The Market Ticker

It's change you got.

We got more corruption.

We got more abrogation of The Constitution.

We got more bailouts.

And you think the Tea Parties were some "right wing hackery" eh?

This video is clearly NOT "right wing" hackery.  To the contrary, it contains plenty of complaints about both Democrats and Republicans.

No, I did not produce this video.

The last 45 seconds is where I hope we do not need to go.  That people are thinking we might, however, tells me that The Tea Parties are indeed not some sort of "political right-wing hackery", and that Americans' patience with both political parties is running very short.

We have:

• 535 in Washington, the majority criminals conspiring to violate The Constitution with wild and wanton abandon.
• 535 in Washington who not only have refused to demand the prosecution of tens of thousands of bankers, mortgage brokers, and those in the securities industry that caused this mess, but in fact actively conspired with them (e.g. "Bankruptcy Reform") in a (successful) attempt to force millions of Americans into debt slavery.
• 535 in Washington, the majority of whom refuse to rein in The Federal Reserve, an organization that has wantonly, deliberately and repeatedly acted vastly in excess of its legal authority.
• 535 in Washington, the majority of whom refuse to rein in, investigate and punish Treasury, who along with The Federal Reserve now stand accused by a CEO in sworn testimony before the NY State Attorney General of conspiring (with him) to violate securities laws and through that process the rights of Americans who owned Bank America stock, along with every American who is now saddled with the debt created to bail both Bank of America and others out.
• 535 in Washington, allegedly "representing" Americans, who violated the letter and spirit and letter of that representation in September and October of 2008, passing a bill opposed 300:1 by Americans, and then did it again by releasing the second half of the funds.
• 535 in Washington, who confirmed and still back a man nominated to be the head of the IRS - a man who admitted to cheating on his taxes.

And one President, Barack Obama, who ran on a message of "change." 

I voted for him.

It appears that I am not the only person who has figured out that we got "change" all right.  But the change we got wasn't the change we voted for.

We got more corruption, more (proposed) taxes in the form of a Carbon Tax, admitted tax cheats spread through the Cabinet, a Treasury and Federal Reserve that have continued to wantonly violate black letter statute and an executive that has continued to claim that we must "move on."

Note this well:

We have a major bank CEO who appears to have alleged to the NY State Attorney General a conspiracy in which he participated at alleged (monetary) "gunpoint", the central act of which was the embezzlement of tens of billions of dollars from The American People performed not only by him but also by and with The Chairman of The Federal Reserve and The Head of Treasury - two high government officials.

Lynn Turner, former chief accountant of the SEC, says:

"If these allegations are proven true both Bernanke and Paulson should be prosecuted to the fullest extent of the law."

This is a scandal that makes Watergate look like a common everyday burglary where a TV set was stolen, and I am willing to bet that it does not begin or end with Bank of America.

It in fact goes back to the original "23A" exemption letters which I started yelling about nearly two years ago, and have continued since.  Last spring (April 2008) I said this (original emphasis removed):

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?

Barack Obama says he is not going to try to impose firearms restrictions; that he recognizes "political realities."  Oh?  What's this? (click for a full-size copy)

Let me ask just one question:

Would you "move on" if your wife, daughter or niece was savagely robbed and raped by a gang of hoodlums?

Then why should you "move on" when your children, grandchildren and those not yet born are saddled with over one hundred thousand dollars in debt that they will be required to pay so that criminals can not only go free, but don't lose their fancy homes and cars?

The acts that led us here were not mistakes.  They were deliberate acts; willful blindness and even fraud.

Fraud is a crime, and crimes of such monetary import are arguably just as serious as violent criminal offenses.

The longer the cops refuse to come to the people's aid, instead conspiring with and becoming the criminals themselves, the more we will see views like the below spread - perhaps to the point where America will cry.

Stop the madness.

There was a newsflash this morning on Reuters that "Mark to Market is NOT going to be suspended", allegedly sourced from someone at the SEC.

MTM was put into place after ENRON due to the amazing abuses on their balance sheet with asset "valuations" in an attempt to prevent re-runs of that debacle.  It has been circumvented to a large part by "Level 3" assets, which are in fact marked to model (same thing as non-MTM eh?)

So why the furor?

Let's say you are a bank and have $1 billion of some bond issue that was stuffed to the gills with crap subprime and liar loans.  It is, thus far, cash-flowing fine, but everyone knows that these liar loans and subprime garbage is likely a 50 cent recovery deal eventually, if you're lucky.

So long as this paper is cash-flowing if you're intending to hold it to maturity then you can value it at "par" under your model, because well, today, it is making coupon payments.  That is, your bucket might be different than other people's bucket.

So you hold this thing in "Level 3" and call it par.  All is good, right?

No.

See, the next city over is a Hedge Fund.  He bought a bunch of this paper too.  But he's getting nervous - his investors are demanding redemptions, and his lockup period is expiring.

So he starts circulating a bid list, and on that list is the same bond issue you're holding.  He gets a bid back for 40 cents on that bond; the people looking at it know what's in there, that those liar loans in California are a good 30% underwater and the subprimes are in trouble too.  That buyer figures that the bond will eventually default and recovery is likely to be 50 cents at best.

Sir Hedgie knows the buyer's right, of course - that bond, held long enough, is likely to hurt him.  Worse, he really needs the money, and the best bid he got is 40 cents.  So he sells it, even though if a reasonable estimate of recovery is 50 and its cash-flowing today "fair value" in the market might be closer to 55 than 40.

That event causes the bank holding the same thing to have an immediate problem - they are now required to mark that bond, because the entire claim on Level 3 is that there are "no observable prices."  Well, you just got an observed price, and its way the hell off your mark!

The consequence of this is an immediate $600 million accounting charge to the bank.  Its not a cash charge, as the bond is (at this point) cash-flowing, but it hits the asset side of the balance sheet.

Suspending MTM would get rid of this, which is why some people want it - badly.

But suspending MTM alone would bring about the potential for the same sort of game-playing that was exploited by ENRON and others during that time - the intentional hiding of losses through the claim that the bonds "will be fine" if held to maturity where the holder has full knowledge that it is rather unlikely this will remain true.

So how do we resolve this problem?

I would propose the following:

• Suspend MTM for six months.  Why a short period?  Because we've still got a deleveraging problem, and we both want to drive that to completion and give people cover during that time (and only during that time.)
• In six months, the suspension expires and so does Level 3 pricing.  That is, the "no observable input" game has to stop.

How do we get a price on something that has no observable input?

Simple - you have to sell 10% of whatever you're holding if you can't get a market price, and that's the price.

This will result in a market being developed over these next six months, if for no other reason than necessity - these instruments will trade by necessity as market participants will have to obtain market prices in order to continue to hold them.  By getting rid of the "Level 3" bucket we will solve two problems at once, while at the same time we recognize that we can't throw this at people with an instant implementation and we have a "fire sale" problem with these bid lists that has been hitting the asset side of balance sheets, perhaps unfairly so.

Is this a perfect solution?  No.

But it's a solution that will work, it can be implemented, and it prevents the game-playing with asset prices that has been so rampant over the last few years going forward, forcing a market to develop for those so-called "illiquid" assets so we can get an actual market price.

I've noted that a few people have cast questioning eyes at my triangle, and the 210 target off it.

Some have claimed that I should be using a log scale on that chart.

Yeah, yeah.  I've heard that.

Now let's look at what we've learned the last few days, weeks and months:

• California appears to be functionally insolvent.  As in now.  How far is the state from widespread inability to pay police officers and firemen, and how long does it take before widescale riots break out when those who leach off the government teat for a living have their checks interrupted?
• It is increasingly clear that there is absolutely no way that the "big banking system" comprised of firms like Citi, Bank America, JP Morgan and Wells Fargo, along with a handful of others, can make it through this without one trillion or more in additional funds.  Yes, it really is that bad.
• It is also increasingly clear that there are literally hundreds of midsize and smaller banks that are perfectly fine.  They did not lever up, they did not write a bunch of crap commercial or residential construction paper that cannot be serviced and they most certainly did not drink the KoolAid of securitized synthetic garbage debt.  Even in bad economic times traditional banking is a very profitable business - so long as you lend money to people who can pay you back or you have sufficient collateral so that if they default you don't lose your shirt.  These sound banks have been frozen out of the "money fountain" and also out of the opportunity to be rewarded for their prudence.  The Fed's policies have made it impossible for them to attract capital at any reasonable deposit or CD interest rate and yet their capital ratios are very healthy.  These firms should and must stand and yell NOW.  There is nothing wrong with the banking system.  There is plenty wrong with a handful of big banks who engaged in outrageous and possibly even criminal conduct.
• Speaking of possible criminal conduct, it has now been revealed that Indymac was not the only bank that improperly booked funds and violated reporting standards - there were four more.  The government has refused to identify them.  Gee, can you think of four Thrifts that got in trouble in the last year and disappeared?  It's not difficult is it?  FOIA's anyone?  Speaking of which, where's that new President Obama "transparency" in government?
• Ben Bernanke's neoclassical monetary theories have been proved incorrect.  He has doubled base money in the last few months.  Under neoclassical monetary theory this should have immediately produced inflation as the increase in base money would have spurred an increase in credit money (cash and credit are not the same thing, although they spend the same.)  However, neoclassical monetary theory relies on a false premise - that the existence of additional base money causes the creation of credit - that is, the monetary tail wags the credit dog. In fact it is the other way around - credit is the dog and the tail cannot wag the dog.  When worthy borrowers refuse to take out additional loans and unworthy borrowers cannot borrow additional base money has no effect, because each dollar of credit money must be matched by a dollar of debt.  No new debt issue, no credit money expansion.  Debt cannot expand because the carrying capacity for it in the economy has been reached, ergo absent Weimar-quantity printing of raw cash (on the order of $20 trillion dollars!) deflation cannot be halted until the bad debt is forced from the system.  This excess came about because of knowingly unsustainable leverage - that is, credit-to-money ratios.  Unfortunately until the total leverage in the system is reduced to sustainable levels there is nothing that can be done to halt demand destruction and economic contraction.  Transferring leverage from the private sector to the government cannot change this outcome.  In an economic system where most monetary exchange is in fact credit deleveraging always produces deflation which cannot be halted until leverage ratios return to sane and sustainable levels economy-wide.
• A nation's standard of living is not based on its ability to borrow in aggregate, but by its ability to produce.  Therefore, we cannot borrow our way to prosperity nor can attempts to "spur lending" lead us out of recession.  Rather we must produce actual goods and services - not push paper - to grow our way out.  Over the last 20 years we have replaced production with false claims of "wealth creation" that are nothing more than the creation of additional credit through intentional mispricing of risk.  That scam has now come to an end as the true lack of value has been exposed. All major busts in reasonably-modern time (e.g. back to TulipMania) have come from credit excess.
• Ben Bernanke and Alan Greenspan before him had the responsibility and authority to regulate the credit system, as did the OTS, OCC, SEC and Congress.  ALL abdicated that responsibility; Congress in particular appears not to understand how these functions work, but the other institutions do and their abdication was willful.
• There are all sorts of theories about why prices of both stocks and bonds fell this last couple of weeks.  They are all wrong.  There is only one reason - supply and demand.  Treasuries are being rained into the market like a monsoon and this is depressing price; what's worse is that it is sucking up money from the system which then causes a supply:demand imbalance in stocks.  In order to issue the sort of supply necessary to fund the grand schemes of former Treasury Secretary Paulson, the last and present Congress and President Obama, as well as "keeping the promises made" by the previous administration (some $7 trillion worth!) the amount of supply that must be issued will literally destroy both stock and bond prices. 
• We now know that not only Tim Geithner evaded taxes but in addition Tom Daschle, Obama's Health and Human Services nominee, failed to pay $100,000 in back taxes and interest.  What's worse is that those taxes were incurred due to a car and driver provided Mr. Daschle by a private equity firm raising very serious conflict of interest issues.  Where is my "change that we can believe in" Mr. President?  I see only the very same corruption and influence peddling that Washington DC has been known for.
• There is a tremendous amount of anger rising in America.  You don't see it - yet - in public, but it is there, simmering just under the surface.  President Obama made note of it when it was revealed that nearly $20 billion was paid out in bonuses to Wall Street firms this year - after they took $70 billion of taxpayer money in direct assistance.  That's about 30% of the total that went right out the door as bonuses.  In effect, we are now paying taxes so that Wall Street can hand it out to the very people who got us into this mess!
• Government tax receipts on all levels are cratering.  Income tax and sales tax numbers are frightening with many state governments reporting double-digit drops in the last month. All these handouts and bailouts sound good but where is the money going to come from?  When the money runs out the game is over in truly-spectacular fashion.
• Speaking of which The Bond Market issued its statement of displeasure over the last two weeks on the idea that we'll just blow money left and right.
• Finally, that taxpayer anger and falling tax receipts, plus the government continuing to hand money to people who demonstrably not only made bad bets but engaged in outrageous and perhaps even illegal and fraudulent conduct, yet have returned nothing of what they stole sets up a very real risk of a tax revolt by Americans.  It would be ruinous and nearly impossible to control if Americans decided en-masse to simply refuse to pay and to the extent possible went "off grid" through barter and underground transactions, or started modifying W4s to greatly limit withholding and then simply didn't file.  Anecdotes related to this occurring are already popping up. I realize this is extremely illegal but at some point the American public is going to reach it's breaking point with the government literally stealing their money to bail out those who robbed them in the first place!

There are rumors of a "big bang" financial cleanup coming next week from the Administration:

The “big bang” approach reflects the belief of Tim Geithner, Treasury secretary, and Lawrence Summers, National Economic Council director, that the Bush administration was wrong to dribble out policy initiatives. Mr Geithner intends to present a “comprehensive” plan that policymakers hope will command market confidence.

Details of the financial overhaul are being finalized and have yet to be approved by President Barack Obama, but it may include both the purchase of toxic assets by a “bad bank” and insurance-style guarantees for problem assets remaining on bank balance sheets.

Anti-foreclosure efforts are likely to focus on subsidizing programmes that reduce unsustainable monthly mortgage payments, though there may also be support for schemes that subsidise the partial writedown of loans that exceed the value of the home. Treasury may also unveil new efforts to revitalise dysfunctional securitisation markets.

If this is all they intend to do it will fail spectacularly and the odds of a full-on market meltdown become very high because in fact this is nothing different, in reality, than what has been done thus far - and has failed.

I want to expand on the bond market problem because it is absolutely critical to understand this, and for the Obama administration to put an immediate halt to it.

Prices respond to only one thing in "reality" - supply and demand.  Both can be illusory which produces short-term distortions but the truth always pokes its head through and when it does, the direction becomes clear.

Treasury, The Fed and Congress (the previous one) have in aggregate promised some seven trillion dollars in spending they do not have.  This of course will eventually require issue of debt to find it in one place or another.  The current spending plans of both Treasury and Congress are guaranteed to require upwards of $2 trillion of issue this fiscal year (running through September 30th.) 

This last couple of weeks Treasury has been issuing bonds like crazy and as they have bond prices have taken a dive into the mud.  Why?  Because the supply has to be taken up by someone so that Treasury can fund the nation's promises, and as that supply is taken up money is sucked out of the system to buy those bonds.  This then upsets the supply and demand picture in equities.

Reality has started to intrude into the market and it's not a pretty picture.  FCBs sold Treasury and so did Primary Dealers in the most recent week.  This is new, it is ominous, and it signals that market participants in the bond market have detected smoke in the room.  Should they all rush the door at once the bond market dislocation that I have been warning of for months will gather steam and cut off federal funding, along with kneecapping the stock market.  The Fed cannot possibly absorb this supply as it will not be limited to Treasuries; they would have to print up literally $20 trillion dollars to halt the collapse and should they attempt it the dollar would collapse instead as that would be a literal ten times over expansion of the monetary base.  This would produce a monetary and market implosion twice as bad as what occurred in Iceland overnight.

This is where neoclassical monetary theory meets reality.  In the real world credit leads, it is the dog and money supply is in fact the tail.  When regulation of credit is abdicated to the degree we have seen in the last five years the resulting credit collapse cannot be avoided through diddling monetary and fiscal policy as the tail cannot wag the dog. 

We stand on the edge of the failure of all of American's retirement assets.  Literally all of them.  Buried in some of the earnings reports of the last quarter are the fact that half of the market capitalization of some firms was wiped out in the last year due to pension fund shortfalls as a consequence of the stock and credit market swoon.  CALPERS and other funds are rapidly going from being adequately capitalized to critically undercapitalized.  If the Treasury and Stock market both sell off as I believe both can and is likely to happen if the current policies are continued essentially ALL American Retirement Assets will be destroyed - 401ks, IRAs and both private and public Pension systems.  Total losses through these systems is likely to reach 80-90%, and the Boomers start retiring "en-masse" just a few years from now.

In short, if policies are not changed now there will be no retirement for Americans and the currently-retired who rely on these funds will find them gone and be forced back into the workplace.  Unemployment in that scenario is likely to reach and may exceed 20%, and what's worse, Medicare funding will be severely curtailed at the same time due to the inability of the government to fund it.

It is absolutely critical that Obama and Congress understand these  facts (and they really are simple; we have $53 trillion in public and private debt - that is, credit - and yet the monetary base is just shy of $2 trillion up from the "normal" $800 billion or so) - it is not mathematically possible for a $2 trillion dollar thing to control the outcome of a $53 trillion thing, especially when you are threatening to add $7 trillion to it.

Let me put forward a different view of what should be done, and hope that President Obama and his cabinet direct Geithner and company to take these actions.  I fully realize that parts of this call for Geither to "turn on" some of his banking buddies, but irrespective of his desire not to, if he does not then the plan will fail.

Specifically, we need to, here and now today:

• Make at least $100 billion dollars available to existing good banks in additional capital so they can take on the good assets of banks that cannot survive in their current form with their current losses and balance-sheet garbage.  (This, by the way, includes the off-balance-sheet junk that has magically "disappeared" from the public's radar, but you can be certain it IS still there.)  This is essential so that the banking system, as opposed to individual banks, remains operational now and into the future.  The "your ATM card doesn't work" scenario must not be allowed to occur.
• The "bad banks" that created this mess must not be further rewarded.  The public simply won't stand for it. This is no longer an option and if President Obama and the rest of the government is too tone-deaf to understand this they will make a monumental mistake.  Americans tolerated the first $350 billion going to these clowns because we were told that they would use it to restart lending and that it was necessary to prevent an all-on economic collapse.  The money was spent on bonuses, acquisitions, and stuffed in The Fed's vault where it now earns interest, proving beyond a doubt that the original claim was a lie.  If Washington thinks they'll get away with this a second time they are sadly mistaken.
• The "promises" made to backstop the failed credits represented in Freddie, Fannie, AIG and elsewhere cannot be kept.  Read back through the above - if Government continues to attempt to issue Treasuries into the market they will precipitate both a bond and stock market collapse.  This is a mathematical reality and the market has been issuing warnings now since the beginning of the month.  January was the worst "first" month of a year for the market ever and yet the new issue from Treasury was a tiny fraction of the refunding and new issue that is currently scheduled for the next few months.
• To deal with the "bad banks" we have only two choices - we can either:
  • Strip them of their good assets and sell those off to the good banks, then cut them off from all public assistance and let them fend for themselves, having protected the good assets (and deposits) by placing those with sound institutions OR
  • "Cram down" their equity and debt structures and resolve their balance sheet issues in this fashion.
• ALL debts must be settled - either reaffirmed with capital adequacy and ability to pay proved up or those debts must be forced into the open and restructured or defaulted.  The game of "hide the sausage" among financial institutions cannot be allowed to continue; confidence must be restored and it cannot happen until and unless everyone knows that all balance sheets fairly represent a firm's assets and liabilities.  The lying has gone on for long enough that nobody trusts anyone; only FULL TRANSPARENCY resolves this problem.  This includes, by the way, the garbage held by The Federal Reserve - it must be forced into the open and valued with 100% transparency today, tomorrow and every day thereafter.
• President Obama has said that he intends to try to create "4% Mortgages" to "help the housing industry."  Such a move will do no such thing; the market will not permit 4% mortgage rates when the cost of long money is higher than that by any mechanism other than direct subsidy.  Since housing is a $30 trillion (roughly) value proposition and roughly 40% of all homes are mortgage-free even providing one percent in subsidy would cost about $150 billion a year and the worse news is that adding this to the debt load of the government would likely drive the differential much higher.  At 3% such a move would run $450 billion, or more than the entire first half of the TARP - annually!  This is clearly unsustainable and President Obama must stop drinking this KoolAid.  The solution to housing affordability is lower home prices, not higher ones.
• There must be a public statement and immediate follow-up action from the Obama Administration on the massive fraud and abuse of the public that has occurred over the last ten years with regards to securitization, mortgage fraud, appraisal fraud and other various ENRONesque acts by the giants of Wall Street.  The public wants blood and Washington had better pay attention on this point; you have hundreds of thousands of Americans who have lost their homes and close to five million who are on the continuing unemployment rolls as a direct and proximate result of this nonsense.  The government cannot contain five million angry Americans with platitudes or, for that matter, anything else.  There are in fact lots of "bad actors" in this mess who at minimum profited from intentional deceit in the pricing, securitization and intentional blowing of this credit bubble, and it is unjust that they are allowed to get away with it.  Everyone is entitled to a fair trial but the public must know that the investigations are in process and prosecutions will be forthcoming as is appropriate.  Government must not be seen as the felon in the eyes of the people or it's authority, both moral and legal, will be lost.
• Government must not act in any fashion that may cause confidence in Treasuries to be lost.  This means that the trash-taking games of Treasury and The Fed must be halted now.  We may be too late to prevent this and the market has issued a clear and loud warning of the potential consequences over the last month.  Should the dislocation that I have warned about over the previous year occur government's funding model would be effectively cut off, forcing an immediate termination of Social Security, Medicare, and half or more of all military spending.  This in turn would cause a spiraling collapse of tax receipts which in turn would squeeze government finances even further.  Government must have contingency plans in place for what it will do if 75% of its financing capability simply disappears.  It both can and may happen.
• Government must be prepared to provide the basic necessities of life for at least five to ten million Americans and possibly as many as fifty million - one in six.  As I have noted before this means barracks-style places to sleep, food, clothing and basic medical care.  Hungry, homeless and unemployed people are dangerous.
• Government must deal with the illegal alien issue.  We simply cannot have tens of millions of illegal aliens consuming public resources at a time like this in our nation - period.  Americans will pick strawberries if they're unemployed; that we have illegal immigrants doing this sort of work with 5 million Americans out of work is an outrage.  Again, if government does not act there is a high probability that the American people will, with disastrous consequences.

Finally, for those who think that SPX 200 and DOW 2,000 is a "pipe dream" let me point out that the DOW was at 2000 in as we turned into 1988 and the SPX was at 250.  Pipe dream?  Not at all.  When did the insane credit creation antics begin?  Shortly after the 1987 crash, that's when.  Here's a long-term chart - you tell me what "mean reversion" takes us back to.

Oh, and yet another basic technical analysis principle is that an "M" formation (otherwise known as a "double top") usually retraces the at least the entire run that produced the left-side of the "M".  We can argue over whether that's 200 or 450 - either is really, really bad.

President Obama must decide - he either stands for this nation, the Constitution (as he pledged when he took the oath of office) and its citizens or he stands for the fraud, abuse, and raw theft that has been perpetrated against us all.

The markets have sent a clear signal over the last month - attempting to "borrow and spend" to prop up failed institutions and shield them from the consequences of their bad decisions, when those bad decisions exceed in aggregate the federal budget, cannot be done.  If Treasury attempts to issue the amount of supply necessary to fund this it is virtually certain to cause a major meltdown in both the stock and bond markets, and this may be right around the corner as the quarterly refunding is upon us.

There is no middle ground and President Obama must choose.

Our new President was elected to office by the people who were tired of Washington DC influence peddling, pervasive fraud and theft and the economic damage it has wrought on this land.  President Obama now has two high-level appointees he has continued to support after they were revealed to have "ethics issues" (at best.)  If President Obama does not choose here and now to stand with American citizens and against the fraud and corruption of the previous twenty years he will at best be a one-term President and at worst there won't be an economy or nation worth being President of within the next year or two.  The situation really is this grim and neither the markets or the people are going to sit still for any more of "business as usual."  Words will not cut it - it is only deeds that count now.

This is not the time for "bipartisanship" or any such thing.  It is time for President Obama to demonstrate that he is the leader the people elected and to stand up for the common man - not through "paying back" organized labor with things like "card check" and ordering the removal of disclosure statements of union worker rights related to the ability to "opt out" of political activity, but rather by standing with the common man against the pervasive fraud, abuse, theft and lies that have been perpetrated by Wall Street, K Street and Washington DC in general over the previous twenty years.

The road ahead is a rough one.  Our nation faces an unprecedented economic mess of which we have only seen the beginning, but that mess is of our own making.  We have "enjoyed" false prosperity for more than a decade fueled by intentionally-overinflated asset prices that represented not real wealth but rather a chimera grown from ridiculous and outrageously fraudulent actions by many throughout our credit, banking and regulatory systems.

The blame for this cannot be laid at the feet of either political party to the exclusion of the other.  Both sides of the aisle are to blame, as both have held the reins of power during this period of time.  There are dozens of Senators and Representatives who have dirty hands, including many who personally profited from "special deals" doled out by some of these firms, in many cases to the tune of tens of thousands of dollars.  Reported frauds have been intentionally ignored and both lawmakers and regulators have not only looked the other way but in many cases have been actively complicit.

Our nation truly stands on the precipice of history.  We cannot borrow and spend our way out of this mess, we cannot pass $800 billion dollar "stimulus bills" that do not actually stimulate the economy and we cannot rob Peter to pay Paul.  Asset prices must contract to reasonable, supportable values, and they will - whether we like it or not.  Those who are overlevered and in debt up to their eyeballs will and must default, and have that debt cleared.  Transparency must not be a word, it must be a deed throughout our financial system and markets. 

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.

I repeat: It is time for Congress to lock up the children in their playpen and allow the adults to have a discussion with them regarding solutions to the economic problems we face.

If CONgress fails to do so, you will see The DOW at 5,000 and the S&P 500 at 500 within the next 12-24 months. 

Guaranteed.

This morning Bernanke's Fed "decided" to essentially enter the realm of unsecured lending through the creation of a "SPV" (a "SIV", or as I and others have called it, a "SIeVe") that will buy 3-month commercial paper.

While they claim that these borrowings are "secured", the fact remains that in essence they are not, protests to the contrary notwithstanding.

Read that new alphabet soup description carefully, and pay special attention to the rating requirements.  It is narrowly targeted - perhaps so narrowly as to permit a very small number of firms to roll their commercial paper.

Academia, including most particularly Bernanke, posits that one must "increase liquidity" into a seizure in the markets such as we have now, lest we have a Depression.

The failure of this so-called economic "theory" is that it fails to recognize the root cause of the problem and therefore misses the forest for the trees.  It is akin to trying to put out a forest fire by peeing on it and has precisely the same end result.

In point of fact we are now running out of names for Bernanke's "liquidity facilities"; TAF/PDCF/TSLF/TARP/ABCPMMMF and now this new SPV (does it have a name yet?)

The truth is that this crisis occurred under Greenspan and Bernanke's watch precisely because these two "gentlemen", along with our Treasury Secretary Paulson and other government officials, presided over the granting of credit to people who could not pay it back.

The false premise these folks all proceed from is that credit is equivalent to money. 

It is not.

Credit spends like money but it is not money.  It is in fact debt and comes with the millstone of interest, which must be repaid along with the principal.

The commercial paper market for non-financial, non-asset-backed entities has not frozen.  Nor will it.  Those firms have not abused the market and thus have nothing to fear. 

It is in fact those firms that have abused this market that have problems, just as occurred with municipalities with "auction-rate" securities. 

Borrowing short-term (to lower the coupon required) for long-term requirements is fundamentally unsound.  When you do so you place the very life of the entity that does so at risk.

If I am an aircraft manufacturer and require two years to build an airplane, to borrow for less than a two year term in order to fund completion of that airplane for delivery to the customer is idiotic.  Yes, doing so means I pay less in interest, but it also means that at any time if the market perceives my firm to be "unsafe" I risk instantaneous bankruptcy of the enterprise.

This is just one more example of how "levering up" has gotten so out of hand, and why we are in this mess in the first place.  This particular form of idiocy is not limited to one firm - in fact, it is common across huge parts of the S&P 500 and even many smaller firms, along with state and local governments.  It was and is intellectually bankrupt and those who engaged in this behavior should be run out of town on a rail.

"More liquidity" will not solve the problem no matter the form.  This has now been proven correct through more than a year's "grand experiment" by Bernanke and friends.

The credit markets, along with consumers and banks, are literally choking on all the liquidity being shoved down their throats.  It has done exactly nothing to address the problem and won't because:

• Banks and other financial institutions have been repeatedly proven liars in terms of their financial strength and balance sheets.  Pick a financial institution and you will find that almost without exception they have claimed "exposure" to bad debt that is a tiny fraction of what is later shown to be accurate.  Nobody can fairly evaluate a firm's financial strength so long as this continues; ergo, nobody can have a reasonable degree of trust to lend to such an institution.  In addition even settled black-letter law in some regards has been shown to be wantonly (and perhaps feloniously) ignored; Lehman, as an example, is alleged to have transferred segregated customer funds and securities to a Cayman Islands subsidiary shortly before it went under, effectively locking up funds and securities that are supposed to be safe from a bankruptcy proceeding.
• Consumers are tapped out.  The House-cum-ATM machine is empty and cannot be refilled.  Consumers will retrench severely, even though they have had to be dragged kicking and screaming into that mode.  Nearly 18 months ago I detected the trend in the consumer credit data.  This recession cannot resolve until the over-leveraged state of the consumer is rectified.  That requires that the bad debt be defaulted and thus cleared.  Consumers are more than 2/3rds of the economy.
• It is not possible to reflate the credit bubble.  We must deal with the reality that the bad debt in the economy - no matter who holds it - must be defaulted.
• There is no "liquidity trap" into which to fall; we are already in the hole as there is no more capacity to borrow; we have exceeded the maximum safe amount of lending that can be accommodated in the economy.  When one is in a hole, the first rule is to stop digging.

Remember, we were told repeatedly that Bernanke's Fed and Treasury's actions would prevent a recession.  We were told that the TAF would free up bank lending.  We were told that the TSLF and PDCF would prevent more blowups in investment banks after Bear Stearns yet Lehman blew up and the two remaining IBs (after the essentially-forced merger of Merrill) were forced to reorganize as commercial banks to prevent their own implosion.

None of these claims and predictions has proven out.

As this crisis has deepened instead of forcing the liars into the open and shining the bright light of truth upon them, along with arresting and prosecuting the fraudsters, we have instead seen yet more obfuscation and falsehood both explicitly condoned and even perpetrated by the government.

Bernanke's thesis has been proven incorrect.

It is time for Americans to demand that the children, Ivory Tower Savants and those with clear conflicts of interest who are trying to game Congress and regulators to strip hundreds of billions of taxpayer dollars for their own enrichment be locked in their playpen beyond both sight and hearing while adults are admitted to the sacred halls of Congress. 

We must come together as a nation to put forward a sensible set of policies that will:

• Force into the open the bad actors, fraudsters and liars, dealing with them in accordance with the law and allowing the credit markets to clear.
• Place into force regulations and legal strictures that will prevent this sort of game-playing from happening in the future.

As I have repeatedly said, there are multiple plans out there to do this.  I happen to like what I have proposed as "The Genesis Plan", but I'm not married to who proposes it or who takes credit for it - only that all three of the underlying causes are remedied.  The rest is, in my view, a detail of implementation and not the underlying requirement.

We CAN clear the markets.  To date, they have not cleared because our government and regulatory agencies have steadfastly refused to force the bad actors into the open, to force reduction of leverage, and to force an end to the game of "financial pick-pocket" that was intentionally constructed via off-exchange CDS "contracts."

All three of these decisions are intentional.  They have been made by Henry Paulson and Ben Bernanke, along with Congress.

Never mind the SEC which censored a highly-critical report of its intentional inaction in the Bear Stearns debacle:

"Oct. 7 (Bloomberg) -- U.S. Securities and Exchange Commission Chairman Christopher Cox's regulators stood by as shrinking capital ratios and growing subprime holdings led to the collapse of Bear Stearns Cos., according to an unedited version of a study by the agency's inspector general."

These decisions have been made because without permitting the outright fraud that is embodied in the crooked practices of the last twenty years there isn't nearly as much profit in being a banker.  If you are "limited" to making the spread on performing loans and can't gear up more than 12:1 then your gross margins are, by necessity, limited to 30-50% - it is simply impossible to do better as the natural limit of spreads across an entire portfolio of risk is in the 3-5% range; nobody in their right mind will pay more on a risk-adjusted basis.

If these decisions are not reversed in the immediate future we will have an economic Depression, because that outcome will be the only way for the market to clear - forcible exposition of the fraudsters and deleveraging via bankruptcy instead of via law and regulation.

Either way the bad actors will go down.  The difference is what impact we will suffer as Americans.

Our choices are now limited to a deep and prolonged recession, in which those individuals and firms that took on too much debt go bankrupt, but those who were prudent are able to maintain their standard of living and prosper, or continued attempts to pump more debt into a market that is already super-saturated, resulting in the eventual bankruptcy of the United States Government, default on the federal debt and, ultimately, a hyperinflationary depression that brings with it a high risk of the failure of our political system, not just overlevered firms and consumers.

For an example of how law and regulation can work and does result in tangible benefit, look at the settlement of the Countrywide lawsuit yesterday.  This will result in tangible benefits to 400,000 homeowners who were harmed by alleged fraudulent loan practices:

"``Countrywide must now bail out homeowners it recklessly misled into mortgages doomed to fail,'' Connecticut Attorney General Richard Blumenthal said today in a statement."

If you're wondering how we appropriately punish those who offended during the previous five years and provide restitution to those who were harmed, there's your template.

Demand that Congress implement it, along with the other portions of The Genesis Plan (or something similar) and the markets will clear.

Until that approach is adopted we will continue to push on a string, Americans will continue to lose their jobs, and your wealth will continue to be destroyed in the stock and credit markets.