The Market Ticker

So here we sit at 7:00 AM on the cusp of a breakdown of the flat triangle that has been forming over the last couple of weeks.

We actually threw under it overnight, but have regained the lower boundary. 

If this fails to hold we are looking at a violation that should lead to a ~200 point SPX drop, taking us into the mid-600s - and the DOW into the 6,000s.

That, of course, is ugly stuff.  Very ugly stuff.  The last line of defense lies at the 2002/03 lows; if those fail then support is going to be very, very difficult to find.

The underlying cross-current here is not local to the United States; it has shifted overseas.  We are seeing the smashing of currency crosses, but here's the nasty part - if you look at history, it wasn't that long ago that the Euro/Dollar cross, for example, was below where we are now.  Ditto for the pound.

The bigger issue is the Yen/Dollar cross.  That is in a range only seen in 95/96.

So what's all this mean?  Pretty simply that the stupidity that wound up all of this false prosperity in the last few years is now coming off, along with the valuations.  It is smashing forward profit prospects, as that falsehood is coming out of the market too.

But at the same time it is restoring some balance in trade, in that the false "economy" of importing everything into the US, made beneficial only due to a depressed dollar, is starting to reverse.

Those who have, for the last year, thought that the dollar was going to collapse imminently have been proven wrong. 

Period.

And by the way, last summer, I was in that camp.  But as the facts changed so did my opinion, and into the fall it became clear that while we were in bad shape, the rest of the world was going to get it worse than we are - far worse.

If you think our markets are in bad shape, have a look over in Japan, China (!) or for that matter into Europe.  We still have a major stability problem in Europe, and there is no evidence that this has (or will in the short run) resolve cleanly. Specifically, there is far too much leverage in the European banking system and an utter lack of admission that this is a key element of instability that has led to the morass we find ourselves in.  Worse, the emerging market economies have nearly all of their potentially bad debt being held in those banks.

If this gets out of hand - and the jury is out on whether it will - the consequences will be especially severe, as we will be forced to choose between cutting off these nations (and letting them collapse) or putting our own political system at risk of collapse.

While the concept of "helping everyone out" sounds good in theory, providing swap lines back and forth to various nations, in truth this just enables the lying, just as the person who has an alcoholic spouse can only continue to booze away so long as they have someone who will cover for them, both providing them with the funds necessary and bailing them out when the cops stop 'em while driving.

Drug or alcohol abuse, just as with credit abuse, only stops when supply is withdrawn or the patient dies.  While everyone loves to talk about "managed withdrawal" you must in fact do the withdrawing.

We've seen no evidence - at all - that any such withdrawal and forcing of reasonable credit standards, as opposed to "gimme another case of booze", is on anyone's agenda.

In fact, it appears that we're on path to try another Greenspan style "kickstart", although this time I not only doubt it will work, but fear it will produce the very collapse that everyone is claiming to want to avoid.

For today, watch the key level of 839 in the SPX and, if it fails, watch the 760ish level, the 2002/03 Bear Market bottom.

Below there the abyss beckons, and the smell of sulfur has been detected wafting upward; if I had to take a bet here it would be that we're likely to get a bounce either here or off the 760ish level that will likely go into the end of the year - then reality hits on all the Treasury Supply in the form of much higher real interest rates, along with the dislocation in the broader economy and job environment. 

As such I rate the odds of the 02/03 bear market bottom holding through next year as essentially zero, and "investing for the long haul" (as opposed to trading this market) is, at this juncture, idiotic.

We'll start with my Thursday missive: "To Our Government: CUT IT OUT NOW!"

Go read it again or read it the first time if you haven't.  It pretty much lays out the case on the blatant, intentional, corrupt practices of everyone up and down the line in the banking system, Congress, the Executive and The Federal Reserve.

It paints a stark, true, and indisputable picture of knowing and willful refusal to enforce and uphold regulations and practices that would have ended this economic crisis before it occurred, but would have also prevented our economy from being propped up by "bubblenomics".

It paints an even sadder, but no less true, picture of the foolishness of The American People, who are apparently incapable of understanding that you can't have "prosperity" that is based on nothing more than debt, you can't tax your way out of a hole, and you can't redistribute income and make things "more fair".  While unbridled free-market capitalism without regulation is a disaster, since no regulation means that lying, cheating, and fraud will become "how business is done" (just look at the last eight years) the "solution" of "make government the lender of first, last and only resort, and impose taxes on those evil capitalists" is no better and likely is even worse.

So here we are with just over one week before the election, and I am compelled to cite Einstein one more time:

"Insanity: Doing the same thing over and over and expecting a different result."

That's John McCain.

John McCain comes off condescending and "sad" when talking about the economy and the mess we are in. 

He should be angry. 

He should not be talking about how its "sad" or "unfortunate" that Wall Street pulled this crap, because in fact it wasn't just Wall Street, it was also Congress, Treasury and The Fed.

No, he should be roaring pissed off. 

Everywhere he can find a microphone or TV camera he should be making the following speech:

It is time for the "Straight Talk Express" to once again run the streets, highways, and airwaves of our nation.

In the last few weeks I have come to realize that I, along with the rest of America, have been bamboozled for more than 20 years by a group of men and women who have robbed us all for their personal benefit.  You, I, and everyone else in this great nation have been systematically lied to regarding our economy.  We are suffering a historic stock market crash, along with record rates of foreclosure and economic suffering, as a direct consequence of these lies colliding with the laws of mathematics.

If you elect me, every one of these bastards who created the economic mess we are in is going to prison.  All of them.  All the "captains of industry", all the ratings agency executives, maybe even some members of Congress, Treasury, the SEC and The Fed.  Every last one of the people who knew and didn't tell the American People, every last person who lied in front of Congress as to the state of the American economy, every person who leaked some sort of information and every executive in a firm who knowingly presented a misleading financial statement anywhere - on TV, in the press, in their published quarterly reports.  All of them.  The FBI and Justice Department will be the only branch of government that will grow in size, and grow mightily it will, because we are going to lock up each and every one of these people.

Every financial institution that is operating with excessive leverage is going to stop that immediately.  There are dozens of large foreign banks that have played a vital part in creating this mess, and some of them who are listed on our stock exchanges or have offices here in the United States.  Every one of those firms is going to conform to our rules or leave our shores on January 21st.

The house price appreciation you "enjoyed" was, as you've seen, a fraud.  If you elect me you may lose your home, but you'll be able to buy it back at half price once you're foreclosed and prices correct to a sustainable level.  While this sounds cruel, if you think about it for a while you will realize it's in your best interest - your mortgage payment will drop in half too, because your house price will be cut in half.  Those intelligent banks will write down principal rather than foreclose because its cheaper for them to lose 40% than to lose 60%; the foolish will force you to rent for a year or two while this process completes.  We will urge lenders to be intelligent, but if they're not, they will go bust, so at least your pain will be theirs.  For those lenders and banks who go under, not one dime will be paid in severance or golden parachutes, and if they try it, those executives will go to prison as well.  We will claw back every nickel we can from those firms and individuals who have illicitly profited from this bubble, starting with the executives of firms who have failed or been "absorbed."

There are many who think that we have had "too much capitalism."  In fact we haven't had capitalism at all - we have had blatant fraud and theft instead.  A capitalist society is one in which those who make bad decisions fail and go bankrupt, not one in which those who fail are rescued by taxpayer money.  A capitalist society does not reward those who lie, cheat and commit fraud with bailouts and handouts.  A capitalist society does not allow its Treasury and Federal Reserve to operate in the dark of night, choosing winners and losers among financial and other firms. 

All of these abuses are part and parcel of why we are in this mess, and all will end the day of my inaugeration.

We will not spend more than we make in my administration and you will have to live with not spending more than you make.  "Saving" is not a dirty word.  It is, in fact, the only legitimate base against which to lend.  Those firms and individuals who have spent the last twenty years under both Republican and Democrat Congresses and Presidents living a lie must adjust to truth and reality, and do it now.  I will force through Congress my first week in office a bill reversing the so-called "bankruptcy reforms"; every American who gets in over their head will be able to file Chapter 7 and stick it where it belongs - on the lenders who made the imprudent loans.  You will not get off scott free, as your credit will be ruined for seven years and your Hummers, vacation homes and other toys will be gone, but you won't be forced into debt slavery either.  It is only just that if a company can go bankrupt no matter its size and income, discharging its debts, so should you be able to.

It is time for America to face the facts: Our entitlement systems and the explosion of easy credit have made promises that cannot be fulfilled.  This is not a question of political will or desire, it is the laws of mathematics.

You can vote for the other guy who has promised you that which is mathematically impossible to deliver, in which case you are voting to destroy this nation, and that is precisely what will happen if you vote for him.  You have only seen the beginning of the carnage and pain that will be served upon our economy and stock market if you vote to continue to spend more than we make, attempting to vote yourself a paycheck and refusing to address head on the pernicious fraud and abuse throughout Wall Street, Main Street, K Street and Washington DC.

Or you can vote for me, and I will, from my first day of office forward, operate an administration that will force the bad debt into the open where it defaults, force the frauds and phonies into the court system where they will be tried for their crimes, and set right our national budget, our economy and our trade policy.

Taking the course that preserves America will not be easy.  It will not be painless.  But you may rest assured that if you choose me to lead this charge, these promises will be fulfilled, our nation will be purged of this pernicious and outrageous fraud, and if you suffer, those who perpetrated this fraud upon you will have justice, and their just punishment, meted out to them.

Thank you, and may God Bless America.

This speech, or something very similar to it, is the only way John McCain and The Republicans can change this map:

(map from http://electoral-vote.com)

Numerically the numbers are stark.  Obama has 375 Electoral Votes, McCain has 157, with 6 "ties".

To win, McCain must essentially turn every one of the white, bordered blue and light blue states red, excepting only one.

Here is the math -

"Ties" are six electoral votes, Montana and North Dakota.

The "bordered blue", or "leaning" Democrat states constitute 58 electoral votes, which are Nevada, Missouri, North Carolina and Florida. 

57 Electoral Votes exist between the "weakly democrat" states between New Hampshire, Virginia, Ohio, Indiana and Colorado.

To win, McCain or Obama need 270.  McCain has 157, assuming he does not lose either of his "weakly" red states, South Dakota and West Virginia, nor Georgia.

If he wins all of the "ties" and "bordered blue" states, along with everything red on the map, he has 221.  Not even close.

Thererefore, he must pick off a combination like Indiana, Ohio, Virginia, and Colorado.  New Hampshire leaves him one short.

That is, to win McCain must flip all but one of the states that are not solidly Democrat (those he has no chance at flipping over.)

If Obama can keep just one state with 10 or more EVs that are leaning his way from going to McCain (including flipping Georgia) the race is over.

These are insurmountable odds barring something truly revolutionary out of McCain in the next week.

John McCain has one - and only one - place he can appeal that will matter.  That is the economy.  It is literally the only chance he has to flip states like Indiana and Ohio, where the economic bite is particularly strong.  He must win Florida, and he can't do so with retirees, who make up a huge percentage of the population, seeing their retirement portfolios decimated by 40% or more.

Yet without all of those states and more, he can't win. 

This is math, not science.

John McCain has sent me two FedEx envelopes in the last three weeks begging for money - lots of it.

He's not going to get money in the latest one.

He's going to get a copy of this Ticker, and I suggest strongly that you contact your local and state Republican Party offices and fax them copies as well.

Absent John McCain's message becoming what I have outlined above, Senator Obama may start measuring the curtains in the White House at this time.

"Told you so."

Last evening's entry

Wednesday evening

Wednesday's morning

If you're getting this by fax - go to the web site and read those three Tickers, then keep going backward.  Its all chronicled there.

To Congress: I did my damnedest.  You decided to listen to Bernanke and Paulson, the people who caused this mess, instead of people like myself who did not and who have been trying like hell to help you fix it.  For more than a year.

To America: Congress didn't want to hear from people like myself, Nouriel Roubini, "Mish" Shedlock and, in fact, you.  In fact, they refused to speak with us.  We have called, faxed, written.  You have signed petitions, which I and others have faxed on your behalf.  Many of you called Congress when they were debating the EESA, and told them to vote NO. I have repeatedly offered to get in a plane and fly to DC to testify before Congress - at my expense - in letters faxed to all 535 members of Congress.  I have written to both Presidential Campaigns.  Senator Martinez' office (R-FL) has one legislative aide who has been willing to spend some time on the phone with me, but The Senator hasn't deigned to speak with me, despite the fact that I am his constituent.  Allen Boyd, my Congressman, has deliberately blocked my fax line from connecting to his machine.

Not one Statesman has been found among Congress who has been willing to get in front of a TV Camera and demand that this madness end, that the people who committed this fraud go to prison, and that the taxpayer checkbook snap shut until the thieves and liars are purged from the system.  I have repeatedly asked for Senator Martinez to do so and left my phone number with his staff, asking that he call me so I can explain personally why it is so important that it happen now. Instead both House and Senate have coddled the rich and powerful on Wall Street and K Street.  Yes, even those who voted "no" on the EESA. 

Sometimes a vote isn't enough.  Sometimes history calls for you to band together with the others in your legislative body who believe as you do and make a big stink in the Media, continuing to holler and raise hell until you effect change. 

This was one of those times, and still is. 

Congress has refused to rise to the challenge.

Congress poured $700 billion worth of gasoline on a raging credit fire all at once, and more than $1.5 trillion over the last few months - a fire caused by too much "liquidity", too much and too cheap credit. 

This has turned what was a mess into a conflagration and destroyed what confidence was left in the system.  The EESA is the proximate cause of the crash, but the root cause is Congressional refusal over the last year, as chronicled at http://supportedthebailout.org, to listen to all of us in America.

Congress instead listened to the very people who made the mess, who profited from the mess, who gave Congress millions of dollars in campaign contributions ("bribes", as I see it) and who have in fact robbed your neighbors of their homes and you of your 401k and IRA balances.

It is now up to America and Americans to hold Congress, Treasury and The Fed accountable.

Absent something extraordinary, we are going to crash this morning in the stock market.

For real.

No, what you saw earlier this month wasn't a crash. 

This is a crash.

I expect some sort of intervention will be attempted.  It won't work for long, if at all.

I need a drink, and its 5:30 in the morning.

10:00 CT Update: Obvious intervention in the FX (and flowing through to stock) market.  "Saved" us?  Uh, no, we're down 5%ish anyway.  Beware buying this bounce off the lock levels - it may hold for an hour, a day, a week or a month, but you will get an ugly surprise if you think it will hold - interventions never do (just ask Japan)

Let's start with AIG: $122 billion may not be enough.

Why?  Because the CDS they wrote keep going down in value and forcing margin calls for more collateral (money).

First question: The OTS is their primary regulator.  Why aren't the people running the OTS being strung up by their toenails in Congress?

Second question: Why isn't AIG's management in leg irons if they did not properly disclose this risk to both shareholders and regulators - and if they did, let's see the proof.

Next up, let's talk about Freddie Mac and Lehman.

"Freddie Mac, the mortgage lender that was seized by federal regulators, has asked a bankruptcy judge to investigate the whereabouts of $1.2 billion that Lehman Brothers borrowed."

...

Freddie Mac loaned the money in two chunks -- first $450 million then $750 million -- in mid-August.

Huh?  Since when was Freddie Mac a bank or other firm that had free rein to loan money out to various entities?  Why would Freddie Mac loan Lehman money?  Where was this disclosed in Freddie's corporate filings?  In its quarterly reports?  How many more loans have been made, to whom, and why?  And why aren't the executives of Freddie in the dock on this - right now?

Oh, you know how everyone was up in arms about "naked shorting" stocks?  Well how about naked shorting Treasuries?

"The latest data from the Federal Reserve Bank of New York showed that cumulative failures hit a record $2.29 trillion as of Oct. 1. The federal settlement period is T+1 (trade date plus one day). The outstanding U.S. public debt is $10.3 trillion.

"Current [fail] levels are at historic levels," said Rob Toomey, managing director of the Securities Industry and Financial Markets Association's funding and government and agency securities divisions. "There's been significant flight to quality" with the market turmoil, he said. "

Oh, so because people want to buy what they can't acquire without paying up for them, we just short into that and pretend securities exist that really don't?

And you'll love this on "what we're doing about it":

The Department of the Treasury has a buy-in rule for the cash markets, but the repurchase markets rely on contracts, Mr. Toomey said. Currently there are no penalties for failures, and regulators to date have not required disclosure whether the dealer or the client fails to deliver.

Nothing like a bit more fraud.  After all, the fraud we've seen thus far isn't all that much, right?  We should encourage more of it.  Oh wait - we are.

Never mind that THIS fraud is on sovereign United States Debt.  Ain't that grand?

You know what the really cute part of it is?  If you "bought" a T and it was FTDd, the counterparty is required to pay your coupon to you on the failed T.  When its a bill yielding 10 basis points (as has been the case of late) who cares - the money is inconsequential, right?

Ok, now what happens if the counterparty goes under?

Hint: He has your money, and the bond doesn't exist.  How do you spell "100% loss"?

Now, one tiny little inconvenient question - Treasury Money Market Funds - you know, the ones we all think are quite safe because they hold ONLY short-term Treasury paper?

Do all those T-bills they allegedly hold really exist?  And if not, uh, exactly what is my "money market" fund holding?  You do know that a lot of those funds use repos, right?  That's those "private contract" things they're talking about.  You know, the kind where they lie and then rip you off behind your back?

Now let's talk banks.  You know, those things that are supposed to hold reserves against deposits when they make loans?  Well guess what - there are no reserves.  The non-borrowed reserves have been negative for months - since the turn of the year, in fact, and now total over $300 billion dollars. 

What does this mean?  Simple - the banks lost (blew, speculated with and got caught on the wrong side of, issued or purchased crap securities with, paid bonuses with, paid the light bill with, etc) the reserves they are supposed to hold against deposits.  This would usually result in them being declared insolvent and the FDIC would seize them, but that would be inconvenient.  So instead they went to The Fed which loaned them reserves so it appears they have some.  It appears they have subsequently lost some of that money as well, because the "non-borrowed" reserve number continues to increase in the negative direction (that is, its a negative number - a very large negative number.)

But wait - where did that money they borrowed come from?  Why Treasury issued debt against which was issued money, cranking The Fed's balance sheet up.  So in effect, what were bank reserves held back from your deposits are gone (kaput, vaporized, in some banker's yacht at The Hamptons, etc) and have been replaced by debt issued by Treasury against FUTURE tax collections to be levied against you! 

That's right - your reserved deposits were lost, and replaced by an IOU from Treasury against YOUR FUTURE EARNINGS.

You not only gave your money to a bank which lost it, they then (by the magic of the Treasury and Fed) then turned around and enslaved you going forward to get it back from your tax payments.

Circle, meet jerk.  Isn't life grand when you can lose your customer's deposit money speculating and then recover it by taxing them?

I guess that's supposed to be ok, since its the same thing that Congress did with the EESA/TARP right?  The banks don't have enough capital so instead of forcing them to sell assets and/or go out and get it on their own (possible on Guido terms if they can get it at all) Treasury forcibly enslaved all of America to provide that capital via a "call" on future tax revenues, and give it to the bankers so they could pay bonuses and play "corporate raider" with one another.

And how did the banks that are "benefiting" from the TARP lose the capital in the first place?  The same way they lost the reserves - by speculating in property markets, by making imprudent loans to people who couldn't pay them back, and by getting wound up in fraudulent transactions like Credit Default Swaps that were in fact a fancy game of "pick pocket" - a game gone horribly wrong.  Oh, yeah, and by bonusing out $70 billion dollars - half of their revenues - to their staff.

For all of this YOU THE TAXPAYER is expected to pay.

Still trust banks and our government? 

This much is true - you can trust 'em to rob you blind and you can trust the government to hand them the guns necessary to do so.  You can also trust The Fed and Treasury to conspire to cover up the losses and stick the lot on your tax bill; they've been doing a great job of it thus far, to the tune of nearly $3 trillion dollars in the last nine months, or an expansion of 30% in the Federal Debt.

Back to my previous Ticker today and Greenspan's testimony:

"The longtime Fed chief acknowledged under questioning that he had made a “mistake” in believing that banks in operating in their self-interest would be sufficient to protect their shareholders and the equity in their institutions. Greenspan called it “a flaw in the model that I perceived is the critical functioning structure that defines how the world works.”"

That is a bald-faced lie.  Again, from the Ticker this afternoon with the reference to the original testimony given before Congress in the early 90s:

"""If Congress again opens up banking to Wall Street speculation, as it opened up S&Ls and banks to real estate speculation, regulators will quickly lose control over the complex series of events that a pervasive marketplace will immediately set in motion. Insider abuse, self-dealing, and back scratching relationships between institutions will run rampant""

This was not an error, as Greenspan and Congress were both warned in plain, blunt English.  It was an intentional act of willful blindness - nothing more or less, and it is an outrage that we the people, say much less Congress, tolerate this sort of intentional falsehood in testimony.

Now Bloomberg says Congress is "starting to question" the bailout?

"Shelby, an Alabama Republican, questioned why Paulson shifted tack and decided to use the first batch of the $700 billion plan for bank-stake purchases. The Treasury chief originally had asked Congress for authority to buy distressed assets from financial companies. "

Heh Richard!  Yes, you, Shelby.  You got personal faxed copies of several letters, The Genesis Plan, a white paper, a half-dozen petitions with hundreds of signatures on them and several Tickers in the days, weeks and months leading up the passage of that abortion you call the EESA. 

You were told dead-on that it would not work and guess what - it isn't and can't.  Oh, and by the way, what Paulson is doing now with the money is worse.

See what happens when you don't read the damn bill before you vote on it and refuse to read the material people take the time and money to send you? 

Congress signed a blank check to Paulson and now you're questioning him when he cashes it?

How about if you (collectively) did your damn job before the bill was voted on and recognize the facts that I and others faxed and emailed you about, specifically, that the bill gave Paulson the right to spend an unlimited amount of money on anything he wanted and also allowed him to compel any firm to do anything he wanted?

Oh no, that would require taking responsibility for that piece of crap legislation you and your cronies in The Senate rammed down the throats of every American through the use of parliamentarian tricks - legislation you apparently did not even freaking READ!

Nor did you, apparently, bother asking other people from The Federal Reserve System before you passed your bill.  Only Ben Bernanke was asked, and that sucks, because not everyone in The Fed system agrees with them.

There are in fact other voices - like this one from the Federal Reserve Bank of Minnesota:

"1. Four Myths about Quantities

The financial crisis has also been associated with four widely held claims about the nature of the crisis and the associated spillovers to the rest of the economy. The financial press and policymakers have made the following four claims about the nature of the crisis.

1. Bank lending to nonfinancial corporations and individuals has declined sharply.
2. Interbank lending is essentially nonexistent.
3. Commercial paper issuance by nonfinancial corporations has declined sharply, and rates have risen to unprecedented levels.
4. Banks play a large role in channeling funds from savers to borrowers

Uh, myths? 

The conclusions are interesting:

3. Conclusion

Our analysis has raised questions about the claims made for the mechanism whereby the financial crisis is affecting the overall economy. We emphasize that we do not dispute that the United States is undergoing a financial crisis and that the United States economy maybe in a recession or may experience one in the near future. Our analysis is based on publicly available data. Policymakers have access to other sources of data as well. Policymakers could well believe that bold action is necessary based on data that are different from that considered here. If so, responsible policymaking requires that they share both the data and the analysis that underlies the need for bold policy with the public."

Oh. 

You mean The Federal Reserve Bank of Minneapolis can't find justification for the "extraordinary" actions in the data they examined? You mean all this extra debt for taxpayers and all this extra authority for Paulson and Bernanke wasn't necessary?

So just what was the real reason for all these "interventions", if the stated reason wasn't the actual reason?

Let me posit a theory that happens to fit with the facts.

Markets do just fine on their own - provided you let people blow up when they deserve to blow up. 

But we can't have that, you see.

If we let people blow up that deserve to blow up, then the entire scheme of ponzi layering of debt upon debt would come to an end immediately.  No longer could individuals and corporations play that game, because all the non-serviceable debt would be forced into the open and default, bankrupting the participants who could not meet their obligations.  We would be forced as Americans to live within our means and buy only that which we can pay for, and take only that debt which we can pay down and extinguish in a reasonable period of time.

That would put a permanent end to the idea of 30:1, 40:1 or higher leverage, it would put a permanent end to low or zero-down payment mortgages and it would expose the millions of Americans and thousands of business that are over-levered and, in fact, bankrupt.

It would force debt issue to be based off savings, and that would mean you couldn't live off your plastic and then HELOC out the money to pay that down (effectively layering debt upon debt yourself, just like these banks) because nobody would issue you that debt, as they would (justly) understand that you are unlikely to be able to pay. 

You would have to save and invest, and as you did so, you would provide the foundation for capital formation - a real foundation instead of the void space now claimed to be "The Great Accomplishment of American Capitalism" - which has led us to the brink of The Greater Depression.

Of course getting rid of Ponzi Finance would mean no billion-dollar bonuses for Wall Street banks, it would mean no billion dollar payouts to ratings agencies to slap phony-baloney "AAA" labels on trash securities and it would mean less power and money - a lot less - for the Wall Street types and other "money changers."

And finally, and perhaps most important, it would mean that Congress could no longer operate under the charade that it can spend more than it takes in via taxes on a permanent basis, nor can government make promises that can't possibly be kept, like, for instance, the promise to pay $53 trillion in Social Security and Medicare benefits, none of which we actually have as we've stolen the entirety to fund other spending.

So when Bear Stearns got in trouble in August of 2007 there was a "wink wink nod nod" that The Almighty Fed and Taxpayer have their back, so they didn't have to face the music that comes from too much leverage and speculation. 

Instead of taking down risk across the spectrum of firms at that point, fully six months later Bear Stearns actually blows up and is "rescued" via an "inside baseball" deal where there are allegations that a Federal Reserve Loan from the NY Fed was pulled at the 11th hour to force Bear into a merger on favorable terms to JP Morgan - a firm who's CEO is on the board of that very same NY Fed.  Inside dealing?  Perhaps.  Fraud?  Maybe.

Where are the cops who are supposed to figure this stuff out?  We the people would still like to know what really happened and why that supposedly-secure NY Fed borrowing facility was suddenly yanked over the weekend - and whether the way it happened was proper.

But it doesn't stop there!  Fannie, Freddie and AIG also get bailed out!

Along with these four firms we of course must bail out money market funds that made imprudent investments, banks that can't manage to access credit because they have intentionally-opaque balance sheets stuffed with dodgy collateral and dozens of firms writing commercial paper that also have dodgy collateral behind those issues.

As we bail each of these "things" and "firms" out we simply create the need for more bailouts at an ever-increasing rate.  Why?  Because the money flows immediately to the "saved" and that impoverishes where it was previously, and they (of course) then demand "their" bailout.

Down this rabbit hole lies The Greater Depression, and soon if it is not stopped.  Like trapped rats The Fed, Treasury and Congress are scampering around afraid of the dark - or the next bank that says "boo!"

Yes Richard Shelby, I understand you voted NO on the ESSA. 

Guess what - you still didn't do your job because I didn't see you in front of a TV camera explaining that this bill was going to screw our nation. 

You along with the other few in the Senate who likewise voted against didn't spend 1/10th of the time on TV as did Bush and Paulson cheerleading, nor did you call either of them out in public on the obvious conflicts of interest.

There are times when a vote is not enough - like when our nation's future is at stake.  This was one of those times.

There is nothing wrong with "free market capitalism" so long as when you do stupid, imprudent things you go bankrupt!  That is called "market discipline" and is what we should be enforcing across the board. 

We're not because Congress and The Fed have created this bubble of an economy and banking system over the previous twenty years and none of them want to confess to the truth, which is that all of this so-called "prosperity" was nothing but a farce and a fraud, based on debt being issued to consumers and businesses that they could not pay it back with real earnings and productivity, relying instead of a "greater sucker" to be able to roll over the payments into yet more debt.

Now we're out of suckers, the check is on the table, and Congress and The Fed have as their solution taking all of the leverage onto their own balance sheets instead of forcing it into the open!  The Fed is now geared at nearly 40:1 itself, and the obvious response to "how come this isn't dangerous?" is "because we can (and by implication will) simply print as much money or debt as we need to make sure we don't blow up, and we'll make damn sure your children and grandchildren get socked with the bill.

Let's put in stark relief why Congress and the rest of our government must cut the crap right here and now:

"The FSC has not only limited insurance company exposure to Fannie, Freddie and Ginnie bonds and mortgage-backed securities, but has decided that existing credit ratings are meaningless.

The Insurance Bureau at the Financial Supervisory Commission in Taipei announced revised rules on how insurance companies can treat investments in mortgage-backed securities (MBS). The FSC says it cannot see how the United States will develop a valid mechanism to assess the credit quality of MBS issued by US federal housing loan agencies, namely Fannie Mae, Freddie Mac and Ginnie Mae."

That's right folks.  Taiwan's primary regulator for insurance companies has ruled that:

1. Ratings issued by our so-called "agencies" are worthless.
2. Agency securities can no longer be considered sovereign, "money good" debt.

Now maybe you think this is funny. 

It is not funny.  In fact, there is absolutely nothing funny about it.

This is how we lose our credit access worldwide. 

It has now officially started and what Taiwan has done will spread. 

Count on it.

Russia may be about to have exactly that happen:

"Russia's financial crisis is escalating with lightning speed as foreigners pull funds from the country and the debt markets start to price a serious risk of sovereign default.

The cost of insuring Russian bonds against bankruptcy rocketed to extreme levels yesterday. Spreads on credit default swaps (CDS) reached 1,123, higher than Iceland's debt before it sought a rescue from the International Monetary Fund."

....

"This crisis is starting to look like the Black Wednesday in 1992. Unless we see an extension of central bank swaps in dollars and euros to Eastern Europe within days to stop this uncontrolled process of deleveraging, this could get out of control and do serious damage to Western Europe. We could see the euro fall to parity against the dollar by next year," he said.

And once again the "solution" is for Uncle Sammy to ride to the rescue?  More "swap lines" with the ECB eh?  To bail out Russia?  The very same Russia that just got done rolling tanks into Georgia?

I think not; how much do we have out in swaps already? How many dollars have we printed and how much debt have we issued against dodgy collateral (at best)?

Too much.

The difference between Russia and The United States is that Russia has plenty of oil and gas and doesn't have to buy it on the international market with its currency.

We don't, and we may not be far behind them.

Listen up folks.

Greenspan said today in his testimony that ALT-A MBS "appetite" (that is, marketability) will likely never return.

This means that any of these "assets" that the TARP (you, the Taxpayer) "buy" will never be resold to anyone.  You will eat them, and Hank Paulson's claim that these "assets" will return a "profit" to the taxpayer is false.

Second, if home prices are doubling but incomes are not increasing, what part of that did you willfully ignore Mr. Greenspan?

The job of regulation is to prevent people, who are naturally greedy and will press whatever advantage they can manage to acquire, from doing so in a fashion that develops into systemic risk, and guaranteeing that the risk they pile on inures only to them when their bets turn out badly. 

In this regard both Greenspan and Bernanke have been utter failures, and both had the ability to put a cork in this crap by cutting off dealers who violated prudent standards for lending and risk management from Fed facilities. 

Neither did so.

Congress held plenty of hearings, but in point of fact what Congress has not done is exercise its prudent and proper role as an overseer of those who are supposed to regulate our financial markets, immediately removing from office those who refuse to discharge their duties properly and replacing them with someone who will, indicting the malfeasors when appropriate.

And before someone says "they didn't know", that's a bald-faced lie.

Both Congress and Alan Greenspan were explicitly warned that this would be the result.

On July 7th I wrote on this matter, and those who have forgotten need to go read that Ticker again, along with the written testimony given to Congress in 1991.

Specifically:

""If Congress again opens up banking to Wall Street speculation, as it opened up S&Ls and banks to real estate speculation, regulators will quickly lose control over the complex series of events that a pervasive marketplace will immediately set in motion. Insider abuse, self-dealing, and back scratching relationships between institutions will run rampant"

All "unexpected" eh Al?  Eh Congress?

No. 

Not unexpected. 

In fact, you were explicitly warned what would happen.

You did Wall Street's bidding, and exactly what was predicted happened.

Wall Street took the money, speculated with it, and blew serial bubble after bubble, with the explicit permission of both Congress and Federal Reserve, and the consequence has been the destruction of our economy.

Take responsibility Congress, repeal your erroneous laws, including the EESA/TARP and put Glass-Steagall back in place.

Appoint a special prosecutor - in fact, dozens of them - to investigate everyone involved, including Henry Paulson, and indict each and every one of them who committed an act of inside dealing or selling products with knowing or negligently inflated valuations.

Oh, and stop lying to America.

The record is what it is and we the people are tired of the lies and bailouts you expect us to pay for, when you were explicitly warned that what your cronies on Wall Street wanted would lead to precisely this result.

Now our 401ks are 201ks and the responsibility for what has happened, along with what is to come, squarely rests on Hank Paulson, Ben Bernanke, and Congress itself.

Grow a pair and stand up for America and Americans, not your corporate sponsors.

The election is in less than three weeks.