Did We Just Witness Black Monday?

[bigtree]

Sep 30th, 2008

Black Monday: Global investors vote “no” on Paulson bailout
"The US is headed into its worst recession in 60 years."

By Mike Whitney
Online Journal Contributing Writer

Sep 30, 2008,

{snip}

Paulson’s bill is designed to avoid a system-wide crash by clearing the banks’ balance sheets so they can resume extending credit to consumers and businesses. The hope is that a massive infusion of capital will “turn back the clock” to the happy days of low interest speculation and bubble economics. Paulson is a “one trick pony” who firmly adheres to the belief that wealth creation depends on maximum leverage and an ever-weakening currency. But that worldview is no longer applicable after reaching Peak Credit, where consumers are no longer able to make the interest payments on their loans and businesses and financial institutions are forced to curb their spending and dump their toxic assets at fire sale prices. The system is deleveraging and nothing can stop it. Paulson has yet to accept the new reality.

Besides, there’s no guarantee that the banks will use the money in the way that Paulson imagines. As one Wall Street veteran explained to me, “I don’t see one penny of that $700 billion ending up helping the broader economy. I see it being used to prop up share prices so the insiders can salvage as much as possible when dumping their shares.”

Indeed, the $700 billion is just part of a massive “pump and dump” scheme engineered with the tacit approval of the US Treasury and the Federal Reserve. Once the banksters have offloaded their fraudulent securities and crappy paper on Uncle Sam, they will do whatever they need to do to pad the bottom line and drive their stocks up. That means they will shovel capital into hard assets, foreign currencies, gold, interest rate swaps, carry trade swindles, and Swiss bank accounts. The notion that they will recapitalize so they can provide loans to US consumers and businesses in a slumping economy is a pipedream.

The US is headed into its worst recession in 60 years. The housing market is crashing, securitzation is kaput, and the broader economy is drifting towards the reef. The banks are not going to waste their time trying to revive a moribund US market where consumers and businesses are already tapped out. No way, it’s on to greener pastures. They’ll move their capital wherever they think they can maximize their profits. In fact, a sizable portion of the $700 billion will likely be invested in commodities, which means that we’ll see another round of hyperbolic speculation in food and energy futures, pushing food and fuel prices back into the stratosphere. Ironically, the taxpayer’s largess will be used against him, making a bad situation even worse.

Then again, if the bill isn’t passed, no one can predict with certainty what will happen . . .


more: http://onlinejournal.com/artman/publish/article_3811.shtml

[TxBlue]

1. nah, but mebbe it's warmin' up!

[PBS Poll-435]

2. Great Article. K/R

Thanks.

[The Straight Story]

3. And there is the rub for many:

"Besides, there’s no guarantee that the banks will use the money in the way that Paulson imagines. "

Yes indeed.

[Horse with no Name]

4. Is there a provision that will not allow it to be used for Golden Parachutes

while sprinkling us with Golden Showers?

[PBS Poll-435]

5. That must be done via legislation. And not "intent" by the Bureaucracy.

[bigtree]

6. and this

"The dollar is slipping, consumer spending is down, and foreign creditors are beginning to slow their purchases of US debt. It’s all bad. Even so, no one really knows whether buying up the illiquid mortgage-backed assets from the nation’s banks would have helped to avert a major catastrophe or not.

. . . You’re not resolving the two fundamental issues: You still have to recapitalize the banking system, and household debt is going to stay high.”

[snot]

7. [self-delete]

[snot]

8. As I wrote earlier this evening,

. . . in my experience, the bigger the money, the MORE accountability is demanded.

Lenders -- let alone equity investors -- LET ALONE DONORS, which is what this last bailout bill would have made us -- do NOT extend credit, invest, or GIVE money away, unless the people asking for the money OPEN their books and disclose exactly what their assets and liabilities are, what their finances looked like last year, what they plan to do with the money, etc.

Can you imagine a bankruptcy case in which the debtor asked his or her creditors to help cover his/her debts but refused to open his/her books or disclose what their liabilities were?

Ok, in any workout, you expect some spinning, jockying, etc., BUT NOTHING like the ultimatum now thrust at us: GIVE US YOUR MONEY OR YOU DIE!

But the proponents of this bill can't or won't even tell us where they got the number.

If this were really an emergency, or at least if they really cared about it, they would have presented something a reasonable lender/investor/donor might conceivably accept. They'd be able to tell us how they came up with $700 billion, and they certainly wouldn't have demanded absolute unaccountability.

Either it's not really an emergency, or they care more about the looting opportunity than about bailing out the economy.

EITHER WAY, IT'S IMPERATIVE THAT THE DEMS WRITE THEIR OWN BILL -- FAST.

Nature abhors a vacuum. Unless we've got Plan B ready, we'll be stuck with some version of Plan A.

To my mind, NO bailout should afford the kind of power and immunity to any member of the executive branch that even the "compromised" bailout bill would have done (given the virtually total lack of any meaningful enforcement even for Constitutional violations). E.g., a good precondition of any bailout would be to un-repeal Glass-Steagall, and extend it to cover new institutions.

(If you like it, pls rec it, at http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=4129714&mesg_id=4129714 )

[FlyingSquirrel]

9. In this case I prefer the devil I DON'T know to the devil I do.

eom

[McCamy Taylor]

10. Can we get an economic stimulus package instead pretty please?

[mdavies013]

11. No I think this is white monday - since it is white collar crime that got us here.

[tama]

12. RAINBOW MONDAY! n/t