$700 Billion - To Bail or Not to Bail...That is the question

[ntalwar]

Roubini's 12th step of 12 (where he says we are now):

"Twelfth, a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices will ensue leading to a cascading and mounting cycle of losses and further credit contraction. In illiquid market actual market prices are now even lower than the lower fundamental value that they now have given the credit problems in the economy. Market prices include a large illiquidity discount on top of the discount due to the credit and fundamental problems of the underlying assets that are backing the distressed financial assets. Capital losses will lead to margin calls and further reduction of risk taking by a variety of financial institutions that are now forced to mark to market their positions. Such a forced fire sale of assets in illiquid markets will lead to further losses that will further contract credit and trigger further margin calls and disintermediation of credit. The triggering event for the next round of this cascade is the downgrade of the monolines and the ensuing sharp drop in equity markets; both will trigger margin calls and further credit disintermediation."

 

[Vincent Vega]

Caricature in a German newspaper (translated by myself. Hope investment sum makes sense, it's meant to be a deposit).

 

[diamond]

From a friend:

A little background on how we got into this mess
The issue at hand is how banks use debt to make a lot of money!

The world economy has been growing a rate that far exceeds the population and income growth rates. The reason is simple: We’ve figured out new ways to leverage debt so we can buy more. From a personal standpoint, I think we all understand that the more you put on the credit card, the more “stuff” you can buy. The more stuff you buy, the better the overall economy does. Buying more stuff means more stuff has to be made, which means more jobs – it also means more debt for you! Simple, right?

On a much larger scale, banks play the same game with what are known as “derivatives”. Derivatives are the ability to borrow money based on the assets you have as collateral. While the term is usually only in reference to banks, average citizens can play in the derivative game, too. Most of us don’t have a stomach for that kind of risk, but just to help you understand what they are and how they work, here's a real example of how a person (like you and I) could get themselves in trouble with derivatives.

Let's say you open a stock-market trading account with Morgan Stanley. You send them $50,000 and they deposit that money into your account. You use that money to buy $50,000 in stocks (Microsoft, GM, McDonalds... all your favorites). You now have assets worth $50k. The bank (Morgan Stanley) will lend you up to 50% of the value of those assets (if you don't pay them back, they'll sell your stock to cover it. If the value of your stock goes down, there's enough "room" in there -- 50% -- that they can always sell off your assets if things start going badly in the stock market). This is called a "margin loan"... You decide to do this, so Morgan Stanley writes you a check for $25,000.

You decide to take your $25,000 and open another investment account at Ameritrade. You deposit your money, buy more stocks, and, once again, take out another margin loan. They send you a check for $12,500. You take this check to E-Trade and open another brokerage account, buy more stock, and take out ANOTHER margin loan for $6,250….

You see where we’re going. The term for this is "leveraging up". Your $50,000 allowed you to own nearly $100,000 REAL assets. If you think this feels like a pyramid scheme, you're right. The dark side is that if the "bottom falls out" and your $50,000 suddenly becomes worth $10,000 (maybe McDonalds goes out of business?) the entire house of cards will collapse on top of you. Every loan will declare the entire balance "due" because you no longer have the underlying asset to back it all up. We have, in effect, tricked the banks into lending us money by making them think they have the right to an asset if we default, when in reality, we’ve already promised that asset to someone else. It’s “risky business”, but it works well in a booming economy.

Remember, this is not the stuff of financial gurus. This is something you could do today with horrible credit. There are no checks and balances tracking where the money goes or why – you control all of that, and you don’t need good credit because there’s always the illusion of an asset backing your next “level” of investment. In reality, there’s only one asset (the one on the bottom), but the other banks don’t know that. All they see is cold, hard cash.

Banks, on the other hand, have very good credit. They get much better lending terms than you are I. While you and I can leverage (on average) 50% of the value of our assets, banks can often leverage 125% (or more) of their underlying asset.

Mortgages usually sit “at the bottom” of this house of cards that banks like to build. They’re the foundation of the debt-scheme because they're safe, secure, and they represent real property and real returns. They're solid. In fact, mortgages are so well respected in the financial industry, a bank could easily leverage more than $3 million in "derivative investments" with a $400,000 mortgage sitting at the bottom. Sometimes they’ll even buy a mortgage with the money derived from another mortgage (making it even harder to find the underlying asset the whole thing is based on).

Occasionally, mortgages (or other investments) do go bad. Banks have enough money they can shift things around until it all balanced out again. They’re pretty good at playing the game (they’ve been doing it for a long time) – the banks simply hope (and bet) that an unusual number of home loans won’t default at the same time.


… But what if they do default all at once?

What’s actually happening with the sub-prime mortages?
Starting in the mid-1990’s, congress passed legislation forcing banks to issue these sub-prime loans (I could probably write a book on that alone, but for now it’s enough to know that the government stepped in and decided to regulate the mortgage industry to help people afford houses). So for the last 20 years, they’ve been issuing loans that people couldn’t really afford. This all came to a head over the last 5 to 7 years when banks really perfected the concepts mentioned above (building derivatives on top of home loans) and decided to really expand their sub-prime programs due to super-low interest rates.

The problem the banks ran into about a year ago is that the interest rates that were allowing people to buy all these high-risk mortgages (the ones that sit on the bottom of their debt pyramid) started going up, and when the adjustable rates adjusted, people could no longer afford their homes. (It’s like the credit card company who offers you 6-months free interest – once the interest kicks in, you may not be able to afford your payment anymore!).

At this point, millions of homeowners started defaulting on their debts. Those assets that sat at the bottom of the bank’s debt pyramids became nearly worthless, and the entire pyramid came crumbling down on top of them. A single mortgage that may have helped them derive millions in assets was suddenly worthless, forcing them to make serious adjustments in the way they calculated the value of their assets and their business in general.

To make matters worse, the American people got caught up in the drunkenness of the housing boom. The classic example we saw over the previous decade was leveraging the purchase of a new home. With no down payment, a person could purchase a $200,000 new home and take out a mortgage of 125% of the value of the house. Typically this was an ”Interest Only Adjustable Rate Mortgage” that was used to purchase a “Spec” house that the buyer was going to flip in just a year or so as the economy was booming. This would allow them to buy the new house and take away $50,000 in cash free and clear to invest elsewhere. Of course, when housing prices started to decline about a year ago, we saw the mass destruction of this “imaginary wealth” across millions of American families. Wealth that, in many cases, had been used to allow consumers to build their own derivative pyramids.

Banks used these “derived assets” to lend money to one another and to you. If the underlying asset wasn’t worth anything, they no longer had any collateral they could use to provide more home loans, car loans, credit card loans, you name it. Debt is the fuel that drives our economy, and suddenly found themselves in a position where they were in over their heads.

The problem is that nobody actually knows how big the derivative problem really is. Even the banks are still figuring it out as they try to reverse-engineer these complex pyramids to figure out how bad their books really are. As they’ve done so, they’ve realized they are effectively insolvent (bankrupt) and we’ve witnessed the collapse of some of the largest banks in the world over the last few months. Hundreds more banks could fail as the credit markets remain tight and banks continue to figure out just how much damage they’ve sustained, and will continue to sustain, as a result of the problems we’re facing.


What's all this talk about the "credit markets"?
Lately, the LIBOR rate has been setting new records. LIBOR measures the rate that banks are willing to lend money to each other. Many banks actually peg their loan-rates to LIBOR (e.g. your bank might have a policy that they lend money to people at 3.0% over LIBOR).. They do this for a very simple reason: If LIBOR is 2%, and you want to borrow $20,000, they can borrow that $20k from another bank for 2%, so if they sell you the money for 5%, they have a gauranteed win (assuming, of course, that you pay back the money) and they didn't have to put any of their own capital on the table.


Why are they out of money?
Right now, banks don't have ANY spare cash to put on the table because the minimum "cash on hand" requirements are already being pushed to their limits due to the collapsing value of their mortgages. Basically, if a bank can show the federal government that they have $20b in assets, they need to keep a certain amount of cash on hand to cover those assets. However, high-risk assets force the banks to have more cash on hand. So if a bank has lots of low-risk assets, they only need a low amount of cash. Lots of high-risk assets means they need a high amount of cash.


Simple, right?
Now that their assets have all be redefined as high-risk, they're finding themselves in the position of needing more and more cash -- they're actually getting steamrolled. For every mortgage that's gone bad, they need that much more cash in their account.

Under normal circumstances, this means the banks would step out and borrow more money from a neighboring bank... But all of the neighbor banks are in the same position, so they certainly don't have any cash to lend.

Remember the law of supply and demand? As demand goes up, price goes up with it? Well, demand for cash between banks is going through the roof right now as more and more of their assets are being re-defined and re-valued. If demand is going up, that means price is going up to. The cost to borrow money is no longer in the normally "safe" range for banks (around 1 to 2 percent), but is now approaching 8%.. that's unheard of. It's a nuclear bomb on the banking industry.

You might say "well don't they just pass that off on to the consumer?"... the answer is yes, but they're reluctant to do that as well because so many of their previously "safe" loans are now defaulting. Even the SBA loans and the loans to large businesses are now in default. So even if they just mark up the 8% to, say, 15% so they can still turn a profit, they don't want to do it because if that loan goes bad (which they're finding is more likely than ever) they're in a far worse position. Not only do they have to pay back the original bank for the money they just lost, but they have another "bad asset" on their books.


It's literally a never-ending cycle. It's UGLY.
All of this can be summarized to mean that access to cash (for banks) is now the most expensive it has ever been, that I'm aware of. I would wager that if you walked into your local branch right now and needed a $100,000 SBA loan (normally no problem at all) they would laugh you out of the bank.

No loans to businesses and consumers means nobody has any money to dump into the economy. No money to dump into the economy means everything is about to come to a screeching halt. Like within days or weeks. Remember, our gigantic economy is fueled on DEBT... and we just ran out of fuel!!


What about the bailout plan?
The "bailout bill" is meant to address this problem by getting those bad assets off the bank balance sheets, thus reducing their cash-on-hand requirements and allowing the flow of money to resume.

The problem is that $700b is a drop in the bucket in terms of the number of bad assets these banks have on their books. It’s not even close to enough. Some estimates say that the size of the derivative market exceeds $450 TRILLION DOLLARS. Under these numbers, $700b is not even a drop in the bucket in terms of the amount of money needed to address this problem.

It is my belief that government regulation got us unto this mess. Further regulation and “socialization” of our assets is not going to get us out. As they say in Vegas, “you pays your money and you takes your chances”. The banks paid their money, and now they want the American taxpayer to foot their gambling bill.

Yes, the fallout will be big if this bill doesn’t pass, but it’s my opinion that it will be big even if the bill does pass. The wealthy elite in America are using this bill as a lifeboat. A way to offload “just enough” bad debt to save their own behinds before the whole thing comes down on top of them. Make no mistake about it, it’s going to come down on top of them one way or the other, the question is whether or not they deserve the lifeboat.

I say the Captain should go down with the ship.


The 5 stages of an economic collapse
Taking a step back from the immediate issues we’re facing, I thought it would be interesting to examine the stages of an economic collapse. This was first presented on the Glenn Beck show,



... But after a little research of my own, I’ve adapted the items to fit a more “global” model of an economic collapse. We can examine the financial situations in other countries that have experienced such problems over the last 50 to 75 years and identity patterns that emerge when the economies of countries are in serious trouble. Here’s what I’ve come up with:





Stage 1: Housing Downturn: Started August 2007
Housing downturns turn into a free-fall as the underlying assets that drive the economy rapidly decline in value.
This triggers a massive number of foreclosures and the wealth of the people vanishes into thin air.
This sets off a large wave of bank write-downs
Stage 2: Credit Defaults: Started January 2008
Consumers begin defaulting on debts in massive numbers
Insurance companies who insured those debts lose their perfect credit ratings. The cost of insurance goes up, or insurance companies simply fail.
Major businesses follow suit and begin defaulting on their obligations
Stage 3: Bank Failures: Started July/August 2008
At least one, possibly two major banks buckle under the mounting defaults
Hedge funds begin to fail
General chaos and uncertainty in the stock market
Stage 4: Credit Markets Vanish: September/October 2008
Chaos in the stock market results in new laws to “change the rules” to prevent collapse
Most forms of credit (both to consumers and businesses) dry up. Becomes almost impossible to get a loan.
This results in a vicious circle of more write-downs, more stock market losses, and more bank failures.
Stage 5: Full-Scale Economic Collapse: … Has not yet begun.
Full-scale bank panics. Government-declared (temporary) bank closures and market closures to calm the markets.
Access to cash becomes restricted by the government
Government-backed insurers (like the FDIC) go bankrupt
Commodity prices soar (gold, silver, oil, gasoline, food)
Certainly it stands to reason that we are somewhere in the middle of Stage 4. The government has already set up temporary laws to change the rules in the way stocks can be traded in an effort to help stave off a total meltdown (A good hint that this is for real is that the new laws don’t seem to be having much affect). We haven’t seen credit completely dry up yet, but this is the specific issue President Bush says the bailout bill is designed to address (proving that we’ve reached this stage). Watching the Dow is not a good meter on the health of the economy, but rather watching the lending rates between banks to gauge the availability of cash will show you exactly how healthy the economy is doing (Hint: It’s very, very bad right now).


Signs to Watch For As Things Get Worse
It is my opinion that there are a handful of indicators we can watch for that may help us identity (early on) a move towards stage 5. Here are a few:



News of a failed treasury auction or news that treasury rates have spiked (this would indicate that foreign investors and governments are no longer interested in financing our national debt)
A large and sudden spike in inflation (indicates the government is panicking and attempting to print their way out of the problem by flooding the markets with money).
Any suspension of stock trading or government-mandated bank holidays
Any new limits on moving money outside of the U.S.
Gold exceeding $1500 / ounce (this is a strong indicator that inflation is taking place or banks are unsafe, even if the formal reports don’t show it)
Any closed session of congress (this would indicate panic on the part of the federal government)
Any new laws restricting the amount of money that can be withdrawn from your bank
Multiple (8+) simultaneous US bank failures
Run on the banks (large number of people trying to withdraw their funds)
News that any major western power is no longer accepting US Dollars in payment for key commodities
Overt talk of a US default by Asian or European bankers

 

[ntalwar]

Run on the banks (large number of people trying to withdraw their funds)
News that any major western power is no longer accepting US Dollars in payment for key commodities
Overt talk of a US default by Asian or European bankers

This part may be a bit dated - the US dollar has been appreciating lately, while the euro and other currencies decline in value (a lot). Big European banks have been more highly leveraged than US banks, and several European banks' assets are several times their host countries' GDPs. So that makes them too big to fail, but also too big to bail out. In the US, FDIC limits have been raised and the FDIC would be bailed out in case of a problem. The dollar is turning into a bit of a safe haven ironically (as of now anyway).

 

[AliEnvy]

The dollar is turning into a bit of a safe haven ironically (as of now anyway).

Due in part to declining oil prices - which will likely reverse sharply after Nov. 4.

 

[ntalwar]

Due in part to declining oil prices - which will likely reverse sharply after Nov. 4.

It's possible, but oil prices are holding up surprisingly well (around $90) even during this financial meltdown. Current and forecasted oil demand has dropped a bit as well. Other commodities (except maybe gold and silver) are getting hammered a lot harder than oil. There's a mass liquidation of assets (below book value in many cases) across the board, in order to raise cash due to the credit crunch.

 

[MrsSpringsteen]

WASHINGTON (AP) -- Days after it got a federal bailout, American International Group Inc. spent $440,000 on a posh California retreat for its executives, complete with spa treatments, banquets and golf outings, according to lawmakers investigating the company's meltdown.

AIG sent its executives to the coastal St. Regis resort south of Los Angeles, California, even as the company tapped into an $85 billion loan from the government it needed to stave off bankruptcy.

The resort tab included $23,380 worth of spa treatments for AIG employees, according to invoices the resort turned over to the House Oversight and Government Reform Committee.

The retreat didn't include anyone from the financial products division that nearly drove AIG under, but lawmakers still were enraged over thousands of dollars spent on outing for executives of AIG's main U.S. life insurance subsidiary.

"Average Americans are suffering economically. They're losing their jobs, their homes and their health insurance," the committee's chairman, Rep. Henry Waxman, D-California, scolded the company during a lengthy opening statement at a hearing Tuesday.

"Yet less than one week after the taxpayers rescued AIG, company executives could be found wining and dining at one of the most exclusive resorts in the nation."

Former AIG CEO Robert Willumstad, who lost his job a day after the Federal Reserve put up the $85 billion on Sept. 16, said he was not familiar with the conference and would not have gone along with it.

"It seems very inappropriate," Willumstad said in response to questioning from Rep. Elijah Cummings, D-Maryland.

"Those executives should be fired," Democratic presidential candidate Sen. Barack Obama said at a debate with Sen. John McCain on Tuesday, referring to the retreat participants. Obama also said AIG should give the Treasury $440,000 to cover the costs of the retreat.

But Eric Dinallo, superintendent of the New York State Insurance Department, said he could see the value of such a retreat under the circumstances.

"Having been at large global companies and knowing what condition AIG was in ... the absolute worst thing that could have happened" would have been for employees and underwriters in its life insurance subsidiary to flee the company.

"I do agree there is some profligate spending there, but the concept of bringing all the major employees together ... to ensure that the $85 billion could be as greatly as possible paid back would have been not a crazy corporate decision," Dinallo told the House committee.

The hearing disclosed that AIG executives hid the full range of its risky financial products from auditors as losses mounted, according to documents released by the committee, which is examining the chain of events that forced the government to bail out the conglomerate.

The panel sharply criticized AIG's former top executives, who cast blame on each other for the company's financial woes.

"You have cost my constituents and the taxpayers of this country $85 billion and run into the ground one of the most respected insurance companies in the history of our country," said Rep. Carolyn Maloney, D-New York. "You were just gambling billions, possibly trillions of dollars."

AIG, crippled by huge losses linked to mortgage defaults, was forced last month to accept the $85 billion government loan that gives the U.S. the right to an 80 percent stake in the company.

 

[hiphop]

Agreed, but the ECB will cut rates also (eventually), which of course will weaken the euro. Eventually. They'll probably wait until things get a bit messier though.

they waited for about 15 hours

 

[hiphop]

WASHINGTON (AP) --
Former AIG CEO Robert Willumstad, who lost his job a day after the Federal Reserve put up the $85 billion on Sept. 16, said he was not familiar with the conference and would not have gone along with it.

"It seems very inappropriate," Willumstad said in response to questioning from Rep. Elijah Cummings, D-Maryland.

Ah it seems inappropriate does it?

So why did YOU take 10 million $ when handing your job (after you fucked up) over to Mr Liddy, Mr Willumstad?

This man should go to jail.

 

[AliEnvy]

From a friend:

A little background on how we got into this mess
The issue at hand is how banks use debt to make a lot of money!

Since I'm not able to articulate the technicalities, this description of the derivatives market captures why I've earlier described what's happened as Wall Street and Co pulling an Enron on the economy.

And I suppose this guy should be labelled among the paranoid bloggers and conspiracy therorists for commenting on being threatened with martial law if the bailout didn't pass congress.

YouTube - Rep. Brad Sherman

 

[financeguy]

they waited for about 15 hours

Things have gotten particularly bad when the Ger--sorry, I mean the ECB - cut rates.

 

[diamond]

Since I'm not able to articulate the technicalities, this description of the derivatives market captures why I've earlier described what's happened as Wall Street and Co pulling an Enron on the economy.

And I suppose this guy should be labelled among the paranoid bloggers and conspiracy therorists for commenting on being threatened with martial law if the bailout didn't pass congress.

YouTube - Rep. Brad Sherman

he could be viewed as a prolific hero in 6-9 months.

<>

 

[Lila64]

I thought I heard on the news today that AIG was getting another 38-40 Billion dollars on top of the $85 mil they already received

 

[diamond]

yep.

 

[KhanadaRhodes]

so...why the fuck are my taxes going so already-rich executives can get facials and mud wraps? i love going to the spa, but not when i'm strapped for cash...like right now. it really hits a sore spot with me that they're spending so lavishly and then they get even more money to help bail them out. i would love to have even 0.000001% of that bail out money. and i'm just as much at fault for being in my financial predicament as they are with theirs.

 

[hiphop]

I thought I heard on the news today that AIG was getting another 38-40 Billion dollars on top of the $85 mil they already received

Great! Hahahaha

I should call the bank that is re-secured through them again, I wonder how on earth anyone can still trust AIG..

Capitalism at its best The funny thing is now everyone´s wondering how on earth this could happen (with 4,000 billion $ per day transferred around the globe, of which only 10% are the actual goods, 90% were speculation, derivatives etc. in computers.. what did we expect?)

 

[melon]

Capitalism at its best The funny thing is now everyone´s wondering how on earth this could happen (with 4,000 billion $ per day transferred around the globe, of which only 10% are the actual goods, 90% were speculation, derivatives etc. in computers.. what did we expect?)

I think this will be the ultimate downfall of modern capitalism. At some point, we forgot the value of actual production, instead of instruments of dubious value and reality. Now it looks like the "fantasy" is falling apart.

 

[hiphop]

I think this will be the ultimate downfall of modern capitalism. At some point, we forgot the value of actual production, instead of instruments of dubious value and reality. Now it looks like the "fantasy" is falling apart.

Right. I don´t think WE forgot the value of production (every American factory worker knows the value of his work..) but the investors did! And they didn´t just "forget it" accidentially, one could say, they wanted to forget this value. Economists like Stiglitz (World Bank) have been warning them for a decade. But of course, the Reagan/Thatcher/Bush model where the ideal is free trade worldwide without any government regulations also led to this crisis.

I wonder now, it seems politicians are only pumping money into this shady system (the effects gets lost again after a few hours or days, as you can see with AIG) or will they also introduce harsh regulations for trade?

I suspect they will prefer to pump a few thousand billions into the system just to make it "work" again (remember, they don´t pay - the taxpayers do, you and me) and then forget about the regulations. American and European citizens will be too lazy to remind them with force. At the moment, I don´t see a million of protesters in front of the Capitol or UK Parliament, or Elysee for that matter.

Downfall of "modern" neo-con capitalism? We shall see.

 

[AliEnvy]

Right. I don´t think WE forgot the value of production (every American factory worker knows the value of his work..).

There are plenty of other values we're forgetting.

American and European citizens will be too lazy to remind them with force. At the moment, I don´t see a million of protesters in front of the Capitol or UK Parliament, or Elysee for that matter.

Downfall of "modern" neo-con capitalism? We shall see.

Maryland Police Put Activists' Names On Terror Lists Surveillance's Reach Revealed

washingtonpost.com


By Lisa Rein Washington Post Staff Writer Wednesday, October 8, 2008

The Maryland State Police classified 53 nonviolent activists as terrorists and entered their names and personal information into state and federal databases that track terrorism suspects, the state police chief acknowledged yesterday.

Police Superintendent Terrence B. Sheridan revealed at a legislative hearing that the surveillance operation, which targeted opponents of the death penalty and the Iraq war, was far more extensive than was known when its existence was disclosed in July.

The department started sending letters of notification Saturday to the activists, inviting them to review their files before they are purged from the databases, Sheridan said.

"The names don't belong in there," he told the Senate Judicial Proceedings Committee. "It's as simple as that."

The surveillance took place over 14 months in 2005 and 2006, under the administration of former governor Robert L. Ehrlich Jr. (R). The former state police superintendent who authorized the operation, Thomas E. Hutchins, defended the program in testimony yesterday. Hutchins said the program was a bulwark against potential violence and called the activists "fringe people."

Sheridan said protest groups were also entered as terrorist organizations in the databases, but his staff has not identified which ones.

Stunned senators pressed Sheridan to apologize to the activists for the spying, assailed in an independent review last week as "overreaching" by law enforcement officials who were oblivious to their violation of the activists' rights of free expression and association. The letter, obtained by The Washington Post, does not apologize but admits that the state police have "no evidence whatsoever of any involvement in violent crime" by those classified as terrorists.

Hutchins told the committee it was not accurate to describe the program as spying. "I doubt anyone who has used that term has ever met a spy," he told the committee.

"What John Walker did is spying," Hutchins said, referring to John Walker Jr., a communications specialist for the U.S. Navy convicted of selling secrets to the Soviet Union. Hutchins said the intelligence agents, whose logs were obtained by the American Civil Liberties Union of Maryland as part of a lawsuit, were monitoring "open public meetings." His officers sought a "situational awareness" of the potential for disruption as death penalty opponents prepared to protest the executions of two men on death row, Hutchins said.

"I don't believe the First Amendment is any guarantee to those who wish to disrupt the government," he said. Hutchins said he did not notify Ehrlich about the surveillance. Ehrlich spokesman Henry Fawell said the governor had no comment.

Hutchins did not name the commander in the Division of Homeland Security and Intelligence who informed him in March 2005 that the surveillance had begun. More than a year later, after "they said, 'We're not getting much here,' " Hutchins said he cut off what he called a "low-level operation."

But Sen. James Brochin (D-Baltimore County) noted that undercover troopers used aliases to infiltrate organizational meetings, rallies and group e-mail lists. He called the spying a "deliberate infiltration to find out every piece of information necessary" on groups such as the Maryland Campaign to End the Death Penalty and the Baltimore Pledge of Resistance. When Hutchins called their members "fringe people," the audience of activists who filled the seats in the hearing room in Annapolis sighed.

Some activists said yesterday that they have received letters; others said they were waiting with anticipation to see whether they were on the state police watch list.

Laura Lising of Catonsville, a member of the Baltimore Coalition Against the Death Penalty, received her notification yesterday. She said she wants a hard copy of her file, because she does not trust the police to purge it. "We need as much protection as possible," she said.

Both Hutchins and Sheridan said the activists' names were entered into the state police database as terrorists partly because the software offered limited options for classifying entries.

The police also entered the activists' names into the federal Washington-Baltimore High Intensity Drug Trafficking Area database, which tracks suspected terrorists. One well-known antiwar activist from Baltimore, Max Obuszewski, was singled out in the intelligence logs released by the ACLU, which described a "primary crime" of "terrorism-anti-government" and a "secondary crime" of "terrorism-anti-war protesters."

Sheridan said that he did not think the names were circulated to other agencies in the federal system and that they are not on the federal government's terrorist watch list. Hutchins said some names might have been shared with the National Security Agency.

Although the independent report on the surveillance released last week said that it was part of a broad effort by the state police to gather information on protest groups across the state, Sheridan said the department is not aware of any surveillance as "intrusive" as the spying on death penalty and war opponents.

The police notified the protesters at the recommendation of former U.S. attorney and state attorney general Stephen H. Sachs, who was appointed by Gov. Martin O'Malley (D) to review the covert monitoring. In a report last week, Sachs also recommended regulations that forbid such spying on protest groups unless the state police chief believes it is justified.

"I can't imagine getting a letter that says, 'You've been classified as a terrorist; come in and we'll tell about it,'" said Sen. Bryan W. Simonaire (R-Anne Arundel). Two senators noted that they had been arrested years ago for civil disobedience. Sen. Jennie Forehand (D-Montgomery) asked Sheridan, "Do you have any legislators on your list?" The answer was no.

 

[hiphop]

There are plenty of other values we're forgetting.

Adding to my confusion, a friend yesterday told me that typically the Indexes of the Muslim countries (with regional Muslim businesses, not foreign import/ export) are free of arms, tobacco, alcohol, gambling business, you name it.. the Muslims do not allow you to trade with every shit according to their religion, *cough cough*

 

[MrsSpringsteen]

NEW YORK—In a sign of the times, the National Debt Clock in New York City has run out of digits to record the growing figure.

As a short-term fix, the digital dollar sign on the billboard-style clock near Times Square has been switched to a figure -- the "1" in $10 trillion. It's marking the federal government's current debt at about $10.2 trillion.

The Durst Organization says it plans to update the sign next year by adding two digits. That will make it capable of tracking debt up to a quadrillion dollars.

The late Manhattan real estate developer Seymour Durst put the sign up in 1989 to call attention to what was then a $2.7 trillion debt.

 

[hiphop]

Things have gotten particularly bad when the Ger--sorry, I mean the ECB - cut rates.

These idiots are doing close to nothing to prevent this.
Of course we need general regulations for short but some products now would need short to minimize risk. I.e. look at insurance products that run for the next 20 years, coupled with national "blue chip" indexes!

The politicians apparently have no other idea than pump money into the bank system and make guarantees that only exist in their fantasy. What if they guarantee you all your savings, but inflation will rise to an all time high? The guarantees aren´t worth the paper they´re written on.


Look at European businesses like OMV, Immoeast or you name it, totally undervalued right now, in free fall but they can´t prevent it. When you play casino and can sell your stocks any day, ok, it´s your risk - but if you have insurance products to save for the future, for your retirement, like many people in Europe (typically fonds) - and they are bound to shit stocks - and even the fondsmgmt can´t react like "we secure this downfall through 10% of futures betting Index will continue to fall so at least we keep some of the cash..." - the fonds just lost all the interests they made in the last years in one month; 20, 30, 40 percent a year - you can´t do anything about it because politicians are dumb and only lie to you by telling "oh we are sooooo safe here, German businesses are safe" -

I can´t hear this blah blah anymore and it angers me.

Fucking Brussels like always too slow to react and has no impact at all with their idiotic guarantees.

What we would need are quick, hard regulations by professionals and a tax on all speculations - so WE people who save the banks now - get repaid the tax money that has been spent later. With interests of course.

 

[financeguy]

I am very concerned that tomorrow could be a black day across the globe.

Mind you the way things are going recently it will probably turn out to be the opposite. However at the moment i really fear that tomorrow could be a seriously disastrous day.

 

[financeguy]

NEW YORK—In a sign of the times, the National Debt Clock in New York City has run out of digits to record the growing figure.

As a short-term fix, the digital dollar sign on the billboard-style clock near Times Square has been switched to a figure -- the "1" in $10 trillion. It's marking the federal government's current debt at about $10.2 trillion.

The Durst Organization says it plans to update the sign next year by adding two digits. That will make it capable of tracking debt up to a quadrillion dollars.

The late Manhattan real estate developer Seymour Durst put the sign up in 1989 to call attention to what was then a $2.7 trillion debt.

It doesn't matter 'cos like it's tiny compared to GDP - Strongbow.

 

[financeguy]

I am very concerned that tomorrow could be a black day across the globe.

Mind you the way things are going recently it will probably turn out to be the opposite. However at the moment i really fear that tomorrow could be a seriously disastrous day.

Australian stock market down 5% in first half an hour trading.

Hold on to your hats, rough ride ahead.

 

[financeguy]

American and European citizens will be too lazy to remind them with force. At the moment, I don´t see a million of protesters in front of the Capitol or UK Parliament, or Elysee for that matter.

I do see civil unrest ahead.

I read that Gordon Brown has used legislation designed to counter terrorism to freeze Icelandic assets in the UK. This disgraceful action proves that Brown (and I am not excusing the actions of Iceland) is not only an economic incompetent, but also a fascist bastard.

 

[AliEnvy]

I am very concerned that tomorrow could be a black day across the globe.

It's already being called Black Friday based on Asian market losses while we were sleeping last night.

I do see civil unrest ahead.

Nothing will change for the better without it. It remains to be seen how bad everyday people's circumstances will get before we see real change.

 

[yolland]

.

White House Overhauling Rescue Plan

By EDMUND L. ANDREWS and MARK LANDLER
New York Times, October 11


WASHINGTON — As international leaders gathered here on Saturday to grapple with the global financial crisis, the Bush administration embarked on an overhaul of its own strategy for rescuing the foundering financial system.

Two weeks after persuading Congress to let it spend $700 billion to buy distressed securities tied to mortgages, the Bush administration has put that idea aside in favor of a new approach that would have the government inject capital directly into the nation’s banks—in effect, partially nationalizing the industry. As recently as Sept. 23, senior officials had publicly derided proposals by Democrats to have the government take ownership stakes in banks.

The Treasury Department’s surprising turnaround on the issue of buying stock in banks, which has now become its primary focus, has raised questions about whether the administration squandered valuable time in trying to sell Congress on a plan that officials had failed to think through in advance. It has also raised questions about whether the administration’s deep philosophical aversion to government ownership in private companies hindered its ability to look at all options for stabilizing the markets.

Some experts also contend that Treasury’s decision last month to not use taxpayer money to save Lehman Brothers worsened the panic that quickly metastasized into an international crisis.

The administration’s new focus was announced late Friday as part of a rescue plan in coordination with six of the world’s richest nations. It came during a week when the Dow Jones industrial average plummeted 18%, one of the worst weeks in stock market history.

While the Treasury says it still plans to buy distressed assets, the scope of that plan is unclear. Treasury Secretary Henry M. Paulson Jr. has refused to say whether the capital infusion program for banks would be bigger than the original plan to buy troubled assets. Still, Treasury has directed Fannie Mae and Freddie Mac, the government-controlled mortgage giants, to ramp up their purchases of hard-to-sell mortgage bonds, in what could be a speedier and less formal process than the auctions proposed by the Treasury.

Underscoring the gravity of the situation, President Bush convened an early morning meeting at the White House on Saturday with finance ministers from the Group of 7 industrialized countries. “All of us recognize that this is a serious global crisis, and therefore requires a serious global response, for the good of our people,” Mr. Bush said afterward in the Rose Garden, flanked by the ministers, who are in Washington for the annual meetings of the International Monetary Fund and the World Bank. Mr. Bush said the countries had agreed to general principles to respond to the crisis, including working to prevent the collapse of important financial institutions and protecting the deposits of savers. But he offered no details on other measures, suggesting that there were still differences among countries about which steps to take to shore up their respective financial systems.

To some extent, the effort to agree on a coordinated plan is being driven less by the hope that such measures will carry more punch than by the fear that nations acting alone could destabilize the system. Those worries grew in recent days when Iceland seized its three major banks, which were failing, and appeared to guarantee the deposits of Icelanders over those of foreigners. That provoked a fierce reaction from Britain, which is now in talks with Iceland to get back the deposits of British citizens.

With the United States and Europe working together on ways to secure their banking systems, economists are concerned that money may flow out of other countries, particularly emerging markets, to Western countries if investors decide that those markets are not as safe. The United States sought to reassure these countries in a meeting on Saturday evening of the Group of 20, which includes countries with large emerging markets, like China and Russia. “We want to reaffirm, reinforce our commitment that we’re going to take these actions in a way that doesn’t undermine the economies of other countries,” said David H. McCormick, the under secretary of the Treasury for international affairs.

Like the United States, Britain plans to provide capital directly to banks. But the United States and other countries have not adopted Britain’s proposal to guarantee lending between banks as a way to unlock the credit market. Germany has been reluctant to put state capital directly into banks, though officials said there were signs of movement in that position on Saturday. European leaders were scheduled to meet in Paris on Sunday, amid reports that Germany may announce a large rescue plan of its own.

Some experts said the delay in carrying out the Bush administration’s $700 billion bailout plan had only hurt its prospects for success. “Even if it was adequate before, it’s not adequate now,” said Frederic Mishkin, a professor of economics at Columbia University’s business school who stepped down as a Federal Reserve governor at the end of August. “If you delay and create uncertainty, the amount of money you have to put up goes up.”

As recently as late September, the idea of letting the government buy part of the banking system had been unthinkable in the Bush administration. To many officials, such intervention seemed like a European-style government intrusion in the markets. “Some said we should just stick capital in the banks, take preferred stock in the banks. That’s what you do when you have failure,” Mr. Paulson told the Senate Banking Committee on Sept. 23. “This is about success.” Mr. Paulson told lawmakers it made more sense to jumpstart the frozen credit markets with “market measures,” by which he meant buying up assets rather than institutions. He staunchly resisted Democratic proposals to require that the government receive an equity stake in the companies it was helping.

But on Friday, Mr. Paulson not only confirmed his intention to buy stakes in banks but gave the idea central billing. “We can use the taxpayer’s money more effectively and efficiently, get more for the taxpayer’s dollar, if we develop a standardized program to buy equity in financial institutions,” Mr. Paulson said.

Treasury officials said they hoped to make the first capital investments within the next two weeks. That would be earlier than any government purchases of unwanted mortgage-backed securities. One reason for Mr. Paulson’s rapid reconsideration was that global financial markets have been going downhill faster than anyone had seen before. Credit markets seized up and all but stopped functioning, making it impossible for most companies to borrow money on more than an overnight basis. Bank stocks plummeted, making it much more difficult to shore up their balance sheets by raising more capital from investors.

Investors panicked as the House initially rejected the bailout bill on Sept. 29. They panicked even more after Congress passed a bill on Oct. 3 that was packed with sweeteners that added $110 billion to the price tag. By the closing bell last Friday, the Standard & Poor’s 500-stock index had suffered its worst week since 1933. A growing number of analysts argue that Mr. Paulson’s original plan, called the Troubled Assets Relief Program, would have been unhelpful and possibly unworkable. Some noted that Mr. Paulson presented Congress a proposal that was only three pages long and that Treasury officials have yet to provide details how the auctions will work.

As envisioned, the Treasury or its agents would hold so-called “reverse auctions” in which financial institutions are invited to compete against each other in offering to sell their mortgage-backed securities at a low price. Though auctions are common for all sorts of products, including electricity that utilities sell one another, experts said that mortgage-backed securities would pose difficult headaches because they are extraordinarily complex, difficult to value and come in almost limitless varieties. The bonds for a single pool of mortgages are divided into more than a dozen “tranches,” or slices, which have different seniority, different credit ratings and different rules for being paid off. The performance of the underlying mortgages varies greatly from one pool to another, even if both pools are made up of seemingly similar loans. “I am not aware that the Treasury Department presented any evidence on auctions that have been successful when they are used for assets that are so heterogeneous,” said William Poole, who retired in August as president of the Federal Reserve Bank of St. Louis.

Because Fannie Mae and Freddie Mac, the mortgage giants, buy and sell mortgage securities every day, they could absorb some of the hard-to-sell securities without going through the untested auction process. The Federal Housing Finance Agency, which last month seized the companies and placed them into a conservatorship, lifted capital restrictions on them last week and effectively gave them a green light to buy more mortgage securities of all types, including those backed by subprime loans, given to borrowers with weak credit. The companies have a lot of money; Congress authorized Treasury to lend them as much as $100 billion each as part of the rescue plan created for them. That could free up money in the separate $700 billion bailout plan for injecting capital directly into the banks. People familiar with the early planning efforts for a systemic bailout said the chairman of the Federal Reserve, Ben S. Bernanke, argued that it would be easier and more efficient to inject capital directly into banks. But Treasury officials balked, in part because they were ideologically opposed to direct government involvement in business.

But as the financial markets spiraled further downward during the last 10 days, a growing number of top-tier institutions, including Goldman Sachs and Morgan Stanley, became worried about their survival. “The crisis in confidence goes way beyond the actual losses that will be incurred from debt securities,” Mickey Levy, chief economist for Bank of America, said in an interview on Friday. “It’s truly incumbent on policy makers to address that crisis.”

Treasury officials began canvassing banks and investment firms about the possibility of having the government buy stakes in them. The new bailout law gave the Treasury the authority to buy up almost any kind of asset it wanted, including stock or preferred shares in banks. Industry executives quickly told Mr. Paulson that they liked the idea, though they warned that the Treasury should not try to squeeze out existing shareholders. They also begged Mr. Paulson not to impose tough restrictions on executive pay and golden-parachute deals for executives who are fired. Mr. Paulson heeded those pleas. In his remarks on Friday, he carefully noted that the government would acquire only “nonvoting” shares in companies. And officials said the law lets the Treasury write most of its own restrictions on executive pay, and those restrictions can be lenient if they are applied to a set of fairly healthy companies.

 

[UberBeaver]

I do see civil unrest ahead.

I read that Gordon Brown has used legislation designed to counter terrorism to freeze Icelandic assets in the UK. This disgraceful action proves that Brown (and I am not excusing the actions of Iceland) is not only an economic incompetent, but also a fascist bastard.

Hi. I don't mean this in an asshole way, but are you human? Or a newsbot?

 

[financeguy]

Hi. I don't mean this in an asshole way, but are you human? Or a newsbot?

Don't newsbots have rights too?