Thursday, September 25, 2008

The 32 Words. . .

The Whole of the “Bailout” Explained in Just 32 Words...
by Jason Linkins via The Huffington Post

Read A critical - and radical - component of the bailout package proposed by the Bush administration has thus far failed to garner the serious attention of anyone in the press.  And it is these 32 words from Section 8 of the bailout proposal...

“Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

If the democrats, (and ‘we the people,’) do allow this bailout - with those 32 words - still in the proposal, then the democrats, (and ‘we the people,’) deserve everything that those words imply concerning executive power over the rest of this nation’s governmental structures, (and ‘us.’)

Because it means no one can question them, nor regulate them, nor take any of them to court... for how they use ‘our’ $700+ billion... (actual estimate is now over one trillion dollars since they have now included their friend’s non-American banking institutions.)

Because - It will be, (legally, if signed into law,) none of our business.

That’s it in a nutshell.

They couldn’t make it any plainer, any simpler, any clearer.

This bailout doesn’t even cap the “golden parachute” pay of the corporate officers involved.

[- Update - Final bill, as signed, did cap them. - But the 32 words...? -]

It keeps getting more blatant, more insane, by the hour - But you, the people, keep allowing the justification of their sneers...  Don’t you?

FOX, and the corporatist MSM, are not telling the people this, in fact, they are openly implying the opposite, and the majority of American voters do not read us, do not watch us, do not come to our web sites and/or blogs.

The majority of American voters do not know about the import of those 32 words on their futures.  And I don't think that there is time enough left before the proposal is passed, (not to mention the election,) to fill them in, without a concerted effort by the mass media to impart the knowledge - Which you, and I both know -- just isn’t going to happen.

A final bit of trivia - Assuming the administration’s $700-billion scheme is approved, the total price tag for bailouts this year—including Bear Stearns, AIG and Freddie and Fannie - will be roughly three times greater than all other U.S. bailouts - combined.

This administration has borrowed more money from other nations - than all of the other past administrations - combined.

This administration’s military budget, (54% of our total budget) - is larger than all of the other nation’s military budgets - combined.

Are you seeing a trend here?  You should - Because you allowed it all.

= = = = = = = = = = = = = = =  <  B e l o w  T h e  F o l d  >  = = = = = = = = = = = = = = = 

A“Below The Fold” bonus -related- article...

The Shadow Banking System is Unravelling

By Nouriel Roubini, Financial Times, September 21 2008

Last week saw the demise of the shadow banking system that has been created over the past 20 years.  Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders.

Like banks, most members of this system borrow very short-term and in liquid ways, are more highly leveraged than banks (the exception being money market funds) and lend and invest into more illiquid and long-term instruments.  Like banks, they carry the risk that an otherwise solvent but liquid institution may be subject to a self­fulfilling and destructive run on its ­liquid liabilities.

But unlike banks, which are sheltered from the risk of a run – via deposit insurance and central banks’ lender-of-last-resort liquidity – most members of the shadow system did not have access to these firewalls that ­prevent runs.

A generalised run on these shadow banks started when the deleveraging after the asset bubble bust led to uncertainty about which institutions were solvent.  The first stage was the collapse of the entire SIVs/conduits system once investors realised the toxicity of its investments and its very short-term funding seized up.

The next step was the run on the big US broker-dealers: first Bear Stearns lost its liquidity in days.  The Federal Reserve then extended its lender-of-last-resort support to systemically important broker-dealers. But even this did not prevent a run on the other broker-dealers given concerns about solvency: it was the turn of Lehman Brothers to collapse.  Merrill Lynch would have faced the same fate had it not been sold.  The pressure moved to Morgan Stanley and Goldman Sachs: both would be well advised to merge – like Merrill – with a large bank that has a stable base of insured deposits.

The third stage was the collapse of other leveraged institutions that were both illiquid and most likely insolvent given their reckless lending: Fannie Mae and Freddie Mac, AIG and more than 300 mortgage lenders.

The fourth stage was panic in the money markets.  Funds were competing aggressively for assets and, in order to provide higher returns to attract investors, some of them invested in illiquid instruments.  Once these investments went bust, panic ensued among investors, leading to a massive run on such funds.  This would have been disastrous; so, in another radical departure, the US extended deposit insurance to the funds.

The next stage will be a run on thousands of highly leveraged hedge funds.  After a brief lock-up period, investors in such funds can redeem their investments on a quarterly basis; thus a bank-like run on hedge funds is highly possible.  Hundreds of smaller, younger funds that have taken excessive risks with high leverage and are poorly managed may collapse.  A massive shake-out of the bloated hedge fund industry is likely in the next two years.

Even private equity firms and their reckless, highly leveraged buy-outs will not be spared.  The private equity bubble led to more than $1,000bn of LBOs that should never have occurred.  The run on these LBOs is slowed by the existence of “convenant-lite” clauses, which do not include traditional default triggers, and “payment-in-kind toggles”, which allow borrowers to defer cash interest payments and accrue more debt, but these only delay the eventual refinancing crisis and will make uglier the bankruptcy that will follow.  Even the largest LBOs, such as GMAC and Chrysler, are now at risk.

We are observing an accelerated run on the shadow banking system that is leading to its unravelling.  If lender-of-last-resort support and deposit insurance are extended to more of its members, these institutions will have to be regulated like banks, to avoid moral hazard.  Of course this severe financial crisis is also taking its toll on traditional banks: hundreds are insolvent and will have to close.

The real economic side of this financial crisis will be a severe US recession.  Financial contagion, the strong euro, falling US imports, the bursting of European housing bubbles, high oil prices and a hawkish European Central Bank will lead to a recession in the eurozone, the UK and most advanced economies.

European financial institutions are at risk of sharp losses because of the toxic US securitised products sold to them; the massive increase in leverage following aggressive risk-taking and domestic securitisation; a severe liquidity crunch exacerbated by a dollar shortage and a credit crunch; the bursting of domestic housing bubbles; household and corporate defaults in the recession; losses hidden by regulatory forbearance; the exposure of Swedish, Austrian and Italian banks to the Baltic states, Iceland and southern Europe where housing and credit bubbles financed in foreign currency are leading to hard landings.

Thus the financial crisis of the century will also envelop European financial institutions.

The writer, chairman of Roubini Global Economics (, is professor of economics at the Stern School of Business, New York University

Copyright The Financial Times Limited 2008


At 9/25/2008 8:29 AM, Blogger JerseyCynic said...

Great blog old hippie. I must post this over at Blondesense.


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