Moon of Alabama Brecht quote
September 25, 2008

The Paulson Crime And Other Thoughts

It seems like Paulson and Bernanke together with their partners in crime Pelosi, Reid, Frank, Dodd and Schumer have successfully arranged the biggest single wealth transfer from the people of the U.S. to the very rich.

Obama and McCain stand by to laud that feat.

A few weeks ago the economic problems were 'contained', the banking system 'sound'. Now the same folks who over the years produced the crisis suddenly scream "Depression!" and claim to have found the only solution: "Give me your money!!!"

This is by far not depression territory - yet. But Congress is following Bush in doing the best possible to get the U.S. there.

Most of the money that will go into the Paulson plan will be wasted to save some big bank shareholders. That money will be lacking when it will be needed for real programs that would make a difference.

From a guy who was right all along:

[I]n order to resolve this financial crisis it is not enough to take the bad/toxic assets off the balance sheet of the financial institutions (a new RTC); it is also necessary and fundamental to reduce the debt overhang of millions of insolvent households via a significant debt reduction on their mortgages (an HOLC program like the one that was implement during the Great Depression); and also recapitalize undercapitalized banks with public capital in the form of preferred shares (as the RFC did with 4000 banks during the Great Depression).

An RTC scheme without an HOLC and RFC component would not resolve two fundamental problems: millions of households are insolvent and unable to service their mortgages; the financial system is vastly undercapitalized and needs capital to avoid an ugly credit crunch and to foster new credit creation that is needed for future growth.

With $700 billion wasted for the Paulson plan, likely borrowed from China by selling out Taiwan, where will the money come from to get the other programs going? What else is for sale? Would Russia buy back Alaska? Sarah Palin should ask for an offer.

GE just cut its profit forecast. 50% of GE's earnings come from its financial business arm. That part is likely to look no better than Washington Mutual which will go belly up on Friday, if not earlier. It then will be split up and the taxpayer will be made to eat the bad parts while some rich folks will feast on the valuable ones.

The German foreign minister and the finance minister currently have fun saying 'I told you so':

Frank-Walter Steinmeier said during a visit to the U.S. Stock Exchange that Germany, Europe's biggest economy, had run into a brick wall when it called for more checks on international finance.

'I must say that we, and the finance minister (Peer Steinbrueck) in particular, were right in the recommendations that we have been making for two years,' he told reporters on Wall Street.

and

"The U.S. will lose its status as the superpower of the global financial system, not abruptly but it will erode," Finance Minister Peer Steinbrueck told the lower house of Germany's parliament in Berlin, according to published reports. "The global financial system will become more multi-polar."

Steinbrueck criticized the United States for failing to adequately regulate investment banks and said free-market policies embraced by the United States and Great Britain that emphasized a short-term "insane drive for higher and higher profits" were partly to blame for the crisis.

Both are right and both should shut up. Such talk only provokes anger. Germany will be hit hard too. Not as hard as the US, the UK and the neo-liberal eastern European economies but for a big exporter like Germany a recession is unavoidable under these circumstances.

But Germany is unlikely to see violent protests over the downturn or any measures like these:

"The next emergency measure will be that Americans are not allowed to buy foreign currency and transfer money overseas, and the next measure will be not permitting Americans to buy gold and so on and so forth…. It creates even more uncertainty in the market place when you continually change the rules," Faber said.

Faber's assumption is that the U.S. will massively inflate and U.S. people will try to hold their money in other currencies. Then currency controls will be needed to stop the capital outflow. He is right, so prepare yourself.

Stephen Colbert yesterday tried to explain how much $700 billion is. The easiest way, he said, is to think of it as 1 Euro.

That wasn't funny.

Posted by b on September 25, 2008 at 08:58 AM | Permalink

Comments

Paulson's rush to bailout is taking on the look and feel of an economic Patriot Act. So in the spirit of our war against terrorism, we oughta round up all of the financial terrorists on Wall Street (whether they have derivatives of mass destruction or not), airlift them to Club Gitmo, and then squeeze (by various means of torture) every last penny out of them!

Posted by: Cynthia | Sep 25, 2008 9:16:19 AM | 1

b or anyone else, do you think that Faber's prediction re the export of currency etc has any seriousness? I've seen that idea punted around quite a bit.

I'm not sure that the POB would have the moral courage to admit that the USA might have descended to the level of, say, Argentina. On the other hand if they do instigate emergency measures like this, I might as well send jingle mail now and build a yurt in my parents' back garden, assuming they'll let people leave these golden shores...

Posted by: Tantalus | Sep 25, 2008 9:21:04 AM | 2

Faber's assumption is that the U.S. will massively inflate and U.S. people will try to hold their money in other currencies. Then currency controls will be needed to stop the capital outflow. He is right.

Hello, already looking for a back in which I can hold my money in currencies other than dollars: any suggestions?


Posted by: Iron Butterfly | Sep 25, 2008 9:25:11 AM | 3

Stephen Colbert yesterday tried to explain how much $700 billion is. The easiest way, he said, is to to think of it as 1 Euro.

That wasn't funny.


No it's not funny. If they are to experience inflation even similar like we had in Serbia in 1993 it looks like this. I was about to buy a tax state stamp (or how ever you call administration tax stamp).Those stamps were to be paid something like 2 dinars /Serbian valute / (cause the only way to change their value was through new legislation and they just gave up on it in the middle of horrible inflation). I needed it to put on some documents that I needed to certify for my emigration visa to NZ. That woman at the counter did not have a change (there was no way for her to have it because dinars notes were then in billions) and the only banknote that I had was 500 BILLIONS dinars. I needed that administration stamp badly so I simply left 500 BILLIONS as a change (tip) and I said to that woman:” I am going to tell my grandchildren how once I left a tip of 500 BILLIONS". I could buy one single pack of 20 cigarettes for that money...

Posted by: vbo | Sep 25, 2008 10:26:07 AM | 4

IronB@3

I've been looking for a while. I can't find an easy/"legal" way for a US citizen to transfer dollars to a foreign bank. Things like the Patriot Act have made it even tougher.

http://www.reddit.com/r/Economics/comments/72cdi/whats_the_best_way_to_set_up_a_foreign_bank/>This thread has some interesting ideas.

Posted by: Bruce F | Sep 25, 2008 10:28:58 AM | 5

Faber's assumption is that the U.S. will massively inflate and U.S. people will try to hold their money in other currencies.

We in Serbia used to buy German marks at the time...But in your case I don't think Euro can save you because all western currencies will suffer...
We in Serbia did have savings thanks to the fact that credit cards, mortgages and other types of loan were not available for us. But Milosevic was a master to think of million ways and organize them to take all our savings...In 1993 we simply had 10 German marks as monthly salary when we had to pay same amount for the bottle of shampoo on a black market...If we did not have savings converted in German marks we couldn't survive...simple as that.

Posted by: vbo | Sep 25, 2008 10:44:04 AM | 6

"Americans are not allowed to buy foreign currency and transfer money overseas, and the next measure will be not permitting Americans to buy gold"
But of course, US is a free nation, where everyone can do pretty much everything he wants, go everywhere,
If they get their bailout and try such bans on currency and money transfer, the Americans would be complete fools not to take arms and assault DC with loaded guns.

By the way, B., any possibility of some European bank going belly-up soon? Probably an English one, or maybe UBS, or Soc Generale - though they seem not to have been completely sunken by their huge losses by "rogue trader"?

Posted by: CluelessJoe | Sep 25, 2008 10:50:24 AM | 7

I can't find an easy/"legal" way

Do not look too much for legal way...if shit hits fen there will be very little of the legal things that will help you to survive...
Is what they are doing legal? They may make it "legal" like Guantanamo and everything else...
They are so arrogant that they put 3 PAGES to the Congress to ask for $700 billion...Bastards.

Posted by: vbo | Sep 25, 2008 10:54:44 AM | 8

Some friends sent us a Biden spam mail asking for donations. It was so full of bullshit, I can't even begin. I responded as diplomatically as possible, but the message must be delivered to everyone we know. This also applies to our resident Uncle Waldo (aka Wilbur Whatley). Here's my response:

Thanks for the link, guys. There must be no bail-out, whatsoever. It is a ploy, and a massive, unprecedented transfer of wealth. They are using fear to enrich themselves, as they have done for the past 8 years, and longer. The only legislation that should come out of this is the reinstitution of Glass-Steagall, which separates speculative investment banks from commercial banks (the piranhas in one tank and the non-predatory fish in another). If the bail-out is allowed to go through, regardless of meaningless concessions to the Dems, we can kiss whatever remaining social safety net we have goodbye. What they are doing has a name. It's called the Shock Doctrine, and Naomi Klein has exposed it quite well. Here's a link:

http://www.naomiklein.org/shock-doctrine>Shock Doctrine

Understand, that both parties are complicit in this massive fraud. Obama/Biden currently has more Wall Street campaign funding than McCain/Palin, if you can believe that. Both parties are owned by our Corporate Masters. What we need is a revolution, but it will not happen. America is so thoroughly softened that the stamina and true grit necessary for a revolution couldn't be mustered. We are being lied to, though, that much is true. Peak oil has arrived and with it the end of cheap energy. Cheap energy is what has fueled the prosperity for the last 100 years. The halcyon days are over and it's negative growth rate from here on out. We need honesty about what lays ahead, for all of us, and we need a say in how to revise/design our system, our way of life, in order to constructively cope with a radically changing environment.

Posted by: Ghee O. Teen | Sep 25, 2008 11:01:09 AM | 9

http://www.rgemonitor.com/roubini-monitor/253739/home_home_owners_mortgage_enterprise_a_10_step_plan_to_resolve_the_financial_crisis

Warren Buffett got $5B in PERPETUAL PREFERRED SHARES, senior debt notes in Goldman Sachs. He's not trying to run the company, he's just underwriting it, up to the value of it's fungible assets. And he's not paying any interest on that $5B, only the marginal opportunity cost of some different investment.

Our $700B bailout will get US nothing! There is no call in the TARP for perpetual preferred shares. It's the High Finance version of a Patriot Act Dictatorship. There is no fungible cap, no oversight whatsoever! The new Finance Commissar is former CEO of Goldman Sachs, now a holding bank, the better to hold some of that Paulson Funny Money! You can see why Buffett is nothing, if not an opportunist. He just underwrote the bailout for a hefty profit. Little to no risk, and a huge reward. Remember that next time you listen to the "Omaha Optimist".

Not only do we get nothing, we're paying for huge Federal bureaucratic overhead to process the bailout. Huge carrying fees on the paper, huge unregulated transaction fees, huge liquidation losses, and the 30% interest rate guaranteed the Chinese and other investors who will be underwriting the Treasuries.

Thought experiment! 7.35% 2013 Atlanta, Georgia, Watertown Condos $31,567,000
How much is it really worth? Quick! You have $700,000,000,000 more to process!

This is at least $4 trillion increase in Federal deficit we can never repay, and
a guaranteed continued run-up in the insane and unaffordable housing costs which brought on this mess. Good for seniors, if they can pony up the huge property taxes increases coming, and hold on. Terrible for juniors, Rental Nation.

Treasury proposed a giveaway! 3 pages!! Full risk, zero benefits! That's your Treasury, and the vampire Fed private bank that feeds on your income taxes. 30% of your savings to those vampires! And Congress will be signing off on it!

The final TARP Act better read like Warren Buffett's best contract ever, or vote every Congressman out. This $700 billion bailout could have been funded FOR FREE, just by outlawing the Fed.

--

As far as transferring your US$'s to foreign currencies, any broker will sell you foreign treasury or corporate notes in any currency you want to hold in. Just ask.
The bailout will only underwrite the US$, though, and you'll lose your investment.

Same with gold. Gold ETF's are the fractional reserve version of banks, that's why the price of gold has been falling. There is no bullion left to hold, that's being bought up. All you can buy as a US citizen is ETF fractional bullion toilet paper.

Like John Stewart quipped, "Funny story. All that money you've been giving to the banks (stock brokers)? They don't have it anymore."

Posted by: Gee Haw | Sep 25, 2008 11:44:08 AM | 10

Really interesting article:

Mr. Risk Goes to Washington

Posted by: jesse | Sep 25, 2008 11:49:01 AM | 11

The American people are remarkable by their flexibility and ductility. They accommodate themselves to new situations without much difficulty, Civil War excepted, and problems that at a given moment seem overwhelming are slowly absorbed and solutions or accommodations are built into the social fabric and life continues. Roubini seems to have been right until now but reality is Protean and sometime his visionary powers will desert him. The American people is admirable because of this ability to not become fixed onto any particular definitive way. Even when they think that they are not deserting some old ways they do it e.g. refusing to accept the metric system but transforming their old units of measure into decimal realities. Invective against the American people does not work actually it does not work against anyone.
We are in a pickle now, we are in a transition,we are transiting and we will make it through, though there is never an end to any thing, only transitions.

Posted by: jlcg | Sep 25, 2008 11:52:37 AM | 12

@9

"What we need is a revolution, but it will not happen. America is so thoroughly softened that the stamina and true grit necessary for a revolution couldn't be mustered."

Americans have been sucking on the pink titty of prosperity for so long they wouldn't know one end of a gun from the other. They'll just roll over and take it up the arse end from anyone looking for a quick shag. They're f**king hopeless and they, like the Brits (their equally feckless cousins), deserve everything that's coming to them.

Posted by: Spyware | Sep 25, 2008 12:00:27 PM | 13

Whoever thought $700 billion will be the top ...

Banking System Will Need Another $500 Billion: Gross

The banking system needs another $500 billion to survive beyond the $700 billion rescue plan being contemplated by Congress, said Pimco founder Bill Gross.

Gross said on CNBC that the government bailout plan will help free up bank balance sheets so they can start lending again, but will provide only about $50 billion in real capital to the system.

"The plan goes far but it doesn't go far enough in terms of recapitalization," he said. "The banking system and the investment banking system in total really requires about $500 billion more. Where that comes from is still up in the air."

Mounty Guild, a gold bug, thinks the total of all measures to come will be even much higher:

We predict that the FINAL COST OF THE BAIL OUT from all sources around the world five years from today will be over $5 TRILLION…and it could be AS HIGH AS $20 TRILLION.

We are not kidding…this is how we see it happening:
...

I don't agree that - yet

Posted by: b | Sep 25, 2008 12:02:16 PM | 14

If only the geniuses at GE had stuck to designing bigger and better light bulbs instead of diving into deadly derivatives, then they would be in such a pickle today!

Posted by: Cynthia | Sep 25, 2008 12:21:11 PM | 15

Just reading (in German) in the German Handelsblatt (the equivalent of the WSJ without the opinion part) on the fun the German Finance Minister Steinbrueck had today blasting the U.S. financial policies:

On a day in March 2007 Paulson took little notice of Steinbrueck. First Steinbrueck was hanging in a traffic jam and then the guards at the the Treasury did not let his car through the gate.

Then Paulson gave him a total of 11 minutes for the talk and Steinbrueck was not even offered a chair to sit down. ...

Steinbrueck had called for more regulation at the G7 in mid 2007. Paulson didn't even listen.

You can imagine that Paulson's recent call for an international rescue package was not well received in Berlin ...

Posted by: b | Sep 25, 2008 12:38:20 PM | 16

spyware: amerikan complicity is a little more complicated than sucking on the pink titty of prosperity for so long...They'll just roll over and take it up the arse end from anyone looking for a quick shag.

the incremental conditioning of the amerikan psyche has been made possible by this nation's relative youth, which to me translates into a sort of collective naive gullibility. we still uncritically believe our national myths while simultaneously suppressing the multiple acts of genocide, whether its the mass killing of american indians or the annihilation of a few hundred thousand japanese civilians, that has lead us to this wonderful place in time where a globally entangled economic system is being manipulated by billion dollar thugs with names, like rothschild, rockefeller, buffett, etc.

for all your whining about the futility of blitching (blog-bitching)you seem pretty adept, spyware. while i understand there will be a good amount of cheering over the demise of amerikan empire, those who take the brunt of it here will be, like always, hard working average people who don't have the leisure time to seek out the information regarding how and why they are being screwed. the same goes for plebes around the world.

what's happening right now is naked class warfare, and because this bailout is so blatant and obscene, there is a good chance a lot of people in the states will finally start waking up. it will probably be too little, too late, but at least we'll be able to tell the youngsters why their future has been reduced to the stark simplicity of survival.

Posted by: Lizard | Sep 25, 2008 1:08:14 PM | 17

I was often struck by how stodgy and risk-aversive the German banking system was in comparison to the US. But it is going to survive this crisis without massive intervention and will find itself the biggest purveyor of the Euro, which will become the World's Prime Currency once the Dollar has become degraded to the Status of the Russian Ruble.

Posted by: ralphieboy | Sep 25, 2008 2:06:57 PM | 18

Americans transferring money overseas.. the terrorist ‘finance rules and checks’ have made that difficult since a while. Few ordinary ppl do it, or try to do it, nobody is aware of the complications. Or the laws on the books, for that matter.

(Top, rich, cool, celebs, corps, certain ppl of certain nationalities, etc. are exempt.)

Even a 500 dollar check can create horrific complications.

Those barriers have been in place since a few weeks (?? huh) after 9/11.

Moreover, the IRS is ever present - US citizens, nationals (no distinction there), or ex-citizens, even if they foreign nationals living outside the US, are called on to pay US tax, and that up to 10 years after having left. Visit the IRS site and get ready to take notes!

Bilateral agreements with Western countries take care of most of it, and US (ex..) citizens, employees of big corps, or independent famous artists, aren’t stung for more, but they have to file, every year.

Transfers go on under the radar. Ppl would be very upset if they knew what actually went down, and foreign Gvmts don’t like to advertise they bend over backwards to the US, they keep it quiet.

The US is the only country (afaik) that taxes absent ppl.

It is already way to late to transfer money out for ordinary Joes.

I would advise extreme caution and canniness or bold recklessness, but nothing in between. Look everything up yourself.

Don’t believe financial advisors.

Posted by: Tangerine | Sep 25, 2008 2:32:08 PM | 19

Here is a little story for you about currency devaluation.

From the age of 6 to the age of 21 I lived in Lebanon. My dad worked for a local bank there. In 1975-76 US$1=2.75-3.00 Lebanese Pounds. After the civil war, economic mismanagement (Lebanon is the 3rrd HIC), US$1=1500-2000 LP. My dad used to make $5000 and his salary shrank at one point to $500. It was really sad to see the look of devastation on my dad's face.

I came to the US in 1988 and this looks like deja vu. I am diversifying my currency holdings as much as I can. I am going to hold Euros, GBP, Swiss Francs, Australian $. I already openned an account with Everbank and will open some more. I am going to try my best not to let what happened to my dad happen to me.

Posted by: ndahi | Sep 25, 2008 2:51:10 PM | 20

China banks told to halt lending to US banks

BEIJING, Sept 25 (Reuters) - Chinese regulators have told domestic banks to stop interbank lending to U.S. financial institutions to prevent possible losses during the financial crisis, the South China Morning Post reported on Thursday.

Posted by: b | Sep 25, 2008 3:12:25 PM | 21

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