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I wouldn't even pretend to say it better than this:

Like scores of evangelists and hypocrites and moralists who spew and praise family values and pretend to be holier than thou and are then regularly caught cheating or cross dressing or found to be perverts these Bush hypocrites who spewed for years the glory of unfettered wild west laissez faire jungle capitalism (and never believed in any sensible and appropriate regulation and supervision of financial markets) allowed the biggest debt bubble ever to fester without any control, have caused the biggest financial crisis since the Great Depression and are now forced to perform the biggest government intervention and nationalizations in the recent history of humanity, all for the benefit of the rich and the well connected. So Comrades Bush and Paulson and Bernanke will rightly pass to the history books as a troika of Bolsheviks who turned the USA into the USSRA. Fanatic zealots of any religion are always pests that cause havoc and destruction with their inflexible fanaticism; but they usually don’t run the biggest economy in the world.

Those words appeared in an article written yesterday by professor Nouriel Roubini. He also appeared on Charlie Rose two nights ago in what I think was a rarefied TV event.

As of last Sunday afternoon, the United States has passed into a new phase which some are calling a State Capitalist society. There is some outward truth to this label, but I think we will see that like a complex chemical reaction, we are just passing through a short-lived phase via a catalyst toward something else, and that something else is completely toxic.

I've read the rules here, and I think I know a crazy person when I read one, so I hesitated for a moment for fear of acting like one, but then I remembered that I couldn't even make up something like what I just saw in a mainstream article called Washington Wants Oil Down, Stocks Up Before Election. In the weird world of coincidence, one fantastic event is a long shot, but as you start adding additional fantastic events, all of a sudden things don't look so fantastically improbable. There has been a lot of head scratching on the fall of commodities prices because nothing in the fundamentals really pointed to causality. Sure, events can be induced to fit the data in retrospect, but those theories get swamped when you find out that the Central Bank itself impeccably timed the precipitous drop in gold and silver when it switched its position from long to short on the commodities. It's almost like they knew something in advance. Also, another head-scratcher in isolation was the disparity between the announced GDP growth of 3.3% and the GDI which came in at 0.3%. These numbers should track ALOT closer, so expect GDP to be greatly revised downward.

I have thick skin and a numb brain now, so nothing really surprises me anymore. Here I was thinking that we have gone from a plutocracy to a cleptocracy and... so what? Just another day under Bush. The problem is, it's much worse. I'm trying to write an economic diary without knowing or using economics, I'm not really sure many people understand the magnitude of what happened with the Failie and Fraudie bailout. We have been told they were "Too Big to Fail", and the government reluctantly had to step to prevent a systemic meltdown of the financial system.

This was the 5th government intervention in the last several months. In each of the past 4, the effect was that the market popped higher, and by the following Friday, the market found a new low. Every time.

For 8 years, we have been told that tax cuts are vitally important to a robust and healthy economy, and congress went along. It also went along with pretty much every single economic proposal, including deregulation everywhere, and we have seen zero evidence that any of it worked, and lots of evidence that it didn't.

We are told this one will be different, and I will tell you that this is the only truthful thing they said. First, a giant Fuck You! goes out to Bill Gross at Pimco who wrote an article only hours before the government announced its intentions, and that article implored the government to open up the treasury and convert all his F&F paper at 100% or he might wipe out all those retirement accounts he controls. This of course prompted China and Tom and Dick and Peg Bundy to demand the same treatment. His article probably embarrassed Paulson and Bernanke, and made their pitch to the public ring a bit hollow.

Paulson made a big show of the fact that common and preferred stock would not be protected in the takeover, and that was to prove the government had the taxpayer in mind. The goal was to not only protect the taxpayer, but it was to have the effect of lowering the interest rate on mortgage loans and provide needed capital to write new loans. "Sounds great!", so many said, and even Barney Frank said it was a good move that shouldn't have been needed if only people would have had faith in F&F's solvency and liquidity.

Which is interesting. What did trigger the takeover?

How about mark-to-market valuation of F&F assets? Hmmm. It seems a lot of their stuff was valued at zero. If there are any fund managers reading this, then your heart will start beating uncomfortably fast and you will get a cold sheen of sweat when I mention that you all have the same problem, don't you? The off-balance-sheet liabilities of all these big banks would crush them if they were held to the same accounting standards that F&F just had to use as an excuse to take them over.

That's right; I'm saying this was engineered by the government on purpose. Being quasi-government to begin with, and in deep trouble like every other firm, the government has used them as a vehicle to start soaking up debt. By far the largest amount of securities by value were F&F bonds, not their stocks. The F&F mortgage-backed securities (MBS) were explicitly backstopped by the government at 100% market value. This means the anyone holding these MBS's can cash them in to the government, and that made a lot of countries and companies such as Pimco very happy. Here's what else it means:

  • The taxpayer is paying China, Russia, and Bill Gross vast amounts of money.
  • The taxpayer is paying quarterly dividends to private investors.
  • The taxpayer is paying ever larger amounts of money as the value of their houses decrease.  The more your property goes down, the more you will pay.

This is not State Capitalism. There is no known name for what this system is. It is something so obscene, Wiki doesn't have a name for it.

Now here is a fact that will make you happy for just a moment: you will not pay any higher taxes for this just yet. What will happen is the money being paid out will come from the infrastructure, from health services, from schools, from the military, from tuition assistance, and even from housing loans. This will of course lead to monetization of the debt and really ugly levels of inflation will ensue. There is no end in sight to the deflationary asset cycle we are in, it is creeping into the overall economy, and monetary inflation could end up coinciding with this. They would call this one not the Great Depression, but the Very Bad Depression.

Here is another thing that it did: when someone buys a US treasury, they are saying, "I will loan you the money you need to run your government". When the government turns around and gives that money to failing private institutions, the people buying treasuries will say, "Hey! I could have loaned that money to them, but I didn't like the risk. I am not loaning you anymore money because you are reckless."

It also could drain liquidity from the market because other countries will be less inclined to invest in a private bank when they can just buy MBS's, which the government is allowing F&F to continue issuing until December of next year. They will have the backing of the US government.

Don't believe me? When Lehman fails today, tomorrow, or Friday, ask yourself if S. Korea pulling out of investing with them had anything to do with the government's announcement last weekend.

And that is the excuse Lehman will use when they come begging hat in hand to the government. The government once again will say, "yes, my friend; you are too big to fail."

There are many, many unknown side effects to this new rigging of the system. For instance, people are still trying to figure out how $1.4 trillion in CDO swaps were unwound starting last Monday... or if they were unwound. Also, how exposed are other banks to their off-balance sheet holdings? Citi is said to be insolvent if they have to bring their stuff onto their books.

Make no mistake; this is what the republicans demanded all along. That other party, the pathetic democrats, went along, but they didn't engineer it. Every mantra the republicans hang their hat on has been nailed to a cross. All those people who are cheering wildly for McCain and Peg Bundy are not republicans. They are brainwashed idiots, and they are dangerous. They have no idea what a conservative is; they only respond to keywords and can be whipped up to follow a turd right into the swimming pool.

I want you to think about something; another site that I don't want to embarrass seriously suggested that we all take our money out of the banks. That money is earning next to nothing anyway, the banks want you to use their ATM's and debit cards in the hope that you will make a mistake that they can pounce on, and they are just using your money to seek gains for themselves. If there is any way you can unwind yourself from them, then do it.

Also, I have to tell you; I pay quarterly taxes, and there is one of two things that I am thinking of doing: the first is to take a picture of the money I owe them and send it in with instructions to make as many copies as they want. The second is to remove long stretches of guard rails and pieces of bridges and sell it for scrap to raise my taxes. I'm just telling you in advance.

I'm going to leave you with a couple of things I found on this amazing site.

There is roughly $6.84 Trillion in bank deposits. $2.60 Trillion of that is uninsured. There is only $53 billion in FDIC insurance to cover $6.84 Trillion in bank deposits. Indymac will eat up roughly $8 billion of that.

Of the $6.84 Trillion in bank deposits, the total cash on hand at banks is a mere $273.7 Billion. Where is the rest of the loot? The answer is in off balance sheet SIVs, imploding commercial real estate deals, Alt-A liar loans, Fannie Mae and Freddie Mac bonds, toggle bonds where debt is amazingly paid back with more debt, and all sorts of other silly (and arguably fraudulent) financial wizardry schemes that have bank and brokerage firms leveraged at 30-1 or more. Those loans cannot be paid back.

Every penny has been swept out and lent out (10 times over) thanks to the Greenspan Fed and fractional reserve lending. What cannot be paid back will be defaulted on. If you did not know it before, you do now. The entire US banking system is insolvent.

Originally posted to MouseOfSuburbia on Wed Sep 10, 2008 at 03:29 AM PDT.

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Comment Preferences

  •  America is too big to fail. nt (3+ / 0-)
    •  Unfortunately, this is not (7+ / 0-)

      the case.  Nothing is too big to fail (ask the Romans, or the Soviets, for examples).

      The point is that we have a vested interest in not allowing the US to fail.  That will take effort, money, and determination.

      Warmest regards,

      Doc

      I get on my knees and pray that we don't get fooled again. -6.25, -6.05

      by Translator on Wed Sep 10, 2008 at 03:44:12 AM PDT

      [ Parent ]

      •  precisely what i was thinking (3+ / 0-)
      •  doing my part (4+ / 0-)

        I'm working damned hard to get better leadership in office. If the goopers retain the White House, though, it's over. This country will soon be toast. I bow out after that point.

        Let the megalomaniacs and their religious sycophants drive the USA over the cliff. That is where this is headed if they stay in charge.

        -7.38, -5.23 "Though the storm may be raging, and the billows tossing high, Lord I feel like going on."

        by CocoaLove on Wed Sep 10, 2008 at 04:14:30 AM PDT

        [ Parent ]

        •  They just did. (2+ / 0-)
          Recommended by:
          alefnot, Pris from LA

          The country is running a deficit, none of the big banks have any money, and the economy is in the grip of a negative feedback loop between house values, and mortgage-backed securities falling with house values causing lending to tighten up, causing house prices to fall...

          We said we want change, and they gave us a handful.

          by MouseOfSuburbia on Wed Sep 10, 2008 at 04:25:39 AM PDT

          [ Parent ]

          •  great diary (4+ / 0-)

            many good links in this diary.  All of the assertions you make about the banking industry/state of the union are 100% accurate.  Actualizing the theories of Milton Friedman and Alan Greenspan have destroyed this once great nation.

            •  Thanks. (3+ / 0-)
              Recommended by:
              TexasTwister, dmnyct, Pris from LA

              It's almost as if the Bush administration took Friedman to it's absolute max and not only got rid of all barriers in the way of maximizing profits, but actually put the government to work as a tool to utilize for maximizing profits for industry.

              Seriously. What has it done for the social aspects of governing?

              We said we want change, and they gave us a handful.

              by MouseOfSuburbia on Wed Sep 10, 2008 at 04:37:26 AM PDT

              [ Parent ]

              •  This is a blanket reply to the excellent (4+ / 0-)

                comments above.  Please let me tell you a story.

                Several years ago, foreign powers had the United States in a bad position.  They owned the money, they made the rules, and they pretty much made our economic infrastructure do what they wanted.

                This went on for quite some time, until a few folks decided that the ruling class were out of line, and did not deserve their lot.

                A few nuts, along with a few deep thinkers, and a few people of action decided to do something.  They wrote the Declaration of Independence (well, maybe it was more than "several" years ago).

                This time it is not the British monarchy that has us in servitude.  It is the cabal of international corporatists that have usurped our sovereignty.  I think that we should declare independence from them, and the international financiers, and see who goes broke first.  Tough times for a while, but it might be possible to rebuild a new United States incorporating the best thoughts of the Framers, and lessons learnt since then.

                Warmest regards,

                Doc

                I get on my knees and pray that we don't get fooled again. -6.25, -6.05

                by Translator on Wed Sep 10, 2008 at 06:44:37 AM PDT

                [ Parent ]

                •  And I thought people were afraid to... (4+ / 0-)

                  think out loud these days.

                  How many others are thinking the same thing?

                  The government has a lot to fear from us. It's terrible to even be thinking in terms of us and them, they are supposed to be us.

                  When that stops, and all they want us for is taxes and a cheap labor pool, then...

                  Here, take a look at this from just today.

                  I almost want to apply just so I can stick that thing up someone's ass.

                  We said we want change, and they gave us a handful.

                  by MouseOfSuburbia on Wed Sep 10, 2008 at 07:53:02 AM PDT

                  [ Parent ]

                  •  of course this had only 19 comments (2+ / 0-)
                    Recommended by:
                    MouseOfSuburbia, Pris from LA

                    so sad.  millions are being fleeced, only 10 people comment on an incredibly accurate piece of writing.

                    •  Thank you. (3+ / 0-)
                      Recommended by:
                      NoMoreLies, dmnyct, Pris from LA

                      I think there is going to be some rude awakenings for a lot of people in different aspects of society.

                      I am amazed at the suspended disbelief going around McCain's truly bizarre world. He is now forced to campaign with her everywhere, because he will look like (more of) an idiot when he shows up to a crowd of 5 misinformed people.

                      And the people love her.

                      No questions from the press.
                      Nothing she speaks has any factual basis in truth.
                      The most hollow agenda ever offered up at the most important time for this country.

                      Empires fall, and I can wrap my head around that if need be. What I can't get a grip on is that it might end up falling to idiots.

                      I think Obama should just step out of the arena and huddle with some smart people about fixing things. I think Biden should step in the ring and play their game.

                      Forget condescending. Go right to rude, because that is what the wavering middle wants, otherwise they wouldn't be the middle - they would read, and process information, and be democrats.

                      I would like to see Biden in the debate make her cry. When she starts answering a question in a stupid way, just cut her off and answer it for her. Apologise to America on behalf of McCain, and tell the people that they deserve better than cue cards in this debate, and that if he can rattle her, then there will be trouble.

                      Slip in a question like, "Seeing the citizens pay for the health coverage of your children, don't you think every child deserves the same exact coverage?"

                      Ask her if she thinks pro-choice women deserve to have free will.

                      Ask her about dinosaurs.

                      Ask her why she hasn't already prayed this country out of it's problems.

                      I don't know; I just don't know what to think or do.

                      We said we want change, and they gave us a handful.

                      by MouseOfSuburbia on Wed Sep 10, 2008 at 06:00:41 PM PDT

                      [ Parent ]

                  •  I'm an accountant... (0+ / 0-)

                    And I've reached the same conclusion.  The banks are going to implode in such a manner that it will make the Great Depression look tame, by comparison.

                    I remember reading an article by Stirling Newberry a few years ago that touched on this.  I believe that the article was titled "Death Bet," and it concluded that the  next 10-20 years could be really ugly.

                    Perhaps the only satisfying outcome of when the (expletive deleted) hits the fan is that we're going to take the rest of the world down with us.  Somehow I don't think the Chinese are going to like having to write off their investments in us.

                    •  It's great to hear from you. (0+ / 0-)

                      I hate to sound like a chicken little, and I am not a professional investor. There are a large number of blogs out there with very smart people gathering and linking data, and they are stunned and pissed off.

                      The last link is part of a small group of bearish investors; buy and hold they do not. Trading short options is either a brief hobby, or a stressful, diligent profession. Usually a down market makes them happy - it makes them money. They do not for one minute like what they are seeing, and that's just the trading side. The moral side is disgusting, and every bone in my body says that the government cannot possibly engineer this whole thing for too long; not with fundamentals like we are seeing.

                      It's good to hear from an accountant, though I guess I should say it would have been better if you could have told me I have the whole thing wrong.

                      We said we want change, and they gave us a handful.

                      by MouseOfSuburbia on Wed Sep 10, 2008 at 09:20:55 PM PDT

                      [ Parent ]

          •  Tell us how you REALLY feel ... (0+ / 0-)

            First, excellent diary.

            Second, that's a positive feedback loop of the Very Bad death spiral kind. Negative feedback loops are self-correcting.

            Third, eternal damnation to the Republicans who stole the 2000 election, and to the Naderites who kept it close enough for them to do so.

            Fourth, when is the public going to wake up? Even in the soi-disant "reality-based community" we spend far more energy being clever about lipstick and pigs.

            Fifth, as a commenter in one of my diaries noted, when we're in a no-win situation, the damage has already been done. We're there; now what?

            •  Thanks, and... (0+ / 0-)

              OK, I'll say it out loud too: death spiral! Arggg.

              I totally agree. How did they make so many stupid people, though?

              I get sucked in every time. I even spend time at WaPo bashing my brains in on their boards every once in a while.

              That's the big question. About as far as I'm willing to comment publically is a promise to vote and a promise to slash the tires of my republican neighbor on election day ;-)

              We said we want change, and they gave us a handful.

              by MouseOfSuburbia on Wed Sep 10, 2008 at 09:26:45 PM PDT

              [ Parent ]

              •  Ignorance and literacy (1+ / 0-)
                Recommended by:
                MouseOfSuburbia

                For some reason I am far less upset by the F&F bailout than I am about how we got ourselves to this point. At this point all of our options are bad, and fixating on whether we use the purple bandaid or the green one when we're hemorrhaging uncontrollably (which is what a lot of the financial press and blogosphere is doing) detracts from a hard look at the structural and regulatory framework that not only made this inevitable but was actively encouraged, often on both sides of the aisle.

                Perhaps I'm an optimist, but I think a large part of this is due to public ignorance. But I'm also a realist, so I think finance has a vested interest in using opaque jargon to befuddle or intimidate the public (and each other). Your post here is at a fairly high level for this audience: I think most people here only have a vague idea of what "long" and "short" really mean, or the difference between common and preferred stock, and even less about mark to market or toggle bonds or what it means to move assets off the balance sheet.

                So how about a post on explaining some of these things in simple terms? 100 years ago we were a lot more economically literate, today we favor the "free market" without really knowing what that is or means. (I'm trying to start something like that with this but I'm not a prolific blogger, and the more the merrier). Anyway, something to think about -- this audience could use your expertise.

                •  I think that is a great idea... (0+ / 0-)

                  and that was a great diary.

                  There is a lot of things that we used to know about but don't any more.

                  There was a time when the Sheriff could sit down to dinner with you and think nothing of the beaker, flask, and chemicals in your workshop.

                  Thomas Jefferson had a Koran. I've never read the Koran, but I can imagine all the trouble there would be if I bought one to check out.

                  Maybe I will write a diary in basic terms about that favorite republican straw man, Socialism. I could show how the republicans have helped create a form of socialism, but with all the good parts removed.

                  I don't know if you have ever seen the movie Children of Men, but there was a scene in that movie that really hit me like a ton of bricks. The protagonist goes to visit a relative in an art museum in post-apocalypse London. The relative is standing somewhat triumphantly in front of the statue of David and asks, "So, how do you like it?" The protagonist answers, "I've got one in my bathroom."

                  The absurdity that the statue of David could be anywhere other than Florence, let alone 'owned' struck me as a beautiful metaphor about how we view things through the eyes of capitalism.

                  Capitalism is a great engine for progress, but we have morphed it into an engine of greed. It has become the end for us, not the means. When was the last time you heard the government ask us to save? What we hear instead is encouragement to go shopping, and that we need greater and greater pools of credit to allow for the reality of an ownership society. An ownership society can be had through saving too.

                  When we started writing zero-down, no questions mortgages, I would imagine there were people in Russia who laughed that the US finally discovered the goals of communism, and they are probably still laughing as we discover why it doesn't work.

                  The next diary that I write on the economy or money, I will take your advice and make it for everybody, and narrow the focus. I guess this one was me venting more than anything.

                  We said we want change, and they gave us a handful.

                  by MouseOfSuburbia on Fri Sep 12, 2008 at 12:59:46 AM PDT

                  [ Parent ]

      •  Only the British.. (2+ / 0-)
        Recommended by:
        northanger, Pris from LA

        have had the courtesy to schedule the end of their empire.

        I bet a part of them breathed a sign of relief when Hong Kong was handed over too.

        We said we want change, and they gave us a handful.

        by MouseOfSuburbia on Wed Sep 10, 2008 at 04:21:41 AM PDT

        [ Parent ]

    •  No it's not. (4+ / 0-)

      This is a new adventure, and it didn't come about because they got curious. By all accounts, it's a race to the end of the administration, and then they won't care what happens.

      They are hoping for enough fingers to plug the holes, but the dam is going to break.

      We said we want change, and they gave us a handful.

      by MouseOfSuburbia on Wed Sep 10, 2008 at 04:20:11 AM PDT

      [ Parent ]

    •  facetious, much? (1+ / 0-)
      Recommended by:
      Pris from LA

      It's certainly not too big to splinter, and the some of the pieces can fail.

      You'll pay me the 8s I won of you a-betting?

      by Boreal Ecologist on Wed Sep 10, 2008 at 04:22:22 AM PDT

      [ Parent ]

      •  How familiar are you with this problem? (1+ / 0-)
        Recommended by:
        Pris from LA

        Some of the links in this diary point to a lot of information.

        The last one is actually a very well respected gathering place for short sellers. The resources it points to are some of the portals on the bleeding edge of market info and analysis.

        There is a lot of negative sentiment right now if you look at them.

        Lehman is toast this week. They are the 4th largest bank in the US.

        Washington Mutual could follow right behind. Same with the largest insurance company AIG.

        All will probably get bailed out because it is still before the elections.

        Also, do you know what month this is?

        What month has every major crash in the market taken place? It could be just weeks away.

        If you have other data, I would welcome it.

        We said we want change, and they gave us a handful.

        by MouseOfSuburbia on Wed Sep 10, 2008 at 04:33:52 AM PDT

        [ Parent ]

  •  Well, crap. Well said. n/t (1+ / 0-)
    Recommended by:
    Pris from LA

    Books are humanity in print. Barbara Tuchman

    by gazingoffsouthward on Wed Sep 10, 2008 at 03:50:13 AM PDT

  •  The sharks are eating each other after eating us (3+ / 0-)

    blood in the water and the frenzy took over...get while the getting was good with no thought to consequences or any hint of reality. No restraint or oversight...wink wink, plenty for all of us insiders...

    Pogo & Murphy's Law, every time. Also "Trust but verify" - St. Ronnie

    by IreGyre on Wed Sep 10, 2008 at 04:01:50 AM PDT

  •  I voted yes (2+ / 0-)
    Recommended by:
    MouseOfSuburbia, Pris from LA

    With the nuance that he was alive during the Great Depression...

    Little John bet the (white)house on a crap shoot!

    by rosabw on Wed Sep 10, 2008 at 04:07:12 AM PDT

  •  Thanks Mouse (4+ / 0-)

    Excellent and frightening analysis. I liked this:

    It is something so obscene, Wiki doesn't have a name for it.

    Yes it is obscene, the world according to Bush, the Neo-Cons and the Neo-Liberals. Some have named it though, if not wiki. It is called Shock and Awe.

    Daydreaming is this ability to tune out the present moment and contemplate the make-believe that separates the human mind from every other. Imagine peace.

    by cosmic debris on Wed Sep 10, 2008 at 05:43:53 AM PDT

  •  VERY GOOD DIARY... (0+ / 0-)

    HELL...you presented a totally different view of the same things my diary talks about, but, if I understand your diary, we are heading to same place..

    We're screwed.

    If you see me behind you..don't assume I'm following you. We just happen to be going the same way and if you slow down, I'll run over your ass.

    by TKH on Wed Sep 10, 2008 at 08:05:01 PM PDT

    •  Very much so. (1+ / 0-)
      Recommended by:
      TKH

      We just just covered two aspects.

      I always get nervous when writing stuff that could be viewed as alarmist, because one thing I hate is the use of fear.

      There's just no good way to put lipst... you know.

      Many don't and it's a hard thing to explain.

      To tell you the truth, I'd just as soon have the crash than live under a slowly engineered sham.

      The treasury will actually own mortgages now. Does that mean the IRS will come after you if your mortgage gets upside-down?

      Will they be 'nice' and renegotiate to a 100-year loan, and keep people debtors for life?

      I'll take the crash, and the black eye, please.

      We said we want change, and they gave us a handful.

      by MouseOfSuburbia on Wed Sep 10, 2008 at 09:33:31 PM PDT

      [ Parent ]

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