"Bleeding Afghanistan"

Interview with Sonali Kolhatkar

By Mike Whitney

31/07/08 "ICH" -- - 1--Mike Whitney: On a recent stopover in France, Barack Obama said, "We must win in Afghanistan. There is no other option." Recent polls, however, show that public support for the war in Afghanistan has fallen off sharply. In fact, many American's don't even know why we are still there. Is there a big difference between what "winning" means to the Bush administration and what it means to the people of Afghanistan? Also, have you seen any indication that the Bush administration intends to keep its promises and establish security, rebuild the country's infrastructure, spread democracy, remove the warlords, liberate women, and "modernize" Afghanistan or was that all just a public relations smokescreen to promote the invasion?

Sonali Kolhatkar: I’m really not sure what Bush, Obama, and McCain mean when they say they want to win in Afghanistan. And, I'm not sure they know either. It's probably just a public-relations gimmick to sound “tough on terror.” But, judging from what we've seen, they seem to think that “winning” means killing every last “terrorist” in Afghanistan. That sort of thinking is based on false assumptions and it's an unattainable goal. As far as the Afghans are concerned; I think they would like to see an end to the fighting and a safe Afghanistan where human rights are respected. They also want justice for past crimes. For the US to achieve this, they will have to denounce their proxy soldiers, the Northern Alliance, and support a "justice and accountability" process led by the Afghan people.

The US will also have to address the widespread poverty and provide long-term economic solutions that give Afghans hope for the future. The US will also have to create viable alternatives to the production of heroin, so that poor farmers don't have to depend on the sale of illicit narcotics to survive. That means Bush will have to support multi-lateral peacekeepers to protect the Afghan people from the Northern Alliance and Taliban. Most importantly, the US will have to end the occupation and withdraw its troops. But of course, that probably won’t happen any time soon. After all, the real goal of the invasion was vengeance for 9/11. All the promises of liberation and democracy were a just “PR-ploy” to make Americans feel better about seeking revenge.

2--MW: Critics of the invasion say that it had nothing to do with Al Qaida or "liberating" the Afghan people from the Taliban, but with establishing military outposts in a geopolitically strategic part of Central Asia in order to surround China, intimidate Russia, and open up pipeline corridors to the resource-rich Caspian Basin. So, what is Obama up to? Why is he calling for more troops and greater commitment from the other NATO members? Is he serious about spreading democracy and fighting Islamic extremism or is the war on terror just a smokescreen so he can carry out an imperial agenda?

Sonali Kolhatkar: I think the primary goal of the war was always vengeance, but the neocons also wanted to pave the way for an attack on Iraq. Bush wanted to go to Iraq even before 9/11. Unfortunately for him, Al Qaeda was holed up in Afghanistan so he had to invade there first and build support for attacking Iraq. It's true that the long term goals could be military bases (John McCain said last year that he wanted permanent military bases in Afghanistan), and pipeline corridors (Clinton was most closely linked to supporting pipeline contracts between US corporations like UNOCAL and the Taliban before 2000). But I’m not sure how much Bush cared about those long-term objectives even though future presidents will surely capitalize on them.

As far as Obama’s motives, I think he just wants to get elected. But he knows that he cannot be against all wars, only an unpopular one. He knows that a candidate that is against all wars will not win in November.

He's talked about withdrawing from Iraq, but that's because it's a popular position with the public. But he's also planning to increase troop levels in Afghanistan because he is not being pressured by the American people. Americans may be unclear about why our troops are there, but they are not organized or speaking out against the Afghanistan war. Obama needs a war like Afghanistan, because it was a haven for Al Qaida and that makes him look “tough on terror.” That will help him win more votes from anti-Iraq war conservatives and independents.


3--MW: The United States has occupied Afghanistan for seven years now. Has life gotten better for the people or worse? Is there any security beyond the capital of Kabul or are the US and NATO troops stretched too thin? Do the people generally support the ongoing occupation or are they getting frustrated by the lack of progress and want to see the US go?


Sonali Kolhatkar: Initially, life got better for many Afghans, particularly in Kabul. That's because the Taliban had been routed and the people felt somewhat safe as well as relieved. But as the warlords took over positions of power, attitudes changed. It has gotten much worse, now that the Taliban have returned and the occupation forces are killing more civilians than the Taliban.

Kabul is a bit more secure than the rest of the country. But Kabul is also the warlords’ seat of power. Most of them are even members of Parliament, so people are frequently abused and live in fear.

Beyond Kabul, things vary dramatically depending on where you go. In the parts of the country with the heaviest concentrations of US/NATO troops; Afghans are frequently rounded-up, detained, tortured, bombed, or shot by foreign troops just as in Iraq.

In other parts of the country, where the Taliban are strong; girls schools are blown up, civilians are killed in suicide bombings, and journalists, teachers, and elected officials are harassed or murdered.

Those areas controlled by warlords are ruled with an iron hand, where extreme interpretations of sharia law rule the day, and women suffer rape and degradation.

No matter where you go in Afghanistan, there is utter, grinding poverty. The US occupation has not changed that at all. People are very frustrated, particularly with the US puppet Hamid Karzai. They blame Karzai for the high number of civilian casualties. They also dislike the way he has pardoned some of the warlords and Taliban leaders.

As far as the occupation goes, people were somewhat supportive of it originally, but as conditions have deteriorated, they have begun to see the presence of foreign troops as a big part of the problem. I would say that a majority of Afghans now want the US and NATO to leave as soon as possible.


4--MW: Is the US military mainly fighting the Taliban or is the the armed-resistance more complex than that? I read recently that the so-called Taliban is actually a confederation of about a dozen disparate groups and tribes that have bonded together with the common goal of ending foreign occupation and that the main reason their ranks are swelling is because of the US military's indiscriminate killing of civilians? Could you clarify this point?

Sonali Kolhatkar: It's hard to understand the nature of the anti-US resistance, but it's a very important issue. Unfortunately,the media coverage only makes it more confusing. The fighters that are called the “Taliban” are actually a mix of "former" Taliban and newly enlisted Pashtun fighters trained in Pakistan. Many of them are just disgruntled Afghan civilians whose families and loved ones have been killed and/or tortured by US/NATO forces. Recruiting is always easy when you can show that foreign soldiers are killing more civilians that the "so-called" enemy. But we should be careful to not glorify the resistance. It is strictly fundamentalist and would not be a good option for Afghans in terms of future leadership. The vast majority of Afghans are moderate Muslims who strongly disagree with the Taliban's extremist ideology, but they have joined the struggle to bring an end to the occupation. But, of course, their troubles won't disappear just because the American forces leave. They'll still be stuck with the Taliban and the warlords. When the Soviet occupation ended in the late 1980s, the US-backed warlords began their reign of terror on the people between 1992 to 1996. That could happen again. These same warlords (or Taliban) could once again spread misery and death across Afghanistan. War is an entropic force that cannot be undone by simply hitting a rewind button.

5--MW: What will happen if the US military leaves Afghanistan? Is withdrawal the best solution or do you see another, perhaps, less bloody, alternative?

Sonali Kolhatkar: There are always less bloody alternatives, but withdrawal is the first step in a long and complex process. As I’ve said before, Afghanistan’s solutions do not fit neatly on a placard. Perhaps that's why anti-war activists don’t take a clear stand against this war. The withdrawal of US/NATO forces must be accompanied by other developments, like disempowering the warlords in parliament who have a long history of US-supported impunity. This disempowering must include an "Afghan-led" disarmament of their private militias; removing them from political power, and holding them accountable for their past crimes through criminal prosecution of some sort.

There must also be a "transitional" UN peacekeeping force that maintains security and protects ordinary people the fundamentalists (Taliban and Northern Alliance) But they must make sure that they don't target civilians.

There must also be economic justice in the form of reparations (matching the money that has been spent on weapons since 1979, dollar-for-dollar) and a plan to build up local industries, create jobs, and provide alternatives to poppy farming.

There must be political justice so that dissidents can come out of the shadows and run for office or participate in the rebuilding their national institutions. When the Afghan people decide that it's time for the peacekeepers to leave; they should go.

Can such a solution work?

Perhaps. But for this, or any other idea to work, the US occupation must end. That's the first big step to recovery.

6--MW: There is a very brave and outspoken woman in the Afghan parliament, named Malalai Joya. She has repeatedly put her own life at risk by denouncing the warlords and calling for an end to the US occupation. She has consistently called out for human rights and real democracy. Has the Bush administration done anything at all to promote or protect courageous women who embody "liberal values" like Malalai Joya?


Sonali Kolhatkar: Women like Malalai Joya are "inconvenient" for the Bush administration. That's because Joya echoes the will of her people in calling for an end to warlords, AND an end to the US occupation. Bush and his cohorts like to promote the type of women who quietly accept the US narrative and show gratitude for being “saved by the Americans.” In fact, there are very few such women like that in Afghanistan. Joya speaks for millions of Afghan women when she denounces the warlords. And she has repeatedly put herself in danger. She has nearly been killed at least four times! What this means is that women’s rights are available only to women who do not exercise their rights. And it not just Malalai Joya who is putting herself at risk due to her political activism. I have personally worked very closely with the Revolutionary Association of the Women of Afghanistan (RAWA), and they have been saying the same things for years. Still, RAWA cannot operate openly without putting themselves in danger of physical harm; so they must carry out their work underground.

RAWA has NEVER received any offer of help from the US government (although they would refuse it if it anyway to remain politically independent) Like Joya, the women of RAWA are inconvenient – they do not need to be "saved" by America. But they do need a safe Afghanistan and they deserve international solidarity for their brave human rights work.

7--MW: The invasion of Afghanistan was promoted as a humanitarian intervention to save the Afghans from the brutal Taliban regime. How would you advise people who now think we should take similar action in Darfur to stop the killing there? Is military invasion an acceptable way to address injustice or spread democracy?

Sonali Kolhatkar: I’m not sure I have a definitive answer to that question, but I do think it is one that progressives need to grapple with. Too often, we in the West are very selective when it comes to the causes we support. Only when the US is directly involved do activists choose to oppose a regime. Before the US war in Afghanistan, when the country was being destroyed by the warlords and then the Taliban, it was not seen as a cause worth taking on by American activists. But if the people are being oppressed by someone else, we ignore it. The sad truth is that until progressives come up strategies for dealing with repressive regimes, we'll always just be reacting to unjust interventions by our government.

Military options are always the worst. Even so, diplomacy can be nearly as corrupt if it means compromising with criminals and warlords and giving them whatever they want in exchange for peace. Peace without justice is meaningless. We could have peace now in Afghanistan if we were willing to give the warlords and Taliban ultimate power. In fact, there was a kind of “peace” under the Taliban. But is that what we want?

If we want real justice we need to figure out a reasonable way to deal with injustice. We need to create alternatives that involve people-to-people solidarity and democracy that can transform society. For example, one way we could have dealt with the Taliban without invading would have been for individual Americans (not our government) to financially and morally support the subversive (and non-violent) work of groups like RAWA. That way, Afghans would have been able to change their country by themselves without foreign intervention and massive destruction. Indeed, RAWA supports change from within and have called on their people to rise up. But their effectiveness has limited by a lack of resources to help them get the word out while organizing underground. Solidarity with groups like RAWA (and there may be similar ones in Darfur) is one long-term, progressive alternative to foreign intervention.

BIO: Sonali Kolhatkar is the host and producer of Uprising, a popular radio program through Pacifica Network, that airs on stations around the country. She is also the Co-Director of Afghan Women's Mission, a US-based non-profit organization that works in solidarity with the Revolutionary Association of the Women of Afghanistan (RAWA). She is the co-author, with James Ingalls, of Bleeding Afghanistan: Washington, Warlords, and the Propaganda of Silence (Seven Stories 2006). More information at www.afghanwomensmission.org , www.rawa.org .

Bernake announces the KlusterfucK to the Senate

Bernanke's State of the Economy Speech:

"You are all Dead Ducks"

By Mike Whitney

16/02/08 "ICH" -- - Even veteran Fed-watchers were caught off-guard by Chairman Bernanke's performance before the Senate Banking Committee on Thursday. Bernanke was expected to make routine comments on the state of the economy but, instead, delivered a 45 minute sermon detailing the afflictions of the foundering financial system. The Senate chamber was stone-silent throughout. The gravity of the situation is finally beginning to sink in.

For the most part, the pedantic Bernanke looked uneasy; alternately biting his lower lip or staring ahead blankly like a man who just watched his poodle get run over by a Mack truck. As it turns out, Bernanke has plenty to worry about, too. Consumer confidence has dropped to levels not seen since the 1970s recession, real estate has gone off a cliff, credit-brushfires are breaking out everywhere, and the stock market continues to gyrate erratically. No wonder the Fed-chief looked more like a deck-hand on the Lusitania than the monetary-czar of the most powerful country on earth.

Bernanke's prepared remarks were delivered with the solemnity of a priest performing Vespers. But he was clear, unlike his predecessor, Greenspan, who loved speaking in hieroglyphics.

Bernanke: "As you know, financial markets in the United States and in a number of other industrialized countries have been under considerable strain since late last summer. Heightened investor concerns about the credit quality of mortgages, especially subprime mortgages with adjustable interest rates, triggered the financial turmoil. However, other factors, including a broader retrenchment in the willingness of investors to bear risk, difficulties in valuing complex or illiquid financial products, uncertainties about the exposures of major financial institutions to credit losses, and concerns about the weaker outlook for the economy, have also roiled the financial markets in recent months.”

Yes, of course. The banks are ailing from their subprime investments while Europe is sinking fast from $500 billion in unsellable asset-backed garbage. The whole system is clogged with crappy paper and deteriorating collateral. Now there are problems popping up in auction rate sales and the normally-safe municipal bonds. The whole financial Tower of Babel is cracking at the foundation.

Bernanke continues: "Money center banks and other large financial institutions have come under significant pressure to take onto their own balance sheets the assets of some of the off-balance-sheet investment vehicles that they had sponsored. Bank balance sheets have swollen further as a consequence of the sharp reduction in investor willingness to buy securitized credits, which has forced banks to retain a substantially higher share of previously committed and new loans in their own portfolios. Banks have also reported large losses, reflecting marked declines in the market prices of mortgages and other assets that they hold. Recently, deterioration in the financial condition of some bond insurers has led some commercial and investment banks to take further markdowns and has added to strains in the financial markets."

Bernanke sounds more like an Old Testament prophet reading passages from the Book of Revelations than a Central Banker. But what he says is true; even without the hair-shirt. The humongous losses at the investment banks have forced them to go trolling for capital in Asia and the Middle East just to stay afloat. And, when they succeed, they're forced to pay excessively high rates of interest. The true cost of capital is skyrocketing. That's why the banks are protecting their liquidity and cutting back on new loans. Most of the banks have also tightened lending standards which is slowing down the issuance of credit and threatens to push the economy into a deep recession. When banks cramp-up; the overall economy shrinks. It's just that simple; no credit, no growth. Credit is the lubricant that keeps the capitalist locomotive chugging-along. When it dwindles, the system screeches to a halt.

"DOWNSIDE RISKS TO GROWTH HAVE INCREASED"

Bernanke again: "In part as the result of the developments in financial markets, the outlook for the economy has worsened in recent months, and the downside risks to growth have increased. To date, the largest economic effects of the financial turmoil appear to have been on the housing market, which, as you know, has deteriorated significantly over the past two years or so. The virtual shutdown of the subprime mortgage market and a widening of spreads on jumbo mortgage loans have further reduced the demand for housing, while foreclosures are adding to the already-elevated inventory of unsold homes. Further cuts in homebuilding and in related activities are likely.....Conditions in the labor market have also softened. Payroll employment, after increasing about 95,000 per month on average in the fourth quarter, declined by an estimated 17,000 jobs in January. Employment in the construction and manufacturing sectors has continued to fall, while the pace of job gains in the services industries has slowed. The softer labor market, together with factors including higher energy prices, lower equity prices, and declining home values, seem likely to weigh on consumer spending in the near term."

So, let's summarize. The banks are battered by their massive subprime liabilities. Housing is in the tank. Manufacturing is down. Food and energy are up. Unemployment is rising. And consumer spending has shriveled to the size of an acorn. All that's missing is a trumpet blast and the arrival of the Four Horseman.

How is it that Bernanke's economic post-mortem never made its way into the major media? Is there some reason the real state of the economy is being concealed from 'we the people'?

Bernanke continues: "On the inflation front, a key development over the past year has been the steep run-up in the price of oil. Last year, food prices also increased exceptionally rapidly by recent standards, and the foreign exchange value of the dollar weakened. ...(If) inflation expectations to become unmoored or for the Fed's inflation-fighting credibility to be eroded could greatly complicate the task of sustaining price stability and reduce the central bank's policy flexibility to counter shortfalls in growth in the future."

Right. So, if the Fed's rate-cutting strategy doesn't work and the economic troubles persist (and prices continue to go through the roof) then we're S.O.L. (sh** out of luck) because the Fed has no more arrows in its quiver. It's rate cuts or death. Great. So, we can expect Bernanke to hack away at rates until they're down to 1% or lower (duplicating the downturn in Japan) hoping that the economy shows some sign of life before it takes two full wheelbarrows of greenbacks to buy a quart of milk and a few seed-potatoes.

Sounds like a plan!

We don't blame Bernanke. He's been remarkably straightforward from the very beginning and deserves credit. He's simply left with the thankless task of mopping up the ocean of red ink left behind by Greenspan. It's not his fault. He should be applauded for dispelling the decades-long illusion that a nation can borrow its way to prosperity or that chronic indebtedness is the same as real wealth. It's not; and the bill has finally come due.

Of course, now that the low-interest speculative orgy is over; there's bound to be a painful unwind of hyper-inflated assets, falling home prices, tumbling stock markets, increased unemployment, and a generalized credit-contraction throughout the real economy. Ouch. Who said it was going to be easy?

Bernanke's summation:

"At present, my baseline outlook involves a period of sluggish growth, followed by a somewhat stronger pace of growth starting later this year as the effects of monetary and fiscal stimulus begin to be felt....It is important to recognize that downside risks to growth remain, including the possibilities that the housing market or the labor market may deteriorate to an extent beyond that currently anticipated, or that credit conditions may tighten substantially further."

(Editor's translation) "Discount everything I've said here today if the economy blows up---as I fully-expect it will---from decades of regulatory neglect and the myriad multi-trillion dollar Ponzi-schemes which have put the entire financial system at risk of a major heart attack".

Bernanke's candor is admirable, but it is little relief for the people who will have to soldier-on through the hard times ahead. Perhaps, next time he could spare us all the lengthly oratory and just forward a brief cablegram to Congress saying something like this:

"We are deeply sorry, but we have totally fu**ed up your economy with our monetary hanky-panky. You are all in very deep Doo-doo. Prepare for the worst."

our sincerest regrets,

the Fed

Forecast: U.S. dollar could plunge 90 pct

By UPI

Well, gee, do ya think so ?? and this is only the TIP of the iceberg. How are things going to get to MARKET, guyz ..? Plus, for the umpteenth time, this guyz making policy have NO IDEA, none at all how to handle ALL THAT PAPER! The corporate culture mitigates against it .. mortgages, currencies, DEEDS, paperwork related to shifting staffs at financial institutions, reorganizing office structurally to deal with MORE paper and more EFT, . . . it's all quite, quite staggering. Even the accounting staff at these financial institutions will NOT BE ABLE TO KEEP up doing the books, let alone calculate future value and strategies. Oh, dear!!

But then you'd had to work on Wall Street and the City of London like I did to see what the next "synthetic" terror event is actually going to be, folks! They don't need to detonate the Twin Towers' equivalent for HELL to come and bit all our heels.

Turf the idiots out of their bars! Don't let them see their doctors for more pills to handle their high blood pressure! Give them an 86!! Intervene the addicts/gamblers and fantasy folks!! Don't rely on the government to do it, we're gonna HAVE to do it !! Keep up the PRESSURE.

Ps, subscribe to peoplenomics.com and to Mish Shedlock, Whiskey and Gunpowder.com. GET THE FACTS. Also, check out gata.com and the Privateer. Get some truth going. Try Dr. Michael Hudson, Dennis Kucinich's economic advisor for information, too. Don't let anyone MINIMIZE what is comoing, that's UNHEALTHY. Dont' let them rationalize or deny it. And don't fall for DELUSIONAL THINKING. The bulk of the economists don't know what they are talking about, they really DON'T.

Veeger

11/24/07 -- -, Nov. 19 (UPI) -- A financial crisis will likely send the U.S. dollar into a free fall of as much as 90 percent and gold soaring to $2,000 an ounce, a trends researcher said.

"We are going to see economic times the likes of which no living person has seen," Trends Research Institute Director Gerald Celente said, forecasting a "Panic of 2008."

"The bigger they are, the harder they'll fall," he said in an interview with New York's Hudson Valley Business Journal.

Celente -- who forecast the subprime mortgage financial crisis and the dollar's decline a year ago and gold's current rise in May -- told the newspaper the subprime mortgage meltdown was just the first "small, high-risk segment of the market" to collapse.

Derivative dealers, hedge funds, buyout firms and other market players will also unravel, he said.

Massive corporate losses, such as those recently posted by Citigroup Inc. and General Motors Corp., will also be fairly common "for some time to come," he said.

He said he would not "be surprised if giants tumble to their deaths," Celente said.

The Panic of 2008 will lead to a lower U.S. standard of living, he said.

A result will be a drop in holiday spending a year from now, followed by a permanent end of the "retail holiday frenzy" that has driven the U.S. economy since the 1940s, he said.

"A Generalized Meltdown of Financial Institutions"

Take a Look at Professor Roubini's Crystal Ball

By Mike Whitney

11/24/07 "ICH" -- - Reality has finally caught up to the stock market. The American consumer is underwater, the banks are buried in dept, and the housing market is in terminal distress. The Dow is now below its 200-Day Moving Average -- the first big "sell" signal. Anything below 12,500 could trigger program-trading and crash the market. The increased volatility suggests that we are watching a "real time" meltdown.

International Business editor for the UK Telegraph, Ambrose Evans Pritchard, summed up yesterday's action in the Asian markets:

"The global credit crisis has hit Asia with a vengeance for the first time, triggering a massive flight to safety as investors across the region pull out of risky assets. Yields on three-month deposits in China and Korea have plummeted to near 1pc in a spectacular fall over recent days, caused by panic withdrawals from money market funds and credit derivatives.

"'This' is a severe warning sign,' said Hans Redeker, currency chief at BNP Paribas. 'Asia ignored the credit crunch in August but now we're seeing the poison beginning to paralyze the whole global economy.'" (Credit 'Heart attack' engulfs China and Korea" Ambrose Evans Pritchard,UK Telegraph,)

The credit storm that began in the United States with subprime mortgages has spread to markets across the globe. In fact, the train has already crashed. What we're seeing now is the boxcars piling up on top of each other.

On Tuesday Chinese government officials ordered a complete halt to bank lending to slow the speculative frenzy that has created an enormous equity bubble in the stock market. According to the Wall Street Journal:

"Chinese authorities are slamming the brakes on bank lending, in their latest attempt to curb the runaway investment threatening to overheat what is soon to be the world's third-largest economy. In recent weeks, regulators have quietly ordered China's commercial banks to freeze lending through the end of the year, according to bankers in several cities. The bankers say that to comply, they are canceling loans and credit lines with businesses and individuals." ("China freezes lending to Curb Investing Frenzy" Wall Street Journal)

The move illustrates how concerned the Chinese are that a slowdown in US consumer spending will trigger a crash on the Shanghai stock market. It also shows that the Chinese are having difficulty dealing with the inflation generated by the hundreds of billions of US dollars absorbed via the trade imbalance with the US. China is awash in USDs and that surplus is causing a steady rise in food and energy costs. This could be mitigated by allowing their currency to "float" freely. But a sudden, steep increase in the Chinese yuan's value could also send the world headlong into a global recession. For now, the lending freeze and price fixing appear to be the way out.

Another sign that the markets have reached a "tipping point" appeared in a Reuters article on Wednesday; "Interbank Covered Bond Trading Halted on Volatility":

"Renewed credit turmoil and volatility led the European Covered Bond Council (ECBC) on Wednesday to suspend inter-bank market-making in covered bonds until Monday, Nov. 26.

The move is a sign of the stress in the covered bond market, which is dominated by German institutions that have almost a trillion euros of covered bonds outstanding.

Covered bonds -- backed by pools of assets that remain on the borrower's balance sheet -- are usually highly liquid and typically rated triple-A by ratings agencies. The ECBC's recommendation is aimed at relieving the pressure on market makers who are forced to quote prices at a fixed bid-offer spread.

"In light of the current market situation and in order to avoid undue over-acceleration in the widening of spreads, the 8-to-8 Market-Makers & Issuers Committee recommends that inter-bank market-making be suspended," the ECBC said in a release."

Note: This isn't mortgage-backed junk that's being sold, but highly liquid bonds that are usually easy to cash in. The ECBC's action is a sign of pure desperation and indicates that credit paralysis has infected the entire euro banking system.

Reuters: "Due to general market conditions and the specific mechanics of the inter-dealer market making it even seems possible that inter-dealer market making will not be resumed this year."

That's bad. The mechanism for converting covered bonds into cash has broken down.

The dollar took another pasting on Wednesday, sliding to $1.49 on the euro; another new record. Gold shot up to $814 per ounce. Oil continues to flirt with the $100 per barrel mark, and the yen rose to 107 per dollar forcing a sell-off of hedge fund assets levered through the carry trade.

Jon Basile, economist at Credit Suisse, summed it up like this: "There's a heck of a lot of bad news out there." Indeed.

In California Governor Arnold Schwarzenegger has joined with four mortgage lenders to freeze adjustable interest rates (ARMs) for some of the state's highest-risk borrowers; another unprecedented move. The Governor hopes to avoid a collapse of the California real estate market which has gone into a tailspin. Home sales have plummeted more than 40 per cent for the last two months. Prices have dropped sharply---roughly 12 per cent statewide. New construction has slowed to a crawl. Layoffs are steadily rising. Jumbo loans (mortgages over $417,000) have been put on the "Endangered Species" list. Even qualified borrowers can't get mortgages. Nothing is selling. California housing is "off the cliff".

Schwarzenegger's plan to keep over-extended subprime mortgage-holders in their homes faces an uncertain future. What incentive is there for homeowners to continue paying exorbitant monthly rates when their payments are not applied to the principle? The homeowners would be better off bailing out, accepting foreclosure, and starting over with a clean slate.

It's unrealistic to thinks that Schwarzenegger can stop the tidal wave of foreclosures that are sweeping across the state. An estimated 3 million homeowners will lose their homes nationwide.

If you want to blame someone; blame Alan Greenspan. He's the one who created this mess. According to the economist Mike Shedlock:

"The Fed caused the credit crunch by slashing interest rates to 1 per cent to bail out its banking buddies in the wake of a dotcom bubble collapse. All the Fed did was create a bigger bubble. This bubble is so big in fact that it cannot even be bailed out. It's the end of the line for a serially bubble blowing Fed.

"So not only was this the biggest credit bubble in history, this was also the biggest transfer of wealth from the poor and middle class to the already enormously wealthy. That is the real travesty of justice regardless of whether or not the price tag is $1 trillion, $2 trillion, or $10 trillion." (Mike Shedlock, "Mish's Global Economic Trend Analysis")

The problem has gotten so serious that even Secretary of the Treasury, Henry Paulson, is putting up red flags. Last week, Paulson ignited a sell-off on Wall Street when he made this statement:

"The nature of the problem will be significantly bigger next year because 2006 [mortgages] had lower underwriting standards, no amortization, and no down payments....We're never going to be able to process the number of workouts and modifications (to mortgages) that are going to be necessary doing it just sort of one-off. I've talked to enough people now to know that there's no way that's going to work."

The desperation is palpable. Like Schwarzenegger, Paulson is trying to get mortgage-lenders to provide a safety net for struggling borrowers who are defaulting on their loans.

Paulson is calling for emergency legislation that will allow the Federal Housing Administration to play a greater role in the relief effort. The FHA has already expanded its traditional role by taking on hundreds of billions in extra debt just to keep a few "private" mortgage lenders and banks from going bankrupt. Of course, when Paulson's plan goes kaput and the debts pile up; it'll be the taxpayer that foots the bill.

"Paulson also called the Senate's failure to pass legislation overhauling mortgage giants Fannie Mae and Freddie Mac frustrating," saying that the two government-sponsored entities need to be playing a bigger role in the housing market.

"If we ever need them it's during times like today, and they're most valuable when there is distress in the mortgage market," he said. "I'd like to see them playing an even bigger role."(Wall Street Journal)

Fannie and Freddie, have already posted enormous quarterly losses and don't have the capital reserves to put millions of subprime mortgage-holders under their "government-sponsored" umbrella. Paulson is just grabbing at straws.

Similar troubles are brewing in the broader market where late-payments and defaults have spread to credit card debt and new car loans. Every area of "securitized" debt has suddenly veered off the road and into the ditch. Last week the Fed injected more credit into the teetering banking system than anytime since 9-11.

No one has predicted the downward-spiral in the market more accurately than Nouriel Roubini. Roubini is a Professor at the Stern School of Business at New York University. His analysis appears regularly on his blogsite, Global EconoMonitor. Last week's prediction was particularly dire and is worth reprinting here:

"It is increasingly clear by now that a severe U.S. recession is inevitable in next few months...I now see the risk of a severe and worsening liquidity and credit crunch leading to a generalized meltdown of the financial system of a severity and magnitude like we have never observed before. In this extreme scenario whose likelihood is increasing we could see a generalized run on some banks; and runs on a couple of weaker (non-bank) broker dealers that may go bankrupt with severe and systemic ripple effects on a mass of highly leveraged derivative instruments that will lead to a seizure of the derivatives markets... massive losses on money market funds with a run on both those sponsored by banks and those not sponsored by banks; ..ever growing defaults and losses ($500 billion plus) in subprime, near prime and prime mortgages with severe knock-on effect on the RMBS and CDOs market; massive losses in consumer credit (auto loans, credit cards); severe problems and losses in commercial real estate...; the drying up of liquidity and credit in a variety of asset backed securities putting the entire model of securitization at risk; runs on hedge funds and other financial institutions that do not have access to the Fed's lender of last resort support; a sharp increase in corporate defaults and credit spreads; and a massive process of re-intermediation into the banking system of activities that were until now altogether securitized." (Nouriel Roubini's Global EconoMonitor)

"A generalized meltdown of the financial system".

Looks like Chicken Little might have gotten it right this time; "The sky IS falling."

Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com

THE FINANCIAL TITANIC CONTINUES

Analysis
Bulletins from the Titanic
By Mike Whitney
Online Journal Contributing Writer


Nov 15, 2007, 00:16

On Monday, Asian stock markets took another beating, on fears that the credit squeeze which began in the United States will continue to worsen in the months ahead. Every index from Tokyo to Sidney fell sharply continuing the "self-reinforcing" cycle of losses started last week on Wall Street. The Nikkei 225 average fell 3.3 percent, India's Sensex 2.9 percent, Taiwan's 3.5 percent, and Hong Kong's Hang Seng slumped 4.5 percent. The subprime tsunami is presently headed towards downtown Manhattan, where nervous traders are already hunkered-down in the trenches -- ashen and wide-eyed.

Amid the deluge of bad news over the last weekend, one story towers above all the others. The yen gained 1.5 percent against the dollar. (9 percent year-over-year) That means that Wall Street's biggest swindle, the carry trade, is finally unwinding. The over-levered hedge funds will now be forced to sell their positions quickly before the interest-rate window shuts and they're stuck with humongous bets they cannot cover. The faltering yen is the grease that lubricates the guillotine.

$1 trillion in low interest loans -- which keeps the trading whirring along in US markets -- is about to get a haircut.

Cheap Japanese credit is the hidden flywheel in Hedgistan's main cylinder. Once it is removed, the industry will seize up and clank to a halt. Fund managers can forget about the vacation rental in the Hamptons. It'll be sloppy Joes and Schlitz Malt Liquor on Coney Island from here on out.

Over the weekend, Deutsche Bank announced that losses from "securitized" subprime mortgages were likely to reach $400 billion. The news sparked a sell-off in the Asian markets where investors have become increasingly eager to pare down their holdings of US equities and dollar-backed assets.

Overnight, the greenback has become the leper at the birthday party; everyone is steering clear for fear of contagion.

Foreign central banks are looking for any opportunity to dump their stockpiles of dollars in a manner that doesn't disrupt their economies or the global financial system. Their intentions may be prudent -- even honorable -- but it won't forestall the inevitable blow-off of US dollars that is likely to commence as soon as the financial giants reveal the real size of their losses. New regulations have been put in place that will require the banks to provide "market prices" for their assets. This will expose the degree to which they are under-capitalized. When word gets out that the banking system is underwater, there'll be a run on the dollar.

Last Sunday, the AFP reported that the Group of Seven richest nations (G7) is considering direct "intervention" in the dollar's decline to prevent a "disorderly correction."

"It is not too early contemplating the risk of coordinated interventions by the G7," said Stephen Jen and Charles St. Arnaud of investment bank Morgan Stanley. "History shows that multilateral, coordinated interventions have been key in establishing turning points in multi-year trends in major currencies in the past three decades."

Last Thursday, Treasury Secretary Hank Paulson, full fathom five under the waves on the poop deck of the Titanic, communicated through speaker tube the news,

"A strong dollar is in our nation's interest and should be based on economic fundamentals."

According to Bloomberg News:

"More than $350 billion of collateralized debt obligations comprising asset-backed securities may become 'distressed' because of credit rating downgrades."

What's clear is that the situation is getting worse, not better.

Honesty must at least be considered as one of many options, although the Treasury Dept. avoids that choice like the plague.

Eventually, the public will have to be told about what is going on. Last week, the Financial Times reported:

"In recent days, investors have been presented with a stream of high-profile signs that sentiment in the financial world is deteriorating. However, deep in one esoteric corner of finance, another, little-known set of numbers is provoking growing concern. So-called correlation -- a concept that shows how slices of complex pools of credit derivatives trade relative to each other -- has been moving in unusual ways

'What we are seeing in the synthetic [derivative] markets is that there is a serious fear of systemic risk,'

says Michael Hampden-Turner, credit strategist at Citigroup.

'This is not just about price correlation within the collateralized debt obligation market, but about a potential rise in default correlation and asset correlation.' Until recently, traders often tended to assume that there was relatively little correlation between different chunks of debt, because they thought that the biggest risk to the world was idiosyncratic in nature -- meaning that while one company, say, might suddenly default, it was unlikely that numerous companies would default at the same time. However, some regulators have been warning for some time that in times of stress correlation does not always behave as traders might expect."

The multi-trillion dollar derivatives industry -- which has never been tested in down-market conditions -- is now moving sideways. No one really knows what this means except that the most opaque and volatile debt-instruments are now threatening to unravel, triggering a cascade of unanticipated defaults and a colossal loss of market capitalization. Credit default swaps (CDS) are rarely thrashed out in market commentary. They are counterparty options which provide hedging against the prospect of default.

They are, in fact, a financial equivalent of the San Andreas fault line which is quivering menacingly as foreclosures mount and mortgage-backed bonds continue to implode.

As the Financial Times suggests, the shock waves should be sweeping through the Wall Street trading pits in the very near future.

There are also new developments on the sale of "marked to model" CDOs, the red-haired stepchild of the new structured finance paradigm. "

The trustee of a $1.5 billion collateralized debt obligation managed by State Street Global Advisors has started selling assets, apparently starting a process of liquidation,"

Standard and Poor's said.

The sale is a red flag for the other holders of $1.5 trillion of CDOs who've been waiting for market conditions to change before they try to sell their mortgage-backed bonds. The liquidation will assign a "market price" to these complex structured investment vehicles. If the price at auction is mere pennies on the dollar, then the banks, pension funds, and insurance companies will have write down their losses or add to their reserves to cover their weakening assets. Simply put, the State Street sale could turn out to be doomsday for a number of under-capitalized investment banks. Their revenues are already down; this would be the last stake to the heart.

Finally, Greg Noland, at Prudent Bear.com reports on the "looming disaster" at Fannie Mae, where the best-known Government Sponsored Entity (GSE) has entered into the current housing slump with a "Book of Business of mortgages, MBS and other credit guarantees of $2.7 trillion" which is backed by a measly "$39.9 billion of shareholder's equity."

That's all?

As Noland concludes,

"A devastating housing bust will bankrupt the mortgage insurers, while the solvency of their derivatives counterparties going forward will be in doubt in any number of scenarios. The GSEs are now integrally linked to what I expect to be Credit insurance's and 'structured finance's' astonishing downfall."

Amen.

The only thing looking up are oil futures. And they'll be denominated in euros soon enough.

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com.

Media histronics revisted: The Wall Street Journal OpEd pages

As if I don't get enough bs reading the Canadian press opeds, and particularly the business shill, I DO have to take into account what passes for remarks (they're really just ignorant jabs) by the neoCON set. Nowhere do you get a more vivid xray pic of the truly DELUDED than at the WSJ. Mike Whitney has POINTERS for all of you on how to spend a real good dollar .. I spend my dimes and nickels keeping this computer array running so's I can access all those neat little right wingers who think something is achieved producing WAR MACHINES and can't figure out that they themselves are one day away from REPRESSION!! for the slightest infraction of the unspoken "Rules" as the war of engagement is against all of us, unless we have about a billion in the bank these days.

So that said, the WSJ is an important thing to track as it feeds them, the overpaid corporate drones, what they are SUPPOSED to pick up, spout back and BELIEVE.


The ICH forum posters are especially FINE folks, I have found in this wasteland of "lesser of two evils" that folks seem to "fall" for .. I get some of my very best inspiration and info from them.

Murdoch’s Cuckoo’s Nest: The Wall Street Journal’s Op-ed Page

By Mike Whitney

10/26/07 "ICH " -- -- The Wall Street Journal’s editorial page is the ideological headwaters for far-right fanaticism in the US. It is less of a forum for open debate than it is a breeding ground for noxious ideas that undermine democratic institutions. Every day, there’s a whole new slate of extremist opinion pieces defending one absurdity or another. Typically, the articles focus on the two issues of primary importance to all conservatives; war and taxes. It’s astonishing how many variations there are on the same hackneyed theme.

Conservatives are naturally distrustful of ideas, so they’ve created a platform where they can couch their reactionary views in academic-sounding jargon without any real attempt at upgrading social policy. There appears to be an endless reservoir of Reagan-era “supply side” zealots and think-tank windbags who are more than eager to promote the topic-du jour, whatever that may be. By using right wing celebrities as their standard-bearers, the WSJ is able to elevate the most mundane, nonsensical arguments to a level of respectability. And that’s the objective---to make hard-nosed, narrow-minded chauvinism look like enlightened policy.

Typically, the editorials take aim at any regulation which restricts industry or any law which protects the citizen. Articles are chosen on the basis of how they appeal to a small group of corporate mandarins whose views about “how the world should be organized” are nearly identical. In other words, it is an “echo chamber” for the investor class. That’s why liberals should pay attention. The men who currently run the world are not shy about revealing what they have in mind for the rest of us. Isn’t it worth the price of a subscription to find out what that is?

In the last few days the WSJ has run articles defending Exxon against the $2.5 billion punitive damages that were ordered by the Ninth Circuit Court of Appeals for its massive oil spill in Alaska nearly 2 decades ago. They’ve run another tiresome apology for Judge Robert Bork, the alleged victim of a left-wing witch hunt. They’ve provided a lawyerly defense of the Marines who went on the “killing spree” in Haditha; another promotion for the extortionist World Bank, an emotional plea to “Save the Bush Tax Cuts”, and, of course, an over-the-top 1500 word thesis on why “Victory Is Within Reach In Iraq” by neocon nutcase Michael Ledeen.

On Monday, October 22, the WSJ ran an article by David Rivkin, “Getting Serious about Torture”, which essentially defends the “cruel, inhuman and degrading” treatment of terror suspects by pointing out the relative nature of these terms. (Isn’t it odd that questions related to torture never came up before Bush took office?)

As Rivkin says, “The words cruel, inhuman and degrading, whether or nor a particular interrogation method shocks the conscience depends very much on the circumstances.”

Sure, David, it’s all relative, isn’t it? How about “eye gouging”; is that okay, too?

Remember when conservatives used to rail against “moral relativism”? At the time, it seemed like a matter of principle. Now we can see that it was just empty posturing.

At the end of his article Rivkin reminds us that, “There is no free lunch. Coercive interrogations have been key in preventing post 9-11 attacks on American soil.”

Indeed. Sounds like a pretty spirited defense of torture to me. Am I missing something?

No theory is too whacky or obscene for the WSJ’s editorial page as long as it conforms to the far right mind-set of its readership. For just one dollar, anyone can take a seat in the enemy’s camp and listen in. Sounds like a bargain to me.