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AFRICOM – the big secret in the USA by Bryan Hunt (2/21/2007)

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From the blog Socialist Banner

No. 3 on the top 25 censored media stories:

3 AFRICOM US Military Control of Africa’s Resources

Source: MoonofAlabama.org 2/21/2007

Title: “Understanding AFRICOM”

Author: Bryan Hunt http://www.moonofalabama.org/2007/02/understanding_a_1.html
Student Researcher: Ioana Lupu
Faculty Evaluator: Marco Calavita, Ph.D

In February 2007 the White House announced the formation of the US African Command (AFRICOM), a new unified Pentagon command center in Africa, to be established by September 2008. This military penetration of Africa is being presented as a humanitarian guard in the Global War on Terror. The real objective is, however, the procurement and control of Africa’s oil and its global delivery systems.

The most significant and growing challenge to US dominance in Africa is China. An increase in Chinese trade and investment in Africa threatens to substantially reduce US political and economic leverage in that resource-rich continent. The political implication of an economically emerging Africa in close alliance with China is resulting in a new cold war in which AFRICOM will be tasked with achieving full-spectrum military dominance over Africa.

AFRICOM will replace US military command posts in Africa, which were formerly under control of US European Command (EUCOM) and US Central Command (CENTCOM), with a more centralized and intensified US military presence.

A context for the pending strategic role of AFRICOM can be gained from observing CENTCOM in the Middle East. CENTCOM grew out of the Carter Doctrine of 1980 which described the oil flow from the Persian Gulf as a “vital interest” of the US, and affirmed that the US would employ “any means necessary, including military force” to overcome an attempt by hostile interests to block that flow.

It is in Western and Sub-Saharan Africa that the US military force is most rapidly increasing, as this area is projected to become as important a source of energy as the Middle East within the next decade. In this region, challenge to US domination and exploitation is coming from the people of Africa—most specifically in Nigeria, where seventy percent of Africa’s oil is contained.

People native to the Niger Delta region have not benefited, but instead suffered, as a result of sitting on top of vast natural oil and natural gas deposits. Nigerian people’s movements are demanding self-determination and equitable sharing of oil-receipts. Environmental and human rights activists have, for years, documented atrocities on the part of oil companies and the military in this region. As the tactics of resistance groups have shifted from petition and protest to more proactive measures, attacks on pipelines and oil facilities have curtailed the flow of oil leaving the region. As a Convergent Interests report puts it, “Within the first six months of 2006, there were nineteen attacks on foreign oil operations and over $2.187 billion lost in oil revenues; the Department of Petroleum Resources claims this figure represents 32 percent of ‘the revenue the country [Nigeria] generated this year.’

Oil companies and the Pentagon are attempting to link these resistance groups to international terror networks in order to legitimize the use of the US military to “stabilize” these areas and secure the energy flow. No evidence has been found however to link the Niger Delta resistance groups to international terror networks or jihadists. Instead the situation in the Niger Delta is that of ethnic-nationalist movements fighting, by any means necessary, toward the political objective of self-determination. The volatility surrounding oil installations in Nigeria and elsewhere in the continent is, however, used by the US security establishment to justify military “support” in African oil producing states, under the guise of helping Africans defend themselves against those who would hinder their engagement in “Free Trade.”

The December 2006 invasion of Somalia was coordinated using US bases throughout the region. The arrival of AFRICOM will effectively reinforce efforts to replace the popular Islamic Courts Union of Somalia with the oil industry–friendly Transitional Federal Government. Meanwhile, the persistent Western calls for “humanitarian intervention” into the Darfur region of Sudan sets up another possibility for military engagement to deliver regime change in another Islamic state rich in oil reserves.

Hunt warns that this sort of “support” is only bound to increase as rhetoric of stabilizing Africa makes the dailies, copied directly out of official AFRICOM press releases. Readers of the mainstream media can expect to encounter more frequent usage of terms like “genocide” and “misguided.” He notes that already corporate media decry China’s human rights record and support for Sudan and Zimbabwe while ignoring the ongoing violations of Western corporations engaged in the plunder of natural resources, the pollution other peoples’ homelands, and the “shoring up” of repressive regimes.

In FY 2005 the Trans-Sahara Counter Terrorism Initiative received $16 million; in FY 2006, nearly $31 million. A big increase is expected in 2008, with the administration pushing for $100 million each year for five years. With the passage of AFRICOM and continued promotion of the Global War on Terror, Congressional funding is likely to increase significantly. In the end, regardless of whether it’s US or Chinese domination over Africa, the blood spilled will be African. Hunt concludes:

“It does not require a crystal ball or great imagination to realize what the increased militarization of the continent through AFRICOM will bring to the peoples of Africa.”


Update by Bryan Hunt

By spring 2007, US Department of Energy data showed that the United States now imports more oil from the continent of Africa than from the country of Saudi Arabia. While this statistic may be of surprise to the majority, provided such information even crosses their radar, it’s certainly not the case for those figures who have been pushing for increased US military engagement on that continent for some time now, as my report documented. These import levels will rise.

In the first few months following the official announcement of AFRICOM, details are still few. It’s expected that the combatant command will be operational as a subunit of EUCOM by October 2007, transitioning to a full-fledged stand-alone command some twelve months later. This will most likely entail the re-locating of AFRICOM headquarters from Stuttgart, Germany, where EUCOM is headquartered, to an African host country.

In April, US officials were traversing the continent to present their sales pitch for AFRICOM and to gauge official and public reaction. Initial perceptions are, not surprisingly, negative and highly suspect, given the history of US military involvement throughout the world, and Africa’s long and bitter experience with colonizers.

Outside of a select audience, reaction in the United States has barely even registered. First of all, Africa is one of the least-covered continents in US media. And when African nations do draw media attention, coverage typically centers on catastrophe, conflict, or corruption, and generally features some form of benevolent foreign intervention, be it financial and humanitarian aid, or stern official posturing couched as paternal concerns over human rights. But US military activity on the continent largely goes unnoticed. This was recently evidenced by the sparse reporting on military support for the invasion of Somalia to rout the Islamic Courts Union and reinstall the unpopular warlords who had earlier divided up the country. The Pentagon went so far as to declare the operation a blueprint for future engagements.

The DOD states that a primary component of AFRICOM’s mission will be to professionalize indigenous militaries to ensure stability, security, and accountable governance throughout Africa’s various states and regions. Stability refers to establishing and maintaining order, and accountability, of course, refers to US interests. This year alone, 1,400 African military officers are anticipated to complete International Military Education and Training programs at US military schools.

Combine this tasking of militarization with an increased civilian component in AFRICOM emphasizing imported conceptions of “democracy promotion” and “capacity-building” and African autonomy and sovereignty are quick to suffer. Kenyans, for example, are currently finding themselves in this position.It is hoped that, by drawing attention to the growing US footprint on Africa now, a contextual awareness of these issues can be useful to, at the very least, help mitigate some of the damages that will surely follow. At the moment, there is little public consciousness of AFRICOM and very few sources of information outside of official narratives. Widening the public dialogue on this topic is the first step toward addressing meaningful responses.

h/t:
World Socialist Party (US)

FAIR USE NOTICE: This blog may contain copyrighted material. Such material is made available for educational purposes, to advance understanding of human rights, democracy, scientific, moral, ethical, and social justice issues, etc. This constitutes a ‘fair use’ of any such copyrighted material as provided for in Title 17 U.S.C. section 107 of the US Copyright Law. This material is distributed without profit.

Sen. Mike Gravel at the DNC Unity Summit (video)

Dandelion Salad

gravel2008

Sen. Gravel speaks to Nevada Democrats at the DNC Unity conference, primarily about the National Initiative for Democracy.

Sen. Gravel speaks to Nevada Democrats at the DNC Unity conference, primarily about the National Initiative for Democracy.

http://www.gravel2008.us
http://www.ni4d.us

Produced by Youtube User DirectingLegend:
http://www.youtube.com/directinglegend

Sally Fields: There’d Be No God Damn War In The First Place (video; censorship)

Dandelion Salad

CSPANJUNKIEdotORG

SEPTEMBER 17, 2007 CNN WOLF BLITZER

 

 

09.14.07 Uncensored News Reports From Across The Middle East (video; over 18 only)

Dandelion Salad

Warning

This video contains images depicting the reality and horror of war and should only be viewed by a mature audience.

Selected Episode

Sept. 14, 2007

linktv

“Lebanese Debate Rules for Presidential Elections,” Dubai TV, UAE
“Israel Destroys Homes in the Village of Anata,” Palestine TV, Ramallah
“Hamas Cracks Down on Drug Dealers,” Al Aqsa, Gaza
“Israeli Violation of Syrian Airspace Shrouded with Mystery & Speculations,” Al Arabiya TV, UAE
“Palestinian Worshipers Prevented from Reaching Jerusalem,” Al Jazeera English, Qatar
“Iran Airs Holocaust TV Series,” IBA TV, Israel
“MIR: Who Killed the Sheikh?” Link TV, USA
Produced for Link TV by Jamal Dajani

Student Tasered For Asking Sen Kerry About Voter Suppression (video)

Dandelion Salad

CSPANJUNKIEdotORG

SEPTEMBER 17, 2007 MSNBC TUCKER

see:

Student Tasered for Armed Madhouse Question to Kerry by Greg Palast

Cranks and Kooks: Kerry Won in ‘04 by Greg Palast (audio)

It is the death of history by Robert Fisk

Dandelion Salad

Special investigation
by Robert Fisk
ICH
09/17/07 “The Independent

2,000-year-old Sumerian cities torn apart and plundered by robbers. The very walls of the mighty Ur of the Chaldees cracking under the strain of massive troop movements, the privatisation of looting as landlords buy up the remaining sites of ancient Mesopotamia to strip them of their artefacts and wealth. The near total destruction of Iraq’s historic past – the very cradle of human civilisation – has emerged as one of the most shameful symbols of our disastrous occupation.

Evidence amassed by archaeologists shows that even those Iraqis who trained as archaeological workers in Saddam Hussein’s regime are now using their knowledge to join the looters in digging through the ancient cities, destroying thousands of priceless jars, bottles and other artefacts in their search for gold and other treasures.

In the aftermath of the 1991 Gulf War, armies of looters moved in on the desert cities of southern Iraq and at least 13 Iraqi museums were plundered. Today, almost every archaeological site in southern Iraq is under the control of looters.

In a long and devastating appraisal to be published in December, Lebanese archaeologist Joanne Farchakh says that armies of looters have not spared “one metre of these Sumerian capitals that have been buried under the sand for thousands of years.

“They systematically destroyed the remains of this civilisation in their tireless search for sellable artefacts: ancient cities, covering an estimated surface area of 20 square kilometres, which – if properly excavated – could have provided extensive new information concerning the development of the human race.

“Humankind is losing its past for a cuneiform tablet or a sculpture or piece of jewellery that the dealer buys and pays for in cash in a country devastated by war. Humankind is losing its history for the pleasure of private collectors living safely in their luxurious houses and ordering specific objects for their collection.”

Ms Farchakh, who helped with the original investigation into stolen treasures from the Baghdad Archaeological Museum in the immediate aftermath of the invasion of Iraq, says Iraq may soon end up with no history.

“There are 10,000 archaeological sites in the country. In the Nassariyah area alone, there are about 840 Sumerian sites; they have all been systematically looted. Even when Alexander the Great destroyed a city, he would always build another. But now the robbers are destroying everything because they are going down to bedrock. What’s new is that the looters are becoming more and more organised with, apparently, lots of money.

“Quite apart from this, military operations are damaging these sites forever. There’s been a US base in Ur for five years and the walls are cracking because of the weight of military vehicles. It’s like putting an archaeological site under a continuous earthquake.”

Of all the ancient cities of present-day Iraq, Ur is regarded as the most important in the history of man-kind. Mentioned in the Old Testament – and believed by many to be the home of the Prophet Abraham – it also features in the works of Arab historians and geographers where its name is Qamirnah, The City of the Moon.

Founded in about 4,000 BC, its Sumerian people established the principles of irrigation, developed agriculture and metal-working. Fifteen hundred years later – in what has become known as “the age of the deluge” – Ur produced some of the first examples of writing, seal inscriptions and construction. In neighbouring Larsa, baked clay bricks were used as money orders – the world’s first cheques – the depth of finger indentations in the clay marking the amount of money to be transferred. The royal tombs of Ur contained jewellery, daggers, gold, azurite cylindrical seals and sometimes the remains of slaves.

US officers have repeatedly said a large American base built at Babylon was to protect the site but Iraqi archaeologist Zainab Bah-rani, a professor of art history and archaeology at Columbia University, says this “beggars belief”. In an analysis of the city, she says: “The damage done to Babylon is both extensive and irreparable, and even if US forces had wanted to protect it, placing guards round the site would have been far more sensible than bulldozing it and setting up the largest coalition military headquarters in the region.”

Air strikes in 2003 left historical monuments undamaged, but Professor Bahrani, says: “The occupation has resulted in a tremendous destruction of history well beyond the museums and libraries looted and destroyed at the fall of Baghdad. At least seven historical sites have been used in this way by US and coalition forces since April 2003, one of them being the historical heart of Samarra, where the Askari shrine built by Nasr al Din Shah was bombed in 2006.”

The use of heritage sites as military bases is a breach of the Hague Convention and Protocol of 1954 (chapter 1, article 5) which covers periods of occupation; although the US did not ratify the Convention, Italy, Poland, Australia and Holland, all of whom sent forces to Iraq, are contracting parties.

Ms Farchakh notes that as religious parties gain influence in all the Iraqi pro-vinces, archaeological sites are also falling under their control. She tells of Abdulamir Hamdani, the director of antiquities for Di Qar province in the south who desperately – but vainly – tried to prevent the destruction of the buried cities during the occupation. Dr Hamdani himself wrote that he can do little to prevent “the disaster we are all witnessing and observing”.

In 2006, he says: “We recruited 200 police officers because we were trying to stop the looting by patrolling the sites as often as possible. Our equipment was not enough for this mission because we only had eight cars, some guns and other weapons and a few radio transmitters for the entire province where 800 archaeological sites have been inventoried.

“Of course, this is not enough but we were trying to establish some order until money restrictions within the government meant that we could no longer pay for the fuel to patrol the sites. So we ended up in our offices trying to fight the looting, but that was also before the religious parties took over southern Iraq.”

Last year, Dr Hamdani’s antiquities department received notice from the local authorities, approving the creation of mud-brick factories in areas surrounding Sumerian archaeological sites. But it quickly became apparent that the factory owners intended to buy the land from the Iraqi government because it covered several Sumerian capitals and other archaeological sites. The new landlord would “dig” the archaeological site, dissolve the “old mud brick” to form the new one for the market and sell the unearthed finds to antiquity traders.

Dr Hamdani bravely refused to sign the dossier. Ms Farchakh says: “His rejection had rapid consequences. The religious parties controlling Nassariyah sent the police to see him with orders to jail him on corruption charges. He was imprisoned for three months, awaiting trial. The State Board of Antiquities and Heritage defended him during his trial, as did his powerful tribe. He was released and regained his position. The mud-brick factories are ‘frozen projects’, but reports have surfaced of a similar strategy being employed in other cities and in nearby archaeological sites such as the Aqarakouf Ziggarat near Baghdad. For how long can Iraqi archaeologists maintain order? This is a question only Iraqi politicians affiliated to the different religious parties can answer, since they approve these projects.”

Police efforts to break the power of the looters, now with a well-organised support structure helped by tribal leaders, have proved lethal. In 2005, the Iraqi customs arrested – with the help of Western troops – several antiquities dealers in the town of Al Fajr, near Nasseriyah. They seized hundreds of artefacts and decided to take them to the museum in Baghdad. It was a fatal mistake.

The convoy was stopped a few miles from Baghdad, eight of the customs agents were murdered, and their bodies burnt and left to rot in the desert. The artefacts disappeared. “It was a clear message from the antiquities dealers to the world,” Ms Farchakh says.

The legions of antiquities looters work within a smooth mass-smuggling organisation. Trucks, cars, planes and boats take Iraq’s historical plunder to Europe, the US, to the United Arab Emirates and to Japan. The archaeologists say an ever-growing number of internet websites offer Mesopotamian artefacts, objects anywhere up to 7,000 years old.

The farmers of southern Iraq are now professional looters, knowing how to outline the walls of buried buildings and able to break directly into rooms and tombs. The archaeologists’ report says: “They have been trained in how to rob the world of its past and they have been making significant profit from it. They know the value of each object and it is difficult to see why they would stop looting.”

After the 1991 Gulf War, archaeologists hired the previous looters as workers and promised them government salaries. This system worked as long as the archaeologists remained on the sites, but it was one of the main reasons for the later destruction; people now knew how to excavate and what they could find.

Ms Farchakh adds: “The longer Iraq finds itself in a state of war, the more the cradle of civilisation is threatened. It may not even last for our grandchildren to learn from.”

A land with fields of ancient pottery

By Joanne Farchakh, archaeologist

Iraq’s rural societies are very different to our own. Their concept of ancient civilisations and heritage does not match the standards set by our own scholars. History is limited to the stories and glories of your direct ancestors and your tribe. So for them, the “cradle of civilisation” is nothing more than desert land with “fields” of pottery that they have the right to take advantage of because, after all, they are the lords of the land and, as a result, the owners of its possessions. In the same way, if they had been able, these people would not have hesitated to take control of the oil fields, because this is “their land”. Because life in the desert is hard and because they have been “forgotten” by all the governments, their “revenge” for this reality is to monitor, and take, every single money-making opportunity. A cylinder seal, a sculpture or a cuneiform tablet earns $50 (£25) and that’s half the monthly salary of an average government employee in Iraq. The looters have been told by the traders that if an object is worth anything at all, it must have an inscription on it. In Iraq, the farmers consider their “looting” activities to be part of a normal working day.

© 2007 Independent News and Media Limited

FAIR USE NOTICE: This blog may contain copyrighted material. Such material is made available for educational purposes, to advance understanding of human rights, democracy, scientific, moral, ethical, and social justice issues, etc. This constitutes a ‘fair use’ of any such copyrighted material as provided for in Title 17 U.S.C. section 107 of the US Copyright Law. This material is distributed without profit.

The Triumph of Structured Finance – Failing banks, toxic bonds and mortgage laundering By Mike Whitney

Dandelion Salad

By Mike Whitney
09/17/07 “ICH

“The entire global financial structure is becoming uncontrollable in crucial ways that its nominal leaders never expected, and instability is its hallmark. The scope and operation of international financial markets, their “architecture”, as establishment experts describe it, has evolved haphazardly and its regulation is inefficient — indeed, almost nonexistent. Banks do not understand the chain of exposure and who owns what: senior financial regulators and bankers now admit this.” Gabriel Kolko “An Economy of Buccaneers and Fantacists”

“Ben Bernanke, the Federal Reserve chairman, is like a man who, after spending a lifetime playing with train sets, finally gets to drive the real thing – only to find it hurtling towards the edge of a cliff.” U.K. Observer

By now, you’ve probably seen the photos of the angry customers queued up outside of Northern Rock Bank waiting to withdraw their money. http://news.bbc.co.uk/2/hi/uk_news/6998507.stm The pictures are headline news in the UK but have been stuck on the back pages of US newspapers. The reason for this is obvious—the same Force 5 economic-hurricane that just touched ground in Great Britain is headed for America and gaining strength on the way.

This is what a good old fashioned bank run looks like—the likes of which we haven’t seen since the Great Depression. And, just like 1929, the bank owners are frantically trying to calm down their customers by reassuring them that their money is safe. But—human nature being what it is—people are not so easily pacified when they think their hard-earned savings are at risk. The bottom line is this: The people want their money—not excuses.

But Northern Rock doesn’t have their money and, surprisingly, it is not because the bank was dabbling in risky subprime loans. Rather, NR had unwisely adopted the model of “borrowing short to go long” in financing their mortgages just like many of the major banks in the US. In other words, they depended on wholesale financing of their mortgages from eager investors in the market, instead of the traditional method of maintaining sufficient capital to back up the loans on their books.

It seemed like a nifty idea at the time and most of the big banks in the US were doing the same thing. It was a great way to avoid bothersome reserve requirements and the loan origination fees were profitable as well. Northern Rock’s business soared. Now they carry a mortgage book totaling $200 billion dollars.

$200 billion! So why can’t they pay out a paltry $4 or $5 billion to their customers without a government bailout?

It’s because they don’t have the reserves—and, because the bank’s business model is hopelessly flawed and no longer viable. Their assets are illiquid and (presumably) “marked to model”—which means they have no discernible market value. They might as well have been “marked to fantasy”—it amounts to the same thing. Investors don’t want them. So Northern Rock is stuck with a $200 billion albatross that’s dragging them under.

A more powerful fiscal-tsunami is about to descend on the United States where many of the banks have been engaged in the same practices and are using the same business-model as Northern Rock. Investors are no longer buying CDOs, MBSs, or anything else related to real estate. No one wants them whether they’re subprime or not. That means that US banks will soon undergo the same type of economic gale that is battering the UK right now. The only difference is that the US economy is already listing from the downturn in housing and an increasingly-jittery stock market.

That’s why Treasury Secretary Henry Paulson rushed off to England yesterday to see if he could figure out a way to keep the contagion from spreading.

Good luck, Hank.

It would interesting to know if Paulson still believes that “This is far and away the strongest global economy I’ve seen in my business lifetime”, or if he has adjusted his thinking as troubles in subprime, commercial paper, private equity, and credit continue to mount?

SECURITIZATION: Is it really just Mortgage laundering?

For weeks we’ve been saying that the banks are in trouble and do not have the reserves to cover their losses. This notion was originally pooh-poohed by nearly everyone. But it’s becoming more and more apparent that it is true. We expect to see many bank failures in the months to come. Prepare yourself. The banking system is mired in fraud and chicanery. Now the schemes and swindles are unwinding and the bodies will soon be floating to the surface.

“Structured finance” is touted as the “new architecture of financial markets”. It is designed to distribute capital more efficiently by allowing other market participants to fill a role which used to be left exclusively to the banks. In practice, however, structured finance is a hoax; and undoubtedly the most expensive hoax of all time. The transformation of liabilities (dodgy mortgage loans) into assets (securities) through the magic of securitization is the biggest boondoggle of all time. It is the moral equivalent of mortgage laundering. The system relies on the variable support of investors to provide the funding for pools of mortgage loans that are chopped-up into tranches and duct-taped together as CDOs (collateralized debt obligations). Its madness; but no one seemed to realize how crazy it was until Bear Stearns blew up and they couldn’t find bidders for their remaining CDOs. It’s been downhill ever since.

Structured Finance: The new market plumbing springs a leak

The problems with structured finance are not simply the result of shabby lending and low interest rates. The model itself is defective.

John R. Ing provides a great synopsis of structured finance in his article, “Gold: The Collapse of the Vanities”:

“The origin of the debt crisis lies with the evolution of America’s financial markets using financial engineering and leverage to finance the credit expansion…. Financial institutions created a Frankenstein with the change from simply lending money and taking fees to securitizing and selling trillions of loans in every market from Iowa to Germany. Credit risk was replaced by the “slicing and dicing” of risk, enabling the banks to act as principals, spreading that risk among various financial institutions….. Securitization allowed a vast array of long term liabilities once parked away with collateral to be resold along side more traditional forms of short term assets. Wall Street created an illusion that risk was somehow disseminated among the masses. Private equity too used piles of this debt to launch ever bigger buyouts. And, awash in liquidity and very sophisticated algorithms, investment bankers found willing hedge funds around the world seeking higher yielding assets. Risk was piled upon risk. We believe that the subprime crisis is not a “one off” event but the beginning of a significant sea change in the modern-day financial markets.” (John R. Ing “Gold: The Collapse of the Vanities”)

The investment sharks who conjured up “structured finance” knew exactly what they were doing. They were hyping dog-pelts as fine mink and selling off them to anyone foolish enough to buy them. They were in bed with the ratings agencies—-off-loading trillions of dollars of garbage-bonds to pension funds, hedge funds, insurance companies and foreign financial giants. It’s a swindle of epic proportions and it never would have taken place in a sufficiently regulated market.

MAKING THE CASE FOR ECONOMIC PREEMPTION

The Bush administration needs to come to grips with the “systemic” problems of the current market-model and act fast. When crowds of angry people are huddled outside the banks to get their money; the system is in real peril. Credibility must be restored quickly. This is no time for Bush’s “free market” nostrums or Paulson’s soothing bromides (We think the problem is “contained”) or Bernanke’s feeble rate cuts. This requires real leadership.

The first thing to do is take charge—-alert the public to what is going on and get Congress to work on substantive changes to the system. Concrete steps must be taken to build public confidence in the markets. And there must be a presidential announcement that all bank deposits will be fully covered by government insurance.

The lights should be blinking red at all the related government agencies including the Fed, the SEC, and the Treasury Dept. They need to get ahead of the curve and stop thinking they can minimize a potential catastrophe with their usual public relations mumbo jumbo.

U.S. BANKS: Waiting for the storm-surge

Last week, an article appeared in the Wall Street Journal, “Banks Flock to Discount Window”. (9-14-07) The article chronicled the sudden up-tick in borrowing by the struggling banks via the Fed’s emergency bailout program, the “Discount Window”.

WSJ:

“Discount borrowing under the Fed’s primary credit program for banks surged to more than $7.1 billion outstanding as of Wednesday, up from $1 billion a week before.”

Again we see the same pattern developing; the banks borrowing money from the Fed because they cannot meet their minimum reserve requirements.

WSJ: “The Fed in its weekly release said average daily borrowing through Wednesday rose to $2.93 billion.”

$3 billion.

Traditionally, the “Discount Window” has only been used by banks in distress, but the Fed is trying to convince people that it’s really not a sign of distress at all. It’s “a sign of strength”.

Baloney. Banks don’t borrow $3 billion unless they need it. They don’t have the reserves. Period.

The real condition of the banks will be revealed sometime in the next few weeks when they report earnings and account for their massive losses in “down-graded” CDOs and MBSs.

Market analyst, Jon Markman offered these words of advice to the financial giants:

“Before they (the financial industry) take down the entire market this fall by shocking Wall Street with unexpected losses, I suggest that they brush aside their attorneys and media handlers and come clean. They need to tell the world about the reality of their home lending and loan securitization teams’ failures of the past four years — and the truth about the toxic paper that they’ve flushed into the world economic system, or stuffed into Enron-like off-balance sheet entities — before the markets make them walk the plank.”….” Since government regulators and Congress have flinched from their responsibility to administer “tough love” with rules forcing financial institutions to detail the creation, securitization and disposition of every ill-conceived subprime loan, off-balance sheet “structured investment vehicle,” secretive money-market “conduit” and commercial-paper-financing vehicle, the market will do it with a vengeance” (Jon Markman, “What the big banks aren’t telling you – yet”)

Good advice. We’ll have to wait and see if anyone is listening. The investment banks may be waiting until Tuesday hoping that Fed-chief Ken Bernanke announces a cut to the Fed’s fund rate that could send the stock market roaring back into positive territory.

But interest rate cuts do not address the underlying problems of insolvency among homeowners, mortgage lenders, hedge funds and (potentially) banks. As market-analyst John R. Ing said, “A cut in rates will not solve the problem. This crisis was caused by excess liquidity and a deterioration of credit standards….A cut in the Fed Fund rate is simply heroin for credit junkies.”

Well put.

The cuts merely add more cheap credit to a market that that is already over-inflated from the ocean of liquidity produced by former-Fed chief Alan Greenspan. The housing bubble and the massive credit bubble are largely the result of Greenspan’s misguided monetary policies. (For which he now blames Bush!)The Fed’s job is to ensure price stability and the smooth operation of the markets—not to reflate equity bubbles and reward over-exposed market participants.

It’s better to let cash-strapped borrowers default than slash interest rates and trigger a global run on the dollar. Financial analyst Richard Bove says that lower interest rates will do nothing to bring money back into the markets. Instead, lower interest rates will send the dollar into a tailspin and wreak havoc on the job market.

“There is no liquidity problem, but a serious crisis of confidence,” Bove said. “In a financial system where there is ample liquidity and a desire for higher rates to compensate for risk, the solution is not to create more liquidity and lower the rates that are available to compensate for risk. … (The Fed) cannot reduce fear by stimulating inflation.”

“It is illogical to assume that holders of cash will have a strong desire to lend money at low rates in a currency that is declining in value when they can take these same funds and lend them at high rates in a currency that is gaining in value,” he said. “By lowering interest rates the Federal Reserve will not stimulate economic growth or create jobs. It will crash the currency, stimulate inflation, and weaken the economy and the job markets.” CNN Money)

Bove is right. The people and businesses that cannot repay their debts should be allowed to fail. Further weakening the dollar only adds to our collective risk by feeding inflation and increasing the likelihood of capital flight from American markets. If that happens; we’re toast.

SPIRALLING INFLATION

Consider this: In 2000, when Bush took office, gold was $273 per ounce, oil was $22 per barrel and the euro was worth $.87 per dollar. Currently, gold is over $700 per ounce, oil is over $80 per barrel, and the euro is nearly $1.40 per dollar. If Bernanke cuts rates, we’re likely to see oil at $125 per barrel by next spring.

Inflation is soaring. The government statistics are thoroughly bogus. Gold, oil and the euro don’t lie. According to economist Martin Feldstein, “The falling dollar and rising food prices caused market-based consumer prices to rise by 4.6% in the most recent quarter.” (WSJ)

That’s 18.4% per year—and yet, Bernanke is still considering cutting interest rates and further fueling inflation?!?

It’s crazy!

What about the American worker whose wages have stagnated for the last 6 years? Inflation is the same as a pay-cut for him. And how about the pensioner on a fixed income? Same thing. Inflation is just a hidden tax progressively eroding his standard of living. .

Bernanke’s rate cut may be boon to the “cheap credit” addicts on Wall Street, but it’s the death-knell for the average worker who is already struggling just to make ends meet.

No bailouts. No rate cuts. Let the banks and hedge funds sink or swim like everyone else. The message to Bernanke is simple: “It’s time to take away the punch bowl”.

The inflation in the stock market is just as evident as it is in the price of gold, oil or real estate. Economist and author Henry Liu demonstrates this in his article “Liquidity Boom and the Looming Crisis”:

“The conventional value paradigm is unable to explain why the market capitalization of all US stocks grew from $5.3 trillion at the end of 1994 to $17.7 trillion at the end of 1999 to $35 trillion at the end of 2006, generating a geometric increase in price earnings ratios and the like. Liquidity analysis provides a ready answer.” (Asia Times)

“Market capitalization zoomed from $5.3 trillion to $35 trillion in 12 years?!?

Why?

Was it due to growth in market-share, business expansion or productivity?

No. It was because there were more dollars chasing the same number of securities; hence, inflation.

If that is the case, then we can expect the stock market to fall sharply before it reaches a sustainable level. As Liu says, “It is not possible to preserve the abnormal market prices of assets driven up by a liquidity boom if normal liquidity is to be restored.” Eventually, stock prices will return to a normal range.

Bernanke should not even be contemplating a rate cut. The market needs more discipline not less. And workers need a stable dollar so they can live within their means. Besides, another rate cut would further jeopardize the greenback’s position as the world’s “reserve currency”. That could destabilize the global economy by rapidly unwinding the US massive current account deficit.

The International Herald Tribune summed up the dollar’s problems in a recent article,” Dollar’s Retreat Raises Fear of Collapse”:

“Finance ministers and central bankers have long fretted that at some point, the rest of the world would lose its willingness to finance the United States’ proclivity to consume far more than it produces – and that a potentially disastrous free-fall in the dollar’s value would result.

The latest turmoil in mortgage markets has, in a single stroke, shaken faith in the resilience of American finance to a greater degree than even the bursting of the technology bubble in 2000 or the terror attacks of Sept. 11, 2001, analysts said. It has also raised prospect of a recession in the wider economy.

This is all pointing to a greatly increased risk of a fast unwinding of the U.S. current account deficit and a serious decline of the dollar.”

Other experts and currency traders have expressed similar sentiments. The dollar is at historic lows in relation to the basket of currencies against which it is weighted. Bernanke can’t take a chance that his effort to rescue the markets will cause a sudden sell-off of the dollar.

The Fed chief’s hands are tied. Bernanke simply doesn’t have the tools to fix the problems before him. Insolvency cannot be fixed with liquidity injections nor can the deeply-rooted “systemic” problems in “structured finance” be corrected by slashing interest rates. These require fiscal solutions, congressional involvement, and fundamental economic policy changes.

Rate cuts won’t help to rekindle the spending spree in the housing market either. That charade is over. The banks have already tightened lending standards and inventory is larger than anytime since they began keeping records. The slowdown in housing is irreversible as is the steady decline in real estate prices. Trillions in market capitalization will be wiped out. (thanks to Greenspan) Home equity is already shrinking as is consumer spending connected to home-equity withdrawals.

The bubble has popped regardless of what Bernanke does. The same is true in the clogged Commercial Paper market where hundreds of billions of dollars in short-term debt is due to expire in the next few weeks. The banks and corporate borrowers are expected to struggle to refinance their debts but, of course, much of the debt will not roll over. There will be substantial losses and, very likely, more defaults.

BERNANKE’S LEGACY: Was he a man or a mouse?

Bernanke can either be a statesman—and tell the country the truth about our dysfunctional financial system which is breaking down from years of corruption, deregulation and manipulation—or he can take the cowards-route and “buy some time” by flooding the system with liquidity, stimulating more destructive consumerism, and condemning the nation to an avoidable cycle of double-digit inflation.

We’ll know his decision on Tuesday.

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