Let Lehman Fail

Many people are convinced that it is OK for the government to bail out failing private companies like Bear Stearns, Fannie Mae (FNM), Freddie Mac (FRE), and, now, Lehman Brothers (LEH). Hank Paulson, our Treasury Secretary, argues that we should put these debts onto the backs of innocent taxpayers because if we don’t do it, we will have “systemic risk.”  

Let’s drill down to the reality. There is always systemic risk whenever a large company fails.   There were also systemic risks to the energy markets when Enron, a huge energy trader, went bankrupt, but we got through that. That is what Chapter 11 bankruptcy exists to do. There is nothing that differentiates Lehman Brothers from any other big company except the fact that its debt, including a lot of counter party debt arising out of various derivatives, is held, mostly, by other Wall Street players.

Those who have a selfish interest hide the truth behind double-speak. Former Wall Street bankers, like Hank Paulson, should have no place in the halls of government, but they are there, doing their best to help their friends, and past and future employers. They do not have the best interest of the nation at heart. There is no reason why a company, like Lehman, cannot unwind properly, using the bankruptcy tools available, rather than being placed upon the backs of innocent taxpayers. Hank Paulson’s company, Goldman Sachs (GS), stands to lose billions on a Lehman collapse.  

But, the billions will be lost one way or the other. The question – who will pay the bill? Contractual counter parties, like Goldman, or U.S. taxpayers?   If the U.S. government socializes Lehman’s losses, by bailing out the company, in effect, the taxpayers’ pockets will be picked to fill the pockets of those in charge of Goldman Sachs, JP Morgan Chase (JPM), Citigroup (C) and so on. 

Seeking to abuse the public coffers, in support of private interest, is not unique. PIMCO, one of the biggest bondholding institutions in the world, stood to lose tens billions of dollars on Fannie/Freddie bonds if the two GSEs collapsed without a bailout.  So, Bill Gross, its Chairman, wrote, again and again, on the need to have those two institutions bailed out by the federal government, and lobbied to make it happen. In the end, as usual, he got his wish, and middle class folks, Mom & Pop – they got shafted. Many people on Wall Street would like to shift their own poor investment decisions onto the back of the U.S. taxpayer. The American people are very complacent, and, up until now, they have allowed their representatives in Congress to look the other way, and even grant extraordinary powers to men like Hank Paulson and his comrades are turning the USA into a copy of the centrally planned economy Soviet Union. It didn’t work for them, and it won’t work for us. Corporate welfare is exploding in America. 

Let’s face facts. All of us who play in the financial world seek profit from the exercise. But, some are less honest than others. Men like William Ackman are driven by profit, but, at least, they are not hypocrites. Short sellers think they can make money by selling companies on borrowed stock, and buying the shares back, later. They are not paragons of virtue. However, because of the nature of what they do, and the intense balance sheet research it requires, they serve as the “conscience” of Wall Street. When Wall Street firms ignore their warnings, they should be doing so at their own risk, not at the risk of the taxpayers. 

Lehman Brothers is a private company. It is not a charitable institution, or a government agency. Its purpose is to make money, like its counter parties. In its day, it earned huge profits, and a very large percentage was paid out to its top management, in the form of salary and yearly bonuses. That top management is still in power. They’ve made huge errors in judgment, both in getting themselves into an insolvency situation, and in failing to take steps to shore up their finances, on a timely basis, once they found themselves there. Lehman’s counterparties made equally bad business decisions, by continuing to do business with a failing company. 

The idea that Wall Street is a gentlemen’s club is fine and good. More power to them. But, if they want to be kind to their members, let them pay for it themselves! Wall Street wants to feed its members fillet mignon at the party, but wants the taxpayers to bear the expense. That is unacceptable. Wall Street firms need to pay their own club dues, and, if they don’t have the money to do so, then shut the Club! 

Many people actively and vocally criticized Lehman’s business model, investments, methods of accounting, and the honesty and veracity of their past balance sheets.   They’ve been very loud, particularly William Ackman, holding press conferences, writing letters, and, in short, doing everything possible to make people listen. Their energy came out of the fact that they would profit if people listened. But, the reason behind a message doesn’t make the message, incorrect. All complaints fell on deaf ears. Had Lehman listened, 6 or even 3 months ago, it could have raised capital in sufficient amounts to see through the end of the credit crunch, while its stock was still worth something. Had Goldman Sachs, JP Morgan Chase, Bank of America (BAC), and all the other Lehman counterparties, listened, they could have pressured Lehman into taking action, on the threat of refusing to do business with the company. Instead, all the players turned to Orwellian double-speak. They didn’t want the Lehman share price to fall. Most of them had their analysts issuing “BUY” or “HOLD” recommendations on Lehman, even though anyone rational could see that Lehman Brothers was a strong “SELL.” 

Recently, with the company’s finances spiraling out of control, rumors began to fly. Everyone wanted to buy Lehman, it seemed...except, in the end, really, nobody wanted to buy it. At least one prominent analyst made a ridiculous suggestion, that there would be a hostile takeover, implying that the stock would soar, as a bevy of eager buyers swarmed around the company, trying desperately to get in on the multi-billion dollar losses. Amazingly enough, his absurd suggestion caused the share price to soar. People believed! Their imaginations ran wild, along with their greed, helped along by sequential false rumors of numerous “buyers” getting on line. What motivated these Orwellian lies and rumors? Was it the old fashioned pump & dump? Most amazing is that people are taken in by this nonsense, time and time again. And, the people that lie and/or come up with absolutely fanciful or ridiculous analysis, are quoted, time and time again, as if they are “experts”, in spite of their past misconduct. There is no shortage of suckers on Wall Street.

Now, that Lehman is failing, the counterparty companies, like Goldman Sachs, want the United States of America to treat speculative counter-party deals as Treasury Bills, having the “full faith and credit” of the nation. This is the same mistake done with Bear Stearns. Why should speculative derivatives be given equal rights to the U.S. Treasury as Treasury bills? The Lehman Brothers counter-parties were willing to take big risks to extract huge hoped-for investment returns. Now, they want the government to convert that risk into U.S. Savings Bonds, with the taxpayers paying the bill. This is very convenient for them, but very expensive for us.

If the counter parties didn’t want default risk, they shouldn't have played the game.  Honest people would put their money into treasury bills, and shut up. But, the Goldman Sachs, the PIMCOs, or the other players on Wall Street are not about to shut up. They are lobbying to get their money out of the U.S. Treasury, since Lehman, apparently, is too insolvent to pay them. Counterparties who dealt with insolvent entities, bought their debts, and hoped to earn big returns should not be bailed out. Let them be more careful. Let’s begin to carve the rottenness out of the system, rather than helping the rot spread. It is fundamentally wrong to allow private individuals and companies to soak up profits, while forcing innocent U.S. taxpayers to pay for losses.   It shouldn’t have been done in the past, and we shouldn’t do it again.

Poor old Senator Bunning is one of the last honest man in Congress. He needs your help. He cannot fight all these crooks all by himself, or with the help of nobody but Ron Paul. Write to your Senators and Congressmen, and express your outrage at what is happening in America. They need to hear from you.

Disclosure: none

Comments

[bbzz24:]

the best way to fight systemic risk is at the root by preventing companies to morph into too big to fail... but it is more convenient to get high on their political donations, have politicians kids join the ranks and then stick it to the taxpayer.

2008 Sep 12 06:38 AM

[abcde_98:]

Very good summary of the situation with LEH. Fortunately with the internet, one can explain the one-sidedness of the system, and maybe citizens will stand up and take some action ...
The USA is a litigious society... well citizens, get off your arses and do something!
There have got to be some attorneys out there that can argue the actions of government are against the law, constitution, or otherwise the government has failed in its duty. Maybe no attorneys in America are willing to take up that fight ... maybe it takes outsiders (eg. a foreign nation) to bring forth action!

Similarily, the government should not bail out "insurers" like AIG, who actually manufactured products similar to the investment banks.

2008 Sep 12 06:54 AM

[Boat 52:]

Excellent overview and analysis. Power corrupts and money makes money. This will continue until there is a Volker-like person who is willing to stand tall and stop this corruption. At this time, there appears no one is on the horizon capable or willing to do it. Just more of the same.

2008 Sep 12 07:00 AM

[Pj568:]

This is another test of transparency. If what management has been saying is even remotely true as to financial condition, current and expected, then there should certainly be buyers at this price level. If not, the lawsuits and investigations will begin immediately. We'll find out soon.

2008 Sep 12 07:07 AM

[nukldrager:]

Wait and see. How different is LEH to BSC. The government does what it's told, not what it should. I finally went to Bill Caras blog and he offers an interesting counter approach for the "outer circle" (most of us) as opposed to the "inner circle" of central banks, their buddies, and governments.

2008 Sep 12 07:25 AM

[madasiwannabe:]

The risk of Bill Gross losing Billions was removed in July when Paulson talked Congress into backstopping the institutions. Since then, Bill stood to make Billions if the GSE's continued their slide. Monday's takeover actually made Bill 1.7 Billion dollars.

For some reason no one points out the fact that the most vocal opponent of Fannie and Freddie, Al Greenspan, is also on PIMCO's payroll. He also works for Bill Ackman's Pershing Square, who also made $8 Billion when the fed zeroed out the shareholders. He is speaking with the best interest of his pocket and not the Nation and has never disclosed his personal interest in the GSE's. Where has the SEC been

If Hank would have left the GSE's alone in July, we would not be here right now. The GSE shareholders would still be taking it on the chin and the spin doctors would not be relentlessly attacking the IB's. Now we have two black holes that have $35 Billion dollars less capital this week then last, and Hank has a place to help his friends dump their bad portfolios at the taxpayers expense.

We the taxpayers can't afford any more help from Hank. January can't come soon enough.

2008 Sep 12 07:41 AM

[venividivici:]

Terrific article James. Well done.

2008 Sep 12 08:01 AM

[basilmax:]

theese being the cases, isn't any chance past CEOS could be asked to give back their fat salaries and bonuses indebitedly cashed in?

2008 Sep 12 08:29 AM

[mangolfer:]

Good article. Buyer beware.

2008 Sep 12 08:40 AM

[Ice:]

I'm sorry to say that I don't agree with some of the points you made;

- FNM and the likes are not bailed out. The equity holders are whipped out. (which is a good thing). Management should not have received bonuses and maybe even had to repaid prior years bonuses. What Paulson did by coming to rescue is to safe the world from the immediate effects of a FNM collapse and buying some time to solve the problem over a longer period. We the people of America would have paid the piper also in a complete bankruptcy. The good thing is now we get the bill presented over a decade.
- As for your statements on Bill Gross; he used FNM bonds as an investment vehicle. He saw the spreads between FNM bonds and other bonds open up over the last 18 months and thought it to be a good opportunity. He made a political assessment if it was possible for the US government to walk from the implicit guarantees on FNM debt. He was right the world did not allow the government to walk away for 40 years of statements which lead to widely accepted believe that FNM bonds where protected by the US taxpayer. If you want to attach blame start with Nixon and move up to all the other presidents who supported big business and started with the political bias that business is the solution for all US problems and challenges. FNM was a disaster, 40 years businesses have taken the profits and now when times become rough they ain't home.

Now we have proof we can't trust Wall Street with the welfare of the country, we need to distinguish between two aspects;

- reduce the short term fall out
- for the long term change of the regulations

2008 Sep 12 10:04 AM

[Jimbo:]

An excellent article. Responders on this thread are clamoring for a political remedy but, no matter who is elected in november, the game will go on. Senator Dodd, Representative Frank and others are just as compromised by low interest "loans" as Hank Paulson. BOTH parties have been bought and paid for by lobbyists. We need a constitutional amendment to make it a criminal act for any former member of Congress to lobby. A second constitutional amendment to limit terms in the Senate and House to 12 years.

2008 Sep 12 10:24 AM

[solidrock:]

Right to the point. The case is arguable to bail out FNM and FRE becuase of the implicit gov't backing and Uncle Sam should honor that obligation. But Lehman is different. There is no reason to bail it out. And our financial system will be just fine with it going bankrupt. If Hank saves it using taxpayers' money, he will be essentially assiting the Wall Street bandits robbing the taxpayers!!!
Someone should stand out to organize the taxpayers. This is a time for a leader!

2008 Sep 12 10:26 AM

[wpdragon:]

"January can't come soon enough?"

The polls have George W. McCain tied in the polls... if he gets in, it'll be 4 more years of the same or worse, and please don't tell me "This time will be different" because it won't be... the same lobbyists and leaches and special interests in Washington and on Wall Street will be in the Republicans' pockets so quick it'll make your head spin, with Limbaugh and Fox and the new right wing CNBC pumping the swell job they're doing, while hundreds of BILLIONS of taxpayer money goes to wars, and pork, and tax cuts for the ultra rich, and business as usual on Wall Street, while our deficits soar and our debtor-nation status cuts off any hope of digging ourselves out of the hole we keep ourselves imprisoned in.

Of course, that's if that idiot VP candidate doesn't get a mid term promotion and start a nuclear war with Russia in the name of her God.

2008 Sep 12 10:34 AM

[Larry House:]

Thanks for a thoughtful piece. I have some LEH bonds that I bought back when the ship was sailing right along. I don't like bailouts, but of course, I hope the bonds don't go to zero. Time will tell. Our economic system is in a hell of a mess.

2008 Sep 12 11:15 AM

[Murali Thoota:]

Good article. But too harsh on LEH. Should LEH deserve such harsh opinion? If US Tax Payer shared the burden of Bear, why not of LEH ?

Isn't it unfair to LEH and its proposed suitor?

2008 Sep 12 11:32 AM

[Kelly Liebe...:]

What a bloody mess we are in. China is dumping our debt and buying gold, meanwhile our government prints money to prop up our economy as best it can so that the few in the know can eek out their last few dollars at the expense of the rest of us.
Pathetic. And we are fools.

2008 Sep 12 12:53 PM

[ankit:]

My friends at senior levels have left the firm. Very dubious financials and undisclosed high leveraged risks that anyone feared to even talk about with top management. WATCH OUT.

Lehman is pleading with senior employees which is unseen and unheard of before. BEWARE.

2008 Sep 12 12:55 PM

[mdmrjsds:]

Well written and argued article. Thanks.

2008 Sep 12 01:28 PM

[wpdragon:]

Kelly, not only fools, but we look doomed to finish the tragedy started during the past 8 years if the polls are correct... and we will have gotten just what we deserve if we let that happen.. end of empire, and end of our Constitution as the book burners win.

2008 Sep 12 01:51 PM

[Brutto:]

Good article. As stated, the writing was on the wall for LEH since the demise of Bear Stearns. Fuld had plenty of time and opportunities to recapitalise LEH and passed to protect his position, always hoping that a better deal would come along later.

If LEH gets rescued now with a Fed backstop, it will be open season for buying the bonds and shorting the stock of the next victim (Merrill, say) in the expectation that the Fed will have to step in again and effectively guarantee the debt.

And again when the next domino falls,... and again...until they run out of credible buyers that can be strong-armed or bribed into fronting these bailouts.

2008 Sep 12 02:02 PM

[carey_jim:]

Some people try to get through life without moralizing but events like this prove it is impossible.

Politics is morality writ large. People like Ralph Nader, and many others of course, have been complaining for years and years. And they have always had reasonable solutions, whatever their critics may say about them when they condescend to say anything.

Will things change or will it always be "business as usual" until everything collapses around our ears and we are forced to spend a very long season picking up the pieces?

2008 Sep 12 03:29 PM

[neeb??:]

this little one from canada wants to know who Ron Paul is and how did he get thrown under the bus? It is a shame when someone with some real ideas gets somehow ditched...

2008 Sep 12 09:49 PM

[Sean B.:]

LEH has run an irresponsible business model in their fix-income business for a number of years. This was not the result of a bad position in mortgage risk, but that firm's irresponsible management of leverage on their balance sheet. Their successes the last few years have been predicated on a highly leveraged, balance sheet intensive business model.

I argue that saving LEH threatens the very integrity of the US financial markets that everyone is focused on preserving!!

2008 Sep 12 10:56 PM

[lex:]

Hank should be executed by firing squad. He is making the average joe pay for the Wall St fat cats, ferraris and penthouses.

2008 Sep 12 11:08 PM

[lizardop:]

David Einhorn right again! The first to come forward with facts about Lehman and how they booked their results.

2008 Sep 12 11:15 PM

[lizardop:]

Mr. Einhorn, fresh from his latest round of television appearances, said he was not out to tell Lehman Brothers how to fix its problems. He questioned how the company valued the assets on its books, and whether it was disclosing all the risks it faces.
How right Einhorn was! Lehman certainly didn't book its assets the way it knew they should have been valued. Let Lehman fail as it failed its investors, employees and business partners.

2008 Sep 12 11:21 PM

[Getridofthe...:]

Secretary Paulson should be indicted. This may not only be necessary for Paulson, but others that have been at the heart of the recent mistaken aggressive government actions that wrongly seek to prop-up private sector “bets” using public monies. Worse, Congress has often praised Paulson, and Chairman Bernanke, for their actions, and has even facilitated these actions in the case of FNMA, FHLMC, and the Home Loan Banks by giving legal rights for their bailout by the passage of the Housing and Economic Recovery Act. Congress, too, should be ashamed for putting faith in the hands of such cabals as those used by the Federal Reserve and U.S. Treasury; cabals whose private meetings behind closed doors are not subject to the bright light of public debate and transparency. For his part, Secretary Paulson, as former Chairman and CEO of Goldman Sachs, is not an altruist. His actions are, by all those who are in the trenches, well known and of obvious design. His desire, like many on Wall Street, is to push the volume and activity of mortgage business structured transactions through and across the desks of surviving Street broker-dealers. By building a “covered bond” market, and collapsing FNMA and FHLMC, where does Congress think the “volume” of deal flow will go? The UST is pressuring SIFMA, ASF, and even four large banks to quickly issue covered bonds to get the market going, with Bank of America planning to issue in November. Under the auspices of “trying to find a solution” to FNMA and FHLMC, such action may look quite innocent, but it is anything but innocence. It is deception, design, and deceit. An investigation into the power dealing on this very complex topic should certainly be taken. And what about the Home Loan Banks? Without the Home Loan Banks, where will the deal flow go? Who will profit from a reduction in force and size at FHLMC, FNMA, and the FHLBs? The answer is: Wall Street, and more precisely Goldman Sachs. This is not to say that Congress, at the warning of former governor Poole, shouldn’t have acted years ago to sever completely the ties with FNMA and FHLMC. Clearly, FHLMC, FNMA and the FHLBs should be completely privatized. Congress was irresponsible for not acting, and now we are faced with today’s crisis. However, to empower a man as disingenuous and self-dealing as Paulson with the ability, power, and nerve to act in a manner befitting a socialistic country – in fact to act as a financial market “warlord” - is shameful. The precedents set under his actions, and Chairman Bernanke, are disastrous; the actions criminal; and the response of Congress should be firm, and peppered with investigations. Congress should immediately seek to terminate the role of Paulson through an immediate Cease and Desist order, and should ask for the resignation of Bernanke and Paulson. Congress, as an interim step, should ask former governor Meyer or, if willing to break from Obama’s campaign, Paul Volker, to step in on an emergency basis. A plan should be set immediately for the “break-up” of FNMA and FHLMC into smaller pieces. All government backing should be severed within 12-months, with a private goal of an even shorter period. The same should be done for to the Home Loan Banks. Congress should commission a plan for a market and regulatory reform, and as general principle must be to reduce the size of financial intermediaries. No one bank or financial firm should have such systemic importance to imperil the entire system. This is so obvious on the face of it as to be self-evident. Yet, contrary to abiding the advice of former Senator Proxmire, who during Greenspan’s confirmation hearings in 1987 warned against firms “too big to fail”, we – Congress and our financial system regulators - have done the exact opposite. Banking is not retailing. Banking serves a critically important function in markets and societies. Throughout the history of the U.S. we have seen banks to good and severe harm. One thing that is clear: concentrations can kill. Can kill not only banks, but entire towns. Not only towns, but entire markets. We cannot let the “fox in the hen-house”, yet this is precisely what we have done with Secretary Paulson. We cannot let the “theoretician” rule the lender of last resort, and this is precisely what we have done with Chairman Bernanke, a man who knows virtually nothing about the real working of Wall Street. Congress needs to act. I trust and hope that the hearings set for next week will begin a process of restoring confidence in the leadership of those in these positions of power. To date, they have failed me, my children, my city, my state, my country and our collective honor. Do what is right: remove Paulson and Bernanke immediately.

2008 Sep 13 02:49 AM

[williambanzai7:]

My gosh, I am absolutely perplexed by these developments.

2008 Sep 13 07:25 AM

[lonie:]

getridofthem :


What leads you to think the Senate and House would improve anything.
My opinion: They are the main problem with America and have been ever since i was old enough to have an idea of what was happening in government the last 50 years. I suspect their main problem is; most are lawyers.

I did like the article . I think it points out very well what has happened and i'm sure will happen again in the not too distant future.

2008 Sep 13 09:03 AM

[Gerry Sullivan:]

Lehman will be allowed to fail. The line will be drawn in the sand. FDIC will take over Wamu. AIG will be sliced up by insurance regulators.
Merrill might make it or not.

Then, finally, it will be over.

2008 Sep 13 09:17 AM

[Kahless345:]

Perhaps someone should not be criminally prosecuted for foolish incompetence. However, wouldn't the best backstop against this sort of thing happening in the future be to make it clear to the leadership of investment banks, that in the event of collapse as the result of unmitigated ineptitude, 100% of their personal fortunes/assets amassed will be confiscated as punishment for taking such stupid risks just to make big bucks in the short-run? Problem is that there are thousands of working people at Lehman who had no say in what the company did to get itself into this mess and the overall economy is going to suffer for it as well. No matter what happens, will upper management really feel any pain? I don't think so. Won't they just retire rich and never have to work again anway?

2008 Sep 13 10:23 AM

[TheEconomyK...:]

We are unbelievably screwed. In so many ways. This goes beyond the normal perma-bearish gloom and doom sentiment being spread. I'm a diehard republican and I nearly fell out of my chair when I heard Sarah Palin's take on Fannie and Freddie. God help us if the worst happens and that woman becomes the head of this country - it took her 4+ years and 5 different colleges to get a BA in Journalism.

2009 is when things turn around? Swallow some red pills - the rabbit hole's going to get a whole lot deeper before you find the bottom.

I agree with syndicat on his/her take. AIG will be broken up, WAMU will be taken over, Lehman should fail - it needs to. And Merrill appears to be next. It might not be over after that - Citi is still struggling and cutting costs faster than a boiler room firm burning its books; JPMorgan is shaky and has acquired Bear Stern's problems. Wachovia - who knows. It goes beyond the mortgage/credit catalyst - there are so many compounding problems... the short-sellers are definitely helping drive this over-packed clown car of investment banks et. al. straight into the ravine as well.

Look - Everyone here has their own opinion and I am nowhere nearly educated as many of you are being fresh out of school & working in entry level finance. Regardless, my ex-classmates and I are alarmed at the predicament we find ourselves in having just graduated.

2008 Sep 13 07:25 PM

[copperpenny:]

Fine article. Capitalism ? Freemarket? Only when convenient for a select few. I for one would like to see more transparency in these kind of government decisions. I can not comprehend how we can allow this kind of post capitalism behavior to continue.

2008 Sep 13 08:23 PM

[who:]

I wrote a reply to another post on similar lines to the article, especially re communist countries doing the opposite i.e. selling some of its national companies.

Takeover /bailout is never good. The Fed took a gamble on BSC to stop the tied and had to take action on Fannie and Freddie to save American creditability. But, action on BSC suggested more shorting on weak firms was profitable. After action on Fan & Fred can the Fed take on more? Probably not and LEH will fail, the risks are just too big (as the Korean ultimately decided). These two actions by the Fed has open the market for more failures. WM will probably not survive. AIG has a slim chance. MER and C, etc., who will be next? Foreign money is not coming with the global slow down and drop in oil.


Also, having worked for MN financial companies for over 10 yrs, I know top management only look after number 1. Sad to say but good top manage don't survive in this rat race. They don't care what is happening in their operations as longs as they get their options and bonuses.

2008 Sep 13 11:24 PM

[Oregonrain:]

I am thinking the Lehman maybe the "end of the beginning." We need to have the system clean itself. I think that the problems have just gotten too large to hide or kick down the road to the next person. It is a sad day to be sure. How could a generation that started so optimistic ended up being so jaded. We shall see...normally all this government intervention does take hold..at some point....but...this looks like it has already taken on a life of its own. Glad I live in Oregon...that is all I can say.

2008 Sep 14 01:19 AM

[Birdfan:]

Next we bail out the Automakers because they are "too big to fail". Then the airlines. Who's next? My baseball card store? It's definitely too big to fail. Hold on to your wallets!

2008 Sep 14 08:23 AM

[stckpkr7000:]

Our country is rotting before our very eyes...... Hank Paulson is a criminal in my mind and he's just as evil as the corporate criminals who created this mess....... privatize profits and socialize the losses...... What has the U.S. become? This is a very sad and dark time to be an American........ Let Leh, Aig, Mer, and other pigs rot away already! Take the medicine Paulson and company!

2008 Sep 14 10:36 AM

[Shadow Boxer:]

The underlying cause of all the financial mayhem ocurring lies with the Federal Reserve - they are not the solution but the cause. Controll of the US currency is the responsibility of Congress as set forth in the US Constitution. The European Bankers were finally able to fraudulently take over the US monetary system in 1913. For an indepth explanation refer to this fact based documentary: video.google.com/video... 6183936>
The difference between this documentary and most every other alarmist presentation is there is a viable plan offered to restore control of the US financial system to the Congress and to accomplish this without creating another crash of the financial system.
As a result of the impending collapse of the US financial system it is very likely that we will be offered a "deal". The "deal" will be the "New World Order", one world government and a one world currency.
In regards to Dr Conrads series of articles regarding manipulation of metals and currency markets and the further bailout of political insiders, It is in our own best interest to understand the inner workings of the machine and in this situation how it is being used against the citizens of the government. A government that is controlled by the citizens - not a government that controls the citizens.
The question(s) or challange that I would pose to Dr Conrad is:
1) Based on historical perspective the plan put forth in the documentary is not only valid it allows the US Government to create currency without paying interest to a group of foreign bankers - can it be improved and what details need to be worked out.
2) What steps can be taken to implement such a plan as a backup to when we reach the point of being offered "The Deal"

2008 Sep 14 05:20 PM

[Shadow Boxer:]

Pardon the broken link above:

video.google.com/video...


An interesting take on unwarranted if not illegal(?) intervention:
wnd.com/index.php?=PAG...

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

----------------------...
Posted: February 05, 2008
10:11 pm Eastern


By Jerome R. Corsi
© 2008 WorldNetDaily


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

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

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

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

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

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

(Story continues below)

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2008 Sep 15 04:19 PM

[Kelly Liebe...:]

AIG.
Next???

2008 Sep 16 03:07 PM

[Kelly Liebe...:]

Washington Mutual.
Next???

2008 Sep 17 08:46 PM