Thread: The Final Destruction Of The Middle Class: The Great 2008

The Final Destruction Of The Middle Class

The Great 2008 Transfer Of Wealth

By Joan Veon
9-18-8

Americans are confronted with what appears to be the worse economic situation since the Great Depression. What will history say about the U.S. credit crisis turned global financial crisis? At every turn investors are faced with new problems, new crises, and less than desirable solutions which include debt, deflation and a transfer of wealth.

With regard to debt, the American taxpayer has been made the lender of last resort for international bank Bear Stearns and now the two Government-sponsored Enterprises-GSEs, Fannie Mae and Freddie Mac. On top of the $29B for Bear Stearns, Fannie and Freddie's debt of $5.4T has been effectively transferred to the balance sheet of the USA. This is equal to the entire publicly traded debt of the U.S. which is also the same as the total of America's mortgage-related assets. In addition to personal debt, every American now has a financial responsibility for Bear Stearns and Fannie and Freddie.

We, the people, have saved the foreign investors such as China which owns $376B, Japan which owns $228B, South Korea which owns $65B, Taiwan which owns $55B, and Australia which owns $33B, from losing faith in America. It is the stockholders, both common and preferred, that have been given the raw end of the deal. While large financial institutions such as JP Morgan, which owns $1.2B of Freddie and Fannie stock, said a complete loss would only erase one or two months of profits, contrast this to smaller banks such as the Central Virginia Bank in Richmond which has $20M in shares of Freddie and Fannie. That type of loss will put them in the same kind of trouble as Lehman Brothers, not enough capitalization. There are 15 other banks that hold 10% or more of their capital in shares of Freddie and Fannie.

The Federal Accounting Standards Board is requiring more stringent standards for banks and savings and loans to maintain a certain amount of capital to protect against insolvency. Those rules are in the process of being changed to conform to international rules issued by the Bank for International Settlements in Basel, Switzerland which Congress has voted on. These rules which were only to pertain to international banks are now being applied to national banks.

Furthermore those in retirement who thought their money was safe-invested in the highest ranked bonds in the country are going to lose their dividends. Depending on the price they invested, they could have principal losses of up to 80 or 90% of their investment. Ouch.

The credit crunch began a year ago when the various investment banks both here and abroad stopped buying each others paper, a very uncommon practice between them. As a result of no liquidity for mortgage paper caused by their decision, we have the most serious slowdown in real estate in decades. The decision to not buy mortgage paper includes the sub-prime loans made to home buyers that had no down payment. To relate, I recently met a young Latino who is worried about her home. Five years ago she bought a $370,000 townhouse with $14,000 down. Her interest rate varies causing her monthly payment to jump from $2700 per month to $3500. She cleans houses for a living.

Freddie and Fannie decided they could make more money by buying subprime mortgage paper. Today there is an eleven month inventory of unsold homes. Higher interest rates as a result of the hidden clauses on floating interest rates have put many people in jeopardy of foreclosure. All of these problems have given the Federal Reserve the opportunity to seize total control of powers they did not oversee in order to protect our economy. Perhaps we should ask where the desire to put poor people into homes came from? It was part of the Bush Administration's policy to conform to the United Nations' Millennium Development Goals unveiled in the year 2000.

Exacerbating the credit crunch have been the historically high oil prices which have caused pain at the gas pumps and a weak dollar which has made imports more expensive. To counter high oil prices, Americans have drastically reduced how many miles they drive and a number of buying habits. In light of a tight job market and job losses in housing and the automotive industries, we are confronted with higher energy costs to heat and cool our homes, increased costs for food, and the inability to refinance mortgages. Basically the economy is now in deflation. When people stop spending, it moves from deflation to stagflation-no matter how cheap an item becomes, people can't afford to buy. All this without knowing what the real fall out will be from the bailout of Freddie and Fannie.

The situation we are confronted with did not happen in the last few years, but began in 1913 when a group of cunningly deceitful legislators passed the Federal Reserve Act on December 24 at 11:45 p.m., after those who were opposed went home for Christmas. The entire financial system of the U.S. was transferred from Congress to a private corporation that is NOT accountable to Congress. They create and destroy the business cycle by various means: raising and lowering interest rates. The government of the United States is in bondage to a group of individuals who own the Federal Reserve. The reason why the American people cannot forgive themselves the interest on our debt is because we do not owe it to ourselves we owe it to the Federal Reserve! Every single time since then that the Federal Reserve Act was amended, over 195 times, the Federal Reserve gathered more power over various aspects of our economy. However, they are in the final throes of stripping America of any remaining vestiges of sovereignty as has been laid out in the Treasury "Blueprint for a Modernized Financial Regulatory System."

The Blueprint was written under the watchful eye of one of America's most successful international bankers, former Goldman Sachs CEO Hank Paulson, who is now our illustrious Treasury Secretary. Is this not a case of the fox in the chicken coup? Long time investment sage Marty Whitman commented on his actions, "Paulson thinks he is in Russia and is not giving any value to stockholders. It is outrageous that the Treasury Secretary is not giving any consideration to the shareholders."

The Blueprint calls for key components of our financial system, not currently under Federal Reserve control, to be transferred to them. In order to do this, a number of changes will be necessary which Congress will have to approve. First, it recommends changing the banking charter to include all financial institutions, thus effectively transferring control over "national banks, federal savings associations, and federal [and state] credit union charters." For your information, Washington Mutual is a savings and loan while Lehman Brothers is and Bear Stearns was an international bank. The Fed is to be given authority over the U.S. Payment and Settlement System thereby controlling the settlement process for securities. It will be given the role of Market Stability Regulator and it will have total control over the market. The Blueprint provides for the entire mortgage system of the U.S. to be federalized and to be under the control of the Mortgage Origination Commission. The Federal Reserve will be part of the Commission. Additionally the Federal Reserve will be given a say in the insurance industry which will be federalized and a new Office of Insurance Oversight will oversee its activities. The Federal Reserve will have a place on the Insurance Oversight commission.

By the time Congress votes on the Blueprint, there will be so many reasons for them to transfer the last vestiges of our financial sovereignty to the Federal Reserve that they will not even have to read the prepared legislation. So far, we have the bailout of Freddie and Fannie by giving Treasury a blank check to act; the Federal Reserve worked all weekend to find a buyer to Lehman, another international bank, their next project might be to rescue Washington Mutual, a savings and loan, and the Fed has been given initial powers to act as the Market Stability Regulator. The only component that is missing is the demise of an insurance company, AIG anyone?

For the record, at the heart of the Blueprint is changing our financial/banking and securities regulatory system from a national system to an international system to bring America into the world governmental system that functions above the nation-states. I have maintained that in order to get Congress to go along, we would have to have a huge problem which would allow Congress to be convinced that they need to act, however, the truth of the matter is they no longer have the power they once had because the majority has been transferred to the Federal Reserve.

History will determine how the final stage was set but I believe it started in 2000 with the Crash of the Nasdaq. Who would have ever thought that a stock would drop 90% in value? About $7T vanished from the balance sheets of investors. But we did not have to worry, as a result of 9/11, the Federal Reserve started to reduce interest rates to 45 year lows to get Americans to support the economy by buying the dream home. We bit the bait. It was the Roaring 20s all over again. At one point in the housing boom, one out of four jobs was created by the housing industry. No one asked if they could afford the debt, they only asked if they could afford the payment: a big difference. They did not ask the right questions about their mortgage because the mortgage industry was not required to disclose to them, when it should have. At one time the mortgage industry was run on honesty and integrity, but that changed too and people have been caught in a terrible snare.

The Bailout of Freddie and Fannie provide us with the latest excitement in the diabolical saga of the raping, robbing, and pillaging of America. Interestingly enough it took place 13 months after the beginning of the credit crunch. Lastly, I have maintained since the beginning of the credit crunch last August that it was planned and managed destruction in order to accomplish the final transfer of America's financial sovereignty. All of the above only confirms my original suspicion. Sadly, only the strong will survive, only those who did not use their house as a checking account will survive, only those who turn to the Creator of the Universe, the Lord God who created heaven and earth, and His Son, Jesus, will survive in the midst of the Great 2008 Transfer of Wealth.

http://www.rense.com/general83/class.htm

Treasury 3-Month Bill Rates Drop to Lowest Since World War II

By Sandra Hernandez

Sept. 17 (Bloomberg) -- U.S. Treasury three-month bill rates dropped to the lowest since World War II as a loss of confidence in credit markets worldwide prompted investors to abandon higher-yielding assets for the safety of the shortest- term government securities.

Investors pushed down the rate to 0.0203 percent on concern that credit market losses will widen after the bankruptcy of Lehman Brothers Holdings Inc. and the federal takeover of American International Group Inc. In a sign of banks' reluctance to lend, the rates charged for short-term loans relative to U.S. bill rates rose to the highest on record.

``It's scary,'' said E. Craig Coats Jr., who co-heads fixed income at Keefe, Bruyette & Woods Inc. in New York and started trading bonds in 1969. ``This is the worst it's ever been since I've been in the business. Nobody knows what's really going on. Systemic risk is here and there and everywhere.''

Three-month bill rates fell 65 basis points to 0.041 percent at 5:15 p.m. in New York, after earlier touching 0.0203 percent. They had dropped to 0.3867 percent on March 20, after the Federal Reserve and Treasury engineered the takeover of Bear Stearns Cos.

The Treasury sold $40 billion in 35-day debt today under a new program that will allow the central bank to keep pumping cash into the banking system after its takeover of AIG. Funds from the sales will be kept in a Fed account. The bills drew a rate of 0.3 percent. Another $60 billion will be sold tomorrow, $30 billion in 20-day bills and $30 billion in 76-day bills, the Treasury said.

Money Markets

``People are extremely cautious with respect to who they're lending money to at the moment,'' said Richard Bryant, a Treasury trader at Citigroup Global Markets Inc., one of the primary dealers that trade government debt with the Fed. ``They're willing to buy very short-dated Treasury instruments and forgo returns and in some cases pay for the privilege of knowing their money is safe.''

The three-month bill rate has averaged about 3.44 percent in the last decade. It touched 0.01 percent in January 1940, monthly figures on the Fed Board of Governors' Web site show, as investors sought the assurance of getting their principal back. Daily figures only go back to 1954.

Reserve Primary Fund, the oldest U.S. money-market fund, yesterday became the first in 14 years to expose investors to losses after writing off $785 million of debt issued by Lehman.

Shareholders pulled more than 60 percent of the fund's $64.8 billion in assets in the two days since Lehman folded. Losses on the securities firm's debt forced the fund to break the buck, meaning its net asset value fell below the $1 a share price paid by investors.

Borrowing in Dollars

``The panic going round the money market world is what they've been investing in is not as safe as they thought it would be,'' said Dominic Konstam, the head of interest-rate strategy in New York at Credit Suisse Securities USA LLC, another primary dealer. ``If the banks don't want to lend to each other they don't want to lend to the banks. That means where else are they going to put their money -- they're going to put it in T-bills for safety.''

The cost of borrowing in dollars for three months jumped the most since 1999 as banks hoarded cash. The London interbank offered rate, or Libor, rose 19 basis points to 3.06 percent, the British Bankers' Association said. The increase is the biggest since Sept. 29, 1999, during the run-up to the new millennium.

The jump in Libor and rising demand for bills widened the gap between what the U.S. and banks pay to borrow in dollars for three months to the most since Bloomberg began compiling the data in 1984. The so-called TED spread soared 84 basis points to 302 basis points. It was as low as 75 basis points on May 27.

Credit Default Swaps

``I'm extremely worried about what is happening to the money market mutual funds that have announced they've broken the buck,'' said Ajay Rajadhyaksha, head of fixed-income strategy at Barclays Capital Inc. in New York. ``That unfortunately can spiral in the sense that it makes it more difficult for all companies to raise short-term money because the money-market funds tend to be buyers of short term debt.''

The cost of protecting against a default by Wall Street firms Morgan Stanley, Goldman Sachs, Wachovia Corp. and Citigroup Inc. approached or surpassed record highs reached yesterday, trading in credit default swaps shows.

The Treasury's $31 billion sale of four-week bills yesterday drew a high discount rate of 0.3 percent, the lowest in the four-week auction's history.

Gold Gains

In another sign of risk aversion, yields on emerging-market bonds soared as investors moved money into Treasuries. The yield on Russia's 7.5 percent dollar bonds due in 2030 jumped to a four-year high of 7.12 percent, according to JPMorgan Chase & Co. data. Yields on Venezuela's 9.25 percent bonds due in 2027 surged to 13.3 percent, the highest since May 2003.

Investors also sought safety in gold as stocks tumbled, driving the Standard & Poor's 500 Index down 4.7 percent to its lowest level in more than three years. Gold futures for December delivery gained 9 percent, the biggest surge since 1999, to $850.50 an ounce.

Treasuries had declined earlier as the Fed's bailout of AIG allayed concern that a collapse of the insurer would destabilize the financial system. Barclays Plc, the U.K.'s third-biggest bank, will acquire Lehman's North American investment-banking business for $1.75 billion, three days after abandoning plans to buy the entire firm.

The Fed will loan up to $85 billion to AIG, the biggest U.S. insurer by assets, in exchange for control. The central bank this week also widened the collateral it accepts for loans to securities firms and boosted its program for lending Treasuries to bond dealers to $200 billion.

Fed policy makers left the target lending rate unchanged at 2 percent yesterday.

``They've done everything they can to try to bring a sense of normalcy to the market,'' said Theodore Ake, head of Treasury trading in New York at primary dealer Mizuho Securities USA Inc. ``Once that normalcy occurs the economy can grow.''

To contact the reporters on this story: Sandra Hernandez in New York at shernandez4@bloomberg.net;
Last Updated: September 17, 2008 18:18 EDT

http://www.bloomberg.com/apps/news?pid= ... rldwide%A0

AIG collapse too awful to contemplate – White House

18 September 2008
By JEANNINE AVERSA

THE White House yesterday defended the multibillion-dollar rescue package for the troubled insurance giant American International Group (AIG), saying it had prevented even greater harm to the world's economy.

Under the deal, the United States Federal Reserve will give AIG a two-year, $85 billion (£47 billion) emergency loan at an interest rate of about 11.5 per cent. In return, the government will gain a 79.9 per cent stake in the world's largest insurer ADVERTISEMENT and the right to remove senior management.

AIG said it would repay the money in full with the proceeds from the sales of some assets. It will be up to the firm to decide which assets to sell, and the timing. The US government does, however, have veto power.

AIG shares sank 46 per cent, to $2.03, in morning trading yesterday. They traded as high as $70.13 in the past year.

The US government decided to act over AIG to avert a collapse that would have been felt the world over.

The White House spokeswoman, Dana Perino, said US treasury and Federal Reserve chiefs and other government advisers had determined that some of the companies facing difficulties "were so big that to allow them to fail would have caused even greater harm and damage to the economy".

She said other bail-outs would be on a case-by-case basis.

The Fed said it had determined that a disorderly failure of AIG could have hurt the already delicate financial markets and the economy. It also could have led to "substantially higher borrowing costs, reduced household wealth and materially weaker economic performance".

The White House said that it backed the Fed's decision. "These steps are taken in the interest of promoting stability in financial markets and limiting damage to the broader economy," a spokesman said.

The US government's AIG move was similar to its bail-out earlier this month of the two mortgage giants Fannie Mae and Freddie Mac, under which the treasury department said it was prepared to put up as much as $100 billion over time into each of the companies, if needed, to keep them from bankruptcy.

The decision to help AIG marked a reversal for the US government from its position at the weekend, when it refused to use taxpayers' money to bail out Lehman Brothers. The bank, which had filed for bankruptcy protection on Monday, collapsed under the weight of mounting losses related to its real-estate holdings. Yesterday, congressional leaders said after a meeting with Henry Paulson, the treasury secretary, and Ben Bernanke, the Fed chairman, that they understood the need for the bail-out.

"The administration is approaching an unprecedented step, but unfortunately we are living in unprecedented times. Hearing of these plans, you have to stop to catch your breath. But, upon reflection, the alternatives are much worse," said Senator Charles Schumer.

AIG had teetered on the edge of failure as a result of stresses caused by the collapse of the subprime mortgage market and the ensuing credit crunch.

It said that the loan would protect all policyholders, address rating agencies' concerns and would buy the company time to sell off its assets.

http://news.scotsman.com/world/AIG-coll ... 4503232.jp