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Today's
Stories
March 8-9, 2008 Weekend Edition
JoAnn Wypijewski
The Only Way to Fight the Clintons
Mike Whitney
Sorting Through the Rubble in Post Bubble America
Peter Morici
Fed and Treasury Fiddle as Economy Plummets
Jonathan Cook
The Meaning of Gaza's Shoah
Steve Niva
Behind the Israeli Escalation in Gaza
Bill and Kathy Christison
Crisis over Teheran's Alleged Nuclear Plans Nearing Climax
Hervé Do Alto and Franck Poupeau
Bolivia: Morales is Checked
Eric Walberg
To Leave and Stay at the Same Time: Putin to Medvedev to…?
Scott Johnson
City of A Thousand Foreclosures
Mark Scaramella
James Brown's Gate
Bill Clinton
President Clinton's Remarks on Naming William M. Daley as NAFTA Task Force Chairman
Poet's Basement
St. Thomasino, Engel, Davies and Willson
Website of the Weekend
Hillary Blackens Barack
March 7, 2008
Patrick Cockburn
Why Iraq Could Blow-Up in John McCain's Face
Robin Blackburn
Question for Barrack Obama: Why Afghanistan is the 'Right War'?
Saul Landau
The Stupid Economy
Binoy Kampmark
When Competition is Good: McCain and the Muddled Democrats
Chris Floyd
Crushing the Ants: Admiral Fallon and His Empire
Andy Worthington
Spanish Drop "Inhuman" Extradition Request for Guantánamo Britons
Will Potter
Before the Smoke Even Clears in Seattle: Bringing Out the T Word
Eric Walberg
To Leave and Stay at the Same Time: Putin to Medvedev to…?
March 6, 2008
Vincent Navarro
The
Next Failure of Health Reform
Forrest Hylton
High Stakes in the Andes: Colombia's Cornered President
Peter Morici
Why the Dollar is So Cheap
George Ciccariello-Maher
Counter-Attack of the Bureaucrats
John Ross
Taxi! Taxi! The Dark Side of the Oscars
Jacob Hornberger
No Standing to Lecture on Justice
Paul Watson
Illegal Japanese Whaling by the Numbers
Dan Bacher
Off the Deep End
Website of the Day
A Katrina Reader Online
March 5, 2008
Cockburn /
St. Clair
A
Great Day for John McCain (and Maybe Nader)
Joanne Mariner
After Guantanamo
Fidel Castro
The Raid on Ecuador: Underestimating Rafael Correa
Christopher
Brauchli
The Turkish Invasions
Steven Sherman
Obama and the Prospects for a Renewal of the Left
Dave Lindorff
Busting Bush & Co. in New England
James Murren
Bombing Somalia
Adam Engel
Necropolis Now
Website of Day
Remember Song
March 4, 2008
Wajahat Ali
Mumbo
Jumbo: Naming Names with Ishmael Reed
William Blum
How Could Hillary Have Known?
Bill Quigley
The Cleansing of New Orleans
Ralph Nader
The Prince Harry Solution
Patrick Irelan
Oil and Health in Venezuela
James J. Brittain
/
R. James Sacouman
Uribe's Colombia is Destabilizing a New Latin America
Norman Solomon
The War Election
Jacob Hornberger
Hillary in Waco: the Missing Apology
Andy Worthington
Guantánamo and the European Parliament
Mike Averko
Kosovo and the Press
Website of the Day
Tex-Mex Primary
March 3, 2008
Jennifer Loewenstein
Gazan Holocaust
Alan Farago
American Politics and the Faltering Economy
Richard Gott
Colombian Deaths in Ecuador
Wajahat Ali
Who Speaks for a Billion Muslims? Analyzing the World Gallup
Poll with John Esposito
Paul Craig Roberts
The Mukasey Conspiracy: a Bi-Partisan Attack on the Constitution
Robert Weissman
When Multinationals Say Adieu
Uri Avnery
Good Morning, Hamas
Martha Rosenberg
When Your Meat is a Downer
Eva Liddell
Leave the Next Dance for Bill
Michael Donnelly
Will Ferrell Does Flint
Website of the Day
Muddy Waters: Train Fare Home Blues
March 1 / 2,
2008
Alexander Cockburn
The
Race Card
Paul Craig
Roberts
The
Political Trial of Don Siegelman
Kathleen and Bill Christison
Nader the Best Antidote to American Imperialism
Nelson P. Valdés
Cuba After Fidel
Christopher Brauchli
Meet Mr. Nursultan Nazarbayev: Friend of Bill, George and Dick
Ron Jacobs
Inside the Secret City: Bomb Making at Oak Ridge
John Ross
The New Conquistadores: Spain's Reconquest of Mexico
Robert Fantina
Posturing Over Patriotism: Obama and Those Lapel Pins
Robert Weissman
Hidden in Plain Sight: Human Rights Hypocrisy
Mohammed Omer
Fear in Gaza
Remi Kanazi
Barack Obama and the Politics of Xenophobia
Bob Jackson
Why is Yellowstone Destroying Its Bison Herd?
Richard Rhames
Casual Threats: Loaded with Mercury
Franklin Lamb
Lebanon Awaits the Arrival of the USS Cole
Rannie Amiri
Showboat Diplomacy: US Warships Steam Toward Lebanon
David Michael
Green
The Three Faces of Hillary: the Politics of Flim-Flam
Conn Hallinan
Notes from the Southern Cone
Faheem Hussain
Prince Harry of Afghanistan and the Meaning of Normalcy
Poets' Basement
Gibbons, Orloski, Gardner and Ford
Website of
the Weekend
The Palestine Chronicle Needs (and Deserves) Your Help!
February 29,
2008
Matt Gonzalez
The
Obama Craze
Jonathan Cook
Academic Freedom? Not for Arabs in Israel
Joshua Frank
Obama and Israel
Anthony DiMaggio
The Unilateral Presidency: Signing Statements and the Rollback
of American Law
Linn Washington, Jr.
Cop Abuse in America
Binoy Kampmark
Hubris and Nemesis
Robert Bryce
Energy Efficiency May be a Good Thing, But It Won't Cut Energy
Use
Sonja Karkar
Australia's Government Continues Its Love Affair with Israel
Dave Lindorff
A Manchurian Candidate in the White House? Obama or Bush?
Website of
the Day
Olduvai George
February 28,
2008
Patrick Cockburn
"Iraq"
Falls Apart
Fred Gardner
The Birth of NAFTA
Michael Levitin
The Crisis in Kosovo is Just Beginning
William S.
Lind
The Fake State of Kosovo
David Macaray
A Ray of Hope for Organized Labor
Stephen Fleischman
Nader's Latest Run: Monkey Wrench or Cattle Prod?
George Wuerthner
The Myths of Forest Health: Why Ecological Logging is an Oxymoron
Laura Carlsen
The North American Union Farce
Carl Finamore
Why the Delta-Northwest Deal Hasn't Taken Off
Michael Dickinson
The Day I Bombed the House of Commons
Website of the Day
Plane Stupid
February 27,
2008
David Rosen
Playing
the Race Card: Obama, Love Across the Color Line and Political
Dirty Tricks
Vijay Prashad
Bomber John: McCain and the 100 Year War
Harvey Wasserman
Incident at Turkey Point: Did Florida Go to the Radioactive Brink?
Andy Worthington
Guantánamo's Shambolic Trials: Pentagon Boss Resigns,
Ex-Prosecutor Joins Defense
Wajahat Ali
Pakistan for Sale: an Interview with Ayesha Siddiqa on Pakistan's
Military Economy
Peter Morici
The Auction-Rate Securities Fiasco: a Drama of Greed and Betrayal
Stephen Philion
Conspiracy Theory, Fears of Betrayal and Today's Anti-War Movement
Michael Donnelly
Obama by Unanimous Decision
Erica Rosenberg /
Janine Blaeloch
After the Land Deals: Will There
be Any Wilderness Left to Protect?
Website of
the Day
Dress Blues
February 26,
2008
Debbie Nathan
Confessions
of a Gitmo Guard
Alan Dershowitz
v. Frank Menetrez
On Finkelstein
Harvey Wasserman
How Ohio Got Nuked
Michael Colby
Ralph Nader vs. the Fundamentalist Liberals
Gary Leupp
Condi vs. Putin on Bullying Belgrade
David Orchard
The New Conquistadors: Canada in Afghanistan
Martha Rosenberg
The Big HRT
Fran Shor
The Electoral Circus and Nader's Sideshow
Serge Halimi
The Dom Perignon Socialist Manifesto: Bernard Henri-Levy's Plan
for the French Left
Global Balkans
Neo-Liberalism and Protectorate States in the Post-Yugoslav Balkans:
an Interview with Tariq Ali
Website of
the Day
Texistentialism
February 25,
2008
Roger Morris
A
Death in Damascus
Anthony DiMaggio
Military
Bases, the Media and the Democrats
Ralph Nader
Why I'm Running
Patrick Cockburn
Iraq Broils
Paul Craig Roberts
Kosovo and the Empire Crazies
Peter Morici
Bernanke's Failing Policies: a Long Recession Looms
Dave Lindorff
General Welch's Whitewash: What We Still Don't Know About That
Minot Nuke Incident
Saul Landau
/
Farrah Hassen
Fanatics, Mountebanks and Drillers: a Bloody Oil Film
Heather Gray
James Orange, Civil Rights Legend
Robert Weitzel
Accomodating Torture
John Halle
Kucinich Goes Down
Website of the Day
Do the Trunk Monkey!
February 23 / 4, 2008
Alexander Cockburn
The
Mushrooming Clouds That Hang Over McCain
Paul Craig
Roberts
Obama
and Global Trade
Wajahat Ali
Omissions of the Commission: an Interview with Phillip Shenon
on the 9/11 Commission
Ralph Nader
Neutering the FDA
Jürgen
Vsych
"What Was Ralph Nader Thinking?"
Fidel Castro
Watching the US Presidential Campaign from Havana
Andy Worthington
Britain's Guantánamo
David Macaray
Unions Under Assault
Jeremy Scahill
The Real Story Behind Kosovo's Independence
David Krieger
Stanley Sheinbaum
Caging the Cold War Monster
Ron Jacobs
Building for the Future
Michael Garrity
The Last, Best Hope for the Northern Rockies
Brian McKenna
Higher Ed's "Civic Engagements" Get Dumbed Down
Missy Beattie
Over the Hill with John McCain
Fred Gardner
American College of Physicians Takes Pro-Cannabis Stand (Mostly)
Boris Kagarlitsky
The Growth of the Russian Labor Movement
Mike Ferner
Kick That Barrel
Dan Bacher
On the Trail with the Border Angels
Christopher
Ketcham
Hillary Goes Where Obama Fears to Tread
Poets' Basement
Davies and Buknatski
Website of
the Weekend
Obama
Mariachi
February 22,
2008
Mike Whitney
The
Bonfire of Capital
Jason Hribal
Elephants and the Circus: The Story of Janet
Liaquat Ali Khan
Arresting Musharraf
Joshua Frank
That Obama Glow: the Nuclear Industry's Golden Child
Dave Lindorff
Vicki's John: Ask Not What She Did for Him, Ask What He Did for
Her!
Liliana Segura
When Torture is Old News: McCain's Blonde Diversion
Robert Fantina
Castro, Bush and Cuba: a Fiasco Waiting to Happen?
Yifat Susskind
The ABCs of Death: Bush vs. Africa's Women
Norm Kent
Pushing 60 with Pot
Website of
the Day
Bush Gets Down in Liberia
February 21,
2008
Saul Landau
Fidel
Steps Aside
Elizabeth Schulte
Left Behind, With No End in Sight: America's Long-Term Unemployed
Helen Redmond
Health Care as a Human Right
Benjamin Dangl
Undermining Bolivia
Michael Levitin
Kosovo's Dilemma
Liam Leonard
Fear and Loathing on the Emerald Isle
Patrick Irelan
Land and Food in Venezuela
Linn Cohen-Cole
Poor Ohio: a Second Letter to Hillary on Her Ties to Monsanto
Michael Simmons
Daydream Believer: John Stewart, the Miles Davis of Folk Music
CounterPunch
News Service
A Message from the Women of Okinawa to US GIs
Website of the Day
Cop Abuse in Shreveport
February 20,
2008
Paul Craig
Roberts
Lies
and Spies
Paul Krassner
My
Brief Encounter with Fidel Castro
Fawzia Afzal-Khan
The
Pakistani Elections
Farzana Versey
The
Great Dictator: Musharraf, Peace and the Autumn of the Patriarch
Allan Nairn
Dying for a Second Round: Israel's
New Plan to Attack Lebanon
John V. Whitbeck
If Kosovo, Why Not Palestine?
Niranjan Ramakrishnan
A Balcony Seat to Our Own Balkanization?
Steve Eckardt
Cuba Sans Fidel: No News is Big News
Lee Sustar
Union-Busting at Freightliner
Mike Ferner
How Sick of It are You?
Website of the Day
The US Military Index
February 19,
2008
Uri Avnery
Blood
and Champagne
Paul Craig
Roberts
Paying
Insurgents Not to Fight
Gary Leupp
The Independence of Kosovo
Fidel Castro
The Moment Has Come
David Macaray
Management's Dirty Little Secret
Reza Fiyouzat
Buck the Circus! The Left and the Elections
Valerie Morse
The New Zealand Terror Raids: Land of the Long White Lie
Walter Brasch
Bush on Safari
Website of the Day
Don't Think Twice, It's Alright
February 18,
2008
Wajahat Ali
Free
Pakistan: an Interview with Imran Khan
Diana Johnstone
NATO's
Kosovo Colony
Paul Craig Roberts
What Do We Stand For?
Andy Worthington
Gitmo: "We're Making This Up as We Go Along"
Debbie Nathan
Bernie Ward's Sex Tapes
Anthony DiMaggio
Following the Money Trail: the Democratic Party and the Business
of Elections
Bill Simpich
Ten Years Ago, People Power Stopped Clinton in Iraq
Eva Liddell
A Short History of Super-Delegates: Hope, Yes! But Pay in Cash
Christopher Brauchli
The President Who Couldn't Keep His Word: Short-Changing Veterans
Stephen Soldz
Wikileaks is Under Attack!
Johann Rossouw
The Ouster of Thabo Mbeki: South Africa and the Costs of Neoliberalism
Website of
the Day
Sick of It Day!
February 16
/ 17, 2008
Alexander Cockburn
The
Terrorists Still at Ground Zero, 7 World Trade Tower, Lower Manhattan
Ralph Nader
We
the Corporations ...
David Macaray
The Big Buy Out: Did GM Drive Another Nail in Labor's Coffin?
William J.
Peace
Wheelchair Dumping
Ron Jacobs
War on the Psyche: Shellshock and Redemption
Diane Christian
War Corrupts
Alan Maass
Oil, Blood and Greed: Taking Upton Sinclair to the Big Screen
(and Beyond)
Ramzy Baroud
Iraq and the US Elections
Michael Donnelly
Genitalia First! Old Guard Feminists Play the XX Card
Cpt. Paul Watson
The Art of Finding Whalers
James L. Secor
China Diary: Spring Festival and New Year 2008
Eve Bachrach
Bush Returns to Africa
Nikolas Kozloff
Hugo Chávez's Anti-Imperialist Army
Stephen Gowans
Steven Spielberg, Faux-Humanitarian
Missy Beattie
To Vote or Not to Vote?
David Michael
Green
Warming Slowly to Obama
Wajahat Ali
Attack of the Info-tainment Circus
Poets' Basement
Gibbons, Willson, Mickey Z., Orloski and Reuther
Website of the Day
Yellowstone's Bison Need Your Help--NOW!
February 15,
2008
George Szamuely
The
Absurdity of "Independent" Kosovo
Patrick Cockburn
Ground-Truthing the Surge: Is the US Really Bringing Stability
to Baghdad?
Wajahat Ali
Pakistan is Burning: an Interview with Steve Coll on the Taliban,
Bin Laden and the Bush Administration
Mike Whitney
Henry Paulsen's Wild Ride on the Economic Hindenberg
Alan Farago
God and the Democrats
Chris Genovali
Alberta's Black Gold Rush
Jacob Hornberger
Courting Injustice: Scalia on Torture
Dave Lindorff
Snoops Always Ring Twice: Bush's Protect America Bill Bull
Website of the Day
Live From the Land of Hopes and Dreams
February 14,
2008
Kathleen and
Bill Christison
Palestine
in the Mind of America
Mike Whitney
Swan Song for NATO
Clancy Sigal
Strike Notes from a Screenwriter
George Wuerthner
A Bloody Sham: the Yellowstone Bison Slaughter
Peter Morici
Is Bernanke Headed for the Exit?
John Ross
Drug War Mayhem Boils Over from Border to Border
Allan Nairn
Mafia Rules in the Middle East: If You're Big Enough, You Can
Whack Anyone
Rannie Amiri
Lebanon's Warmongers
Niranjan Ramakrishnan
The New Tractatus: Where Wittgenstein Meets Feinstein
Donna Volatile
Be Careful What You Vote For, You Just Might Get It
Seth Sandronsky
The Student Squeeze: Fighting California's Tuition Hikes
Website of
the Day
Conventions: the Land Around Us
February 13,
2008
Nikolas Kozloff
Meet
John McCain: Mr. Big Stick in Latin America
Alan Farago
Hell to Pay: Warren Buffett on the Goal Line
Christina Kasica
King's Dream Foreclosed: the Subprime Crisis in Black America
Vicente Navarro
How to Read the U.S. Primaries
Hall Greenland
Australia's Finest Hour
Lee Sustar
Strange Stimulation: Too Little for Those Who Need It Most
David Macaray
The Writers' Strike Finally Ends
Roderick Frazier
Nash
Celebrating Wilderness
Patrick Irelan
Hugo Chávez and High Anxiety at the NYT
Anthony Papa
Mean Mister Mukasey: AG Tries to Block Crack Cocaine Releases
Carl Finamore
Another Parade Passes Me By: Don't Let Your Movement be Coopted
by Politicians
Website of
the Day
John He Is
February 12,
2008
Frank J. Menetrez
The
Case Against Alan Dershowitz
Paul Craig
Roberts
War Without End
Dr. Trudy Bond
The Elephant at Gitmo: Camp 7 and the Torturer's Shrink
Andy Worthington
The Guantánamo Six: Why Charge Them Now? What About the
Torture?
Col. Dan Smith
The Psychology of Killing: Close In or Far Away?
Ronnie Cummins
Globalization: Standing at the End of the Road
Ralph Nader
Open the Government
John V. Walsh
Antiwarriors, Divided and Conquered
Dave Lindorff
Obama and Progressive Change: Let's Hope the Movement Transforms
the Candidate
Michael Donnelly
Who's Pimping Whom? The Clintons' Selective No Talk Rules
Ron Jacobs
La Lucha Continua: Castro's "Life"
Ben Tripp
Beggars Collide
Website of the Day
Springsteen and Youngstown
February 11,
2008
Cockburn /
St. Clair
Lessons
for Obama: When is a Delegate Not a Delegate?
Wajahat Ali
A Discussion with Walt and Mearsheimer on the Israel Lobby
Ray McGovern
Waterboarding for God and Country
Allan Nairn
The Shooting of Jose Ramos Horta
Uri Avnery
An End Foreseen?
Chris Floyd
American
Psycho: the Meaning of Mitt Romney's Exit Speech
Martha Rosenberg
School Lessons in a Lunchbox: Lunchmeat from Tortured Cows
Stephen Fleischman
The Bonnie and Clyde of American Politics
Marc Lamont Hill
Not My Brand of Hope
Liliana Segura
Obama and Torture: the Sounds of Silence and Equivocation
Peter Morici
Challenges for the New President
Christopher
Brauchli
A Drug Rant from a Former Taker
Website of the Day
Annie vs. the Blue Angels
February 8
/ 10, 2008
Paul Craig
Roberts
Does
the GOP Have Aces Up Its Sleeves?
Patrick Cockburn
Will Moqtada al-Sadr's Truce Hold?
Mike Whitney
The Great Bust of '08
Anthony DiMaggio
How the Press Covers Waterboarding
Andy Worthington
The Guántanamo Trials: Where are the Terrorists?
Linn Cohen-Cole
Hillary, Will You Renounce Your Ties to Monsanto?
Firmin DeBrabander
Notes from the Foreclosure Front: Suing Your Way to Solvency
Cpt. Paul Watson
The Other Whaling Industry: How Greenpeace Cashes In on the Suffering
and Deaths of the Great Whales
Kenneth S. Pope
Why I Resigned from the American Psychological Association
Jacob G. Hornberger
American Soldiers Will Pay the Price for Bush's Torture Policy
Robert Bryce
Beyond Group Think on Climate Change: If More CO2 is Bad ...
Then What?
P. Sainath
The Last of the Buccaneer Editors
Allan Nairn
Give Me Back My Land
Fred Gardner
/
Pebbles Trippet
"The District Attorney of Shasta County Doesn't Know the
Law!"
Andrew Wimmer
Growing Up Catholic: Ignorance is Death
Robert Fantina
America's Disgrace: the Case of Omar Khadr
David Michael Green
Partycide in Six Easy Steps: Watch the Democrats Destroy Themselves
Kevin Zeese
Is Dennis Kucinich Being McKinney'd?
Peter Morici
Wall Street Gives Bernacke a Vote of No Confidence
Chris Driscoll
Could Nader be the Come-Back Kid of 2008?
Prairie Miller
Black August: Bringing George Jackson's Life to the Screen
Poets Basement
Davies and Buknatski
February 7,
2008
Patrick Cockburn
Why
Baghdad Will Explode Again
Bill Christison
Potholes Bigger Than Ever for Palestinians
David Anderson
NBC's "To Entrap" a Predator: Perverting Justice for
the Sake of Ratings
Ron Jacobs
Innocent Flesh: Recruiting Kids to Kill
Nikolas Kozloff
Hugo Chávez's Coca: It's the Real Thing
Jane Rockefeller
The Moral Economy of an Anti-Poverty Foundation
Andy Worthington
On Waterboarding: Two Questions for Michael Hayden
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March 8-9, 2008
Sorting Through the Rubble in Post-Bubble America
By MIKE WHITNEY
“Market conditions are the worst anyone in this industry can ever remember. I don't think anyone has a recollection of a total disappearance in liquidity...There are billion of dollars worth of assets out there for which there is just no market.” Alain Grisay, chief executive officer of London-based F&C Asset Management Plc; Bloomberg News
The hurricane that began with subprime mortgages, has swept through the credit markets wreaking havoc on municipal bonds, hedge funds, complex structured investments, and agency debt (Fannie Mae). Now the first gusts from the Force-5 gale are touching down in the real economy where the damage is expected to be widespread. The Labor Department reported on Friday that US employers cut 63,000 jobs in February, the biggest monthly decline in five years. The cut in payrolls added to the 22,000 jobs that were lost in January. 52,000 jobs were cut in manufacturing, while 331,000 have been lost in construction since September 2006.
The Labor Department also reported on Wednesday that worker productivity slowed significantly in the last quarter of 2007. When productivity is off; labor costs go up which adds to inflationary pressures. That makes it harder for the Fed to lower rates to stimulate the economy without inviting the dreaded “stagflation”---slow growth and rising prices.
The news on commercial construction is equally bleak. The Wall Street Journal reports:
“For the second month in a row, the Commerce Department reported a decline in spending on nonresidential construction -- which includes everything from hospitals to office parks to shopping malls....Signs of trouble cropped up at the end of the year. As credit markets tightened, office space sold in the fourth quarter dropped 42 per cent from a year earlier, and sales of large retail properties declined 31 per cent, says Real Capital Analytics, a New York real-estate research group....If spending continues to slow, construction workers, who are reeling from the housing slowdown, face more layoffs.” (“Building Slowdown Goes Commercial”, Wall Street Journal)
Commercial real estate is the next shoe to drop. There's a tremendous oversupply of retail space nationwide and the bloodletting has just begun. Builders have continued to put up shopping malls and office buildings even though residential real estate has gone off a cliff. Now the battered banks will have to repossess thousands of empty buildings in strip malls with no chance of leasing them out in the near future. It's a disaster . From December 2007 to January 2008 spending on commercial construction took its steepest drop in 14 years. The sudden downturn is adding more and more people to the unemployment lines.
So, what does it all mean? Unemployment is up, productivity is down, inflation is increasing, the dollar is underwater, commercial real estate is in the tank and the country is sliding inexorably into recession.
As for the housing market:
“Housing is in its "deepest, most rapid downswing since the Great Depression," the chief economist for the National Association of Home Builders said Tuesday, and the downward momentum on housing prices appears to be accelerating.
"Housing is in a major contraction mode and will be another major, heavy weight on the economy in the first quarter," said David Seiders, the NAHB's chief economist.” (“Rapid Deterioration”, MarketWatch)
Home sales are down 65 per cent from their peak in 2005. Inventory is stacked a mile-high. Vacant homes now number about 2 million; an increase of 800,000 since 2005. Demand is weak and prices are plummeting. It's all bad. Meanwhile, the Federal Reserve and the Bush administration are scrambling to devise a plan that will keep homeowners from packing it in altogether and walking away from their mortgages. But what can they do? Will they really write-down the principle on the mortgages like Bernanke recommends and face years of litigation from bond holders who bought mortgage-backed securities under different terms? Or will they simply allow the market to clear and send 2 million homeowners into foreclosure in 2008 alone?
The deflating housing bubble is finally being felt in the broader economy. Home equity is vanishing which is putting downward pressure on consumer spending and shrinking GDP. Also, the dollar is at historic lows, and an intractable credit crunch has left the financial markets in disarray. Experts are now predicting that consumer spending won't rebound until housing prices stop falling which could be late into 2009. When Japan experienced a similar credit/real estate meltdown; it took more than a decade to recover. There's no reason to believe that the present crisis will unwind any faster.
On Friday, banking giant USB estimated that credit woes would end up costing financial institutions $600 billion, three times more than their original estimate of $200 billion. But USB's forecast does not take into account the $6 trillion of lost home equity if housing prices fall 30 per cent in the next two years. (which is very likely) Nor does it account for the potential losses in the structured finance market where $7.8 trillion of loans (which are presently in “pooled securities”) have gone into a deep-freeze. There's no way of knowing how much capital will be drained from the system by the time all of this plays out, but if $7 trillion was lost in the dot.com bust, then it should greatly exceed that figure.
The housing bubble was entirely avoidable. It was the policies of the Federal Reserve which made it inevitable. By fixing interest rates below the rate of inflation for almost 3 years, Greenspan ignited speculation in housing and created a false perception of prosperity. In truth, it was nothing more than asset-inflation through the expansion of debt. The Fed's actions were complimented by repeal of regulatory legislation which prevented the commercial banks from dabbling in securities trading. Once the laws were changed, the banks were free to peddle their mortgage-backed securities to investors around the world. (A-rated mortgage-backed bonds are currently fetching just 13 per cent of their face value!) Now, those sketchy bonds are blowing up everywhere leaving large parts of the financial system dysfunctional.
As investors continue to run away from anything remotely connected to mortgages; the price of risk, as measured by the spread on corporate bonds, has skyrocketed. In fact, investors are even shunning overextended GSEs like Fannie Mae and Freddie Mac. As the number of foreclosures continues to soar, the aversion to risk will intensify triggering a savage unwinding of leveraged bets in the hedge funds as well as a wider paralysis in the finacial markets.
There's absolutely no doubt now that the storm that is currently ripping through the financials will soon bring Wall Street to its knees. It may be a good time to remember that on March 24, 2000, the NASDAQ peaked at 5048. On October 9, 2002 it bottomed-out at 1114; a loss of nearly 80 per cent. Could it happen again?
You bet. Expect to see the Dow hugging 7,000 by year end.
The Wall Street Journal ran an article on Tuesday which outlined how the banks changed standards at the Basel meetings in Switzerland to give them greater autonomy in deciding issues that should have been governed by strict regulations:
“Some of the world's top bankers spent nearly a decade designing new rules to help global financial institutions stay out of trouble...Their primary tenet: Banks should be given more freedom to decide for themselves how much risk they should take on, since they are in a better position than regulators to make that call.” (“Mortgage Fallout Exposes Holes in New Bank-risk Rules”, Wall Street Journal)
It is a classic case of the foxes deciding they should oversee the hen-house.
The Basel Committee on Banking Supervision is an industry-led group comprised of the central bank governors from the G-10 countries; Belgium, Canada, France, Italy, Japan, the Netherlands, Sweden, Switzerland, Britain and the US. Basel is supposed to establish the rules for maintaining sufficient capitalization for banks so that depositors are protected. But it's a sham. It appears to be more focused on maintaining US and European dominance over the developing world and making sure the levers of financial power stay in the manicured paws of western banking mandarins.
Now that the financial system is in terminal distress; many people are questioning the wisdom of handing over so much power to organizations that don't operate in the publics interest. Thomas Jefferson anticipated this scenario and issued a warning about the perils of abdicating sovereignty to unelected, profit-oriented bankers. He said:
“If the American people ever allow private banks to control the issue of our currency, first by inflation, then by deflation, the banks and the corporations that will grow up will deprive the people of all property until their children wake up homeless on the continent their fathers conquered.”
Even though the nation is stumbling towards an economic hard-landing; the banks are still only interested in finding a way to save themselves. Last week, the New York Times revealed a “confidential proposal” from Bank of America to members of Congress asking the US government to guarantee $739 billion in mortgages that are at “moderate to high risk” of defaulting to save the banks from potential losses. On Thursday , Rep. Barney Frank--operating in the interests of his banking constituents--made an appeal in the House of Representatives on this very issue, saying that congress should consider buying up some of these sinking mortgages to help struggling homeowners. But why should the taxpayer pay for the mistakes of privately-owned banks; especially when those banks have been bilking the public out of billions of dollars through the sale of worthless subprime securities?
The Fed has already lowered the Fed Funds rate by 2.25 basis points to 3 per cent (more than a full-point below the current rate of inflation) to help the banks recoup some of their losses from their bad bets. Bernanke has also opened a Temporary Auction Facility (TAF), which allows the banks to use mortgage-backed securities (MBS) and other structured investments as collateral at 85 per cent their face-value.(even though the bonds are only worth pennies on the dollar on the open market) So far, the TAF has secretly loaned out $75 billion to capital-depleted banks, which Bernanke thinks is a positive development. But why is the Fed chief encouraged by the fact that the country's largest investment banks need to borrow billions of dollars at bargain rates just to stay solvent? The truth is that many of the banks are just padding their flagging balance sheets so they can scour the planet looking for investors to buy parts of their franchises.
On Tuesday, Bernanke addressed the Independent Community of Bankers of America exhorting them to take whatever steps are required to keep homeowners with negative equity from walking away from their mortgages. Along with the proposed “rate freeze” on adjustable rate mortgages (ARMs); the Fed chief also suggested that the lenders lower the principle on the mortgages to entice homeowners to keep making nominal payments on their loans. But, clearly, foreclosure is the wisest choice for many homeowners who may otherwise be chained to an asset of steadily declining value for the rest of their lives. Homeowners should base their decisions on what is in their best long-term financial interests, just as the bankers would do. If that means walking-away, then that is what they should do. The homeowner is in no way responsible for the problems deriving from the subprime/securitization scam. That was entirely the work of the bankers.
The FDIC has begun to increase staff at many of its regional offices to deal with the anticipated rash of bank failures in states hardest hit by the housing bust. California, Florida and parts of the southwest will definitely need the most attention. These states are undergoing a housing depression and many of the smaller banks which issued the mortgages and commercial real estate loans are bound to get hammered. They simply do not have the capital cushion to withstand the tsunami of defaults and foreclosures that are coming. Depositors should make sure that all their savings are covered under FDIC rules; no more than $100,000 per account. Money markets are not insured.
Also, the G-7 nations announced last week that if “irrational” price movements persist, they would “collectively take suitable measures to calm the financial markets”. The group added that they would conduct their activities secretively for maximum effect. Consider how desperate the situation must really be for G-7 finance ministers to issue a public warning that they are planning to intervene in the market to prevent a calamity. This is stunning. The group did not specify whether they were talking about propping up the stumbling greenback or buying up futures in the equities markets like a global Plunge Protection Team. Nevertheless, their comments add to the growing perception that things are out of control and deteriorating quickly.
With oil, gold and food prices soaring, the Fed has been roundly criticized for cutting rates and risking further erosion to the value of the dollar. (This morning the dollar fell to $1.53 on the euro!) But Bernanke is right; the real danger is deflation. We are at the beginning of a consumer-led recession; characterized by weakening demand, lack of personal savings, declining asset-values (particularly homes) and over-indebtedness. The Fed's increases to the money supply via low interest rates will not effect the dramatic economic slowdown that will be evident within the year. Trillions of dollars of derivatives, over-leveraged subprime assets and otherwise bad bets are all unwinding at the same time draining an ocean of virtual capital from the economy. If credit keeps getting destroyed at the present pace, the country will be in the grips of a depression-like slump by 2009. The Wall Street Journal's Greg Ip puts it like this in his article “For the Fed, a Recession—Not Inflation—Poses Greater Threat”:
“So why is the Fed more worried about growth than inflation? First, it thinks run-ups in commodity prices explain the increases, not only in overall inflation but also in core inflation: higher energy costs have "passed through" to other goods and services. Core inflation rose and fell with energy inflation between early 2006 and mid-2007, and the Fed thinks the same thing is probably happening now. If energy and food prices stop rising -- they don't have to actually fall -- both overall and core inflation should recede.
Ip continues: “Fed officials don't think the latest jump (in food and energy) can be justified by fundamental supply and demand....A more likely explanation, investors perhaps alarmed by the Fed's dovish stance, are pouring money into commodity funds and foreign currencies as a hedge against inflation. ...But speculative price gains can't be sustained if the fundamentals don't support them. If the Fed and the futures markets are right, prices will be lower, not higher, a year from now.”
Bernanke is right on this point. Temporary price increases are not the result of shortages, increased production costs, or fundamentals, but speculation. In fact, demand for petroleum products has been down by 3.4 per cent over the last four weeks compared to the same time last year, which means that prices will probably drop steeply once the commodities frenzy runs out of steam. Investors are simply looking for somewhere to put their money rather than in shaky corporate bonds or overpriced equities. Commodities are the logical alternative. But as soon as consumer spending stalls; all asset-classes will fall accordingly, including gold and oil. (And, yes, the dollar should recover some lost-ground, however temporary.)
Many analysts believe oil's rally will be short-lived. Falling demand for overall petroleum products, which was down 3.4 percent over the last four weeks compared to the same time last year, suggest prices could drop steeply once the dollar-driven oil investment frenzy runs out of steam, analysts said.
Cyclical downturn or post-bubble recession?
An article in the New York Times by Morgan Stanley's Asia chairman, Stephen Roach, states that the country is not in a cyclical downturn, but post-bubble recession. There is a big difference. The Fed's interest rate cuts and Bush's “Stimulus Plan” are unlikely to stop housing prices from continuing to fall nor will they miraculously fix the problems in the credit markets. The massive expansion of credit in the last 6 years has created a $45 trillion derivatives balloon that could implode or just partially unwind. No one really knows. And no one really knows how much damage it will cause to the global financial system. Stay tuned.
Roach notes that the recession of 2000 to 2001 was a collapse of business spending which only represented a 13 per cent of GDP. Compare that to the current recession which “has been set off by the simultaneous bursting of property and credit bubbles.... Those two economic sectors collectively peaked at 78 percent of gross domestic product, or fully six times the share of the sector that pushed the country into recession seven years ago.”
Not only will the impending recession be six times more severe; it will also be the fire-siren for America's consumer-based society. Attitudes towards spending have already changed dramatically since prices on food and fuel have increased. That trend will only grow as hard times set in.
Roach adds: “For asset-dependent, bubble-prone economies, a cyclical recovery — even when assisted by aggressive monetary and fiscal accommodation — isn’t a given....Washington policymakers may not be able to arrest this post-bubble downturn. Interest rate cuts are unlikely to halt the decline in nationwide home prices...Aggressive interest rate cuts have not done much to contain the lethal contagion spreading in credit and capital markets.
A more effective strategy would be to try to tilt the economy away from consumption and toward exports and long-needed investments in infrastructure.
The Federal Reserve and Washington policymakers are still stuck in the past trying to revive consumer spending by creating another equity bubble with low interest rates and their $600 per person “stimulus” giveaways. Wrong way. Invest in infrastructure and environmentally-friendly technologies, rebuild the economy from the ground up, reestablish fiscal sanity and minimize deficit spending, put America back to work making things that people use and that improve society, and (as Roach says) “help the innocent victims of the bubble’s aftermath — especially lower- and middle-income families”. And, most importantly, abolish the Federal Reserve and give the control of our money back to our elected representatives in Congress. That is the only way to put America's economic future back in the hands of the people.
That's a plan we can all get behind. It's time to split the new wood and start fresh.
Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com
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