.

Credit default swaps (CDS) are the cornerstone of the credit derivatives market accounting for more than 98 percent of all credit derivatives. They are difficult to understand, ignored by regulators and poorly reported on balance sheets. In simplest terms, CDS are insurance policies on things like bonds, loans and corporate debt. But there are two big differences: the seller of a CDS doesn’t need to have the money to cover losses if the security defaults, and the buyer doesn’t need to own the asset it wants to protect.

It’s as if hundreds of people could buy insurance policies on houses they didn’t own yet still collect the full value if it burns down.

The danger comes when the company defaults and the seller - because he’s not required to - doesn’t have the money to pay out on the default.

Investment firms that traded various derivatives, such as CDS, collected an average of $2 billion in fees each quarter over the past two years. And traders who spoke to CBS News said these transactions were the largest cash cows on Wall Street, even more profitable than mortgages. The newfangled transactions were seen as easy money and many traders had the attitude that when it blows up, it’s someone else’s problem.

Today, the same commercial banking heavyweights thought to be the most safe, JPMorgan, Citigroup Inc. and Bank of America, hold 92 percent of all the disclosed credit derivative contracts, according to the Office of the Comptroller of the Currency.

But that number is merely an estimate because the overwhelming majority of these contracts are unregulated - private, mostly undisclosed and difficult to measure.

“There is no question we are at the edge of the cliff and someone is going to fall off,” said Weil, Gotshal & Manges Senior Partner Harvey Miller who is currently overseeing the Lehman Brothers bankruptcy.

Back in 1999 when the legislation was being debated Senator Dorgan opposed the consolidation of commercial and investment banks. In fact, he sponsored two amendments to prohibit these new mega-banks from …investing in derivatives.

Today, Dorgan apparently feels the same way. He was one of 25 senators who voted no on the recent $700 billion bailout.

“No one knows where the credit derivatives are, whose balance sheets they may threaten, or how much additional risk they pose to financial firms. Yet, I was told this plan could not require regulation and transparency of these financial markets because there was opposition in Congress and the White House,” Dorgan said in a statement explaining why he didn’t vote for the bailout.

With banks already suffering losses from the subprime fiasco, many now believe they face chain reaction failures from the credit derivatives market.

“If the market keeps going in the direction it’s been going, you’re going to have lots of defaults which are dangerous things,” said Miller.

Some economic analysts predict even more panic over next few months. As more corporations default and banks find out they can’t make good on their contracts, a new round of losses for funds and financial firms could result and make the recent losses in mortgage-backed securities seem miniscule by comparison.

Social Security benefits going up by 5.8 percent

Social Security benefits for 50 million people will go up 5.8 percent next year, the largest increase in more than a quarter century.

The increase, which will start in January, was announced today by the Social Security Administration. It will mean an additional $63 per month for the average retiree.

It's the largest increase since a 7.4 percent jump in 1982 and is more than double the 2.3 percent rise that retirees got in their monthly checks starting in January of this year.

The typical retiree's monthly check will go from $1,090 currently to $1,153.

But the fatter Social Security check may still seem puny to millions of retirees battered this year by huge increases in energy and food costs who have also watched helplessly as their retirement savings have been assaulted by the biggest upheavals on Wall Street in seven decades.

"Right now many senior citizens are feeling depressed because things seem out of control. They feel like they are in a boat being whipped around by rough seas," said Sung Won Sohn, an economics professor at the Smith School of Business at California State University. "Their purchasing power has been going down because of higher prices for food and energy and a lot of other things while their savings have taken a hit because of what is happening in the markets."

The market turbulence has continued this week with the Dow Jones industrial average plunging by 733 points on Wednesday, the second largest point drop on record. Earlier this month, the Congressional Budget Office estimated that Americans' retirement plans have last as much as $2 trillion over the last 15 months - more than 20 percent of their value - because of all the market upheaval.

With all the gloomy news, retirees may take little comfort in the new cost of living adjustment. The benefit change is based on the amount the Consumer Price Index increases from July through September from one year to the next.

The increase would have been even higher, but after racing ahead earlier in the year, energy costs fell in both August and September, helping to moderate the overall price gain.

The 5.8 percent rise in the cost of living adjustment is a sharp departure from recent years. The COLA increases have been below 3 percent for all but three of the past 15 years as the Federal Reserve waged a successful campaign to keep inflation under control.

Even with the big increase, the COLA is well below the gains of the late 1970s and early 1980s when the country was in the grips of a decade-long bout of high inflation. The biggest cost of living benefit on record was a 14.3 percent increase in 1980. Social Security benefits have been adjusted every year since 1975.

In one break for most retirees, the cost of living increase will not be eaten up by higher monthly premiums for the part of Medicare that pays for physician services. Because of gains in the Medicare Part B trust fund, that premium will hold steady at $96.40 a month, although higher-income people including couples making more than $170,000 annually will see their premiums increase.

Next year's cost of living increase will go to more than 55 million Americans. More than 50 million receive Social Security benefits while the rest get Supplemental Security Income payments for the poor.

The average couple, both getting Social Security benefits, will see their monthly check go up by $103 a month to $1,876.

The standard Supplemental Security Income payment for a couple will go from $956 per month to $1,011. The SSI payment for an individual will go from $637 per month to $674 per month.

The average monthly check for a disabled worker will go from $1,006 to $1,064.

Sens. Barack Obama and John McCain have sparred over Social Security during the presidential campaign, although neither has provided much insight into how they would fix the government's largest entitlement program, which is facing severe strains with the upcoming retirement of 78 million baby boomers.

If no changes are made, the Social Security trust fund is projected to deplete its reserves in 2041 and will begin paying out more than it collects in benefits even sooner, starting in 2017.

In addition to the cost of living adjustment, the government announced Thursday that the maximum amount of earnings subject to the Social Security tax will increase next year to $106,800, up from $102,000 this year.

Of the 164 million workers who will pay Social Security taxes in 2009, about 11 million will pay higher taxes as a result of this increase.

Spreading the wealth? US already does it
By CHARLES BABINGTON, Associated Press Writer Charles Babington, Associated Press Writer Tue Oct 21, 5:53 pm ET

WASHINGTON – John McCain is pouncing on Barack Obama's call for shifting more wealth from richer Americans to poorer ones, likening it to socialism. His remarks win applause at campaign events. But they ignore the nation's long tradition of redistributing huge amounts of wealth through tax-and-spending policies.

Placing a heavier burden on the wealthy has been a cornerstone of the federal income tax since its inception in 1913. Under its "progressive" formula, in which the wealthy pay higher tax rates, the richest 5 percent of Americans now pay well over half of all federal income taxes.

Forty percent of Americans pay no federal income tax at all, although it is the government's largest revenue source. Meanwhile, they benefit from various social programs aimed at low-income households, another feature of a system that redistributes money.

Conservatives, citing such statistics, say the country needs no more top-to-bottom shifts of wealth.

McCain, the Republican presidential nominee, has hammered the issue since Obama, talking to an Ohio plumber, said he would raise taxes on the wealthy and cut them for lower-wage workers, adding: "I think when you spread the wealth around, it's good for everybody."

Many Americans think that sounds "a lot like socialism," McCain said in a radio address Saturday. "Barack Obama's tax plan would convert the IRS into a giant welfare agency," he said, "redistributing massive amounts of wealth at the direction of politicians in Washington."

McCain accused Obama of "class warfare." But McCain is the perpetrator, argue Democrats, who contend he is trying to fuel middle-class resentment toward poorer people with inflammatory words like "socialism" and phrases reminiscent of Ronald Reagan's attacks on "welfare queens."

In fact, Obama supporters note, the gap between rich and poor Americans has grown markedly in recent years as middle-class wages remained largely stagnant while corporate profits and high-earners' salaries soared. The nation's income inequality now ranks among the world's largest, reports show. The richest 10 percent earn an average of $93,000 a year; the poorest 10 percent make $5,800 on average.

Various economic and regulatory factors have fed that gap. But tax policies play a role, too, because some major revenue sources are far less favorable to low-income people than the income tax is.

For most Americans, the biggest tax burden is the payroll tax that funds Social Security and Medicare. The tax rates are the same for everyone, and the Social Security levy does not apply to incomes above $102,000, a boon to the wealthy.

Moreover, Social Security benefits go to rich and poor retirees alike. That means low-income workers' payroll taxes are partly shifted to wealthier people, a reverse of the income tax's topdown construct.

Federal excise taxes on products including gasoline and cigarettes are more regressive still, as are sales taxes levied by many states.

Despite the nation's income disparity, McCain sees Obama's exchange with "Joe the Plumber" as a means to appeal to anyone who resents paying taxes to subsidize less wealthy people. His running mate, Alaska Gov. Sarah Palin, criticized "Barack the wealth-spreader" in a campaign speech Tuesday in Reno, Nev.

Obama responded while campaigning in Florida. He said McCain, like President Bush, wants to "give more and more to those with the most, and hope prosperity trickles down to everyone else." He said McCain has accused him of being "more concerned with who gets your piece of the pie than with growing the pie."

After eight years of "Bush-McCain economics," Obama said, "the pie is now shrinking."

Obama has proposed higher taxes on the wealthy, and tax cuts for most other households. He would end the Bush administration's tax cuts for people making more than $250,000 a year, he says. He also would impose a new Social Security payroll tax on incomes above $250,000 a year. Currently, all annual income up to $102,000 is taxed at 12.4 percent for Social Security, with employers and workers splitting the cost evenly.

As for the claim that Obama might turn the Internal Revenue Service into a "giant welfare agency," liberal groups note that the number of Americans on welfare fell by more than 60 percent after a 1996 overhaul of the program approved by President Clinton.

For several years, a strong economy and social safety net programs helped many families avoid poverty. However, the liberal Center for Budget and Policy Priorities says the recent economic downturn "has coincided with a sharp increase in food prices, which has exacerbated hardship for many low-income families who also face high gas prices (and will face high home heating bills this fall and winter)."

The group's chief economist, Chad Stone, says the degree to which U.S. tax policies favor the poor over the wealthy "should not be a concern to people."

"We still have too much poverty," he said. "And if it were not for the progressive nature of our tax system, it would be much worse."

Spreading the wealth? US already does it (http://news.yahoo.com/s/ap/20081021/ap_on_el_pr/spreading_the_wealth/print;_ylt=AuCYTP_dSwBCbBfztfrvgHNh24cA)

Dow Plunges 486 Points
November 05, 2008
Matt Egan

Election-Day euphoria vanished in a cloud of negativity on Wednesday as the Dow plummeted almost 500 points, its worst post-election plunge on record. The losses narrowly surpassed the Dow’s 4.51% decline the day after Franklin Roosevelt’s win in 1932 during the Great Depression.

Today's Market

The Dow Jones Industrial Average lost 486.01 points, or 5.05%, to 9139.27, the broader S&P 500 dropped 52.98 points, or 5.27%, to 952.77 and the Nasdaq Composite slid 98.48 points, or 5.53%, to 1681.64. The consumer-friendly FOX 50 fell 42.13 points, 5.49%, to 724.71.

“I think it’s primarily a realization that some of the bullishness we’ve seen in the last week needs to be tempered a bit. There still are potential potholes ahead and the market had gotten significantly overbought short-term," said Michael James, senior equities trader at Wedbush Morgan Securities.

Wednesday's losses, which were led by plunging financial giants like Citigroup (C: 12.63, -2.05, -13.96%), come a day after Barack Obama and the Democrats swept the elections by promising change amid the worst financial crisis since the Great Depression.

“I think everybody was anticipating Obama was going to win. Now that he has, we have turned our views back to the economy to say, ‘Geez, look at the mess we’re still in,’” said Paul Nolte, director of investments at Hinsdale Associates. “The fact that Obama is now the president-elect doesn’t change the economy for good or bad. He won’t be able to implement anything until March or April.”

The selloff erases all of the Dow's 305-point rally from Tuesday, which was the largest on a presidential Election Day in modern history.

"Nothing has changed from yesterday to today. Personally, I thought yesterday’s rally was ridiculous. There was very little reason for the market to be up," said James.

All 30 components of the Dow lost at least 1% on Wednesday, led by steep losses from Boeing (BA: 49.55, -3.67, -6.89%) and Citigroup. Drug maker Merck (MRK: 28.72, -2.41, -7.74%) and Bank of America (BAC: 21.75, -2.78, -11.33%) also fell sharply. 3M (MMM: 64.52, -1.09, -1.66%) was the best performing stock on the index but still lost nearly 2%.

The Nasdaq Composite ended in the red for the first time in more than a week, ending its longest win streak since December 2007. Big-name tech stocks like Google (GOOG: 342.24, -24.70, -6.73%) and Apple (AAPL: 103.30, -7.69, -6.92%) posted steep losses.

It's worth noting the New York Stock Exchange saw slim volume of barely 1.3 billion shares.

Economy Back in Focus

Obama’s election was widely expected on Wall Street and elsewhere, so Wednesday’s losses likely weren't a knee-jerk reaction to his victory.

"The election of Obama does not change anything from an economic, credit or housing point of view. Nothing has changed other than the fact that people will now stop focusing on the election and start to focus on the economy," said Kenneth Polcari, managing director at ICAP Equities.

There was no shortage of economic news on Wednesday for Wall Street to focus on. Unfortunately, none of it was positive.

The ADP Employment survey released Wednesday showed the U.S. lost a higher-than-expected 157,000 private-sector jobs last month. However, the ADP report has had limited success recently in predicting the government’s more closely-watched report.

Another key economic report showed the nation's service sector contracted further in October, giving yet more evidence of a U.S. recession. The Institute for Supply Management, a private research firm, said its non-manufacturing index fell to 44.4 last month, down from 50.2 in September.

Looming in the not-too-distant future is Friday's all-important monthly jobs report, which is expected to show the U.S. lost 175,000 jobs in October on top of the 160,000 lost the month before.

“Given everything else we’ve seen so far, it wouldn’t surprise me to see something in the 200,000 to 225,000 range. For this particular part of an economic cycle, that isn’t a surprise," said Nolte. “It reinforces the fact that we’re in a recession and numbers are going to be bad in a recession.”

Financials, Earnings Weigh on Stocks

Despite new signs of thawing credit markets, financial stocks were the biggest drags on Wall Street on Wednesday, falling more than 8% as a group. Citigroup was at the forefront of those losses, diving double-digit percentages despite a lack of major news. Citi wasn't alone as Goldman Sachs (GS: 87.43, -7.57, -7.96%), Morgan Stanley (MS: 17.06, -1.84, -9.73%) and Merrill Lynch (MER: 17.62, -2.37, -11.85%) all suffered steep losses.

The government intervention appears to have helped unlock the lending markets as the three-month Libor rate, a closely-watched barometer of banks’ willingness to lend to each other, dropped to 2.5% -- the lowest level of the year.

There were few positive earnings reports on Wednesday as bond insurers MBIA (MBI: 8.16, -2.30, -21.98%) and Ambac Financial (ABK: 2.01, -1.39, -40.88%) posted huge quarterly losses and Time Warner (TWX: 10.15, -0.68, -6.27%) lowered its 2008 outlook.

Crude Sinks Below $70

Meanwhile, crude oil prices gave back nearly all of Tuesday's huge gains, falling sharply after the government reported weekly gasoline inventories surprisingly jumped by 1.1 million barrels last week. Analysts had forecasted a decline of 600,000 barrels in gasoline stockpiles.

The price of a barrel of crude closed down $5.23 to $65.30. The declines come after crude saw its biggest one-day jump in six weeks on Tuesday, soaring on the plunging dollar and news of a production cut from Saudi Arabia.

Corporate Movers

Google (GOOG: 342.24, -24.70, -6.73%) announced it is abandoning its search advertising deal with Yahoo! (YHOO: 13.92, +0.57, +4.26%) to avoid a potential lengthy legal battle with anti-trust regulators.

Time Warner (TWX: 10.15, -0.68, -6.27%), owner of CNN and Time, beat the Street with a third-quarter adjusted-profit of 31 cents per share on $11.71 billion in revenue. However, the media giant cut its 2008 forecast below Wall Street's view.

MBIA (MBI: 8.16, -2.30, -21.98%) disclosed a quarterly loss of $3.48 per share, well off its profit of 30 cents per share a year ago.

Ambac Financial (ABK: 2.01, -1.39, -40.88%) posted a much worse-than-expected quarterly adjusted-loss of $8.11 a share. The bond insurer, which took $2.71 billion in writedowns, was expected to disclose a more modest loss of 50 cents per share.

Transocean (RIG: 80.35, -4.17, -4.93%) fell sharply after the world's largest offshore oil and gas driller said it earned $3.39 per share on an adjusted basis in the third quarter, widely missing estimates for $3.54 per share.

Duke Energy (DUK: 15.62, -1.30, -7.68%) missed estimates with third-quarter adjusted-earnings of 33 cents per share on $3.51 billion in revenue.

Sara Lee (SLE: 10.20, -1.66, -13.99%) plunged double-digit percentages after the baking company slashed its fiscal 2009 outlook. The company earned 32 cents per share in the fiscal first-quarter, compared to 28 cents a year ago.

Global Markets

Overseas, Asian investors responded positively to Obama's victory. Japan's Nikkei 225 Index gained 406.64, or 4.46%, to 9521.24. In Hong Kong, the Hang Seng Index gained 455.82 points, or 3.17%, to 14840.16.

European reaction was more tepid as London's FTSE 100 closed down 2.4% and Germany's Dax lost 2.1%.

Dow Plunges 486 Points (http://www.foxbusiness.com/story/markets/election-euphoria-fades-dow-plunges/#)
~~~~~~~~~~~

The market went up when they thought McCain was coming up in the polls and that the polls went down when they thought Obama was going to win. Socialism does not lend itself to capitalism.

Employers slashed 240,000 jobs in October
Nation's unemployment rate jumps to a 14-year high of 6.5%

The nation's unemployment rate bolted to a 14-year high of 6.5 percent in October as another 240,000 jobs were cut, stark proof the economy is almost certainly in a recession.

The new snapshot, released Friday by the Labor Department, showed the crucial jobs market deteriorating at an alarmingly rapid pace.

The jobless rate zoomed to 6.5 percent in October from 6.1 percent in September, matching the rate in March 1994.
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Unemployment has now surpassed the high seen after the last recession in 2001. The jobless rate peaked at 6.3 percent in June 2003.

October's decline marked the 10th straight month of payroll reductions, and government revisions showed that job losses in August and September turned out to be much deeper. Employers cut 127,000 positions in August, compared with 73,000 previously reported. A whopping 284,000 jobs were axed in September, compared with the 159,000 jobs first reported.

So far this year, a staggering 1.2 million jobs have disappeared. Over half of the decrease occurred in the past three months alone.

Although the unemployment report was worse than expected, and Ford Motor Co. reported dismal third-quarter results and announced plans to cut more than 2,000 additional white-collar jobs, investors seemed attracted by stock prices beaten down the past two sessions. The Dow Jones industrial average was up about 50 points in morning trading and broader market indexes also are higher.

About 10.1 million people were unemployed in October, an increase of 2.8 million over the past year. A year ago, the unemployment rate stood at 4.8 percent.

The employment market is much weaker than economists expected. They were forecasting the unemployment rate to climb to 6.3 percent in October and for payrolls to fall by around 200,000.

Job losses were widespread, reflecting the mounting carnage from a trio of crises — housing, credit and financial.

Factories cut 90,000 jobs, the most since July 2003. Construction companies got rid of 49,000 jobs with heavy losses in home building. Retailers cut payrolls by 38,000. Professional and business services reduced employment by 45,000. Financial activities cut 24,000 jobs, with heavy losses in mortgage banking and at securities firms. Leisure and hospitality axed 16,000 positions.

All those losses more than swamped some gains elsewhere, including in the government, as well as in education and health care.

Racing to assemble his new Democratic Cabinet, President-elect Barack Obama will huddle with economic advisers later on Friday. His team has been in close contact with the Bush administration to pave the way for a smooth hand-off of power.

All the economy's woes — a housing collapse, mounting foreclosures, hard-to-get credit and financial market upheaval — will confront Obama when he assumes office early next year. And, the employment situation is likely to get worse.

Many expect the jobless rate to climb to 8 percent, possibly higher, next year. In the 1980-1982 recession, the unemployment rate rose as high as 10.8 percent before inching down.

To provide fresh relief, House Speaker Nancy Pelosi said Democrats, in a lame-duck session later this month, are pushing to enact another round of economic stimulus of around $100 billion.

Average hourly earnings rose to $18.21 in October, a 0.2 percent increase from the previous month, according to the Labor Department report. Over the past year, wages have grown 3.5 percent, but paychecks aren't stretching that far because high food, energy and other prices has propelled overall inflation at a faster pace.

To prevent the country from sinking into a deep and painful recession, the Federal Reserve last week ratcheted down interest rates to 1 percent and left the door open to further reductions.

The economy has lost its footing in just a few months. It contracted at a 0.3 percent pace in the July-September quarter, signaling the onset of a likely recession. It was the worst showing since 2001 recession, and reflected a massive pullback by consumers.

As U.S. consumers watch jobs disappear, they'll probably retrench even further, spelling more trouble for the sinking economy.

That's why analysts predict the economy is still shrinking in the current October-December quarter and will contract further in the first quarter of next year. All that more than fulfills a classic definition of a recession: two straight quarters of contracting economic activity.

Financial crisis shifts power to Asia, experts say

jpost.com--------------------------------------------------------------------------------

British Prime Minister Gordon Brown's whirlwind fundraising tour this week in the Gulf States demonstrates the increasing power of sovereign wealth funds and the shift of economic power to Asia, experts said Wednesday.

However they warned that it will take much more than a fund-raising trip to the oil-rich Gulf States to help countries like Britain and America cope with the worst global financial crisis since the Great Depression.

Brown said he was in search of "hundreds of billions of dollars" to alleviate the crisis that has hit his country, along with America, particularly hard.

"I think there will be more and more reliance and more of a shift of power toward Asian countries, not only for the oil rich countries, for the Gulf States, it's also true for Singapore, China, Kazakhstan and other countries," said Dan Galai, Professor of Finance at Hebrew University in Jerusalem. "Many countries in Asia will continue to accumulate money in sovereign funds and they will buy ownership in financial institutions that are located in England, Germany, France and the United States."

Sovereign wealth funds are state-owned investment funds. They have become increasingly important to troubled financial institutions in the United States and Western Europe, where some banks have lost up to 80 percent or more of their value due to the financial crisis.

While these financial institutions will continue to operate in Europe or in the United States, their ownership will increasingly be in the hands of sovereign funds in Asia, Galai said.

While the Gulf States are "awash with cash" earned from high oil prices and have reserves that Western countries can draw on, the solution to the crisis does not lie with any one region and will require a fundamental reform of the financial system, said Robin Shepherd, senior fellow and head of the Europe Programme at the London-based Chatham House. For example, the newly elected US President, Barack Obama, and other leaders will have to examine the regulatory environment surrounding the banking system, the way central banks and finance ministries keep track of developments in the financial sector, and reckless lending policies that have contributed to the crisis.

"The essential point is that the United States, Britain and Europe are in a dreadful financial mess at the moment; they will look anywhere they can to seek respite, whether in the Gulf States or elsewhere," said Shepherd. "In a globalized economy, all of the players become relevant."

2 more banks go belly-up
Franklin of Houston, Security Pacific of Los Angeles bring 2008 tally to 19

The tally of failed banks in 2008 rose to 19 as the government announced that a Texas and a California bank had been shuttered Friday night.

Franklin Bank, a Houston, Texas-based bank and Security Pacific Bank, a Los Angeles, Calif.-based bank were shut down by state regulators Friday, marking the 18th and 19th bank failures this year.

Franklin Bank (FBTX) had total assets of $5.1 billion and total deposits of $3.7 billion as of Sept. 30, 2008, according to a statement on the Federal Deposit Insurance Corp.'s Web site.

Ironically, Lewis Ranieri, the 61-year-old co-founder and chairman of parent Franklin Bank Corp., is credited with inventing mortgage-backed securities two decades ago, the AP reported, back when he worked at Salomon Brothers, where he is a former vice chairman.

Franklin Bank Corp. just Sunday said it had received proposals for transactions to strengthen Franklin Bank's capital position and was keeping regulators informed of the talks' progress, according to the Associated Press.

Security Pacific Bank had total assets of $561.1 million and total deposits of $450.1 million as of October 17, 2008, according to the FDIC.

Prosperity Bank (PRSP), based in El Campo, Texas, will assume all of the deposits of the failed Texas bank, including those that exceed the insurance limit and brokered accounts. Depositors of the failed bank will automatically become depositors of Prosperity.

In addition to taking over the deposits of the failed Franklin Bank, Prosperity will purchase $850 million of assets. The FDIC will retain the remaining assets to dispose of later.

Pacific Western Bank of Los Angeles will assume all of the deposits of Security Pacific Bank and will purchase approximately $51.8 million of the assets. The FDIC will hold on to the remaining assets to dispose of later.

The failed Houston bank's 46 offices will open as branches of Prosperity under normal hours, including Saturday hours. The deal will give Prosperity more than 170 banking locations in Texas.

Security Pacific's four branches will reopen on Monday as branches of Pacific Western.

Customers of both banks should continue to use their existing branches, according to separate press releases on the FDIC's website. Dan Rollins, president of Prosperity Bank, in a statement said records will be fully integrated during the first quarter of 2009.

"The customers will be able to go about their business as usual; they will be able to access their money and use their ATM/debit card, Internet banking, bill pay service or other electronic banking services beginning Saturday morning," said Rollins.

Security Pacific customers can continue to access their funds via ATM, checks or debit cards, according to the FDIC.

In Friday's announcement about Franklin Bank, the FDIC said that the cost of its failure to the Deposit Insurance Fund will be between $1.4 billion and $1.6 billion.

Meanwhile, Security Pacific's failure, the third in California this year, will cost the FDIC $210 million. The FDIC said that for both banks, acquisition of their deposits was the least costly resolution.

Smaller regional banks have been under pressure as the financial crisis continues to take its toll.

Prosperity Chief Executive David Zalman said in a statement that his bank was "committed to taking care of their existing and new customers during this volatile time in the financial industry."

Just 3 'superbanks'
dominate industry
'New oligopoly': Sudden consolidation raises
questions about regulation, consumer impact

The financial crisis that has been sweeping the globe has reshaped nearly every corner of the economy, but no industry has been altered more radically than banking.

Several of the nation's biggest banks have failed or been absorbed by healthier institutions, leaving three giant "superbanks" with an unprecedented concentration of market power: Bank of America, JPMorgan Chase and Wells Fargo.

While that may be good news for emerging giants and the failing companies they helped rescue, the new oligopoly raises troubling questions about regulation and competition, analysts and consumer advocates say.
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"Bank fees are going up, up, up, and that’s the danger to consumers as more of these banks consolidate,” says Sally Greenberg, executive director of the National Consumer League. “It’s difficult for the average person to get a bank account that doesn’t involve fees, and if you get into financial distress you’re cooked, and you’ll be ‘fee-ed’ to death.”

According to a recently released banking fee study from Bankrate.com, ATM surcharges rose 11 percent this year to an average of $1.97, and the fee for a bounced checks rose 2.5 percent to an average $28.95.

"Consumers are going to be victims of higher and more punitive fees,” Greenberg predicts.

Moreover, many analysts worry about how federal and state authorities, who were unable to prevent the current financial industry meltdown, will be able to monitor the new giant banks that combine a wide range of operations from investment banking to consumer lending.

“Large institutions are impossible to manage prudently, let alone regulate,” says Amar Bhide, a professor at the Columbia Business School.

In fact, existing federal banking laws say that no bank can have more than 10 percent of the domestic deposit market — a threshold recently surpassed by all three superbanks.

When asked whether the government would take any action, a Justice Department official was noncommittal.

“It’s always something we’ve looked at and will continue to look at," said spokeswoman Gina Talamona. "It’s something we’ve looked at as part of our general antitrust review.”

The reason limits on market share were put in place were so banks didn’t get so big they’d become monopolies that could risk the whole economy, explains Atul Gupta, finance department chair for Bentley University in Boston.

But now the government appears to be pushing banks in the direction of more consolidation. The Treasury is pouring some $250 billion of taxpayer money into healthy financial institutions, and some of that is being used by stronger banks to snap up weaker rivals.

“The government is convinced that allowing any of these firms to fail would have catastrophic implications,” says Gupta. “So the government is saying, ‘This bank is in trouble, so I want this bank to buy that one.’ And everyone holds their noses and hopes things work out.”

In the current environment, such rapid consolidation is a “no brainer," says Gregory F. Udell, Chase Chair of Banking and Finance at the Indiana University Kelley School of Business.

The risk of creating monopolies, he says, “is a lot less than the risk of having a lot of zombie institutions out there.”

He also points out that consolidation in the banking sector, though recently at a fever pitch, is nothing new.

Indeed, the number of commercial banks and savings & loans in the United States has fallen in the past 20 years to 8,451 as of June, compared to 16,574 in 1988, according to FDIC data.

Espen Eckbo, finance professor at Dartmouth’s Tuck School of Business, believes economies of scale will only help the troubled financial sector.

He maintains the banking sector got into trouble because of out-of-control risk taking — not because banks got too big.

His answer: “We need to educate the boards of these banks that ultimately are supposed to be a stopgap for these things. They need to have a bird’s-eye view of the organization and understand if the left arm is taking on debt while the right arm is taking on debt. They have to oversee that.”

But some analysts are arguing that the current wave of consolidation could be followed by a move to break up the biggest banks.

In a recent congressional hearing, Nobel Prize-winning economist Joseph Stiglitz said the consolidation of the banking industry is "a very serious problem."
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"I think it’s part of a general failure to enforce antitrust laws in the last few years. So one of the things I think is part of your exit strategy is that we have to think about breaking up some of the big banks.”

Even American Banker, which covers the industry, predicts in a story titled “Pressure Builds to Corral the Giant Firms” that “the financial services companies considered ‘too big to fail’ may face a political backlash next year.”

Another major issue will be how successfully these merged banks will be able to integrate their operations, from staffing to technology.

Even in the best of circumstances where companies have months to plan for a merger things can go awry, says Carol M. Beaumier, executive vice president of global industry programs at Protiviti, a business consulting and internal audit firm.

“The level of due diligence and planning doesn’t exist,” says Beaumier of the rapid consolidations that have resulted from the financial meltdown. “We are creating a daunting task for companies that have to carry out these mergers. It creates uncertainty among employees (and) customers, and the government will be looking over its shoulder.”

Good employees at some of these institutions may be lost in the shuffle because, she says, “You don’t have time to prepare and identify those key performers.”

As they grow, the megabanks could end up shooting themselves in the foot when it comes to service, says Standard & Poor’s analyst Stuart Plesser.

“When they get really big they may lose some relationships in the end because there’s certainly some impersonal banking going on when they get that big,” he says.

The National Consumer League’s Greenberg believes government should move quickly to keep banking fees down for consumers, just as Congress capped executive compensation as part of the bailout bill.

“The system isn’t working now, and all this consolidation means less competition,” she says. “It is incumbent on regulators and Congress to step in and say, ‘Wait a second. You don’t get to impose exorbitant fees.'”

“These banks have to get away from a business plan that’s based on fines and penalties, she adds, “and get back to providing consumers, farmers and small businesses credit at a reasonable rate that serves both the lender and the borrower.”

Until a new administration takes action, consumers and small businesses can always vote with their feet and use a smaller, community bank.

“Many consumers (are) turning to local banks, saying, 'I’m much more comfortable having my money with you,’” says Nancy Atkinson, senior analyst with Aite Group, a research firm that covers the financial services industry. “And small businesses say, 'I know my local banker, and I trust that person.’”

Quote from: Pastor Roger on November 11, 2008, 11:23:53 AM

Dow to hit 6,000
Obama predicted to be worst president on economy since Herbert Hoover

The Dow Jones Industrial Average is heading for a new low of 6,000 as Barack Obama prepares to assume the presidency in January, according to a new report from Jerome Corsi's Red Alert.

Red Alert accurately predicted the Dow Jones Industrial Average would hit a pre-election bottom of 8,000, a forecast fulfilled in mid-morning trading Oct. 10.

Now Red Alert's author, whose books including "The Obama Nation" and "Unfit for Command" have appeared atop the New York Times best-sellers list, is predicting a President Barack Obama will set new lows across the board, earning for himself a reputation as the worst U.S. president in modern history when dealing with economics.

The Dow will hit a new low of 6,000 in the fourth quarter 2008, most likely reaching that mark sometime in the next two months, probably in late November or early December, Corsi predicts.

"We are confident the mainstream media, which did every possible bit of cheerleading to get Obama into office, can be relied upon to proclaim him a genius following every decision he makes," he said.

"Unfortunately, economics tends to be a function of reality, not hype."

Corsi predicts Obama over the next four years will lead the U.S. into the worst global depression it ever has experienced.

"Red Alert is confident that within one year, even an economic failure like President Herbert Hoover will look like a genius when compared to the failures we are likely to see from a President Obama," he wrote.

Sadly, it appears these predictions are accurate. More and more, it appears that the End Days of this Age of Grace are close to being ushered in. As Christians, we need to keep our eyes on JESUS, pray, and pray some more.

Love In Christ,
Tom

1 Timothy 6:12 NASB Fight the good fight of faith; take hold of the eternal life to which you were called, and you made the good confession in the presence of many witnesses.

Bailout lacks oversight despite billions pledged
No action taken to fill watchdog posts, deadline passes for monitoring report

In the six weeks since lawmakers approved the Treasury's massive bailout of financial firms, the government has poured money into the country's largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.

Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.

Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.

"It's a mess," said Eric M. Thorson, the Treasury Department's inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. "I don't think anyone understands right now how we're going to do proper oversight of this thing."

In approving the rescue package, lawmakers trumpeted provisions in the legislation that established layers of independent scrutiny, including a special inspector general to be nominated by the White House and a congressional oversight panel to be named by lawmakers themselves.

Some lawmakers and their aides fear that political squabbling on Capitol Hill and bureaucratic logjams could delay their work for months. Meanwhile, the Congressional Budget Office, which also has some oversight responsibilities, is worried about the difficulty of hiring people who can understand the intensely complicated financial work involved.

The legislation grants the special inspector, who is expected to be the primary overseer of the program, a budget of $50 million. The measure calls for him to conduct audits and investigations of how the government spends money under the bailout program, including on equity investments in firms. In particular, he is to report about any assets acquired and their value, plus an explanation of why they were acquired and details on individuals or companies involved in the transactions.

The leading candidate for the post is Neil M. Barofsky, a federal prosecutor in New York, and his nomination could come as soon as this week, according to people familiar with the matter.

Barofsky, an assistant U.S. attorney in the Southern District of New York, is the chief of the office's mortgage fraud group and the lead prosecutor in the $2.4 billion accounting-fraud case against former executives of the collapsed financial firm Refco. He was formerly a white-collar criminal defense attorney in New York.

It is unclear that Barofsky would be confirmed by the Senate, as required, anytime soon. One complicating factor is a battle between the Finance and Banking committees over which has jurisdiction over the confirmation process. Spokeswomen for both panels said the issue has not been resolved and may not be until after President Bush names his choice.

Nonetheless, the finance committee has scheduled a hearing for Monday afternoon in the event that a nominee is named.

Several congressional aides, however, said they did not understand how the Senate could possibly do all the proper vetting for such a critical appointment in just a few days. Thorson's confirmation process, for example, took nearly a year. But Treasury officials and Senate aides worry that if the nominee is not confirmed next week, when Congress is back in town for a lame-duck session, then the process might be delayed well into next year.

Some Republican lawmakers have said they are also concerned that Democrats may avoid acting on the nomination so that Barack Obama can choose his own special inspector general after he becomes president. But people familiar with the matter said Barofsky, the leading candidate for the position, would be palatable to the incoming administration because he supported Obama.

In the meantime, Thorson is trying to oversee the program in addition to his other responsibilities. Treasury Secretary Henry M. Paulson Jr. asked him to take on those duties. Thorson has a few dozen people working on the program, but none are doing so full time. He said there should be at least 100 people in the new special inspector general's office.

Lawmakers from both parties have criticized the White House for not moving more quickly to name an appointee.

"Considering how taxpayers' money around Washington isn't respected, a day shouldn't go by without having an inspector general checking on it," said Sen. Charles E. Grassley (R-Iowa), the ranking member on the Finance Committee.

Tony Fratto, deputy White House press secretary, declined to comment on the nominee or when he or she would be named but said there is adequate scrutiny of the bailout.

"No program in the history of the federal government has had more layers of oversight and reporting and transparency," he said.

For their part, lawmakers have yet to nominate the five-member Congressional Oversight Panel, though leaders of both parties said they hoped they would be named by the end of the month and start work by December. People familiar with the matter said possible nominees included current and former government and industry officials, though some had to recuse themselves because of conflicts of interest.

The panel's mandate is to look at the use of Paulson's authority and the impact of the program on the financial markets and mortgage crisis.

Rep. Barney Frank (D-Mass.), who chairs the House Financial Services Committee, said his concerns about oversight diminished after the Treasury program's focus shifted from purchases of financial firms' troubled assets to capital injections into companies. "The concern was they'd be buying assets and we wouldn't know the price," Frank said. The revised bailout program "doesn't have the conflicts of interest and the other things people were concerned about."

The delays in selecting both the special inspector general and the congressional oversight panel have prevented the release of a detailed oversight report required in the legislation. Under the law, the congressional panel was required to release a report 30 days after the bailout program began, a deadline that has passed. It is supposed to issue a more elaborate report on the financial regulatory process by Jan. 20, a deadline congressional aides said will be nearly impossible to make.

The special inspector general is supposed to release a report within 60 days of his confirmation. Though Thorson, the Treasury inspector general, is not required to prepare a report, he said he might feel obligated to issue one if the Senate does not confirm a special inspector by Monday.

The Government Accountability Office, the investigative arm of Congress, is also required by the legislation to conduct oversight of the program. The agency's mission is to look at the overall performance of the initiative and its effect on the financial system.

The GAO has dedicated about 20 people to look at the bailout and has office space at the Treasury Department. Agency officials said they expect to issue a brief report on the program, as mandated by the legislation, within the next month.

The legislation also created a body called the Financial Stability Oversight Board, whose five members include Paulson and Federal Reserve Chairman Ben S. Bernanke. But it has no staff of its own, and few expect that policymakers can conduct oversight of themselves. "It's sort of a joke in terms of oversight," a congressional aide said.

Developed world is in recession
OECD predicts economies of 30 member countries will shrink next year
Thurs., Nov. 13, 2008

LONDON - A leading international economic organization on Thursday said the world's developed economies are in recession and are likely to contract next year.

The Paris-based Organization for Economic Cooperation and Development said gross domestic product is likely to decline by 0.3 percent in 2009 in its 30 member countries, with the U.S. contracting by 0.9 percent, Japan by 0.1 percent and the euro currency area by 0.5 percent.

The latest forecasts represent a sharp downgrade since the last one in June, when the organization forecast member country growth of 1.7 percent in 2009 and indicated that the worst of the financial crisis may have passed.
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Meanwhile, China's industry output growth waned to its weakest in seven years, reinforcing evidence the financial crisis is plunging the world into a painful downturn.

Seeking to limit the fallout from a crisis that began when the U.S. housing market collapsed more than a year ago, Japan said it would offer up to $100 billion to the International Monetary Fund (IMF) for emerging economies.

'Long-lasting economic crisis'
The impact of the worst financial conditions in 80 years was also felt sharply in Europe's largest economy, Germany, which contracted by 0.5 percent in the third quarter, putting it in recession for the first time in five years.

"We are going to have to face up to a very difficult and long-lasting economic crisis," Germany's Deputy Economy Minister Walther Otremba told Reuters.

Analysts agreed with that grim forecast.

"The headwinds of the financial crisis and the global economic slowdown are blowing right in the face of the German economy," said Carsten Brzeski of ING Financial Markets.

"Even more worrying, the full impact of the financial crisis still has to unfold," he said. "If you think today's numbers are already bad, just wait for the next quarter."

In China, which has unveiled a 4 trillion yuan ($586 billion) stimulus package, annual industrial output growth slowed to 8.2 percent in October, its weakest showing since Oct. 2001, as the global downturn took its toll.

Job cuts, tumbling markets
Among corporates, British telecoms company BT Group said it was cutting 10,000 jobs at home and overseas.

Stock markets tumbled again in Asia. Tokyo shares slid 5.3 percent and the price of oil hit a 22-month low at $55 a barrel on worries that a recession will curb demand.

China was a rare bright spot, shares ending up 3.7 percent on hopes that the stimulus package would include big spending on housing and railway construction.

Shares in Europe edged higher, breaking a two-day losing run.

Governments around the world have pledged around $4.6 trillion for bank bailouts, credit guarantees and fiscal spending to contain the damage from the financial turmoil.

Leaders of the G20 industrialized and emerging nations will gather in Washington on Friday to decide on the next steps in tackling the crisis.

Japan is prepared to offer foreign reserves worth up to $100 billion to the IMF if the Washington-based lender needs extra funds to help emerging economies, a government source said on Thursday.

Prime Minister Taro Aso will make the proposal at the G20 summit, the source told Reuters.

"Investors are now looking to the G20 Summit this weekend, with hopes of some further policy action," Patrick Bennett, Asia FX and rates strategist at Societe Generale, wrote in a note.

Awkward time for summit
However, the summit falls at an awkward time politically as President Bush prepares to leave office.

Bush will travel to Wall Street on Thursday to outline his views on the financial markets.

"We should fix the problems we have rather than dismantle a system that has improved the lives of hundreds of millions of people around the world," White House spokesman Carlton Carroll said in previewing Bush's remarks.

Some leaders have called for big reforms to the financial system, but the Bush administration has been more cautious.

The president will "emphasize that free market capitalism — especially free trade — is still the best system to create economic growth and lift people out of poverty," Carroll said.

Washington has backed away from using a $700 billion bailout fund to cleanse bank balance sheets of bad mortgage debt.

U.S. Treasury Secretary Henry Paulson on Wednesday said he preferred instead to focus on buying stakes in banks to encourage them to increase lending.

Developed world is in recession (http://www.msnbc.msn.com/id/27694354/)

Citigroup to cut another 53,000 employees
Banking giant struggling to steady itself after suffering big losses

Citigroup Inc. is shedding approximately 53,000 more employees in the coming quarters as the banking giant struggles to steady itself after suffering massive losses from deteriorating debt.

The New York-based bank, which has already reduced its assets by about 20 percent since the first quarter of the year, also plans to trim expenses by 19 percent in 2009 from third-quarter levels, to $50 billion.

The plans, posted on the company’s Web site, were discussed by CEO Vikram Pandit at the company’s town hall meeting in New York Monday with employees.
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The company said it is shrinking its work force by 20 percent from its 2007 peak of 375,000. The company had already announced in October that it was eliminating about 22,000 jobs from that level.

About half of the expected work force reductions will come from business sales; Citigroup already announced that it was selling Citi Global Services and its German retail banking business, accounting for about 18,000 jobs. Citi is planning to sell other businesses, too, but has not announced them yet, a spokesman said.

The other half of the work force reductions will come from layoffs and attrition, the spokesman said.

The New York-based bank has posted four straight quarterly losses, including a loss of $2.8 billion during the third quarter.

In an effort to instill confidence in the company, Citigroup emphasized in its presentation Monday that its Tier 1 capital ratio, a measure of financial strength, is 10.4 percent after a $25 billion investment from the government — part of the $700 billion financial rescue package passed by Congress last month. That ratio is higher than peers Bank of America Corp. and Wells Fargo & Co., after their purchases of Merrill Lynch and Wachovia Corp., respectively.

Citigroup also stressed that it has doubled reserves in a year to $24 billion; that its revenues are stable; and that Citigroup has lower exposure to U.S. consumer mortgages than JPMorgan Chase & Co., Bank of America and Wells Fargo.

But the announcements were not met with enthusiasm from investors. Citi shares fell 46 cents, or 4.8 percent, to $9.06 in morning trading. The company’s shares have been trading at 13-year lows.

Shortly before the town hall meeting in New York, Citigroup Chairman Win Bischoff said at a business forum in Dubai, United Arab Emirates, that it would be irresponsible for Citi and other companies not to look at staffing in the event of a prolonged economic downturn.

“What all of us have done — and perhaps injudiciously — we’ve added a lot of people over ... this very benign period,” Bischoff said.

“If there is a reversion to the mean ... those job losses will obviously fall particularly heavily on the financial sector,” he added. “Certainly they will fall particularly heavily on London and New York.”

A Citigroup spokesman said that while certain regions and businesses might have higher concentrations of job cuts, they would generally be across the entire company and around the world.

In his comments to The Associated Press, Bischoff did not rule out the likelihood that Citi’s leaders would go without bonuses this year — a move that would effectively amount to a substantial pay cut for the company’s executives.

“Watch this space,” he said when asked about lost bonuses.

On Sunday, Goldman Sachs Group Inc. said seven top executives, including Chief Executive Lloyd Blankfein, opted out of receiving cash or stock bonuses for 2008 amid the ongoing credit crisis.

Bailout's 'blank check' enraging Republicans
Irate lawmakers demand Paulson show how $700 billion is spentBy Drew Zahn
© 2008 WorldNetDaily

Sen. James Inhofe, R-Okla.

In a letter written to fellow legislators over the weekend, Sen. James Inhofe, R-Okla., added his voice to a dedicated resistance still fighting against the federal government's $700 billion bailout of the financial industry and demanding accountability for how the money is spent.

"Congress abdicated its Constitutional responsibility by signing a truly blank check over to the Treasury Secretary," Inhofe writes. "However, the lame duck session of Congress offers us a tremendous opportunity to change course. We should take it."

Inhofe joins other Republicans, such as S.C. Governor Mark Sanford, who have called into question how Treasury Secretary Henry Paulson has allocated the first $350 billion of the $700 billion bailout package, officially called the Troubled Asset Relief Program.

"I firmly believe action is required by Congress," Inhofe writes. "I plan to push for legislation that will require Secretary Paulson's plan for the remaining $350 billion in authorized TARP funds to be ratified by an affirmative vote in the U.S. Congress."

Gov. Sanford sent a letter of his own last week directly to Paulson, citing examples just in South Carolina of financial institutions retiring executives with multimillion-dollar "golden parachutes" in order to qualify for bailout funds and banks that don't need the money applying for it anyway, just to remain competitive.

"The federal government, and by extension taxpayers, are being gamed," Sanford wrote. "I think it's dangerous over the long run the way that taxpayers are being sapped."

"The Wall Street Journal reported last week that some $40 billion is being paid to executives of banking giants that are getting bailout payments," wrote Sanford. "On top of that, Bloomberg reported today that the Federal Reserve is refusing to identify who is even getting $2 trillion in emergency loans."

Now Sanford is asking his constituents – and Inhofe is asking his colleagues – to demand accountability for how the bailout funds are spent.

"In the rush to 'do something' about the turmoil in the credit markets, Congress has failed miserably in keeping an eye out for the taxpayers and watching for unintended consequences of this bailout," Gov. Sanford says in a statement on his website. "To put it simply, taxpayers are getting gamed. While we continue to believe that the bailout was an incredibly bad idea in the first place, it's being made worse by loose rules and oversight that are putting taxpayers on the hook for billions more."

"It is just outrageous that the American people don't know that Congress doesn't know how much money he (Paulson) has given away to anyone,'' Inhofe told the Tulsa World.

"I just think we have to draw the line someplace, and the time is here," Inhofe said.

Secretary Paulson has come under even increased criticism following last week's announcement that he was scrapping the centerpiece of the $700 billion bailout – buying troubled mortgage-backed securities – in favor of other stimulus plans.

"My mouth is open," Rep. Jane Harman, D-Calif. told a television interviewer about the announcement. "It was a very hard vote for many of us who voted for that package, and now all of a sudden we have an audible and we're spending it on something else."

Sen. Charles E. Grassley, R-Iowa, told the Los Angeles Times, "When you see so many changes, you wonder if they really know what they're doing."

Inhofe was also quick to condemn the switch in his letter to fellow senators:

"Why did Paulson reverse course?," Inhofe asks. "Thursday's Los Angeles Times provides the answer. 'Treasury Secretary Henry M. Paulson's decision to abandon plans to buy troubled bank assets shows that he has come to two conclusions about what was once the chief focus of the government's $700-billion bailout: The first is that it wouldn't work.'"

In his announcement of the change of direction last week, the Times reported, Paulson suggested that the government's financial bailout had entered a "time out" period as Obama prepared to take office. Paulson said Congress must work with Obama to decide during the next couple of months what role federal officials should play in the housing market.

If Inhofe is successful in persuading his colleagues, Congress will use the downtime to increase oversight on how the latter half of the bailout is spent.

"During the lame duck session, I will be taking the following actions," Inhofe pledges to his fellow senators. "First and foremost, if Secretary Paulson submits his plan to Congress in order to access the remaining $350 billion while we are in session, a doubtful prospect, I plan to immediately introduce the disapproval resolution pursuant to Section 115 of the EESA and push for its enactment.

"I will also introduce and actively pursue enactment of legislation to do two things," Inhofe writes. "First, it will … require an affirmative vote on the part of Congress to approve Treasury's plan for the remaining $350 billion, instead of the current statutory process which gives Secretary Paulson far too much latitude. Second, it will require a freeze on any remaining funds of the first $350 billion.

"It is imperative that we not allow that amount of money to be added to a deficit approaching $1 trillion this year without any input from the legislative branch," Inhofe writes.

Boom turns to gloom as crisis hits Dubai
Thu Nov 20, 2008 11:25am EST

By Thomas Atkins - Analysis

DUBAI (Reuters) - The seaside emirate of Dubai shifted into crisis mode this week as its breakneck building boom stalled, its lending bonanza evaporated and the government pondered wider steps to rescue banks.

Dubai -- self-styled bling capital of the Middle East, nightclub hotspot for the teetotalling Gulf and home to the world's tallest building and biggest mall -- has gone pear-shaped.

"It's gotten pretty ugly out there," analysts at Nomura Investment Banking wrote in a note this week, describing Dubai's property market as "a full-scale frenzy in which speculation went largely unchecked until it was very late."

The result may be a new business model for the emirate, one based less on debt and speculation.

Dubai's response is now being hammered out by a committee of business and government leaders charged with steering the emirate through the crisis and perhaps throwing its high-debt business model out the window.

Big developers have started firing staff and paring projects, banks like Emirates NBD ENBD.DU have blocked consumer credit to employees of companies at risk, and at least one major mortgage company has stopped lending altogether.

"Lenders blinded by rising oil prices and borrowers spellbound by easy returns have helped build a mountain of private sector debt in parts of the region that has generated an illusion of excess and abundance," Nomura said.

Now, investors fear that individuals and corporations alike will have trouble paying back Dubai's non-bank foreign currency debt estimated at just under $70 billion, according to estimates by ratings agency Fitch.

Shares in the region have lost around $1 trillion since the beginning of the year as investors fled. The UAE finance ministry said last month it would inject 70 billion dirhams ($19 billion) into the banking system, and is already looking at doing more to keep interbank liquidity flowing.

Many had hoped that the six countries of the Gulf Cooperation Council (GCC) would escape the crisis due to their massive current account surpluses from energy exports.

"Dubai is the most vulnerable, as it has little oil and has been booming on the oil surpluses from the GCC, Iran and Russia," said analysts at Citibank this week.

DUBAI INC.

Dubai Inc. -- the name applied to the emirate because it is run more as a business than a state -- now faces a major overhaul and has taken on teams of consultants to advise on how it might reshape itself in an era of weaker credit, rising competition, falling speculation and narrower profit margins.

With barely any oil to call its own within the loose UAE confederation, Dubai made its bid for fame by housing banks, retail, media, shipping and logistics enterprises and by billing itself as a safe haven in a volatile region for investors.

Post-crisis, banks and property firms are likely to merge, developers retrench, and the wild culture of speculation grow tame.

"The solution is a comprehensive effort to consolidate the myriad of companies that make up Dubai Inc.," Citibank said.

In addition, some suggest that the monetary regimes in the Gulf -- all, except Kuwait, which peg their currencies to the dollar -- may need to restructure as floating regimes instead, a move likely to spur decades-old goals of monetary union.

Few anticipate default given the widespread view that Dubai is too big to fail and the implicit support provided by its neighbor Abu Dhabi -- home to the largest sovereign wealth fund in the world, ADIA.

"We believe Dubai will pull through with some help," Citibank said.

But with the cost of credit for the Gulf's top 22 financial firms rising from 30 basis points over LIBOR in early 2007 to around 200 now, many expect Dubai's spree to halt, plans to be swept from the drawing board, and existing projects to struggle.

The result, in the end, may be the sustainable growth model that Dubai has sought all along.

Boom turns to gloom as crisis hits Dubai (http://www.reuters.com/articlePrint?articleId=USTRE4AJ65C20081120)

Regulators shut down 3 more banks
Combined 213 branches of 2 California organizations to reopen as U.S. Bank branches

In the biggest number of bank seizures yet on a single day, the Federal Deposit Insurance Corp. and state regulators have shut down two banks in Southern California and one in Georgia.

The FDIC said late Friday that U.S. Bank, based in Minneapolis, has acquired the banking operations, including all the deposits, of Downey Savings and Loan Association, F.A., Newport Beach, Calif., and PFF Bank & Trust, Pomona, Calif.

The combined 213 branches of the two organizations will reopen as branches of U.S. Bank.
As of Sept. 30, Downey Savings had total assets of $12.8 billion and total deposits of $9.7 billion. PFF Bank had total assets of $3.7 billion and total deposits of $2.4 billion, according to the FDIC.
In addition to assuming all the deposits from the two California banks, U.S. Bank will purchase virtually all their assets. The FDIC will retain any remaining assets for later disposition.
The FDIC and U.S. Bank entered into a loss share transaction. U.S. Bank will assume the first $1.6 billion of losses on the asset pools covered under the loss share agreement, equal to the net asset position at close. The FDIC will then share in any further losses. Under the agreement, U.S. Bank will implement a loan modification program similar to the one the FDIC announced in August stemming from the failure of IndyMac Bank, F.S.B. of Pasadena, Calif.
U.S. Bank currently has 353 offices in California. Downey Savings and PFF Bank are not affiliated with each other. Downey Savings has 170 branches in California and five in Arizona, and PFF Bank has 38 branches in California.
The FDIC estimates that the cost to the Deposit Insurance Fund for Downey Savings will be $1.4 billion and $700 million for PFF Bank. U.S. Bank's acquisition of all the deposits of the two institutions was the "least costly" option for the FDIC's DIF compared to alternatives, the FDIC said in a press release.
These were the 21st and 22nd banks to fail in the U.S. this year, and the fourth and fifth banks to close in California.
Earlier on Friday, the FDIC and Georgia regulators announced the seizure of Loganville, Ga.-based The Community Bank. It was the 20th bank failure so far this year amid the ongoing financial crisis.
All of The Community Bank's deposits have been transferred to Tappahannock, Va.-based Bank of Essex, the FDIC said, and all four of The Community Bank's branches will reopen Monday as Bank of Essex.
The Community Bank had total assets of $681 million and total deposits of $611.4 million as of Oct. 17.
Bank of Essex purchased roughly $84.4 million of The Community Bank's assets and paid the FDIC a premium of $3.2 million for the right to assume the failed bank's deposits. The FDIC said it would retain the remaining assets for later disposition.
The FDIC estimated that The Community Bank's failure will cost its Deposit Insurance Fund between $200 million and $240 million. The Community Bank is the third Georgia-based bank to be closed this year.

4 new reports reveal battered economy
Martin Crutsinger, Ap Economics Writer
56 mins ago

WASHINGTON – The government released a quartet of reports Wednesday that paint a bleak picture of the nation's economy: Jobless claims remain at recessionary levels, Americans cut back on their spending by the largest amount since the 2001 terrorist attacks, orders to U.S. factories plummeted and new-home sales fell to the lowest level in nearly 18 years.

The Labor Department reported that initial requests for unemployment benefits fell to a seasonally adjusted 529,000 from the previous week's upwardly revised figure of 543,000. But claims remain at recessionary levels. The four-week average, which smooths out fluctuations, rose to 518,000, its highest level since January 1983, when the economy was emerging from a steep recession.

One minor bright spot showed the number of people continuing to claim unemployment insurance dropped unexpectedly to 3.96 million, from the previous week's 4.02 million, which was the highest level in 25 years. The labor market has grown by about half since 1983.

Meanwhile, the Commerce Department reported that consumer spending plunged by 1 percent in October, even worse than the 0.9 percent decline that had been expected. Consumer spending accounts for two-thirds of total economic activity.

Orders to U.S. factories for big-ticket manufactured goods also plunged last month by the largest amount in two years. Orders for durable goods dropped by 6.2 percent, more than double the decline economists expected. The Commerce Department report showed widespread declines throughout manufacturing led by decreases in autos and airplanes.

The department also reported that new-home sales decreased 5.3 percent last month to a seasonally adjusted annual sales pace of 433,000 homes, the lowest level since January 1991, another period when the country was undergoing a steep housing downturn.

The median price of a new home sold in October fell to $218,000, down 7 percent from a year ago, and the lowest since September 2004.

The Dow Jones industrial average rose about 50 points in early afternoon trading Wednesday.

With the economy showing further signs that it is headed into a steep swoon, the administration and the Federal Reserve rolled out two new programs Tuesday that would provide up to $800 billion in an effort to get more loans flowing in such critical areas as mortgage lending, credit cards, auto loans and small business loans.

Credit markets liked the new efforts, but private economists said the new moves were not likely to be the last changes in the government's vast rescue program, which has already undergone significant alterations since it was passed by Congress on Oct. 3.

Analysts believe more work will need to be done because of their expectations that the economy's vital signs will continue to worsen as the country slips into what many believe could be the worst recession since the early 1980s.

The unemployment rate has hit a 14-year high of 6.5 percent, putting pressure on personal incomes. The government reported Tuesday that the overall economy, as measured by the gross domestic product, shrank at an annual rate of 0.5 percent in the July-September quarter, reflecting the fact that consumer spending fell at the fastest pace in 28 years.

Nariman Behravesh, an economist at IHS Global Insight, said he was expecting GDP to shrink at a 4 percent rate in the current quarter, reflecting the battering consumers are taking from the worst financial crisis since the 1930s. He predicted that the economy would remain in recession through the first half of next year.

"We are in the early stages of one of the worst recessions in the postwar period, even factoring in a massive stimulus program," Behravesh.

To revive the economy, President-elect Barack Obama has said a top priority will be working with Congress to enact a stimulus package with the goal of creating 2.5 million new jobs over the next two years. Analysts believe such an effort will require spending between $500 billion to $700 billion, a figure that would be on top of all the money being spent to stabilize the financial system.

In the latest efforts to stabilize the financial system, the Federal Reserve announced Tuesday that it will buy $200 billion in securities backed by different types of debt including credit card loans, auto loans, student loans and loans to small businesses. That market essentially froze in October. These types of loans as a result have become harder to obtain and have carried higher interest rates

The Fed also announced that it will spend $500 billion to buy mortgage-backed securities guaranteed by mortgage giants Fannie Mae and Freddie Mac and another $100 billion to directly purchase mortgages held by Fannie, Freddie and the Federal Home Loan Banks.

This would greatly expand an initial modest effort announced in September with the goal of creating increased demand for mortgage-related assets. The hope is that this will drive down the price of mortgages and make home loans more available.

Analysts predict the Fed program could send mortgage rates down by as much as one-half to a full percentage point in coming months, helping to spur demand in the beleaguered housing market, which is suffering its worst downturn in decades.

The latest federal moves raised U.S. commitments to contain the financial crisis to nearly $7 trillion — though no one thinks the government will actually spend anything like that figure.

In the case of the Federal Reserve, the amount covers huge loans that financial institutions will have to pay back. In the case of the Treasury rescue effort, the government will at some point sell the stock it owns back to the banks, presumably when the banking system is doing better and the stock will be worth more.

4 new reports reveal battered economy (http://news.yahoo.com/s/ap/20081126/ap_on_bi_ge/financial_meltdown/print;_ylt=AuCYTP_dSwBCbBfztfrvgHNv24cA)

Evangelist seeks national prayer day for economy
'The answer isn't dollars; it's turning back to God'

Internet evangelist and host of LivePrayer Bill Keller is petitioning President Bush and Congress to designate Dec. 18 as a national day of prayer and fasting for the economy.

Despite several government attempts to revive a slumping national economy, the financial crisis remains – a fact, Keller contends, that illustrates America's problems aren't economic but spiritual.

"They have tried everything to fix the economy," Keller told WND, "including throwing a few trillion at the problem, and we are no better than when the 'experts' started to try and fix (it)."

"The crisis is a spiritual problem," said Keller in a statement. "The answer to our economic downfall is not an infusion of trillions of dollars, but the humble prayers of forgiveness and repentance for our sin and rebellion against God."

In a YouTube video LivePrayer released in October, Keller declared, "People are looking for answers from their financial advisors, from their stock brokers, from their elected officials, from the men running for president, from the financial pundits on the TV, from the economists in the financial publications – from every place except where the answer is to be found."

"The answer isn't dollars," Keller said, "it's turning back to God."

Now Keller is hoping President Bush will hear his message by calling Americans to pray.

A long historical precedent exists for presidents calling the nation to prayer and fasting. On March 23, 1798, President John Adams issued a proclamation recommending May 9 of that year as a "day of solemn humiliation, fasting and prayer."

"As the safety and prosperity of nations ultimately and essentially depend on the protection and blessing of Almighty God," Adams wrote. He is proclamation called Americans to "acknowledge before GOD the manifold sins and transgressions with which we are justly chargeable as individuals and as a nation; beseeching him, at the same time, of his infinite Grace, through the Redeemer of the world, freely to remit all our offences, and to incline us, by his holy spirit, to that sincere repentance and reformation which may afford us reason to hope for his inestimable favor and heavenly benediction."

President Abraham Lincoln also called for a national day of "humiliation, fasting and prayer" in 1863. In 1952, a joint resolution by Congress, signed by President Truman, declared an annual prayer day, and in 1988, President Reagan declared the first Thursday of every May as the National Day of Prayer.

In his petition to President Bush and Congress, Keller writes, "Our nation is in the midst of an economic crisis that is not going to be solved by the wisdom of men or any amount of money, but only by the grace and mercy of Almighty God."

The petition continues, "We call upon you as the ones the people of the United States have elected to lead our nation, to follow the example of past Presidents and Congress, and call the people of our land to fast and pray for God's favor and blessings on our economy."

Keller's website invites people to sign the petition and states that he is hoping to hand-deliver at least 250,000 signatures to President Bush, House Majority Leader Nancy Pelosi and Senate Majority Leader Harry Reid Dec. 16.

A former businessman convicted of insider trading in 1989, Keller served two years in federal prison, was released and later earned a degree in biblical studies from Liberty University in Lynchburg, Virginia.

In 1999, Keller launched LivePrayer, which claims to have responded personally to more than 60 million online requests for prayer since its inception and claims its LivePrayer devotional is received daily by over 2.4 million e-mail subscribers.

Economy lost another 533,000 jobs in Nov.
Worst month since December 1974 brings total this year to 1.9 million

Skittish employers slashed 533,000 jobs in November, the most in 34 years, catapulting the unemployment rate to 6.7 percent, dramatic proof the country is careening deeper into recession.

The new figures, released by the Labor Department Friday, showed the crucial employment market deteriorating at an alarmingly rapid clip, and handed Americans some more grim news right before the holidays.

As companies throttled back hiring, the unemployment rate bolted from 6.5 percent in October to 6.7 percent last month, a 15-year high.
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"These numbers are shocking," said economist Joel Naroff, president of Naroff Economics Advisors. "Companies are sharply reacting to the economy's problems and slashing costs. They are not trying to ride it out."

The unemployment rate would have moved even higher if not for the exodus of 422,000 people from the work force. Economists thought many of those people probably abandoned their job searches out of sheer frustration. In November 2007, the jobless rate was at 4.7 percent.

"I'm worried about our workers who have lost jobs during this downturn," President George W. Bush said in a statement.

He said his administration was working to stabilize markets, in particular the credit markets where tight lending has added to the economy's woes.

"A market that was frozen is thawing," he said.

The U.S. tipped into recession last December, a panel of experts declared earlier this week, confirming what many Americans already thought.

Since the start of the recession, the economy has lost 1.9 million jobs, the number of unemployed people increased by 2.7 million and the jobless rate rose by 1.7 percentage points.

President-elect Barack Obama said the dismal job news underscored the need for forceful action, even as he warned that the pain could not be quickly relieved.

"There are no quick or easy fixes to this crisis ... and it's likely to get worse before it gets better," Obama said. "At the same time, this ... provides us with an opportunity to transform our economy to improve the lives of ordinary people by rebuilding roads and modernizing schools for our children, investing in clean energy solutions to break our dependence on imported oil, and making an early down payment on the long-term reforms that will grow and strengthen our economy for all Americans for years to come."

To provide relief, the Bush administration will continue to concentrate on ways to bust through a credit jam that is feeding prominently into the economy's problems, Commerce Secretary Carlos Gutierrez told The Associated Press in an interview. "We're going to stay focused on that like a laser," he said.

On Wall Street, stocks slid. The Dow Jones industrials were down more than 180 points in morning trading.

Caterpillar cuts ties with some contract workers

Caterpillar Inc. has started cutting ties with some contract workers as the world's largest maker of construction and mining equipment tries to lower costs amid the global economic slowdown.

Caterpillar Inc. has started cutting ties with some contract workers as the world's largest maker of construction and mining equipment tries to lower costs amid the global economic slowdown.

The company said Friday it notified agencies that employ the workers in Peoria, Ill., where Caterpillar is based, and the surrounding area, but declined to specify how many workers would be affected.

Jim Dugan, a Caterpillar spokesman, said similar work force reductions already had been made in North Carolina and Europe. The Peoria workers, he said, perform tasks ranging from factory work to office duties.

The cuts are part of a cost-reduction plan that also includes limiting travel, external meetings and events.

In a statement, the company said "certain Caterpillar business units are taking steps to manage overall work force and production schedules to appropriate levels during this time."

Caterpillar declined to provide details about the reduction of its so-called flexible work force, which includes the contract workers, "because these individuals are employees of these agencies rather than Caterpillar."

In the Peoria area, Caterpillar's contract workers include employees of Volt Information Sciences Inc. and ATS Corp. Representatives of those companies did not immediately respond to phone messages seeking comment.

Caterpillar spokesman Dugan said the company also had a small number of voluntary layoffs in Britain and a "very limited" number of notifications among part-time employees in Britain and the United States.

Caterpillar employs about 112,000 people worldwide, excluding contract workers.

In October, Caterpillar reported a 6 percent drop in third-quarter profit, saying higher steel and freight costs had offset record global sales. It forecast virtually flat sales for 2009, noting "recessionary conditions" in North America.

Caterpillar, known for its trademark yellow-and-black earth-moving machinery, has broad geographic reach and a range of products that tap into various global industries.

Shares of Caterpillar rose 74 cents, or nearly 2 percent, to close at $38.26 on Friday. The stock is down 55 percent since peaking at $85.96 in April.

Dow Chemical cuts 11% of workforce, closes plants
Will eliminate 5,000 full-time jobs to address 'current economic realities'

Dow Chemical Co. said Monday that it will eliminate about 5,000 full-time jobs, or about 11% of its global staff, along with an additional 6,000 positions in its contractor workforce to address "current economic realities."

The Dow Chemical Company said that it will idle 180 plants and shutter 20 facilities in "high-cost locations," cutting about 30% of its total production.

The news follows similar announcements in the last week at DuPont Co. and AT& T Inc. which have been hit by dwindling consumer spending and continued weakness in the housing and automotive industries.

"The entire industry supply chain [that Dow serves], all the way to what the consumer buys -- outside of food and health care -- is in a recessionary model," Chairman and Chief Executive Andrew Liveris said on a conference call with analysts.

Dow Chemical provides materials for pharmaceuticals, packaging, auto components, construction, textiles, electronics and more.

Due to the restructuring, Dow said that it will post a pretax charge in the current quarter of $700 million, including $350 million for severance packaged and a $350 million related to the closing of facilities. That should impact quarterly earnings by 50 cents to 60 cents a share.

Dow also will be hit with a related $80 million charge in 2009, but the move should eventually result in $700 million in annual cost savings by 2010, the company said.

"We are dialing down, and in the case of the 180 [plants to be idled], we can turn them all the way off ... to minimize the cash burn," according to Liveris.

By idling plants, rather then shuttering them completely, he said Dow will be able to ramp up production once the economy improves without hefty startup costs.

Shares of Dow were up 6.7% at last check to $20.28. For the year, the stock is down nearly 50%.
The company is moving to raise cash ahead of closing an acquisition deal with Rohm & Haas Co., targeted to close in early 2009. Some investors and analysts have worried over financing the $15 billion deal with the credit markets in turmoil.

Last week, Dow reaffirmed a new joint-venture company with Kuwait's petrochemical Industries Co. will provide the cash it needs to close the deal.

It also plans to reduce working capital next year by $2 billion and have about $600 million in lower capital spending, reducing 2009 cash requirements by about $2.5 billion and delivering an additional $1 billion in free cash flow, Chief Financial Officer Geoffrey Merszei said.

Concern also has been raised over the future of Dow's dividend, an option Liveris said is not on the table.

"Dow is the only company in the Fortune 200 to have paid its regular quarterly cash dividend without reduction or interruption since 1912," he commented. "I have said it before, but I want to say it again: We will not break that streak."

Monday's announcement also represents an acceleration of a broader company strategy to decentralize Dow into three different business models with a leaner, more-efficient corporate center.
"We have the portfolio in hand to move to this new model," Liveris added. "Clearly we are accelerating this move, given the deterioration in the world economy and in most of our markets."

Specifics of the new operating models will be outlined next year, the company said. But at its heart is an agreement made last year in which Dow sold a 50% interest in its raw plastics businesses to Petrochemical Industries, a subsidiary of state-run Kuwait Petroleum Corp. In turn, Dow gained greater access to emerging-market growth and petrochemical materials used in its products.

It also will result in a 50-50 joint venture, K-Dow, which is expected to begin operations by Jan.1, and have annual sales of $15 billion. Further, Dow said that it expects to receive $9 billion in total pretax proceeds once the deal is complete.

Completion of the deal will mark a critical milestone in Dow Chemical's hopes to transform into an earnings-growth company from one tied to cyclical conditions.

Yahoo Layoffs Today May Not Be Last

Yahoo began laying off 1,500 workers on Wednesday as part of a plan, announced in October, to slash expenses by $400 million a year. The cost cutting, however, may have to go deeper in the coming year.

“There could be additional staff reductions next year,” said Brad Williams, a Yahoo spokesman. “It depends on the decisions we make about prioritization, and on things we can’t predict in the economy.” Mr. Williams added: “We are trying to instill a culture of cost-discipline in our business.”

Yahoo critics have long said that bloat was far more common than cost discipline at the Internet portal. And when it announced the cuts in October, Yahoo said that further consolidation would be likely, including the closing of some offices and the move of others to lower-cost locations.

On Wednesday, Mr. Williams expanded a bit on those plans. Yahoo is closing offices in Dusseldorf, Hamburg, Stockholm, Amsterdam, Oslo, and Copenhagen, he said. Next year, similar closures will be made at smaller offices in the United States and Asia.

Mr. Williams also said that the job cuts today will affect most parts of the company, but that Yahoo executives are still evaluating which projects will be de-emphasized or cut altogether. “This is more of a cost reduction rather than business prioritization,” he said about the layoffs. “Business prioritization will continue going forward. We are looking at businesses we may put into maintenance mode.”

In addition, the company is going to be looking for ways to cut expenses further, by curtailing travel, procurement and other areas.

Yahoo’s chief executive, Jerry Yang, penned a farewell note to laid-off employees on the company’s blog. If you want to know how managers are supposed to notify employees whose jobs are being cut, check out Valleywag.

Many investors say the layoffs were a necessary cost-cutting measure, but argue that a more dramatic change will be needed to turn Yahoo’s fortunes around. On Wednesday, Ivory Investment Management, a Los Angeles-based fund that owns about 21.4 million shares, or about 1.5 percent of Yahoo, urged the board to sell the company’s search business to Microsoft. Other large Yahoo shareholders have also argued privately in favor of a deal with Microsoft, whose chief executive, Steve Ballmer, said last week that it remained open to such a deal. Yahoo board member Carl Icahn has also spoken in favor of a deal with Microsoft.

Yahoo has also been talking for months with Time Warner about a possible acquisition of its AOL Internet unit. Yet, with Yahoo in the midst of a search for a new chief executive to replace Mr. Yang, it is not clear that a deal with Microsoft or AOL will get done soon — or at all.

OPEC losing game of dare with consumers

OPEC oil ministers dared the market into raising oil prices Wednesday by agreeing to their deepest output cut ever -- 2.2 million barrels a day.

What they got was a dare back -- oil fell below US$40 a barrel for the first time in four years. It settled in New York at US$40.06, down US$3.54.

Why is oil stuck in reverse?

For now, the consumer has replaced OPEC as oil's boss. It'll take a dramatic jump in demand to get the market to reverse course, said Rob Giegel, energy market specialist with MF Global Canada Co.

"This year everyone actually acted upon their musings of the past, and we saw a huge shift in consumer behavior in terms of more fuel-efficient vehicles, people starting to walk to work, people taking public transit," said Mr. Giegel, based in Calgary. "We have seen demand extinction, because a lot of these people will never go back."

The shift is reflected in inventory levels. The U.S. Energy Department said Wednesday supplies climbed for the 11th time in 12 weeks, by 525,000 barrels to 321.3 million barrels last week. Storage is so full that more supply is unaccounted for, said Mr. Geigel. Plenty, for example, is stored in tankers. Rates have come down so much they are being rented, filled up and parked, waiting for oil to rebound, he said.

OPEC's cut was deep, but not deep enough. Wednesday's cut, which comes into effect Jan. 1, raises to 4.2 million barrels a day the output OPEC has said it wants to take off the market since September. This would reduce its volumes by 15% or 24.845 million barrels a day.

"It seems like, despite the fact that the economies of producer nations are clearly in trouble, they don't have the temerity to actually go ahead and do the kind of cut that would be really interesting to traders to turn this around," said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn.

But Leila Benali, Paris-based director of Middle East and Africa at Cambridge Energy Research Associates, said it's difficult for members to cut deeper.

"There is the question of who will take the burden," she said. "It's quite difficult to decrease production when prices are low, because it will mean less revenue for you."

OPEC isn't helping itself by mismanaging expectations, said Andrew Bradford, head of Canadian energy research at Raymond James Ltd.

"It's difficult to live up to the rhetoric that surrounds this," said the Calgary-based analyst.

The president of OPEC, Chakib Khelil, said in announcing the cut that: "I hope we surprised you." But Mr. Bradford said the market has been hearing about the pending cut for so long that Wednesday it focused on what could go wrong.

And there's plenty. OPEC members have such a poor track record of keeping their promises, the result is a lack of trust they will follow through.

"Can you institute a four million barrel-a-day cut over a four month period? My expectation is no. I don't know many precedents for that," Mr. Bradford said.

Even Russian talk about working with OPEC has turned out to be smoke and mirrors, since Russia doesn't have a national oil company to enforce the cuts and its proposed supply rollback is so marginal it's equivalent to declines in production that would have happened any way, he said.

It's tricky to curtail oil production when the world economy is in a tailspin. The risk is that higher prices will cause further pain. Indeed, the negative reaction from the U.S. and the Paris-based International Energy Agency shows OPEC has to be careful.

"OPEC has an obligation to keep the market well-supplied and to consider the health of the global economy, so efforts to limit the benefits of lower energy prices are short-sighted," said White House spokesman Tony Fratto.

Oil is still searching for a bottom, and we're not there yet. Analysts have been one-upping each other lately with calls of US$20, US$25, US$30 oil. Mr. Bradford believes the bottom is in the US$30-to-US$40 range because that's when significant Russian production comes under stress.

He sees such a low level as good news for a recovery in oil prices and energy equities.

"There is no precedent in fact in the modern era for oil prices to hit a bottom and just go sideways," he said. "They hit a bottom and [the rebound] is U shaped or V shaped. It starts moving up quite quickly."

IMF warns: Economic riots
– police prepare for unrest
Paulson discussed worst-case scenario
at bailout meeting – declare martial law

Pentagon resources and U.S. troops may be used if needed to quell protests and bank runs during an economic crisis, the U.S. Army War College's Strategic Institute reported.

"Widespread civil violence inside the United States would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security," the War College study states.

Incidents of economic collapse, terrorism and disruption of legal order could require deployment of forces within the U.S., it said.

A "strategic shock" could require the nation to use "military force against hostile groups inside the United States."

International Monetary Fund Managing Director Dominique Strauss-Kahn has warned that advanced nations could face civil unrest during distressful economic times

"(S)ocial unrest may happen in many countries – including advanced economies" if the economic crises are not properly dealt with, Strauss-Kahn said.

"He added that violent protests could break out in countries worldwide if the financial system was not restructured to benefit everyone rather than a small elite," London's Guardian reported.

In a recession where consumer spending is plummeting, foreclosures are rampant, workers are losing jobs, credit is tight and markets are strained, some are warning about a worst-case scenario.

Last month, trends forecaster Gerald Celente told Fox News that America will morph into the first "undeveloped" nation of the world by 2012. He said there will be a tax revolution marked by "food riots, squatter rebellion, tax revolts and job marches." He also said by 2012, the holidays will be more about getting food rather than gifts.

According to the Phoenix Business Journal, U.S. Sen. James Inhofe, R-Okla., and U.S. Rep. Brad Sherman, D-Calif., said Treasury Secretary Henry Paulson considered the prospect of civil unrest while he pushed for September's Wall Street bailout – even suggesting martial law might be essential.

Arizona Gov. Janet Napolitano, Barack Obama's pick for secretary of Homeland Security, would not provide comment to the Business Journal on the possibility of civil unrest during economic crisis. But state and local police indicated that they have trained for such an event.

"The Phoenix Police Department is not expecting any civil unrest at this time, but we always train to prepare for any civil unrest issue. We have a Tactical Response Unit that trains continually and has deployed on many occasions for any potential civil unrest issue," Phoenix Police spokesman Andy Hill said.

"We have well established plans in place for such civil unrest," Scottsdale Police spokesman Mark Clark told the Business Journal.

Maricopa County Sheriff Deputy Chief Dave Trombi concurred: "We're prepared."

Nick Dranias, director of constitutional government at the libertarian Goldwater Institute, told the Phoenix Business Journal declaration of martial law would allow U.S. armed forces to control civilian authorities.

While he said the Posse Comitatus Act limits the military's role in domestic law enforcement, he referenced a 1994 U.S. Defense Department Directive (DODD 3025) that gives military commanders authority during domestic emergencies to "save lives, prevent suffering or mitigate great property damage," according to the report.

"I don't think it's likely," he said. "But it's not impossible."

What’s the worst that could happen?

http://www.mlive.com/us-politics/index.ssf/2008/12/adviser_describes_worst_case_s.html

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What’s the worst that could happen?

That’s a question that James Rickards spends a lot of time pondering these days, as he sifts through the national security implications of the financial crisis facing the United States.

Rickards will lay out his worst case scenarios in a lecture sponsored by the Navy and the Office of the Secretary of Defense for Policy tonight. And his forecasts aren’t for the faint of heart.

Rickards calls it the “A to Z” problem: What are the threats that could make the U.S. economy look less like America and more like Zimbabwe? He sees them everywhere – in the Chinese ownership of vast amounts of American debt, in Russia’s increased centralization of its economy, in Al Qaeda’s long-established fascination with damaging the U.S. economy.

In many ways, Rickards is the ultimate bear. He’s not just thinking about whether the stock market will decline, but whether or not the stock market will survive.

All that puts Rickards decidedly outside mainstream economic and political thinking in America. But he does have an influential audience: the United States intelligence and defense communities.

Rickards is a regular adviser on financial issues to the office of the Director of National Intelligence, and he lends his financial advice to the national security community.

His lecture comes as part of an annual “Rethinking Seminar” produced by the Johns Hopkins University Applied Physics Laboratory. Rickards argues that government is not doing nearly enough to prepare for the worst. “Here’s the policy problem for the United States,” he said in an interview. “We have experts in defense and intelligence, and huge depth in capital markets experience at the Fed and at Treasury. But they’re separated by the Potomac River. And they’re not talking to each other.”

Rickards came by his economic experience the hard way. He was the general counsel at Long Term Capital Management, the hedge fund that collapsed in spectacular fashion in the late 1990s and nearly took the global economy along with it. That near-economic death experience gave him a healthy appreciation for risk. Today, he’s the senior managing director for research at Omnis, an applied research firm.

Four of the scenarios keep him up at night:

The Bait Effect

Terrorists, and al Qaeda in particular, are fascinated with the idea of destroying the U.S. economy. Rickards worries that the economic meltdown in the United States could serve as bait of sorts for a terrorist attack, as plotters calculate that a strike now could have a “force multiplier” effect because of the already skittish U.S. stock market.

The China Syndrome

The Chinese own more than $500 billion worth of U.S. Treasury bonds, and billons more in the debt of other U.S. entities such as those held by Freddie Mac and Fannie Mae. And a general sense of mutually assured financial destruction keeps them from wielding that debt like a weapon: if the Chinese dumped U.S. debt on the global market, their own holdings of U.S. debt would decline in value, the U.S. economy would be damaged, ultimately harming the Chinese economy by reducing American ability to buy more Chinese goods.

They’d have to be crazy to try it. But Rickards points out that governments don’t always do the rational thing. And in the meantime, their holdings give the Chinese incredible power over American decision making.

“It gives the Chinese de facto veto power over certain U.S. interest rate and exchange rate decisions,” Rickards explained. “For example, there’s a limit to how much dollar depreciation the Chinese would tolerate.”

That potentially closes off one American economic strategy: allowing the dollar to decline in value in order to help boost U.S. exporters. And China’s leverage is only growing as each federal bailout adds to the U.S. deficit.

The Existential Crash

A pessimist by nature, Rickards believes that many economic forecasters are wrong, and the recession will get far worse than predicted.

He sees an epic disaster scenario in which the U.S. gross domestic product declines by a staggering 35 percent over the next six to seven years. Crippling deflation could take hold. Unemployment, he says, could approach 15 percent.

That’s a calamitous rate, but it would not be an all time high: unemployment hit 25 percent during the Great Depression.

“The national security community needs to be conversant with this,” Rickards said. “In defense, intelligence, and national security, you earn your money by preparing for things that may be remote, but pose an existential threat if they come to pass.”

In this scenario, the possibilities for global unrest increase dramatically as a staggering United States retreats from foreign aid and global diplomacy and the list of dangerous failed states grows sharply.

The Alternate-Dollar Nightmare

“The Number One vulnerability is the dollar itself,” Rickards concluded. “We’re printing them and shoving them out the door, and the Fed is basically out of bullets. So why hasn’t the dollar collapsed? The short answer is, global investors don’t have any other choice.” That is, there simply aren’t enough Euro- or Yen-backed securities for investors to shift their money out of dollars and into some other currency.

But what if some kind of global coalition – say a trillion-dollar sovereign wealth fund allied with several countries around the world – banded together to create a gold-backed alternative to the dollar?

Rickards says investors – many of whom already resent that they have no alternative to the dollar – would sell American currency in huge numbers to take advantage of the new opportunity. “If that happens, that’s the end of the dollar,” Rickards said. “You’d have high unemployment, deflation, and interest rates would go up. It would take what already looks like a strong recession and make it a Great Depression or worse.”

Still, even Rickards sees a silver lining to all this. He looks around the world to the problems facing other countries such as Russia, China, Iran, and those in the Middle East.

“There are vulnerabilities for the United States, but also opportunities,” he said. “I’d rather be the United States than any of these other countries.”

Bailed-out banks give billions in salaries, bonuses
Study finds executives at 116 institutions made average of $2.6 million last year

Banks that are getting taxpayer bailouts awarded their top executives nearly $1.6 billion in salaries, bonuses, and other benefits last year, an Associated Press analysis reveals.

The rewards came even at banks where poor results last year foretold the economic crisis that sent them to Washington for a government rescue. Some trimmed their executive compensation due to lagging bank performance, but still forked over multimillion-dollar executive pay packages.

Benefits included cash bonuses, stock options, personal use of company jets and chauffeurs, home security, country club memberships and professional money management, the AP review of federal securities documents found.

The total amount given to nearly 600 executives would cover bailout costs for many of the 116 banks that have so far accepted tax dollars to boost their bottom lines.

Rep. Barney Frank, chairman of the House Financial Services committee and a long-standing critic of executive largesse, said the bonuses tallied by the AP review amount to a bribe "to get them to do the jobs for which they are well paid in the first place.

"Most of us sign on to do jobs and we do them best we can," said Frank, a Massachusetts Democrat. "We're told that some of the most highly paid people in executive positions are different. They need extra money to be motivated!"

The AP compiled total compensation based on annual reports that the banks file with the Securities and Exchange Commission. The 116 banks have so far received $188 billion in taxpayer help. Among the findings:

_The average paid to each of the banks' top executives was $2.6 million in salary, bonuses and benefits.

_Lloyd Blankfein, president and chief executive officer of Goldman Sachs, took home nearly $54 million in compensation last year. The company's top five executives received a total of $242 million.

This year, Goldman will forgo cash and stock bonuses for its seven top-paid executives. They will work for their base salaries of $600,000, the company said. Facing increasing concern by its own shareholders on executive payments, the company described its pay plan last spring as essential to retain and motivate executives "whose efforts and judgments are vital to our continued success, by setting their compensation at appropriate and competitive levels." Goldman spokesman Ed Canaday declined to comment beyond that written report.

The New York-based company on Dec. 16 reported its first quarterly loss since it went public in 1999. It received $10 billion in taxpayer money on Oct. 28.

_Even where banks cut back on pay, some executives were left with seven- or eight-figure compensation that most people can only dream about. Richard D. Fairbank, the chairman of Capital One Financial Corp. (COF) (COF), took a $1 million hit in compensation after his company had a disappointing year, but still got $17 million in stock options. The McLean, Va.-based company received $3.56 billion in bailout money on Nov. 14.

_John A. Thain, chief executive officer of Merrill Lynch, topped all corporate bank bosses with $83 million in earnings last year. Thain, a former chief operating officer for Goldman Sachs, took the reins of the company in December 2007, avoiding the blame for a year in which Merrill lost $7.8 billion. Since he began work late in the year, he earned $57,692 in salary, a $15 million signing bonus and an additional $68 million in stock options.

Like Goldman, Merrill got $10 billion from taxpayers on Oct. 28.

The AP review comes amid sharp questions about the banks' commitment to the goals of the Troubled Assets Relief Program (TARP), a law designed to buy bad mortgages and other troubled assets. Last month, the Bush administration changed the program's goals, instructing the Treasury Department to pump tax dollars directly into banks in a bid to prevent wholesale economic collapse.

The program set restrictions on some executive compensation for participating banks, but did not limit salaries and bonuses unless they had the effect of encouraging excessive risk to the institution. Banks were barred from giving golden parachutes to departing executives and deducting some executive pay for tax purposes.

Banks that got bailout funds also paid out millions for home security systems, private chauffeured cars, and club dues. Some banks even paid for financial advisers. Wells Fargo of San Francisco, which took $25 billion in taxpayer bailout money, gave its top executives up to $20,000 each to pay personal financial planners.

At Bank of New York Mellon Corp. (BK), chief executive Robert P. Kelly's stipend for financial planning services came to $66,748, on top of his $975,000 salary and $7.5 million bonus. His car and driver cost $178,879. Kelly also received $846,000 in relocation expenses, including help selling his home in Pittsburgh and purchasing one in Manhattan, the company said.

Goldman Sachs' tab for leased cars and drivers ran as high as $233,000 per executive. The firm told its shareholders this year that financial counseling and chauffeurs are important in giving executives more time to focus on their jobs.

JPMorgan Chase chairman James Dimon ran up a $211,182 private jet travel tab last year when his family lived in Chicago and he was commuting to New York. The company got $25 billion in bailout funds.

Banks cite security to justify personal use of company aircraft for some executives. But Rep. Brad Sherman, D-Calif., questioned that rationale, saying executives visit many locations more vulnerable than the nation's security-conscious commercial air terminals.

Sherman, a member of the House Financial Services Committee, said pay excesses undermine development of good bank economic policies and promote an escalating pay spiral among competing financial institutions - something particularly hard to take when banks then ask for rescue money.

He wants them to come before Congress, like the automakers did, and spell out their spending plans for bailout funds.

"The tougher we are on the executives that come to Washington, the fewer will come for a bailout," he said.

Where'd the bailout money go? Shhhh, it's a secret
By MATT APUZZO, Associated Press Writer Matt Apuzzo
Dec 22, 9:52 am ET

WASHINGTON – It's something any bank would demand to know before handing out a loan: Where's the money going?

But after receiving billions in aid from U.S. taxpayers, the nation's largest banks say they can't track exactly how they're spending the money or they simply refuse to discuss it.

"We've lent some of it. We've not lent some of it. We've not given any accounting of, 'Here's how we're doing it,'" said Thomas Kelly, a spokesman for JPMorgan Chase, which received $25 billion in emergency bailout money. "We have not disclosed that to the public. We're declining to."

The Associated Press contacted 21 banks that received at least $1 billion in government money and asked four questions: How much has been spent? What was it spent on? How much is being held in savings, and what's the plan for the rest?

None of the banks provided specific answers.

"We're not providing dollar-in, dollar-out tracking," said Barry Koling, a spokesman for Atlanta, Ga.-based SunTrust Banks Inc., which got $3.5 billion in taxpayer dollars.

Some banks said they simply didn't know where the money was going.

"We manage our capital in its aggregate," said Regions Financial Corp. spokesman Tim Deighton, who said the Birmingham, Ala.-based company is not tracking how it is spending the $3.5 billion it received as part of the financial bailout.

The answers highlight the secrecy surrounding the Troubled Asset Relief Program, which earmarked $700 billion — about the size of the Netherlands' economy — to help rescue the financial industry. The Treasury Department has been using the money to buy stock in U.S. banks, hoping that the sudden inflow of cash will get banks to start lending money.

There has been no accounting of how banks spend that money. Lawmakers summoned bank executives to Capitol Hill last month and implored them to lend the money — not to hoard it or spend it on corporate bonuses, junkets or to buy other banks. But there is no process in place to make sure that's happening and there are no consequences for banks who don't comply.

"It is entirely appropriate for the American people to know how their taxpayer dollars are being spent in private industry," said Elizabeth Warren, the top congressional watchdog overseeing the financial bailout.

But, at least for now, there's no way for taxpayers to find that out.

Pressured by the Bush administration to approve the money quickly, Congress attached nearly no strings on the $700 billion bailout in October. And the Treasury Department, which doles out the money, never asked banks how it would be spent.

"Those are legitimate questions that should have been asked on Day One," said Rep. Scott Garrett, R-N.J., a House Financial Services Committee member who opposed the bailout as it was rushed through Congress. "Where is the money going to go to? How is it going to be spent? When are we going to get a record on it?"

Nearly every bank AP questioned — including Citibank and Bank of America, two of the largest recipients of bailout money — responded with generic public relations statements explaining that the money was being used to strengthen balance sheets and continue making loans to ease the credit crisis.

A few banks described company-specific programs, such as JPMorgan Chase's plan to lend $5 billion to nonprofit and health care companies next year. Richard Becker, senior vice president of Wisconsin-based Marshall & Ilsley Corp., said the $1.75 billion in bailout money allowed the bank to temporarily stop foreclosing on homes.

But no bank provided even the most basic accounting for the federal money.

"We're choosing not to disclose that," said Kevin Heine, spokesman for Bank of New York Mellon, which received about $3 billion.

Others said the money couldn't be tracked. Bob Denham, a spokesman for North Carolina-based BB&T Corp., said the bailout money "doesn't have its own bucket." But he said taxpayer money wasn't used in the bank's recent purchase of a Florida insurance company. Asked how he could be sure, since the money wasn't being tracked, Denham said the bank would have made that deal regardless.

Others, such as Morgan Stanley spokeswoman Carissa Ramirez, offered to discuss the matter with reporters on condition of anonymity. When AP refused, Ramirez sent an e-mail saying: "We are going to decline to comment on your story."

Most banks wouldn't say why they were keeping the details secret.

"We're not sharing any other details. We're just not at this time," said Wendy Walker, a spokeswoman for Dallas-based Comerica Inc., which received $2.25 billion from the government.

Heine, the New York Mellon Corp. spokesman who said he wouldn't share spending specifics, added: "I just would prefer if you wouldn't say that we're not going to discuss those details."

The banks which came closest to answering the questions were those, such as U.S. Bancorp and Huntington Bancshares Inc., that only recently received the money and have yet to spend it. But neither provided anything more than a generic summary of how the money would be spent.

Lawmakers say they want to tighten restrictions on the remaining, yet-to-be-released $350 billion block of bailout money before more cash is handed out. Treasury Secretary Henry Paulson said the department is trying to step up its monitoring of bank spending.

"What we've been doing here is moving, I think, with lightning speed to put necessary programs in place, to develop them, implement them, and then we need to monitor them while we're doing this," Paulson said at a recent forum in New York. "So we're building this organization as we're going."

Warren, the congressional watchdog appointed by Democrats, said her oversight panel will try to force the banks to say where they've spent the money.

"It would take a lot of nerve not to give answers," she said.

But Warren said she's surprised she even has to ask.

"If the appropriate restrictions were put on the money to begin with, if the appropriate transparency was in place, then we wouldn't be in a position where you're trying to call every recipient and get the basic information that should already be in public documents," she said.

Garrett, the New Jersey congressman, said the nation might never get a clear answer on where hundreds of billions of dollars went.

"A year or two ago, when we talked about spending $100 million for a bridge to nowhere, that was considered a scandal," he said.

Where'd the bailout money go? Shhhh, it's a secret (http://news.yahoo.com/s/ap/20081222/ap_on_go_ca_st_pe/meltdown_secrets/print;_ylt=AjsaDRl_uq7AQlCX8nCVUD.WwvIE)

U.S. Jobless Benefits Program Swells to 4.6 Million

The number of Americans collecting unemployment benefits surged to a 26-year high as the labor market worsened in a yearlong recession.

Initial jobless claims unexpectedly fell by 24,000 to 467,000 in the week that ended Jan. 3, the lowest level in almost three months, the Labor Department said today in Washington. The total number of people getting benefits rose a week earlier to 4.6 million, the most since 1982.

While the government projects a surge in firings in late December and early January, job cuts may have come earlier last year as sinking sales and the worst credit conditions in seven decades forced companies such as General Motors Corp. and Chrysler LLC to pare costs. The claims report came as President- elect Barack Obama warned the U.S. risks sinking deeper into an economic crisis without a stimulus package of about $775 billion.

“The labor market is just hemorrhaging here,” said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York, who correctly forecast claims would fall. “Just look at the continuing claims numbers, they give you a better idea of what is going on. Nobody can find work once they’re fired.”

Consumer borrowing dropped by a record $7.9 billion in November to $2.57 trillion, the Federal Reserve said today in Washington. Households are scrambling to boost savings in the face of the deepening recession and amid an investor exodus from securities backed by credit-card and other loans.

Projected to Rise

Jobless claims were projected to rise to 545,000, according to the median projection of 35 economists in a Bloomberg News survey. Estimates ranged from 480,000 to 600,000. Claims in the prior week were revised to 491,000 from 492,000.

The government may report tomorrow the economy lost another 510,000 jobs in December, bringing the 2008 total to a six-decade high of 2.4 million, according to economists surveyed by Bloomberg. The unemployment rate probably jumped to 7 percent, the highest level since 1993.

Economists surveyed last month projected the rate will climb to 8.2 percent by the end of 2009, signaling job cuts are likely to keep rising. Martin Feldstein, a Harvard University professor and former adviser to President Ronald Reagan, yesterday predicted during an interview on Bloomberg Television that the jobless rate may eventually exceed 10 percent.

‘Dramatic Action’

“I don’t believe it’s too late to change course, but it will be if we don’t take dramatic action as soon as possible,” Obama said in the address, delivered at George Mason University in the Washington suburb of Fairfax, Virginia. “If nothing is done, this recession could linger for years.”

Obama has pledged his plan will save or create 3 million jobs over the next two years.

The four-week moving average of claims, a less volatile measure, fell to 525,750 for the period ending Jan. 3, compared with 552,750 the prior week, today’s report showed.

Automakers were among companies shutting down operations last year earlier than the government anticipated, leading to a jump in claims when the figures are adjusted for seasonal variations. Those increases reverse in later weeks when the Labor Department’s computations project the firings will take place.

MFR’s Shapiro also said the numbers are being influenced by changing patterns in retail employment this year. Since merchants expected a drop in sales, they hired fewer workers and, as a result, now need to fire fewer seasonal employees than usual, he said.

Jobless Rate

The unemployment rate among people eligible for benefits, which tends to track the jobless rate, held at 3.4 percent. The unemployment rate, continuing claims and the state claims figures are reported with a one-week lag.

Thirty-two states and territories reported a decrease in new claims for the week ended Dec. 27, while 21 showed an increase.

Jobless claims reflect weekly firings and tend to rise as job growth -- measured by the monthly payroll report -- slows.

The economy entered a recession in December 2007, the National Bureau of Economic Research announced Dec. 1. Economists surveyed by Bloomberg early last month projected gross domestic product would shrink in the fourth quarter by 4.3 percent, the biggest decline since 1982, and would continue contracting through the first half of 2009.

Federal Reserve policy makers saw “substantial” risks to the economy last month as they cut the benchmark interest rate to a record low and pledged to expand emergency loans if necessary.

“Conditions in the labor market deteriorated considerably in recent months as most major industry groups shed jobs,” the Fed said this week as it released minutes of the Dec. 15-16 monetary policy meeting.

GM, Chrysler

As General Motors and Chrysler last month sought billions of dollars in loans to keep operating, the major U.S. automakers also idled or slashed production to clear out inventories.

Chrysler idled all 30 of its assembly plants on Dec. 17 for at least a month, while Ford said 9 of 15 North American factories would shut for the first week in January. GM announced output cuts Dec. 12 that affected 20 plants.

Firings are rippling from manufacturers and construction companies to service industries as demand falters.

EMC Corp., the world’s biggest maker of storage computers, said yesterday it will cut about 2,400 positions, about seven percent of its workforce.

Retailers including Talbots Inc. and Sears Holdings Corp. may close stores in the first half of the year, according to the International Council of Shopping Centers, as job losses and economic concerns keep consumers from the shops. Sales at stores open at least a year fell as much as 2 percent in November and December even as stores offered discounts of 65 percent or more.

Got the article on Iceland - here's part of it:

The Times
Jan. 27, 2009

CREDIT CRUNCH CLAIMS ICELAND GOVERNMENT AFTER 'HOUSEHOLD REVOLUTION'

Catherine Philip, Domestic Correspondent

The global economic crisis claimed its first government yesterday when Iceland's ruling coalition collapsed amid a cacaphony of popular protest.

The government of Geir Haarde, the Prime Minister, resigned en massed after days of mounting anger over the country's financial meltdown.

The protests which began peacefully after the nationalization and overnite bankruptcy of Iceland's 3 main banks, turned violent last week with the nation experiencing its worst riots in 60 years.

At their height, 32,000 people - more than 10 percent of Iceland's population - took to the streets of Reykjavik banging pots and pans in what came to be known as the 'Household Revolution'.

The final collapse of the government came after talks between the two coalition partners failed over who would lead a new administration. Mr. Haarde, the leader of the Indepenence Party, said that he planned to seek a government of national unity with all parties in Parlaiment to lead the country into fresh elections.

"I really regret that we could not continue with this coalition," he said. "I believe that would have been the best result." Icelanders did not agree. The governments approval rates, 72 percent a year ago, stood at 20 percent last week.

Jubilant protestors celebrated outside the Althing, Icelands parlaiment, yesterday after the news of the governments fall. The country's future looks far from secure, though, whoever is next to lead it.

The new government faces a daunting task, including the repayment of a $10 billion bailout loan from the Intn'l Monetary Fund and foreign governments, and a bill running into billions of dollars to repay former savers with collapsed icelandic banks - among them thousands of Britons who took advantage of sky high savings rates.

It was such financial adventurism that led to Iceland's exraordinary decade long financial boom - followed by its spectacular collapse. High risk investing overseas by the so called 'Vikings', a hard core of aggressively minded businessmen, multiplied Icelands GDP twice over. At the same time, Rekjaviks popularity grew as a high end, boutique destination for European tourists...

When the Landsbanki, Glitnir and Kaupthing banks collapsed in October, thousands of ordinary Icelanders who had put their money in banking stocks found their savings wiped out . The Icelandic currency, the krona, lost a quarter of its value before it was removed from trading, and interest rates soared to nearly 20 percent. With inflation rising, Icelanders are finding it hard to to afford even the basics, never mind repay their mortgages..."

Shades of things to come?????

California prepares to stop paying bills
Come Feb. 1, tax refunds, welfare checks replaced with IOUs

The state of California has run out of money.

Facing a $42 billion budget deficit, State Controller John Chiang told the Sacramento Bee he has already borrowed $21.5 billion to try to cover the state's checks, but by Feb. 1, there will be no more options left but to simply stop paying some of the bills – including tax refunds, welfare checks, student grants and other payments owned to California citizens.

"It pains me to pull this trigger," Chiang said at a news conference held in his office. "But it is an action that is critically necessary."

Federal law requires that many school and healthcare programs – a total of about $6.6 billion in California – must be paid, the Los Angeles Times reports, so Chiang has announced an expected payment freeze on $3.7 billion worth of the state's bills, most of it refunds owed to taxpayers.

But even with the freeze beginning next week, the Times reports, California will still fall $346 million short for the month of February, forcing Chiang to consider something only done once since the Great Depression: issuing IOUs.

Formally called "registered warrants," the state's IOUs consist of little more than a piece of paper that says the state owes a payee money, plus interest, to be paid at some point in the future.

The last time California issued registered warrants was in 1992, during two-month budget battle between then-Gov. Pete Wilson and the state's legislators. But after the state issued almost $4 billion worth of IOUs, many banks stopped accepting them as deposits, claiming the five percent interest didn't pay for the hassle of processing them.

The Times reports that state officials have already designed an IOU template for February and begun negotiating with banks to avoid a repeat of 1992's problems.

Beth Mills, a spokeswoman for the California Bankers Association, however, told the Bee that the group's members still have "a lot of technical and operational questions we're trying to get some resolution on" about IOUs.

For now, state officials are hoping that Chiang's promised payment freezes can delay the budget crisis long enough for Gov. Schwarzenegger and the Legislature to find a solution.

Among the $3.7 billion in payments Chiang has targeted to freeze include $1.91 billion in personal income tax refunds, $205 million in court operations, $122 million scheduled to help counties with welfare administration, $13 million in student aid and over $700 million in aid to various disabled and needy groups.

State officials also got a glimmer of hope last week when they learned that more than $11 billion of President Obama's $825 billion economic stimulus plan may land in California's coffers.

"This takes a big bite out of the state's budget gap," Jean Ross, executive director of the California Budget Project, told the Times. "It is better news than many of us had anticipated."

Assembly Speaker Karen Bass, D-Los Angeles, however, warned that lawmakers can't rely on Washington to fix the problem.

"We have to make really horrible cuts, and we have to raise revenue," Bass told the Times. "We are just hoping whatever we get will help us avoid deeper cuts."

If the cuts aren't deep enough, California may be forced to consider issuing the IOUs. Continued borrowing, Chiang said, is not an option.

"We are the eighth largest economy," Chiang said, speaking of California's rank among the world's nations, were it an independent country. But comparing it to other states, he said, "We have the 50th or we are tied for last in the credit ratings. We are a world economic power, but we have fiscal mismanagement in this state."

I understand completely. And some retirement programs that were not the 401's and IRA's of today are dramatically affected, which is one of the reasons someone came up with the idea of getting retirement out of the hands of the company and putting it into things like 401.

An IRA/401 typically operate in the same way. They use the money you invest and go out and purchase many yielding products, such as CD's, bonds, and such. But a portion of that is also put into the stock market, usually mutual funds which are nothing more than people coming together to buy large quantities of stock. But when you invest in the market wins, and losses, are all on paper until you sell the stock you bought. If you buy a single share of say IBM for $100. You spend $100, if tomorrow the stock drops to $50 then you are stock is worth $50 and not the $100 you paid for it. But you are not out any money unless you sell that stock at $50, but if you hang on to it then it may or may not go back up to $100, or it may blow that away and shoot up to $200. But either way it goes you are not out any money until you sell the stock.

Now what does happen where people do lose money in IRA and 401 that are currently in retirement and drawing on it. Say you have an IRA that has 100 shares of IBM at $100 each. You draw a check for $10 per month for your retirement on that. And normally that was covered by your dividends from the 10 shares of IBM. Now the market crashes and the stock goes down to $50 and the company suspends dividends. So now in order to pay your next month of retirement your 401 has to sell a share of stock at $50. You lost out on $50 right off the bat. They will use $10 of that for the monthly drawing and use it for the next 4 months as well. And if the price never changes then you also lost the $50 that you got from the stock when you sold it too, so you are out $100. now you are only out 1% of your initial value, 1 share out of the original 100. However often in the media they would say you are out 50% or more, which would be true if you cashed out of your 401 at the reduced rates.

So there is loss, and if I could survive without drawing on my retirement right now then I would suspend it as well, in order to maintain it's value. However you have to do what you have to do to survive. But there is going to be some more Rockefellers come out of this crisis. I am blessed in that I still have a job and am contributing to my 401 and that I do have a little extra money to invest personally as well. Because $1000 investment today will probably easily be $5000 in less than 5 years.

I see some other people that are starting to waken up to the truth.

Globalists see econ crisis
as excuse for 'new world'
Leaders in Davos bill meltdown
as opportunity to expand control

A call to utilize the current global economic crisis as a panic in which governments worldwide can move to nationalize banks is emerging from the 2009 World Economic Forum in Davos, Switzerland.

The forum's founder, Klaus Schwab, told CNN yesterday the current global economic slowdown is a "transformational crisis" that should be utilized to shape a "new world."

"Above all else this is a crisis of confidence," Schwab said. "To restore confidence you have to establish signposts that the world after the crisis will be different. We have to create a new world and that is what Davos 2009 will be all about – serving society."

Speaking from the Davos conference yesterday, Nouriel Roubini, New York University professor at the Stern School of Business, told CNBC the global banking system is "effectively insolvent."

Roubini estimated that the worldwide crisis in bad bank assets will extend far beyond the Collateralized Mortgage Obligation problem caused by subprime loans. He expects the crisis to include bad loans in consumer credit cards, car loans and student loans, as well as commercial loans that have been packaged into securities sold as assets to banks and brokerage firms.

Roubini estimated the bad asset crisis would amount to $3.6 trillion, about half of which he believes will be held by U.S. banks and brokerage firms.

Roubini called on the Obama administration to employ the "Swedish solution," in which the U.S. government would nationalize troubled banks, not just investing bailout cash but also taking over and giving management control to U.S. government bureaucrats.

Read the book that 15 years ago predicted today's bailout mania.

Roubini, a frequent guest on financial cable news shows, is known as "Dr. Doom" for his typically gloomy but often accurate forecasts.

In the early 1990s, Sweden nationalized banks but only after the banks had written down their own troubled losses.

Economists Christopher Wood argued in an influential Financial Times op-ed piece that the U.S. Troubled Assets Relief Program, or TARP, has failed to follow the Swedish model, in that the U.S. government has poured $700 billion of bailout into banks and brokerage firms without requiring the banks first to write down their bad assets and without the government taking majority control.

Joseph Stiglitz, a Colombia University professor and 2001 Nobel economics laureate who advised the incoming Obama administration during the transition, echoed Roubini's concerns in a CNBC interview from the Davos conference.

Stiglitz fears the U.S. Treasury and the Federal Reserve have used TARP funds to overpay for bad assets.

"The private sector would not touch these bad assets with a 10-foot pole," Stiglitz said. "It's not clear we have here a good deal for the taxpayers."

Arguing that "taxpayers have provided capital but have received no control," Stiglitz also contended the U.S. government should begin nationalizing the banks under the Swedish plan in which the private owners of the banks would first take the losses for bad assets, and the government would nationalize the banks at a much lower share price.

Stiglitz reasoned economic incentives dictated that private bank managers – if left in place after injecting TARP funds without government control – would "have incentives to pay themselves bonuses, to pay shareholders dividends and to use bailout funds to make acquisitions."

"We need to run these banks for our interest," Stiglitz said, arguing the Obama administration should move to nationalize banks.

"The government could not do worse than the banks themselves have done," he observed, insisting TARP bailouts made no sense unless the government ended up controlling the banks.

"You can call it 'conserving the banks,' if you want to use a nice term," Stiglitz said.

"But right now the government is paying too much for bad bank assets and ending up with no real control," he said. "It's not clear it's a good deal for the taxpayers."

The Crisis Deepens

by Gary Kah

(Gary Kah - Editor of Hope for the World Update, is a former government trade specialist and the best-selling author of En Route to Global Occupation and The New World Religion. Gary has appeared on over 1,000 talk shows since the release of his books. He has also been a featured speaker at hundreds of conventions, churches, universities and community gatherings in the US, Canada, Europe, Israel and India. Gary has been married for 27 years and is the father of four.)

As the new year continues to unfold, several items will be dominating the headlines. A downward spiraling economy, war and the pursuit of Mideast peace, the push for religious unity and issues of climate change will be nightly themes on the major networks - along with the Obama Administration's handling of these matters. At this point, one thing is all but certain: 2009 will be a year of increasing instability and crisis.

Our newly sworn in President will initially receive a great deal of support from the media, as he did throughout his campaign. However, the favor of like-minded liberals alone will not be enough to overcome the monumental challenges he faces. As a Christian I will pray for Barack Obama, that he will heed God's warnings and make wise decision in the tumultous days ahead.

Thus far he has not shown the best discernment in his choices. For example, he has appointed mostly pro-world government Washington insiders to his cabinet. They include advocated of bigger government, a socialist agenda, and non-family values.

Among President Obama's closest economic advisors are Timothy Geithner and Paul Volcker. Geithner has been the head of the Federal Reserve Bank of NY and is the Fed's main liaison with Wall Streer; he is Obama's new Treasury Sec'y. Volcker is a former chairman of the Federal Reserve; he is Obama's pick to chair the Economic Recovery Advisory Board and was his top financial advisor during the presidential campaign. Volcker is a staunch globalist and supports the introduction of a one-world currency.

Both men are favorites of the pro-UN Council on Foreign Relations (CFR). In fact, Obama's new cabinet is stacked with members of the CFR and their sister organizations - the Trilateral Commission and the secretive Bilderberg group. Obama, himself, has shared his geopolitical plans in Foreign affairs, the CFR's flagship publication; and his wife, Michelle, is a member of a CFR branch in Chicago. Given these details we should not be surprised if the President responds to crisis events with steps leading us ever closer toward global government.

In my book En Route to Global Occupation, I quoted Rear Admiral Chester Ward, a former member of the CFR. He warned that the one world elite

have one objective in common - they want to bring about the surrender of the sovereignty of the national independence of the United States.
A second clique of international members in the CFR...comprises the Wall Street international bankers and their key agents. Primarily, they want the world banking monopoly from whatever power ends up in the control of global government...

The Deteriorating Financial Situation

If we give President Obama the benefit of the doubt and assume that he is completely naive about the goals of his CFR/TC/Bilderberg advisors and genuinely has the best interests of America's citizens at heart, he will need our fervent prayers to turn this nation's economy around.

Consider these statistics that were released this month (January):

* Appropximately 170 banks are now on the government's list of troubles financial institutions, up from 117 in September. (Source FDIC)

* In 2008, all US car manufacturers saw unprecedented sales declines. Chrysler's vehicle sales were down 30%, General Motors 23%, and Ford 32% from previous year. (Source; Morgan and Co. as quoted in The Indianapolis Star)

* 3,100 retail and wholesale companies are expected to close during the first half of this year. (Source: CNN, 1/2/09) This means that upwards of 50,000 individual outlets could be shutting their doors between now and next summer. This would result in the loss of hundreds of thousands of additional jobs.

* 624,000 jobs were lost in the month of December alond; and more jobs were lost in 2008 than in any year since 1945. (Source: Cnn, 1/10/09)

* Based on these figures next month's unemployment rate is expected to soar past 8 percent.

There is another problem; it concerns taxation. As a result of the dramatic rise in unemployment the US Government is taking in less and less tax revenue. The government's tax base will dwindle further not only because of fewer jobs and a slumping GDP, but also due to the colossal amount of this year's tax write-offs resulting from last year's business and investment losses. This will lead to an extimated record $1.2 trillion federal deficit for 2009.

On January th CNBC posed the question, "Wat do we do if the government goes broke?" They acknowledged that we would be in serious trouble very quickly if China suddenly stopped loaning us money because they think we've become an unsafe risk.

Cont'd...

The Crisis Deepens

Cont'd...

Foreign Acquisitions

Tge fact is foreign powers are increasingly in the driver's seat when it comes to our economic future. Not only is our government dependent on their money to stay afloat, but they are buying up our companies at a record pace. According to a watchdog group called Economy in Crisis (EIC), which tracks foreign buy-outs of US firms, foreign groups are purchasing an average of $201 million worth of US companies PER DAY. This daily average has been climbin steadily in recent years. As early as the 1980s US industries were beginning to succumb to foreign interest. By 2000 America was already in a crisis, but most Americans didn't know it.

The following data, released by the IRS, indicates what percentage of key US industries are owned by foreing entities. (Note: This information is based on 2002 figures - the last year for which industry-wide statistics are available. Imagine what the numbers would be today, seven years later!)

Sound recording industries ----- 97%
Commodity contracts dealing and brokerage ----- 79%
Motion picture and sound recording industries ----- 75%
Metal ore mining ----- 65%
Database, directory, and other publishers ----- 63%
Book publishers ----- 63%
Engine, turbine and power transmission equipment ----- 57%
Plastics and rubber products manufacturing ----- 52%
Glass and glass products ----- 48%
Coal mining ----- 48%
Sugar and confectionery products ----- 48%
Pharmaceutical and medicine ----- 40%
Securities brokerage ----- 38%
Chemical manufacturing ----- 30%
Industrial machinery ----- 30%
Securities, commodity contracts, and other financial investments and related activities ----- 30%
Motor vehicles and parts ----- 29%
Machinery manufacturing ----- 28%
Credit card issuing and other consumer credit ----- 26%
Petroleum refineries (including integrated) ----- 25%
Transportation equipment manufacturing ----- 25%
Semiconductor and other electronic components ----- 23%

*This is only a partial list. for a complete list of foreign-owned industry percentages, go to economyincrisis.org

To get a more current picture let's consideer some recent corporate statistics. As of July 2008 the following numbers of US companies had been acquired by foreign entities (listed according to industry):

Oil and gas; petroleum refining ----- 584
Telecommunications ----- 257
Drugs ----- 429
Business services ----- 2,413
Insurance ----- 371
Electric, gas, and water distribution ----- 211
Food and kindred products ----- 476
Investment and commodity firms, dealers and exchanges ----- 510
Electronic and electrical equipment ----- 675
Commercial banks, bank holding companies ----- 152
chemicals and allied products ----- 597
Metal and metal products ----- 553
Printing, publishing, and allied services ----- 546
Measuring, medical, photo equipment; clocks ----- 685
Transportation equipment ----- 168
Prepackaged software ----- 1,133
Real estate; mortgage bankers and brokers ----- 396
Communications equipment ----- 242
Mining ----- 337
Machinery ----- 68

Most of these industries are vital to maintaining our national independence and freedom as a people. clearly, much of the ability to determine our own future has already been lost - mainly to European interests which have done most of the acquiring so far. It would only be fait to point out, however, that American multinational firms have made their share of acquisitions abroad. The fact is the entire world is being internationalized, and countries are losing their national sovereignty to economic powers that are politically motivated and dedicated to the cause of globalization.

Where Do We Go From Here?

Unlike previous global financial crises, this time the US stands to lose the most. Since it is viewed as the primary perpetrator of the still-unfilding crisis, it will be expected to give up the most "to make things right." Europe's leaders have made clear they expect the US to convorm to their wishes. In November, just days before the G20 Summit in Washington, Europe's top officials met in Brussels to lay down the law. At that time they gave America a 100-day deadline (roughly, until the end of February) to agree to their plans. "We will be defending a common position, a vision...for reforming our financial system," they announced. (Quoted from a joint statement by Europe's leaders in early Nov. 2008 at an emergency meeting in Brussels, Irwin Steizer, "We don't want another Bretton Woods," Telegraph.co.uk, 11.12.08.)

Britain's Prime Minister Gordon Brown is publicly spearheading the call for international reforms. In his annual speech at the Lord Mayor's Banquet on November 10th, Brown remarked, "If we learn from our experience of turning unity of purpose into unity of action, we can together seize this moment of change in our world to create a truly global society." To hammer this point home he restated his position..

My message is that we must be: internationalist not protectionist; interventionist not neutral; progressive not reactive; and forward looking not frozen by events. We can seize the moment and in doing so build a truly global society.

As part of Brown's proposal for a new world order he has called for major reform of the global financial system, including a global trade agreement and an expanded role for the 185-nation International Monetary Fund (IMF). Backing him are France and Germany who are specifically pushing form the IMF to become a global supervisor of regulators - "the pivot of a renewed international system" as they call it. (As part of this reorganization the EU team is determined to substitute the European model of capitalism for the less heavily regulated American version, which has been a long-time goal of the French. )

On October 12th The Washington Times had reported that a major shake-up of the IMF should be expected:

With China and other Asian markets supplying much of the liquidity that keeps the US economy afloat, analysts say, the economic meltdown could signal a rearrangement of the pecking order at institutions like the IMF and World Bank that has been largely unchanged since the end of World War II.

Robert B. Zoellick, the American head of the World Bank, argued explicitly last week for a larger "steering group" of countries to replace the long dominance of Western industrial powers at the World Bank and the IMF.
"The G7 is not working," he said. "We need a better group for a better time."

That same week US Treasury Secretary Hank Paulson gave a clear signal of the "new pecking order" on the sidelines of the annual World Bank and IMF meetings in Washington.

With world financial markets reeling, Mr. Paulson said, he was following up an emergency meeeting...of finance ministers from the traditional Group of Seven industrial powers - Britain, France, Canada, Germany, Japan, Italy and the US - with a larger gathering...of the so-called Group of 20, which includes China, India, Russia and Brazil.

On November 3rd Newsweek gave a not-so-subtle hint of where all these changes are leading us. The title of the article said it all - "We Need a Bank of the World: The financial crisis is global, and only an international central bank can deal with it." The author, Jeffrey E. Garten, who is a professor of international trade and finance at Yale University, specified:

The IMF could continue to exist, but its board would have to be restructured, its bailout role for smaller nations carefully defined, and its directions-including the severity of the conditions it imposes on borrowers-would have to come from the new central bank.

To give it legitimacy, a global central bank would have to be governed in light of political realities. That means that its board would include not only the top financial officials of the US, the UK, the euro zone and Japan, but also China, Saudi Arabia, Brazil, South Africa and perhaps a few others.

Cont'd...

Cont'd...

Garten went to make his case:

It would be hard to overestimate the political pushback that any official propasal for a global central bank would draw from various constituencies, most especially within the US. Among their many charges, critics will protest the establishment of "world government." But we have a World Trade Organization with legally binding powers over trade disputes. We have a World Health Organization for communicable disease with the ability to quarantine entire countries. And a World Court functions today that has considerable legal and moral clout.

It is true, most of the elements for world government are already in place. The only thing lacking has been a world crisis (or crises) to make it all gel. If global problems demand global solutions - as we've been conditioned to believe for the past few decades - then global financial crisis, a "global war on terror" and the much-feared effects of "global warming" give us three good reasons to capitulate, right?

Political columnist Gideon Rachman, writing for Financial Times on December 8th, summarized, "The financial crisis and climate change are pushing national governments towards global solutions, even in countries such as China and the US that are traditionally fierce guardians of national sovereignty."

America's Next Move

At the moment it appears that the new Obama Administration is planning to fall in line and adhere to many of the Internationalist's demands. The fact that President Obama attaches great importance to matters of global governance, including the United Nations, is demonstrated by his appointment of Susan Rice, one of his closest aides, as America's ambassador to the UN. He has also given her a seat in his cabinet.

Gideon Rachman comments:

A taste of the ideas doing the rounds in Obama circles is offered by a recent report from the managing Global Insecurity (MGI) project, whose small US advisory group includes John Podesta, the man heading Mr. Obama's transition team and Strobe Talbott, the president of the Brookings Institution, from which Ms. Rice has just emerged.

The MGI report argues for the creation of a UN high commissioner for counter-terrorist activity, a legally binding climate-change agreement negotiated under the auspices of the UN and the creation of a 50,000-strong UN peacekeeping force. Once countries had pledged troops to this reserve army, the UN would have first call upon them.

These are the kind of ideas that get people reaching for their rifles in America's talk-radio heartland. Aware of the political sensitivity of its ideas, the MGI report opts for sooting language. It emphasizes the need for American leadership and uses the term, "responsible sovereignty" - when calling for international co-operation - rather than the more radical-sounding phrase favoured in Europe, "shared sovereignty". It also talks about "global governance" rather than world government."

The plan to force America into the new world order appears to be well thought out. So, what happens if Obama doesn't move swiftly enough and fails to comply with Europe's demands by the end of February? Here is a potential scenario of what could result.

*Europe and its global allies could tighten the screws by ceasing to loan money to the US.

*This would probably force the US Government into bankruptcy within 3-6 months.

*Our companies would become even more vulnerable to foreign takeovers as the US Dollar plunges.

*Our economy would completely crash and unemployment would soar to levels not seen since the Great Depression. Unrest and lawlessness would begin to spread as people lose jobs and become desperate.

*Blame for our desperate situation would be directed first at Jews, then Christians - seen as the main obstacles to world peace and financial stability.

*At our weakest moment, an apparently viable solution would be proposed that promises to keep things from getting worse and to restore peace and stability.

*This is when a new currency and a regional economic/political arrangement might be introduced. They would be part of a broader global arrangement - a new world order- with a new kind of leadership that is loyal to its ideals of a one-world government, economy and religious system.

Cont'd...

Amen blackeyedpeas!

Very interesting information I find useful to have in order to keep watchful eyes and ears for what the Word of God said is coming. Of course, no one can know the full extent or timing of what will happen, but I do find the articles of people more educated than I to be quite interesting. It is a very bumpy time right now, so the ability to have my eyes opened more can only help my family and I to keep looking up - knowing all is in HIS Mighty Hand!!

Here's the rest of the article:

Resistance to such a new order has been mounting among conservatives. For example, Conservative Caucus Chairman Howard Phillips, World Net Daily columnist Jerome Corsi, and activist Phyllis Schlafly are among those who have formed a coalition against the proposed amero currency. Some members of Congress are also taking a stand. On January 22, 2007, Virgil Goode of Virginia, Walter Jones of North Carolina, Ron Paul of Texas, and Tom Tancredo of Colorado were among 43 members of the House of Representatives who introduced H.Con. Res. 40, a resolution that expressed:

The sense of Congress that the US should not engage in the construction of a North American Free Trade Agreement (NAFTA) Superhighway System or enter into a North American Union (NAU) with Mexico or Canada.

While these noble men and women have drawn attention to the plans of the global elite, they have been unable to significantly slow their progress. We saw what happened, and is still happening, to Sarah Palin - a solid Christian candidate who is staunchly opposed to the new world order. The internationalist media did everything in their power to destroy her, while flagrantly promoting Obama in every creative way possible. Due in part to the growing international crises, the momentum and money are increasingly on the side of the globalists and their propaganda machine. Unfortunately, I do not see this trend changing. Those who understand what is about to happen and are trying to sound the alarm are in a small minority. Only those who are genuine seekers of the truth realize the gravity of this moment and are warning their loved ones to get prepared.

The Obama Factor

There are additional questions that need to be asked. They center on the person of Barack Obama. Why is it that this left-leaning, largely interfaith media have been so willing to passionately endorse him? And why is it that so many leaders from Europe, Africa, and elsewhere have referred to him as President of the World, the savior, or the new messiah? Nover before have so many messianic terms been used by so many to describe an American political candidate. Beginning with Oprah Winfrey, every celebrity New Ager has thrown their weight behind Barack Obama with a seemingly religious fervor. Shouldn't we be wondering why they are supporting him in this fashion?

Perhaps Barack Obama is viewed by new age occultists, interfaith leaders, and political/economic globalists as being "The One" who can finally deliver America into the new world order. This is likely to be the case...This would be a good time for all of mankind to remember the admonitions of Psalm 146:3-4:

"Do not put your trust in princes, in mortal men, who cannot save. When their spirit departs, they return to the ground; on that very day their plans come to nothing."

Conclusion

The next few years promise to be a difficult period in our nation's history. Regardless of what happens in the US -- or the rest of the world -- this is the time for Christians everywhere to step up and let their light shine. The time for openly and freely sharing the love and truth of Christ, I believe, is short. We must make the most of every opportunity.

As Christians we must build the foundation of our lives on the solid rock that is Jesus Christ; not on the sinking sand of this world's hollow philosophies and vain pursuits. Our goal should be to live productive and victorious lives for our King in spite of difficult circumstances. He has given us His power and spirit, enabling us to stand firm for Him. We must live our lives on this earth as overcomers, as we look forward to His return and an incredible eternity with Him.

Jesus promised that He will never leave us or forsake us (Hebrews 13:5) and that He will be with us to the very end of the age. (Matthew 28:20) He meant these words. In the days to come, may we never forget the Lord's promises. Let us always be praising God for His goodness, His grace and forgiving love as together we boldly face the challenges before us.

Stocks reject Obama's plans
Dow drops nearly 400 as bill passes, Geithner speaks

The Dow Jones Industrial Average dropped nearly 400 points today, closing below 8,000 in a sharp rebuke of Obama administration economics.

The market dropped nearly 200 points while Treasury Secretary Timothy Geithner presented on live television the administration's revamped bank rescue plan.

The Dow dropped further on news that the Senate passed the president's massive $838 billion deficit-spending economic stimulus plan in a 61 to 37 vote that included only three Republicans, Sen. Arlen Specter of Pennsylvania, and Sens. Olympia Snowe and Susan Collins of Maine.

Investors expected Geithner to explain how the second $350 billion in congressionally approved TARP funds would be spent.

Instead, Geithner suggested the Federal Reserve and Treasury were considering making trillions available to handle the financial crisis, without clearly specifying where the money would come from.

Investors appeared to react negatively at the vagueness of Geithner's plans, as well as his disclosure that the Federal Reserve and Treasury were planning to use as much as $1.5 trillion more, either to bail out troubled banks with more cash infusions or to buy toxic assets from the portfolios of troubled financial institutions.

Geithner also suggested Treasury would create another separate $500 billion fund to buy up toxic financial institution assets in a "good bank/bad bank" structure, while opening up another $1 trillion to reopen credit markets for consumers, including auto buyers, students, small businesses and commercial loans.

Throughout the trading day, rumors circulated that the Obama administration was creating Federal Reserve and Treasury obligations that could total as much as $9 trillion to resolve the toxic asset problem with banks and brokerage firms.

Fox News reported the National Republican Trust PAC put out a statement today claiming it would provide financial support for primary challengers to Sens. Specter, Snowe and Collins in retaliation for their breaking ranks and voting for the Obama economic stimulus plan.

"Republican Senators are on notice," the group's director Scott Wheeler said in a statement reported by Fox News. "If they support the stimulus package we will make sure every voter in their state knows how they tried to further bankrupt voters in an already bad economy."

After the Senate vote, Senate Minority Leader Mitch McConnell told reporters the Obama economic stimulus plan would cause government spending as a percentage of gross domestic product, or GDP, to rise from approximately 21 percent last year, to nearly 40 percent in 2010, levels comparable to Europe.

"The president was right to call for a stimulus," McConnell told the Washington Post, "but this bill misses the mark."

"It's full of waste," McConnell said. "We have no assurance it will create jobs or revive the economy. The only thing we know for sure is that it increases our debt and locks in bigger and bigger interest payments every single year. In short, we're taking an enormous risk – an enormous risk – with other people's money. On behalf of taxpayers, I won't take that risk."

WND has reported that the Obama administration plans to issue record levels of debt in the next two years – up to $2.5 trillion this year and as much as $4 trillion in 2010.

More and more, it appears that we have the perfect leader to help usher in the Tribulation Period! As Christians, we can take a stand against evil, Pray for Strength and Guidance - and STAND SOME MORE UNTIL CHRIST COMES TO TAKE US HOME! FOREMOST - WE HAVE A PRECIOUS GIFT TO SHARE - THE GOSPEL OF THE GRACE OF GOD! THIS IS STILL THE MOST POWERFUL MESSAGE ON THE FACE OF THE EARTH, AND WE SHOULD PROCLAIM IT!

1 Thessalonians 4:13-18 NASB 13 But we do not want you to be uninformed, brethren, about those who are asleep, so that you will not grieve as do the rest who have no hope. 14 For if we believe that Jesus died and rose again, even so God will bring with Him those who have fallen asleep in Jesus. 15 For this we say to you by the word of the Lord, that we who are alive and remain until the coming of the Lord, will not precede those who have fallen asleep. 16 For the Lord Himself will descend from heaven with a shout, with the voice of the archangel and with the trumpet of God, and the dead in Christ will rise first. 17 Then we who are alive and remain will be caught up together with them in the clouds to meet the Lord in the air, and so we shall always be with the Lord. 18 Therefore comfort one another with these words.

1 Corinthians 15:50-58 NASB 50 Now I say this, brethren, that flesh and blood cannot inherit the kingdom of God; nor does the perishable inherit the imperishable. 51 Behold, I tell you a mystery; we will not all sleep, but we will all be changed, 52 in a moment, in the twinkling of an eye, at the last trumpet; for the trumpet will sound, and the dead will be raised imperishable, and we will be changed. 53 For this perishable must put on the imperishable, and this mortal must put on immortality. 54 But when this perishable will have put on the imperishable, and this mortal will have put on immortality, then will come about the saying that is written, "DEATH IS SWALLOWED UP in victory. 55 "O DEATH, WHERE IS YOUR VICTORY? O DEATH, WHERE IS YOUR STING?" 56 The sting of death is sin, and the power of sin is the law; 57 but thanks be to God, who gives us the victory through our Lord Jesus Christ. 58 Therefore, my beloved brethren, be steadfast, immovable, always abounding in the work of the Lord, knowing that your toil is not in vain in the Lord.

Federal obligations
exceed world GDP
Does $65.5 trillion
terrify anyone yet?

As the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.

The total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, effectively have placed the U.S. government in bankruptcy, even before new continuing social welfare obligation embedded in the massive spending plan are taken into account.

The real 2008 federal budget deficit was $5.1 trillion, not the $455 billion previously reported by the Congressional Budget Office, according to the "2008 Financial Report of the United States Government" as released by the U.S. Department of Treasury.

The difference between the $455 billion "official" budget deficit numbers and the $5.1 trillion budget deficit cited by "2008 Financial Report of the United States Government" is that the official budget deficit is calculated on a cash basis, where all tax receipts, including Social Security tax receipts, are used to pay government liabilities as they occur.

(Story continues below)

But the numbers in the 2008 report are calculated on a GAAP basis ("Generally Accepted Accounting Practices") that include year-for-year changes in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare.

Under cash accounting, the government makes no provision for future Social Security and Medicare benefits in the year in which those benefits accrue.

"As bad as 2008 was, the $455 billion budget deficit on a cash basis and the $5.1 trillion federal budget deficit on a GAAP accounting basis does not reflect any significant money [from] the financial bailout or Troubled Asset Relief Program, or TARP, which was approved after the close of the fiscal year," economist John Williams, who publishes the Internet website Shadow Government Statistics, told WND.

Find out what's behind the chaos at the White House, in the No. 1 best-seller "Obama Nation"

"The Congressional Budget Office estimated the fiscal year 2009 budget deficit as being $1.2 trillion on a cash basis and that was before taking into consideration the full costs of the war in Iraq and Afghanistan, before the cost of the Obama nearly $800 billion economic stimulus plan, or the cost of the second $350 billion in TARP funds, as well as all current bailouts being contemplated by the U.S. Treasury and Federal Reserve," he said.

"The federal government's deficit is hemorrhaging at a pace which threatens the viability of the financial system," Williams added. "The popularly reported 2009 [deficit] will clearly exceed $2 trillion on a cash basis and that full amount has to be funded by Treasury borrowing.

"It's not likely this will happen without the Federal Reserve acting as lender of last resort for the Treasury by buying Treasury debt and monetizing the debt," he said.

"Monetizing the debt" is a term used to signify that the Federal Reserve will be required simply to print cash to meet the Treasury debt obligations, acting in this capacity only because the Treasury cannot sell the huge of amount debt elsewhere.

The Treasury has been largely dependent upon foreign buyers, principally China and Japan and other major holders of U.S. dollar foreign exchange reserves, including OPEC buyers purchasing U.S. debt through London.

"The appetite of foreign buyers to purchase continued trillions of U.S. debt has become more questionable as the world has witnessed the rapid deterioration of the U.S. fiscal condition in the current financial crisis," Williams noted.

(http://worldnetdaily.com/images/misc/deficittwo.jpg)

"Truthfully," Williams pointed out, "there is no Social Security 'lock-box.' There are no funds held in reserve today for Social Security and Medicare obligations that are earned each year. It's only a matter of time until the public realizes that the government is truly bankrupt and no taxes are being held in reserve to pay in the future the Social Security and Medicare benefits taxpayers are earning today."

Calculations from the "2008 Financial Report of the United States Government" also show that the GAAP negative net worth of the federal government has increased to $59.3 trillion while the total federal obligations under GAAP accounting now total $65.5 trillion.

The $65.5 trillion total federal obligations under GAAP accounting not only now exceed four times the U.S. gross domestic product, or GDP, the $65.5 trillion deficit exceeds total world GDP.

"In the seven years of GAAP reporting, we have seen an annual average deficit in excess of $4 trillion, which could not be possibly covered by any form of taxation," Williams argued.

"Shy of the government severely slashing social welfare programs, federal deficits of this magnitude are beyond any hope of containment, government or otherwise," he said.

"Put simply, there is no way the government can possibly pay for the level of social welfare benefits the federal government has promised unless the government simply prints cash and debases the currency, which the government will increasingly be doing this year," Williams said, explaining in more detail why he feels the government is now in the process of monetizing the federal debt.

"Social Security and Medicare must be shown as liabilities on the federal balance sheet in the year they accrue according to GAAP accounting," Williams argues. "To do otherwise is irresponsible, nothing more than an attempt to hide the painful truth from the American public. The public has a right to know just how bad off the federal government budget deficit situation really is, especially since the situation is rapidly spinning out of control.

"The federal government is bankrupt," Williams told WND. "In a post-Enron world, if the federal government were a corporation such as General Motors, the president and senior Treasury officers would be in federal penitentiary."

Trillions? Get ready for quadrillion
Debt clock in NYC modified to handle incomprehensible growth

The Obama administration economic stimulus package is going to force the Treasury to borrow approximately $2.5 trillion in 2009 and another $4 trillion in 2010, with the result of increasing the current $10 trillion national debt by 65 percent in just two years.

If the Obama administration increases the national debt by 65 percent every two years, the debt will be $16.5 trillion in 2010 and $27.225 trillion by 2012, the year of the next presidential election.

To answer the question of how big a problem borrowing $6.5 trillion will be over the next two years, we decided to examine just how large 1 trillion actually is.

One trillion is the number 1 followed by 12 zeroes, as in: 1,000,000,000,000.

If you had gone into business on the day Jesus was born, and your business lost a million dollars a day, 365 days a year, it would take you until October 2737 to lose $1 trillion.

If you spent $1 million a day, every day since Jesus was born, you would still be only slightly more that three-quarters of the way to spending $1 trillion.

One trillion dollars divided by 300 million Americans comes out to $3,333 per person.

One trillion one-dollar bills stacked one on top of the other would reach nearly 68,000 miles into the sky, about a third of the way from the Earth to the moon.

Earth's home galaxy, the Milky Way, is estimated to contain about 200 billion stars. So, if each star cost one dollar, one trillion dollars would buy five Milky Way galaxies full of stars.

One trillion seconds of ordinary clock time equals 31,546 years. So, spending money at the rate of one dollar every second, or $86,400 every day, would still take nearly 32,000 years to spend $1 trillion.

If someone were to build city blocks that contained 10 homes valued at $100,000 per home, you would end up with ten houses to a block, ten blocks to a mile and a hundred blocks per square mile. It would take 10,000 square miles to reach $1 trillion in value. This would be more than the size of six U.S. states: Vermont, 9,615 square miles; New Hampshire, 9,351 square miles; New Jersey, 8,722 square miles; Connecticut, 5,544 square miles; Delaware, 1,954 square miles; and Rhode Island, 1,545 square miles.

Craig Smith, founder and CEO of Swiss America, estimates it would take approximately four generations of Americans to pay off the interest of the U.S. Treasury bonds sold as debt to create the $1 trillion stimulus package, factoring in a 3 percent growth rate in the economy throughout that time.

The U.S. national debt now exceeds $10 trillion according to the according to the U.S. National Debt Clock, at Times Square in New York City.

With the estimated population of the United States at 305,556,415 people, each citizen's share of the national debt is $34,769.40.

In September 2008, the digital display on the Times Square National Debt Clock was modified to eliminate the dollar sign, so the national debt in tens of trillions of dollars could be displayed.

The clock, created in 1989 by Manhattan real estate developer Seymour Durst, is now being redesigned so it can display the national debt in numbers measured in the hundreds of millions, with a dollar sign that could be eliminated should the national debt ever reach $1 quadrillion.

The new clock should be ready to install early this year.

The Bush administration added more than $4 trillion to the national debt, increasing it more than 70 percent from the time George W. Bush took office Jan. 20, 2001.

Yet trillions may no longer be enough to measure important financial statistics on a global basis.

The Bank of International Settlements now estimates that derivatives, the complex bets financial institutions and sophisticated investors make with one another on everything from commodities options to credit swaps, now top $650 trillion worldwide – that’s $ 0.65 quadrillion.

A quadrillion, a trillion multiplied by 1,000, is a 1 followed by 15 zeroes, as in: 1,000,000,000,000,000. <

Pastor Roger, that really puts things into perspective, thank you!

I thought this was a very interesting article. Could it that this very situation was shown to us, maybe a type or shadow of what was to come, in the Joseph narratives of Genesis? Extremely interesting similarities:

The Joseph Principle and Crisis Economics

by Carl Teichrib

Confusion reigns. Economic bewilderment appears to be the hallmark of our times. Banks don't seem to know what to do; politicians offer stimulus packages that don't stimulate; and everywhere financial planners and advisors proclaim that "it will get better" while each passintg week gets worse.

At the gut level everyone knows that if the markets completely unravel, if currencies shatter in the confusion, a brutal monster - Chaos - will appear from under the bed and run rampant while the financial house burns. Watching the markets and thinking through the possibilities,...this phrase comes into mind...Ordo ab Chao is a Latin phrase and the motto of the Thirty Third Degree of Freemasonry. It means, "Order out of Chaos." This expression portrays a simple message. Out of the chaos of extreme crisis comes a time when everything is re-made, and order is restored. But you must understand; just because order has been established, it doesn't mean that the world is the same as it was before the catastrophe. It won't be; it can't be. Eventually organization returns to your life. However, you also know that your world has been changed forever; it's not as it was before that fateful day.

...In Genesis 47, Joseph, second in command to Egypt's Pharoah and warned of a coming famine, had prepared stockpiles of grain to aid the people through the crisis. when the famine hit the land, the people came to Joseph to buy food stock. A simple transaction was made; the citizens used the national currency to purchase grain.

In vs 14 and 15 we find an unusual development. After the grain was purchased ...(KJV) "the money failed". The New Int'l Version says that the "money is used up." Egypt experienced monetary deflation - the contraction of the money supply - in the midst of a natural calamity. Taken to its extreme end, as happened in Egypt, the result was a collapse in the currency. After going into government coffers it ceased to exist as a tangible tool of daily trade.

Needing to eat, what did the citizens do? They brought their livestock in exchange for grain (vs 16-17). As an agrarian society, livestock represented the industrial base of the people. Hence, placing this power in the hands of the government, the people's commercial activity was effectively curtailed.

In relating this series of events to others. some have asked me, "Why didn't the people just eat the animals instead of trading them for grain?" Refrigeration didn't exist. And while the people could have dried some of the meat for long-term use, grain would have been the most valuable and stable food source during a drought. Now the people had neither money nor livestock; and a year later they were out of food.

Returning to Joseph, ...the people begged their leader to take their land and themselves in exchange for food (vs 18-19). Property was therefore consolidated under the state, and the citizens literally became slaves in their own country (vs 20-21). In the KJV the language goes even further: ...the rural areas are de-populated and the people move into cities. This is a masterful population control strategy...the people became economic assets. They gladly relinquished control of their wealth, property, and themselves (gave up their freedom) for the promise of state-dictated security.

The manipulation of money is, arguably, the most potent method used outside of war to rapidly rearrange society. Am I suggesting that our current economic crisis will be used as leverage to re-structure our Western world? The odds are in favor of it. Consider what the father of modern economics, John Maynard Keynes, had to say in 1919.

"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency." - John Maynard Keynes, The Economic Consequences of the Peace, (1919), p. 236.

Three other quotes come to mind;

"The great struggle of history has been for the control over money. It is almost tautological to affirm that to control the production and distribution of money is to control the wealth, resources, and people of the world." - Jack Weatherford, The History of Money (Crown Publishers, 1997) p. 246.

"The control of money and credit strikes at the very heart of national sovereignty." - A W Clausen (then president of Bank of America), in a 1979 interview with the Freeman Digest, "International Banking," p 21.

"...new comprehensive politico-economic systems across peoples almost always arise out of conquest or common crisis..." - A W Calusen, Freeman Digest, "International Banking," p. 23.

A Rising Phoenix for a New DEY

On January 9, 1988, The Ecomonist published a cover story about a proposed int'l currency called the Phoenix. Like the mythical firebird that arises out of the ashes of destruction, this int'l currency would likewise emerge from the chaos of crisis. As the article noted, it would take "several more big exchange-rate upsets, a few more stockmarket crashes and probably a slump or two" before politicians would accept the Phoenix and secede monetary power to a higher authority. The Economist even suggested a start-up date: 2018.

Looking to curb government-led monetary mis-management, a problem that seems to plague every nation-state, the article suggested a radical re-arrangement: Country-level decision making would have to disappear under a world central bank and its new global currency.

...More recently, Robert Mundell - the "father of the euro" - has been traveling around the world lecturing on the hoped-for creation of a new international currency called the DEY, a combination of the US dollar, euro, and yen. Crisis, Mundell realized, will open this door. He stated, "International monetary reform usually becomes possible only in response to a felt need and a threat of a global crisis."

And Benn Steil, the Director of International Economics at the Council on Foreign Relations, suggested a re-making of the world's financial system around three key currencies - the US dollar, euro, and a new Asian monetary unit. Steil implies that the hinge-point for this development would be a major shake-up involving the US dollar.

Today, during every news hour, we hear more talk of the global financial emergency, an ongoing event that isn't going away. Therefore, it shouldn't be a suprise to learn that some world leaders are actively promoting a new global order as a response to the current crisis.

Amen, blackeyedpeas!!

Here's more world chaos:

The Wall Street Journal

Opinion, February 17, 2009

Japan's Downturn Is Bad News for the World

The US can't count on Japanese savers

by Michael Auslin

As Hillary Clinton visits Tokyo for her first trip as secretary of state, she will find a country in the midst of its worst recession in 50 years. Japan's economy is contracting across the board: Exports have cratered, industrial production is on track to plummet 30% from a year ago, and the Japanese government projects that GDP will drop 12% from last year. The world's second largest economy, Japan is also the largest holder of US Treasury bonds.

Recently, many economists and scholars in the US have been looking backward to Japan's banking disaster of the 1990's, hoping to learn lessons for America's current crisis. Instead, they should be looking ahead to what might occur if Japan goes into a full-fledged depression.

If Japan's economy collapses, supply chains across the globe will be affected and numerous economies will face severe disruptions, most notably China's. China is currently Japan's largest import provider, and the Japanese slowdown is creating tremendous pressure on Chinese factories. Just last week, the Chinese government announced that 20 million rural migrants had lost their jobs.

Closer to home, Japan may also start running out of surplus cash, which it has used to purchase US securities for years. For the first time in a generation, Tokyo is running trade deficits -- five months in a row so far.

The political and social fallout from a Japanese depression also would be devastating. In the face of economic instability, other Asian nations may feel forced to turn to more centralized -- even authoritarian -- control to try to limit the damage. Free-trade agreements may be rolled back and political freedom curtailed. Social stability in emerging, middle-class societies will be severely tested, and newly democratized states may find it impossible to maintain power. Progress toward a more open, integrated Asia is at risk, with the potential for increased political tension in the world's most heavily armed region.

This is the backdrop upon which the US government is set to expand the national debt by a trillion dollars or more. Without massive debt purchases by Japan and China, the US may not be able to finance the cost of the stimulus package, creating a trapdoor under the US economy.

So far, Japan's politicians have been unable to find a way out of this mess. while another $53 billion stimulus package works its way through parliament, fully one-third of Japan's prefectures have instituted emergency economic stabilization measures.

But the big issues eclude short-term solutions. Through Japan's leaders are currently cutting back on military expenditures and domestic services, they're unable to agree on budgets or reform plans. They have no strategic road map for reining in the yen, opening up to international competition, or taking an economic leadership role in Asia that will promote growth and strengthen democratic, market-oriented societies.

Things don't have to turn out this way. If Japan's leaders can craft a monetary policy that ends Japan's deflationary spiral by carefully expanding the money supply, recommit to structural reform, and halt the yen's rise, they can jump-start economic growth. They should also ignore the powerful domestic agriculture lobby and embrace a robust free-trade agenda, which would help them as well as the rest of Asia.

Mrs. Clinton's visit cannot be a simple photo opportunity. This trip needs to result in a clear US-Japan approach to restoring confidence and rebuilding a robust and open international system. Without action, Japan and America may go over the cliff together, dragging Asia and the world down with them.

(Mr. Auslin is a resident scholar at the American Enterprise Institute)

And found still more after my husband heard Stuart Varney of FOX say Japan was now in a depression this morning:

Japan plunges into depression

Peter Martin
February 17, 2009 - 9:08AM

Australia's biggest and most reliable customer, Japan, has plunged into depression, with federal Treasurer Wayne Swan now warning of the worst global downturn "in our lifetimes".

-Japan among worst hit
-Businesses forecast losses
-Australian export fears

Japan's economy shrank an annualised 12.7 per cent over the December quarter, its worst result since the 1974 oil shock.

Japan is by far Australia's biggest export customer, accounting for one in every five container ships that leave Australia's shores.

The new figures put it among the worst-hit casualties of the global crisis.

The annualised contraction of 12.7 per cent, or 3.3 per cent in quarterly terms, dwarfs those of the United States and Europe and is much worse than anything that happened to Japan during its so-called "lost decade" of recession in the 1990s.

The collapse in growth fits the profile of a depression -- a deep recession in which annual GDP falls by 10 per cent or more.

Australia's other big customer, China, has had its growth rate almost halved from 13 to 6.8 per cent.

"These figures reveal just how serious the global recession is becoming." Mr Swan said. "They follow on the heels of the worst contraction in the euro area since records began in 1980.

"The last three months of 2008 are likely to have seen the sharpest synchronised downturn in the global economy in our lifetimes.

"It's a sobering backdrop for Australia as we seek to do everything we can to cushion the impact the global downturn will have here." Mr. Swan said.

A 14 per cent collapse in exports in the December quarter led Japan's plunge.

Toyata, Sony and Hitachi are forecasting losses and have begun firing thousands of workers, heightening the risk that a slump in domestic spending will deepen the downturn.

"At one time, it looked like Japan had escaped the brunt of the financial crisis," said Hideo Kumano, chief economist for the Dailchi Life Research Institute. "This shows how feeble Japan's economic fundamentals were in the first place."

Access Economics director Chris Richardson and Japan's plight showed there was "no place for Australia to hide".

"It is true that Japan's statistics are more dodgy and more volatile than those of other large nations, but this fits what know about the reach of the crisis," Mr Richardson said. "It is very big and very nasty."

"It is impossible for Australia to avoid a recession; perhaps not absolutely impossible, but it is incredibly hard for australia to hold against the tide, and the tide pulling us down is getting stronger every day."

"This is confirmation of what's facing us," said ANZ chief economist Saul Eslake. "Japan is a more important and more diversified export market than China.

"Australian GDP per person is already running backwards. What happens over the next few months will determine how bad things get."

The impact of the downturn in Asia was felt in Albury yesterday when 400 workers at cars company Drivetrain Systems International were stood down without pay.

The business was hit hard by last month's collapse of South Korean vehicle manufacturer SsangYong, a major customer.

Finance figures released on Monday suggest that Australians resumed borrowing in December in the wake of a further interest rate cut and the government's $8.7 trillion billion fiscal stimulus hand-outs.

New lending commitments climbed 3.5 percent. All forms of personal lending increased, including a solid 24 per cent lift in loans to buy new cars. But the bulk of the new loans were for refinancing or for ubgone31. Lending remains 27 per cent down over the year.

California lawmakers approve long-awaited budget
Plan includes more than $12 billion in tax increases

Voting at dawn to end a three-month impasse, the California Legislature passed a budget package that addresses the state's massive deficit with billions of dollars in new taxes and program cuts after Democrats and Gov. Arnold Schwarzenegger reached a deal with a GOP holdout.

Sen. Abel Maldonado of Santa Maria provided the final Republican vote needed to pass a spending plan, which includes more than $12 billion in tax hikes. In exchange, Democrats agreed to rewrite election rules that Maldonado said had allowed the Capitol to become paralyzed by partisanship, leading the state to the brink of financial ruin.

The plan came together after midnight, following seven unsuccessful votes held throughout the day and into the night in the Capitol, which Senate President Pro Tem Darrell Steinberg (D-Sacramento) had locked down Tuesday, barring senators from leaving. California's financial state had deteriorated to the point where Schwarzenegger ordered layoffs of 10,000 state workers and the suspension of hundreds of public-works projects. Early income-tax refunds have been delayed, and public anger has grown.

"I'm very relieved for the people of California," Steinberg said. "There's not a lot of good news to come out of a $41-billion budget deficit, except that we in fact solved it."

The final plan includes most of the framework of the original budget compromise from Democratic and Republican leaders. There are billions of dollars in cuts to schools, healthcare institutions, higher education and programs for the poor. If signed by Schwarzenegger, who helped devise the package, it also would raise personal income taxes and the state sales tax, although a 12-cent-per-gallon increase in gasoline taxes was eliminated in the final hours. The gas tax would be replaced with federal economic stimulus money.

"This is a very difficult budget, but we have turned this crisis into an opportunity to make real, lasting reforms for California," Schwarzenegger said in a statement. He has long been a proponent of the election-law changes included in the final package. "Some special interests may not like this budget -- but like I always say, what's good for the people is not always good for special interests."

Schwarzenegger, who was initially swept into office as an anti-tax crusader, has come under attack from other Republicans for embracing tax hikes to solve the state's fiscal crisis. But despite intense lobbying by the governor, Senate Republicans had continued to hold out.

Soon after the spending plan passed, Schwarzenegger stepped outside his office and dismantled a debt clock he had installed that displayed how much money the state was losing each day the state failed to take action on the deficit.

Democrats initially said Maldonado's call for "open" primaries, in which voters could cross party lines and candidates of all parties would compete in the same primary, followed by a runoff of the top two vote-getters, was too substantial to be pushed through in a budget deal. But Maldonado said the current budget stalemate proved that California could not return to fiscal sanity without fundamental changes in the way it elects its representatives.

"Without an open primary, we're going to be here again and again and again, voting on budgets," he told reporters. "This system is broken and we need to reform it."

Modeled on election rules in Washington state, the change -- if approved by California's voters next year -- would undermine the influence of political parties. It was unpopular with Democrats, but their leaders pressed them to accept it as the price of ending the political logjam.

"My caucus understands we have to do some things we don't like," said Assembly Speaker Karen Bass (D-Los Angeles).

Wednesday had begun in uncertainty, with Dennis Hollingsworth of Murrieta elected as the new Republican leader in the state Senate shortly after a midnight coup unseated Dave Cogdill of Modesto. Hollingsworth promptly insisted that months of negotiations over how to close California's deficit budget talks begin anew and lawmakers abandon the sales, income and gas taxes hikes that were part of the fiscal package Cogdill helped negotiate.

"We should reopen negotiations and we should pass a no-tax budget," Hollingsworth said. "The majority of the Senate Republican caucus said we want to stand for a no-tax budget."

But they ultimately marginalized him and the 10 GOP senators who had already ruled out any new taxes. Democrats and the governor refocused their efforts away from the caucus leadership and on the small group of GOP dissidents who signaled they were prepared to vote for their budget package. Cogdill remained in support of it, as did Sen. Roy Ashburn of Bakersfield.

The Senate convened every few hours Wednesday, but the debate on the chamber floor was unproductive. Democrats read letters from constituents beseeching them to pass the budget so state services could resume. Republicans parried with correspondence from their backers decrying the imposition of higher taxes on already struggling families.

Behind the scenes, negotiators stayed focused on Maldonado and GOP Sen. Dave Cox of Fair Oaks, both of whom had indicated they might be persuaded to cross the aisle and vote with Democrats to pass the budget. Legislative leaders and Schwarzenegger's aides pored over wish lists from both senators.

After lunching on salmon and swordfish with Schwarzenegger at an Italian restaurant a few blocks from the Capitol, Maldonado emerged enthusiastic.

"The governor is on board with my constitutional amendments," Maldonado said, referring to his request that state election law be changed to help moderate politicians such as him and to penalize lawmakers when the state's budget is late.

"If everybody is happy with the drafts, we'll have a budget for the state of California," he said.

Maldonado's proposal did not go down well with many Democrats. Many lawmakers in both parties hold safe seats that would become competitive if Maldonado's request were enacted.

Others said they objected to rewriting California's fundamental rules of democracy in the middle of the night, all to secure a vote to keep the state from financial ruin. They also accused Maldonado, who is in his last term in the Senate, of trying to leverage his budget vote to make a future statewide run easier.

"I'm not here to worry about Abel's political future," said Sen. Gloria Romero (D-Los Angeles).

Maldonado denied such a motive, and the final version appeared to have little use for his aspirations for statewide office in 2010, because it would not take effect until 2012.

Democrats remained dubious.

"I'm open to discussion on the merits of the open primary," said Sen. Joe Simitian (D-Palo Alto). "But I'm hard-pressed to understand what on earth it has to do with solving the state budget deficit."

cont'd

Sen. Denise Moreno Ducheny (D-San Diego) said Maldonado's suggestion that legislators' pay be docked whenever the state budget was not on time was "particularly offensive" and could give wealthy legislators inappropriate leverage in negotiations.

"You could have rich people telling everyone else, 'Vote now if you want to feed your family.' " Ducheny said. "I think it's unethical . . . to tie your pay to your vote."

Maldonado ultimately agreed to drop that measure out of the package. This morning, Democrats agreed to another provision pushed by Maldonado that would keep legislators from getting pay raises in years when the state ran a budget deficit.

Just before 5 a.m., the Senate approved the open-primary measure. Several Democrats were so resistant to the notion that the Senate had to recess while they were coaxed into giving their support. Near tears, Romero called it "a disgusting process" and "not good government" as she changed her vote to yes.

The sun had risen when the state Assembly passed the tax bill at 6:30 a.m. Assembly GOP leader Mike Villines of Clovis, Roger Niello of Sacramento and Anthony Adams of Hesperia provided the three GOP votes to put the measure over the top.

"Mark our words: There's not going to be any more taxes from this body," Villines said.

Dissenting Republicans -- who have been warning for years that California was spending recklessly -- told their colleagues that this budget also would develop holes.

The deal with Maldonado emerged Wednesday after negotiations with Cox deteriorated. Schwarzenegger and Democrats never agreed to Cox's call to postpone enactment of California's landmark law limiting greenhouse-gas emissions.

That law, which won Schwarzenegger international acclaim, is one of the governor's proudest achievements. But many business groups in California complain that it would be expensive to implement.

Democrats also did not budge on other Cox demands: to give employers more leeway in scheduling meal and rest breaks for their workers, and his insistence that legislators reduce some of the $14.4 billion in taxes contained in the budget package. Maldonado, however, incorporated that latter issue into his demand, and Democrats stripped out the gas taxes, worth about $2 billion.

The final version of the plan would raise the state sales tax by 1 percentage point and nearly double the vehicle license fee to 1.15%. It would also reduce the dependent credit Californians are allowed to claim on their taxes. The package would increase personal income tax rates by 0.25 of a percentage point.

"It's just plain wrong," Hollingsworth said just before the vote.

Ashburn took to the floor to recall Ronald Reagan's decision to raise taxes in 1967 as California governor. "As president of the United States, my hero, my role model, the person who I have looked at for inspiration, raised taxes three times," Ashburn said.

He said his fellow GOP senators had failed to understand the difference between being a politician and being an elected official.

"You know this deficit cannot be solved by cuts alone," he told them as they closed their eyes or looked away. "What would Ronald Reagan do? Ronald Reagan would vote yes."

After his speech, Democratic senators came over and hugged Ashburn, who had negotiated $100 million in tax credits to help home builders and tax breaks for horse-racing tracks.

All the taxes in the budget package would last for two years, but they would be extended another two years if voters approve a permanent spending cap that would be placed on the May 19 ballot as part of the complex deal worked out with Republican leaders over several months. That spending cap would prevent future legislators from hiking state spending when California's treasury is flush and instead deposit that money into a giant rainy-day fund for unexpected deficits. Only when that reserve exceeded an eighth of the state's revenues could legislators dip into it for other purposes.

The open-primary measure would go on the June 2010 ballot, giving opponents plenty of time to work up opposition. The rules would apply not only to state legislators but also to members of Congress, who may tap their ample war chests to defeat it.

Sen. Mark Leno (D-San Francisco) predicted: "It is going to get killed for sport."

"We're in danger of having the worst banana in 45 years."

The D-word: Will recession become something worse?

A Depression doesn't have to be Great — bread lines, rampant unemployment, a wipeout in the stock market. The economy can sink into a milder depression, the kind spelled with a lowercase "d."

And it may be happening now.

The trouble is, unlike recessions, which are easy to define, there are no firm rules for what makes a depression. Everyone at least seems to agree there hasn't been one since the epic hardship of the 1930s.

But with each new hard-times headline, most recently an alarming economic contraction of 6.2 percent in the fourth quarter, it seems more likely that the next depression is on its way.

"We're probably in a depression now. But it's not going to be acknowledged until years go by. Because you have to see it behind you," said Peter Morici, a business professor at the University of Maryland.

No one disputes that the current economic downturn qualifies as a recession. Recessions have two handy definitions, both in effect now — two straight quarters of economic contraction, or when the National Bureau of Economic Research makes the call.

Declaring a depression is much trickier.

By one definition, it's a downturn of three years or more with a 10 percent drop in economic output and unemployment above 10 percent. The current downturn doesn't qualify yet: 15 months old, that 6.2 percent drop in output and 7.6 percent unemployment.

Another definition says a depression is a sustained recession during which the populace has to dispose of tangible assets to pay for everyday living. For some families, that's happening now.

Morici says a depression is a recession that "does not self-correct" because of fundamental structural problems in the economy, such as broken banks or a huge trade deficit.

Or maybe a depression is whatever corporate America says it is. Tony James, president of private equity firm Blackstone, called this downturn a depression during an earnings conference call last week.

The Great Depression retains the heavyweight crown. Unemployment peaked at more than 25 percent. From 1929 to 1933, the economy shrank 27 percent. The stock market lost 90 percent of its value from boom to bust.

And while last year in the stock market was the worst since 1931, the Dow Jones industrials would have to fall about 5,000 more points to approach what happened in the Depression.

Few economists expect this downturn will be the sequel. But nobody knows for sure, and nobody can say when or whether the downturn may deepen from a recession to a depression.

In his prime-time address to Congress last week, President Barack Obama acknowledged "difficult and trying times" but sought to rally the nation with an upbeat vow that "we will rebuild, we will recover."

The next day, Federal Reserve Chairman Ben Bernanke told the House Financial Services Committee that the "recession is serious, financial conditions remain difficult." He held out a best-case hope that it might end later this year, with "full recovery" in two to three years.

Despite the tempered optimism, the economic outlook remains grim. Consumer confidence has fallen off the table, stocks are at 12-year lows, layoffs come by the tens of thousands, and credit remains tight.

The current downturn has many of the 1930s characteristics, including being primed by big stock market and real estate booms that turned to busts, said Allen Sinai, founder of Boston-area consulting firm Decision Economics.

Policymakers and economists note there are safeguards in place that weren't there in the 1930s: deposit insurance, unemployment insurance and an ability by the government to hurl trillions of dollars at the problem, even if it means printing money.

Before the 1930s, any serious economic downturn was called a depression. The term "recession" didn't come into common use until "depression" became burdened by memories of the 1930s, said Robert McElvaine, a history professor at Millsaps College in Jackson, Miss.

"When the economy collapsed again in 1937, they didn't want to call that a new depression, and that's when recession was first used," he said. "People also use 'downward blip.' Alan Greenspan once called it a 'sideways waffle.'"

Most postwar U.S. recessions have come after the Fed has increased interest rates to cool down rapid economic growth and inflation. Later, the Fed lowers rates and helps restart the economy, with the housing and auto sectors — both sensitive to interest rates — leading the way.

This time is different: As Senate Banking Committee Chairman Chris Dodd, D-Conn., said, "Our housing and auto sectors are leading us not out of recession, but into it."

What's more, the Fed no longer has the ability to kick-start recovery by lowering interest rates. The central bank has already effectively lowered the short-term rates it controls to zero.

And there are no guarantees the massive economic stimulus package and series of bank bailouts will stave off a nightmare recession, or worse.

"It is certainly plausible that the kinds of policy measures that have been good enough to tame the business cycle are no longer adequate in a fast-moving, highly leveraged, highly networked economy," said Anirvan Banerji of the Economic Cycle Research Institute.

Today's economic indicators don't project a depression. But Banerji is cautious. Economic data in 1929 didn't show that the stock market crash was about to lead to years of economic misery, either.

"It did not look like the kind of plunge that would be a depression until after the recession began," Banerji said. "The Great Depression didn't start out as a depression. It started out as a recession."

The depression that consumed most of the 1870s and followed something called the Panic of 1873 makes a better comparison to what's happening now, said Scott Nelson, a history professor at the College of William and Mary.

Financial markets had become centrally located by the 1870s, notably in London. And nations had not yet enacted the protectionist trade policies that were in place by the 1930s.

The results were not exactly promising. Gangs of orphans roamed city streets as men moved west to pursue cattle industry jobs. Widows struggled to make money by serving unlicensed liquor. Thousands of workers, many Civil War veterans, became transients.

The downturn lasted more than five years, according to the economic research bureau — four times as long as what the United States has endured so far in this downturn.

Today's recession is already longer than all but two of the downturns since World War II. But for now, public officials are being extremely cautious about the D-word. Alfred Kahn, a top economic adviser to President Carter, learned that lesson in 1978 when he warned that rampaging inflation might lead to a recession or even "deep depression."

When presidential aides asked him to use another term, Kahn promised he'd come up with something completely different.

"We're in danger," he said, "of having the worst banana in 45 years."

2 corporate credit unions taken over by government
Regulators take over 2 big wholesale credit unions, seek to stabilize corporate credit unions

Federal regulators on Friday seized control of two large institutions that provide wholesale financing for U.S. credit unions, a move they say was needed to stabilize the credit union system.

The National Credit Union Administration said it has taken over and put into conservatorship the two corporate credit unions, U.S. Central Federal Credit Union, based in Lenexa, Kan., and Western Corporate Federal Credit Union, in San Dimas, Calif. U.S. Central has about $34 billion in assets while Western Corporate, known as WesCorp, has an estimated $23 billion in assets.

A conservatorship enables the government to operate a financial institution. Corporate credit unions provide financing and investment services to the much larger population of retail credit unions. Some of the 28 corporate credit unions in the U.S. have sustained steep losses on paper from the depressed value of the mortgage-linked securities they hold.

The NCUA, which oversees some 7,800 federally insured credit unions, said it "will continue to take any and all steps necessary to preserve a well-functioning system of corporate credit unions and to protect the assets of (retail credit unions) and their members during the ... financial market dislocation."

The financial services provided by the two corporate credit unions "will continue uninterrupted" and there will be no direct impact on the 90 million members of retail credit unions nationwide, the NCUA said in a news release.

It said retail credit unions, which are cooperatives owned by their members, remain financially strong -- with net worth exceeding 10 percent of assets, and sustained growth in assets and membership despite the deep recession.

The NCUA staff recently completed a "stress test" of the mortgage- and other asset-backed securities held by all corporate credit unions, including U.S. Central and WesCorp, and found that "an unacceptably high concentration of risk" was contained in those two institutions, the agency said Friday. Securities held by the two have continued to lose value since late January, reducing their available cash and worsening a "loss of confidence" on the part of their member credit unions, the NCUA said.

In January, the NCUA injected $1 billion of capital into U.S. Central. At the same time, the agency moved to guarantee tens of billions of dollars in uninsured deposits at corporate credit unions overall, the latest in a series of actions to shore them up in the face of financial stress.

The NCUA said it would automatically guarantee uninsured deposits at all corporate credit unions through February and then on a voluntary basis through Dec. 31, 2010.

The agency's insurance fund is financed by fees paid by credit unions. As is the case with banks and thrifts, regular deposit accounts in federally insured credit unions are covered up to $250,000.

In December, the agency made more than $40 billion available to support several corporate credit unions with a new borrowing from the Treasury Department and provided another $2 billion to help struggling homeowners.

The NCUA also has proposed restructuring the corporate credit union system with an eye to enhancing its stability.

U.S. Central has said it expected to report a substantial loss for 2008, due to around $1.2 billion in charges for impairments in its holdings of mortgage-backed securities.

AIG value drop of $214 billion draws lawsuit
'Freedom Watch will not rest until justice is done'

A lawsuit has been filed by a public interest law firm, Freedom Watch USA, on behalf of shareholders of American International Group who have watched the value of the company plummet by some $214 billion.

The class action lawsuit filed in federal court in Los Angeles is a "wide reaching" claim that will do what Congress cannot, said Freedom Watch USA founder Larry Klayman.

"Today, the American people, not the compromised ruling elite in Washington, D.C., have begun a second American Revolution to take the country back from the con men on Wall Street, and on Pennsylvania Avenue – who under successive administrations played a central role in the meltdown of the U.S. financial system and economy," Klayman said.

"Freedom Watch will not rest until justice is done and it won't come from the Obama administration, bent on deceiving the U.S. taxpayer that it intends to clean up this corruption, all the while lining the pockets of its friends at AIG with government bailout money, who gave handsomely to have the president elected," he said.

The lawsuit seeks the return from the company directors of the "millions in illicit bonuses, dividends and other perks they paid out to themselves and other officials who destroyed the company's' financial standing."

The lawsuit also aims to recover from the directors the shareholders' losses over the last years and to make AIG whole under new leadership, without the use of government money.

The lawsuit alleges the defendants, including Richard Holbrooke and Martin Feldstein of the Obama administration, "have seriously undermined and damaged AIG's financial health and valuable past reputation by systematically causing and/or permitting the company to engage in a litany of highly risky, detrimental and reckless business dealings, activities and transactions that have caused the company to verge on bankruptcy and which have required in excess of $190 billion dollars to date of government provided monies."

The company, in December 2000, "had a market value of approximately $217 billion dollars. Today it has a market value of approximately $3.5 billion, a net decline of $214.5 billion based on the market capitalization rate formula," the suit alleges.

AIG used "financially unsound" credit default swap derivative contracts and collateralized debt obligations to expose the company to "enormous risk," the suit says.

"After AIG posted a record breaking $62 billion dollar loss for the 4th quarter of 2008, the defendants, each and every one of them, incredibly paid out $165 million dollars in bonuses to its executives in March of 2009 and $55 million dollars in December of 2008 for this poor performance, and also paid out dividends when this was not reasonable or warranted under the circumstances," Klayman's case alleges.

Klayman said 400 workers each received between $1,000 and $6.5 million, and seven executives in the unit responsible for many of the losses each got more than $3 million.

"The bonuses were allegedly for retention, in part, and also performance based, but it has become clear that this was not the reason for the bonuses; rather looting of shareholder and government assets was the motivation," the case alleges.

It continues, "During this time of unprecedented wealth destruction for AIG shareholders, each of the defendants were compensated generously by way of handsome salaries and exorbitant bonuses and dividends, among other benefits and perks, despite their misconduct."

WND recently reported a poll indicated three in four Americans want members of Congress to return money they got from AIG for their political campaigns.

The poll from The O'Leary Report by Brad O'Leary and Zogby International showed 73 percent of Americans think politicians, including President Obama and Sen. Chris Dodd, D-Conn., should not have profited from AIG and should return the money.

Obama and Dodd were the top recipients of campaign largesse from AIG over the past two years, with Obama getting $104,332 and Dodd taking in $103,900. Others received money, too, but in smaller amounts. All together, AIG donated $644,218 to federal politicians.

According to the Washington Post, Federal Reserve Chairman Ben Bernanke recently confirmed that he had wanted to sue AIG to stop the company from paying out about $165 million in bonuses, but Fed lawyers advised against the litigation.

AIG CEO Edward Liddy told Congress last week that the Fed signed off on the bonuses before they became public. The company also has said some of the employees have promised to return the bonuses voluntarily.

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Theology => Prophecy - Current Events => Topic started by: Soldier4Christ on December 24, 2007, 12:07:09 PM