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Jobless claims came in at 407,000, bypassing the 375,000 level that everyone was looking for to indicate recession. Are we still going to have "pundits" claim that there is no recession, or will the facts finally be faced?

Hint to the peanut gallery - jobless claims over 400,000 are strongly associated with a recession in actual process, as unemployment is a lagging indicator.

Oh, is there a lawyer in the house who wants to make a name for themselves? See, I think there's an argument that the Bear Bailout may be actionable. I ain't one of those leathery-skin landshark things, but if you are one and are interested in chasing after this..... what a way to "get on the map."

Of course you'd never get any business from the investment-banking side again yanno. Anyway, if you are one of those fine folks, drop me a note - since its clear that CONgress "ain't gonna do the right thing."

There are still lawmakers out there claiming that "the choice they made was probably the right one" related to Bear Stearns and The Fed, with the claim that "the system would have melted."

No it wouldn't.

Let's not be stupid.

The Fed, the SEC and other regulators could have stepped in with a "standstill" order, getting a judge out of bed if necessary to get a TRO and freeze the derivatives. Then announce the discount window opening and let Bear hit it. Give the market a week to absorb this and for the capital to get into the system, and see what happens, unwinding the derivatives book in an orderly (if painful) fashion.

If and only if this fails, then I can see justification for a forced merger, but not with Jamie Dimon on the board of the NY Fed being involved in the deal on both sides of the table!

Oh, and can we have Congressional Hearings on Chris Dodd's campaign contributions from Wall Street and his willful blindness? Of course not. Nor can we ask those questions of any other Congress person or Presidential Candidate. Yes, I know, its all above board. Uh huh. Pull my finger.

Or, for that matter, Chuck Schumer's campaign contribution list. Let me guess - his willful blindness is "beyond question" too?

How about a bought and paid for Congress, intentional and willful blindness by Congress even when the risks are explicitly brought to their attention via petition faxed to their offices, and now, you and I are going to get the bill so those contributions from Wall Street will continue!

Never mind that there is now a rumor flying around that Goldman Sachs (NYSE: GS) was in some way partially responsible for Bear going down - the claim is that they circulated a memo refusing to take the other side of trades with Bear a few days before it all went "boom." But before you throw slings and arrows at Goldman, let me point out that there is nothing wrong with trying to put your competitors out of business, so long as you don't do something illegal in the process. In fact, when I ran MCSNet we tried to put competitors out of business every single day!

Go ask some of my former competitors what they thought of us when we introduced the "Cheapernet T1" service in Chicago, undercutting everyone else's business-class T1 dedicated line service by fifty percent! (Hint: They didn't like it!)

But this is how capitalistic societies work. The "better ideas" prosper while those businesses make money, and the "poor ideas" fail while those who put them forward go under. This is not a bad thing, its a good thing. In fact, since we have zero regulatory supervision on leverage, the only means to enforce margin and leverage discipline is the free market, where those who put themselves in a position where they can be destroyed by a "bear raid" suffer business failure!

The real question related to Goldman and Bear is timing. If the reports circulating on the Internet are correct Bear was on CNBC claiming all was ok with them after Goldman circulated that memo and they became aware of it. If that proves to be true I hope someone ends up in prison - we must start enforcing the law with regards to these corporate officers coming on national television and proclaiming how "great" their business is just days before they blow up!

Countrywide Financial anyone?

In other "news around the table" CISCO (Nasdaq: CSCO) was downgraded on reported weak "channel checks" for new orders and Garmin (Nasdaq: GRMN) warned of an upcoming miss. Both, along with the unemployment picture, point to exactly what I've been saying for some time - "here comes Mr. Recession!"

A "generational buy" on those banks eh Mr. Bove? Hmmmm... We shall see. Recessions have a nasty way of turning C&I loans (which you were crooning about) into big fat losses when bankruptcies ramp up in the commercial space, never mind the tiny little problem that usually comes with commercial real estate 18-24 months after residential craters. That will be next, as I've been saying since last April, and yet this "generational buy" call treats that as if "this time it will be different."

No it won't.

Oh, if you needed more evidence that the recession is here and spreading, how about this?

"Consumers fell behind on car, credit-card and home-equity loans at the highest level in 15 years during the fourth quarter, another sign the U.S. economy is slowing, according to an American Bankers Association survey."

Worst in 15 years eh? Let me guess - that's all "discounted" eh?

The problem, fundamentally, is that there has been basically no income growth for all but the top 10% in the last eight years, but spending has grown. How do you explain this? Americans have been taking out the "growth" in their home equity and spending it, leaving the debt behind.

Now that game is up and you're seeing Congress scramble in a mad rush to attempt to prevent what inevitably must follow - contraction of home prices back to affordable levels, and the removal of the "Household ATM machine" as a spending catalyst.

The problem with all of this mess is that it does not excuse violating The Constitution, and so far we have seen exactly NOTHING in the form of real regulatory reform, nor will we, because CONGRESS RECEIVES INSANE AMOUNTS OF MONEY FROM THESE ROBBER BARONS ON WALL STREET.

Everyone wants to talk about "systemic risk" but nobody is talking about the fact that The Fed, the SEC and Congress created this mess by allowing all the off-balance sheet games, the off-exchange derivatives, the entirely arbitrary leverage ratios that nobody is forcing to be capped and the promulgation of massive fraud that all of the market participants not only enabled but actively promoted!

And before you go blame "Bush" for this let me remind everyone that Gramm-Leach-Baily, passed during Clinton's administration and signed by him, repealed the last pieces of Glass-Steagall, which prohibited this sort of nonsense in the first instance.

So first we have Congress allowing the banks to create a financial mess in which Joe Six Pack in America is systematically robbed, then we have The Fed continue to enable that robbery via its "23A" exemptions (which were issued last summer and which I've been writing about since.) Next, we have Bear Stearns which had two big hedge funds that got in serious trouble last summer, yet there still was no Federal intervention.

Finally, more than six months and four petitions to lawmakers later, well beyond the point where any claim that "we didn't know" has lost credibility, we have an actual business failure and yet Congress spends its time bloviating about how "systemic risk had to be avoided through this bailout."

Let me remind each and every reader that Congress, the SEC and The Fed had every opportunity to avoid this systemic risk had they acted last summer and into the fall, when SEVERAL THOUSAND faxed petition copies hit their machines warning them of the "23A" ticking nuclear financial bomb that was sitting out there on Wall Street.

Systemic risk?

Why doesn't someone ask these clowns the obvious question:

Why didn't you care back in August, September, October and November of last year about systemic risk? Why didn't you ACT back then to force the revocation of those 23A exemption letters and force the deleveraging of balance sheets so that this risk would not have been realized in the form of the meltdown of Bear Stearns? Why did you willfully and intentionally turn your head the other way, despite the hollering of many thousands of Americans who, over the months, signed multiple petitions that were faxed to your offices demanding investigation of these matters so that stability of our financial system could be maintained?

I specifically note that on October 31st the petition at this link was launched (it contains 2478 signatures, by the way, all of which were faxed to Congress) saying, among other things:

"Congress must act to ban all off-balance-sheet 'conduits', SIVs and similar schemes, and require that any and all liabilities be properly and completely reported both to regulators and shareholders. These vehicles create an intentionally-false view of firms' financial condition. In effect, these vehicles serve to fraudulently manipulate a bank's balance sheet by hiding debt. These are the same accounting tricks that were instrumental in Enron's bankruptcy. Now, on the front page of the Wall Street Journal (October 13th) we learn that Secretary Paulson is actively involved in attempting to expand this deception!

Congress must exert its Constitutional authority to regulate the banking system and demand that the Federal Reserve immediately revoke six recently issued '23A Exemption Letters.' The Federal Reserve, in addition to 'looking the other way' with the 'SIVs' and 'Conduits' referenced above, recently granted six large banks an exemption from one of the last pieces of Depression-Era banking regulation - 'Regulation W' - which prohibits more than 10% of a bank's regulatory capital being allocated to a single affiliate. These '23 A Exemption Letters', in tripling the allowed exposure, circumvented the 'safety systems' intended to prevent another banking crisis caused by these irresponsible practices."

Yeah. You didn't know and didn't have the opportunity to prevent this eh?

YOU ARE LYING AND WE THE PEOPLE ARE TIRED OF IT.

Oh, and those 23A letters? As far as I can tell they remain standing.

How many more potential "Bear Stearns" are out there and may present the same "systemic risk"?

Answer: At least SIX - the recipients of those "23A" letters, and among them are very large commercial banks, in which the deposits of millions of Americans are "presumed safe."

You have not and you will not hear Congress demand the revocation of these letters nor the reduction of leverage in the banking system because to do so would lay bare the fact that these firms are selling at insane multiples under any sound lending paradigm, and as a consequence their share prices and the "wealth" of their executives would crater immediately. The same applies to forced mark-to-market and disclosure of the true levels of leverage and risk in these institutions. Forcing these disclosures and the reduction in share prices that would result, of course, would result in the instantaneous vaporization of the campaign contributions to those very same Congressfolk who enabled the underlying deception in the first instance.

What's worse, this deception continues even today, with The Fed outright refusing to make public exactly what is in that "collateral" that we now indirectly own as the taxpayers!

Even better, one of the nuggets out of the hearing today is that since the opening of the PDCF, the "new" credit facility, the vast majority of the loans open at the present time on that facility are in fact out to Bear Stearns!

So IN POINT OF FACT it is now clear that Bear ALMOST CERTAINLY WOULD HAVE SURVIVED had they been given access to that facility INSTEAD OF THIS ENTIRE MESS OF TRANSACTIONS BEEN UNDERTAKEN.

Or would they?

Between Bear and JP Morgan, which are now the same, essentially the entire credit facility can now be accounted for. Now let's think guys - is Morgan ok or are THEY in trouble with liquidity? Yeah, yeah, I know, they just went there to "prove it works." Uh huh - pull the other one kids. That's why JPM wouldn't take the "great" collateral that Bear threw off on YOUR BACKS on their own - because they're so certain that this collateral is money good, right?

WAKE UP AMERICA.

You have been systematically defrauded and your pockets have been repeatedly picked. This will not end until you get off your ass, stop swilling your beer, and ACT to force accountability in Congress so they do their damn job.

Three times within a couple of months last year Americans flooded the Capitol Hill switchboard and stopped dead in its tracks an immigration bill that was going to grant amnesty to over 20 million illegal Mexicans in this country. Three times, including one event where an attempt was made to attach an amendment in the wee hours of the morning, you, ordinary Americans, picked up your phones and raised hell with Congress.

Yet what was happening in that instance - an attempted hijack by business interests who were hellbent on breaking employment and tax law, and who donate insane amounts of money to Congress - was stopped cold by Americans picking up their phone and exerting their influence with their Representatives and Senators.

I have run four petitions in the last five months on these issues. None have garnered more than a couple of thousand signatures. Without a groundswell of public outrage this theft from you - a theft which is vastly larger than that which illegal immigration presents - will go unchallenged.

The choice is yours.

You can sit on your ass and swill beer, or worse, try to force government to give you some money too.

Or, you can pick up the phone, heading over to http://www.house.gov/ and http://www.senate.gov/ to get the phone numbers of your lawmakers, and raise hell.

Until and unless the Capitol Hill switchboards are once again flooded with angry calls from Americans, we will continue to have our pockets picked through unconstitutional actions by unelected officials and quasi-government agencies that have managed to write themselves a check against your 401k, IRA and bank account.

You need to understand one thing above all else - house prices cannot be maintained at over three times incomes on average.

IT IS MATHEMATICALLY IMPOSSIBLE FOR ANY OTHER OUTCOME TO HOLD SWAY OVER ANY SIGNIFICANT AMOUNT OF TIME. We can (through the law) change who eats the losses BUT WE CANNOT PREVENT THE LOSS.

Government intervention in this process will increase the loss you personally suffer, NOT DECREASE IT.

For those who find themselves with a "bubble house" - that is, a house that is worth less than the mortgage amount, and yet who were reasonably prudent in their finances - that is, you have a purchase money first mortgage, made a down payment, and did not HELOC out money and spend it - that is, you have a no-recourse loan - the correct choice is for you to Jingle Mail the keys. Yes, you will take a serious hit on your credit for several years. But the investors and bankers who made that loan will take the majority of the financial hit.

If YOU "geared up" and took a second, HELOC'd out the phantom appreciation or otherwise speculated in such a fashion you have no choice but to absorb the hit that you have coming from your imprudent behavior, which may include a personal bankruptcy.

LET ME BE CLEAR: If you choose to try to play "leach" and get the government to bail "you" out, what will happen instead is that you will lose anyway and so will everyone else. Let me explain why, and what will happen - with absolute certainty, if you "succeed" in that campaign:

• The government will "print" you a check in some form to "bail you out." Whether it is via explicit home price supports, tax breaks, or otherwise, you will think you "won."


• The bond market, which the government cannot control, will react to that event. The long end will sell off big because international investors will correctly perceive that this debt creation by our government to transfer this "support" to you is extremely inflationary. This will cause real interest rates to go significantly higher.


• Mortgage rates are largely determined by the 10 year bond coupon (interest) rate. They will follow the market higher, as you have seen over the last several years.


• Those higher interest rates will cause your home's value to drop in the same fashion and at least the same amount that it was going to fall anyway. If, for example, the bond market was to cause mortgage rates to go from 6% to 8%, a 33% increase, the value of your home will drop by approximately, as the buying power of a purchaser will decline by that same 30%.


• In addition, our government requires about $2 billion dollars a day in foreign investment to pay its bills for things such as Social Security and Medicare. The cost of financing that debt will also rise by 33%, which will force immediate reductions in government spending or, alternatively, huge increases in the amount of taxes you pay.


• Finally, private debt market costs are also closely tied to market interest rates. Your job will be at risk because the firm you work for will be paying much more to borrow money, which dramatically increases the risk of that firm either failing outright or laying you off.

If you do not understand why you cannot win by having the government bail you out go back and read the above again - and again - and again - until you get it.

There is absolutely no way to prevent your home's value from correcting to historical norms.

NOTHING YOU OR THE GOVERNMENT CAN DO WILL CHANGE THAT OUTCOME, BUT IF YOU CONTINUE TO CALL FOR BAILOUTS INSTEAD OF SCREAMING FOR THE GOVERNMENT TO STOP THIS NONSENSE YOU ARE NOT ONLY GOING TO LOSE YOUR HOUSE YOU ARE ALSO LIKELY TO LOSE YOUR JOB, RETIREMENT SECURITY AND MEDICARE!

The sooner you recognize this and deal with it, the better off we will all be.

Govern yourselves accordingly.