What's That Smell?

The authorities have blamed subprime mortgages for the crisis. Why then does their solution fail to address the problem of the mortgages? Instead, the solution directs public money into an increasingly concentrated private financial sector, the management of which is not only vastly overpaid, but also has escaped accountability for the financial chicanery that, allegedly, threatens systemic financial meltdown unless bailed out by the taxpayers.

Perhaps my nose is too sensitive, but this bailout doesn't pass the smell test.

Read all of Paul Craig Roberts A Trillion Dollar Bait and Switch

Rescue for the Few, Debt Slavery for the Many

We are now entering the financial End Time. Bailout “Plan A” (buy the junk mortgages) has failed, “Plan B” (buy ersatz stocks in the banks to recapitalize them without wiping out current mismanagers) is fizzling, and the debts still can’t be paid. That is the reality Wall Street avoids confronting. “First they ignore you, then they denounce you, and then they say that they knew what you were saying all the time,” said Gandhi. The same might be said of today’s overhang of debts in excess of the economy’s ability to pay. First the policy makers pretend that they can be paid, then they denounce the pessimists as spreading panic, and then they say that of course students have been taught for four thousand years now how the “magic of compound interest” keeps on doubling and redoubling debts faster than the economy can squeeze out an economic surplus to pay.

What has ended is the idea that “the magic of compound interest” can make economies rich without having to work and without industry. I hope we have seen the end of derivatives formulae seeking to make money by playing in a zero-sum game. A debt overhang always ends either in foreclosure of the debtor’s property, or in a debt annulment to preserve the economy’s overall freedom and equity.

This means that the postmodern economy as we know it must end – either in financial polarization and debt peonage to a new oligarchic elite, or in a debt cancellation, a Jubilee Year to rescue society.

Michael Hudson details The Great Bailout Swindle

Isn't That Special?

Absolutely Priceless.....,

Jesse Jackson: Obama will rid United States of 'Zionist' control

Haaretz| The New York Post reported Tuesday that the Rev. Jesse Jackson said the United States will rid itself of years of "Zionist" control under an administration headed by Democratic presidential candidate Barack Obama.

The daily quoted the veteran civil rights leader on Tuesday as having said that although "Zionists who have controlled American policy for decades" remain strong, they will lose a much of their clout when Obama enters the White House.

Speaking at the first World Policy Forum event in Evian, France, Jackson promised "fundamental changes" in U.S. foreign policy. He said the most important change would occur in the Middle East, where "decades of putting Israel's interests first" would end.

Jackson said that Obama "wants an aggressive and dynamic diplomacy." He went on to criticize the Bush administration's handling of Middle East diplomacy, telling the Post, "Bush was so afraid of a snafu and of upsetting Israel that he gave the whole thing a miss. Barack will change that," because, as long as the Palestinians haven't seen justice, the Middle East will "remain a source of danger to us all."

Jackson has not always been such a strong Obama supporter. In July, he apologized to the Illinois senator for "crude and hurtful" remarks he had made about him after an interview with a Fox News correspondent. Speaking to a fellow interviewee without realizing his microphone was on, Jackson said, "See, Barack's been talking down to black people.... I want to cut his nuts off."

"It was very private," Jackson said, adding that if "any hurt or harm has been caused to [Obama's] campaign, I apologize."

National Review Boots Buckley Son For Obama Boost

Washington Post|

Buckley delivered his endorsement of the Democratic presidential nominee last Thursday in the cyberpages of the Daily Beast, a new, blog-heavy Web site launched by Tina Brown, the former editor of Vanity Fair and the New Yorker. "I went out of my way to spare NR from being associated with this endorsement," Buckley said.

In that piece, Buckley said that he has known McCain since 1982 and once wrote a speech for him but that the senator has changed, airing "mean-spirited and pointless" attack ads and -- "What on earth can he have been thinking?" -- picking Sarah Palin as his running mate. While the result was "genuinely saddening" and even "tragic" for the country, Buckley wrote, he had concluded that Obama has a "first-class temperament and a first-class intellect" and could be a great president. That is, "assuming anyone gives a fig" about his views.

Buckley noted that columnist Kathleen Parker, after a National Review Online piece declaring Palin unqualified to be vice president, had received 12,000 hostile e-mails. Parker, who is syndicated by The Washington Post Writers Group, described the reaction in her next column: "I am a traitor and an idiot. Also, my mother should have aborted me and left me in a dumpster, but since she didn't, I should 'off' myself."

In his embrace of Obama, Buckley quoted his father as saying, "You know, I've spent my entire lifetime separating the Right from the kooks."

Smaller Banks Resist Federal Cash Infusions

Washington Post| Community banking executives around the country responded with anger yesterday to the Bush administration's strategy of investing $250 billion in financial firms, saying they don't need the money, resent the intrusion and feel it's unfair to rescue companies from their own mistakes.

But regulators said some banks will be pressed to take the taxpayer dollars anyway. Others banks judged too sick to save will be allowed to fail.[...] in offices around the country, bankers simmered.

Peter Fitzgerald, chairman of Chain Bridge Bank in McLean, said he was "much chagrined that we will be punished for behaving prudently by now having to face reckless competitors who all of a sudden are subsidized by the federal government."

At Evergreen Federal Bank in Grants Pass, Ore., chief executive Brady Adams said he has more than 2,000 loans outstanding and only three borrowers behind on payments. "We don't need a bailout, and if other banks had run their banks like we ran our bank, they wouldn't have needed a bailout, either," Adams said.

The opposition suggested that the government may have to continue to press banks to participate in the plan. The first $125 billion will be divided among nine of the largest U.S. banks, which were forced to accept the investment to help destigmatize the program in the eyes of other institutions.

In rolling out the program, Treasury said it would make the rest of the money available to banks that requested it. Officials said they expected thousands of banks to participate.

But both the American Bankers Association and the Independent Community Bankers of America said that they knew of few banks that planned to participate.

"I'm not sure we've heard from any that want to participate," said Karen Thomas, vice president for government relations at the community bankers group, which represents about 5,000 banks. "That said, if any community banks do enroll, we anticipate it will be just a small minority."

The Nuclear Illusion

A widely heralded view holds that nuclear power is experiencing a dramatic worldwide revival and vibrant growth, because it’s competitive, necessary, reliable, secure, and vital for fuel security and climate protection.

That’s all false.

In fact, nuclear power is continuing its decades-long collapse in the global marketplace because it’s grossly uncompetitive, unneeded, and obsolete—so hopelessly uneconomic that one needn’t debate whether it’s clean and safe; it weakens electric reliability and national security; and it worsens climate change compared with devoting the same money and time to more effective options.

Yet the more decisively nuclear power is humbled by swifter and cheaper rivals, the more zealously its advocates claim it has no serious competitors. The web of old fictions ingeniously spun by a coordinated and intensive global campaign is spread by a credulous press and boosted by the nuclear enthusiasts who, probably for the first time ever, now happen to lead nearly all major governments at once. Many people have been misled, including four well-known individuals with long environmental histories—amplified by the industry’s echo box into a sham but widely believed claim of broad green endorsement—and some key legislators. As a result, the U.S. Congress in late 2007 voted $18.5 billion, and the industry will soon be back for another $30+ billion, in new loan guarantees for up to 80% of the cost of new U.S. nuclear units. And the long-pronuclear British government, abruptly reversing its well-reasoned 2002 policy, has decided to replace its old nuclear plants with new ones, although, it claims, without public subsidy3—a feat no country has yet achieved. Thus policy diverges ever farther from market realities.

Dr Amory Lovins - head of the Rocky Mountain Institute - on the real status of nuclear power.

California Looks Like ‘Ground Zero’

Credit Crisis Meet Power Crisis - New Study Warns US Blackouts Loom in ’09

A new study warns crippling blackouts could hit the U.S. next summer, and the senior policy advisor to the nonprofit group that did the study warns California is most likely to be “ground zero” for a blackout that could take out most of the Western United States.

The study – from NextGen Energy Council, titled “Lights Out in 2009?” – adds up to what could be a knockout punch to an economy that will still be reeling next summer from the combined impacts of the credit crunch, rising unemployment and reduced consumer spending. America’s power markets are in crisis the way its credit markets are, the advisor, Jim Sims, former director of communication for President Bush’s National Energy Policy Task Force, told EnergyTechStocks.com. “We’re flirting with disaster,” he said.

While Sims said that inadequate generation and transmission have combined to leave California most exposed, he quickly added that, for the same reasons, people and businesses in Florida and throughout the Southeast are also at great risk. He further said that, notwithstanding greater industry efforts to stabilize the U.S.’s region-wide high-voltage power grids, once a blackout begins it could easily “cascade” for hundreds, even thousands of miles.

A blackout starting in California, he said, could reach all the way to the Rocky Mountains, while a blackout that started in Georgia might go as far north as Pennsylvania and New Jersey.

Remind You of Anything?

Yesterday in the Guardian, AC Grayling noted a most striking similarity;

At the Anaplasmic Institute at Valles Marineris, an interesting experiment is being conducted into the appetite-passion cycle associated with the feeding habits of Sus scrofa peculata, this being the Latin zoological name of an otherwise familiar large semi-domestic mammal, the naked pin-striped hog. When released into a feeding pound, a square formed by full feeding-troughs, the hogs struggle, fight and squirm to get at the troughs, and eat as fast and as much as they can, typically submerging their whole faces into the swill and both swallowing and inhaling it in large quantities. Because of the speed with which they eat they almost as often regurgitate the swill as quickly as they ingest it, so that the volume of swill plus regurgitate stays almost constant for a time, though insensibly it diminishes in volume (some of it begins to find its way out of the other end of the hogs; but because many of them are in the troughs with all four feet this does not decrease the volume in the trough as much as it might otherwise do).

Because the nature of the contents of the trough are changing as they come to consist more and more of regurgitate and defecate, the capacity of the hogs' digestive system to cope with what they ingest begins to change. There are some warning signs: a few of the hogs begin to look a little green, and only then do their neighbours at the trough start to edge away, subconsciously aware perhaps that the gastric secretions and enzymes mixed into the regurgitations of the greener pigs are adding greater degrees of toxicity to the regurgitate. But at a certain point the level of toxicity in the swill-cum-regurgitate as a whole reaches a level at which the entire herd of hogs flips into a sudden panic mode: now aware that they cannot continue to eat very fast and in large quantities without doing themselves injury, they all immediately stop eating, and begin to run around the feeding pound emitting loud fear-and-warning noises – and at the same time emitting noisome efflations resulting from the degree of toxicity of the swill over-indulged in, which has caused them tremendous bloating. It is a truly pitiable spectacle to see so many frightened flatulent hogs dashing fruitlessly about, begging for the keepers to come and clean out their feeding troughs and to administer medications to solve their digestive crisis.

Researchers at the Valles Marineris institute point out that the noise and efflations of frightened squealing hogs have a serious effect on other animals in the farmyard, peaceably trying to go about their business. Although there is relatively little wrong with the rest of the farmyard, the disruptions caused by the furore in the hogs' feeding pound is seriously disruptive, and without swift firm action the whole farm can be harmed by the hogs' panic-attack.

The researchers further say that their original assumption had been that the hogs were intelligent creatures, able to self-regulate their feeding habits; they somewhat abashedly say that they had thought that the gobbling and elbowing that went on at the troughs in normal times was simply bad manners, not something systemic and dysfunctional, and not in need of keepers with sharp sticks to stop the hogs going too far. Fat hogs, they say, were thought to be good for the farmyard's income because of the revenue they generate, earning more than eggs and pick-your-own strawberry promotions. They now say that their studies of appetite and emotion in hogs has revealed that hogs have only one appetite – greed – and one emotion – fear – and that these govern all their behaviour in the feeding pound. In fact, they have concluded with surprise that the hogs' brains consist almost entirely of an amygdala, the organ responsible for arousal, autonomic responses associated with fear, emotion generally, and hormonal secretions. The hogs appear to be functionally bereft of higher cortical layers of the brain that in other animals are associated with rationality and intelligence; which makes them a much more dangerous farmyard animal than they had hitherto been believed to be.

Asked what solutions the researchers propose, the answer is: more keepers with sharp sticks, and encouragement to the public to eat more roast pork.

Treasury Invokes Patriotism In Pitch to Bank Executives

WashingtonPost| Because the financial system depends heavily on confidence, the government's response is aimed at repairing perceptions as well as problems. For that reason, the government ordered the chief executives of nine prominent banks to attend a meeting yesterday at the imposing offices of the Treasury Department, next-door to the White House.

The participants included: Bank of America, J.P. Morgan Chase and Wells Fargo, retail banking giants that together control 30 percent of the nation's deposits; Wall Street titans Goldman Sachs, Morgan Stanley and Merrill Lynch, which has agreed to be bought by Bank of America; and Citigroup, the most international of the American banks. Also invited were the Bank of New York Mellon and State Street, lesser-known banks that play a crucial role as the back offices for the financial system.

Treasury Secretary Henry M. Paulson Jr. told the executives that for the good of the nation -- patriotism was specifically invoked, according to a person briefed on the discussions -- they would each have to sell the government a stake in their companies.

Representatives of several banks underscored after the meeting that they did not need the government's money but said they cooperated out of obligation and to help heal the financial system.

U.S. Forces Nine Major Banks To Accept Partial Nationalization

Washington Post | The U.S. government is dramatically escalating its response to the financial crisis by planning to invest $250 billion in the country's banks, forcing nine of the largest to accept a Treasury stake in what amounts to a partial nationalization.

News that European governments also planned to take stakes in their banks and anticipation of new U.S. measures unleashed a tremendous surge in U.S. stock prices yesterday, with the Dow Jones industrial average soaring to the biggest percentage gain since the 1930s, up 11.1 percent. It ended 936.42 points higher, the largest point gain ever, just days after the Dow had its steepest weekly decline in history.

The Treasury Department's decision to take equity stakes in banks represents a significant reversal, coming just weeks after Treasury Secretary Henry M. Paulson Jr. had opposed the idea. In a momentous meeting yesterday afternoon in Washington, Paulson, flanked by top financial regulators, told the executives of nine leading banks that they needed to participate in the program for the good of the national economy, two industry sources said on condition of anonymity because they were not authorized to speak publicly.

The government's initiative, which was to be announced this morning before the markets open for New York trading, is part of a wider plan that goes beyond the $700 billion rescue package approved by Congress earlier this month. The Federal Deposit Insurance Corp. is also set to announce today the launch of an insurance fund to guarantee new issues of bank debt. It will provide unlimited deposit insurance for non-interest-bearing accounts, which are widely used by small businesses for payroll and other purposes.

In pressing the bank executives to accept partial government ownership, Paulson's message was clear: Though officially the program was voluntary, the banks had little choice in the matter. In exchange for giving the Treasury minority stakes, the nine firms would jointly receive an investment worth $125 billion. The government would make another $125 billion available for the next 30 days to thousands of other banks and thrifts across the country.

Our Catastrophic Ecological Trajectory

George Monbiot brings it in the morning's Guardian;

Ecology and economy are both derived from the Greek word oikos - a house or dwelling. Our survival depends on the rational management of this home: the space in which life can be sustained. The rules are the same in both cases. If you extract resources at a rate beyond the level of replenishment, your stock will collapse. That's another noun which reminds us of the connection. The Oxford English Dictionary gives 69 definitions of "stock". When it means a fund or store, the word evokes the trunk - or stock - of a tree, "from which the gains are an outgrowth". Collapse occurs when you prune the tree so heavily that it dies. Ecology is the stock from which all wealth grows.

The financial crisis for which we must now pay so heavily prefigures the real collapse, when humanity bumps against its ecological limits.

As we goggle at the fluttering financial figures, a different set of numbers passes us by. On Friday, Pavan Sukhdev, the Deutsche Bank economist leading a European study on ecosystems, reported that we are losing natural capital worth between $2 trillion and $5 trillion every year as a result of deforestation alone. The losses incurred so far by the financial sector amount to between $1 trillion and $1.5 trillion. Sukhdev arrived at his figure by estimating the value of the services - such as locking up carbon and providing fresh water - that forests perform, and calculating the cost of either replacing them or living without them. The credit crunch is petty when compared to the nature crunch.

The two crises have the same cause. In both cases, those who exploit the resource have demanded impossible rates of return and invoked debts that can never be repaid. In both cases we denied the likely consequences. I used to believe that collective denial was peculiar to climate change. Now I know that it's the first response to every impending dislocation.

Why the Bailout Will Fail

Q: Does this crisis represent something deeper, like a general and unavoidable failure of our entire monetary system?

A: This crisis represents a generalized failure of the monetary system, and the sooner we get to that conclusion, the sooner we can begin to talk about solutions that treat the cause, not the symptoms.

Q: Are the failing institutions worth saving?

A: The failed institutions are not worth saving, because they represent a model that is now broken beyond repair.

Q: Will it work?

A: The current bailout plan cannot work, because it is too small and it is directed at the symptoms, not the causes.

Q: Can the government afford it?

A: The government cannot afford the cure. But even worse, the US government is already insolvent (when factoring in entitlement liabilities), and nobody is asking how borrowing an additional 12.5% of GDP does anything but make that problem worse.

much more at chris.martenson.com - Why the dollar rally is going to fail

Now Who Will the Feral Idiots Blame?

WASHINGTON | A campaign that blames the global financial crisis on a government push to make housing more affordable for lower-class Americans has taken off on talk radio and in e-mail.

Commentators say that was what triggered the stock market meltdown and the freeze on credit. They specifically target Fannie Mae and Freddie Mac, the mortgage finance giants that the federal government seized Sept. 6. They say that lending to poor and minority Americans caused Fannie’s and Freddie’s financial problems.

Subprime lending offered high-cost loans to the weakest borrowers in the housing boom from 2001 to 2007. Subprime lending was at its height from 2004 to 2006.

Federal Reserve Board data show that:

•More than 84 percent of the subprime mortgages in 2006 were issued by private lending institutions.

•Private firms made nearly 83 percent of the subprime loans to low- and moderate-income borrowers that year.

•Only one of the top 25 subprime lenders in 2006 was directly subject to the housing law that the critics lambaste.

The “turmoil in financial markets clearly was triggered by a dramatic weakening of underwriting standards for U.S. subprime mortgages, beginning in late 2004 and extending into 2007,” the President’s Working Group on Financial Markets reported Friday.

Federal housing data reveal that the charges aren’t true, and that the private sector, not the government or government-backed companies, was behind the soaring subprime lending at the core of the crisis.

Open Letter to the Next Farmer-in-Chief

Dear Mr. President-Elect,

It may surprise you to learn that among the issues that will occupy much of your time in the coming years is one you barely mentioned during the campaign: food. Food policy is not something American presidents have had to give much thought to, at least since the Nixon administration — the last time high food prices presented a serious political peril. Since then, federal policies to promote maximum production of the commodity crops (corn, soybeans, wheat and rice) from which most of our supermarket foods are derived have succeeded impressively in keeping prices low and food more or less off the national political agenda. But with a suddenness that has taken us all by surprise, the era of cheap and abundant food appears to be drawing to a close. What this means is that you, like so many other leaders through history, will find yourself confronting the fact — so easy to overlook these past few years — that the health of a nation’s food system is a critical issue of national security. Food is about to demand your attention.

Complicating matters is the fact that the price and abundance of food are not the only problems we face; if they were, you could simply follow Nixon’s example, appoint a latter-day Earl Butz as your secretary of agriculture and instruct him or her to do whatever it takes to boost production. But there are reasons to think that the old approach won’t work this time around; for one thing, it depends on cheap energy that we can no longer count on. For another, expanding production of industrial agriculture today would require you to sacrifice important values on which you did campaign. Which brings me to the deeper reason you will need not simply to address food prices but to make the reform of the entire food system one of the highest priorities of your administration: unless you do, you will not be able to make significant progress on the health care crisis, energy independence or climate change. Unlike food, these are issues you did campaign on — but as you try to address them you will quickly discover that the way we currently grow, process and eat food in America goes to the heart of all three problems and will have to change if we hope to solve them. Let me explain.

Read more in the NYTimes The Food Issue.

Annals of McCain - Palin, XXIV: Hatemongering

A lot of pundits seem dismayed and surprised at the moral depths to which Dishonest John McCain's campaign has sunk in the last week. I have to disagree. There is nothing surprising about it. This is his MO: do whatever he thinks is necessary. McCain has a long history of lack of principle and probity, whether it is in his personal life (a vile and abusive temper, disloyalty to his first wife) or his public life (corrupt behavior in the Savings and Loan scandal, chicanery on behalf of gaming interests and much more). Where I do agree with his new found critics is the frightening nature of his behavior in a time when the economy is spiraling out of control and a major depression is looming. Historically these conditions have unleashed the worst in the American character, a visceral Nativism and the McCain - Palin campaign events are enabling the kind of racist, xenophobic and vicious responses that tend to accompany hysterical fear turned and turn it to unthinking anger. It isn't just scaring me. It's scaring a lot of people, including Republican moderates (the ones that are left).

At the Effects Measure scienceblog - distinguished by the avalanche of examples they've compiled of the phenomenon in question.

Islamic finance rides the storm

A thriving financial sector sounds like an oxymoron these days. Even Australia's banks - among the most profitable in the world - kept a fifth of this week's interest rate cut to cushion their margins. But there is one sector that has tongues wagging in the hubs of commerce: Islamic finance.

While the Western world's financial system has been imploding, this small but rapidly growing share of world capital has weathered the storm.

Islamic finance takes its guidance from sharia.

The biggest markets are in the Middle East and Muslim countries, but global banks have opened sharia-compliant branches. Locally, the Muslim Community Co-operative is one of a few lenders offering the service.

Justice, partnership and opposition to excessive risk are the main principles guiding Islamic banks. Outright speculation and dealing with any party that has a balance sheet more than a third of which is debt are forbidden, as are investments deemed unethical by Islamic scholars, such as casinos.

But if these rules sound tough, the biggest difference is a ban on interest.

Charging interest is immoral because it does not take into account how changes in the value of the loan's security can affect the borrower, sharia says. Home owners who bought near the peak are now experiencing this harsh reality: interest gives banks a steady payment from the borrower, regardless of the property market's state.

However, profit is fine, and Islamic banks have devised ways to make money from lending. Instead of demanding interest, they buy the asset outright on behalf of the borrower. The borrower pays off the loan (the principle) and a fee for using the asset (rent, for example) until the amount is repaid and ownership transfers to the borrower. (More in BusinessDay)

Anti-democratic nature of US capitalism exposed

Noam Chomsky in the Irish Times;

Financial liberalisation has effects well beyond the economy. It has long been understood that it is a powerful weapon against democracy. Free capital movement creates what some have called a "virtual parliament" of investors and lenders, who closely monitor government programmes and "vote" against them if they are considered irrational: for the benefit of people, rather than concentrated private power.

Investors and lenders can "vote" by capital flight, attacks on currencies and other devices offered by financial liberalisation. That is one reason why the Bretton Woods system established by the United States and Britain after the second World War instituted capital controls and regulated currencies.*

The Great Depression and the war had aroused powerful radical democratic currents, ranging from the anti-fascist resistance to working class organisation. These pressures made it necessary to permit social democratic policies. The Bretton Woods system was designed in part to create a space for government action responding to public will - for some measure of democracy.

John Maynard Keynes, the British negotiator, considered the most important achievement of Bretton Woods to be the establishment of the right of governments to restrict capital movement.

In dramatic contrast, in the neoliberal phase after the breakdown of the Bretton Woods system in the 1970s, the US treasury now regards free capital mobility as a "fundamental right", unlike such alleged "rights" as those guaranteed by the Universal Declaration of Human Rights: health, education, decent employment, security and other rights that the Reagan and Bush administrations have dismissed as "letters to Santa Claus", "preposterous", mere "myths".

The End of Growth

Growth is gone. Over. Kaput. Finished. Get used to it.

If so, there will be an ocean of consequences. For those in the tiny universe of environmental NGOs, one of the consequences is this: The time for arguing against economic growth may be over. Yes, everyone who understands our human impact on the environment, and the disastrous implications of our economic growth imperative, knows that it is absolutely essential that the world find an alternative to growth; that instead, the human economy must contract to a point that it no longer threatens the viability of ecosystems. This is the essence of sustainability.

But imagine yourself talking to someone who has just lost her job. You tell this person, “You need to voluntarily further reduce your income and standard of living.” How’s that likely to go over?

Effective strategy demands recognition of the opportunities and limits of the unique historical moment. It seems that we have just moved from one historic moment to a very different one. In this situation, it’s more helpful to tell people (including policy makers) how to effectively deal with their immediate problems in a way that is consistent with long-term sustainability. Anything else will be irrelevant at best, extremely unwelcome at worst.

Growth is dead. Let’s make the most of it. A crisis is a terrible thing to waste.

Richard Heinberg at the PostCarbon Institute.