The Big Sting Two

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The plan for an economic takedown, the results of rampant market speculations, insiders picking up assets for pennies on the dollar, the coming hyperinflation, the credit crunch, collapse of the dollar carry trade, suppression of metals prices, American meddling in Georgia.

The Big Sting Two is now being implemented by the Illuminati, but they have run into some major snafus that are ruining their attempt to bring America to its knees in preparation for the creation of a one-world system of government, with its associated police state, financial system and one-world religion.

The plan was to bring down the US economic and political juggernaut while leaving their own interests either in tact, or perhaps only marginally damaged due to the takedown of our economy. Instead, they have destroyed both their financial and military power bases, and have managed, by virtue of their overreaching, overarching greed and corruption, to include themselves in the long list of their intended victims. “The Big Sting One” was of course implemented in the year 1929 by past adherents to this very same global, one-world ideology, and that sting led directly to the Great Depression of the 1930’s. While those who executed the 1929 sting were from another era, they were every bit as corrupt and evil as the current group of reprobates and sociopaths who comprise the latest den of Illuminist vipers, and perhaps even more so, if that were possible. We have mentioned both these “Big Sting” scenarios repeatedly in the IF, with The Big Sting One being a matter of history, and The Big Sting Two being a hypothetical, yet highly likely, repeat of the events that led up to the perpetration of The Big Sting One.

The Big Sting One was essentially a run-up of real estate and financial markets through rampant speculation caused by the malevolently profligate financial policies of the recently formed Fed, a private consortium of big bankers intent on taking over our political and economic systems so that they could manipulate them for fun and profits until they were ready to discard them in favor of a one-world system. At the height of speculation, the insiders who owned the Fed or were otherwise a part of the elitist group of megalomaniacs in government and business acting in concert with the Fed and its Illuminist cadre, were told that the Fed was going to pull the plug on the money supply and send the markets into a tailspin. This same group of insiders were further told when this fiendish event would happen. The insiders were given sufficient notice so that they had time to gradually liquidate their paper holdings and convert them into gold and other real tangible assets such as commodities. They were later told, in the aftermath of the Stock Market Crash of 1929 and the election of FDR as President in 1932, that eventually ownership of gold, without disclosure of personal holdings to the government for possible confiscation, would become illegal. Once again, the insiders were given plenty of notice, this time to rat-line their gold bullion safely to Europe and other offshore locations, thus freeing them from the disclosure requirements and possible confiscation. Once again, all the non-insiders were left holding the proverbial bag. Then FDR, in 1933, like a good Illuminist lapdog and fascist scum-bag, after bilking the public out of their gold by scaring them into redeeming it from the government at $20 per ounce under threat of confiscation and jail for non-compliance with the disclosure requirements, raised the redemption value of gold from $20 per ounce to $35 dollars per ounce, for a nice, tidy profit of 75% for all the fraudster insiders who sat afterwards like fat cats on their hoards of offshore gold while the rest of the country went into deep depression, complete with daily foreclosures, bank failures, soup kitchens and bread lines. What an evil, despicable group of human beings these insiders were, in ways that defy description.

And now they are at it again, as The Big Sting Two gets underway. The objective is to run the paper, dollar-denominated stock, bond and derivative markets up in the mother of all bear market rallies just before the elections in order to support traitorous, incumbent, Congressional scum, while simultaneously driving the commodities markets, and markets for other tangible, real assets, like real estate, down. Then comes the bailout and the rollover and reinvestment of the proceeds. Dark pools of liquidity, Project Turquoise and Baikal, have been set up so that all dollar-denominated paper assets can be dumped outside of public view, thereby avoiding the collapse of asset values as the elitists pour their sales proceeds into tangible, real assets. Both the bailout and the reinvestment of the proceeds from the bailout will happen as gradually as they can manage, because they want to avoid public scrutiny and get the best possible prices when selling paper assets and buying real assets.

Meanwhile, false economic statistics from our government, fabulous fables from the Fed and endless fane-stream media jaw-boning will be used to convince the public and non-insider institutional investors that everything is hunky-dory and a recovery is just around the corner, right up to the moment that the destruction of our economy is finally given voice by our government officials, financial shills and fane-stream media. Right after the insiders have bailed and reinvested as stated previously comes the reality of thermonuclear, financial destruction. The dollar gives up the ghost. Up rocket gold, silver, oil and other commodities along with various other real assets as everyone runs for the door to dump their paper assets and tries desperately to reinvest the proceeds in real assets just as the insiders had done previously without them knowing. Next come the bankruptcies, foreclosures and liquidations. And who is there to scarf up all the fire sales at pennies on the dollar? That’s right, the evil, insider fiends whose real, tangible assets have skyrocketed after they just got the best possible deal on what is now worthless, dollar-denominated, paper “assets” from the public and non-insider, institutional sucker-dupes.

But the implementation of The Big Sting Two has become very problematic for the Illuminist scum-dogs. These reprobates have destroyed the bond and derivative markets via real estate fraud committed to hide the damage from the bursting of the dot.com Ponzi-scheme bubble. This whole fiendish mess is nothing but fraud heaped upon fraud. These markets were their financial power base, and are now a total shambles. The Illuminist financial institutions have become the “living dead” in a dying nation with a “zombie economy” that is undergoing its last reanimation. So far, they have only acknowledged a half a trillion in losses from subprime derivatives, with many, many trillions left to go on Alt-A, Option ARM’s, Prime Jumbo and Prime Non-Jumbo loans. Who will buy all this toxic waste when they go to dump it? How will they get a high enough price to keep major banks, investment banks and brokerage houses from going under? The proceeds from their good investments will be vaporized by the losses from their toxic waste, so what will they have left to invest in tangible, real assets? How much of these losses can the broke, debt-laden, defaulting public bail out before everything collapses? Where will the money come from? How will our citizens be able to afford higher taxes when a third of them are unemployed? How much paper fiat money can the Fed print before hyperinflation and the ensuing deflationary depression cause civil unrest and the trials and recriminations start as the public seeks out the Illuminist perpetrators of these heinous crimes?

Then we have the credit-crunch. It is worse than ever. A half-trillion of Fed largesse created from thin air has done nothing to restore confidence in a collapsed system run with a mantra of rampant, rampaging, blatant fraud and deceit that has wiped out the major players in our financial system. The resulting de-leveraging to shore up balance sheets that have been destroyed by toxic waste and by geometrically increasing rates of default on loans across the board has put oppressive downward pressure on the stock, bond and derivative markets that even the PPT can no longer support, much less run up to new heights. How can you run up a stock market when every incremental increase in value is seen as an opportunity to sell and avoid a meeting with a bankruptcy trustee and a loss of your job and salary? How can you run up a bond market when wildly increasing risk and inflation, with their much higher attendant rates of interest, perhaps even in double digits, are on the horizon? How can you run up derivative markets as Fannie and Freddie get ready to take the final plunge into nationalized oblivion while the real estate market faces hundreds of billions in mortgages with rate resets due, many of them underwater, with inventory and foreclosure rates that are growing with no end in sight, while a quadrillion dollar death-star of credit default and interest rate swaps gets ready to blow and collapse into a financial black hole?

The fractional reserve multiplier is now inoperative because no one wants to lend money. Every potential loan client is a potential back-breaking loss down the road. The banks don’t trust one another, much less non-financial clients. All the money and credit provided by the Fed is being hoarded, and the ability of banks to improve their balance sheets with fractional reserve leverage is nil. Again, where will they get the excess profits necessary to buy tangible, real assets so they can complete The Big Sting Two? This fear of lending renders the Fed and the ECB irrelevant to help their floundering economies. They can marginally help the fraudsters with their investment spreads if rates are lowered. The raising of rates at this point would bring the system down and completely destroy The Big Sting Two operation, so you can bet that higher rates won’t come from the Fed until after The Big Sting Two is completed or aborted. In any case, higher rates will be imposed by the markets, and we mean soon.

Other nations with large forex reserves and trade surpluses like China and Russia may have the money to invest in tangible, real assets, but where will the Illuminists in the US, Canada and Europe cough it up from? Our wonderful, stupendous, 160 billion dollar economic stimulus package has been absorbed and swallowed by our dying economy with little more than a hiccup to show for it. Our GDP is negative, we have unsustainable trade deficits, current account deficits, and an overall national debt that is about to double as the destruction and havoc wreaked upon us by the fraudsters gets unceremoniously dumped on the sheople-taxpayers. Our state and local governments are collapsing from decreased revenues as their bond markets for raising cash become frozen. Earnings are tanking from huge run-ups in wholesale costs due to commodity speculation, a weaker dollar and a broke and exhausted US consumer in debt up to his/her eyeballs. Where will corporate America, or even our government, find the money to invest in tangible, real assets under these woeful circumstances? Soon, Buck-Busting Ben will have to raise M3 to unheard of heights just to keep the system from collapsing as the financial system contracts at an ever-accelerating pace due to a self-imposed moratorium on lending and a collapsing real estate market and recessionary economy. We see a huge transfer of power to the dollar-rich nations and away from Illuminist interests as The Big Sting Two gets put on the Illuminists by the nations they intended to rip off with falsely-rated toxic waste and a collapsing dollar.

Next we have the phony dollar rally and the even phonier corrections in gold and silver, as well as other commodities, especially oil. What is causing this dollar rally? We’ll tell you what is causing it. First, you have the collapse of the dollar carry trade. This was a set-up by the Illuminati. They knew they were going to collapse the dollar over the past six to seven years from 121 to 71 on the USDX. They had to collapse the dollar to denude many competing foreign countries of the power they had gained through globalization, free trade, off-shoring, outsourcing, and legal and illegal immigration. They had to level the playing field so-to-speak. The dollar was kept on the stronger side for many years to maximize overseas buying power as numerous US transnational conglomerates spread their tentacles worldwide. But eventually, the dollar had to be brought down before the Illuminists were snowballed by their counterparts in foreign countries who had accumulated tremendous amounts of dollar forex and trade surpluses. Now, all those short sales of the dollar, which were once sure winners, are in trouble, and their is rampant short-covering right now as dollar flows decrease due to a worldwide recession and credit-crunch and these large short positions are no longer sustainable. Other currencies are being sold to buy dollars to cover eroding margin positions in dollar shorts caused by the sharp rise in the dollar initiated by central bank collusion, and that is increasing the dollar’s value while simultaneously decreasing the value of other currencies such as the pound sterling and the euro.

This central bank collusion was initiated to suppress gold, silver, oil and other commodities, to maintain export competitiveness in the Euro Zone and to support the cause of US incumbents who were looking pretty foolish until recently as our dollar, the world’s reserve currency, collapsed before everyone’s eyes.

A US recession is taking its toll on dollar flows as US consumers collapse from burdensome levels of debt and dollar flows are contracting rapidly from the financial system as the result of an ever-worsening, ever-accelerating credit-crunch even though Big Ben is printing money furiously. While increases in the supply of money decrease the value of the dollar, contractions in the money supply can increase its value. This also happened to the yen when the Japanese economy collapsed. And now there is a new flow of money to perceived quality and safety as World War IV looms in Georgia along the Russian border and in Poland, which has foolishly allowed NATO missile interceptors along the Russian border. NATO is being spanked by Russia, and there is little they can do about it as European oil and gas supplies come under total Russian dominance with the loss of all influence and control in Georgia, which will now become a puppet state of Russia. Also, the imminent collapse of Fannie and Freddie and looming bank failures of the gargantuan variety await their announcement on the Friday Night Follies, and money is flowing out of stocks again into treasuries and money markets. In addition, because oil has been manipulated down, the euro has dropped as the dollar has risen because OPEC petrodollars are converted mostly to euros and are spent in Europe. The dollar rally has decreased dollar profits from oil, so the purchase of euros with petrodollars has slowed considerably. Therefore, this dollar rally should not fill you with relief and confidence, it should fill you with ominous foreboding.

The other part of The Big Sting Two is to suppress precious metals directly, so they can be purchased cheaply by the Illuminists themselves for their own account. The dollar and oil manipulations have had an indirect impact, as has the yen, which has been kept strong against the euro to discourage carry trader investment in precious metals in the Euro Zone as the value of the euro erodes against the dollar and therefore also against gold and silver. But there are massive shortages in both gold and silver. The mint has suspended issuance of both Gold and Silver Eagles. Dealer inventories of gold and silver bullion and coins are greatly depleted and lengthy delays in delivery are common. Yet prices have plummeted. This goes against all free market principles known to man. How can they do this? Low or even negative lease rates for one. You can borrow gold and silver bullion for nothing or even get paid for taking it, and then use it to cover your shorts or sell it into the market to suppress prices. Only big banks get the privilege of borrowing for next-to-nothing, or even getting paid to borrow.

Try getting your banker to do that for you. We believe that much of the ETF gold and silver has been leased out, and their shares have definitely been naked shorted. Then there is direct sales by central banks and the ETF’s, which incidentally are controlled by large banks and investment banks. Also, huge short positions in futures markets have a suppressive effect, and the specs are humiliated constantly by the commercials who illegally know where all their sell stops are, and regularly start a cascade of black box selling whenever they want to spank them. Suspension of sales of gold and silver by the US Mint, which are both totally illegal, has been another factor suppressing demand, because the government is not being forced to go into the open market to buy precious metals in support of their mandates. Also, the failure to demand physical delivery by making cash purchases of COMEX gold and silver contracts for ultimate physical delivery has allowed the commercials to continue to dominate the casinos. We have continually begged the specs to empty the COMEX cupboards and change the ownership of the casino, but to no avail. And despite all this illegal manipulation of prices and illegal concentration of short positions among a very few players, we can expect total inaction, and/or even collusive suppression, from the SEC, the CFTC, the COMEX, the courts, the other regulators and our government. These markets are have become totally unregulated free-for-alls for the Illuminati and their gold cartel. This is a disgrace of the highest order, and we predict that many heads are going to roll when the trials and recriminations get underway at the behest of a livid US public. Nevertheless, these imbalances cannot stay in place for very long, and soon outside forces will overwhelm all these collusive manipulations and precious metals are going to shoot up like they were shot out of a howitzer in hyperbolic fashion.

The way to defeat the Illuminists and their plans for The Big Sting Two is to simply sell any and all dollar-denominated, paper assets such as stocks, bonds and derivatives. All interests in gold and silver ETF’s and in mint certificates should be gradually liquidated with the proceeds used to purchase gold and silver bullion, coins and their related resource stocks. Small investors should keep pressure on the dealers and the mints, while the big boys should buy silver and gold futures contracts on the COMEX for cash and for actual physical delivery at the end of the contract until the COMEX gold and silver cupboard has been completely emptied. Then the cartel’s lack of bullion will be laid bare, and their domination of the casino-like futures markets will be terminated. After that, it is up, up and away for gold and silver. Meanwhile, a big bank failure, the nationalization of Fannie and Freddie or the breakout of World War IV could occur, and that will take care of the suppression problem in very short order. Wait until the Olympics are over and China joins in on the action. Wait until all those foreign GSE bondholders start to smell big losses emanating from their Fannie and Freddie securities holdings and start exchanging them for gold, silver and other commodities while shunning treasuries and corporate bonds. Something very bad is about to happen. We can just feel it coming. A war is the usual remedy for economic disaster, both to direct attention away from such problems, to feed the military-industrial complex as a kick-start to the economy. Our economy is quickly unraveling, and it will be a miracle if they can hold it together through the November elections. Meanwhile, you have been given the bargains of a lifetime in gold, silver and their related shares. The blue light sales are on, and we suggest you take full advantage of them.

Last week we may have seen the beginning of WWIII. Russian peacekeepers were in Georgia and the Russian military brought a stinging defeat to the Georgian military, American and Israeli mercenaries and American forces all of who participated in the murder of 2,000 or more civilians. The US commanded forces used cluster bombs on the civilians.

Russia has emerged the winner in this war for oil and gas. The struggle is over; access to the Caspian’s 35 billion barrels of oil and trillions of cubic feet of gas and the geopolitical isolation of Russia. Our Secretary of State has told Russia it must leave Georgia. US officials have said that their military presence in Georgia will now become permanent. We might ask if the US presence can become permanent, why doesn’t Russian presence become permanent as well? The American military has been leading, training and equipping the Georgian soldiers. Americans say they are now switching to a full time program, as a security guarantee.

The invasion by Georgia into UN mandated territory under a Russian peacekeeping mission has triggered an outpouring of the most nauseating hypocrisy from western politicians and their captive, controlled media. There was the charge of Russian aggression, which was not the case at all. This is what our controlled media would have you believe. This was a case of American expansionism, a product of America’s drive to stretch its imperial oil empire. VP Cheney and PM Brown would have us believe it was Russian aggression and it is nothing of the kind. This is the same false pretense and lies that were used to invade the sovereign state of Iraq and bring the lives lost in the war and occupation to well over 1 million people, never mind those maimed for life. This is the same demented thinking that saw Israel pulverize Lebanon’s infrastructure and murder more than a thousand civilians, and followed up that action by spreading cluster bombs all over one section of the country deliberately to kill civilians. Again it was the intention of US and Israeli commands to kill as many civilians as possible; like throwing grenades into basements and homes known to be a hiding place for women and children. What evil barbarians.

http://www.theinternationalforecaster.com/

Americans play Monopoly, Russians chess

On the night of November 22, 2004, then-Russian president – now premier – Vladimir Putin watched the television news in his dacha near Moscow. People who were with Putin that night report his anger and disbelief at the unfolding “Orange” revolution in Ukraine. “They lied to me,” Putin said bitterly of the United States. “I’ll never trust them again.” The Russians still can’t fathom why the West threw over a potential strategic alliance for Ukraine. They underestimate the stupidity of the West.

American hardliners are the first to say that they feel stupid next to Putin. Victor Davis Hanson wrote on August 12 1 of Moscow’s “sheer diabolic brilliance” in Georgia, while Colonel Ralph Peters, a columnist and television commentator, marveled on August 14 2, “The Russians are alcohol-sodden barbarians, but now and then they vomit up a genius … the empire of the czars hasn’t produced such a frightening genius since Joseph Stalin.” The superlatives recall an old observation about why the plots of American comic books need clever super-villains and stupid super-heroes to even the playing field. Evidently the same thing applies to superpowers.

The fact is that all Russian politicians are clever. The stupid ones are all dead. By contrast, America in its complacency promotes dullards. A deadly miscommunication arises from this asymmetry. The Russians cannot believe that the Americans are as stupid as they look, and conclude that Washington wants to destroy them. That is what the informed Russian public believes, judging from last week’s postings on web forums, including this writer’s own.

These perceptions are dangerous because they do not stem from propaganda, but from a difference in existential vantage point. Russia is fighting for its survival, against a catastrophic decline in population and the likelihood of a Muslim majority by mid-century. The Russian Federation’s scarcest resource is people. It cannot ignore the 22 million Russians stranded outside its borders after the 1991 collapse of the Soviet Union, nor, for that matter, small but loyal ethnicities such as the Ossetians. Strategic encirclement, in Russian eyes, prefigures the ethnic disintegration of Russia, which was a political and cultural entity, not an ethnic state, from its first origins.

The Russians know (as every newspaper reader does) that Georgia’s President Mikheil Saakashvili is not a model democrat, but a nasty piece of work who deployed riot police against protesters and shut down opposition media when it suited him – in short, a politician in Putin’s mold. America’s interest in Georgia, the Russians believe, has nothing more to do with promoting democracy than its support for the gangsters to whom it handed the Serbian province of Kosovo in February.

Again, the Russians misjudge American stupidity. Former president Ronald Reagan used to say that if there was a pile of manure, it must mean there was a pony around somewhere. His epigones have trouble distinguishing the pony from the manure pile. The ideological reflex for promoting democracy dominates the George W Bush administration to the point that some of its senior people hold their noses and pretend that Kosovo, Ukraine and Georgia are the genuine article.

Think of it this way: Russia is playing chess, while the Americans are playing Monopoly. What Americans understand by “war games” is exactly what occurs on the board of the Parker Brothers’ pastime. The board game Monopoly is won by placing as many hotels as possible on squares of the playing board. Substitute military bases, and you have the sum of American strategic thinking.

America’s idea of winning a strategic game is to accumulate the most chips on the board: bases in Uzbekistan and Kyrgyzstan, a pipeline in Georgia, a “moderate Muslim” government with a big North Atlantic Treaty Organization base in Kosovo, missile installations in Poland and the Czech Republic, and so forth. But this is not a strategy; it is only a game score.

Chess players think in terms of interaction of pieces: everything on the periphery combines to control the center of the board and prepare an eventual attack against the opponent’s king. The Russians simply cannot absorb the fact that America has no strategic intentions: it simply adds up the value of the individual pieces on the board. It is as stupid as that. But there is another difference: the Americans are playing chess for career and perceived advantage. Russia is playing for its life, like Ingmar Bergman’s crusader in The Seventh Seal.

Dull people know that clever people are cleverer than they are, but they do not know why. The nekulturny (uncultured) Colonel Ralph Peters, a former US military intelligence analyst, is impressed by the tactical success of Russian arms in Georgia, but cannot fathom the end-game to which these tactics contribute. He writes, “The new reality is that a nuclear, cash-rich and energy-blessed Russia doesn’t really worry too much whether its long-term future is bleak, given problems with Muslim minorities, poor life-expectancy rates, and a declining population. Instead, in the here and now, it has a window of opportunity to reclaim prestige and weaken its adversaries.”

Precisely the opposite is true: like a good chess player, Putin has the end-game in mind as he fights for control of the board in the early stages of the game. Demographics stand at the center of Putin’s calculation, and Russians are the principal interest that the Russian Federation has in its so-called near abroad. The desire of a few hundred thousand Abkhazians and South Ossetians to remain in the Russian Federation rather than Georgia may seem trivial, but Moscow is setting a precedent that will apply to tens of millions of prospective citizens of the Federation – most controversially in Ukraine.

Before turning to the demographics of the near abroad, a few observations about Russia’s demographic predicament are pertinent. The United Nations publishes population projections for Russia up to 2050, and I have extended these to 2100. If the UN demographers are correct, Russia’s adult population will fall from about 90 million today to only 20 million by the end of the century. Russia is the only country where abortions are more numerous than live births, a devastating gauge of national despair.

Under Putin, the Russian government introduced an ambitious natalist program to encourage Russian women to have children. As he warned in his 2006 state of the union address, “You know that our country’s population is declining by an average of almost 700,000 people a year. We have raised this issue on many occasions but have for the most part done very little to address it … First, we need to lower the death rate. Second, we need an effective migration policy. And third, we need to increase the birth rate.”

Russia’s birth rate has risen slightly during the past several years, perhaps in response to Putin’s natalism, but demographers observe that the number of Russian women of childbearing age is about to fall off a cliff. No matter how much the birth rate improves, the sharp fall in the number of prospective mothers will depress the number of births. UN forecasts show the number of Russians aged 20-29 falling from 25 million today to only 10 million by 2040.

Russia, in other words, has passed the point of no return in terms of fertility. Although roughly four-fifths of the population of the Russian Federation is considered ethnic Russians, fertility is much higher among the Muslim minorities in Central Asia. Some demographers predict a Muslim majority in Russia by 2040, and by mid-century at the latest.

Part of Russia’s response is to encourage migration of Russians left outside the borders of the federation after the collapse of communism in 1991. An estimated 6.5 million Russians from the former Soviet Union now work in Russia as undocumented aliens, and a new law will regularize their status. Only 20,000 Russian “compatriots” living abroad, however, have applied for immigration to the federation under a new law designed to draw Russians back.

That leaves the 9.5 million citizens of Belarus, a relic of the Soviet era that persists in a semi-formal union with the Russian Federation, as well as the Russians of the Western Ukraine and Kazakhstan. More than 15 million ethnic Russians reside in those three countries, and they represent a critical strategic resource. Paul Goble in his Window on Eurasia website reported on August 16:
Moscow retreated after encountering fierce opposition from other countries, but semi-legal practices of obtaining Russian citizenship that began in former Soviet republics in the early 1990s continue unabated. There is plenty of evidence that there are one to two million people living in the territory of the former Soviet Union who have de facto dual citizenship and are reluctant to report it to the authorities. Russia did little to stop the process. Moreover, starting in 1997, it encouraged de facto dual citizenship.
Russia has an existential interest in absorbing Belarus and the Western Ukraine. No one cares about Byelorus. It has never had an independent national existence or a national culture; the first grammar in the Belorussian language was not printed until 1918, and little over a third of the population of Belarus speaks the language at home. Never has a territory with 10 million people had a sillier case for independence. Given that summary, it seems natural to ask why anyone should care about Ukraine. That question is controversial; for the moment, I will offer the assertion that partition is the destiny of Ukraine.

Even with migration and annexation of former Russian territory that was lost in the fracture of the USSR, however, Russia will not win its end-game against demographic decline and the relative growth of Muslim populations. The key to Russian survival is Russification, that is, the imposition of Russian culture and Russian law on ethnicities at the periphery of the federation. That might sound harsh, but that has been Russian nature from its origins.

Russia is not an ethnicity but an empire, the outcome of hundreds of years of Russification. That Russification has been brutal is an understatement, but it is what created Russia out of the ethnic morass around the Volga river basin. One of the best accounts of Russia’s character comes from Eugene Rosenstock-Huessey (Franz Rosenzweig’s cousin and sometime collaborator) in his 1938 book Out of Revolution. Russia’s territory tripled between the 16th and 18th centuries, he observes, and the agency of its expansion was a unique Russian type. The Russian peasant, Rosenstock-Huessey observed, “was no stable freeholder of the Western type but much more a nomad, a pedlar, a craftsman and a soldier. His capacity for expansion was tremendous.”
In 1581 Asiatic Russia was opened. Russian expansion, extending even in the eighteenth century as far as the Russian River in Northern California, was by no means Czaristic only. The “Moujik”, the Russian peasant, because he is not a “Bauer” or a “farmer”, or a “laborer”, but a “Moujik”, wanders and stays, ready to migrate again eventually year after year.
Russia was never a multi-ethnic state, but rather what I call a supra-ethnic state, that is, a state whose national principle transcends ethnicity. A reader has called my attention to an account of the most Russian of all writers, Fyodor Dostoyevsky, of his own Russo-Lithuanian-Ukrainian background:
I suppose that one of my Lithuanian ancestors, having emigrated to the Ukraine, changed his religion in order to marry an Orthodox Ukrainian, and became a priest. When his wife died he probably entered a monastery, and later, rose to be an archbishop. This would explain how the Archbishop Stepan may have founded our Orthodox family, in spite of his being a monk. It is somewhat surprising to see the Dostoyevsky, who had been warriors in Lithuania, become priests in Ukraine. But this is quite in accordance with Lithuanian custom. I may quote the learned Lithuanian W St Vidunas in this connection: “Formerly many well-to-do Lithuanians had but one desire: to see one or more of their sons enter upon an ecclesiastical career.”
Dostoyevsky’s mixed background was typically Russian, as was the Georgian origin of Joseph Stalin.

Russia intervened in Georgia to uphold the principle that anyone who holds a Russian passport – Ossetian, Akhbaz, Belorussian or Ukrainian – is a Russian. Russia’s survival depends not so much on its birth rate, nor on immigration, nor even on prospective annexation, but on the survival of the principle by which Russia was built in the first place. That is why Putin could not abandon the pockets of Russian passport holders in the Caucusus. That Russia history has been tragic, and its nation-building principle brutal and sometimes inhuman, is a different matter. Russia is sufficiently important that its tragedy will be our tragedy, unless averted.

The place to avert tragedy is in Ukraine. Russia will not permit Ukraine to drift to the West. Whether a country that never had an independent national existence prior to the collapse of communism should become the poster-child for national self-determination is a different question. The West has two choices: draw a line in the sand around Ukraine, or trade it to the Russians for something more important.

My proposal is simple: Russia’s help in containing nuclear proliferation and terrorism in the Middle East is of infinitely greater import to the West than the dubious self-determination of Ukraine. The West should do its best to pretend that the “Orange” revolution of 2004 and 2005 never happened, and secure Russia’s assistance in the Iranian nuclear issue as well as energy security in return for an understanding of Russia’s existential requirements in the near abroad. Anyone who thinks this sounds cynical should spend a week in Kiev.

Russia has more to fear from a nuclear-armed Iran than the United States, for an aggressive Muslim state on its borders could ruin its attempt to Russify Central Asia. Russia’s strategic interests do not conflict with those of the United States, China or India in this matter. There is a certain degree of rivalry over energy resources, but commercial rivalry does not have to turn into strategic enmity.

If Washington chooses to demonize Russia, the likelihood is that Russia will become a spoiler with respect to American strategic interests in general, and use the Iranian problem to twist America’s tail. That is a serious risk indeed, for nuclear proliferation is the one means by which outlaw regimes can pose a serious threat to great powers. Russia confronts questions not of expediency, but of existence, and it will do whatever it can to gain maneuvering room should the West seek to “punish” it for its actions in Georgia.

One irony of the present crisis is that Washington’s neo-conservatives, by demanding a tough stance against Russia, may have harmed Israel’s security interests more profoundly than any of Israel’s detractors in American politics. The neo-conservatives are not as a rule Jewish, but many of them are Jews who have a deep concern for Israel’s security – as does this writer. If America turns Russia into a strategic adversary, the probability of Israel’s survival will drop by a big notch.

Notes
1. See National Review OnlineMoscow’s Sinister Brilliance.
2. See New York Post, A czar is born: Bad Vlad wins war, dupes West & proves he’s genius

http://atimes.com/atimes/Central_Asia/JH19Ag05.html

Russian Peacekeepers seize army base inside Georgia

Russian peacekeeping forces have taken control of Georgia’s largest airbase, about 40km from the border with Abkhazia. The Russian Defence Ministry said the troops were taking ‘preventative action’ at the base in the town of Senaki. The Georgian army is pulling in troops to Tbilisi to protect the capital from the advancing Russian forces.

Peacekeepers and other Russian land units have launched their first operation inside Georgian territory proper since Tbilisi began its offensive against the breakaway republic of South Ossetia last week. 

A spokesman for the Defence Ministry confirmed the incursion, which was first reported by Georgia’s Internal Ministry.

“Russian peacekeepers and military units attached to them are taking action to prevent Georgia from shelling South Ossetia and Russian peacekeepers,” he said.

Another objective of the operation is to prevent ‘a build-up of additional volunteers and reservists’ mobilized to continue military operations the breakaway republics.

Earlier reports indicated that Abkhazian troops supported by Russian fighter planes had taken control of a village in Georgia’s Zugdidi region. But Abkhazian sources have denied the reports.

Meanwhile, news channels CNN and the BBC are reporting that the Georgian town of Gori has been captured by Russian troops. Both channels are quoting the Georgian foreign minister. These reports have not been confirmed by any source.

Medvedev compares Georgia to Nazi Germany

While talking to Russian MPs on Monday, President Dmitry Medevev drew a clear parallel between the current Georgian regime and Nazi Germany.

The President said Russia is not going to “pacify the aggressor” as Europe did in 1938, by signing the Munich treaty with Hitler. “We all know to what tragic consequences this led,” he said.   

Dmitry Medvedev also described the Russian military operation in South Ossetia as “the only appropriate and absolutely effective” response.

U.S. starts evacuating embassy staff from Tbilisi 

Meanwhile, the U.S. has begun evacuating the families of its diplomats from Georgia.  They are being sent to Armenia as a precaution, according to the U.S. Embassy in the Armenian capital Yerevan.

U.S. ambassador John Tefft and his team of diplomats will continue their work in Tbilisi.

http://www.russiatoday.com/news/news/28829

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Georgia says key city taken by Russian forces

Associated Press

TBILISI, Georgia – The head of Georgia’s national security council says Russian forces have taken the strategically key city of Gori.

Gori is on Georgia’s main east-west highway, about 60 miles west of the capital Tbilisi. By taking the city, Russia has the potential to effectively cut the country in half.

Security Council head Alexander Lomaia said Monday that it was not immediately clear if Russian forces would try to advance on Tbilisi.

The seizure of Gori came as Russian forces also drove deep into Georgian territory in the country’s western sector.

The Russian forces moved in on Gori from the separatist region of South Ossetia, where fierce fighting erupted last week.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

TBILISI, Georgia (AP) — Russia opened a second front of fighting in Georgia on Monday, sending armored vehicles beyond two breakaway provinces and seizing a military base and police stations in the country’s west, officials said.

The new forays into Georgia — even after Georgian President Mikhail Saakashvili signed a cease-fire pledge — appeared to show Russian determination to subdue the small, U.S.-backed country, which has been pressing for NATO membership.

The latest developments indicate that Russian troops have invaded Georgia proper from the separatist province of Abkhazia while most Georgian forces are locked up in fighting around South Ossetia.

The West has sharply criticized Russia’s military response to Georgia’s attack on South Ossetia as disproportionate, and the Group of Seven leading industrialized nations urged Russia on Monday to accept an immediate cease-fire and agree to international mediation.

“We want to see the Russians stand down,” deputy State Department spokesman Robert Wood told reporters in Washington.

With Europe depending on Russia for a quarter of the oil it consumes — and half of its gas needs — the conflict serves as a vivid demonstration of Russian power in the Caspian region.

Russian armored personnel carriers rolled into the base in Senaki, a town in Western Georgia about 20 miles inland from the Black Sea port of Poti, Georgian Security Council secretary Alexander Lomaia said. In Moscow, a government official who spoke on condition of anonymity because he wasn’t authorized to give his name, said the move into Senaki was intended to end Georgian resistance.

Russian forces also seized police stations in the town of Zugdidi and allied separatist forces took over a nearby village, Georgian Interior Ministry spokesman Shota Utiashvili said.

U.S. Secretary of State Condoleezza Rice and the foreign ministers of Britain, Canada, France, Germany, Italy and Japan called on Russia to respect Georgia’s borders and expressed deep concern for civilian casualties, Wood said, adding that the call was one of more than 50 Rice made over the weekend on the matter.

Russia’s move to open a second front came hours after a senior Russian general insisted that Russia has no plans to press into Georgian territory beyond the breakaway regions.

The United States is campaigning to get Russia to halt its retaliation and American officials have accused Russia of using the fighting to try to overthrow the Georgian government. President Bush, who has encouraged Georgia’s efforts to join NATO, said he spoke with Russian Prime Minister Vladimir Putin and the Russian president.

“I’ve expressed my grave concern about the disproportionate response of Russia and that we strongly condemn the bombing outside of South Ossetia,” Bush said in an interview with NBC Sports.

In turn, Putin criticized the United States for airlifting Georgian troops back home from Iraq on Sunday at Georgia’s request.

“It’s a pity that some of our partners instead of helping are in fact trying to get in the way,” Putin said at a Cabinet meeting. “I mean among other things the United States airlifting Georgia’s military contingent from Iraq effectively into the conflict zone.”

Putin’s comments reflected Russia’s growing irritation with Western condemnation.

“The scale of their cynicism causes surprise,” Putin said. “It’s the ability to cast white as black and black as white which is surprising, the ability to cast the aggressor as the victim and blame the victims for the consequences.”

Putin remarks also reflected deep anger at Georgia’s President Mikhail Saakashvili.

“Of course, Saddam Hussein ought to have been hanged for destroying several Shiite villages,” Putin said. “And the incumbent Georgian leaders who razed ten Ossetian villages at once, who ran elderly people and children with tanks, who burned civilian alive in their sheds — these leaders must be taken under protection.”

Putin and other Russian officials have accused Georgian forces of committing atrocities against civilians in South Ossetia — claims that could not be independently verified.

Georgia began an offensive to regain control over South Ossetia overnight Friday with heavy rocket and artillery fire and air strikes that ravaged the provincial capital, Tskhinvali.

Russia, which has developed close ties with the region and granted passports to most of its residents, sent in thousands of troops who launched an overwhelming artillery barrage and air attacks against Georgian troops. Heavy Russian shelling drove the Georgian forces out of the South Ossetian provincial capital of Tskhinvali on Sunday.

Saakashvili, the Georgian president, voiced concern that Russia’s true goal was to undermine his pro-Western government. “It’s all about the independence and democracy of Georgia,” he said during a conference call.

At a U.N. Security Council meeting on Sunday, Russia’s ambassador to the United Nations, Vitaly Churkin, acknowledged there were occasions when elected leaders “become an obstacle.”

Saakashvili said Russia has sent 20,000 troops and 500 tanks into Georgia — with some troops getting within three miles of Gori, located just outside South Ossetia, before being repulsed Sunday.

Georgia borders the Black Sea between Turkey and Russia and was ruled by Moscow for most of the two centuries preceding the 1991 breakup of the Soviet Union. Both South Ossetia and Abkhazia have run their own affairs without international recognition since fighting to split from Georgia in the early 1990s.

Both separatist provinces have close ties with Moscow, while Georgia has deeply angered Russia by wanting to join NATO.

Georgia began an offensive to regain control over South Ossetia overnight Friday with heavy shelling and air strikes that ravaged the city of Tskhinvali. The Russia response was swift and overpowering — thousands of troops that shelled the Georgians until they fled Tskhinvali on Sunday, and air attacks across Georgia.

Russia’s Deputy Foreign Minister Grigory Karasin said Sunday more than 2,000 people had been killed in South Ossetia since Friday, most of them Ossetians with Russian passports. The figures could not be independently confirmed, but refugees who fled the city said hundreds were killed.

Thousands of civilians have fled South Ossetia — many seeking shelter in the neighboring Russian province of North Ossetia.

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Associated Press writers Vladimir Isachenkov in Moscow and Matthew Lee in Washington contributed to this report.

PressTv.ir

Russia, Cuba set to boost ties. Russia to place an orbital ballistic missile system in Cuba in response to U.S. missile defense plans for Central Europe

Russia and Cuba are to make efforts to boost bilateral cooperation in all spheres, the Russian Security Council said on Friday.

Council chief Nikolai Patrushev and Russian Deputy Prime Minister Igor Sechin visited Cuba on July 30-31, in a trip focusing on projects to revive economic ties between the former Cold War allies, including Russian companies’ participation in developing oil fields in the Latin American state.

“Cuban President Raul Castro, Patrushev and Sechin said at a meeting that their countries’ were set to make consistent efforts to restore longtime ties in all spheres of cooperation and to expand and strengthen them,” the Security Council said in a statement.

Sechin earlier cited oil production, tourism, healthcare, nickel production, telecommunications and nanotechnology as the most promising spheres for cooperation between the two countries.

Russia issued a $355 million loan for the purchase of vehicles and the financing of energy infrastructure in Cuba in 2006, reviving ties that had been weakened by the breakup of the Soviet Union in 1991.

Havana also committed itself to buying three Il-96-300 planes and three Tu-204 passenger medium-haul aircraft.

The visit of Patrushev, who is also head of the Federal Security Service, and Sechin came after media reports said Russia could place an orbital ballistic missile system in Cuba in response to U.S. missile defense plans for Central Europe.

In October 1962, the Cuban Missile Crisis brought the U.S. and the U.S.S.R. to the brink of war when Soviet missiles were stationed in Cuba.

The crisis was resolved after 12 days when the Soviet leader, Nikita Khrushchev, backed down and ordered the missiles removed.

http://en.rian.ru/russia/20080801/115487270.html

Debt capitalism self-destructs

By Henry C K Liu

In a period of less than a year, what had been described by US authorities as a temporary financial problem related to the bursting the housing bubble has turned into a fully fledged crisis at the very core of free-market capitalism.

A handful of analysts have been warning for years that the wholesale deregulation of financial markets and the wrong-headed privatization of the public sector during the past two decades would threaten the viability of free-market capitalism. Yet ideological neoliberal fixation remain firmly imbedded in US ruling circles, fertilized by irresistible campaign contributions from

profiteers on Wall Street, methodically purging regulatory agencies of all who tried to maintain a sense of financial reality.

This ideology of “market knows best” has allowed the nation to slip into an unsustainable joyride on massive debt giddily assumed by all market participants, ranging from supposedly conservative banks, investment banks and other non-bank financial institutions, to industrial corporations, government sponsored enterprises (GSEs) and individuals.

The once-dynamic US economy has turned itself into a system in which it is difficult to find any institution, company or individual not over their head in speculative debt. Undercapitalized capitalism, also known as debt capitalism, has been the engine of growth for the US debt bubble in the last two decades. This debt capitalism cancer is caused by a failure of central banking.

In the face of a broad systemic collapse of debt capitalism, where capital has become dangerously inadequate and new capital hazardously and prohibitively scarce, having been crowded out by massive debt collateralized by overblown assets of declining value and with a credit crisis that clearly requires systemic restructuring and comprehensive intensive care, those in the US responsible for the financial well-being of the nation seem to have been reacting tactically from crisis to crisis with a script of adamant denial of obvious facts, symptoms and trends, with no signs of any coherent grand strategy or plan to save the cancerous system from structural self-destruction.

This band-aid short-term approach to artificially pop up share prices in the collapsing equity market and to maintain insolvent financial institutions with technical life-support will lead only to long-term disaster for the whole economy.

Yet this approach is preferred by those in authority, trapped in self deception about unregulated market capitalism being still fundamentally sound. They try to calm markets by asserting that the current turmoil is merely a minor liquidity bottleneck that can be handled by the central bank releasing more liquidity against the full face value of collaterals of declining worth.

The message is that somehow, if easy money in the form of debt is made endlessly available, the economy will recover from this credit crunch, notwithstanding that excessive debt has been the cause of the problem; or bad loans can be made good by Congress giving the US Treasury authority to buy up bad loans with unlimited amounts of taxpayer money.

Yet these incremental measures taken so far by the Treasury and the Federal Reserve make the two government units with direct responsibility on the nation’s long-term financial health look like panicky rogue traders trading for the national account in desperate hope to score a win in the next quarter by upping the ante, to contain allegedly isolated crisis hot points. The aggregate effect adds up to a broad stealth nationalization of the insolvent financial sector. Their prescription for stabilizing a debt-destabilized market is more public debt to support corporation socialism.

For years, anyone warning that the government sponsored enterprises (GSEs), namely Fannie Mae and Freddie Mac, should be held to normal capitalization requirements was ridiculed as a fear monger by the powerful lobbying machines these GSEs employed. Capital is considered as superfluous in the new game of debt capitalism held up by complex circular hedging. As a result, the GSEs have become the monstrous tail that wags the dog of housing finance.

The current talk about the need to curb speculation in the commodities and financial markets to stabilize prices is off target, especially for believers of market capitalism. All market transactions are speculative in nature. Speculation can stabilize prices as well as to destabilize them, but only in the short term. Long-term price levels (inflation or deflation), as Milton Friedman aptly observed, are always monetary phenomena. The current turmoil in the financial system, the subprime mortgage implosion, the credit crisis from the seizure in the asset-backed commercial papers market, the undercapitalization of commercial and investment bank, the rating agency dysfunction, the insolvency of monocline (bond) insurers, the massive financial losses by the GSEs and a host of other financial problems percolating under the media radar, are the outcome, and not the cause, of this market turbulence. (See Perils of the debt-propelled economy, Asia Times Online, September 14, 2002.)

Fanny Mae and Freddy Mac, GSEs that have provided mortgage funds for the housing market since 1938, were created as part of the New Deal to help low-income families. They were privatized in 1968 on terms that would alter their social mandate and would inevitably lead them into financial trouble on a big scale. Finally but suddenly, these GSEs find themselves in danger of defaulting on their massive debts, upwards of US$5 trillion, in the course of a single week.

Deeply rooted in US political culture is the view that credit is a financial public utility, much like air and water, and should be equally accessible to all, not just to the rich. Economic democracy has been the core strength of US political democracy. Government loan guarantees for students and home mortgages for low- and moderate-income groups and loans to small business are based on this principle. Yet from time to time, this principle of economic democracy is overshadowed by free-market extremism to push the nation’s economy into extended depressions.

The US National Housing Act was enacted on June 27, 1934, as one of several economic recovery measures of the New Deal to get the nation out of the Great Depression. It provided for the establishment of a Federal Housing Administration (FHA). Title II of the Act provided for the insurance of home-mortgage loans made by private lenders, taking the disaggregated risk in lending to low-income borrowers off private lenders and managing the risk on a national scale with a government agency to take advantage of the law of large numbers, a theorem in probability that describes the long-term stability of a random variable. Title III of the Act provided for the chartering of national mortgage associations by the FHA administrator. These associations were to be independent corporations regulated by the administrator, and their chief purpose was to buy and sell the mortgages insured by the FHA under Title II.

Only one association was ever formed under this authority. On February 10, 1938, this association, the National Mortgage Association of Washington, became a subsidiary of the Reconstruction Finance Corp, a government corporation. Its name was changed that same year to Federal National Mortgage Association (Fannie Mae). By amendments made in 1948, Title III of the US National Housing Act became a statutory charter for Fannie Mae.

Balloon payment barrier
Before the Great Depression, affording a home was difficult for most people in the US. At that time, a prospective homeowner had to make a down payment of 40% and pay the mortgage off in three to five years. Until the last payment, borrowers paid only interest on the loan. The entire principal was paid in one lump sum as the final “balloon” payment. Lenders could demand full payment of the outstanding loan at any time of the lender’s choosing, often at time least advantageous to borrowers. This allowed lenders to use foreclosures as a means to take over desirable properties.

During the 1920s boom time in real estate, a rudimentary secondary mortgage market had come into being. The stock-market crash of 1929 ended the real-estate boom and forced many private guarantee companies into insolvency as home prices collapsed. As economic conditions worsened, more and more borrowers defaulted on mortgages because they couldn’t come up with the money for the final balloon payment or to roll over their mortgage because of low market value of their homes.

To help lift the country out of the Great Depression, Congress created the FHA through the National Housing Act of 1934. The FHA’s insurance program protected mortgage lenders from the risk of default on long-term, fixed-rate mortgages. Because this type of mortgage was unpopular with private lenders and investors, Congress in 1938 created Fannie Mae to refinance FHA-insured mortgages.

As soldiers came home from World War II, Congress passed the Serviceman’s Readjustment Act of 1944, which gave the Department of Veterans Affairs (VA) authority to guarantee veterans’ loans with no down payment or insurance premium requirements. Many financial institutions considered this arrangement a more attractive investment than war bonds.

By revision of Title III in 1954, Fannie Mae was converted into a mixed-ownership corporation, its preferred stock to be held by the government and its common stock to be privately held. It was at this time that Section 312 was first enacted, giving Title III the short title of Federal National Mortgage Association Charter Act.

By amendments made in 1968, the Federal National Mortgage Association was partitioned into two separate entities, one to be known as the Government National Mortgage Association (Ginnie Mae), the other to retain the name Federal National Mortgage Association (Fannie Mae). Ginnie Mae remained in the government, and Fannie Mae became privately owned by retiring the government-held stock. Ginnie Mae has operated as a wholly owned government association since the 1968 amendments. Fannie Mae, as a private company operating with private capital on a self-sustaining basis, expanded to buy mortgages beyond traditional government loan limits, reaching out to a broader income cross-section.

By the early ’70s, inflation and interest rates rose drastically. Many investors drifted away from mortgages. Ginnie Mae eased economic tension by issuing its first mortgage-backed security (MBS) guarantee in 1970. Investors found these guaranteed MBSs highly attractive. Also in 1970, under the Emergency Home Finance Act, Congress chartered the Federal Home Loan Mortgage Corp (Freddie Mac) to buy conventional mortgages from federally insured financial institutions. The legislation also authorized Fannie Mae to purchase conventional mortgages. Freddie Mac introduced its own MBS program in 1971.

Fannie and Freddie charters give these GSEs exemptions from state and local taxes, allow them relatively meager capital requirements, and provide them with an ability to borrow money at lowest possible rates to lend at near market rates. Over the years, this advantage has served not to lower home prices and mortgage payments to help low-income buyers but to enrich debt securitizers and brokers.

Aging credit line
Each agency now has a $2.25 billion credit line with the Treasury, set nearly 40 years ago by Congress at a time when Fannie had only about $15 billion in outstanding debt. It now has total debt of about $800 billion, while Freddie has about $740 billion. Today the two companies also hold or guarantee loans with face value of more than $5 trillion, about half the nation’s mortgages. Market analysts estimate that the market value of this liability may be less than 50% unless the housing market recovers. In other words, the GSEs face a $3.5 trillion exposure to default if they cannot raise new funds in the credit market.

In the early 1980s, the US economy spiraled into deep recession. Interest rates were high while house prices while falling, remaining beyond the reach of many low- and moderate-income buyers because income growth stayed stagnant. The US economy faced a dual problem of income deficiency and money devaluation. In this poor housing market environment, Ginnie Mae, Fannie Mae and Freddie Mac all created programs to handle adjustable-rate mortgages. The Ginnie Mae guaranty is backed by the full faith and credit of the United States. Today, Ginnie Mae guaranteed securities are one of the most widely held and traded MBSs in the world. Ginnie Mae has guaranteed more than $1.7 trillion in MBSs. Historically, 95% of all FHA and VA mortgages have been securitized through Ginnie Mae. Ginnie Mae is a guarantor, a surety. Ginnie Mae does not issue, sell, or buy MBSs, or purchase mortgage loans. Ginnie Mae is not in financial distress

Fannie Mae is another story. Many of the innovative mortgage options introduced during the early 1980s to revive the weak housing market in a recession were exploited to fuel a housing bubble with excessive liquidity provided by the Federal Reserve, helping low- and middle-income buyer to buy homes their stagnant income could not afford. Fannie continues to operate under a congressional charter that directs it to channel its efforts into increasing the availability and affordability of home ownership for low-, moderate- and middle-income Americans. Yet Fannie Mae receives no government funding or backing, and it is one of the nation’s largest taxpayers as well as one of the most consistently profitable corporations until now.

The company has evolved to become a shareholder-owned, privately managed corporation supporting the secondary market

for conventional loans. Its congressional mandate of keeping homes affordable has since been largely forgotten in favor of an unprecedented boom in the housing market. Yet it continues to operate under a congressional charter that provides it with low-cost funds with only perfunctory oversight from the US Department of Housing and Urban Development and the US Treasury.

Fannie Mae has two primary lines of business: Portfolio investment, in which the company buys mortgages and mortgage-backed securities (MBSs) as investments, funding those purchases with debt, and credit guaranty, which involves guaranteeing for a fee the credit performance of single-family and multi-family loans.

Overseas debt holders
During the housing bubble which it essentially helped create with the Fed easy money, Fannie was highly profitable, with high returns for happy shareholders and lucrative compensation for its executives. Above all, it provided a continuous stream of income and profit for Wall Street and central banks around the world while US homeowners were led down a treachery path of eventual foreclosure. According to data from the Council on Foreign Relations, foreign central banks own $925 billion of debt in the two GSEs. China tops the list with $420 billion in Freddie and Fannie debt; Russia and Japan come in second with a combined $407 billion in GSE debt. Others countries that hold the debt include Singapore, Taiwan, and several cash-rich countries in the Persian Gulf.

Fannie’s portfolio investment business includes mortgage loans purchased throughout the US from approved mortgage lending institutions. It also purchases MBSs, structured mortgage products and other assets in the open market. The corporation derives income from the difference between the yield on these investments and the low subsidized costs to fund the purchase of these investments, usually from issuing debt in the domestic and international markets. Fannie Mae has $3.46 trillion in MBSs outstanding today, held by a dispersed network of investors, including foreign central banks, topped by China’s.

The GSEs now only pay lip service to accomplishing its mission to provide products and services that increase the availability and the affordability of housing for low-, moderate- and middle-income buyers by operating in the secondary rather than the primary mortgage market.

Fannie Mae purchases mortgage loans from mortgage lenders such as mortgage companies, savings institutions, credit unions and commercial banks, thereby replenishing those institutions’ supply of mortgage funds. It either packages these loans into MBSs, which it guarantees for full and timely payment of principal and interest, or purchases these loans for cash and retains the mortgages in its own portfolio. Yet Fannie’s role in recent years has been to supply the housing bubble with excess liquidity released by a wayward central bank, by buying at a profit economically unsound mortgages that depended on a continuing spiral of rising home prices way beyond reasonable projection of home buyer income growth. It has turned the US from a nation of homeowners into a nation of foreclosed homes.

Fannie Mae is now one of the world’s largest issuers of debt securities, the leader in the $14 trillion US home-mortgage market. Fannie Mae’s debt obligations are treated as US agency securities in the marketplace, which is just below US Treasuries and above AAA corporate debt. This agency status is due in part to the creation and existence of the corporation pursuant to a federal law, the public mission that it allegedly serves, and the corporation’s continuing ties to the US government through a weak oversight link. It benefits from an appearance, though not the essence, of being backed by sovereign credit that borders on outright fraud and protected by the doctrine of too big to fail.

Fannie Mae debt obligations receive favorable treatment from a regulatory perspective. Fannie Mae securities are “exempted securities” under laws administered by the US Securities and Exchange Commission to the same extent as US government obligations. Also, Fannie Mae debt qualifies for more liberal treatment than corporate debt under US federal statutes and regulations and, to a limited extent, foreign overseas statutes and regulations. Fund managers who buy GSE debt are protected from fiduciary challenges.

Some of these statutes and regulations make it possible for deposit-taking institutions to invest in Fannie Mae debt more liberally than in corporate debt and other mortgage-backed and asset-backed securities. Others enable certain institutions to invest in Fannie Mae debt on par with obligations of the United States and in unlimited amounts. Fannie Mae uses a variety of funding vehicles to provide investors with debt securities that meet their investment, trading, hedging, and financing objectives, not all of which serves the public interest. Fannie Mae is able to issue different debt structures at various points on the yield curve because of its large and consistent funding needs. As the Treasury retired 30-year bonds, these GSE agencies stepped in to fill the void in long term finance.

Ideology triumphant
The privatization of Fannie Mae and Freddie Mac was an ideological move. It was financially unnecessary as sovereign credit could have funded the entire low-, moderate- and middle-income housing-mortgage needs with no profit siphoned off to private investors and brokers. These agency debt instruments played a crucial role in developing and sustaining the credit bubble in the US that is now coming home to roost.

In fact, the funding risk of both agencies was questioned, among many others, by the voice of free-market capitalism, the Wall Street Journal, on February 20, 2002 in an editorial about Fannie Mae’s and Freddie Mac’s safety, soundness and financial management, characterizing both agencies as risky, fast-growing companies that “look like poorly run hedge funds” … “unduly exposed to credit risk with large derivative positions”, and that they “use all manner of derivatives” and “are exposed to unquantified counterparty risk on these positions”. Such concerns would have been avoided if both agencies had been funded directly with government credit, and the cost of housing to low-, moderate- and middle-income Americans would have been lower. As it happens, the government is now faced with the prospect of having to bail out these GSEs with public funds.

The term “undercapitalization” for financial institutions is merely a sanitized euphemism for insolvency. The real source of the present market turbulence is more than just the waywardness of runaway GSEs sidetracked from their public purpose. It is another symptom of the failure of central banking. The world is now witnessing the slow but steady collapse of the central banking regime that came into being in the US in 1913, which has since failed to fulfill its mandate of managing the monetary system to maintain price stability and full employment. Dysfunctional monetary policies adopted by all central banks, led by the US Federal Reserve, have allowed the market to take capital out of free market capitalism to turn it into a gigantic Ponzi scheme.

In the 1990s, the original congressional intent for the GSEs was distorted from making homeownership affordable to low- and moderate-income families to a new role of supporting a housing bubble that enables families to buy homes at prices with mortgages their incomes cannot service. The profit from housing price appreciation went mostly to mortgage originators and banks that bought and sold MBSs to investors who also profited from buying debt with debt collateralized with the debt they bought. Capital suddenly became only a notional value in the market of debt derivatives. Homebuyers bought mortgages with no downpayment, banks and mortgage brokers sold the debt to securitizers who sold it to institutional investors who borrowed using the securities as collateral. The GSEs also became very profitable, leaving homeowners to default on their mortgages as the market turned on them. The whole transaction cycle did not require any capital.

Fannie Mae and Freddie Mac, ranked Aaa by the world’s leading credit-rating companies, are now being treated by derivatives traders as if they were rated five levels lower because the issuers are pitifully undercapitalized for the size of the debt they issue. Credit-default swaps tied to $1.45 trillion of debt sold by these two biggest allegedly US-backed mortgage finance companies are trading at levels that imply the bonds should be rated A2 by Moody’s Investors Service. The price of contracts used to speculate on the creditworthiness of Fannie Mae and Freddie Mac and to protect against a default has doubled in the past two months.

Debt guarantee disregarded
Traders are disregarding the government’s implied guarantee of GSE debt as credit losses grow and concern rises about the GSEs not having enough capital to weather the biggest housing slump since the Great Depression. Fannie Mae has lost 80% of market capitalization value in the first half of 2008 on the New York Stock Exchange; and Freddie Mac lost 70%. The two GSEs reported combined operating losses of more than $11 billion, and have raised more than $20 billion new capital since December 2007. After Lehman Brothers Holdings Inc released a report on June 7, 2008, saying a new accounting rule may require the GSEs to raise another $75 billion in new capital, Freddie Mac shares dropped another 18% and Fannie Mae fell 16%.

Still, the Office of Federal Housing Enterprise Oversight (OFHEO), the regulator of these GSEs, declared them as adequately capitalized in regulatory terms. The companies’ existing congressional charters give the Treasury the authority to buy as much as $2.25 billion in each of their securities in the event of possible default, against a total liability of over $5 trillion. The works out as an equity injection of less than half-a-cent on each dollar of liability.

Credit-default swaps tied to the senior debt of Fannie Mae and Freddie Mac have climbed 35 basis points to 70 basis points since May 1, 2008. A basis point is 0.01 percentage point. The cost to protect the companies’ subordinated debt from default

rose at a faster rate. That debt is rated Aa2 by Moody’s. Credit-default swaps on Fannie Mae’s subordinated notes jumped 103 basis points to 190 basis points since May 1, while contracts on Freddie Mac’s subordinated notes rose 102 basis points to 190 basis points.

The median credit-default swap on debt rated Aaa by Moody’s was 26 basis points as of July 8. It was 76 basis points for debt rated A2, and 180 basis points for debt rated Baa3, the lowest investment-grade ranking. The costs likely reflect counterparty risk, or the risk that the bank or securities firm on the other end of the contract fails. For most companies, the counterparty risk embedded in credit-default swap costs would not be as pronounced because the risk of a default on the underlying debt would be greater than that of the bank backing the protection. In the case of Fannie Mae, Freddie Mac and other companies with Aaa ratings, the default risk for lower-rated banks is greater.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite. A basis point on a contract protecting $10 million of debt for five years is equivalent to $1,000 a year.

On January 11, 2006, in Asia Times Online I wrote in Of debt, deflation and rotten apples:
In the US, where loan securitization is widespread, banks are tempted to push risky loans by passing on the long-term risk to non-bank investors through debt securitization. Credit-default swaps, a relatively novel form of derivative contract, allow investors to hedge against securitized mortgage pools. This type of contract, known as asset-back securities, has been limited to the corporate bond market, conventional home mortgages, and auto and credit-card loans. Last June 2005, a new standard contract began trading by hedge funds that bets on home-equity securities backed by adjustable-rate loans to sub-prime borrowers, not as a hedge strategy but as a profit center. When bearish trades are profitable, their bets can easily become self-fulfilling prophesies by kick-starting a downward vicious cycle.
The US charter and the GSEs’ role in guaranteeing about 46% of the $12 trillion US mortgages outstanding led to expectations that the government would stand behind the agencies’ debt. Standard & Poor’s assigned the debt top ratings, citing the agencies’ “explicit and implicit support” from the government.

Moral hazard effect
The bailout of Bear Stearns Cos arranged by the Federal Reserve in March signaled to the market that the government would not allow the GSEs to fail or default on their debts. It is clear evidence of the moral hazard effect on the financial market from bailing out one institution. With all the exposure that all banks and non-bank institutions and central banks have to Fannie and Freddie debt default, the ripple effect through the whole financial system would be unbelievable if they were allowed to fail. It was also clear evidence of the “too big to fail” doctrine.

The risk surrounding Fannie Mae was reflected in the GSE’s latest sale of $3 billion of two-year benchmark notes at higher yields over benchmark rates than in previous offerings. The 3.25% notes, which mature August 12, 2010, priced to yield 3.27%, or 74 basis points more than comparable US Treasuries. The company in June 2008 sold $4 billion of 3% notes maturing July 12, 2010, that priced to yield 3.036%, or 65 basis points more than Treasuries.

The government has been leaning on the GSEs to help revive the home mortgage market. Congress lifted growth restrictions on the companies, eased their capital requirements and allowed them to buy bigger, so-called jumbo mortgages, to spur demand for home loans as private lenders fled the market. The decision to use Fannie Mae and Freddie Mac as part of a $300 billion housing stimulus plan strengthened perceptions of the government’s support of the GSEs. Their share of new conforming mortgages, or loans of $417,000 or less, almost doubled to 81% in the first quarter of 2008, according to the Office of Federal Housing Enterprise Oversight (OFHEO), the regulator. It appears that the fire engines caught on fire on its way to the scene of the fire.

Merrill Lynch analyst Kenneth Bruce said in a report that the “highly levered financial institutions” would have pretax credit-related losses of $45 billion, suggesting that Fannie and Freddie are going to have to raise more capital, but the market does not think they are going to be able to raise capital when they need to at a cost they can live with. The New York Times reported on the night of July 13, 2008 (Sunday) that discussions among senior US government officials had heated up with respect to the US taking over Freddie Mac and Fannie Mae before markets opened in Asia. The structure being contemplated is a “conservatorship”, which is permitted under a 1992 law and is one that would essentially wipe out the two GSEs’ respective equity while allowing their loans to be managed.

Conservatorship is another fancy term of nationalization. The scheme allows the government to pretend the GSEs’ liabilities are not its own even after it assumes them. A finding from the Office of Federal Housing Enterprise Oversight, the enterprises’ regulator, that the GSEs are “critically undercapitalized” would be needed for conservatorship application. Up to now, the OFHEO has sent out the opposite message to the public. It will have to announce a 180-degree “correction” to shift quickly from “adequately capitalized” to “critically undercapitalized” for the government’s proposal to work.

But unlike 1933 in the days of the New Deal when deficit financing was an operative option to revive the economy because the government was relatively free of debt, the US in 2008 is already deeply in debt, having operated with deficit financing in a boom time for more than two decades. Estimates suggest that for each 10% decline in Freddie/Fannie assets value, a loss of $150 billion would result, equivalent to the cost of the Iraq War to date. And Fannie has lost 80% of market capitalization and Freddie has lost 70% to date.

Soaring government obligations
By assuming the GSEs’ combined $5 trillion in liabilities, the US government’s total obligations would soar from $9.5 trillion to $14.5 trillion. This will raise the per capita national debt from $31,250 to $47,650. The added debt is one and a half times the Bush Administration proposed 2008 fiscal budget of $3.1 trillion. While the agencies own housing-related assets that roughly match their liabilities, the still-collapsing housing market makes their value uncertain. This will unavoidably force the dollar to fall and dollar interest rates to rise. Meanwhile, the turmoil is impeding or even paralyzing the GSEs in their crucial life-support role for the housing market.

An analyst’s early July report from Lehman Brothers, an investment bank itself on the brink of collapse, provoked the market panic over the GSEs. Lehman, a major player in the mortgage-backed securities market, lost as much as 20% in intraday trading on talk that PIMCO, the world’s largest bond trader, no longer was conducting business with the Wall Street firm. Then William Poole, a respected former chief of the St Louis Federal Reserve, now a private investment advisor since July 1, 2008, observed that Fannie and Freddie were technically insolvent in the first quarter this year on a mark-to-market basis. Such information was not news – in a 2006 speech, Emil Henry, then a Treasury assistant secretary, likened a failure of one of the GSE companies to a “single gunshot setting off an avalanche” – and had no bearing on the GSEs’ solvency in regulatory terms. Yet the new unsettling attention on two market leaders of overwhelming scale in an uncertain climate threw financial markets into a downward spin.

Fannie and Freddie were the original inventors of mortgage-backed security, a key cause of the housing bubble and its subsequent deflation. These GSEs received credit and recognition for ingenuity in unbundling risk and reselling mortgage-backed securities to buyers of varying risk appetite in the global market. It was the secret behind the US housing boom and the enabling idea behind the structured finance market. Alan Greenspan, former Federal Reserve chairman, praised it ceaselessly as an ingenious breakthrough that did much to widen home ownership. But the development weakened the mortgage originators’ oversight of loan quality.

Greenspan accepted the risk as part of the natural phenomenon of “bad loans are made in good times”. The backing of the GSEs enabled securitization of “ninja” mortgages (no income, no job or assets), loans that no one would buy if they were not guaranteed by the government. Thus the fault did not lie with mortgage originators, for they would not be able to issue shaky mortgages unless there was a market for them. GSEs’ abuse of their alleged government guarantee had rendered market discipline inoperative, allowing the system to go on a wide joyride that was bound to crash of a cliff. Because of their complexity and broad distribution, when securitized debts default, restructuring is almost impossible. There is no effective fire break once the fire begins and quickly engulfs the whole market.

The sooner the need for a systemic restructure is acknowledged and acted upon, the better it would be for the long-term health of the economy, or the future of regulated market capitalism itself. However, hybrid solutions of quick fixes to paper over seismic financial faults are being proposed to enable the evasion of responsibility and for political advantage in an election year.
Treasury Secretary Henry Paulson said on Friday, July 6 this year that the government would support the GSEs “in their current form as they carry out their important mission”. On Sunday, the Treasury issued a statement indicating that
its main focus was still on supporting Fannie and Freddie in their current form. Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction. GSE debt is held by financial institutions around the world. Its continued strength is important to maintaining confidence and stability in our financial system and our financial markets. Therefore we must take steps to address the current situation as we move to a stronger regulatory structure.
Regulatory reform while necessary cannot be backdated. There are $5 trillion of outstanding debt instruments written under

problematic regulatory oversight that need to be dealt with. Expressions of support for the “current form” that has proved wanting by a wide margin, a new line of credit to support bad loans and a proposed unlimited injection of capital by government that would surely face congressional opposition is a prescription to muddle through a major structural rupture.

Government support
The ability of the GSEs to raise new capital and credit from private sources is totally dependent on government support. Thus the plan to support these GSEs in distress will be much more costly if it must be done through private profit incentives. The outcome is likely to be a new contraction in the supply, and increase in the cost, of mortgage finance – further lessening the chances of an early recovery in the housing market and the wider economy. Private profit incentive overwhelming public interest got the GSEs in trouble. How can more private profit incentives be expected to get them out of trouble?

The Fed has announced that it will allow Fannie Mae and Freddy Mac to borrow from its discount widow, normal open only to commercial banks and since March 2008 open also to investment banks as part of the bail out of Bear Stearns. Under a three-part proposal by the Treasury, the Fed will also be given a consultative role in setting capital requirements and other regulatory standards for Fannie and Freddie, as part of an evolution to be the top regulator and overseer of the nation’s financial system.

Former Fed chairman Paul Volcker expressed concern that by expanding its role of lender of last resort to institutions beside commercial banks that previously were not allowed to hold positions in equities, the Fed may have opened itself up to moral hazard dangers if large institutions believe their adventurous behavior will be bailed out by the Fed.

With the Fed, whose perspective tends to align with those of its member banks, taking over many of the regulatory powers of the Security Exchange Commission, whose mandate was originally to protect the interest of small investors, the public interest may face further diminished protection.

Yet the financial market has irreversibly changed with the emergence of structured finance in which loan securitization has taken loans that once had to stay in the balance sheets of issuing banks but are now securitized and sold by brokers to institutional investors worldwide. Default of a major broker default, such as Fannie and Freddie, will be as damaging as failure of a major money-center bank and cause catastrophic collapse of the credit market.

In 1968, then president Lyndon Johnson, as part of his Great Society program, turned Fannie into a shareholder-owned company as part of a national housing policy to make finance capitalism finance the nationalization of housing. It was the beginning of corporate market socialism in the name of populist economic democracy. The public could only benefit if corporate and financial institutional interests could profit first. And the public must pay if market capitalism fails systemically, absolving the losses of wayward corporations and financial institutions.

In 1970, the savings and loan industry, envying the huge profit made by commercial and investment banks from Fannie Mae, called for and received congressional approval for a GSE of their own and Congress created Freddie Mac. Like the Urban Renewal program of the 1950s, the GSEs served a coalition of interest that included liberals who wanted to help low-income households, real state developers that wanted guaranteed demand, home builders that wanted a guaranteed market, local politicians who wanted tax revenue from redevelopment, banks that wanted lucrative risk-free loan proceeds and congressmen who wanted campaign contributions from mortgage lenders.

Too good to be true
Low-income voters were first dazzled by the new homes they were able to acquire with no money down and with monthly payments financed with home equity loans as house prices rose. They acted like Pinocchio in a Pleasure Island – that would soon turn them into jackasses to be sold to work in salt mines. The financial institutions were comforting their pangs of conscience over taking loans off their balance sheets as soon as they made them by excusing themselves with the idea that they were making low-cost mortgage available to millions of homebuyers. Neoliberal economists were celebrating the US miracle of mass capitalism that does not need capital.

The program of passing unsustainable loans to faceless investors benefited also land speculators, home builders, real estate agents, investment bankers, structured financiers and household furnishers. Since the main thrust of the GSE program was to help low- and moderate-income homebuyers, opposition was considered undemocratic.

Yet everyone knows that the GSEs face an interest-rate risk in their long-term mortgages if interest rates should rise over the loan period. To protect itself from interest rate risks, the GSEs use derivatives to hedge against interest-rate risk.

The OFHEO was created by the House Banking Committee chaired by Texas populist Henry Gonzalez in 1992 with minimal power to regulate the two giant GSEs on the ground that GSEs were institutions intended to support the national policy of a nation of homeowners by making housing loans affordable and should be exempt from regulation regulating commercial institutions.

The problem of this good policy intention was that during the era of neoliberal ascendancy, the light regulatory environment was used to negate a more fundamental economic law: the need to increase worker income to match mortgage payments, subsidized or not.

The GSEs have been financially successful because they combine private sector appetite for profit with access to government-backed credit at below market rates. It was a way to nationalize housing through the free market capitalism. The problem was that financial manipulation cannot replace the need for adequate income growth. The mismatch of income with asset price is the definition of a financial bubble. People were buying homes with cheap credit at prices that their income could not afford. The more home prices rose due to cheap credit, the more homeowners fell into the debt trap.

Yet in all the current talk about finding ways to deal with the crisis, not one single voice is heard from official circles about the need to increase worker income. Instead, false hopes on one-time stimulant tax rebates are hailed as the magic bullet.

Suddenly this summer, Fannie and Freddie’s relatively anemic capital supply is a serious concern for the market. In one week in July, Fannie’s stock plummeted to $10.25, down 74% in 2008. Freddie’s shares also dived, closing at $7.75, a loss of 77% this year.

Even as investors stampede out of these battered stocks, the sycophants of free market capitalism in Washington, led by Treasury Secretary Paulson and Federal Reserve chairman Ben Bernanke, rushed to reassure the market, pointing out that the mortgage giants’ regulators had confirmed that the companies were “adequately capitalized”, trying to give the impression that regulators had the problem firmly in hand and that no new capital was needed by the GSEs.

But these two leaders had lost much credibility since in August 2007 when they voiced a similar mantra that problems in the mortgage market were “contained” to subprime loans and would not spread beyond. SEC chairman Christopher Cox tried to calm investors by telling them that Bear Stearns passed financial muster only days before it required a Fed-engineered bail out by JP Morgan Chase with Fed loans.

More than capital adequacy is at risk. The credibility of the team with responsibility for the nation’s monetary system and its financial market is heading for a meltdown. Unfortunately, credibility is much easier to lose than to regain. (See America’s Untested Management Team Asia Times Online, June 17, 2006.)

Recurring anxiety
Anxiety about Fannie and Freddie’s liabilities of more than $5 trillion getting too big for the funding authority of the Federal Reserve of a measly $2.5 billion credit line has been a recurring concern in many quarters in recent years. Even after both GSEs were found to be infested with accounting irregularities (Freddie Mac in 2003 and Fannie Mae in 2004), Congress failed to act, except to make the regulator require the GSEs to hold 30% more capital than the minimum previously required, in effect capping their ability to purchase mortgages when the housing bubble was approach its peak.

Still, Fannie and Freddie were allowed to pose as high-growth companies whose shares were safe enough for widows and orphans. GSE market share fell to 45% at the peak of the housing bubble. After the bubble burst, it rose to 68% in the first quarter of 2008.

After empty official assurances failed to convince the market because it was plain for all to see that the two GSEs’ direct and guaranteed liabilities were almost 65 times their regulatory capital at the end of the first quarter of 2008, the near-term priority was to restore the rapidly fading confidence of buyers of Fannie’s and Freddie’s debt, many of whom are foreigners. By increasing the GSEs’ credit line and pushing for authority to inject fresh equity if necessary, the Treasury’s proposed plan appears to be aimed at allaying fears of widespread counterparty default and market failure. Freddie seemed to have no serious problem offloading $3 billion of new paper on Monday, July 14, although arm-twisting was rumored to have been needed to persuade banks to buy it.

The bigger problem for Washington is that merely stabilizing Fannie and Freddie is not enough. With US banks seriously distressed by the credit crisis, the GSEs, which hold or guarantee 22% of the $24.3 trillion outstanding debts borrowed by US households and the non-financial sector, are a major source of credit. Yet the market is clearly uncomfortable with the inability of the GSEs to maintain its over-bloated balance sheet. The options are either to shrink the balance sheet drastically, thus exacerbating the credit crisis, or to seek a massive injection of new capital, both requiring government action at an unprecedented scale.

Despite these ad hoc measures, which may or may not receive congressional approval, the whole world knows that credit capacity is shrinking drastically in the market. There are rumors that the US is pressing foreign central banks to acquire more GSE debt, but the market is inundated with fear of new crises before the housing market recovers. And the housing market is lying in a coma in intensive care with an oxygen tank of new credit running near empty.

As the housing market collapses, both GSE companies are reporting steep losses. But the subprime mortgage meltdown has also made the GSEs more important than ever in holding up the housing finance sector. Since the credit markets seized up, Fannie and Freddie have regained their central role in mortgage finance after losing significant market share to investment banks during the housing boom. They have issued the vast majority of mortgage securities sold in the last six months because investors have lost confidence in deals put together by big investment banks.

In February 2008, prodded by the Treasury, federal regulators announced they were easing some restrictions on lending by Fannie and Freddie. Then on March 19 the federal government announced that it was easing those restrictions in an effort to calm the turmoil afflicting the mortgage markets. Officials said the change could allow the two GSEs to invest $200 billion more in mortgages.

Alarmed by the sharply eroding market confidence in the nation’s two GSEs, the largest mortgage finance companies, the Bush administration announced plans on Sunday, July 13 to ask Congress to approve a sweeping rescue package that would give officials the power to inject unlimited funds into the beleaguered companies through investments and loans.

In a separate announcement, the Federal Reserve said that at the request of the Treasury it would make one of its temporary short-term lending programs at the discount window available to the two GSEs, “to promote the availability of home mortgage credit during a period of stress in financial markets.” The program for the GSEs would end when Congress approves the Treasury’s proposed plan.

Treasury Secretary Paulson announced dramatically Sunday on the steps of the Treasury building: “The president has asked me to work with Congress to act on this plan immediately. Fannie Mae and Freddie Mac play a central role in our housing finance system and must continue to do so in their current form as shareholder-owned companies. Their support for the housing market is particularly important as we work through the current housing correction.”

Paulson paradox
While officials in successive administrations, both Republican and Democrat, have for many years repeatedly denied that the trillions of dollars of debt Fannie and Freddie issued is guaranteed by the government, the Paulson package, if adopted, would bring the Treasury closer than ever to exposing taxpayers to potentially huge new liabilities. The two GSEs are expected to face significant new losses this year as the wave of housing foreclosures continues and rises. Paulson seemed to suggest that there is no choice but for the government to intervene. The proposed plan, requiring the Treasury to be giving authority by Congress to command unlimited funds to stabilize the GSEs, is predicated on the hope that the very availability of unlimited funds would make it unnecessary to use them. The investment and lending elements of the proposed plan are to last two years.

Over the weekend, Treasury officials sought assurances from Wall Street firms that the $3 billion auction on Monday by Freddie Mac of short-term debt would go off without a hitch. While $3 billion is a relatively small sum for an institution of Freddie’s size, officials said they did not want to risk even a small misstep that could set off a new round of problems. Despite repeated assurances by top officials that the companies had adequate cash to weather the current financial storm, Fannie and Freddie had suffered a withering blow of confidence the week before. As a result, Freddie was faced with an uncertain debt offering on Monday. Should Fannie and Freddie fail, $5.3 trillion in mortgage debt would go unpaid. As it happened, the offering went smoothly but everyone knew it was not a normal market.

Freddie Mac continued to try to raise capital from private investors even after a government rescue plan it and its sister company Fannie Mae was announced the weekend before, indicating concern that the government plan may be delayed in Congress. On Friday, July 18, Freddie Mac cleared one of the last obstacles to raising new capital through a planned $5.5 billion stock offering when it received approval to register with US securities regulators. However, Freddie Mac’s ability to attract much-needed capital from new and existing shareholders has been potentially lessened by the possibility of a future government stake that might place restrictions on the business. There is also little clarity with regard to where in the capital structure the government might invest, and how dilutive such a move would be to existing shareholders.

The government’s rescue plan, which would allow the Treasury unlimited powers until the end of 2009 to increase its credit line to Fannie Mae and Freddie Mac and invest in their equity, met some strong vocal resistance in Congressional hearings during the week before July 18.

While many expect Congress to have no option except to approve the Paulson plan, a few skeptics were voicing their opposition in public hearings. Senator Jim Bunning, a Republican from Kentucky, described Paulson as “asking for a blank check … for this unprecedented intervention in our free markets.” He also vowed to try his best to stop a proposal that would give the Federal Reserve sweeping new powers aimed at protecting the nation’s shaky financial system. Bunning said the Federal Reserve “can’t be trusted with the power it already has”. He says the Fed’s policies in recent years have contributed to economic woes, including surging inflation, a declining dollar and the housing bust.

“When I picked up my newspaper yesterday, I thought I woke up in France. But no, it turns out socialism is alive and well in America. The Treasury Secretary is asking for a blank check to buy as much Fannie and Freddie debt or equity as he wants. The Fed’s purchase of Bear Stearns’ assets was amateur socialism compared to this,” thundered the Republican Senator against his own party’s Treasury secretary. In US political discourse, socialism is a dirty word, albeit what Paulson proposes is not anywhere near what socialism is commonly understood to be in the rest of the world, but a scheme to use public funds to save debt capitalism by frustrating the right to fail in market capitalism.

Predatory lending
Ron Paul, Republican congressman from Texas, told Bernanke that the Federal Reserve is a “predatory lender”. But he did not mention that by law, predatory lenders forfeit any right of collection.

Lender liability is embodied in common and statutory law covering a broad spectrum of claims surrounding predatory lending. It is a key concept in environmental-cleanup litigation. If a lender knowingly lends to a borrower who is obviously unable to make reasonable beneficial gain from the use of the funds, or causes the borrower to assume responsibilities that are obviously beyond the borrower’s capacity, the lender not only risks losing the loan without recourse but is also liable for the financial damage to the borrower caused by such loans. For example, if a bank lends to a trust client who is a minor, or someone who had no business experience, to start a risky business that resulted in the loss not only of the loan but of the client trust account, the bank may well be required by the court to make whole the client.

In the United States, although predatory lending is not defined by federal law, and various states define abusive lending differently, it usually involves practices that strip equity away from a homeowner, or equity from a company, or condemn the debtor into perpetual indenture. Predatory or abusive lending practices can include making a loan to a borrower without regard to the borrower’s ability to repay, repeatedly refinancing a loan within a short period of time and charging high points and fees with each refinance, charging excessive rates and fees to a borrower who qualifies for lower rates and/or fees offered by the lender, or imposing new unjustifiably harsh terms for rolling over existing debt. Predation breaks the links between an economy’s aggregate resource endowment and aggregate consumption and between the interpersonal distribution of endowments and the interpersonal distribution of consumption.

The choice by some to be predators decreases aggregate consumption, both because the predators’ resources are wasted and because producers sacrifice production by allocating resources to guarding against predators. Much of welfare economics is based on the concept of pareto optimum, which asserts that resources are optimally distributed when an individual cannot move into a better position without putting someone else into a worse position. In an unjust global society, the pareto optimum will perpetuate injustice.

Now, there is a close parallel in most Third World debts and International Monetary Fund (IMF) rescue packages to the above predation examples, where sophisticated international bankers knowingly lend to dubious schemes in developing economies merely to get their fees and high interest, knowing that “countries don’t go bankrupt”, as Walter Wriston, former chairman of Citibank, once famously proclaimed.

The argument for Third World debt forgiveness contains large measures of lender liability and predatory lending. Debt securitization allows predatory bankers to pass the risk to global credit markets, socializing the potential damage after skimming off the privatized profits. The housing bubble has been created largely by predatory lending without any lender liability. The argument for forgiving Third World debt is applicable to low- and moderate-income home mortgage borrowers in the US as well. Let’s hear some proactive commitments from the presumptive candidates of both political parties instead of empty populist campaign rhetoric.

Henry C K Liu is chairman of a New York-based private investment group. His website is at

http://www.henryckliu.com

http://www.atimes.com/atimes/Global_Economy/JG22Dj09.html

Caught in the act: IOF murderers shoot Palestinian Pointblank after blindfolding him

America Seized With Fear

By Joan Veon
7-2-8

Unbeknownst to the American people who are besieged with a fear and trembling over the falling stock market, the sub-prime credit crisis, the flooding in the Midwest, and the all-time oil, gas and food prices, a much greater, more enduring and lasting evil is taking over the country through new regulations proposed by the U.S. Treasury Department. To give you a better understanding of the BIG picture, we will address it in three segments: (1) “America Seized with Fear and Trembling–Again” (2) “The Final Globalization of the U.S. Banking System by the Federal Reserve,” and (3) “How to Survive in a World Without Safety Nets.”

While covering global meetings I have observed over and over again that most of the “problems,” which arise, are often part of the agenda of whatever global meeting is being held at the time. During the past twelve months, beginning specifically the end of July, 2007, I started to understand that the sub-prime crisis had another side to it-the globalization our entire financial structure. To understand what is at stake, we’ll review first the changes to our Republic.

The first major change came in 1913 with the establishment of a new central bank; a private corporation we call the Federal Reserve, setup to control the financial, economic and monetary system of the United States, and run by a group of powerful financial opportunists. (It was Andrew Jackson who shutdown the second of the two original central banks, approved with limited charters by our Founding Fathers.)

This is why we, the American people, cannot forgive ourselves the interest on our current the debt. We do not owe it to ourselves, but rather to our privately-owned Federal Reserve Corporation. Since its inception, the Federal Reserve charter has been amended more than 195 times, which included the passage of HR12, “The Banking Modernization Act.”

According to the March 31, 2008 “Treasury Blueprint for a Modernized Financial Regulatory Structure,” the Fed is about to seize its final empowerment over the rest of the American banking and financial system. While the Blueprint states it will take years for all of this legislation to be put in place, Paulson gave a speech on June 19 to Women in Housing and Finance in which he stated, “[W]e must dramatically expand our attention to the fundamental needs of our system, and move much more quickly to update [the outdated nature of our financial regulatory] system.” Once this is finalized, the Congress of the United States of America become useless because their main purpose since 1913 has been to surrender to the Federal Reserve more and more powers over our economic and financial structure. In other words, what we are witnessing a complete take over of our economy by a private corporation!

The second series of major changes is called “globalization”. This is the tearing down of barriers between the nation-states. When Presidents Clinton and G.W. Bush along with England’s Prime Ministers Tony Blair and the current Prime Minister Gordon Brown, refer to “interdependence” they are speaking of the fact that there are no more economic, political, legal, trade, military, or intelligence barriers separating the nation-states.

In 1944, a post-World War II economic conference was held in New Hampshire. “Bretton Woods”, dubbed after the conference hotel, birthed the first two international pieces, which now comprise an international/ global world- government structure: the International Monetary Fund and the World Bank. Today on a regular basis, all the treasury secretaries of the world meet to resolve how to change their nation’s financial and economic laws to meld into an ever evolving international financial and economic world.

In 1945, the United Nations was founded in San Francisco. Today, all the foreign ministers of the UN meet to “keep the peace.” That is so laughable considering the fact that the UN is ready to sign off on its biggest peacekeeping budget, $7.3B, in their history. There are more wars now globally than at any other time in the history of the UN. They have failed miserably at keeping the peace.

Primarily because there are those who only want the WHOLE PIECE and not PEACE as we think of it. The U.S. should not only withdraw from the United Nations but all of the related UN organizations. It should also be remembered that the Commonwealth of Nations, a special league of nations which pledge allegiance to the Queen of England operate within the UN and have the potential of 54 votes to our ONE vote.

As the trade barriers fell in 1994 it changed the entire structure of the world. No longer could the average American compete with his neighboring farmer, manufacturer, architect, or technician, but now would compete with ALL counterparts worldwide. The globalized workplace has affected many American industry workers. We cannot, with our higher standard of living, compete with the Chinese slave laborers. Buying cheaper cannot be better when it destroys the very backbone of the American dream.

In 1998, the foreign ministers of the world approved an International Criminal Court. For the first time since the Roman Empire, a global body now has the right to transcend national sovereignty in order to search, seize, arrest and deport an alleged international criminal. What else can I say? We are all terrorists until proven innocent.

In 2001, the final barriers between the nation-states came down when alleged terrorists attacked the World Trade Towers in New York City. My extensive research revealed very simply that if all the other barriers between states had already fallen, then the two most sensitive barriers still remaining had to be erased: the military and intelligence barriers.

Currently we have two global militaries: the U.S. “Coalition of the Willing” and 90,000 United Nations peacekeepers. In regard to the UN, when they need more supplies, i.e., food, uniforms, guns, ammunition, tents, planes, boats, etc., they basically call on the countries of the world to ante up.

Britain might supply uniforms while the U.S. provides military transport planes. In regard to the intelligence barriers, beginning as early at 1996, the G8 countries were working to establish a global intelligence gathering room where the CIA, Britain’s MI6, Russia’s KGB and other G8 intelligence agencies would work together to help maintain world peace and to track international terrorism. Today it is fully functional.

The various barriers, which once protected the citizens of each respective country, vanished as the IMF/World Bank, United Nations, World Trade Organization, International Criminal Court, etc. were set in place above the nation-state. Today and with the handover of the remaining parts of our financial structure by Congress, there are no safety nets to protect us. In other words, the big powerful money lords who rule the world-people like George Soros, the Rockefellers, European royal families, and the most powerful banking families­will be able to operate without impunity while the average American will be rendered helpless.

Our Constitution will become nothing more than a piece of worthless paper because the power of Congress will be eliminated with the final sell-out of our economic system. Without national barriers to protect us, America is now part of a “level landscape.” As a result, when the powerful sell their investment positions, they can take their gains all at once, globally, instead of country by country.

Lastly, the fear and trembling is used as a tool to force people into change. The fear is created through a constant stream of negativity and used as a process. First the situation is created (Sept. 11) and then solved so that people think they are safe (Anti-terrorist Bill) when in fact, the wool has just been pulled over their eyes. Fear and trembling can also be associated with “creative destruction.” Our once great country, way of life, livelihood and future is being destroyed before our very eyes. We have a choice: to operate in fear or turn to faith. 

© 2008 Joan Veon – All Rights Reserved 

Joan Veon is a businesswoman and international reporter, having covered 75 Global meetings around the world in the last ten years. http://www.womensgr oup.org/.

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What’s wrong w/this picture: Gore-Lieberman 2000? / Lieberman supports McCain 2008?

http://politicalticker.blogs.cnn.com/2007/12/16/lieberman-to-support-mccain/

WASHINGTON (CNN) - Sen. Joe Lieberman, a Democrat turned Independent, will endorse Republican Sen. John McCain for president, officials close to both Lieberman and McCain familiar with the plan tell CNN.

Lieberman is planning to announce his support for McCain at an early Monday morning event in New Hampshire, but the campaign is keeping a close eye on a winter storm that could force it to be rescheduled.  The McCain campaign declined to comment on the source’s account, and would not confirm it.

An aide to Lieberman tells CNN he decided to endorse McCain because he considers him “the most capable to be commander in chief on day one of his administration, and the most capable of uniting the country so that we can prevail against Islamic extremism.”  The Lieberman aide insists the senator does not see this as a “commentary on or an endorsement of the Republican party, only the person.”

Lieberman had not planned to endorse anyone until after the primary season, but McCain asked Lieberman for his endorsement a few days after the two men returned from a Thanksgiving trip to Iraq together, and Lieberman decided to do it, according to the same Lieberman aide.  Lieberman will continue to caucus with the Democrats.

Like McCain, Lieberman has been a vocal supporter of the Iraq war. For Lieberman, it is an issue that caused him to split with his own political party after losing the Democratic Senate primary in 2006. Lieberman refused to back down, and won reelection as an Independent.  Lieberman was the Democratic vice presidential nominee in 2000.

Lieberman’s Democratic colleagues welcomed him back to the Senate, and he is the 51st vote that gives Democrats a razor thin majority in the 100 member chamber. Lieberman chairs the Homeland Security & Governmental Affairs Committee, and he still attends weekly Democratic strategy meetings.

“I have the greatest respect for Joe, but I simply have to disagree with his decision to endorse Senator McCain,” Senate Majority Leader Harry Reid said in a statement to CNN.

Lieberman’s office called Reid’s office Sunday to inform the Democratic leader of his decision to endorse a Republican.

A longtime Lieberman adviser described it as a “hangover” from the 2006 campaign when Democrats, including Connecticut Sen. Chris Dodd, New York Sen. Hillary Clinton, and other longtime friends declared they could and would not support his reelection bid after he lost the primary. Instead, they backed the Democratic nominee Ned Lamont.

This endorsement could help emphasize McCain’s national security standing, show he is able to work across party lines, and perhaps help persuade independent voters in New Hampshire to support his presidential bid.

­ CNN’s John King and Dana Bash

 Rense.com

Iran : Les indices boursiers

 confirmeraientl’imminence d’une attaque

Le business économiste Jean-Pierre Chevallier a constaté des mouvements boursiers anormaux aux Etats-Unis, mouvements qu’il attribue à des possibles préparatifs pour une frappe conjointe américano-israélienne contre les installations nucléaires et militaires iraniennes.

Le 6 juin, Shaul Mofaz, l’ancien chef d’état-major de l’armée israélienne a évoqué la possibilité d’une telle attaque et Chevallier a constaté que le même jour, les marchés actions ont plongé d’une façon anormale : « le Whilshire 5000 a clôturé à 14,339 le jeudi 5 pour tomber à 13,924 le lendemain : une chute rarissime de 400 points en une séance qui correspond à une perte de plus de $800 milliards de capitalisations boursières pour les investisseurs sur les bourses américaines ! »

Sur son site que nous vous conseillons vivement, Jean-Pierre Chevalier apporte des explications pointilleuses sur cette affaire. Cependant, ses explications étant destinées à un public averti, nous l’avons interrogé pour avoir une explication grand public.

Selon Chevallier, des « mouvements anormaux du même type ont eu lieu quelques jours avant les attentats du 11 septembre 2001. Vu les données, il est absolument certain qu’un certain nombre de personnes savaient qu’il allait se passer quelque chose de majeur dans un avenir proche quelque part aux Etats-Unis. Dès le jeudi 6 septembre 2001, le marché qui était en hausse depuis le mois d’août s’est retourné : le « 3 mois » [Selon Chevallier, « il y a donc eu ce que l’on pourrait appeler en d’autres circonstances des délits d’initiés (dès le jeudi 6 septembre) ». Ceux qui avaient l’info ont vendu leurs valeurs dès le 6 septembre et le marché a réagi en conséquence. Les cotations ont repris la semaine suivante à 2,30 %.

Chevallier affirme avoir observé ce même genre de phénomènes à une plus petite échelle avant les attaques sur l’Afghanistan ou l’Irak, c’est pourquoi il voit dans la perte anormale des 800 milliards de dollars une manifestation d’un nouveau délit d’initié de spéculateurs très hauts placés, informés d’une attaque sur l’Iran.

http://mecanopolis.wordpress.com/2008/06/24/iran-les-indices-boursiers-confirmeraient-limminence-dune-attaque/

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The business economist Jean-Pierre Chevallier found abnormal movements fellows in the USA, movements he attributes to possible preparations for a joint strike against US-Israeli nuclear facilities and military sites in Iran.

On June 6, Shaul Mofaz, former Chief of Staff of the Israeli army has raised the possibility of such an attack and Chevallier noted that the same day, stock markets have plunged in a way abnormal: “Whilshire 5000 closed at 14339 on Thursday, 5 to 13924 fall to the next day: a rare fall of 400 points in a meeting which corresponds to a loss of over $ 800 billion stock market capitalization to investors on U.S. exchanges! “

On its website that we strongly advise you, Jean-Pierre Chevalier pointilleuses provides explanations on the case. However, his explanations are intended for adult audiences, we have asked for an explanation general public.

According to Chevallier, “abnormal movements of the same kind took place a few days before the attacks of September 11, 2001. Given the data, it is absolutely certain that a number of people knew he was going to happen something major in the near future somewhere in the USA. From Thursday, September 6, 2001, the market was up since August has returned: “3 months” [According to Chevallier, “there is therefore what might be called in other circumstances insider (as of Thursday, September 6). Those who had sold their news values from September 6, and the market has reacted accordingly. The quotations were resumed the following week at 2.30%.

Chevallier says he observed the same kind of phenomena at a smaller scale before the attacks on Afghanistan or Iraq, which is why he sees the abnormal loss of 800 billion dollars a demonstration of a new offence of ‘ insider speculators placed very high, about an attack on Iran.