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The Grand Old Partying continues....

In the deteriorating climate he sees unfolding, Gundlach said, the Standard & Poor's 500 Index could fall another 30%, giant Citigroup could become an "AIG-sized debacle," Morgan Stanley would merge with a banking company, Wachovia won't be able to stand alone, default rates on even prime mortgages could soar, and European banks' woes are just beginning.

"This is no market for old men," said Gundlach... "This is no market for old-school thinking."

Below the fold: the result of 28 years of deregulation... Keating 5...  ENRON loophole... credit default swaps... all starring bad old John McPain and Phil Gramm.....

...GOP-caused economic meltdown that may reverberate til 2022... but sooner, an inconvenient October surprise: your Money Market (& Bank & Credit Union) accounts at risk... so come with me below the fold for plenty of ammo for educating your voters about why they are having horrible experiences and where the CHANGE needs to take place... in the central focus for election 2008: ECONOMY, ECONOMY, ECONOMY.

More hangover from the Greedy Old Party....

Kathleen Day, a spokeswoman for the Center for Responsible Lending, a consumer-oriented research group, explained the regulatory lapses more starkly: "The job of regulators is that when the party's in full swing, make sure the partygoers drink responsibly," she said. "Instead, they let everyone drink as much as they wanted and then handed them the car keys."

Wall Street crisis is culmination of 28 years of deregulation

Ronald Reagan led a movement that came to power in 1980 proclaiming faith in free markets and mistrust of government. That conservative philosophy has dominated America for the past 28 years.

Even after taxpayers had to rescue deregulated savings and loans, or S&Ls, with a $200 billion bailout in the late 1980s, the push to loosen regulation paused only briefly.

Ah yes, deregulation... S&L crisis... Keating...5...  ENRON loophole... all starring John McPain and Phil Gramm!

It was former senator and McCain economic advisor that is primarily responsible for the law that caused this economic meltdown.  Chair of the Senate banking committee at the time and under the cover of darkness, then Sen. Phil Gramm pushed through a bill titled the Commodity Futures Modernization Act (CFMA).  Gramm did so right after the Bush v. Gore decision in 2000 when only financial industry lobbyists were paying attention in Washington.  Then Senator Gramm and the REPUBLICAN CONTROLLED CONGRESS secretly slid through the CFMA.  The bill deregulated swaps which has thus caused the biggest financial meltdown since the Depression.  Yes, it the deregulated swaps and lack of oversight that are "at the heart of the subprime meltdown" says Michael Greenberger, former director of the Commodities Futures Traders Commission division of trading and markets in the late 1990s.  Sen. McCain has been very much for deregulation of the financial markets and it was that deregulation and McCain confidant and "the smartest person [McCain] knows" Phil Gramm that caused the crisis.  Gramm, then Chairman of the Senate banking committee, routinely turned down SEC Chairman Arthur Levitt’s request for more funds to police the financial industry.  McCain now claims that he plans to clean up Wall Street but until yesterday the Arizona senator stood firmly behind the policies, (deregulation) that put Wall Street in its current dire situation.  Gramm’s recklessness in the financial industry or free market policies has not dulled the glow on McCain’s belief of Gramm being an "economic guru."  If McCain gets in the White House, you can bet that Phil Gramm policies will be the driving force in the financial industry.  The two senators have been close friends since they served together in the House in 1980s.  McCain chaired Gramm failure of a presidential campaign and Gramm was McCain’s senior economic advisor until six weeks ago when he called the American people "a nation of whiners."  McCain’s entire presidential campaign staff is comprised of people like Gramm.  How can someone who admits to "not understand the economy" and surrounds himself with the very people who caused this problem in the first place possibly represent reform or bring reform for that matter?

McPain's hangover headache isn't cooperating with his plan to get back to Partying-as-usual by tonight...

Gundlach based his assessment on a belief that housing prices still face several more years of decline, a protracted slump, he said, not seen since the Great Depression. Moreover, Gundlach said it's possible that home prices could be sluggish until 2022.

"If it's like the Depression experience -- and it sure is shaping up that way -- it could take several years. Maybe we won't see a bottom in home prices until 2014," he said. institutions may suffer write-offs that could surpass $1 trillion before conditions improve... As of late August, credit losses and writedowns at the world's 100-largest banks and brokerages topped $506 billion...

My fellow Americans, may I suggest that we pause for a moment in celebrating the lower mortgage rates this week to review the actions of our U.S. Treasury Secretary, Mr. Paulson, over these last two years. During this time... 1) Mr. Paulson joins the ranks of the politically powerful becoming the U.S. Treasury Secretary after leaving Goldman Sachs as CEO. 2) He forces the sale of Bear Stearns to JP Morgan Chase under terms he dictated. 3) He promises Congress and the American people that he will save the GSE's "in their current form" if given the authority to do so. 4) He declares that the GSE's are too big a risk for U.S. taxpayers with help from Morgan Stanley's advisors. 5) He uses said authority to take control of the GSE's advocating that their current form be eliminated. 6) He establishes a private sector secondary mortgage market that could make billions for Wall Street firms such as Goldman Sachs, Morgan Stanley, JP Morgan Chase and others.

Well, I say, how about pausing for this:

Have we as Democrats communicated to the voting public that the Republican caused and orchestrated bailout of Fannie and Freddie has added $5 Trillion to the national debt?

Does the American voter know that the US national debt has risen to $9.7 Trillion!?!

But the tab for the Grumpy Old Porkers' binge may go even higher... much higher...

... and as you read the following, remember the key equation:

"swaps" = Gramm-McPain

September 9, 2008 ---  Fannie and Freddie's New Derivatives Cliffhanger --- The bailout triggers settlement of $1.4 trillion in unregulated credit-default swaps. Do the hedge funds have the money?

In taking over Fannie Mae (FNM) and Freddie Mac (FRE), Henry M. Paulson Jr. and the U.S. Treasury Dept. cleared up uncertainty surrounding the companies' common stock, preferred shares, and senior and subordinated debt. But Uncle Sam's intervention also triggered a default event, according to the International Swaps & Derivatives Assn., and now roughly $1.4 trillion in outstanding credit-default swaps, a type of derivative contract, must be settled.

You remember the credit-default swap (CDS). It began life as an "insurance policy" that big players such as hedge funds took out to hedge investment risks. Over time, however, the CDS became a tool that big funds, financial institutions, and others used as a way to place bets on whether a company would go bankrupt. They're contracts negotiated between two parties and—unlike insurance policies—there's no regulator verifying that companies can actually make good on the $62 trillion of swaps outstanding.

Ever since Warren Buffett described derivatives as "financial weapons of mass destruction" in 2003, the market has been waiting for signs that the Oracle of Omaha's vision may come true. That's why the federal government's decision to take over Fannie Mae and Freddie Mac could turn out either to demonstrate that the auction system to unwind such contracts works or to set loose financial Armageddon. In a worst-case scenario, the default swaps could lead to monumental writedowns and overall financial gridlock as companies bicker over prices and unpaid obligations.

So isn't there safe harbor in the storm for little folks like you and me?

The takeover of Fannie Mae and Freddie Mac is likely to cause big problems for hundreds of community banks nationwide and could lead to a new round of bank failures.

That's because many smaller banks had a large amount of funds tied up in the preferred shares of Fannie and Freddie, depending on the dividends for reliable income, and the value of those shares to meet the capital levels required by regulators.

Now the dividends have been scrapped and the share values are in question.
"For many banks it was a safe and steady income stream," said Brian Gardner, senior vice president and chief political analyst for Keefe, Bruyette & Woods, an investment bank that specializes in financial firms.

"It's cutting off an important source of income for the banks at time when income is not easy to come by."

The GOP... the party that wrecked America... wants you to pay the bill... for a party you never got an invitation to.

The Party That Wrecked America

   McCain-Palin have nowhere to go now but down, and I will tell you exactly how this will happen. They can run away from President Bush, but they can't run away from the Republican Party. The Republicans will be regarded from now on as "the party that wrecked America." Over the weeks ahead, as carnage in the economy and the financial markets ramps up, it will become increasingly clear. It is important that this meme be spread through the internet. I urge all commentators who read this blog to adopt and spread the idea that the Republicans are "the party that wrecked America." It will work because it is the truth. Use it freely. Don't bother attributing it to me. Just spread the word. Get the meme going.

This morning, Manhattan is strewn chest-deep with the debris of banking and at this hour (seven a.m.) nobody knows how far, deep, and wide the damage will spread. The fear, of course, is that we are witnessing a classic "house-of-cards" or "dominos-in-a-row," situation, and that the death of Lehman Brothers and Merrill Lynch will cascade into a generalized collapse of the entire consensus of value that supports mediums of exchange.
    At least one thing ought to be clear: this has happened due to the negligence and misfeasance of the regulating authorities, namely the Republican Party, and that now all the hoopla surrounding Sarah Palin can be swept away revealing that group to be what they actually are: the party that wrecked America. I hope one or two Barack Obama campaign officials are reading this blog. You must commence the re-branding of the opposition right now. The Republicans must be clearly identified as, the party that wrecked America.

The wreckage is ugly, ugly, ugly.

Worse yet, we can't just gawk.

Because even if you didn't party, even if you didn't drink, even if you're not driving.... the drunkards are driving right in your direction.

Investors need to know that money-market funds aren't insured, even though they have come to be used much like bank accounts, said Andrew Tignanelli, a fee-only financial planner in Hunt Valley, Maryland. He said the belief that money markets are risk-free is ``an illusion.''

Jittery investors reacting to Reserve Management Corp.'s decision to delay redemptions in a money-market fund don't have a lot of safer alternatives, financial advisers say.

Reserve Management, a pioneer in the money-market business, became the first fund in 14 years to expose investors to losses yesterday. Shareholders had withdrawn more than 60 percent of the New York-based fund's assets over two days. The fund yesterday wrote off $785 million in Lehman Brothers Holdings, Inc. debt.

Bank accounts insured by the Federal Deposit Insurance Corp. and U.S. Treasury bonds are among the few alternatives for investors who pull out of the $3.58 trillion money-market industry. The three-month U.S. Treasury bill paid its lowest rates since at least 1954 today as investors fled the stock market and drove down yields.

U.S. money-market mutual-fund assets were $3.58 trillion as of Sept. 10, just below their peak of $3.59 trillion set a week earlier

Why American Savers Have Drawn the Short Straw

There are painfully real reasons why America's savers feel they've got the short end of the stick.

American savers, take a bow. This is your moment of vindication. Your hour of glory. And you earned it (in a manner of speaking).

You resisted the siren call of plastic teaser APRs, dutifully living within your means to store money for a rainy day. You never took out an interest-only mortgage. Never had to pawn the copper pipes from your exurban McMansion to pay the reset on your liar loan. Your credit score would have gotten you into Harvard at age 12.

Good for you! Your reward: injurious savings yields, inflationary rot, and election-season neglect, all served up with a dollop of institutional insecurity.

Even with a current account deficit that, starved of domestic savings, requires $2 billion a day in foreign financing, economic policymakers are fixated on propping up credit and giving the participants in the housing bubble second chances. In order to do so, they are stripping the hides off of net savers.


Maybe savers' ultimate vindication will arrive when and if every asset is so deflated, credit is so choked off, and misery is so prevalent that only those with cold hard cash can lob in lowball offers for homes, cars, and everything else. Assuming, of course, they didn't stash all their money in one of the many banks that is about to go under; the feds are closely watching 117 of them—and counting. The phone lines have never been so jammed with nervous clients.

I don't have all that much, but I've been progressively disengaging. I pulled out of the stock market last year. I pulled out of money markets as much as I could this week. I stocked up on rice and beans. I pulled a bunch of cash out of the ATM yesterday. (You might want to do something similar, so you can free your mind and focus on the remaining weeks of this campaign.)


Now, please, arm yourself with the following:

Sen. Barack Obama’s Plan for this Financial Crisis (transcript)
by progress — published on September 17th, 2008

Remarks of Senator Barack Obama
Confronting an Economic Crisis
As Prepared For Delivery

Tuesday, September 16th, 2008

Golden, Colorado

Originally posted to iVote on Thu Sep 18, 2008 at 05:51 AM PDT.

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Comment Preferences

  •  Hot tip: let's bounce that Greedy Old Party... (19+ / 0-)

    that wrecked America.

    #3: ensure network neutrality; #2: ensure electoral integrity; #1: ensure ecosystemic sustainability.

    by ivote2004 on Thu Sep 18, 2008 at 05:54:08 AM PDT

  •  My neighbor the economist says the same thing. (7+ / 0-)

    This thing is just the beginning.

    •  Old, old, old (1+ / 0-)
      Recommended by:

      Old men
      Old ideas
      Old party (not-so-Grand, either)


      They removed the safeguards.
      They planted the seeds for this mess.
      They are gouging at the trough right now.

      #3: ensure network neutrality; #2: ensure electoral integrity; #1: ensure ecosystemic sustainability.

      by ivote2004 on Thu Sep 18, 2008 at 06:01:17 AM PDT

      [ Parent ]

  •  My god (6+ / 0-)

    I can only thank my lucky stars that the mortgage on our house (bought in 1986) will be completely paid off this year, and also, that during the housing boom a year or two ago we decided NOT to put it on the market and get into a larger house...

  •  I Am No Fiscal Wiz, But I Invest (4+ / 0-)
    Recommended by:
    elmo, JeffW, MKSinSA, jfromga

    and I do so in a pretty conservative manner. Generally speaking over the past couple decades I didn't lose money. I might have here or there, but made it up elsewhere. I am now just bleeding everywhere.

    I have to believe other folks are dealing with the same thing. We're not rich, but we try to save and invest. We're the middle class. We're trying to pinch a corner here or there (as I do) to put money into savings cause we hope retirement won't be a pain.

    When I look at my investments I almost cry.

    "We are what we repeatedly do. Excellence then, is not an act, but a habit." - Aristotle

    by webranding on Thu Sep 18, 2008 at 06:06:07 AM PDT

  •  It won't only be "us" who suffer (6+ / 0-)

    it'll also be all the projects we won't have the money to undertake: the transition to wind/solar, the cleaning up of the dead zones, the paying of fishermen not to fish, to allow the biomass in the ocean to start to climb again, the cleaning of carbon from coal-fired plants....

    These will have consequences perhaps even worse than a Depression, in that it will be a Depression + Environmental Collapse.

    Last great Depression had relatively cheap energy to help pull it out -- as well as a predominantly agriculture-based small-town populace. We probably won't have either in the decade ahead.

    "We're in for a bumpy ride."

    All the news that scares us silly:

    by mwmwm on Thu Sep 18, 2008 at 06:11:49 AM PDT

    •  And That Is Exactly It (2+ / 0-)
      Recommended by:
      ivote2004, MKSinSA

      about half of my investments are in funds with many holdings. I analyze the fund, its performance, and the person managing it. But I also invest in individual stocks. In those instances I attempt to analyze the company, its performance, its potential for solid ROI over a long term period of time.

      With that said I got out of all banks and financial service firms a long, long time ago. Cause IMHO what we're seeing from a housing standpoint is only going to only get worse, when people try to stay in their homes and stop paying their credit cards.

      What our government is doing is writing checks we can't cash. At some point you hit a wall. IMHO we have stepped over a line from a fiscal point-of-view that we can't step back from.

      "We are what we repeatedly do. Excellence then, is not an act, but a habit." - Aristotle

      by webranding on Thu Sep 18, 2008 at 06:20:13 AM PDT

      [ Parent ]

    •  mwmwm: I agree 100%. (0+ / 0-)

      The economy is just an approximation -- and a coarse approximation at best -- to the underlying reality: the ecosystem.

      The financial crash, as cataclysmic as it may be, is relatively superficial, compared to the underlying layer of "Peak Oil" and other forms of commodity resource depletion.

      Beneath that, is the deeper layer of "Climate Crisis" -- where not only are we depleting slowly-renewable or non-renewable resources, but we are triggering feedback loops that are on the brink of emerging into emergencies that outstrip any possible human response.

      At the deepest layer is the really big picture: "Ecosystemic Health Crisis" -- that contains all the others as subsystems, and includes exponential loss of species diversity, toxicity accumulation, atmospheric oxygen depletion, and other holistic risks.

      Which is all to say that I definitely get what you are saying, and agree whole heartedly....

      ... except for 1 thing: "money" is not the same thing as "wealth". New forms of exchange can be invented, and capital can be formed, and new living arrangements can be created -- and this can happen bottom-up, in small groups, progressively linking up -- but only to the extent that we engage in ecosystemically healthy behavior, and do so before it is too late (which brings us back to the challenges stated in your first paragraph).

      #3: ensure network neutrality; #2: ensure electoral integrity; #1: ensure ecosystemic sustainability.

      by ivote2004 on Thu Sep 18, 2008 at 07:12:01 AM PDT

      [ Parent ]

  •  Maybe you can help me, ivote2004(8 :) (1+ / 0-)
    Recommended by:

    (Please feel free to correct me wherever I veer off course, thanks)

    Banks are solvent because they have strong leverage due to customer deposits and therefore are considered at low risk during this crash. They do not, however, have a positive cash flow, just more than their debt.

    BofA just bought Merrill Lynch because it was highly overleveraged and had no liquidity. Now, BofA has lost some of its and is more highly leveraged than it was 48 hours ago.

    Does this move dilute its assets? And, does this put it at any risk? Is it true of any bank that takes on this sort of debt-laden entity?

    I thank you in advance (because I'm really not understanding this entirely and this is the second "bad" business BofA has purchased - Countrywide was #1 - at least that I know of).

    •  sure I'm voting in 2008, but "ivote2004" means... (1+ / 0-)
      Recommended by:

      When I joined dKos in 2004, I had 2 meanings for

      The first is the obvious meaning: that voting in the 2004 election was really important, to get rid of Bush/Cheney;

      a declaration that I was admitting I was wrong to abdicate electoral-politics for so long.

      (I had been focusing my activism on non-electoral politics, with much more emphasis on direct environmental advocacy, encouraging bootstrap ecopreneurship, and grassroots creation of alternatives.)

      But the 2nd meaning of "ivote2004" was cooler. If you see it more as iVote (circa 2004), you get more the flavor. Think back half a decade to the time that birthed iMac, iPod, and then iPhone. Howard Dean was beginning to use the tools that people like me had been working towards for the previous 2 decades. The Netroots was forming. So i-Voting (internet, interactive, etc -- applied to democracy) was what I was getting at.

      That said, it's one of the lamer handles I've made up in my 30+ years of making up digital handles... but I didn't take dKos all that seriously when I first signed up... sorry ;-)

      #3: ensure network neutrality; #2: ensure electoral integrity; #1: ensure ecosystemic sustainability.

      by ivote2004 on Thu Sep 18, 2008 at 06:36:02 AM PDT

      [ Parent ]

    •  With regards to the actual questions... (2+ / 0-)
      Recommended by:
      ivote2004, MKSinSA

      ...there's a reason that many of the major transactions have involved JP Morgan and Bank of America. They're two very large retail banks with enough cash reserves to wait out this liquidity crisis.

      Sure, some of these transactions add short-term risk to the underlying companies. The idea, though, is that these are great long-term values for anyone with the financial stability to last that long. Bank of America plus Countrywide plus Merrill Lynch is going to be a financial powerhouse in a few years once some sanity returns to the markets.

      •  Maybe (0+ / 0-)

        How long will the "liquidity crisis" last?

        How much in the way of cash reserves is "enough"?

        What is "short term"?

        in a few years once some sanity returns to the markets.


        Please see the body of my diary, especially the quote that mentions the year 2022.

        Remember, the Great Depression lasted until 1954, if you measure it by how long it took of the stockmarket to regain the levels of 1929.... see this chart.

        #3: ensure network neutrality; #2: ensure electoral integrity; #1: ensure ecosystemic sustainability.

        by ivote2004 on Thu Sep 18, 2008 at 07:31:43 AM PDT

        [ Parent ]

  •  McKeating 5, champion of financial deregulation.. (1+ / 0-)
    Recommended by:

    Until Monday of this week apparently.

    Many people know about McCain's history of having used "bad judgment" in "appearing" to interfere in the regulatory investigation of his family friend Charles Keating--details in the 2000 Slate article: Is McCain a Crook? Unfortunately too many voters still don't know about this.

    IMHO, a short Obama campaign ad educating the voter about McCain's role in Keating 5 (Short version quoting Slate):  

    "...In 1987, McCain and 4 other Senators attended two meetings with federal banking regulators to discuss an investigation into Lincoln Savings and Loan...(a) thrift owned by Arizona developer Charles Keating...Keating, fearful that the government would seize his S&L, sought intervention from a number of U.S. senators...Regulators did not seize Lincoln Savings and Loan until two years later. The Lincoln bailout cost taxpayers $2.6 billion..."  

    Despite McCain's apologies following the Senate Ethics investigation into his "bad judgment", despite his claims to have morphed into some sort of lobbyist-fighting superhero--McCain's has continued to be a career-long champion of deregulating oversight of the financial industry.   Yesterday, Yahoo News even called him out, saying that:

    "McCain was for Deregulation Before he was Against It"
    I'm sure the Obama people could make a 30 second truth-telling informative ad re: the Real McCain--champion of the deregulation that allowed the current economic meltdown.

    •  Definitely... + check out K5 links in diary (1+ / 0-)
      Recommended by:

      In the body of the diary, I linked to several other excellent dKos diaries with tons of good material about Keating 5, S&L, deregulation.

      Incl. new info about John McCain's son, Andrew -- following in his father's dirty footsteps.

      Thanks for your additions.

      #3: ensure network neutrality; #2: ensure electoral integrity; #1: ensure ecosystemic sustainability.

      by ivote2004 on Thu Sep 18, 2008 at 06:49:10 AM PDT

      [ Parent ]

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