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The Point of No Return: Harry Reid: “No One Knows What to Do”
Mike Whitney
Counterpunch
Friday, September 19, 2008
Following another erratic day of trading on the stock market, Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke convened an emergency meeting of the Senate Banking Committee and other congressional leaders to request fast-track authority for a sweeping plan to buy back illiquid assets and other complex securities from distressed and under-capitalized banks. The turbulence in the financial markets has intensified and there is every indication that the situation will get worse before it gets better.
There are a number of signs that the financial system is at the brink of collapse and that Wall Street is headed for a 1929-type crash. Depositors have begun to withdrawal their savings from money market funds alarmed by the gyrations in the market and the daily deluge of bad economic news. According to the Washington Post, funds dropped “by at least $79 billion, or about 2.6 per cent” on Wednesday alone. The withdrawals are the equivalent of a slow bank run just at the time when stressed commercial banks need access to cheap capital to finance daily operations and provide loans for a steadily weakening economy. There’s also been a surge of panic-buying of US Treasurys which is considered the safest of investments. According to the Wall Street Journal, during Wednesday’s market-rout, “investors were willing to pay more for one-month Treasurys than they could expect to get back when the bonds matured. Some investors, in essence, had decided that a small but known loss was better than the uncertainty connected to any other type of investment. That’s never happened before.” (Wall Street Journal) Also, the VIX, or “fear gauge”, has soared to levels not seen since the crisis began in August just over a year ago.
On Tuesday, interbank lending rates spiked upwards causing banks to abruptly stop lending to each other. When banks stop lending to each other, they cannot perform their primary function of transmitting credit to consumers and businesses, and the economy shuts down. That is why the Fed and other members of the western banking cartel made a surprise announcement at 3 AM (EST) Wednesday morning.
(ARTICLE CONTINUES BELOW)
From the Fed:
“Today, the Bank of Canada, the Bank of England, the European Central Bank (ECB), the Federal Reserve, the Bank of Japan, and the Swiss National Bank are announcing coordinated measures designed to address the continued elevated pressures in U.S. dollar short-term funding markets. These measures, together with other actions taken in the last few days by individual central banks, are designed to improve the liquidity conditions in global financial markets….The Federal Open Market Committee has authorized a $180 billion expansion of its temporary reciprocal currency arrangements (swap lines). This increased capacity will be available to provide dollar funding for both term and overnight liquidity operations by the other central banks.”
Before the end of the day, the Fed had quadrupled the amount of dollars (to $247 billion) that central banks around the world could access in an effort to loosen up trading between the banks and resume lending to loan applicants and businesses. According to Bloomberg: “The Fed will spray dollars around the world via swap lines with other central banks. They can then auction them in their own markets.” At first, the stock market reacted positively to the Fed’s announcement, but by noon the market was 200 points down and losing altitude fast. It took another surprise announcement by the Treasury Dept — of a massive government intervention to remove the bad loans and withering mortgage-backed securities from banks’ balance sheets — of to jolt the market out of its funk and send it climbing 410 points higher on the day.
Paulson’s emergency session with Congress last night was characterized by lawmakers who attended as “chilling”. The situation is much worse than government officials have let on so far. The resurrecting of the Resolution Trust Corporation (RTC) is a desperate attempt to address the banking systems troubles head-on by providing a taxpayer-funded clearinghouse for illiquid assets and toxic mortgage-related securities for which there is presently no market. The taxpayer is being asked to pay up to $1 trillion for the speculative excesses of Wall Street investment banks and their fraudulent securities scam. Homeowners who are likely to lose their homes through foreclosure will not benefit from Paulson’s RTC. Both presidential candidates have already declared their support for the plan.
According to the New York Times: “Rumors about the Bush administration’s new stance swept through the stock markets Thursday afternoon. By the end of trading, the Dow Jones industrial average shot up 617 points from its low point in mid afternoon, the biggest surge in six years, and ended the day with a gain of 410 points or 3.9 percent.”
If ever there was proof of Plunge Protection Team activity; Thursday’s market is it. The market was sinking fast at midday even though the Fed just added nearly $250 billion in liquidity to the global system. Investors were buying short-term Treasurys in record numbers, the VIX “fear gauge” was soaring, money markets were collapsing, and the aftershocks from defaulting AIG and Lehman were still being felt around the world. Were investors really that eager to buy back battered investment bank stocks or was the PPT busy panic-buying up futures and forcing the market upwards 617 points?
Bloomberg News: “Options under consideration (by congress) include establishing an $800 billion fund to purchase so-called failed assets and a separate $400 billion pool at the Federal Deposit Insurance Corp. to insure investors in money-market funds, said two people briefed by congressional staff who spoke on condition of anonymity because the plans may change.”
Not a dime of public money is provided for over-extended mortgage-owners trying to stay in their homes. Not one congressman or senator at Thursday’s meeting rejected the bailout plan or called for a criminal investigation of to establish whether laws were broken in the sale of fraudulent securities which have clogged the global system; pushed banks, hedge funds, insurance companies and homeowners into default, and precipitated the greatest financial crisis in the nation’s 230 year history.
Ironically, the very people who created this mess, are the ones who will decide how to resolve it; the Federal Reserve and the US Treasury. Where else, but Washington would such massive failure be rewarded with more power and authority.
The investment giants and the Federal Reserve are entirely responsible for the current meltdown. Currency deregulation brought foreign capital flooding into the equities and bond markets while the real economy suffered. Businesses were off-shored while good paying manufacturing jobs were moved overseas. Wall Street gorged itself on foreign capital while America was transformed into a nation of construction workers and service industry workers. Now those jobs are vanishing by the millions and unemployment lines are swelling.
The ratings agencies, prevaricating mortgage applicants, and appraisers all played a part, but it’s Wall Street that’s really to blame. They lobbied to deregulate the system so investment banks could merge with commercial banks and allow the world’s biggest risk takers to have unrestricted access to the cheapest capital available; deposits. They even crafted a bogus ideology, “market fundamentalism”; touting trickle-down, free market, Voodoo economics that was entirely designed to further enrich the wealthy and savage the middle class. Earlier this week, former Senator Jack Kemp appeared at a whistle-stop with John McCain in Jacksonville, Florida. Kemp was one of the primary architects of “supply side” economics, the thoroughly discredited Reagan-era doctrine which has led us to our present economic catastrophe. Kemp’s theories fit with Milton Friedman’s “greed is good” Chicago School mumbo jumbo. Both Friedman and Kemp believe that what is good for the stock market is good for America, ignoring the shocking economic polarization that has divided the nation. Now, more and more people are beginning to see that Friedman was a charlatan who provided ideological cover for obscenely rich financiers and their dodgy investment scams.
Economist and author Henry Liu summed it up brilliantly in a recent article in the Asia Times:
“The collapse of market fundamentalism in economies everywhere is putting the Chicago School theology on trial. Its big lie has been exposed by facts on two levels. The Chicago Boys’ claim that helping the rich will also help the poor is not only exposed as not true, it turns out that market fundamentalism hurts not only the poor and the powerless; it hurts everyone, rich and poor, albeit in different ways. When wages are kept low to fight inflation, the low-wage regime causes overcapacity through over investment from excess profit. And monetary easing under such conditions produces hyperinflation that hurts also the rich. The fruits of Friedman test are in – and they are all rotten.”
Whatever headwinds the country now faces economically can be directly attributed to the inherently flawed ideology of market fundamentalism.
Tuesday’s 449 point bloodbath on Wall Street is the beginning of an unavoidable market crash. Regardless of Paulson’s plan, there’s more pain on the way. According to Bloomberg: “More than $19 trillion has been wiped off global stock market value since a high on Oct. 31 as the worst U.S. housing recession since the Great Depression and a resulting global credit crisis slowed the world economy.” All of the economic indicators point to greater losses. Once the system begins to deleverage, there’s nothing anyone can do to stop it. Paulson can place himself in front of a market avalanche if he chooses, but it won’t change the outcome. Market corrections are as inexorable as the force of gravity. That’s why equity bubbles cannot be allowed to develop without interest rate intervention. Responsible action by the Central Bank could have prevented the present crisis.
On Wednesday, Forex.tv reported that the net long-term TIC flows came in below the consensus forecast, totaling $6.1 billion in July, while total TIC flows for the month fell to $74.8 billion, according to data released by the U.S. Treasury on Tuesday morning. Economists had been expecting net long-term flows to rise to $55.0 billion compared to the previous month’s previously reported figure of $53.4 billion.
$6.1 billion does not meet the requirements of our current account deficit of $700 billion. The dollar is headed for a fall.
On Wednesday, New York Mayor Michael Bloomberg warned that the “next wave” of financial pain may come from overseas if foreign entities stop buying U.S. debt.” It’s not clear who’s going to be buying our debt,” said Bloomberg. “It may very well be that the next wave is going to come back and bite us.”
The New York Times tells a similar story except this time about Asia:
“Asia’s savings have, in essence, bankrolled American spending for decades (but) Asian interest in American assets is wilting, a trend that seems to have started over the summer…Little-noticed data released by the Treasury Department on Tuesday showed that a sharp shift in international capital movements began in July. Private investors pulled a net $92.9 billion out of the United States, after putting $46.8 billion into American securities in June. (”Asia rethinks American Investments Amid Market Upheaval”, Keith Bradsher, New York Times)
Foreign central banks and investors have turned off the tap. They can see that the US financial system is teetering and that the dollar is weakening. “The perceived risk of U.S. government debt, long held to be absent of any default risk, also climbed to a record yesterday as the government’s involvement in bailing out financial markets weighed on its own balance sheet.” (Bloomberg News) The “full faith and credit” of the United States government is slipping. US debt will be downgraded. Triple A is no longer guaranteed. America’s stock just moved to Level 3 assets. The US is now a subprime economy on life support.
Presently, “there is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion.” (Mish’s Global Economic Trend Analysis)
$273.7 Billion is a paltry sum, insufficient to meet the needs of even a minor run on the banking system. The storm hasn’t even touched ground yet in middle America, and already the system is buckling. 2009 will be bleak, indeed.
The battered and over-leveraged US financial system is facing its greatest challenge in the months ahead. The frantic search for capital has already begun, but with predictably disappointing results.
Neither China nor the Saudi princes are buying any more failing investment banks. They’ll leave that for the US taxpayer. What started off as a brilliant plan to pedal garbage mortgage-backed paper to gullible investors around the world has suddenly backfired and now threatens to bring the entire system crashing down and change the geopolitical power paradigm for the forseeable future.
On Monday night, Senate Majority Leader Harry Reid was briefed on the gravity of the situation in a secret meeting with the Treasury Secretary and Federal Reserve Chairman. Reid’s remarks are the best summary yet of the events of the last 14 months. He said, “”We are in new territory, this is a different game…No one knows what to do.”
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19 Responses to “The Point of No Return: Harry Reid: “No One Knows What to Do””
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September 19th, 2008 at 2:20 pm
food equals money
September 19th, 2008 at 2:52 pm
No one knows what to do? I’ll give you a hint…….For starters, GET THE FUCK OUT OF IRAQ, YOU FUCKING IDIOTS!
September 19th, 2008 at 3:29 pm
Project much Harry?
September 19th, 2008 at 4:15 pm
No one? How about Ron Paul? I’ll bet he has a few suggestions.
September 19th, 2008 at 4:57 pm
Please stow any loose items and secure your safety belts, it’s going to be a bumpy ride!
September 19th, 2008 at 6:30 pm
http://www.youtube.com/watch?v=ErFOsoKzpD0
you dont have to accept this
its destruction by design
the banks will own everything and the people will own nothing.
the fool and his money soon seperate
September 19th, 2008 at 7:55 pm
It seems an opportune time to rid our national livelihood of established thievery, no?
Political revolution, civil disobedience and armed citizenry now!
September 20th, 2008 at 2:59 am
Here’s an idea for the federal government: DO NOTHING.
The measures they implement (aside from nothing) tend to intensify and prolong the misery.
Bailouts amount to inflationary spikes, dollar devaluation and golden parachutes for the corporate beneficiaries.
Even the last Great Depression was prolonged by FDR’s “New Deal” policies: http://scienceblog.com/cms/node/3643
September 20th, 2008 at 3:51 am
THIS IS AN ARTICLE FROM INVESTORS DAILY EDGE WHO HATE THESE FUCK DOGS RUNNING THE BANKS
The Fruits Of Deregulated Labor
By Andy Carpenter
Next month’s US unemployment numbers will likely add a fresh 15,000 to 20,000 people to the jobless ranks.
Wall Street will take that as a sign of a weakening economy. But it’s not.
The numbers will represent an ironic one-off bump. They’ll be inflated by the thousands who’ve lost jobs on Wall Street thanks to the actions of the traitors who led US investment banks.
And, yes, I know we’re only supposed to use the word traitor when talking about someone who openly questions President Bush’s foreign policy… because publicly decrying the attack on Iraq gives aid and comfort to the enemy.
But, tell me, do you really believe that no one in a position of authority knew the outrageous investment risks that were taken by US investment banks, insurance companies and at state-owned enterprises such as Fannie Mae and Freddy Mac.
If you actually believe that, then you’re also telling me that the very top echelons of US business and government are illiterate, as well. And, thus they were unable to read Warren Buffett’s scathing comments about the hyper-leveraged and reckless risks in which the financial industry was engaged.
So, here’s the deal.
If Osama bin Laden is America’s most hated and dangerous enemy because his stated goal is to bring the US economy to its knees…
What does that make the US citizens, whose personal greed and avarice, actually accomplished bin Laden’s task?
You got it.
Enemies of the State – those citizens who attack from within – are called traitors.
And, it doesn’t matter that they think they are simply crony capitalists, with friends in very high places.
You see, all traitors have two things in common – the price at which they can be bought and the twisted logic by which they justify their betrayal.
So, the big question is, if the US started two wars over Osama bin Laden – a guy who merely hopes to wreck the US economy – how does it go about dealing with the people who maliciously got the job done?
What war will the US make on the CEO’s and boards of directors at companies that purposely knifed the US economy… eviscerated it so they could become billionaires instead of multimillionaires… which when you think about it is a less honorable motivation than what leads a prostitute to turn a $10 trick.
So, now all we have to do is wait to see what penalties and what reparations these traitors will be forced to pay.
Huh?
Excuse me… what’s that you say… I don’t think I heard you right.
We’re not at war with these traitors?
What the f… We’re not attacking these enemies?
In fact, we are using your money and mine to actually pay them, as in bail them out… all on the excuse that covering their traitorous asses is good for the country?
What’s next… rapists have to marry the victims they impregnate so the kid won’t grow up in a broken home?
And, finally, one last thought on the traitorous-gamblers-disguised-as-bankers mess.
Memo to Sen. John McCain:
Sir, until you apologize for your part in this financial tragedy – maybe even tell the truth about your son’s failed Silver State Bancorp and your own part in the S&L crisis – shut your pie hole on this one.
Right now you’re doing great. People believe your lies and they do not believe Obama’s lies. So, let sleeping dogs lie.
Otherwise, all your faux anger and bluster might lead more writers than just little old me to recall that you had a big hand in laying the foundation for the US’s current financial crisis.
Talk about elitism. You actually believed that crap about how well-educated, wealthy people were made of better stuff.
That in a deregulated society, business leaders with Ivy League degrees would shun the more base elements of human nature and act honorably and in the best interest of the country.
Personally, I think you were naïve – human nature is a powerful thing. Come on, back in the day you were the 43-year-old married guy with the 23-year-old mistresses… you even married one of them. What was that about?
And, your service in Vietnam should have taught you how badly men treat fellow men – how human nature so often brings out our darkest beliefs.
Yet, there you were in 1999 a big time supporter in a Republican led congress that passed veto-proof legislation that tore down depression-era legal walls that separated commercial banks, investment banks and insurers from one another.
You happily stood by as President Clinton, a Democrat, signed it into law.
In fact, with the exception of supporting both HMO regulation and background checks for people who buy weapons at gun shows, you have vigorously supported a GOP ideology that insists on cutting federal regulation of industries in the name of promoting free markets and ending government interference.
By the way, how’s that government interference thing working out these days?
Pretty cost effective huh?
As the old saying goes, if you’re not part of the solution, you’re part of the problem.
Today, your rhetoric suggests the former, but your record suggests the latter.
You want me to believe that you’re sincere about fixing this mess in a way that benefits regular guys like me, then start with, “I am sorry, I was wrong.”
That’ll do it for me this week.
See you next Saturday. By then, I suspect that the end will actually be near.
Things will begin to stabilize because the CEO’s of Bank of America, Wachovia Bank, and the Bank of Uncle Sam will be the three most powerful men in America… just eight years ago that might have meant the world, too.
Andy
September 20th, 2008 at 3:54 am
GET YOUR GUNS IT WILL SOON BE TIME TO START KILLING COPS AND THE US MILITARY WHEN THEY COME TO TAKE YOU OF TO CAMPS IF WE START KILLING THEM THEN THEY WILL BACK OFF. I DONT ADVOCATE VIOLENCE BUT WHEN THE POLICE ARE RECRUITED FROM CRIMINALS AND THE CRAZED BRIGADE OF PUPPY KILLING SOLDIERS COMES BACK DONT EXPECT ANY MERCY FROM THEM
September 20th, 2008 at 4:16 am
THE PEOPLE MUST START BECOMING POLITICAL AND DEMANDING THE LOCAL REPRESENTATIVES BACK THEM UP AND DO SOMETHING YOU DON’T NEED TO GET GUNS OUT NOW JUST SCREAM AT PEOPLE ESPECIALLY THE LOCAL POLITICALS BEFORE THE SHIT REALLY HITS THE FAN DO SOMETHING PEOPLE NOW
September 20th, 2008 at 9:35 am
The USA is All but over. Currently we are at the tip of the ice berg in this collapse. Don’t wait for sugar daddy government to save you take steps to prepare now.
Time is very, very short Food, water, shelter, guns and ammo, plus tools and spare gun parts will be desperately needed.
The coming volatility in the market place will be so bad that some of you will not be able to work a job. But that doesn’t mean you can’t work for yourself.
Grow a garden indoors (if it’s practical) and out. Its better to give some garden produce away to your lazy neighbors that failed to prepare than shoot them.
September 20th, 2008 at 1:56 pm
laim, that is what the pure evil NWO wants us to do is kill each other! We MUST help each other when things get bad. Especially help the poor! What would Jesus do? And PRAY, PRAY and PRay to God our heavenly Father and Jesus! Fucking Reid is WRONG, there are plenty people including me who know what the fuck to do! 1. GET THE FUCK OUT OF PURE EVIL, PRIVATE BANKING, FEDERAL RESERVE, WHICH IS NOT A GOV’T AGENCY BUT GREEDY FUCKING PRIVATE BANKER’S AND DON’T, DON’T GIVE THEY ANY, ANY AUTHORITY TO DO ANYTHING! 2. Immediately return to silver standard and off fiat currency! 3. REAL NAFTA,and the rest of the job shifting lousy trade agreements, that BOTH evil bastards from BOTH parties helped pass. a5. TAX THE RICH! 6. Help the poor! FUCKING REID NEEDS TO BE HANGED FOR TREASON, LIKE 90% OF REST OF PURE EVIL NEW WORLD ORDER, SATAN WORSHIPPING BASTARDS UP THERE IN D.C. WHO WON’T REST TIL THEY HAVE DESTROYED AMERICA FROM WITHIN, WHICH IT DAMN NEAR IS NOW! THEY WANT TO PURPOSEDLY COLLAPSE OUR DOLLAR TO FORCE US ONTO THE ‘AMERO” WHICH WILL FINISH OFF OUR FREEDOMS AND OUR NATION. 7. BRING ALL OUR TROOPS HOME AND NOW, FROM BOTH IRAQ AND AFGHANISTAN AND NOW, NOT NEXT MONTH OR LATER BUT NOW BEFORE THEY PASS MORE DEFENSE MONEY! 8. CUT DEFENSE SPENDING IMMEDIATELY!
September 20th, 2008 at 1:57 pm
Prepare now, we must share with each other to survive what is coming the pure evil bastards want us killing each other for food,etc.!
September 20th, 2008 at 5:18 pm
Yeah, the 3 Stooges meet Laurel and Hardy meet Abbott and Costello meet the Keystone Cops and they all go to Washington to bumble away the future of the U.S.A.
The “Great Experiment” that is bandied about in reference to the U.S.A. is just that; probably similar to the bet placed between the two blue-bloods in Trading Places. A 1 dollar bet to see which method of communization will succeed first; the Eastern kind with a full frontal bludgeoning of the masses or the Western kind with love and sensitivity.
120 +/- million dead in the 20th century and they’re just getting warmed up.
September 20th, 2008 at 6:32 pm
the inevitable has arrived !!!!!!!!!!!!!!!!!!!!!!!!
http://www.youtube.com/watch?v=z-t7PmonBEA
September 20th, 2008 at 10:20 pm
It’s time to replace Harry Reid with someone who knows what to do.
September 21st, 2008 at 1:40 am
Forgive them not, cause they know what they are doing:
“In 1998 the Basle Accord created the opportunity for regulatory arbitrage whereby banks could shift loans off their balance sheets. A new capital discipline that was designed to “improve” risk management led to a PARALLEL BANKING SYSTEM whose lack of transparency explains how the market started to seize up.
The ” originate-to-distribute” model REDUCED THE INCENTIVE for banks to monitor the CREDIT QUALITY of the loans they pumped into collateralized-
loan-obligations and other structured vehicles, the rules failed to highlight contingent credit risk ……With Basle II, the question is just how the markets will evolve over the next 20 years…. as the new accord will require banks to hold LESS CAPITAL”.
http://www.marketoracle.co.uk/Article6347.html
September 22nd, 2008 at 1:52 am
how much does that vincente’ fox douche look like saddam?
USA born mexico president..
some brother in law sh*t going on..
global plantation is for chumps and chickeneck circus chimps
This is the USA bitch.
you have about pushed far enough.
WE the people will push back and you wont wonder where we come from.
Americans must find their own way, we are being sold like cattle.
You will not like us when we are angry.
http://www.youtube.com/watch?v=ErFOsoKzpD0
the runaway train is folly
next stop nowhere land
GS