Your Pension had been diluted very, very fast…

According to the following post from Economist.com’s Free exchange blog, “The Day of Reckoning,” that could prove to be an unattainable goal for many Americans.

FIRST the good news: many American baby boomers have been saving enough for retirement. So says a paper by John Karl Scholz and Ananth Seshadri. Rather than look at replacement rates (the ratio of retirement to working income) they measure how much wealth you need to fund desired consumption in retirement.

Now the bad news: that estimate uses data from 2004. The paper measures wealth using stocks, bonds, mutual funds, defined contribution pension assets, and housing wealth. We know how that went.

Housing wealth makes up the largest share of most American’s investment portfolios. According to a 2007 survey of consumer finances, the other large piece of wealth comes from assets in private pension accounts. These tend to be heavily invested in equities. About half of 401(k)/403(b) participants over the age of 60 invested more than 50% of their account in equity.

Even if baby boomers dutifully saved and were on track for a comfortable retirement two years ago, they’ve taken a big hit. They will have to work longer, but it will be a very long time before the value of their home and stock portfolio reaches 2007 levels.

The fall in personal assets means Americans will find themselves more dependent on state benefits. This incredibly bleak CEPR paper finds that the real estate crash will leave many Americans almost totally reliant on Social Security. Of course, the cohort they use is between the age of 45 and 54. People closer to retirement tend to have more equity in their homes. Also the study assumes people sell their homes in 2009. It does not allow for the option of staying in your house and not paying rent to someone else. In that respect your primary residence pays you a dividend. A new retiree may opt to not sell their house at the bottom of the market and continue to receive dividend payments instead. The same can be said of their stock portfolio. But, even under the most favourable assumptions, it’s a pretty ugly situation.

The administration is hoping to cut entitlement spending, but at least for baby boomers, this does not look realistic. The Great Depression spawned Social Security in an effort eliminate old-age poverty. It will be interesting to see what happens to the programme now.

To make matters worse, as Mish’s Global Economic Trend Analysis writes in “Social Security: There Is No Trust; There Is No Fund,” many people will eventually find that they don’t even have a government-sponsored safety net to fall back on.

Social Security is back in the limelight where once again its problems will no doubt be ignored.

Please consider Recession Puts a Major Strain On Social Security Trust Fund.

The U.S. recession is wreaking havoc on yet another front: the Social Security trust fund.

With unemployment rising, the payroll tax revenue that finances Social Security benefits for nearly 51 million retirees and other recipients is falling, according to a report from the Congressional Budget Office. As a result, the trust fund’s annual surplus is forecast to all but vanish next year — nearly a decade ahead of schedule — and deprive the government of billions of dollars it had been counting on to help balance the nation’s books.

The Treasury Department has for decades borrowed money from the Social Security trust fund to finance government operations. If it is no longer able to do so, it could be forced to borrow an additional $700 billion over the next decade from China, Japan and other investors. And at some point, perhaps as early as 2017, according to the CBO, the Treasury would have to start repaying the billions it has borrowed from the trust fund over the past 25 years, driving the nation further into debt or forcing Congress to raise taxes.

Obama’s $9.3 Trillion Budget Deficit

Inquiring minds are pondering Obama budget could bring $9.3 trillion in deficits.

President Barack Obama’s budget would produce $9.3 trillion in deficits over the next decade, more than four times the deficits of Republican George W. Bush’s presidency, congressional auditors said Friday.

The new Congressional Budget Office figures offered a far more dire outlook for Obama’s budget than the new administration predicted just last month — a deficit $2.3 trillion worse. It’s a prospect even the president’s own budget director called unsustainable.

The dismal deficit figures, if they prove to be accurate, inevitably raise the prospect that Obama and his Democratic allies controlling Congress would have to consider raising taxes after the recession ends or else pare back his agenda.

By CBO’s calculation, Obama’s budget would generate deficits averaging almost $1 trillion a year of red ink over 2010-2019.

Worst of all, CBO says the deficit under Obama’s policies would never go below 4 percent of the size of the economy, figures that economists agree are unsustainable. By the end of the decade, the deficit would exceed 5 percent of gross domestic product, a dangerously high level.

Most disturbing to Obama allies like Senate Budget Committee Chairman Kent Conrad, D-N.D., are the longer term projections, which climb above $1 trillion again by the end of the next decade and approach 6 percent of GDP by 2019.

The worsening economy is responsible for the even deeper fiscal mess inherited by Obama. As an illustration, CBO says the deficit for the current budget year, which began Oct. 1, will top $1.8 trillion, $93 billion more than foreseen by the White House. That would equal 13 percent of GDP, a level not seen since World War II.

Trust Fund Projections

click on chart for sharper image

Let’s return to the ridiculous claim made by analysts: Many liberal analysts reject the notion that Social Security needs fixing, arguing that the system is projected to fully support payments to beneficiaries through 2041 — so long as the Treasury repays its debts.

For starters it is clear to see the 2041 figure is nonsense. And given that every cent of the fund has been spent, exactly how is the treasury supposed to repay that fund in light of $9.3 trillion (with a T) budget deficits when the “surplus” is a mere $16 Billion (with a B)?

Nobel Economist Ed Prescott: “Don’t Subsidize Inefficiency…. Let These Businesses Go Bankrupt. They Gambled, They Lost. That’s Part Of Life”

Nobel economist Ed Prescott says:

Don’t subsidize inefficiency. Cut tax rates to get people to work more. This financial stuff is much ado about nothing. I don’t see any reason for the taxpayers to bail out Goldman Sachs in a roundabout way. Let these businesses go bankrupt. They gambled, they lost. That’s part of life.

Numerous economists agree with Prescott. See this, this, this, this and this.

Useful Idiots in Modern America

Today, in modern America, there are useful idiots on the right who blindly support anyone who attacks Obama because Obama is a so-called “liberal”.

Equally, there are useful idiots on the left who blindly support Obama and try to defend his bailouts of the financial giants, his escalation of the Afghanistan war, his defense of Bush administration torturers and war criminals, and other indefensible acts because they think he is the great liberal savior.

Stalin’s useful idiots – like Robeson – were blind to the reality of what the communist tyrants were actually doing. They were too caught up in ideas about what was happening, instead of looking at the effect of the actual policies being carried out.

Those on both the left and the right who fall for the rhetoric of the Democratic and Republican party leaders are useful idiots who are failing to look at the effect that those parties’ policies are actually having.

Indeed, the Republican and Democratic parties have been promoting virtuall identical economic policies, which is why economists from the left and the right have slammed both Bush/Paulson and Obama/Geithner’s actions.

Failing to see that the financial elite are controlling the agenda of both parties is a form of useful idiocy.

The US Have Committed 12, 8 Trillions on behalf of American taxpayers

The following table details how the Fed and the government have committed the money on behalf of American taxpayers over the past 20 months, according to data compiled by Bloomberg.

 

===========================================================
                                  --- Amounts (Billions)---
                                   Limit          Current
===========================================================
Total                            $12,798.14     $4,169.71
-----------------------------------------------------------
 Federal Reserve Total            $7,765.64     $1,678.71
  Primary Credit Discount           $110.74        $61.31
  Secondary Credit                    $0.19         $1.00
  Primary dealer and others         $147.00        $20.18
  ABCP Liquidity                    $152.11         $6.85
  AIG Credit                         $60.00        $43.19
  Net Portfolio CP Funding        $1,800.00       $241.31
  Maiden Lane (Bear Stearns)         $29.50        $28.82
  Maiden Lane II  (AIG)              $22.50        $18.54
  Maiden Lane III (AIG)              $30.00        $24.04
  Term Securities Lending           $250.00        $88.55
  Term Auction Facility             $900.00       $468.59
  Securities lending overnight       $10.00         $4.41
  Term Asset-Backed Loan Facility   $900.00         $4.71
  Currency Swaps/Other Assets       $606.00       $377.87
  MMIFF                             $540.00         $0.00
  GSE Debt Purchases                $600.00        $50.39
  GSE Mortgage-Backed Securities  $1,000.00       $236.16
  Citigroup Bailout Fed Portion     $220.40         $0.00
  Bank of America Bailout            $87.20         $0.00
  Commitment to Buy Treasuries      $300.00         $7.50
-----------------------------------------------------------
  FDIC Total                      $2,038.50       $357.50
   Public-Private Investment*       $500.00          0.00
   FDIC Liquidity Guarantees      $1,400.00       $316.50
   GE                               $126.00        $41.00
   Citigroup Bailout FDIC            $10.00         $0.00
   Bank of America Bailout FDIC       $2.50         $0.00
-----------------------------------------------------------
 Treasury Total                   $2,694.00     $1,833.50
  TARP                              $700.00       $599.50
  Tax Break for Banks                $29.00        $29.00
  Stimulus Package (Bush)           $168.00       $168.00
  Stimulus II (Obama)               $787.00       $787.00
  Treasury Exchange Stabilization    $50.00        $50.00
  Student Loan Purchases             $60.00         $0.00
  Support for Fannie/Freddie        $400.00       $200.00
  Line of Credit for FDIC*          $500.00         $0.00
-----------------------------------------------------------
HUD Total                           $300.00       $300.00
  Hope for Homeowners FHA           $300.00       $300.00
-----------------------------------------------------------
he FDIC’s commitment to guarantee lending under the
Legacy Loan Program and the Legacy Asset Program includes a $500
billion line of credit from the U.S. Treasury.

U.S. Spending 100% of GDP on Bailouts and Related Programs

As I have previously pointed out, Paul Krugman is calling for the U.S. and Europe to spend an amount equal to 4% of their gross domestic products on the financial crisis.

Today, Bloomberg notes:

 

The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.

In other words, instead of spending 4% of GDP, the U.S. is committing to spending close to 100%. This dwarfs spending during the New Deal: 

 

 

 

 

 

 

 

 

 

 

 

 

 

For those who argue that much of the trillions being spent today is in the form of loans and guarantees, I would argue that taxpayers will never see most of this money ever again. It is spent, and gone. Indeed, most of the financial giants which the loans were made to are insolvent and will be out of business in a couple of years.

Mark my words, the chart above will end up showing that spending will soon exceed 100% GDP.

A new Reserve Currency will be reality sooner or later

You’ve heard that the IMF is considering printing hundreds of billions of dollars worth of its own currency – called “Special Drawing Rights” or SDRs. Currently, the SDR is pegged to four currencies: the dollar, yen, euro and sterling.

You’ve heard that China’s central bank proposed making SDRs the world’s reserve currency.

You’ve likely heard that Tim Geithner has said that he supports the IMF’s proposal to issue large amounts of SDRs (and that some people say that Geithner also supports making SDR the world’s reserve currency).

You may even have heard that Russia also backs making the SDR the world’s reserve currency, and that Russia wants the SDR to be pegged to a basket of yuans, rubles and gold.

But you probably have not heard that: READ MORE HERE

AIG Paid Full Amount to Foreign CDS Counterparties, But Demanded 70% Haircut of U.S. Counterparties

Congressional Committee on Financial Services:

In a stunning development, Representatives Frank and Bachus are alleging that AIG might have paid the full amount of credit default swap contracts to foreign counterparties, but demanded that U.S. counterparties take a haircut of up to 70%:

AIG Payments

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I’m glad that haircuts were given. But if only American companies are taking haircuts – and not foreign companies – that is blatantly unfair, since the money came from American taxpayers.

 

Source:George Washington’s Blog

Outstanding Credit Default Swaps Down to “Only” About Twice America’s GDP

Over-the-counter credit default swap contracts – you know, the kind which brought down Bear, Lehman, AIG, etc. – totaled as much as $62 trillion at the end of 2007.
The New York Fed bragged today about how much the CDS totals have been reduced:
Market participants have significantly reduced levels of outstanding CDS trades via multilateral trade terminations (tear-ups) to lower outstanding notional amounts, reducing counterparty credit exposures and operational risk. To date in 2009, tear-ups have eliminated approximately $7 trillion of CDS trade notional amounts, in addition to the $32 trillion eliminated in 2008.
Indeed, DTCC confirms that there are now approximately $25 trillion in outstanding CDS. That’s still almost twice the size of America’s gross domestic product.

And if the CDS numbers have been reduced from their astronomical 2007 peaks, it is partly because the American taxpayer has paid a pretty penny to make some of the CDS “go away”.

Is Abandonment of Mark-to-Market Bullish for Gold?

When people don’t trust their government, gold prices rises.
Similarly, lack of trust in the stability of the financial system leads to increased “save haven” gold buying.
The abandonment of mark-to-market, which will undermine the credibility of the financial system and the governments which [fail to] regulate them, may therefore be bullish for gold in the years ahead.

Obama to Bankers: “My Administration Is The Only Thing Between You And The Pitchforks.”

When the big bank CEOs tried to convince Obama that they deserved big bonuses, he reminded them that the public wanted their heads on a platter:

“These are complicated companies,” one CEO said. Offered another: “We’re competing for talent on an international market.”

But President Barack Obama … stopped the conversation and offered a blunt reminder of the public’s reaction to such explanations. “Be careful how you make those statements, gentlemen. The public isn’t buying that.”

“My administration,” the president added, “is the only thing between you and the pitchforks.”
Tough talk which accurately reflects the righteous fury of the American people. Too bad Obama is just throwing our money at the banks and allowing them to game the system, and isn’t actually doing anything to ensure that the banks act in the interests of the American people.

What can Happens next in the Economy

Where are we going? Or, more to the point, where is the US economy going? Todd Harrison of Minyanville.com thinks that we have two possible outcomes: hyperinflation or deflation and depression.

I think that there are more possibilities and they are more nuanced. It’s more like a real fork in that we have four scenarios. They are listed below in reverse order of probability, estimated by me. As usual, I retain the right to be wrong and anybody is free to disagree with me.

Short note about money mass. People are talking (I’d say shouting) about the huge amount of money issued by the Fed and how it can cause high inflation. But they completely ignore the even bigger amount of money destroyed in the crisis (credit contraction = money destruction) and sharply reduced money velocity. They also ignore the carry trade and the role it can play in the crisis. READ HERE WHAT CAN WE WAIT…

How to Fix the Balance Sheet? Change the Valuation Rules of Assets!! The Financial Accounting Standards Board´s move to save Banks

Beside the government’s clumsy design of the PPIP and the banks’ financially incestuous schemes pale in comparison with the U-turn by the Financial Accounting Standards Board (FASB). A few choice words from politicians was all it took for the fearless members of the accounting watchdog to turn from staunch defenders of “fair value” to advocates of the more “flexible” approach so beloved by banks.

After receiving a verbal pasting in a Congressional hearing, the FASB wasted no time in designing rules that would allow banks to reduce writedowns by using obscure models, instead of market prices, to value bad assets.

Allowing banks to hide their losses under accounting shenanigans will not restore investors’ shattered trust in their results
That’s right: banks’ reward for accumulating $1,300bn in losses and destroying $5,500bn of shareholder wealth is a bigger say on how much their assets are worth.

None of the reasons given by the Treasury and FASB (mostly along the lines of “desperate times call for desperate remedies” and so on) can justify such ludicrous actions.

The most dangerous consequence of these misguided policies is that they might prolong the crisis. Juicing up sale prices of securities and loans with cheap leverage (does that sound familiar?), while subsidising banks and a few fund managers will not create a liquid market for bad loans.

In fact, investors and hedge funds that are unlikely to qualify for government loans are already saying they will not bid for the assets.

Similarly, allowing banks to hide their losses under accounting shenanigans will not restore investors’ shattered trust in their results.

It is no coincidence that the FASB’s rule change pushed both banks’ shares and the cost of insuring against their default higher.

Investors think results will look better but be worse – a confidence-sapping state of mind.

They say the proof of the pudding is in the eating. But investors would do well to pass on this unappetising concoction of rushed policies, self-serving measures and political expedients.

The Ridiculous Marks of Toxic Assets

 

Following up on Tyler’s earlier post, it’s important to put the potential PPIP assets in perspective to the overall holdings of the banks.

Citi is clearly the most interested party in this whole thing, with a whopping 44% of its total assets tied up in legacy assets. As Citi is valuing these things at such a ridiculously high level, Citi stockholders are going to be closely watching the PPIP proceedings and how the players approach their bidding strategy. The benefit of the PPIP-leverage is it is likely to boost valuations higher than they would be without the PPIP leverage/backstops – it remains to be seen if that benefit will be substantial enough to stem the bloodloss at Citi.

Another interesting tidbit is that the weighted average ex-Citi is still at a pretty high 9%. If the valuations for these legacy assets drop from the 90-100 range to roughly half that (which doesn’t seem wholly unreasonable) that’s an instant 5% drop in assets across the entire financial industry.

The takeaway from this whole thing is that the PPIP program is wrought with conflicting interests, and every movement in valuations for deals is going to have a huge impact beyond the specific parties of that particular deal. Stay tuned…

Update: Institutional Risk points out the gap between Geithner/Bernanke’s pricing of these legacy assets at around 80 cents/dollar and the market’s pricing at between 20-40 cents/dollar. Further, it highlights the possibility of these following to 15 cents/dollar by Q3 – implying a 37.4% net asset markdown for Citi and a 7.65% net asset markdown across the entire financial industry.

The derivatives market are what is killing the economy.This is not over.

From the 10th, March 2009 in George Washington’s Blog stays:

Citi, B of A, HSBC, Wells and JP Morgan’s Current Net Loss Risks from Derivatives $587 Billion as of Dec. 31 (Up 49% in 90 Days)

Everywhere you look, there’s evidence that derivatives are what is killing the economy.

McClatchy reports that derivatives, mainly credit default swaps, are destroying Citibank, B of A, HSBC, Wells and JP Morgan:

America’s five largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show.

Bailed-out banks eye toxic asset buys

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

The plans proved controversial, with critics charging that the government’s public-private partnership – which provide generous loans to investors – are intended to help banks sell, rather than acquire, troubled securities and loans.

Taxpayers will now be liable for most of the Losses of the Toxic Assets In the System

The most succinct description of what is wrong with Geithner’s PPIP toxic asset plan comes from the Financial Times:

Critics say that would leave the same amount of toxic assets in the system as before, but with the government now liable for most of the losses through its provision of non-recourse loans.

That’s exactly right. American banks that have received billions in bailout funds, including Citigroup Inc, Goldman Sachs, Morgan Stanley and JPMorgan Chase & Co, are considering buying toxic assets to be sold by rivals under the Treasury’s trillion dollar plan (and Bank of America – another big bailout recipient – is buying toxic assets as well).

The amount of toxic assets isn’t going to be meaningfully reduced – the assets will just be shuffled from one bailout buddy to another.

But the government is guaranteeing 85% of the value of the toxic assets.

So the taxpayers (who anteed up for the bailout funds which the banks are now using to purchase the assets) will again pick up the tab when the assets turn out to not be worth as much as the banks are paying for them.

But why would the banks overpay for the other guy’s toxic assets?

Some financial writers have speculated that these banks are giving each other kickbacks under the table. But we don’t even have to go there.

If all of the big banks holding the lion’s share of toxic assets (about 5 banks, as discussed below) have a gentleman’s agreement to overpay for the other guy’s toxic assets, then they will end up in the same position as if they had all paid fair market value. You overpay for mine, I’ll overpay for yours . . .

But since they can then say that they naively overvalued the assets, the government will pay them back for their “losses”.

Get it?

It is well-known that JP Morgan, B of A, Citigroup, HSBC and Wells Fargo have by far the largest derivatives holdings (and see this). Their derivatives exposure – especially credit default swaps – are the core type of toxic asset (and one of the main causes of the financial crisis). These are really the players which would need to agree to play this game for it to work.

Remaining CDS contracts twice the size of America’s GDP and 5 times bigger than the G-20 Package

Over-the-counter credit default swap contracts – you know, the kind which brought down Bear, Lehman, AIG, etc. – totaled as much as $62 trillion at the end of 2007.

The New York Fed bragged today about how much the CDS totals have been reduced:
Market participants have significantly reduced levels of outstanding CDS trades via multilateral trade terminations (tear-ups) to lower outstanding notional amounts, reducing counterparty credit exposures and operational risk. To date in 2009, tear-ups have eliminated approximately $7 trillion of CDS trade notional amounts, in addition to the $32 trillion eliminated in 2008.
Indeed, DTCC confirms that there are now approximately $25 trillion in outstanding CDS. That’s still almost twice the size of America’s gross domestic product.

And if the CDS numbers have been reduced from their astronomical 2007 peaks, it is partly because the American taxpayer has paid a pretty penny to make some of the CDS “go away”.

These are indeed extraordinary times we live in

These are extraordinary times. With the United States and Britain on the verge of bankruptcy and committing to an endless colonial war, pressure is building for their crimes to be prosecuted at a tribunal similar to that which tried the Nazis at Nuremberg. This defined rapacious invasion as “the supreme international crime differing only from other war crimes in that it contains within itself the accumulated evil of the whole.” International law would be mere farce, said the chief US chief prosecutor at Nuremberg, Supreme Court justice Robert Jackson, “if, in future, we do not apply its principles to ourselves.”

That is now happening. Spain, Germany, Belgium, France and Britain have long had “universal jurisdiction” statutes, which allow their national courts to pursue and prosecute prima facie war criminals. What has changed is an unspoken rule never to use international law against “ourselves,” or “our” allies or clients. In 1998, Spain, supported by France, Switzerland and Belgium, indicted the Chilean dictator Augusto Pinochet, client and executioner of the West, and sought his extradition from Britain, where he happened to be at the time. Had he been sent for trial he almost certainly would have implicated at least one British prime minister and two US presidents in crimes against humanity. Home Secretary Jack Straw let him escape back to Chile.

A G20 Meeting:Still Clinging to the Dead Logic of Neoliberalism

By ERIC TOUSSAINT and DAMIEN MILLET

The G20 summit meeting in London from April 1st onward was loudly announced and publicized. Those 20 industrialized and emergent countries (G20) are meeting to find solutions to the crisis. But long before the end of the summit, it is clear that they will not rise to the challenge.

The G20 was not created in order to provide genuine solutions; it was hastily summoned a first time in November 2008 to salvage the powers that be and try and to plug the breaches in capitalism. It is therefore impossible for this body to opt for measures that are sufficiently radical to save the day.

Public opinion will be told to look in the two directions that are expected to focus aggravation: tax havens and the CEOs’ incomes.

Tax havens have to be abolished, that goes without saying. To achieve this it should be easy enough to make it illegal for companies and residents to have any assets in, or relationships with partners located in, tax havens. The EU countries that function like tax havens (Austria, Belgium, the UK, Luxembourg…) as well as Switzerland must do away with bank secrecy and put an end to their outrageous practices. Yet such is not at all the orientation chosen by the G20: a couple of emblematic cases will be cracked down on, minimal measures will be required from those countries, and a black list of non-cooperative territories eventually made public will have been carefully vetted (the City, Luxembourg or Austria have already been promised they will not be on it).

On the other hand CEOs’ incomes, including golden parachutes and other bonuses, are indeed outrageous. In time of growth the employers claimed that those who brought in such benefits to their companies had to be rewarded to prevent them from moving to another. Now that we live in a time of crisis and those companies have to admit to increasing losses, the same executives still claim similar rewards. The G20 will try to regulate their incomes for a limited duration. The logic of the system is not questioned.

Apart from tax havens and CEOs’ superbonuses, which will not be hit by any specific penalties anyway, the G20 countries will further bail out their banks. Though globally discredited and de-legitimized, the IMF will be put back at the hub of the political and economic game thanks to a new provision of funds which will have been made available by 2010.

It is time to bring to justice the Financial Swindlers. Apply the RICO Act!

by Tommy Tucci
The Racketeer Influenced and Corrupt Organizations Act: Could this be the End of RICO and the US Financial System

Philadelphia, PA, April 1, 2009……..RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT ………..RICO
No: not the stereotype RICO Hollywood fiction created in the 1920’s…..

The US financial and economic demise continues its downward slide into a TALF, TARP, TIFF, PPPIP black hole of no return.

Mainstream media, TV, editors, columnists, word smiths, continue communicating every cause and effect of this demise with no solutions.

The so called guardians of the US Constitution assisting this demise with daily stereotyping, character assassination, distortions, distractions, myths, and propaganda.

The solution for the world’s victims daily illegal pyramid transactions is RICO, not the stereotype RICO Hollywood fiction created in the 1920’s but the RICO STATUTE US CODE TITLE 18 – RICO LAWS.

The US Department of Justice strategy is to commensurate filing criminal and criminal conspiracy charges against the perpetrators including “Where’s The Money Madoff”, “Bonus Baby Distraction AIG”, “Reverse Robin Hoods Goldman Sachs” “Old School Pyramid Scams BofA Citi Corp” “Reverse Pyramid Scams Wall Street Hedge Funds”, “New York Stock Pyramid Exchange” the “21st Century Scams Federal Reserve” and more.

The current operators of massive “Pyramid Schemes” “Reverse Pyramid” scams continue their great crimes with assistance from government policy stimulus bailouts, myths, mainstream media distractions, and controlled markets.

Not one person or entity has been held accountable to date.

The world’s victims urgently need the RICO STATUTE – RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT to be imposed by the US Department of Justice.

RICO HAS NOT BEEN SEEN OR HEARD COULD THIS BE THE END OF RICO!

——————————————————————————–

Editor’s note:

RICO should be used to go after the perpetrators of financial fraud and manipulation.

The text of the Legislation can be consulted by clicking below

CHAPTER 96: RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT

See also Wickipedia

“The Racketeer Influenced and Corrupt Organizations Act (commonly referred to as RICO Act or RICO) is a United States federal law that provides for extended criminal penalties and a civil cause of action for acts performed as part of an ongoing criminal organization. RICO was enacted by section 901(a) of the Organized Crime Control Act of 1970 (Pub.L. 91-452, 84 Stat. 922, enacted October 15, 1970). RICO is codified as Chapter 96 of Title 18 of the United States Code, 18 U.S.C. § 1961–1968. While its intended use was to prosecute the Mafia as well as others who were actively engaged in organized crime, its application has been more widespread.

It has been speculated that the name and acronym were selected in a sly reference to the movie Little Caesar, which featured a notorious gangster named Rico. The original drafter of the bill, G. Robert Blakey, refused to confirm or deny this.”[1]

SOURCE: Wickipedia

G-20 Meeting…

G-20 Shapes New World Order With Lesser Role for U.S., Markets

Global leaders took their biggest steps yet toward a new world order that’s less U.S.-centric with a more heavily regulated financial industry and a greater role for international institutions and emerging markets.

At the end of a summit in London, policy makers from the Group of 20 yesterday delivered a regulatory blueprint that French President Nicholas Sarkozy said turned the page on the Anglo-Saxon model of free markets by placing stricter limits on hedge funds and other financiers. The leaders also pledged to triple the resources of the International Monetary Fund and to hand China and other developing economies a greater say in the management of the world economy.

“It’s the passing of an era,” said Robert Hormats, vice chairman of Goldman Sachs International, who helped prepare summits for presidents Gerald R. Ford, Jimmy Carter and Ronald Reagan. “The U.S. is becoming less dominant while other nations are gaining influence.”

A lot was at stake. If the leaders had failed to forge a consensus — Sarkozy this week threatened to quit the talks if they didn’t back much tighter regulation — it might have set back the world’s economy and markets just as they’re showing signs of shaking off the worst financial crisis in six decades.

Open Letter to Dick “Darth Vader” Cheney about the Economic-Financial Crisis and the PPIP (or PPIF), Please Stop Johan Norberg Right Away!

Posted in Blogroll on March 26, 2009 by D-Train

Dear Dick,

I write to you seeking some advice. I explain my problem. As you know we had a great time since the 80´s when Ronny took the White House…maybe do you remember all the fun we had with the guys, especially Milton, when we planned how to get out all those idiots and get theirs money. The plan was terrific: tell them that anyone could be rich if they let us to become even richer! It was a master move! Since tell them that if we got even more money some will “trickle down to them” haha and the “positive growth trend” hihi we created with “our own money creation approach” for 30 years ago or “The cash machine” as Milton used to refer it. Oh, Boy what a time!! Great Fun!! I had to recognise that Milton was a genius, R.I.P old boy! What a story!

Anyway, as you probably had heard some stuff had not been working properly the last year. Some of the guys from “the Street” got high with so much easy money and begun to sell some “insurance” to everyone without a penny in reserve, I think that they called the papers CDS or something like that. They got to idea from some Chinese guy that was working with the probability of a kid get cancer, his parents divorced, his best mate killed and his dog poison in the same time…almost zero. So they used the same arguments to sell a lot of those papers to idiots around the world, now saying that the probability that they papers loose all their value was zero, according to the formula! Great idea! READ THE WHOLE ENCHILADA

Well, the problem was, as you know now, that the prices went down…you know I think the guys had a debt mountain of some trillions and had no a single penny… well , no some money they are prepared to take back from the Cayman islands anyway. So we talked with the guys in Washington and told them that they had to pump up some cash or otherwise the whole enchilada would explode in the front of their face! They believe us again the jackasses!! Incredible! I asure you that tall will be fine. The guys from D.C. presented no problem as expected, you know that they are good people, decent people…our people.

No, the problem is that now the idiots from “main street” as we call them now have begun to protest and to ask a lot of questions…Why the government has to support us, where the money is coming from, what about the schools and the pensionfunds and a lot of shit…I’m completely convinced that the idiots that have nothing more to do and are sitting all the day in front of theirs computer surfing and bloging are part of the problem and I think that we have to address this issue rather sooner than later…we can not permit, after lying hundreds of millions in TV stations , newspapers and other stuff, that some frustrated commies take down all this “educational afford”! You know, as a security measure we employed only “people with the right mental disposition” i.e. people that support our way of seeing the world (most of them unfortunately are not “true believers” but only people seeking our gratifications…bonuses they call them now I believe), but the blogers are taking down the charade…We have certainly stop them asap! READ THE WHOLE ENCHILADA

US Unemployment

Treasuries declined after the payrolls reports issued in February and March, even though each showed the loss of more than 500,000 jobs, later revised to a combined 1.3 million. Traders focused instead on the likelihood that the government will issue unprecedented levels of debt this year to spur economic growth.

“With the ongoing global supply deluge the longer term preference will be to sell,” John Spinello, chief technical strategist at Jefferies Group Inc. in New York, wrote in a note to clients before the report.

Treasuries dropped yesterday as accounting regulators approved a rule change that may boost bank profits and world leaders at the Group of 20 nations summit agreed on plans to fight the worst financial crisis since the Great Depression.

“The biggest change in the last month is that government policy has gone from being a source of downside risk to a source of upside risk” for the economy, Tim Condon, head of Asia research with ING Groep NV in Singapore, said in a report today.

Treasuries fell as US Federal Financing Need rises

Treasuries fell as traders focused on the record amount of government securities slated to be sold this year after a report showed the U.S. jobless rate rose in March to the highest level in 25 years and payrolls tumbled.

Government debt has dropped 1.7 percent this year, according to Merrill Lynch & Co.’s U.S. Treasury Master index, as President Barack Obama’s government increases borrowing to record levels to revive economic growth and service record deficits.

“We were long coming into the unemployment data and we are going into supply next week,” said Theodore Ake, head of U.S. Treasury trading in New York at Mizuho Securities USA Inc., one of the 16 primary dealers that trade with the Federal Reserve. “That is not a good recipe for getting the market up”

The 10-year note yield rose four basis points, or 0.04 percentage point, to 2.82 percent at 8:42 a.m. in New York, according to BGCantor Market Data. Two-year note yields rose two basis points to 0.90 percent.

The 10-year yield has remained since the beginning of the year in a range of 2.14 percent to 3.05 percent. The yield, which slid to a record low of 2.04 percent on Dec. 18, averaged 4.25 percent for the past five years.

The jobless rate increased to 8.5 percent, as forecast, from 8.1 percent in February, the Labor Department said today in Washington. Employers cut 663,000 workers from staff, bringing total losses since the recession began to about 5.1 million, the biggest slump in the postwar era.

Inflation Expectations and TALF´s failure

Treasury yields and stocks are both poised to rise, according to ING, the biggest Dutch financial-services company.

The spread between rates on 10-year notes and Treasury Inflation Protected Securities, which reflects traders’ outlook for consumer prices, narrowed to 1.36 percentage points before the jobs report, from 1.43 percentage points a week ago. It has averaged 2.26 percentage points for the past five years.

After subtracting for consumer prices, the so-called real yield for 10-year notes is about 2.55 percent, more than double the five-year average.

The U.S. Treasury is scheduled to sell $6 billion in 10- year inflation-indexed notes on April 7. Deflation, a general drop in prices, would tend to erode demand for TIPS.

The Fed plans to buy U.S. securities next week on April 6 and April 7 after purchasing $7.5 billion yesterday.

Obama is asking Congress to approve a $3.55 trillion budget for 2010. The nonpartisan Congressional Budget Office estimated the 2010 deficit at $1.38 trillion, higher than the White House’s $1.17 trillion projection.

Fed Purchases

The Fed’s $1 trillion effort to restart the market for securities backed by loans is encountering resistance from investors, undermining Chairman Ben S. Bernanke’s attempt to further drive down borrowing costs.

The Term Asset-Backed Securities Loan Facility may next week fail to see a big increase from its $8.3 billion first round of investor commitments in March, said Reed Auerbach, co- chief executive officer of law firm McKee Nelson LLP in New York.

Investors are concerned that Congress, while responding to taxpayer anger over bank bailouts, hasn’t described how the most sweeping regulatory overhaul since the Great Depression will change the ways financial companies turn a profit.

“I can do very well for my clients without venturing into federal waters which are inhabited by sharks,” said David Kotok, the chairman of Cumberland Advisors Inc. in Vineland, New Jersey, who manages about $1 billion. “We are leery of doing anything with the federal government.”

TED Spread

Yields suggest government and central bank efforts are restoring trading in debt markets, though they haven’t recovered to levels before the credit crunch began in 2007.

The difference between what banks and the Treasury pay to borrow money for three months, the so-called TED spread, narrowed to 96 basis points before the report, from 2008’s high of 4.64 percentage points in October. It averaged 36 basis points in 2006.

U.S. company bonds yielded 7.72 percentage points more than Treasuries, narrowing from 8.04 percentage points at the end of 2008, Merrill’s Corporate & High Yield Master index shows. The spread was 1.42 percentage points 24 months ago.

Open Letter to Dick “Darth Vader” Cheney about the Economic-Financial Crisis and the PPIP (or PPIF), Please Stop Johan Norberg Right Away!

Posted in Blogroll on April 1, 2009 by marcleon009
Posted in Blogroll on March 26, 2009 by D-Train

Dear Dick,

I write to you seeking some advice. I explain my problem. As you know we had a great time since the 80´s when Ronny took the White House…maybe do you remember all the fun we had with the guys, especially Milton, when we planned how to get out all those idiots and get theirs money. The plan was terrific: tell them that anyone could be rich if they let us to become even richer! It was a master move! Since tell them that if we got even more money some will “trickle down to them” haha and the “positive growth trend” hihi we created with “our own money creation approach” for 30 years ago or “The cash machine” as Milton used to refer it. Oh, Boy what a time!! Great Fun!! I had to recognise that Milton was a genius, R.I.P old boy! What a story!

Anyway, as you probably had heard some stuff had not been working properly the last year. Some of the guys from “the Street” got high with so much easy money and begun to sell some “insurance” to everyone without a penny in reserve, I think that they called the papers CDS or something like that. They got to idea from some Chinese guy that was working with the probability of a kid get cancer, his parents divorced, his best mate killed and his dog poison in the same time…almost zero. So they used the same arguments to sell a lot of those papers to idiots around the world, now saying that the probability that they papers loose all their value was zero, according to the formula! Great idea! READ THE WHOLE ENCHILADA

Unemployment in U.S. Increases to 8.5%, 25-Year High

The U.S. unemployment rate climbed in March to the highest level since 1983 and the economy lost more than 650,000 jobs for a fourth consecutive month, a sign renewed reductions in spending might slow a recovery.

The jobless rate increased to 8.5 percent, as forecast, from 8.1 percent in February, the Labor Department said today in Washington. Employers cut 663,000 workers from staff, bringing total losses since the recession began to about 5.1 million, the biggest slump in the postwar era.

Evaporating jobs and declining pay mean President Barack Obama’s pledge to create or save 3.5 million jobs through tax cuts and government spending may fall short of what’s needed to revive the world’s largest economy. Federal Reserve Chairman Ben S. Bernanke has conceded joblessness could top 10 percent under a worst-case scenario.

Open Letter to Dick “Darth Vader” Cheney about the Economic-Financial Crisis and the PPIP (or PPIF), Please Stop Johan Norberg Right Away!

Posted in Blogroll on March 26, 2009 by D-Train

Dear Dick,

I write to you seeking some advice. I explain my problem. As you know we had a great time since the 80´s when Ronny took the White House…maybe do you remember all the fun we had with the guys, especially Milton, when we planned how to get out all those idiots and get theirs money. The plan was terrific: tell them that anyone could be rich if they let us to become even richer! It was a master move! Since tell them that if we got even more money some will “trickle down to them” haha and the “positive growth trend” hihi we created with “our own money creation approach” for 30 years ago or “The cash machine” as Milton used to refer it. Oh, Boy what a time!! Great Fun!! I had to recognise that Milton was a genius, R.I.P old boy! What a story!

Anyway, as you probably had heard some stuff had not been working properly the last year. Some of the guys from “the Street” got high with so much easy money and begun to sell some “insurance” to everyone without a penny in reserve, I think that they called the papers CDS or something like that. They got to idea from some Chinese guy that was working with the probability of a kid get cancer, his parents divorced, his best mate killed and his dog poison in the same time…almost zero. So they used the same arguments to sell a lot of those papers to idiots around the world, now saying that the probability that they papers loose all their value was zero, according to the formula! Great idea!

Well, the problem was, as you know now, that the prices went down…you know I think the guys had a debt mountain of some trillions and had no a single penny… well , no some money they are prepared to take back from the Cayman islands anyway. So we talked with the guys in Washington and told them that they had to pump up some cash or otherwise the whole enchilada would explode in the front of their face! They believe us again the jackasses!! Incredible! I asure you that tall will be fine. The guys from D.C. presented no problem as expected, you know that they are good people, decent people…our people.

No, the problem is that now the idiots from “main street” as we call them now have begun to protest and to ask a lot of questions…Why the government has to support us, where the money is coming from, what about the schools and the pensionfunds and a lot of shit…I’m completely convinced that the idiots that have nothing more to do and are sitting all the day in front of theirs computer surfing and bloging are part of the problem and I think that we have to address this issue rather sooner than later…we can not permit, after lying hundreds of millions in TV stations , newspapers and other stuff, that some frustrated commies take down all this “educational afford”! You know, as a security measure we employed only “people with the right mental disposition” i.e. people that support our way of seeing the world (most of them unfortunately are not “true believers” but only people seeking our gratifications…bonuses they call them now I believe), but the blogers are taking down the charade…We have certainly stop them asap!

Even worst is the fact that some jackass are arguing in public that we had to leave the “free market” works! It is quite worrying that there are some idiots out there that still believe all the crap we talked them. We had successfully pumped up theirs brains with some illusions that those jackasses still defend, but now there are others time my friend! We told the idiots about “free markets” and we talk about something about “democracy” and “liberty”… which of course we mean “liberty of action for us”…as when we talk about “free markets” we mean of course ” free for us” …As you explain for us for long time ago.I don’t remember exactly how we put the whole charade, cause I had at the time a terrible hangover…Well I can tell you that as we own almost all media it was not difficult to pumping out all this bullshit without any problem… But now we are experience some problems with those “hard core” people that still is arguing about “the free market” and other stuff…they are really making a hell for us! They don’t understand that the time for such rubbish is over…We have to stop them before they damage us! This is what happens when you mix idiots with the people that really know what is all about!! I hate those amateurs!

They are talking a lot of crap: That our guys in Washington don’t need to give us some cash, that the “market” is going to solve the whole thing and other bullshit! Ok, we told them to say that the last 30 years and it was working pretty well until it doesn’t… but those idiots don’t understand the point: it was as long as we got the money…and if we don’t get the cash in this way there is not point in continue with the charade! Now, we have to argue that Uncle Sam has to help us for the benefit of everyone and the nation (of course just help us …not take our money and leave us naked) …but those people, the market “liberals”, are really causing us some problems with their rubbish about the “free market”, the “invisible hand” and other stupidity!

I ask you what we can do now. We have certainly shut up those idiots before they damage us seriously and more and more people begin to ask questions!

For instance, lately the mob had begun to ask about the bonuses! That it was too much money and stuff like that…you know…the problem is that before we could tell them that it was necessary to do a “good job”…you know…but now when every idiot knows that we lost control ( and some trillions of dollars) what can we say?

We have to be really creative this time! The piece of art will be to explain to the mob why they have to give us their tax money, without requiring anything from us and respecting the sacred “private property” i.e. our property! Ours banks! and in the same time we get our “well deserved share” of this money!

It will require a lot of inventive talent and audacity. It is because of that I write to you dear Dick.

Sincerely yours

P. Wolfowitz or Wolfi for you…;=)

PS: Say Hello to Donald and “Georgi” when you see them!

PS2: The good news are that last Monday the guys from Washington come with a genial idea how to give us some money without so much questions: they called the giving away for “ Public-private-Investment –Fund” PPIF, I tell you it is a terrific deal. They give us say between 90 and 95 cents for buying something that as most is worth 5-20 cent, but with the face value of 1 dollar. If some idiots pay in the future say 1 dollar and 5 cent, we keep the diff of 10 cent (105-95), this is a 100 % return to our “investment” of 5 cent!! But, here is the magical with the arrangement: if we can not find some jackass that buys the junk paper we have not to pay at all the 95 cent we “borrow” to buy them in the first place!! Genial! All to save the economy (our economy dude) !! Hehe. Ohh these boys in Washington!!

Growing Transatlantic tensions on the eve of the G20 summit

 An illustration of Wall Street’s and the City’s attempt to destabilize the EU banking system and the Euro

According to LEAP/E2020, there are only two options left for the G20 leaders who gather next April 2nd in London: either they rebuild a new international monetary system, creating the conditions for a new global system that involves all the main global players, and reducing the crisis to a maximum of 3 to 5 years; or they strive to prolong the current system, thrusting the world into a decade long tragic crisis starting at the end of 2009.

In this 33rd edition of the GEAB, we wish to describe the two ways forward that remain open until summer 2009. Beyond that, our team estimates that the “short-term crisis” option will be obsolete and that the world will be on the path towards global geopolitical dislocation (1), and a deep and decade-long crisis.

For this reason, due to the urgency, LEAP/E2020 has decided to publish next March 24th on a global scale an open letter to all the leaders of the G20. This will be our team’s attempt to divert the system from the long and tragic crisis option.

The situation appears all the more worrying in that tensions are growing on the eve of the April 2nd summit. Indeed a number of thinly disguised threats on the part of some G20 leaders, as well as various attempts to manipulate public opinion on the part of others are to be observed.

We shall come back in detail on these aspects in this GEAB N°33 where the LEAP/E2020 team has also decided to engage in an exercise intended for all those (including the US where 20 percent of LEAP/E2020’s readers come from) who are exasperated by the illusion fed by Western media about the state of the US as a cornerstone of our current system: anticipating the social and economic state of the United States in one year from now, in Spring 2010. Strong trends are already visible enough to enable this kind of forecast. Of course, a similar exercise will be conducted about the European Union, Russia and China in the following editions of the GEAB.

Synthetic graphic of US collective sentiment (in blue: sense of impending doom; in green: purchasing power sentiment; in pink: job concerns) – Source : Chart of Doom, 02/2009

In line with their concern for reliable information, the LEAP/E2020 team (which warned about housing risks in Central and eastern Europe as early as December 2007 in GEAB N°20 decided to study carefully in the present public announcement the reality of this so-called “Eastern European banking bomb” which has invaded the media in the last month.

If we found this a relevant theme, it is because it represents in our opinion a deliberate attempt on the part of Wall Street and the City (2) to make the world believe in some rupture within the EU and to instil the idea that some « deadly » risk is weighing on the Eurozone, by endlessly conveying phony news on a “banking risk coming from Eastern Europe” and by stigmatizing a “cold-feeted” Eurozone as opposed to the “voluntarist” actions initiated by the Americans and the Bristish. One aim is also to divert the attention from the increasing financial problems encountered in New York and London, and to weaken the Europe position on the eve of the G20 summit.

The idea is brilliant: pick up a current and “in the news” theme to ensure interest, add one or two striking analogies to guarantee that the media and internet are eager to circulate the information; then call on a few devoted men and organisations, always available to tell one more lie. With this kind of a cocktail, you can even make people believe for a while that the war in Iraq is a great success, that the subprime crisis will not affect the financial sector, that the financial crisis will not affect real economy, that the crisis is not really severe, and that, if it is, everything is under control!

In the present case, the theme is a classic; it is about the separation between the « Old Europe » and the « New Europe », between a rich and selfish Europe and a poor and hopeful Europe. From Rumsfeld on Iraq to the United Kingdom on EU enlargement, this is a common theme repeated endlessly over the past ten years by the Anglo-Saxon and related media, and on which some British media in particular have become specialists (3).

As to the analogies, there are two: Eastern Europe is the “subprime crisis” of the EU (understand: of course, everyone has its own subprime crisis (4)); and, a crisis in Eastern Europe will have the same terrible effect as the 1997 Asia crisis (probably because both are Eastward (5)).

Suspects are not missing. In the first place, a rating agency – in this case Moodys (6), which, like the rest of them, first of all, is completely devoted to Wall Street, and then is incapable of seeing “an elephant in a corridor” (they missed the subprimes, the CDS, Bear Stearn, Lehman Brothers, AIG, ….). But, for some mysterious reason, the financial media keeps on repeating their opinions, probably generously applying the principle that they could be right some day purely out of statistical chance. In this case, Moody’s prediction has been largely echoed: they saw a major « bomb » in the backyard of the Eurozone (as of course, it is the Euro we are talking about here)… about to devastate the European financial system.

Then, to make the idea more credible, you select some virulently anti-Euro media (such as the UK’s Telegraph, for instance, which, despite the fact that they also produce some very accurate analyses of the crisis, are currently blinded as regards the Eurozone by the collapse of the British economy and Pound Sterling) and you circulate a news item that you soon retract (because it is inaccurate) so that it gains credibility by virtue of its retraction, of the secret (7) revealing some unfolding “financial tsunami” due to Old European banks’ liabilities within the New European financial sector (8). Continue the story each day in the main US and UK financial media, knowing the others will follow out of habit (it is so easy as regards the EU, slow as it is to understand and even slower to react, with the inevitable dissent that makes it possible for the manipulation to gain momentum). This time, Hungarian Prime Minister, Ferenc Gyurcsany, is the one playing the role of the « poor little new European martyr ». For the record, the Hungarians have vainly been trying to get rid of him ever since he involuntarily admitted two years ago that he lied to his citizens in order to be reelected, and confirmed in the same breath that he indebted his country beyond any reasonable limit. Now, he is the one announcing crazy figures for a bailout plan of the Eastern European financial system, giving the Old Europeans the role of the « bad » or « cold » guys. The latter’s refusal is pinpointed by the entire US and UK press, coming to the natural conclusion that European solidarity has failed,… and understating (or completely forgetting) the fact that the Polish and the Czechs were the most virulent against the absurd claims of Hungarian Prime Minister (9). The attempt to weaken the EU and Eurozone from the East could have gone on further until the Eurozone leaders decided to make a number of strong statements and announced a substantial financial support plan (compared to the real risk), and political leaders and central bankers of the regions resorted to publishing tough press releases so that finally the manipulation began to lose momentum. But it has not disappeared yet, and the analogy between the subprime crisis and the housing crisis in Eastern Europe remains vivid in the mind of the media; as if Hungary was equivalent to California, or Latvia to Florida.

Ths is indeed the core of the problem: in economy and finance, size matters… and the tail never wags the dog, contrary to what some people would like us to believe.

As early as December 2007, at a time when our « current experts of the Eastern European crisis » showed no awareness whatsoever of the problem, LEAP/E2020 highlighted the fact that a considerable housing risk weighed on these European countries (Latvia, Hungary, Romania,…) and on their creditors (Austria and Switzerland in particular). However they always found obvious that these problems were limited to the concerned countries. There are indeed problems ahead for these countries and those commercially and financially involved with them, but these problems are no more serious than the average problems encountered by the global financial system; and they certainly do not compare with the problems faced by the financial markets of New York, London or Switzerland. Let us remind ourselves that the bank most often cited as being the “detonator” of this “Eastern-European bomb”, i.e. the Austrian bank Raiffeisen, increased its profits 17 percent in 2008; a result beyond the wildest dreams of most US and UK banks today, as William Gamble noted, one of the rare analysts who studied what the story was really about (10).

GDP of the European Union, Eurozone and Member-States – Source: Eurostat, 2008

For those who are not familiar with EU geography, a headline like « Hungary in bankruptcy » or « Latvia defaults on its debt » can compare to one like « California goes bankrupt ». For those who lose their jobs as a consequence, the problem is indeed similar. However, in terms of impact on a larger-scale, they have nothing in common. California, severely affected by the subprime crisis, is the most populated and richest state of the United States, while Latvia is a poor country with a population corresponding to 1 percent of the EU population (versus California’s 12 percent of the US population (11)). Hungary’s GDP represents less than 1.1 percent of the Eurozone’s GDP (in the case of Latvia, this figure is 0.2 percent) (12), that is to say the equivalent of Oklahoma (1% of US GDP (13)) rather than Florida. Eastern Europe is far from being able to bring problems of a similar magnitude to the subprime crisis. All the new Member-States put together comprise less than 10 percent of the EU GDP (among them, the biggest and richest ones, such as Poland and the Czech Republic, are hardly affected at all). As a worst-case scenario, the amounts at stake for the European financial system, are around EUR 100-billion (USD 130-billion) (14), that is to say a very modest sum on the scale of the EU financial system (15). In fact, the EU has taken the lead of a consortium which has already injected EUR 25-billion (i.e. 20 percent of the worst-case scenario) to stabilize the situation (16), and whose severity has already been diminished by the recent fall in value of the Swiss Franc.

Last but not least, the value of new houses in Eastern Europe will not fall dramatically (even if the value will be less than in 2007/08) because, after 50 years of communism, there is a shortage of modern buildings. In the US on the contrary, an excessive number of houses were built during the last housing bubble, of variable quality and already depreciating in value in the most affected states. There, there is a real destruction of wealth for landowners, creditors, banks and the economy altogether.

The complexity of the ongoing crisis requires being extremely vigilant in identifying the trends and factors conveying real serious dangers, instead of being sidetracked by rumors and phony news.

We hope that this detailed explanation will contribute to debunk the lie orchestrated around a so-called « Eastern European financial bomb » (17) ; and that it will provide an illustration enabling each and everyone to see through first appearances, seek true facts hiding “behind the mirror” presented by mainstream media, and make up their own mind.

If the G20 Summit fails to prevent the world entering into the phase of geopolitical dislocation, similar operations of manipulation and destabilization will increase in number, each regional block trying to discredit their opponent, like any zero-sum game (18) : a player gains the other players lose.

———-
Notes:

(1) See GEAB N°32

(2) Circulated by everything that counts among financial media and experts, most of whom did not have the faintest idea of a housing/financial problem coming in some Eastern European countries when, in December 2007, LEAP/E2020 described the risk.

(3) No wonder then that Marketwatch mentions in an article on this subject the accusations made against it by the Czech Republic’s central bank. Source: Marketwatch, 03/09/2009.

(4) Which of course is wrong: no other country than the US and the UK presents such a convergence of disasters.

(5) Knowing that the Central and Eastern European countries hit (Hungary, the Baltic States, Bulgaria and Romania) are completely marginal in the global economy, contrary to South-East Asian countries, key-players of globalisation in the 1990s.

(6) Source: Reuters, 02/17/2009

(7) Due to which, even the most informed websites hesitate to give an opinion on that story, thus giving it more credit. See Gary North, 19/02/2009, on LewRockwell.com.

(8) Source: Telegraph, 02/15/2009

(9) Source: EasyBourse, 03/01/2009

(10) Source: SeekingAlpha, 02/26/2009

(11) Source: 2007 Statistics, US Census Bureau.

(12) Source: 2008 Statistics, Eurostat. The Baltic States are overprotected by Scandinavian countries, Sweden in particular who is very careful that an uncontrollable spiral does not begin in the region. Source: International Herald Tribune, 03/12/2009

(13) Source: 2008 Statistics, Bureau of Economic Analysis, US Department of Commerce.

(14) Source: Baltic Course, 03/05/2009

(15) A ridiculously small sum compared to the hundreds of billions repeatedly injected by the US and UK governments into their banking system.

(16) Source: European Investment Bank, 02/27/2009

(17) We prefer not to waste our time with the confusion about Ukraine (a confusion that even Nouriel Roubini, usually better informed, contributed to foster – Source: Forbes, 02/26/2009), not only a country which does not even belong to the EU, but clearly a pawn on Washington’s and London’s chess board since the “orange revolution”. The unfolding collapse of the Ukraine, if it can indeed create problems for the EU as can any instability on its frontier, mostly illustrates the collapse of the “dollar wall” at the expense of US positions and in favour of Russia’s regained influence in that country. At the precise moment when in Wall Street and the City, large banks collapse or are being nationalized, this recent manipulation is an attempt to hide the Anglo-Saxon forest behind the Eastern-European tree. Some people have honestly been fooled, the story was so credible: « si non è vero è bello », as the Italians say.

(18) What the world will become from the end of 2009 onward, if a new system is not initiated next summer.

Lundi 16 Mars 2009

In the same category:

Open letter / London G20 Summit: Last chance before global geopolitical dislocation - 24/03/2009

Open letter / London G20 Summit: Last chance before global geopolitical dislocation

Open letter to the G20 leaders, published in the Financial Times’ worldwide edition on 03/24/2009

Ladies and Gentlemen,

Your next summit takes place in a few days in London; but are you aware that you have less than a semester to prevent the world from plunging into a crisis that will take at least a decade to resolve, accompanied by a whole series of tragedies and ferment? Therefore, this open letter by LEAP/E2020, who saw the arrival of a « global systemic crisis » as early as three years ago, intends to briefly explain why it happened and how to limit further damage.

If indeed you began to suspect the onset of a sizeable crisis less than a year ago, LEAP/E2020, in the second issue of their « Global Europe Anticipation Bulletin » (GEAB N°2), anticipated that the world was about to enter into the « trigger phase » of a crisis of historic proportions. Since then, month after month, LEAP/E2020 has relentlessly continued to produce highly accurate forecasts of the development of this crisis with which the world is now struggling. For this reason, we feel entitled to write you this open letter which we hope will aid you on the choices you will have to make in a few days.

This crisis is getting more and more dangerous. Recently, in the 32nd edition of its Bulletin, LEAP/E2020 raised an alarm of direct concern to you, the leaders of the G20. If, when gathered in London next April 2nd, you are not able to adopt a number of bold and innovative decisions, focused on the essential issues and problems, and to initiate them by summer 2009, then the crisis will entail a « general geopolitical dislocation » by the end of the year, affecting the international system as well as the very structure of large political entities such as the United States, Russia, China or the EU. Any chance for you to control the fate of the 6 billion inhabitants of the world will then be over.

Your choice: a 3- to 5-year crisis or a decade-at-least long crisis?

Until now you have merely been concerned with the symptoms and secondary effects of this crisis because, unfortunately, nothing prepared you to face a crisis of such an historic scale. You thought that adding more oil to the global engine would be enough, unaware of the fact that the engine was broken, with no hope of repair. In fact, a new engine must be built, and time is running out, as the international system deteriorates further each month.

In the case of a major crisis, one must get to the heart of the matter. The only choice is between undertaking a number of radical changes, thus greatly shortening the duration of the crisis and diminishing its tragic outcome or, on the contrary, refusing to make any such changes in an attempt to save what is left of the present system, thus extending the crisis’ duration and increasing all the negative consequences. In London, next April 2nd, you can either pave the way for the crisis to be solved in an organised manner in 3 to 5 years, or drag the world through a terrible decade.

We will content ourselves with giving you three recommendations that we consider strategic ones in the sense that, according to LEAP/E2020, if they have not been initiated by this summer 2009, global geopolitical dislocation will become inevitable from the end of this year onward.

LEAP’S THREE STRATEGIC RECOMMENDATIONS

1. The key to solving the crisis lies in creating a new international reserve currency!

The first recommendation is a very simple idea: reform the international monetary system inherited post-wwii and create a new international reserve currency. The US Dollar and economy are no longer capable of supporting the current global economic, financial and monetary order. As long as this strategic problem is not directly addressed and solved, the crisis will grow. Indeed it is at the heart of the crises of derivative financial products, banks, energy prices… and of their consequences in terms of mass unemployment and collapsing living standards. It is therefore of vital importance that this issue should be the main subject of the G20 summit, and that the first steps towards a solution are initiated. In fact, the solution to this problem is well-known, it is about creating an international reserve
currency (which could be called the « Global ») based on a basket of currencies corresponding to the world’s largest economies, i.e. US dollar, Euro, Yen, Yuan, Khaleeji (common currency of oil-producing Gulf states, to be launched in January 2010), Ruble, Real…, managed by a « World Monetary Institute » whose Board will reflect the respective weight of the economies whose currencies comprise the « Global ». You must ask the imf and concerned central banks to prepare this plan for June 2009, with an implementation date of January 1st, 2010. This is the only way for you to regain some control over currently unwinding events, and this is the only way for you to bring about shared global management, based on a shared currency located at the centre of economic and financial activity. According to LEAP/E2020, if this alternative to the currently collapsing system has not been initiated by this summer 2009, proving that there is another solution than the « every man for himself » approach, today’s international system will not survive this summer.

If some of the G20 states think that it is better to maintain the privileges related to the « status quo » as long as possible, they should meditate the fact that, if today they can still significantly influence the future shape of this new global monetary system, once the phase of global geopolitical dislocation has started they will lose any capacity to do so.

2. Set up bank control schemes as soon as possible!

The second recommendation has already been mentioned many times in the preliminary debates to your upcoming summit. It should therefore be easy to adopt. It is about creating, before the end of this year, a scheme of bank control on a global scale, suppressing all the system’s « black holes ». A number of options have already been suggested by your experts. Make up your mind now: nationalize financial institutions as soon as is necessary! It is the only way to prevent a new episode of massive indebtment by them (the kind of episode which significantly contributed to the current crisis), and to show to the general public that you have some credibility to deal with bankers.

3. Get the IMF to assess the US, UK and Swiss financial systems!

The third recommendation relates to a politically sensitive issue, which cannot be ignored. It is essential that, no later than July 2009, the imf presents to the G20 an independent assessment of the three national financial systems at the heart of the current financial crisis: US, UK and Switzerland. No sustainable recommendation can be efficiently implemented as long as no one has any clear understanding of the damage caused by the crisis inside these three pillars of the global financial system. It is no longer time to be polite with the countries located at the centre of the current financial chaos.

Write a simple and short statement!

Finally, please allow us to remind you that your task is to restore confidence among 6 billion people and among millions of public and private organisations. Therefore do not forget to write a short statement – no more than 2 pages, presenting a maximum of 3 to 4 key ideas that non-experts can read and understand. If you fail to do so, no one will read what you have to say apart from a narrow circle of specialists, therefore you will not revive confidence among the general public and the crisis will be doomed to get worse.

If this open letter helps you to feel that History will judge you according to the success or failure of this Summit, then it has been useful. According to LEAP/E2020, your citizens will not wait any longer than a year before they judge you. This time at least, you will not be able to say no one warned you!

Franck Biancheri
Director of studies of LEAP/E2020, www.leap2020.eu
President of Newropeans, www.newropeans.eu