God knows what manner of deals went down this past weekend in the Hamptons wine cellars and below-decks among the Chesapeake Bay sailboat fleet. All these hidey-holes must have been dank and fetid with the sweat of mortal fear. Will the US Government declare itself a subsidiary of General Electric? Will Vlad Putin be roped in to save Goldman Sachs? Meanwhile, the whole noisome rat maze of international counter-party deals was taking on sewer water and rodents of every nationality were seen leaping for daylight all over the fusty old motherlands of Europe. A cascading collapse of international finance is underway. While many fixers may jump heroically into the tumbling wreckage hoping to rescue this-and-that, the outcome by Friday is liable to be an unrecognizable smoldering landscape of the G-7’s hopes and dreams.
Some big questions for the week: will the Euro survive as a currency? Will the rush into the US dollar continue even as the US financial system dematerializes in a Fibonacci fever of accelerating de-leveraged infinitude? Will the remaining Big Boyz, Goldman Sachs and JP Morgan succumb to the counter-party hemorrhagic fever? Will great rows of lesser banking dominoes now start clacking onto their faces? Will all fifty states follow the leads of California and Massachusetts and line up at the US Treasury’s hand-out window. Will the entity that calls itself the civilized world be left at week’s end with anything resembling money?
Your guess is as good as mine. We’ve entered the realm of phase change, where everything is slipping and nothing has settled. The final result, when the dust settles — and that may not be for weeks to come — will certainly be a poorer western world. Will it be so poor that it can no longer afford to import anything? Including oil from the land of the date palm? If so, we are really in for a rough ride, poised as we are at the edge of the heating season here in the temperate regions. Notice, by the way, that the $700 billion just approved by congress to bail out Wall Street is exactly the same sum of money that we send to the oil exporting nations this year.
Will millions stop receiving paychecks due to the turmoil in banking? It’s certainly possible, starting with the poor drones in Mr. Schwarzenegger’s motor vehicle bureau and eventually ranging to every payroll office in the land. Will Sarah Palin’s fellow Six-packers line up around the parking lagoons of the suburban banks trying desperately to withdraw the last seventy bucks in their checking accounts? (And will their thoughts in the event be: this economy is fundamentally sound….) Will the supermarket shelves of chipoltle-flavored crunchy snacks and power drinks go empty as truckers refuse to deliver their loads without up-front payment? And how long does it take a hungry public to turn mean?
We could see a parallel problem in the motor fuel supply sector. So far, gasoline shortages have only appeared in parts of the Southeast USA, due to interruptions caused by two hurricanes. If the oil tankers quit offloading now for lack of credible payment, then the whole nation will get an interesting lesson in the shortcomings of the suburban development pattern.
The candidates’ debate Tuesday night should be interesting. I don’t expect too much give-and-take on the subject of East Ossetia this time around.
Even at this point, the current crack-up in world finance makes the 1929 crash and the events of the 1930s look in comparison like an orderly small town auction of somebody’s grandmother’s effects. Back in that sepia day, America had plenty of everything except ready cash. We had, especially, plenty of our own oil, and — you’re not going to believe this but it’s true — the stuff was selling for as little as ten cents a barrel, it was so abundant. And yet still, America in the 1930s plunged into a dark depression of inactivity, loss of confidence, and impoverishment.
This time around, things could get more disorderly. Personally, I think we may be beyond the reach even of fascist authoritarianism, because unlike the programmed industrial masses of the 1930s, we are unused to regimentation, to lining up at the factory gates and the movie theaters. Back then, society was so regimented that everybody wore uniforms in-and-out of the military. Look at movies from the 1930s. Every man-jack wore either a necktie and hat or overalls. The industrial masses behaved like termites. Once unemployment hit, they were waiting to be told what to do, to line up for something. It worked fabulously for Hitler, who took every advantage of this mentality. Luckily, the US went for Roosevelt (both FDR and Hitler entered office the same winter of 1933, by the way). FDR was more like everybody’s kindly Uncle Frank, and his reassuring persona enabled Americans to suck up their bad luck and altered circumstances. Many of them retreated to the family farm (which still existed then) and waited things out — and, anyway, the melodrama of the Great Depression soon resolved in the Second World War when Hitler’s love of regimentation led him into military misadventure. He shouldn’t have picked a fight with someone who had so much petroleum — end-of-story.
Okay, what happens here and now? To this point (9:am Monday October 6, 2008) events have been proceeding under a veneer of still-just-barely-credible authority. We (as represented by congress) have allowed Mr. Paulson to advance and activate his remedies. As things unspool further, he will be out of credibility, perhaps in a few days, and it’s unlikely that his successor will have any either. Mr. Bernanke has simply gone AWOL. Notice, he has vanished from the media landscape. We may soon be hearing the declaration of various “emergency” measures involving the allocation of food and the rationing of oil products. The Big Bailout of last week may be partially rescinded as it becomes obvious that it has had no effect — I believe about half the $700 billion has already been allocated, which is to say: lost. I realize these things sound pretty extreme. But forces have been set in motion and momentum rules. One thing for sure: the American public is about to undergo a severe mood adjustment. There will be fewer American Idol fans and worshippers of Donald Trump by the close of business on Friday.
Interview with Naomi Wolf author of “Give Me Liberty: A Handbook for American Revolutionaries” given October 4, 2008 on Mind Over Matters, KEXP 90.3 FM Seattle.
In yesterday’s Senate bailout bill, also known as the ‘‘Emergency Economic Stabilization Act of 2008’’ is the following, seemingly innocent section.
Section 203 of the Financial Services Regulatory Relief Act of 2006 (12 U.S.C. 461 note) is amended by striking ‘‘October 1, 2011’’ and inserting ‘‘October 1, 2008’’.
So they moved the date of the Financial Services Regulatory Relief Act of 2006 up by 3 years. Big deal you say, and what the heck is the FSRRA of 2006? It was a series of amendments to 12 U.S.C. 461 of course! Well, okay, I don’t expect you to know what that is, so here it is (and the other related documents).
You may want to open those in new tabs, we’ll be bouncing around them a bit.
(Comment: The author continues with the conclusion up front)
The changes eliminated the requirement for banks to keep reserves of cash on hand to cover deposits, they abolished the Federal Reserve’s Earnings Participation Account, they granted the ability for the Fed to create their own rules for distributing their earnings, and they granted the ability to make payments to foreign banks.
These things were not scheduled to go into effect for 3 more years. Unclear is why they needed these changes at all, the other is why they need them now.
On Thursday’s edition of The Colbert Report, bestselling author Naomi Klein argued that the Bush Administration creates crises in order to “enrich themselves and their friends,“ drawing parallels between the torture of prisoners and the economic bailout being provided to Wall St. by US leaders.
Previously, Klein called out the sprawling economic crisis as just another example of the Bush ’shock doctrine,’ a key component to the ruling regime’s corporate agenda.
Paste the link below into your web browser to see the 5 minute video of The Colbert Report
In the face of last week, I’m not certain I have anything either intelligent or intelligible to say. The House finally passed the bailout bill, but only after the Senate had larded it with nearly $200 billion in tax breaks for the “friends of Congress”. In the end, the banks got what they wanted, a gigantic grave to shovel all their corpses into, & the assured silence of the cops (read: Yankee Government). Relax. Government by the banks, of the banks, and for the banks shall not perish from the earth. The corruption is complete, the constitution dead, but, gee-whillikers, we won’t have to face an awful deflationary depression. Nope, we’ll face a hyperinflationary depression instead.
Well, well, aren’t I jolly today?
To markets. The week beat everything to death, & unless you are blind & know nothing about the US Treasury’s slush fund (”Exchange Stabilisation Fund”) installed in the 1930s to manipulate the prices of gold, the dollar, & whatever else might be fun to play with, you perceived that the US Treasury & Fed manipulated the dollar’s value upward, in the face of the worst financial crisis in 70 years. Now the dollar index has again reached the long term downtrend line. Will it break out, or stall in a double top & fall back? I don’t know. Friday’s sell off in silver, gold, & stocks suggest the market proverb,”Buy the rumour, sell the news.” The stock market’s failure to rally on news of the bailout passing certainly looks bad for stocks. I simply do not believe that market demand drove the dollar up on Friday; twas the Nice Government Men “stabilising.”
Markets are so out of whack I don’t know what to say. In 28 years trading silver & gold professionally, I’ve never seen markets like this. The paper gold price closed Friday at 828.90, down 10.10, but if I want to buy gold to hold in my own hand, physical gold, I would have had to pay 879.07 an ounce (US$50 more) to get Mexican 50 pesos, US $923 to get American Eagles, and US$949.35 to get French or Swiss 20 francs.
Silver closed at 1127 cents, down 20.5 cents, but to buy US 90% silver coin and wait 2-8 weeks to get it I would have to pay 1518 cents per ounce, a 36% premium over the paper price. And silver American Eagles? Well, forget them. They cost 1681 cents, a 50% premium, & heaven only knows when I’ll get delivery.
How can this be explained? It appears incontrovertible that demand for silver & gold–real, physical, deliverable silver & gold–is so strong, so frantic, that the public is willing to pay huge premiums to buy it. That casts the validity of the paper price into doubt, & points to some government manipulation holding down the price, so the weakness of their rescue operation won’t be called into question by a gold price over $1,000.
For the future it says to me that silver & gold will go much, much higher, & that this period of suppressed prices is a gift, an opportunity, to load up on silver & gold at bargain prices. Stocks will fall further yet. Whether the US Dollar extends its rally or not, it won’t last long and in eight weeks or so will hit the skids again.
Many surprises are possible, but I cannot imagine how this bailout will fail to result in huge inflation, perhaps hyperinflation.Hold dollars at your own risk.
Many of y’all have kindly inquired about my wife, Susan’s health after her heart surgery 28 August. Yesterday I drove her to Nashville for her first post-op check-up & she got a very good report. She is off most of her medications, which had slowed down her heart leaving her fatigued & often nauseated, & only has a few more weeks on coumadin. The doctor allowed her to drive again, great for her but murder for me because I’m the one who has to keep restraining her from overdoing it. All in all it was a splendid report, & we thank God for his mercy.
Yesterday I learned a friend of mine died at age 87, Leslie Fleming. Years ago, in the early 1970s, I met Les when he & his wife were homesteading in northern Arkansas. He taught me how to think, how to search for the core of what things mean. In every facet of his integrity, he was what I call an “Old American,” that is, as they used to be before luxury & government education & the entitlement mentality corrupted them. Leslie Fleming was man too great for the age, unshakeable in his principles. Thank you for teaching me. Requiescat in pace.
Y’all enjoy your weekend!
Argentum et aurum comparenda sunt –
– Silver and gold must be bought.
Franklin Sanders, The Moneychanger
So where are the headlines? asks Peter Tatchell. Indeed. A quick search shows basically the opposite picture of Ahmadinejad has been promoted recently, as always.
Well, you can never trust a madman, can you? And you know he’s been misquoted before, right?
The Iranian president has said he would accept a two-state solution if the Palestinians agree
Iranian President, Mahmoud Ahmadinejad, has made a remarkable announcement. He’s admitted that Iran might agree to the existence of the state of Israel.
Ahmadinejad was asked: “If the Palestinian leaders agree to a two-state solution, could Iran live with an Israeli state?”
This was his astonishing reply:
If they [the Palestinians] want to keep the Zionists, they can stay … Whatever the people decide, we will respect it. I mean, it’s very much in correspondence with our proposal to allow Palestinian people to decide through free referendums.
Since most Palestinians are willing to accept a two-state solution, the Iranian president is, in effect, agreeing to Israel’s right to exist and opening the door to a peace deal that Iran will endorse.
Organized crime is now officially legal and combined with the stock and capital markets — all enforced by force and rigged profits. This is the economic infrastructure for fascism.” – Catherine Austin Fitts
June 14th 2006, 12:59pm [PST] – On three prior occasions in its eight and a half year history (2001, 2002, 2004) From The Wilderness has issued economic alerts to its subscribers. Two of those alerts (2001, 2002) proved to be astonishingly accurate.
Two days after our first alert was issued on September 9th, 2001, the “terror” attacks of 9/11 shut down Wall Street and allowed the government to open the US Treasury to flood massive amounts of taxpayer money directly into the hands of corporations that were on the brink of a major liquidity crisis. (FTW has never asserted that this was the primary motive for US government participation in the attacks. It was one of many motives as described in Crossing the Rubicon; chief of which was Peak Oil).
Just days after our second economic alert in 2002 a collapse of US financial markets began which saw the Dow drop by 1400 points and more than one trillion dollars in shareholder equity wiped out. We called that one perfectly.
And while the events predicted in our third December, 2004 economic alert did not transpire as predicted, I am perhaps most proud of having written and published this one. Because in it I wrote an almost clairvoyant description of the political, ecological, energy and economic worlds in which we live eighteen months later — today.
The reasons why the events predicted in the third alert did not take place have to do with what my dear friend and colleague Catherine Austin Fitts calls the Tapeworm Economy; the ability of financial and criminal elites to manipulate the rapidly-hollowing shell and façade of a financial system destined to collapse. They do this while keeping appearances (controlled by major media) as normal as possible so that the “suckers” (you) will keep trusting and spending your money in ways that hurt you and progressively wither your needed survival skills and resources.
This is the way that all parasites function until they kill their hosts and move on.
“Fast Crash or Slow Burn?” – Irrelevant!
This apparent longevity of a doomed system has led Fitts and me to agree to disagree about how things are likely to play out in the Empire’s final days or years. I believe that a fast-burn crash is likely (or at least must be prepared for). Fitts thinks it more likely that the elites, using technology like PROMIS software, their total control (ownership) of all branches of government, and a dozen other factors will be able to pull rabbit-after-shrinking rabbit out of the hat until the incremental “bust-out” liquidation of the American economy produces a final whimper in the last-remaining “I-still-believe” consumer. It doesn’t matter that each successive rabbit will be smaller and weaker. What does matter is the pathological willingness of most people to believe that – because a thimbleful of water is produced – a mighty conflagration might still be extinguished.
Fitts and I do agree that a fast burn (crash) would be much better than a slow burn. This is because a sudden slap in the face would leave individuals and families with more resources and tools available to adapt once they had relinquished their vision of a world that no longer exists.
The first thing that must be liberated in an emergency is the mind: so that it can see the emergency. Remember the old maxim about how easy it is to cook a frog by turning up the heat in tepid water slowly versus throwing a frog into boiling water. In the first case the frog just sits patiently and waits to be cooked. In the second case, recognizing the emergency, it jumps out immediately.
Taking into account a multitude of factors such as: unpredictable collapses of large oil fields (e.g. Burgan in Kuwait); global warming and hurricanes; rapidly spreading geopolitical instability; the collapsing housing bubble; soaring bankruptcies; exploding military budgets; the continuing ascendancy of nations like Venezuela, Iran, Russia and China; earthquakes; volatile insurgencies in West Africa; declining global food production and many others, I see things that the elites cannot control. These are (to one degree or another) wildcards that could leap into the game at any time, triggering chaos, war and/or collapse. The elites can influence these factors but there’s a big difference between influence and control. History has demonstrated a perfect batting average when it comes to the inevitable fate of empires in decline and their inability to control events.
This fourth-ever economic alert will be different from the previous ones because rather than describing predicted events, it describes a state of affairs which is – in and of itself – so alarming that we no longer care about the “when.” What we are warning about now is the certainty of the “what” and the necessity of being prepared to manage successfully in the face of a “fast burn,” a “slow burn,” and the wildcards.
To sum it up, large highly centralized corporations and banks – particularly those dependent on US government finances – are no longer worthy of investment.
No one reads tea leaves perfectly and no sound byte encompasses all realities. But if I were to sum up how I think a slow burn is being engineered, I would say that the two biggest manmade factors controlling the crash of the American economy are the Chinese and US governments. I sense a quiet consensus among and within all the economic powers-that-be that as long as the Federal Reserve agrees to the slow strangulation of the economy by continuing to raise interest rates, the Chinese will incrementally respond by continuing, in small increments, to float the Yuan free from its dollar peg. This will allow a semi-orderly transfer (looting) of the most wealth (into gold, oil reserves, the Euro, the Ruble and the Yuan) while keeping suckers in the game.
More than any other two factors, the dollar and the Yuan are the ones which, if they get “sideways,” could cause a crash, collapse or chaos at any minute. But these are only the human-controlled variables.
As it was with Robert Rubin in the Clinton years, Goldman Sachs has again acquired the “franchise” to operate the Treasury under its new Secretary Hank Paulson. Paulson will continue Treasury’s role as a key member of the Plunge Protection Team to manipulate the markets, hide fatal maladies, manipulate investor confidence, and assure that the largest number of people continue to stay roped into the system until it is too late to avoid going down the drain in the largest organized crime bust-out in history.
To sum it up, the American economic system – as a result of recent developments – has become a parasitic Zombie that cannot and should no longer be trusted under any circumstances. It has become lethal, venal and – for lack of a better term – the enemy.
Editor’s note: Jeffrey A. Miron is senior lecturer in economics at Harvard University. A Libertarian, he was one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan.
CAMBRIDGE, Massachusetts (CNN) — Congress has balked at the Bush administration’s proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the “troubled assets” of financial institutions in an attempt to avoid economic meltdown.
This bailout was a terrible idea. Here’s why.
The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.
Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.
This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.
Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.
The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.
The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.
Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.
There Must Be a Strict Supervision of All Banking and Credits and Investments. There Must Be an End to Speculation with Other People’s Money.”
We now move three-quarters of a century back in time to 1933. It was the middle of an era that our current moment is sometimes compared to: the Great Depression. When Franklin Delano Roosevelt took his oath of office in March of that year, over 10,000 banks had collapsed, following the stock market crash of 1929. One-quarter of American workers were unemployed, and people were fighting over scraps of food. We play an excerpt of FDR’s inaugural speech on March 4, 1933, and speak to Adam Cohen, author of the forthcoming book, Nothing to Fear: FDR’s Inner Circle and the Hundred Days that Created Modern America.
Protests took place on Wall St. to protest the bail out plan - and the mainstream news media didn’t even mention it
Hundreds of protestors demonstrated agains the proposed $700 Billion bail out plan for the finance and banking industry, yet the national news media in America didn’t even report it! Why not? It seems strange that this barely generated a gander from the big news outlets like ABC, CNN, CBS, NBC etc. all of whom have a presence in New York City. Despite having such a large protest event occurring in their backyard, the major news media chose not to tell the American people about it. I had to stumble upon this on the internet to find out about it. That’s really indicative of the pathetic state of affairs in the U.S. media today.
Anyway, in case you haven’t seen it, I have collected a bunch of video from the protests on Wall Street (Sept. 25) and posted them below. Have a look at what the news media DIDN’T show you! Warning: some of the protest videos contain profanity.
As you consider the distribution of $700 billion to the very banks and corporations that have gotten our country into the mess we’re in now, we ask you to pause for a moment and consider what that money could do for the people who build our country from the ground up… for our schools, healthcare system, our states, cities and towns, alternative energy development, the homeowners who were the pawns of the banking and mortgage industry. As the Board of Directors of Farm Aid, we want to alert you to what a mere $1 billion could do in the hands of the people who grow our food.
American family farmers are the backbone of our economy, the first rung on the economic ladder. For 23 years, we’ve worked to keep family farmers on the land. But it’s not enough just to save family farmers; we have to create new farmers. When farms fail, Main Street businesses fail. The opposite is true too: When farms thrive, Main Street businesses and local communities thrive. Far from Wall Street, family farmers are creating real wealth, producing real value, growing from seeds and sunlight a product that nourishes us both physically and economically. Supporting diverse decentralized family farming will do far more for the stability and vitality of our country than a handful of global agribusiness corporations could ever do.
The proposed $700 billion bailout asks taxpayers to foot the bill without giving them the opportunity to share in any gains. A $1 billion investment in family farm agriculture would enrich us all, because we are all shareholders of the family farm. The return on investment in the family farm includes thriving local economies, nutritious food for better health, a safer and more secure food supply, a cleaner environment and more renewable energy. Investing in local, sustainable and organic food would shorten the distance between eaters and farmers, conserve energy, create economic opportunities and new jobs through innovative processing and distribution systems, resulting in a better, greener, more efficient food and farm economy.
We’ll leave the economic details to the experts, but we know from traveling the highways and back roads of this country that trickle down economic policy has not created wealth for the vast majority of Americans. Let’s start from the ground up. When we invest in our family farmers, we invest in the revitalization of our country.
Willie Nelson, John Mellencamp, Neil Young and Dave Matthews
Farm Aid Board of Directors
Using the shock doctrine, Wall Street and Washington’s wrecking crew aim to get the most expensive free lunch in American history.
If a museum in the next superpower nation ever commemorates the decline of the last great superpower, it will make the two-and-a-half page bill introduced this week the center of the display.
Just as they do today at the National Archives’ Declaration of Independence exhibit, tourists in the future-perhaps in Beijing, perhaps somewhere else-will line up to see a framed draft of this week’s White House legislation demanding Congress surrender its power of the purse, and give an unelected appointee-in this case, Treasury Secretary Henry Paulson-the power to hand over $700 billion of taxpayer money to “any financial institution,” “without limitation…on such terms and conditions as determined by [him].” In a nation priding itself on separating powers between the branches of government, the bill explicitly states that decisions by Paulson may not even “be reviewed by any court of law or any administrative agency.”
Whether the bill passes or not, the drafting of it-even the mere thinking of it-is the single most clear sign that all of the major tenets of American democracy are on the auction block these days: from constitutional checks and balances, to legislative and judicial oversight to electoral accountability itself.
In the immediate aftermath of what could be the starting gun of a second Great Depression, the public this week will face a wave of propaganda from Washington. Using the same playbook that succeeded in passing the Patriot Act and the Iraq War authorization with almost no questions, politicians will inevitably invoke love of country, fear, loathing and red-alert emergency-all designed to ram this bill into law as fast as possible, with as little scrutiny as possible. Put in book terms, we will see Thomas Frank’s wrecking crew using Naomi Klein’s shock doctrine to justify a bigger free lunch than David Cay Johnston ever imagined.
Here are five key questions we should all be asking:
Hedge funds are expected to launch legal action against the Financial Services Authority, seeking compensation for what they claim will be multi-million-pound losses caused by the watchdog’s sudden decision to outlaw short-selling.
…
A senior source close to the regulator said the FSA believed its decision was ‘well within its legal powers’. The ban will be reviewed in 30 days and the source said the FSA could decide to lift the block at any time if it was convinced stability had returned.
…
Veteran stockbroker Andy Stewart, founder and chief executive of Cenkos Securities, was enraged by events. ‘It really is hilarious that the only way the banking sector can be propped up is by stopping people doing what they have always been legally authorised to do,’ he said.
SYDNEY — The Australian Securities and Investments Commission Sunday banned covered short selling of all listed shares following moves by other countries to ban short selling of financial stocks.
In a rapid escalation of the clampdown on short selling, ASIC said in a statement that it had decided to ban covered short selling from the start of trading Monday because a number of countries had banned covered short selling of financial stocks and there was a risk that if Australia didn’t follow with its own ban that there would be a risk of “unwarranted …
BANK of China said yesterday it will buy a 20 percent stake in La Compagnie Financiere Edmond de Rothschild for 236.3 million euros (US$340 million) and the two will develop private banking and asset-management services.
“This partnership forms part of Bank of China’s global development strategy,” Bank of China chairman Xiao Gang said in a statement. “We expect to further strengthen our asset management operations and product design capabilities in private banking business, and widen the product and service offerings to our clients.”
Beijing-based Bank of China said it sees a promising future for private banking and other services for China’s newly affluent amid rapid economic growth.
“With the rapidly growing global demand for wealth management services, private banking and asset management are becoming increasingly important parts of the Chinese financial services industry,” the statement said.
Bank of China said it hoped the deal would strengthen its presence in Europe. China’s top banks are among the world’s largest in financial terms but inexperienced at consumer services. They have formed ties with foreign partners to introduce credit cards and other products.
NEW YORK, Aug 30 (Reuters) - Lehman Brothers has hired Jeb Bush, brother of the President of the United States, as an advisor to its private equity business, a source familiar with the situation said.
Lehman hired another relative of U.S. President George W. Bush last year–George Walker, a second cousin, who heads up the bank’s asset management business.
To hear Donald Coxe tell it, the commodity selloff ripping through Canada’s stock market is no accident. It is the result of a deliberate, brilliantly executed plan hatched at the highest levels of the U.S. Federal Reserve and Treasury.
Mr. Coxe is no paranoid conspiracy theorist. As the chairman and chief strategist of Harris Investment Management in Chicago, he is one of the most respected investment authorities in North America. He also happens to have lost about 10 per cent of his personal wealth in the commodity rout, which came at the worst possible time for his Coxe Commodity Strategy Fund that started trading in June.
“This has done more damage to my personal wealth than anything in the last 20 years,” he said in an interview yesterday. But he has too much respect for how the U.S. authorities engineered the collapse in commodities – a move he said was necessary to shore up the global financial system – to be bitter.
“My attitude is, goddamn it, they’re good … it was brilliant.”
NOMI PRINS: What started all of this was a complete lack of transparency and regulation in the banking system. If we go back to a history where we had a similar situation on Wall Street, which was 1929, when we had a stock market crash followed by a Great Depression, in 1932, when FDR was elected and Herbert Hoover was ousted, right after that, we put together—he put together—
AMY GOODMAN: But interestingly, FDR didn’t come in on a plank of changing everything the way he did. It happened—didn’t it?—after he became president with—
NOMI PRINS: He had to take a look at the banking system, which was undermining the general economy, which had undermined the general economy, and say, “You know what? We do not understand what’s going on here. We have two types of banks. We have speculating investment banks, and we have commercial banks that deal with the public, take deposits, take savings, make mortgage loans, understand what’s going on. We’ll back those. The government will back those commercial institutions that deal with the public. It will not back speculative investment banks. And, by the way, those two things have to split. You pick a side. You want to be an investment bank? You be an investment bank. You want to be a commercial bank? We’ll back you. The Fed will back you. We will be there. We’ll create an insurance company, the FDIC, to back deposits for the public. We’ll have your back.” There was no—there was no agreement to have the back of the speculative investment banks.
Over the years, these things have merged and merged and merged. And in late 1999, Glass-Steagall, that act, was repealed, killed, died in Congress. And now you have a situation where everything that went wrong up until the creation of that act is happening now with a lot more capital and a lot more international interplay and a lot more money on the federal government to have to bail out when things go wrong. So, we have gone backwards in banking history, and having Merrill be a part of Bank of America is a tremendously big accident waiting to happen. Bear Stearns’s assets part of JPMorgan—they’re all part of recombining speculation and commercial.
Sept. 15 (Bloomberg) — Now can we get some subpoenas flying?
What happened this weekend at Lehman Brothers Holdings Inc. is nothing short of remarkable, and I’m not just talking about its death. Sunday night, one by one, stunned Lehman employees were filmed by TV news crews leaving Lehman’s offices carrying away boxes and duffel bags full of heaven knows what.
Is there anybody left in the government with a pulse? Where’s the yellow police tape? How about a cease-and-desist order to prevent document destruction? Are we supposed to believe that everything carted out of Lehman this weekend was a personal effect?
Can anyone give me a good reason why Lehman offices shouldn’t be treated as a crime scene now? Or why there has been no sign of any investigation by the Securities and Exchange Commission into any aspect of Lehman’s accounting or disclosure practices? Where is the Justice Department? Where is New York Attorney General Andrew Cuomo? How about the Financial Industry Regulatory Authority?
Not only is Lehman dead. Fannie Mae and Freddie Mac, which cooked their books in broad daylight, are taxpayer-owned zombies. American International Group Inc. and Washington Mutual Inc., whose accounting practices also stink, are on the brink. And while it’s true that AIG is the subject of SEC and Justice Department probes, there’s no sign that anyone in the government is looking into whether executives at these other places violated the law.
Never has it been more evident that the SEC and other government agencies think their job is to protect financial companies and financial executives, rather than the investors they rip off.
Chasing Shorts
Just two months ago, the SEC was firing subpoenas all over hedge-fund land trying to find a short seller to burn for spreading false rumors about Lehman. (They’re still looking.) And yet there’s no sign it ever occurred to anyone at the SEC to check if Lehman’s books were cooked, or if Lehman’s executives ever misled the public about the company’s prospects.
There’s no sign the SEC has done anything to inquire about the impossibly optimistic asset values on Lehman’s balance sheet. There’s no reason to believe the government has asked about Lehman’s Enronesque dealings this year with an off-balance-sheet hedge fund run by former Lehman executives called R3 Capital.
There’s been no signal that anyone in the government has expressed even a curiosity about whether Lehman executives believed the rosy falsehoods they spread this year about their company’s financial health. All the SEC has been able to muster in the wake of Lehman’s collapse so far are some boilerplate assurances that Lehman customers’ assets will be protected.
Only Choice
After bailing out Bear Stearns Cos., as well as Fannie and Freddie, letting Lehman fail was the only acceptable option for the Treasury and the Federal Reserve. And it’s a good start toward giving investors a reason to have confidence again someday that the capital markets are not a completely rigged game.
Merely letting companies fail isn’t enough, though. For a free-market economy to work, investors must feel confident that they can trust the financial reports public companies produce. And to make that leap of faith, they must have confidence that the government will enforce the law when it’s broken.
A big reason Lehman failed is that investors rightfully concluded that Lehman’s financial reports and happy-talk assurances couldn’t possibly be true. Yet there also was the sense that as long as Lehman remained alive, nobody in the government would do anything about it.
Before we get out of this banking crisis, we’re going to need some scalps. There should be plenty for the government to find. Messes like the one we’re in don’t happen without a large number of highly paid people doing something very wrong.
….To mark the seventh anniversary of the 9/11 terrorist acts, on 12 September Russian Channel One TV showed a controversial documentary, “Zero”, which questions the official version of events. The screening of the film, made by prominent Italian journalist and MEP Giulietto Chiesa, was followed by a studio discussion, in which two groups of experts - those who agree with Chiesa’s version and those who disagree - expressed their views.
“The film, justifiably or not - we’ll be discussing this tonight - questions the official version of events, but the film - and I’ve watched it with great attention almost twice over - never directly accuses the US government or Congress, or some dark forces in America, or the [American] Foreign [Policy] Council, of masterminding and organizing the terrorist acts. So, I am asking you: who did it?” moderator Aleksandr Gordon said at the beginning of the debate.
According to Aleksey Pushkov, author and presenter of the “Postscript” current affairs programme on Russian Centre TV and director of the Strategic Studies Institute under the Diplomatic Academy, the terrorist acts in New York in September 2001 were organized by a “very influential group of people who needed them”.
Vitaliy Tretyakov, editor-in-chief of the Political Class magazine and former editor-in-chief of the Nezavisimaya Gazeta heavyweight daily, described the US official report as “fiction”. He said he could not believe that a small group of terrorists could have masterminded the attacks.
On the other hand, Vladimir Rubanov, former head of the KGB’s analytical department, said he could not see anything extraordinary in what happened and it was plausible.
Mikhail Leontyev, Channel One TV presenter and editor-in-chief of the Profil magazine, said he did not believe the official version of events for three reasons. The first, he said, “is that it was a one- off [terrorist] act. A certain organization committed a totally extraordinary act from the point of view of its coordination. Allegedly, this organization still exists, it continues fighting and killing people; it is keeping the US army in two countries in the world and, at the same time, there has not been a single [terrorist] act on the territory of the United States since.”"The fact that there has not been a single repetition of this terrorist act proves that the first one was false,” he added.
This is what collapse looks like on Wall Street. October looks like it is going to be bloody beyond belief. Read the story closely and smell the fear. There is now a $400 trillion derivatives bubble hanging in the balance. The government has drawn the line on bailouts. That’s good but it means the Fed is getting seriously squeezed and it hasn’t dealt with Ike yet. We don’t have a clue as to how much damage Ike did yet but it was serious. The price of gold has been bombed as bad as the price of oil. Both are due for huge breakouts and capital is looking for the exits. Today is going to be a busy, busy day. We have passed the Plunge Protection Team’s pay grade.
I have no way of knowing because I won’t take the enormous time to do it; but I wonder if Lehman was also trading oil. You see all the lies that the short-sighted markets tell themselves have maturity dates beyond the markets’ visual range. Then, like two trains, they round a bend from opposite directions and things get “marked to market”. Lehman is only one car in the train. Bear Stearns was the first; then Lehman. Fannie and Freddie are a different train wreck with the same cause. B of A just bought Merril Lynch. How many times have I said it was always going to be a liquidity crisis that broke things open? There isn’t enough opium in Afghanistan or Coca in Bolivia to fix this one.
YouTube links for Friday evening’s historic telecast on Russia state TV Channel One have been posted, and the discussion following the telecast of “ZERO: Investigation into 9/11″ begins halfway through Part 11 - anybody working on an English translation of this?
The full broadcast (including the film) can be found in 15 parts here:
Video Interview and Dispatch
Pakistan: Taliban Key Challenge for Next President
Our correspondent in Karachi describes a country in civil war
BY Joe RubinAugust 28, 2008..
Click here for Frontline/World video
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.Our reporter in Pakistan says the next U.S. president faces major policy challenges there as the hearts and minds of future generations are being won in Taliban-influenced religious schools, and a weak and warring civilian government shows little appetite to take on the growing insurgency. Watch her interview and video clips from Karachi and read her dispatch below.. A Country in Peril by Sharmeen Obaid Chinoy..
Pakistani politics are not for the weak hearted. In a typical week here, the president of the country resigned, the two main political parties had a falling out, two powerful bomb blasts ripped through the country and at least 100 people were killed in skirmishes in the Tribal belt.
I was born and raised in Pakistan, but I have spent the better part of the past 10 years living in the West, mainly the United States and Canada. My husband and I made the decision to move back to Pakistan early last year. After all, the economy was doing well, security had improved tremendously, and a number of young Pakistanis were opening up new businesses. It was safe to say, society was thriving.
The bubble burst soon after we landed this year.
In the past few months, newspaper headlines here have screamed out news of scores of girls’ schools being burnt, video stores being ransacked, women being beheaded, hundreds of suicide bombers ready to attack, offices shut down for immoral behavior, stunning the country into silence.
Drop in solar activity has potential effect for climate on earth.
The sun has reached a milestone not seen for nearly 100 years: an entire month has passed without a single visible sunspot being noted.
The event is significant as many climatologists now believe solar magnetic activity – which determines the number of sunspots — is an influencing factor for climate on earth.
According to data from Mount Wilson Observatory, UCLA, more than an entire month has passed without a spot. The last time such an event occurred was June of 1913. Sunspot data has been collected since 1749.
When the sun is active, it’s not uncommon to see sunspot numbers of 100 or more in a single month. Every 11 years, activity slows, and numbers briefly drop to near-zero. Normally sunspots return very quickly, as a new cycle begins.
But this year — which corresponds to the start of Solar Cycle 24 — has been extraordinarily long and quiet, with the first seven months averaging a sunspot number of only 3. August followed with none at all. The astonishing rapid drop of the past year has defied predictions, and caught nearly all astronomers by surprise.
In 2005, a pair of astronomers from the National Solar Observatory (NSO) in Tucson attempted to publish a paper in the journal Science. The pair looked at minute spectroscopic and magnetic changes in the sun. By extrapolating forward, they reached the startling result that, within 10 years, sunspots would vanish entirely. At the time, the sun was very active. Most of their peers laughed at what they considered an unsubstantiated conclusion.
The journal ultimately rejected the paper as being too controversial.
The paper’s lead author, William Livingston, tells DailyTech that, while the refusal may have been justified at the time, recent data fits his theory well. He says he will be “secretly pleased” if his predictions come to pass.
But will the rest of us? In the past 1000 years, three previous such events — the Dalton, Maunder, and Spörer Minimums, have all led to rapid cooling. One was large enough to be called a “mini ice age”. For a society dependent on agriculture, cold is more damaging than heat. The growing season shortens, yields drop, and the occurrence of crop-destroying frosts increases.
Meteorologist Anthony Watts, who runs a climate data auditing site, tells DailyTech the sunspot numbers are another indication the “sun’s dynamo” is idling. According to Watts, the effect of sunspots on TSI (total solar irradiance) is negligible, but the reduction in the solar magnetosphere affects cloud formation here on Earth, which in turn modulates climate.
This theory was originally proposed by physicist Henrik Svensmark, who has published a number of scientific papers on the subject. Last year Svensmark’s “SKY” experiment claimed to have proven that galactic cosmic rays — which the sun’s magnetic field partially shields the Earth from — increase the formation of molecular clusters that promote cloud growth. Svensmark, who recently published a book on the theory, says the relationship is a larger factor in climate change than greenhouse gases.
Solar physicist Ilya Usoskin of the University of Oulu, Finland, tells DailyTech the correlation between cosmic rays and terrestrial cloud cover is more complex than “more rays equals more clouds”. Usoskin, who notes the sun has been more active since 1940 than at any point in the past 11 centuries, says the effects are most important at certain latitudes and altitudes which control climate. He says the relationship needs more study before we can understand it fully.
Other researchers have proposed solar effects on other terrestrial processes besides cloud formation. The sunspot cycle has strong effects on irradiance in certain wavelengths such as the far ultraviolet, which affects ozone production. Natural production of isotopes such as C-14 is also tied to solar activity. The overall effects on climate are still poorly understood.
What is incontrovertible, though, is that ice ages have occurred before. And no scientist, even the most skeptical, is prepared to say it won’t happen again.
Article Update, Sep 1 2008. After this story was published, the NOAA reversed their previous decision on a tiny speck seen Aug 21, which gives their version of the August data a half-point. Other observation centers such as Mount Wilson Observatory are still reporting a spotless month. So depending on which center you believe, August was a record for either a full century, or only 50 years.
By Ambrose Evans-Pritchard
The Telegraph, London
Tuesday, August 12, 2008
A war breaks out in the Caucasus, pitting Russia against a close ally of the United States. Inflation reaches a new peak in the euro-zone. The CPI reaches the highest in Britain since Bank of England independence. Rampant inflation sweeps the developing world.
Yet gold crashes. It has failed to deliver on its core promises as a safe-haven and inflation hedge, at least for now. Why?
Four possible answers:
1) Nobody seriously believes that Russia will over-play its hand. The world could not care less about Georgia anyway. Ergo, this is a bogus geopolitical crisis.
2) The inflation story is vastly exaggerated in the OECD core of countries that still make up 60pc of the global economy. The price of gold is already looking beyond the oil and food spike of early to mid 2008 (a lagging indicator of loose money two to three years ago) to the much more serious matter of debt-deflation that lies ahead.
3) The seven-year slide of the dollar is over as investors at last wake up to the reality that the global economy is falling off a cliff. Indeed, the US is the only G7 country that is not yet in or on the cusp recession. (It soon will be, but by then others will be prostrate). As an anti-dollar play, gold is finished for this cycle.
4) The entire commodity boom has hit the buffers. Looming world recession (growth below 3pc on the IMF definition) trumps the supercycle for the time being.
Gold has fallen from $1030 an ounce in February to $807 today in London trading. It has collapsed through key layers of technical support, triggering automatic stop-loss sales. The Goldman Sachs short-position that I have been observing with some curiosity has paid off.
For gold bugs, the unthinkable has now happened. The metal has fallen through its 50-week moving average, the key support line that has held solid through the seven-year bull market. This week is not over yet, of course. If gold recovers enough in coming days, it could still close above the line.
Courtesy of my old colleague Peter Brimelow - whose columns on gold are a must-read - note that Australia’s Privateer point and figure chart has also broken its upward line for the first time since 2002. This is serious technical damage.
So have we reached the moment when gold bugs must start questioning their deepest assumptions. Have they bought too deeply into the “dollar-collapse/M3 monetary bubble” tale, ignoring all the other moving parts in the complex global system? Nobody wants to be left holding the bag all the way down to the bottom of the slide, long after the hedge funds have sold out.
Well, my own view is that gold bugs should start looking very closely at something else: the implosion of Europe. (Japan is in recession too)
Germany’s economy shrank by 1pc in Q2. Italy shrank by 0.3pc. Spain is sliding into a crisis that looks all too like the early stages of Argentina’s debacle in 2001. The head of the Spanish banking federation today pleaded with the European Central Bank for rescue measures to end the credit crisis.
The slow-burn damage of the over-valued euro is becoming apparent in every corner of the eurozone. The ECB misjudged the severity of the downturn, as executive board member Lorenzo Bini-Smaghi admitted today in the Italian press. By raising interest rates into the teeth of the storm last month, Frankfurt has made it that much more likely that parts of Europe’s credit system will seize up as defaults snowball next year.
As readers know, I do not believe the eurozone is a fully workable currency union over the long run. There was a momentary “convergence” when the currencies were fixed in perpetuity, mostly in 1995. They have diverged ever since. The rift between North and South was not enough to fracture the system in the first post-EMU downturn, the dotcom bust. We have moved a long way since then. The Club Med bloc is now massively dependent on capital inflows from North Europe to plug their current account gaps: Spain (10pc), Portugal (10pc), Greece (14pc). UBS warned that these flows are no longer forthcoming.
The central banks of Asia, the Mid-East, and Russia have been parking a chunk of their $6 trillion reserves in European bonds on the assumption that the euro can serve as a twin pillar of the global monetary system alongside the dollar. But the euro is nothing like the dollar. It has no European government, tax, or social security system to back it up. Each member country is sovereign, each fiercely proud, answering to its own ancient rythms.
It lacks the mechanism of “fiscal transfers” to switch money to depressed regions. The Babel of languages keeps workers pinned down in their own country. The escape valve of labour mobility is half-blocked. We are about to find out whether EMU really has the levels of political solidarity of a nation, the kind that holds America’s currency union together through storms.
My guess is that political protest will mark the next phase of this drama. Almost half a million people have lost their jobs in Spain alone over the last year. At some point, the feeling of national impotence in the face of monetary rule from Frankfurt will erupt into popular fury. The ECB will swallow its pride and opt for a weak euro policy, or face its own destruction.
What we are about to see is a race to the bottom by the world’s major currencies as each tries to devalue against others in a beggar-thy-neighbour policy to shore up exports, or indeed simply because they have to cut rates frantically to stave off the consequences of debt-deleveraging and the risk of an outright Slump.
When that happens - if it is not already happening - it will become clear that the both pillars of the global monetary system are unstable, infested with the dry rot of excess debt.
The Fed has already invoked Article 13 (3) - the “unusual and exigent circumstances” clause last used in the Great Depression - to rescue Bear Stearns. The US Treasury has since had to shore up Fannie and Freddie, the world’s two biggest financial institutions.
Europe’s turn will come next. We will discover that Europe cannot conduct such rescues. There is no lender of last resort in the system. The ECB is prohibited by the Maastricht Treaty from carrying out direct bail-outs. There is no EU treasury. So the answer will be drift and paralysis.
When EU Single Market Commissioner Charlie McCreevy was asked at a dinner what Brussels would have done if the eurozone faced a crisis like Bear Stearns, he rolled his eyes and thanked the Heavens that so such crisis had yet happened.
It will.
Gold bugs, you ain’t seen nothing yet. Gold at $800 looks like a bargain in the new world currency disorder.
The U.S. Mint has suspended sales of American eagle gold coins and is refusing orders from dealers, two coin and bullion dealers confirmed Thursday.
The mint’s suspension of gold coin sales follows its tight rationing of sales of silver eagle coins, begun in May, when sales to the public were terminated and sales to the mint’s 13 authorized dealers were tightly limited.
The suspension is overwhelming evidence that the futures contract price of gold on the commodities exchanges is substantially below the physical market price and that, indeed, the commodities exchanges are being used as GATA long has maintained — as part of a massive scheme of manipulation of the precious metals, currency, and bond markets.
Michael Kosares, proprietor of Centennial Precious Metals and host of its Internet bulletin board, the USAGold Forum (http://www.usagold.com/cpmforum/), explained Thursday:
“The U.S. Mint buys direct from the refiners, and this suspension of gold eagle sales may be an indication that the supply line is already backing up, or that the mint expects that it will back up for the rest of the year. I wonder who would give up physical metal at these prices and under these circumstances except distressed sellers. The central banks are in a hunker-down mode as far as I can determine, and it’s the mines that supply the refiners. So if the mint, which buys from the refiners, is having a difficult time locating metal, what does that tell you? I keep saying that we may get a surprising rubber-band effect later in the year when the pre-holiday/festival season kicks off in September/October. It may happen sooner. One of our indicators of approaching a bottom in gold is how many calls Centennial Precious Metals gets from our U.S.-based Indian clientele. Here’s a quote from my office’s report to me at the end of the day today: ‘Today was a good day. … There must have been an Indian convention where someone was handing out USAGold business cards.’ That may give you a clue as to thinking in India proper and probably the rest of the Asian rim.”
That is, through their agents the bullion banks the Western central banks, desperate to prop up a corrupt and totteringt financial system, have put gold so much on sale that even the U.S. Mint can’t find any now. The price reported from the commodities markets is a fiction — a scary one, perhaps, but a fiction no less.
You can strike a blow at the market riggers who are defrauding the world — just buy a little real metal. The dealers listed at the bottom right of this dispatch will be glad to help you do it.
CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.
When Belgian-based, Brazilian-controlled InBev launched a hostile offer for American beer king Anheuser-Busch last month, xenophobia quickly foamed to the top. Beer drinkers in St. Louis, Mo.–A-B’s home–vowed to swear off Bud if those foreigners bought “our” beer.
They’ll get over it. A-B’s shareholders sure did, considering the $52 billion price tag, which at $70 a share was a 27% premium for a stock that had gone flat. The ruling Busch family ultimately faced up to the fact that the U.S. is for sale, and foreigners are buying. It’s everything from the St.-Tropez crowd buying up condos in Palm Beach, Fla., to Asian and Middle Eastern governments sinking billions into U.S. banks to Europeans taking over U.S. pharmaceutical and infrastructure companies. Even tourists are busy using their euros and pounds to snap up iPhones, jeans, shoes and everything else they can stuff into the empty suitcases they carry along for just that purpose, damn them.
The weak dollar and our weakening economy are underwriting the great American yard sale. Investors from Dubai are behind the June purchase of the General Motors Building in New York City for $2.8 billion. The Abu Dhabi Investment Council’s sovereign wealth fund bought a 90% stake in the landmark Chrysler Building. General Electric’s plastics division is gone, and its famed appliance unit could soon be in the hands of China’s Haier or South Korea’s LG. Chrysler is hoping to hook up with India’s Tata Motors or Italy’s Fiat. Switzerland’s Roche Holding is offering about $44 billion to acquire the 44% of the biotechnology outfit Genentech that it doesn’t own.
The surge of foreign buying spans the economy. Since 2003, foreign-led mergers and acquisitions have increased more than sixfold. Last year there were over 2,000 foreign-led acquisitions of U.S. companies in deals worth some $405.4 billion, twice the value of deals in 2006 and up from $60.8 billion in 2003, according to Thomson Reuters, the financial-information company. Unlike the 1980s panic about the Japanese buying up American landmarks like Rockefeller Center, the response of the financial establishment has been to welcome the latest rush of foreign investment. “The U.S. needs these flows, particularly now,” says Bank of America chief market strategist Joseph Quinlan. “It helps create income and jobs for Americans.”
That would include Anne Marie Moriarty, a vice president at Corcoran Real Estate Group, who shuttles between New York City and European capitals, tempting foreign buyers with choice American properties. Moriarty is brokering the $16 million sale of an apartment in Manhattan’s Chelsea neighborhood to an Italian buyer, just one of the latest in her run of foreign deals. She says that since March 2007 her residential sales to foreigners have doubled, which is part of the reason that New York’s real estate prices have held up in an other wise tanking market. “It’s bucking the trend,” says Moriarty. Foreigners “see it as a long-term investment. Part of [real estate] for them is owning a piece of New York.”
Foreign companies were also the buyers in four of the top U.S. commercial real estate deals in 2007, according to Real Estate Alert newsletter. Rome-based investor Valter Mainetti has been building his Michelangelo Fund around trophy properties, ones that have historical or architectural value beyond their location and square footage. In 2006 he acquired a minority share in New York City’s Flatiron Building, a property that today is valued at $180 million. In June he raised his holdings to a 53% share of the famous building. “The Flatiron is expensive, but with the [cheap] dollar, it made sense to increase our share,” says Mainetti. “The stability of the New York real estate market is unique. This current crisis will pass, and the dollar will re-establish itself. We are confident.”
Foreigners spent $52.2 billion on U.S. commercial real estate in 2007, double the previous year’s total, according to Real Capital Analytics, a research group based in New York City that tracks property investment. Dan Fasulo, head of research at Real Capital Analytics, says foreign investment in U.S. property is a relatively recent phenomenon. He compared the current trend to the globalization of stock-market portfolios in the 1980s. “This isn’t just about the dollar. The strongest driver is that investors are looking for geographical diversification. The same situation played out on Wall Street about 10 to 15 years ago,” he says.
Buy American (Companies)
Over the past five years, foreign takeovers of U.S. companies have steadily risen. Among the more notable: Swiss pharmaceutical maker Novartis’ $39 billion staggered buyout of Alcon, the world leader in eye care; British energy distributor National Grid’s takeover of utility KeySpan Corp. for $11.8 billion; Saudi Arabian petrochemical company SABIC’s acquisition of GE’s plastics division for $11.6 billion; and Italian aerospace company Finmeccanica’s pending takeover of the U.S. military contractor DRS Technologies in a $5.2 billion deal. Some 55% of foreign direct investment in the U.S. came from the Old Country last year, with extra impetus now coming from its currency advantage. Says Scévole de Cazotte, senior policy director for Europe at the U.S. Chamber of Commerce: “European companies are very much conscious of the potential windfall. You buy cheap now with the belief that in 10 years the currency will have rebounded.”
Infrastructure is a prime example. Barcelona-based Abertis has been buying up airport-operation contracts from Atlanta and Burbank, Calif., among others, and a variety of service contracts in tele communications and parking garages. Now it is seeking a $12.8 billion deal to operate the Pennsylvania Turnpike, but the state legislature has balked. The road to growth leads to the U.S., says Abertis spokesman Toni Brunet, who notes that states and municipalities have lagged behind European public entities in privatization. “In terms of infrastructure, the U.S. is an emerging market,” says Brunet.
Indeed, European infrastructure firms calculate that the U.S. needs a massive infusion of capital to modernize its roads, bridges and power lines, highlighted by a recent spate of blackouts and the tragic collapse of a Minneapolis highway bridge last year. Steve Lucas, cfo of British power utility National Grid, says estimates are that the U.S. will spend $2 trillion in the next two decades upgrading electricity and gas infrastructure. “That’s bigger than China,” he notes.
The US money supply has experienced the sharpest contraction in modern history, heightening the risk of a Wall Street crunch and a severe economic slowdown in coming months.
Data compiled by Lombard Street Research shows that the M3 ”broad money” aggregates fell by almost $50bn (£26.8bn) in July, the biggest one-month fall since modern records began in 1959.
“Monthly data for July show that the broad money growth has almost collapsed,” said Gabriel Stein, the group’s leading monetary economist.
On a three-month basis, the M3 growth rate has fallen from almost 19pc earlier this year to just 2.1pc (annualised) for the period from May to July. This is below the rate of inflation, implying a shrinkage in real terms.
The growth in bank loans has turned negative to a halt since March.
“It’s obviously worrying. People either can’t borrow, or don’t want to borrow even if they can,” said Mr Stein.
Monetarists say it is the sharpness of the drop that is most disturbing, rather than the absolute level. Moves of this speed are extremely rare.
The overall debt burden in the US economy is currently at record levels, raising concerns that a recession - if it occurs - could set off a sharp downward spiral.
Household debt is now 131pc of disposable income, compared with 93pc at the top the dotcom bubble, 79pc in the property boom of the late-1980s, and 62pc at the end of the 1970s.
The M3 data measures both cash and a wide range of bank instruments. It tends to provide an early warning signal of major shifts in the economy, although the US Federal Reserve took the controversial decision to stop reporting the statistics in 2005 on the grounds that the modern financial system had rendered the data obsolete.
Monetarists insist that shifts in M3 are a lead indicator of asset prices moves, typically six months or so ahead. If so, the latest collapse points to a grim autumn for Wall Street and for the American property market. As a rule of thumb, the data gives a one-year advance signal on economic growth, and a two-year signal on future inflation.
“There are always short-term blips but over the long run M3 has repeatedly shown itself good leading indicator,” said Mr Stein.
He cautioned that the three-month shifts in M3 can be highly volatile.
M3 surged after the onset of the credit crunch, but this was chiefly a distortion caused by the near total paralysis in parts of the American commercial paper market. Borrowers were forced to take out bank loans instead. The commercial paper market has yet to recover.
The University of Michigan’s index of consumer sentiment has fallen to the lowest level since the 1980s recession.
The US economy is without doubt facing severe headwinds going into the autumn.
Richard Fisher, the ultra-hawkish head of the Dallas Federal Reserve, warned over the weekend that growth would be near “zero” in the second half of the year.
