Tuesday, March 31, 2009


Meat Kills

There is no more denying it. Meat contains highly toxic substances that are responsible for many deaths and diseases. Heavy meat consumption increases your risk of dying from all causes, including heart disease and cancer, according to a federal study conducted by the National Cancer Institute and featured in Archives of Internal Medicine on Monday.

The study looked at the records of more than half a million men and women aged 50 to 71, following their diet and other health habits for 10 years. Between 1995 and 2005, 47,976 men and 23,276 women died.

The researchers divided the volunteers into 5 groups or "quintiles." All other major factors were accounted for -- eating fresh fruits and vegetables, smoking, exercise, obesity, etc. People eating the most meat consumed about 160g of red or processed meat per day - approximately a 6oz steak.

Women who ate large amounts of red meat had a 20 percent higher risk of dying of cancer and a 50 percent higher risk of dying of heart disease than women who ate less. Men had a 22 percent higher risk of dying of cancer and a 27 percent higher risk of dying of heart disease. That`s compared to those who ate the least red meat, just 5 ounces per week, or 25g per day -- approximately a small rasher of bacon.

The study also included data on white meat and found that a higher intake was associated with a slightly reduced risk of death over the same period. However, high white meat consumption still posed a major risk of dying.

"For overall mortality, 11 percent of deaths in men and 16 percent of deaths in women could be prevented if people decreased their red meat consumption to the level of intake in the first quintile," Sinha`s team wrote.

Sinha`s team noted that meat contains several cancer-causing chemicals, as well as the unhealthiest forms of fat.

The good news is that the U.S. government now recommends a "plant-based diet" with the emphasis on fruits, vegetables and whole grains. The bad news is that it also hands out massive farm subsidies that keep meat prices very low and encourage meat-based diets. The government`s food-price policies contribute to such risk-filled eating habits as meat consumption.

Another drawback is that the National Cancer Institute study only looked at the increased mortality risk resulting from meat consumption. It should be noted, that if eating meat can kill a large number of people, it can make an even larger number of people seriously ill.

Food that kills or makes people sick should not be considered food at all. However, the meat industry thinks otherwise. It believes that the study is flawed. American Meat Institute executive president, James Hodges, said: "Meat products are part of a healthy, balanced diet and studies show they actually provide a sense of satisfaction and fullness that can help with weight control. Proper body weight contributes to good health overall."

The question is whether it is worth risking one`s life over having a little sense of satisfaction and fullness, which could easily be experienced by eating a healthful diet consisting of fruits, vegetables, grains, legumes, nuts, and seeds.

The new findings support a previous study published earlier this year in the Annals of Internal Medicine, which showed that eating meat boosts risk of prostate cancer by 40 Percent. And just last month, parents learned that their children had a 60% increased risk of developing leukemia if they consumed meat products, such as ham, sausages and hamburgers.

Vegetarians Live Longer and Healthier Lives

More recently, medical research has found that a properly balanced vegetarian diet may, in fact, be the healthiest diet. This was demonstrated by the over 11,000 volunteers who participated in the Oxford Vegetarian Study. For a period of 15 years, researchers analyzed the effects a vegetarian diet had on longevity, heart disease, cancer and various other diseases.

The results of the study stunned the vegetarian community as much as it did the meat-producing industry: "Meat eaters are twice as likely to die from heart disease, have a 60 percent greater risk of dying from cancer and a 30 percent higher risk of death from other causes."

In addition, the incidence of obesity, which is a major risk factor for many diseases, including gallbladder disease, hypertension and adult onset diabetes, is much lower in those following a vegetarian diet. According to a Johns Hopkins University research report on 20 different published studies and national surveys about weight and eating behavior, Americans across all age groups, genders and races are getting fatter. If the trend continues, 75 percent of U.S. adults will be overweight by the year 2015.

It is now almost considered the norm to be overweight or obese. Already more than 80 percent of African-American women over the age of 40 are overweight, with 50 percent falling into the obese category. This puts them at great risk for heart disease, diabetes and various cancers. A balanced vegetarian diet may be the answer to the current obesity pandemic in the United States and many other countries.

Those who include less meat in their diet also have fewer problems with cholesterol. The American National Institute of Health, in a study of 50,000 vegetarians, found that the vegetarians live longer and also have an impressively lower incidence of heart disease and a significantly lower rate of cancer than meat-eating Americans. And in 1961, the Journal of the American Medical Association reported that a vegetarian diet could prevent 90-97% of heart diseases.

What we eat is very important for our health. According to the American Cancer Society, up to 35 percent of the 900,000 new cases of cancer each year in the United States could be prevented by following proper dietary recommendation. Researcher Rollo Russell writes in his Notes on the Causation of Cancer: "I have found of twenty-five nations eating flesh largely, nineteen had a high cancer rate and only one had a low rate, and that of thirty-five nations eating little or no flesh, none of these had a high rate."

Could cancer lose its grip on modern societies if they turned to a balanced vegetarian diet? The answer is "yes," according to two major reports, one by the World Cancer Research Fund and the other by the Committee on the Medical Aspects of Food and Nutrition Policy in the United Kingdom. The reports conclude that a diet rich in plant foods and the maintenance of a healthy body weight could annually prevent four million cases of cancer worldwide. Both reports stress the need for increasing the daily intake of plant fiber, fruits and vegetables and reducing red and processed meat consumption to less than 80-90g.

If you are currently eating meat on a regular basis and wish to change over to a vegetarian diet, unless you suffer from a major cardiovascular illness, do not give up all flesh foods at once! The digestive system cannot adjust to a substantially different diet from one day to the next. Start by reducing the number of meals that include meats such as beef, pork, veal and lamb and substituting poultry and fish during these meals. In time, you will find that you are able to consume less poultry and fish also, without creating strain on the physiology due to too rapid an adjustment.

Note: Although the uric acid content of fish, turkey and chicken is less than in red meat and, therefore, not quite as taxing to the kidneys and tissues of the body, the degree of injury that is sustained to the blood vessels and intestinal tract from eating these coagulated proteins is no less than it is with the consumption of meat.

Death in the Meat

Research has shown that all meat eaters have worms and a high incidence of parasites in their intestines. This is hardly surprising given the fact that dead flesh (cadaver) is a favorite target for microorganisms of all sorts. A 1996 study by the United States Department of Agriculture (USDA) showed that nearly 80 percent of ground beef is contaminated with disease-causing microbes. The primary source of these bugs is feces. A study conducted by the University of Arizona found there are more fecal bacteria in the average kitchen sink than in the average toilet bowl. This would make eating your food on the toilet seat safer than eating it in the kitchen. The source of this biohazard at home is the meat you buy at the typical grocery store.

The germs and parasites found in meat weaken the immune system and are the source of many diseases. In fact, most food poisonings today are related to meat-eating. During a mass outbreak near Glasgow, 16 out of over 200 infected people died from the consequences of eating E. coli contaminated meat. Frequent outbreaks are reported in Scotland and many other parts of the world. More than half a million Americans, most of them children, have been sickened by mutant fecal bacteria (E. coli) in meat. These germs are the leading cause of kidney failure among children in the United States. This fact alone should prompt every responsible parent to prevent their children from eating flesh foods.

Not all parasites act so swiftly as E. coli though. Most of them have long-term effects that are noticed only after many years of eating meat. The government and the food industry are trying to divert attention from the escalating problem of meat contamination by telling the consumer it is his own fault that these incidents happen. It is very obvious that they want to avoid hefty lawsuits, and bad-mouthing of the meat industry. They insist that dangerous bacterial outbreaks occur because the consumer does not cook the family`s meat long enough. It is now considered a crime to serve a rare hamburger. Even if you have not committed this "crime," any infection will be attributed to not washing your hands every time you touch a raw chicken or to letting the chicken touch your kitchen counter or any other food. The meat itself, they claim, is totally safe and meets the standard safety requirements imposed by the government; of course, this holds true only as long as you keep disinfecting your hands and your kitchen countertop. It evades all good reasoning to propose such a "solution" to the 76 million cases of meat-borne illnesses a year, except to safeguard the vested interests of the government and the meat industry. If a particular imported food produced in China is found to be contaminated, even if it hasn`t actually killed anyone, it is immediately taken off the shelves of grocery stores. Yet, with all the research proving that meat-consumption harms and kills millions of people each year, meat continues to be sold in all grocery stores.

The new mutant bugs found in today`s meat are extremely deadly. For you to come down with Salmonella poisoning, you have to consume at least a million of these germs. But to become infected with one of the new mutant bugs, you need to ingest a measly five of them. In other words, a tiny particle of uncooked hamburger, making it from a kitchen utensil to your plate, is enough to kill you. Scientists have now identified more than a dozen food-borne pathogens with such deadly effects. The Center for Disease Control admits that they don`t even know the bugs behind most food-related illnesses and deaths.

Much of the germ-infestation of meat is caused by feeding farm animals foods that are unnatural to them. Cattle are now fed corn, which they are unable to digest, but it makes them fat very quickly. Cattle feed also contains chicken feces. The millions of pounds of chicken litter (feces, feathers and all) scraped off the floors of chicken houses are recycled as cattle feed. The cattle industry considers this "good protein." The other ingredients of cattle feed consist of ground-up parts of animals, such as deceased chickens, pigs and horses. According to the industry, giving the cattle natural, healthy feeds would be far too costly and so unnecessary. Who really cares what the meat is made of, as long as it looks like meat?

Combined with hefty doses of growth hormones, a diet of corn and special feeds shortens the duration of fattening up a steer for market from a normal time period of 4-5 years to a mere 16 months. Of course, the unnatural diet makes the cows sick. Like their human consumers, they suffer from heartburn, liver disease, ulcers, diarrhea, pneumonia and other infections. To keep the cattle alive until the deadline for slaughter at the "ripe old age" of 16 months, the cows need to be fed enormous doses of antibiotics. In the meantime, the microbes that respond to the massive biochemical assault of antibiotics, find ways to become immune to these drugs by mutating into resistant new strains.

Those unfortunate cows that don`t drop dead prematurely due to all the poisons fed to them during their short earthly existence, experience an undignified and gruesome end of life in the slaughterhouse or meat-packing plant. From there, the diseased, germ-infested meat ends up in your local grocery store, and a little later, on your dinner plate, if you so dare.

Source - Natural News

Sunday, March 29, 2009


Switzerland Is The World's Leading Criminal Enterprise

It doesn't take much imagination to see that banking could be a bit of a scam on the public. But to keep that scam going it takes big buildings, plush offices, corporate jets, complex product names . . . and a veil of secrecy. Secrecy is important because without it, the mystique is lost. And by mystique, we're sometimes talking about illegal money-making schemes.

That's what Switzerland's premier bank, UBS AG (NYSE: UBS) got caught running. And after forking over $780 million to U.S. authorities, it will have made only a small down payment on paying its penalties to society. How so? UBS is going to turn over the names of its clients to the U.S., which marks the end of a centuries-old franchise for Switzerland -- the inviolate secrecy of the Swiss bank account.

Secrecy is great for covering up crimes. You can remove money from the place you made it to avoid taxes. You can steal the money and property of people before whisking them away to concentration camps. You can even engage in all sorts of illegal enterprises like dealing drugs or stealing peoples' identities and using it to buy things with fake credit cards. Once you get that money to a secret Swiss bank account, you are free to use that money as you see fit and not pay any taxes on your ill-gotten gains.

Why did UBS agree to this deal? Prosecutors suspect that between 2000 and 2007, UBS helped American clients illegally hide $20 billion, letting them evade $300 million a year in taxes. And for this tax evasion, UBS exacted a price -- $200 million a year in profits. How did it pull it off? Prosecutors charged UBS with falsifying or not properly obtaining or filing specific tax forms required of both the bank and its clients.

UBS agreed to pay the $780 million because it's a low-priced deal: $380 million disgorges profits from UBS's cross-border business -- the additional $400 million is U.S. taxes that UBS failed to withhold on the accounts, plus interest and penalties. But if the bigger figures above are correct, between 2000 and 2007 alone, UBS made $1.6 billion while helping taxpayers evade $2.4 billion in taxes.

The only problem for UBS is that investigators are examining 19,000 accounts and UBS will need to disclose the names of hundreds of them. This is a problem for UBS because journalists will look to make their investigative bones by delving deep into the stories of each of these names. And each headline will represent bad publicity for a central tenet of Swiss banking -- the secret bank account.

If there are people who have not already emptied out their Swiss bank accounts to avoid criminal penalties for the crimes they've committed, that bad publicity will surely complete the exodus. Unfortunately, for society, the tax evasion charges which UBS has settled are probably the tip of the iceberg.

And since UBS has taken $50 billion in losses in the collapse of the American mortgage market and received a $60 billion bailout from the Swiss government last October -- its best days may be behind it.

Source - Bloggingstocks

Wednesday, March 25, 2009



Honey is a marvelously sweet, syrupy liquid naturally produced by bees as food for themselves. Its golden color and delightful taste cannot be mistaken for anything else. When bees take nectar from a flower, it mixes with chemicals in their saliva to create honey. The bees fly it back to the hive and store it in various cells. It is known that excess moisture is removed from the honey by active fluttering of bees' wings to make it ready to eat. Bees perform a truly amazing process of nature that results in a truly amazing food - honey.

Honey comes in many different varieties. Its taste and texture depend on the type of flower sipped by the bee. Probably the most common honey is clover, but it can come in a variety of flavors and colors. The usual color of honey is golden, but it can range from almost white to dark red to almost black.

Since ancient times, people have used honey as a food and medicine. A combination of honey and goat's milk has been known to help heal bronchial infections. Honey also contains several anti-oxidants, which makes it important to humans. In addition, it has an anti-infective component and has been used to heal coughs, intestinal ailments and skin wounds.

Historically, honey has gone from a medicine and sweetener that only the wealthy could afford to a common item in stores and farmers' markets nearly everywhere. As it has become easy to obtain, it has also been processed more and more, which reduces the beneficial effects. For example, honey contains four substances that prevent colon cancer, each a type of caffeic. They act specifically on two substances in the colon that are involved in cancer development: phosphatidylinositol-specific phospholipase C and lipoxygenase. These caffeics, or phytonutrients, are literally destroyed by processing. Pure raw honey is best if you are hoping for health benefits from eating honey. One tablespoon daily will make a difference in your body.

The first International Symposium on Honey and Human Health was held in Sacramento, California, in January 2008. Many significant findings were presented, including but not limited to:

*Buckwheat honey has been found to be a more effective cough remedy than dextromethorphan for children from two to eighteen years.

*Compared to other substances used as sweeteners, honey is much better tolerated by the body, leading to better blood sugar control and sensitivity to insulin.

*Honey promotes immunity, as demonstrated by findings that 32 percent of cancer patients in an immunity study reported improvement in their quality of life as a result of fewer infections.

*Honey promotes wound healing, its most useful application in medicine and has been proven to heal burns quicker.

The two primary sugars that make honey (fructose and glucose) both attract water. When applied to an open wound, honey absorbs the fluid in the wound. Most bacteria need a moist environment to grow; honey makes the wound drier.

Honey stored in airtight containers will keep for indeterminate periods of time. Airtight will prevent the honey from absorbing ambient water and will keep the flavor from changing. It should be kept in a cool, dry place.

If your honey crystallizes don't heat it in the microwave, as this will alter the flavor. Place the container in hot water for about fifteen minutes in order to return it to a liquid state. If you substitute honey for sugar in a recipe, use only about three-quarters of a cup for every cup of sugar. Baking temperature needs to be lowered by twenty-five degrees Fahrenheit. Food made with honey will brown easier during the baking process.

Source - Natural News


Plunging Auto Sales

Toyota Motor said Tuesday that its global production had plunged by nearly half in February from a year earlier, while Honda and Nissan reported similarly grim figures highlighting the troubles facing Japanese automakers.

Separately, the Japan Automobile Manufacturers Association said auto sales in Japan for the fiscal year through March 2010 were expected to have dropped 8 percent from the previous year to what would be a 32-year low of 4.297 million vehicles.

The last time domestic sales were lower was in fiscal 1977, when 4.23 million vehicles were sold, it said.

"With the Japanese economy weakening and the outlook for employment looking very uncertain, consumers are in no mood to buy a car," Satoshi Aoki, chairman of the manufacturers' association, said at a news conference.

Demand for passenger cars in Japan has fallen for the past three years, largely because of a population shift to cities, which are well-served by public transportation. The global economic crisis has exacerbated that trend, as car owners in Japan wait longer to replace aging vehicles.

The manufacturers' group is counting on a bill, expected to pass in the coming week with the government's broader budget plan, that would give incentives to buyers of low-emission cars to help add about 310,000 vehicles in sales in the 2009-10 business year.

Toyota's production figures — which include a truck maker, Hino Motors, and Daihatsu Motor, which makes small cars — showed global production for February had tumbled 49.6 percent to 434,179 vehicles. Toyota's production in Japan for the month declined 56.4 percent from a year earlier, to 207,743 vehicles.

Honda Motor's global production in February declined 42.7 percent from the same month a year ago, to 190,680 vehicles.

Its Japanese output fell 48.4 percent, to 54,748 vehicles.

Monthly worldwide production for Nissan Motor in February declined 51.3 percent, to 156,864 vehicles, while its production in Japan plunged 68.8 percent. Nissan is allied with Renault of France.

Mazda Motor's global production fell 54.6 percent, to 57,642 vehicles for the month, while Mitsubishi Motors' output dropped 65 percent, to 45,048 vehicles, from the previous year.

While praising the government's stimulus plan, Mr. Aoki said more must be done, pointing to Germany's successful car-scrapping incentive program as an example of something that could be implemented in Japan.

"We need to prop up demand further on a broader basis," he said. "Germany's system could be one guide, and we want to seek help from the government."

The German government is offering car owners €2,500, or $3,400, if they turn in vehicles that are more than nine years old and switch to new models with lower emissions. That helped the country's new-car sales jump 21 percent in February from a year earlier, for the first rise in half a year.

Global automakers' financial troubles are claiming another victim: international auto shows. The Japanese manufacturers' group said Tuesday it would shorten the Tokyo Motor Show this year by 4 days to 13 days to help save money for those participating.

Announcing the list of participants, the group said Japan's four truck makers, along with most other foreign carmakers, had pulled out of the event this year. One of the world's five major international auto shows, it was scheduled to open Oct. 23.

Japan's eight domestic passenger-car makers will be joined by Ferrari, Hyundai Motor, Lotus, Maserati, Porsche and Alpina in that category.

Volkswagen, Daimler and BMW, Japan's top import brands, will not attend.

Source - International Herald Tribune

Monday, March 23, 2009


American International Group

It's over — we're officially, royally fucked. no empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country's heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.

The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That's $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG's 2008 losses).

So it's time to admit it: We're fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we're still in denial — we still think this is some kind of unfortunate accident, not something that was created by the group of psychopaths on Wall Street whom we allowed to gang-rape the American Dream. When Geithner announced the new $30 billion bailout, the party line was that poor AIG was just a victim of a lot of shitty luck — bad year for business, you know, what with the financial crisis and all. Edward Liddy, the company's CEO, actually compared it to catching a cold: "The marketplace is a pretty crummy place to be right now," he said. "When the world catches pneumonia, we get it too." In a pathetic attempt at name-dropping, he even whined that AIG was being "consumed by the same issues that are driving house prices down and 401K statements down and Warren Buffet's investment portfolio down."

Liddy made AIG sound like an orphan begging in a soup line, hungry and sick from being left out in someone else's financial weather. He conveniently forgot to mention that AIG had spent more than a decade systematically scheming to evade U.S. and international regulators, or that one of the causes of its "pneumonia" was making colossal, world-sinking $500 billion bets with money it didn't have, in a toxic and completely unregulated derivatives market.

Nor did anyone mention that when AIG finally got up from its seat at the Wall Street casino, broke and busted in the afterdawn light, it owed money all over town — and that a huge chunk of your taxpayer dollars in this particular bailout scam will be going to pay off the other high rollers at its table. Or that this was a casino unique among all casinos, one where middle-class taxpayers cover the bets of billionaires.

People are pissed off about this financial crisis, and about this bailout, but they're not pissed off enough. The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

The crisis was the coup de grâce: Given virtually free rein over the economy, these same insiders first wrecked the financial world, then cunningly granted themselves nearly unlimited emergency powers to clean up their own mess. And so the gambling-addict leaders of companies like AIG end up not penniless and in jail, but with an Alien-style death grip on the Treasury and the Federal Reserve — "our partners in the government," as Liddy put it with a shockingly casual matter-of-factness after the most recent bailout.

The mistake most people make in looking at the financial crisis is thinking of it in terms of money, a habit that might lead you to look at the unfolding mess as a huge bonus-killing downer for the Wall Street class. But if you look at it in purely Machiavellian terms, what you see is a colossal power grab that threatens to turn the federal government into a kind of giant Enron — a huge, impenetrable black box filled with self-dealing insiders whose scheme is the securing of individual profits at the expense of an ocean of unwitting involuntary shareholders, previously known as taxpayers.


The best way to understand the financial crisis is to understand the meltdown at AIG. AIG is what happens when short, bald managers of otherwise boring financial bureaucracies start seeing Brad Pitt in the mirror. This is a company that built a giant fortune across more than a century by betting on safety-conscious policyholders — people who wear seat belts and build houses on high ground — and then blew it all in a year or two by turning their entire balance sheet over to a guy who acted like making huge bets with other people's money would make his dick bigger.

That guy — the Patient Zero of the global economic meltdown — was one Joseph Cassano, the head of a tiny, 400-person unit within the company called AIG Financial Products, or AIGFP. Cassano, a pudgy, balding Brooklyn College grad with beady eyes and way too much forehead, cut his teeth in the Eighties working for Mike Milken, the granddaddy of modern Wall Street debt alchemists. Milken, who pioneered the creative use of junk bonds, relied on messianic genius and a whole array of insider schemes to evade detection while wreaking financial disaster. Cassano, by contrast, was just a greedy little turd with a knack for selective accounting who ran his scam right out in the open, thanks to Washington's deregulation of the Wall Street casino. "It's all about the regulatory environment," says a government source involved with the AIG bailout. "These guys look for holes in the system, for ways they can do trades without government interference. Whatever is unregulated, all the action is going to pile into that."

The mess Cassano created had its roots in an investment boom fueled in part by a relatively new type of financial instrument called a collateralized-debt obligation. A CDO is like a box full of diced-up assets. They can be anything: mortgages, corporate loans, aircraft loans, credit-card loans, even other CDOs. So as X mortgage holder pays his bill, and Y corporate debtor pays his bill, and Z credit-card debtor pays his bill, money flows into the box.

The key idea behind a CDO is that there will always be at least some money in the box, regardless of how dicey the individual assets inside it are. No matter how you look at a single unemployed ex-con trying to pay the note on a six-bedroom house, he looks like a bad investment. But dump his loan in a box with a smorgasbord of auto loans, credit-card debt, corporate bonds and other crap, and you can be reasonably sure that somebody is going to pay up. Say $100 is supposed to come into the box every month. Even in an apocalypse, when $90 in payments might default, you'll still get $10. What the inventors of the CDO did is divide up the box into groups of investors and put that $10 into its own level, or "tranche." They then convinced ratings agencies like Moody's and S&P to give that top tranche the highest AAA rating — meaning it has close to zero credit risk.

Suddenly, thanks to this financial seal of approval, banks had a way to turn their shittiest mortgages and other financial waste into investment-grade paper and sell them to institutional investors like pensions and insurance companies, which were forced by regulators to keep their portfolios as safe as possible. Because CDOs offered higher rates of return than truly safe products like Treasury bills, it was a win-win: Banks made a fortune selling CDOs, and big investors made much more holding them.

The problem was, none of this was based on reality. "The banks knew they were selling crap," says a London-based trader from one of the bailed-out companies. To get AAA ratings, the CDOs relied not on their actual underlying assets but on crazy mathematical formulas that the banks cooked up to make the investments look safer than they really were. "They had some back room somewhere where a bunch of Indian guys who'd been doing nothing but math for God knows how many years would come up with some kind of model saying that this or that combination of debtors would only default once every 10,000 years," says one young trader who sold CDOs for a major investment bank. "It was nuts."

Now that even the crappiest mortgages could be sold to conservative investors, the CDOs spurred a massive explosion of irresponsible and predatory lending. In fact, there was such a crush to underwrite CDOs that it became hard to find enough subprime mortgages — read: enough unemployed meth dealers willing to buy million-dollar homes for no money down — to fill them all. As banks and investors of all kinds took on more and more in CDOs and similar instruments, they needed some way to hedge their massive bets — some kind of insurance policy, in case the housing bubble burst and all that debt went south at the same time. This was particularly true for investment banks, many of which got stuck holding or "warehousing" CDOs when they wrote more than they could sell. And that's were Joe Cassano came in.

Known for his boldness and arrogance, Cassano took over as chief of AIGFP in 2001. He was the favorite of Maurice "Hank" Greenberg, the head of AIG, who admired the younger man's hard-driving ways, even if neither he nor his successors fully understood exactly what it was that Cassano did. According to a source familiar with AIG's internal operations, Cassano basically told senior management, "You know insurance, I know investments, so you do what you do, and I'll do what I do — leave me alone." Given a free hand within the company, Cassano set out from his offices in London to sell a lucrative form of "insurance" to all those investors holding lots of CDOs. His tool of choice was another new financial instrument known as a credit-default swap, or CDS.

The CDS was popularized by J.P. Morgan, in particular by a group of young, creative bankers who would later become known as the "Morgan Mafia," as many of them would go on to assume influential positions in the finance world. In 1994, in between booze and games of tennis at a resort in Boca Raton, Florida, the Morgan gang plotted a way to help boost the bank's returns. One of their goals was to find a way to lend more money, while working around regulations that required them to keep a set amount of cash in reserve to back those loans. What they came up with was an early version of the credit-default swap.

In its simplest form, a CDS is just a bet on an outcome. Say Bank A writes a million-dollar mortgage to the Pope for a town house in the West Village. Bank A wants to hedge its mortgage risk in case the Pope can't make his monthly payments, so it buys CDS protection from Bank B, wherein it agrees to pay Bank B a premium of $1,000 a month for five years. In return, Bank B agrees to pay Bank A the full million-dollar value of the Pope's mortgage if he defaults. In theory, Bank A is covered if the Pope goes on a meth binge and loses his job.

When Morgan presented their plans for credit swaps to regulators in the late Nineties, they argued that if they bought CDS protection for enough of the investments in their portfolio, they had effectively moved the risk off their books. Therefore, they argued, they should be allowed to lend more, without keeping more cash in reserve. A whole host of regulators — from the Federal Reserve to the Office of the Comptroller of the Currency — accepted the argument, and Morgan was allowed to put more money on the street.

What Cassano did was to transform the credit swaps that Morgan popularized into the world's largest bet on the housing boom. In theory, at least, there's nothing wrong with buying a CDS to insure your investments. Investors paid a premium to AIGFP, and in return the company promised to pick up the tab if the mortgage-backed CDOs went bust. But as Cassano went on a selling spree, the deals he made differed from traditional insurance in several significant ways. First, the party selling CDS protection didn't have to post any money upfront. When a $100 corporate bond is sold, for example, someone has to show 100 actual dollars. But when you sell a $100 CDS guarantee, you don't have to show a dime. So Cassano could sell investment banks billions in guarantees without having any single asset to back it up.

Secondly, Cassano was selling so-called "naked" CDS deals. In a "naked" CDS, neither party actually holds the underlying loan. In other words, Bank B not only sells CDS protection to Bank A for its mortgage on the Pope — it turns around and sells protection to Bank C for the very same mortgage. This could go on ad nauseam: You could have Banks D through Z also betting on Bank A's mortgage. Unlike traditional insurance, Cassano was offering investors an opportunity to bet that someone else's house would burn down, or take out a term life policy on the guy with AIDS down the street. It was no different from gambling, the Wall Street version of a bunch of frat brothers betting on Jay Feely to make a field goal. Cassano was taking book for every bank that bet short on the housing market, but he didn't have the cash to pay off if the kick went wide.

In a span of only seven years, Cassano sold some $500 billion worth of CDS protection, with at least $64 billion of that tied to the subprime mortgage market. AIG didn't have even a fraction of that amount of cash on hand to cover its bets, but neither did it expect it would ever need any reserves. So long as defaults on the underlying securities remained a highly unlikely proposition, AIG was essentially collecting huge and steadily climbing premiums by selling insurance for the disaster it thought would never come.

Initially, at least, the revenues were enormous: AIGFP's returns went from $737 million in 1999 to $3.2 billion in 2005. Over the past seven years, the subsidiary's 400 employees were paid a total of $3.5 billion; Cassano himself pocketed at least $280 million in compensation. Everyone made their money — and then it all went to shit.


Cassano's outrageous gamble wouldn't have been possible had he not had the good fortune to take over AIGFP just as Sen. Phil Gramm — a grinning, laissez-faire ideologue from Texas — had finished engineering the most dramatic deregulation of the financial industry since Emperor Hien Tsung invented paper money in 806 A.D. For years, Washington had kept a watchful eye on the nation's banks. Ever since the Great Depression, commercial banks — those that kept money on deposit for individuals and businesses — had not been allowed to double as investment banks, which raise money by issuing and selling securities. The Glass-Steagall Act, passed during the Depression, also prevented banks of any kind from getting into the insurance business.

But in the late Nineties, a few years before Cassano took over AIGFP, all that changed. The Democrats, tired of getting slaughtered in the fundraising arena by Republicans, decided to throw off their old reliance on unions and interest groups and become more "business-friendly." Wall Street responded by flooding Washington with money, buying allies in both parties. In the 10-year period beginning in 1998, financial companies spent $1.7 billion on federal campaign contributions and another $3.4 billion on lobbyists. They quickly got what they paid for. In 1999, Gramm co-sponsored a bill that repealed key aspects of the Glass-Steagall Act, smoothing the way for the creation of financial megafirms like Citigroup. The move did away with the built-in protections afforded by smaller banks. In the old days, a local banker knew the people whose loans were on his balance sheet: He wasn't going to give a million-dollar mortgage to a homeless meth addict, since he would have to keep that loan on his books. But a giant merged bank might write that loan and then sell it off to some fool in China, and who cared?

The very next year, Gramm compounded the problem by writing a sweeping new law called the Commodity Futures Modernization Act that made it impossible to regulate credit swaps as either gambling or securities. Commercial banks — which, thanks to Gramm, were now competing directly with investment banks for customers — were driven to buy credit swaps to loosen capital in search of higher yields. "By ruling that credit-default swaps were not gaming and not a security, the way was cleared for the growth of the market," said Eric Dinallo, head of the New York State Insurance Department.

The blanket exemption meant that Joe Cassano could now sell as many CDS contracts as he wanted, building up as huge a position as he wanted, without anyone in government saying a word. "You have to remember, investment banks aren't in the business of making huge directional bets," says the government source involved in the AIG bailout. When investment banks write CDS deals, they hedge them. But insurance companies don't have to hedge. And that's what AIG did. "They just bet massively long on the housing market," says the source. "Billions and billions."

In the biggest joke of all, Cassano's wheeling and dealing was regulated by the Office of Thrift Supervision, an agency that would prove to be defiantly uninterested in keeping watch over his operations. How a behemoth like AIG came to be regulated by the little-known and relatively small OTS is yet another triumph of the deregulatory instinct. Under another law passed in 1999, certain kinds of holding companies could choose the OTS as their regulator, provided they owned one or more thrifts (better known as savings-and-loans). Because the OTS was viewed as more compliant than the Fed or the Securities and Exchange Commission, companies rushed to reclassify themselves as thrifts. In 1999, AIG purchased a thrift in Delaware and managed to get approval for OTS regulation of its entire operation.

Making matters even more hilarious, AIGFP — a London-based subsidiary of an American insurance company — ought to have been regulated by one of Europe's more stringent regulators, like Britain's Financial Services Authority. But the OTS managed to convince the Europeans that it had the muscle to regulate these giant companies. By 2007, the EU had conferred legitimacy to OTS supervision of three mammoth firms — GE, AIG and Ameriprise.

That same year, as the subprime crisis was exploding, the Government Accountability Office criticized the OTS, noting a "disparity between the size of the agency and the diverse firms it oversees." Among other things, the GAO report noted that the entire OTS had only one insurance specialist on staff — and this despite the fact that it was the primary regulator for the world's largest insurer!

"There's this notion that the regulators couldn't do anything to stop AIG," says a government official who was present during the bailout. "That's bullshit. What you have to understand is that these regulators have ultimate power. They can send you a letter and say, 'You don't exist anymore,' and that's basically that. They don't even really need due process. The OTS could have said, 'We're going to pull your charter; we're going to pull your license; we're going to sue you.' And getting sued by your primary regulator is the kiss of death."

When AIG finally blew up, the OTS regulator ostensibly in charge of overseeing the insurance giant — a guy named C.K. Lee — basically admitted that he had blown it. His mistake, Lee said, was that he believed all those credit swaps in Cassano's portfolio were "fairly benign products." Why? Because the company told him so. "The judgment the company was making was that there was no big credit risk," he explained. (Lee now works as Midwest region director of the OTS; the agency declined to make him available for an interview.)

In early March, after the latest bailout of AIG, Treasury Secretary Timothy Geithner took what seemed to be a thinly veiled shot at the OTS, calling AIG a "huge, complex global insurance company attached to a very complicated investment bank/hedge fund that was allowed to build up without any adult supervision." But even without that "adult supervision," AIG might have been OK had it not been for a complete lack of internal controls. For six months before its meltdown, according to insiders, the company had been searching for a full-time chief financial officer and a chief risk-assessment officer, but never got around to hiring either. That meant that the 18th-largest company in the world had no one checking to make sure its balance sheet was safe and no one keeping track of how much cash and assets the firm had on hand. The situation was so bad that when outside consultants were called in a few weeks before the bailout, senior executives were unable to answer even the most basic questions about their company — like, for instance, how much exposure the firm had to the residential-mortgage market.


Ironically, when reality finally caught up to Cassano, it wasn't because the housing market crapped but because of AIG itself. Before 2005, the company's debt was rated triple-A, meaning he didn't need to post much cash to sell CDS protection: The solid creditworthiness of AIG's name was guarantee enough. But the company's crummy accounting practices eventually caused its credit rating to be downgraded, triggering clauses in the CDS contracts that forced Cassano to post substantially more collateral to back his deals.

By the fall of 2007, it was evident that AIGFP's portfolio had turned poisonous, but like every good Wall Street huckster, Cassano schemed to keep his insane, Earth-swallowing gamble hidden from public view. That August, balls bulging, he announced to investors on a conference call that "it is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing $1 in any of those transactions." As he spoke, his CDS portfolio was racking up $352 million in losses. When the growing credit crunch prompted senior AIG executives to re-examine its liabilities, a company accountant named Joseph St. Denis became "gravely concerned" about the CDS deals and their potential for mass destruction. Cassano responded by personally forcing the poor sap out of the firm, telling him he was "deliberately excluded" from the financial review for fear that he might "pollute the process."

The following February, when AIG posted $11.5 billion in annual losses, it announced the resignation of Cassano as head of AIGFP, saying an auditor had found a "material weakness" in the CDS portfolio. But amazingly, the company not only allowed Cassano to keep $34 million in bonuses, it kept him on as a consultant for $1 million a month. In fact, Cassano remained on the payroll and kept collecting his monthly million through the end of September 2008, even after taxpayers had been forced to hand AIG $85 billion to patch up his fuck-ups. When asked in October why the company still retained Cassano at his $1 million-a-month rate despite his role in the probable downfall of Western civilization, CEO Martin Sullivan told Congress with a straight face that AIG wanted to "retain the 20-year knowledge that Mr. Cassano had." (Cassano, who is apparently hiding out in his lavish town house near Harrods in London, could not be reached for comment.)

What sank AIG in the end was another credit downgrade. Cassano had written so many CDS deals that when the company was facing another downgrade to its credit rating last September, from AA to A, it needed to post billions in collateral — not only more cash than it had on its balance sheet but more cash than it could raise even if it sold off every single one of its liquid assets. Even so, management dithered for days, not believing the company was in serious trouble. AIG was a dried-up prune, sapped of any real value, and its top executives didn't even know it.

On the weekend of September 13th, AIG's senior leaders were summoned to the offices of the New York Federal Reserve. Regulators from Dinallo's insurance office were there, as was Geithner, then chief of the New York Fed. Treasury Secretary Hank Paulson, who spent most of the weekend preoccupied with the collapse of Lehman Brothers, came in and out. Also present, for reasons that would emerge later, was Lloyd Blankfein, CEO of Goldman Sachs. The only relevant government office that wasn't represented was the regulator that should have been there all along: the OTS.

"We sat down with Paulson, Geithner and Dinallo," says a person present at the negotiations. "I didn't see the OTS even once."

On September 14th, according to another person present, Treasury officials presented Blankfein and other bankers in attendance with an absurd proposal: "They basically asked them to spend a day and check to see if they could raise the money privately." The laughably short time span to complete the mammoth task made the answer a foregone conclusion. At the end of the day, the bankers came back and told the government officials, gee, we checked, but we can't raise that much. And the bailout was on.

A short time later, it came out that AIG was planning to pay some $90 million in deferred compensation to former executives, and to accelerate the payout of $277 million in bonuses to others — a move the company insisted was necessary to "retain key employees." When Congress balked, AIG canceled the $90 million in payments.

Then, in January 2009, the company did it again. After all those years letting Cassano run wild, and after already getting caught paying out insane bonuses while on the public till, AIG decided to pay out another $450 million in bonuses. And to whom? To the 400 or so employees in Cassano's old unit, AIGFP, which is due to go out of business shortly! Yes, that's right, an average of $1.1 million in taxpayer-backed money apiece, to the very people who spent the past decade or so punching a hole in the fabric of the universe!

"We, uh, needed to keep these highly expert people in their seats," AIG spokeswoman Christina Pretto says to me in early February.

"But didn't these 'highly expert people' basically destroy your company?" I ask.

Pretto protests, says this isn't fair. The employees at AIGFP have already taken pay cuts, she says. Not retaining them would dilute the value of the company even further, make it harder to wrap up the unit's operations in an orderly fashion.

The bonuses are a nice comic touch highlighting one of the more outrageous tangents of the bailout age, namely the fact that, even with the planet in flames, some members of the Wall Street class can't even get used to the tragedy of having to fly coach. "These people need their trips to Baja, their spa treatments, their hand jobs," says an official involved in the AIG bailout, a serious look on his face, apparently not even half-kidding. "They don't function well without them."


So that's the first step in wall street's power grab: making up things like credit-default swaps and collateralized-debt obligations, financial products so complex and inscrutable that ordinary American dumb people — to say nothing of federal regulators and even the CEOs of major corporations like AIG — are too intimidated to even try to understand them. That, combined with wise political investments, enabled the nation's top bankers to effectively scrap any meaningful oversight of the financial industry. In 1997 and 1998, the years leading up to the passage of Phil Gramm's fateful act that gutted Glass-Steagall, the banking, brokerage and insurance industries spent $350 million on political contributions and lobbying. Gramm alone — then the chairman of the Senate Banking Committee — collected $2.6 million in only five years. The law passed 90-8 in the Senate, with the support of 38 Democrats, including some names that might surprise you: Joe Biden, John Kerry, Tom Daschle, Dick Durbin, even John Edwards.

The act helped create the too-big-to-fail financial behemoths like Citigroup, AIG and Bank of America — and in turn helped those companies slowly crush their smaller competitors, leaving the major Wall Street firms with even more money and power to lobby for further deregulatory measures. "We're moving to an oligopolistic situation," Kenneth Guenther, a top executive with the Independent Community Bankers of America, lamented after the Gramm measure was passed.

The situation worsened in 2004, in an extraordinary move toward deregulation that never even got to a vote. At the time, the European Union was threatening to more strictly regulate the foreign operations of America's big investment banks if the U.S. didn't strengthen its own oversight. So the top five investment banks got together on April 28th of that year and — with the helpful assistance of then-Goldman Sachs chief and future Treasury Secretary Hank Paulson — made a pitch to George Bush's SEC chief at the time, William Donaldson, himself a former investment banker. The banks generously volunteered to submit to new rules restricting them from engaging in excessively risky activity. In exchange, they asked to be released from any lending restrictions. The discussion about the new rules lasted just 55 minutes, and there was not a single representative of a major media outlet there to record the fateful decision.

Donaldson OK'd the proposal, and the new rules were enough to get the EU to drop its threat to regulate the five firms. The only catch was, neither Donaldson nor his successor, Christopher Cox, actually did any regulating of the banks. They named a commission of seven people to oversee the five companies, whose combined assets came to total more than $4 trillion. But in the last year and a half of Cox's tenure, the group had no director and did not complete a single inspection. Great deal for the banks, which originally complained about being regulated by both Europe and the SEC, and ended up being regulated by no one.

Once the capital requirements were gone, those top five banks went hog-wild, jumping ass-first into the then-raging housing bubble. One of those was Bear Stearns, which used its freedom to drown itself in bad mortgage loans. In the short period between the 2004 change and Bear's collapse, the firm's debt-to-equity ratio soared from 12-1 to an insane 33-1. Another culprit was Goldman Sachs, which also had the good fortune, around then, to see its CEO, a bald-headed Frankensteinian goon named Hank Paulson (who received an estimated $200 million tax deferral by joining the government), ascend to Treasury secretary.

Freed from all capital restraints, sitting pretty with its man running the Treasury, Goldman jumped into the housing craze just like everyone else on Wall Street. Although it famously scored an $11 billion coup in 2007 when one of its trading units smartly shorted the housing market, the move didn't tell the whole story. In truth, Goldman still had a huge exposure come that fateful summer of 2008 — to none other than Joe Cassano.

Goldman Sachs, it turns out, was Cassano's biggest customer, with $20 billion of exposure in Cassano's CDS book. Which might explain why Goldman chief Lloyd Blankfein was in the room with ex-Goldmanite Hank Paulson that weekend of September 13th, when the federal government was supposedly bailing out AIG.

When asked why Blankfein was there, one of the government officials who was in the meeting shrugs. "One might say that it's because Goldman had so much exposure to AIGFP's portfolio," he says. "You'll never prove that, but one might suppose."

Market analyst Eric Salzman is more blunt. "If AIG went down," he says, "there was a good chance Goldman would not be able to collect." The AIG bailout, in effect, was Goldman bailing out Goldman.

Eventually, Paulson went a step further, elevating another ex-Goldmanite named Edward Liddy to run AIG — a company whose bailout money would be coming, in part, from the newly created TARP program, administered by another Goldman banker named Neel Kashkari.


There are plenty of people who have noticed, in recent years, that when they lost their homes to foreclosure or were forced into bankruptcy because of crippling credit-card debt, no one in the government was there to rescue them. But when Goldman Sachs — a company whose average employee still made more than $350,000 last year, even in the midst of a depression — was suddenly faced with the possibility of losing money on the unregulated insurance deals it bought for its insane housing bets, the government was there in an instant to patch the hole. That's the essence of the bailout: rich bankers bailing out rich bankers, using the taxpayers' credit card.

The people who have spent their lives cloistered in this Wall Street community aren't much for sharing information with the great unwashed. Because all of this shit is complicated, because most of us mortals don't know what the hell LIBOR is or how a REIT works or how to use the word "zero coupon bond" in a sentence without sounding stupid — well, then, the people who do speak this idiotic language cannot under any circumstances be bothered to explain it to us and instead spend a lot of time rolling their eyes and asking us to trust them.

That roll of the eyes is a key part of the psychology of Paulsonism. The state is now being asked not just to call off its regulators or give tax breaks or funnel a few contracts to connected companies; it is intervening directly in the economy, for the sole purpose of preserving the influence of the megafirms. In essence, Paulson used the bailout to transform the government into a giant bureaucracy of entitled assholedom, one that would socialize "toxic" risks but keep both the profits and the management of the bailed-out firms in private hands. Moreover, this whole process would be done in secret, away from the prying eyes of NASCAR dads, broke-ass liberals who read translations of French novels, subprime mortgage holders and other such financial losers.

Some aspects of the bailout were secretive to the point of absurdity. In fact, if you look closely at just a few lines in the Federal Reserve's weekly public disclosures, you can literally see the moment where a big chunk of your money disappeared for good. The H4 report (called "Factors Affecting Reserve Balances") summarizes the activities of the Fed each week. You can find it online, and it's pretty much the only thing the Fed ever tells the world about what it does. For the week ending February 18th, the number under the heading "Repurchase Agreements" on the table is zero. It's a significant number.

Why? In the pre-crisis days, the Fed used to manage the money supply by periodically buying and selling securities on the open market through so-called Repurchase Agreements, or Repos. The Fed would typically dump $25 billion or so in cash onto the market every week, buying up Treasury bills, U.S. securities and even mortgage-backed securities from institutions like Goldman Sachs and J.P. Morgan, who would then "repurchase" them in a short period of time, usually one to seven days. This was the Fed's primary mechanism for controlling interest rates: Buying up securities gives banks more money to lend, which makes interest rates go down. Selling the securities back to the banks reduces the money available for lending, which makes interest rates go up.

If you look at the weekly H4 reports going back to the summer of 2007, you start to notice something alarming. At the start of the credit crunch, around August of that year, you see the Fed buying a few more Repos than usual — $33 billion or so. By November, as private-bank reserves were dwindling to alarmingly low levels, the Fed started injecting even more cash than usual into the economy: $48 billion. By late December, the number was up to $58 billion; by the following March, around the time of the Bear Stearns rescue, the Repo number had jumped to $77 billion. In the week of May 1st, 2008, the number was $115 billion — "out of control now," according to one congressional aide. For the rest of 2008, the numbers remained similarly in the stratosphere, the Fed pumping as much as $125 billion of these short-term loans into the economy — until suddenly, at the start of this year, the number drops to nothing. Zero.

The reason the number has dropped to nothing is that the Fed had simply stopped using relatively transparent devices like repurchase agreements to pump its money into the hands of private companies. By early 2009, a whole series of new government operations had been invented to inject cash into the economy, most all of them completely secretive and with names you've never heard of. There is the Term Auction Facility, the Term Securities Lending Facility, the Primary Dealer Credit Facility, the Commercial Paper Funding Facility and a monster called the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility (boasting the chat-room horror-show acronym ABCPMMMFLF). For good measure, there's also something called a Money Market Investor Funding Facility, plus three facilities called Maiden Lane I, II and III to aid bailout recipients like Bear Stearns and AIG.

While the rest of America, and most of Congress, have been bugging out about the $700 billion bailout program called TARP, all of these newly created organisms in the Federal Reserve zoo have quietly been pumping not billions but trillions of dollars into the hands of private companies (at least $3 trillion so far in loans, with as much as $5.7 trillion more in guarantees of private investments). Although this technically isn't taxpayer money, it still affects taxpayers directly, because the activities of the Fed impact the economy as a whole. And this new, secretive activity by the Fed completely eclipses the TARP program in terms of its influence on the economy.

No one knows who's getting that money or exactly how much of it is disappearing through these new holes in the hull of America's credit rating. Moreover, no one can really be sure if these new institutions are even temporary at all — or whether they are being set up as permanent, state-aided crutches to Wall Street, designed to systematically suck bad investments off the ledgers of irresponsible lenders.

"They're supposed to be temporary," says Paul-Martin Foss, an aide to Rep. Ron Paul. "But we keep getting notices every six months or so that they're being renewed. They just sort of quietly announce it."

None other than disgraced senator Ted Stevens was the poor sap who made the unpleasant discovery that if Congress didn't like the Fed handing trillions of dollars to banks without any oversight, Congress could apparently go fuck itself — or so said the law. When Stevens asked the GAO about what authority Congress has to monitor the Fed, he got back a letter citing an obscure statute that nobody had ever heard of before: the Accounting and Auditing Act of 1950. The relevant section, 31 USC 714(b), dictated that congressional audits of the Federal Reserve may not include "deliberations, decisions and actions on monetary policy matters." The exemption, as Foss notes, "basically includes everything." According to the law, in other words, the Fed simply cannot be audited by Congress. Or by anyone else, for that matter.


Stevens isn't the only person in Congress to be given the finger by the Fed. In January, when Rep. Alan Grayson of Florida asked Federal Reserve vice chairman Donald Kohn where all the money went — only $1.2 trillion had vanished by then — Kohn gave Grayson a classic eye roll, saying he would be "very hesitant" to name names because it might discourage banks from taking the money.

"Has that ever happened?" Grayson asked. "Have people ever said, 'We will not take your $100 billion because people will find out about it?'"

"Well, we said we would not publish the names of the borrowers, so we have no test of that," Kohn answered, visibly annoyed with Grayson's meddling.

Grayson pressed on, demanding to know on what terms the Fed was lending the money. Presumably it was buying assets and making loans, but no one knew how it was pricing those assets — in other words, no one knew what kind of deal it was striking on behalf of taxpayers. So when Grayson asked if the purchased assets were "marked to market" — a methodology that assigns a concrete value to assets, based on the market rate on the day they are traded — Kohn answered, mysteriously, "The ones that have market values are marked to market." The implication was that the Fed was purchasing derivatives like credit swaps or other instruments that were basically impossible to value objectively — paying real money for God knows what.

"Well, how much of them don't have market values?" asked Grayson. "How much of them are worthless?"

"None are worthless," Kohn snapped.

"Then why don't you mark them to market?" Grayson demanded.

"Well," Kohn sighed, "we are marking the ones to market that have market values."

In essence, the Fed was telling Congress to lay off and let the experts handle things. "It's like buying a car in a used-car lot without opening the hood, and saying, 'I think it's fine,'" says Dan Fuss, an analyst with the investment firm Loomis Sayles. "The salesman says, 'Don't worry about it. Trust me.' It'll probably get us out of the lot, but how much farther? None of us knows."

When one considers the comparatively extensive system of congressional checks and balances that goes into the spending of every dollar in the budget via the normal appropriations process, what's happening in the Fed amounts to something truly revolutionary — a kind of shadow government with a budget many times the size of the normal federal outlay, administered dictatorially by one man, Fed chairman Ben Bernanke. "We spend hours and hours and hours arguing over $10 million amendments on the floor of the Senate, but there has been no discussion about who has been receiving this $3 trillion," says Sen. Bernie Sanders. "It is beyond comprehension."

Count Sanders among those who don't buy the argument that Wall Street firms shouldn't have to face being outed as recipients of public funds, that making this information public might cause investors to panic and dump their holdings in these firms. "I guess if we made that public, they'd go on strike or something," he muses.

And the Fed isn't the only arm of the bailout that has closed ranks. The Treasury, too, has maintained incredible secrecy surrounding its implementation even of the TARP program, which was mandated by Congress. To this date, no one knows exactly what criteria the Treasury Department used to determine which banks received bailout funds and which didn't — particularly the first $350 billion given out under Bush appointee Hank Paulson.

The situation with the first TARP payments grew so absurd that when the Congressional Oversight Panel, charged with monitoring the bailout money, sent a query to Paulson asking how he decided whom to give money to, Treasury responded — and this isn't a joke — by directing the panel to a copy of the TARP application form on its website. Elizabeth Warren, the chair of the Congressional Oversight Panel, was struck nearly speechless by the response.

"Do you believe that?" she says incredulously. "That's not what we had in mind."

Another member of Congress, who asked not to be named, offers his own theory about the TARP process. "I think basically if you knew Hank Paulson, you got the money," he says.

This cozy arrangement created yet another opportunity for big banks to devour market share at the expense of smaller regional lenders. While all the bigwigs at Citi and Goldman and Bank of America who had Paulson on speed-dial got bailed out right away — remember that TARP was originally passed because money had to be lent right now, that day, that minute, to stave off emergency — many small banks are still waiting for help. Five months into the TARP program, some not only haven't received any funds, they haven't even gotten a call back about their applications.

"There's definitely a feeling among community bankers that no one up there cares much if they make it or not," says Tanya Wheeless, president of the Arizona Bankers Association.

Which, of course, is exactly the opposite of what should be happening, since small, regional banks are far less guilty of the kinds of predatory lending that sank the economy. "They're not giving out subprime loans or easy credit," says Wheeless. "At the community level, it's much more bread-and-butter banking."

Nonetheless, the lion's share of the bailout money has gone to the larger, so-called "systemically important" banks. "It's like Treasury is picking winners and losers," says one state banking official who asked not to be identified.

This itself is a hugely important political development. In essence, the bailout accelerated the decline of regional community lenders by boosting the political power of their giant national competitors.

Which, when you think about it, is insane: What had brought us to the brink of collapse in the first place was this relentless instinct for building ever-larger megacompanies, passing deregulatory measures to gradually feed all the little fish in the sea to an ever-shrinking pool of Bigger Fish. To fix this problem, the government should have slowly liquidated these monster, too-big-to-fail firms and broken them down to smaller, more manageable companies. Instead, federal regulators closed ranks and used an almost completely secret bailout process to double down on the same faulty, merger-happy thinking that got us here in the first place, creating a constellation of megafirms under government control that are even bigger, more unwieldy and more crammed to the gills with systemic risk.

In essence, Paulson and his cronies turned the federal government into one gigantic, half-opaque holding company, one whose balance sheet includes the world's most appallingly large and risky hedge fund, a controlling stake in a dying insurance giant, huge investments in a group of teetering megabanks, and shares here and there in various auto-finance companies, student loans, and other failing businesses. Like AIG, this new federal holding company is a firm that has no mechanism for auditing itself and is run by leaders who have very little grasp of the daily operations of its disparate subsidiary operations.

In other words, it's AIG's rip-roaringly shitty business model writ almost inconceivably massive — to echo Geithner, a huge, complex global company attached to a very complicated investment bank/hedge fund that's been allowed to build up without adult supervision. How much of what kinds of crap is actually on our balance sheet, and what did we pay for it? When exactly will the rent come due, when will the money run out? Does anyone know what the hell is going on? And on the linear spectrum of capitalism to socialism, where exactly are we now? Is there a dictionary word that even describes what we are now? It would be funny, if it weren't such a nightmare.


The real question from here is whether the Obama administration is going to move to bring the financial system back to a place where sanity is restored and the general public can have a say in things or whether the new financial bureaucracy will remain obscure, secretive and hopelessly complex. It might not bode well that Geithner, Obama's Treasury secretary, is one of the architects of the Paulson bailouts; as chief of the New York Fed, he helped orchestrate the Goldman-friendly AIG bailout and the secretive Maiden Lane facilities used to funnel funds to the dying company. Neither did it look good when Geithner — himself a protégé of notorious Goldman alum John Thain, the Merrill Lynch chief who paid out billions in bonuses after the state spent billions bailing out his firm — picked a former Goldman lobbyist named Mark Patterson to be his top aide.

In fact, most of Geithner's early moves reek strongly of Paulsonism. He has continually talked about partnering with private investors to create a so-called "bad bank" that would systemically relieve private lenders of bad assets — the kind of massive, opaque, quasi-private bureaucratic nightmare that Paulson specialized in. Geithner even refloated a Paulson proposal to use TALF, one of the Fed's new facilities, to essentially lend cheap money to hedge funds to invest in troubled banks while practically guaranteeing them enormous profits.

God knows exactly what this does for the taxpayer, but hedge-fund managers sure love the idea. "This is exactly what the financial system needs," said Andrew Feldstein, CEO of Blue Mountain Capital and one of the Morgan Mafia. Strangely, there aren't many people who don't run hedge funds who have expressed anything like that kind of enthusiasm for Geithner's ideas.

As complex as all the finances are, the politics aren't hard to follow. By creating an urgent crisis that can only be solved by those fluent in a language too complex for ordinary people to understand, the Wall Street crowd has turned the vast majority of Americans into non-participants in their own political future. There is a reason it used to be a crime in the Confederate states to teach a slave to read: Literacy is power. In the age of the CDS and CDO, most of us are financial illiterates. By making an already too-complex economy even more complex, Wall Street has used the crisis to effect a historic, revolutionary change in our political system — transforming a democracy into a two-tiered state, one with plugged-in financial bureaucrats above and clueless customers below.

The most galling thing about this financial crisis is that so many Wall Street types think they actually deserve not only their huge bonuses and lavish lifestyles but the awesome political power their own mistakes have left them in possession of. When challenged, they talk about how hard they work, the 90-hour weeks, the stress, the failed marriages, the hemorrhoids and gallstones they all get before they hit 40.

"But wait a minute," you say to them. "No one ever asked you to stay up all night eight days a week trying to get filthy rich shorting what's left of the American auto industry or selling $600 billion in toxic, irredeemable mortgages to ex-strippers on work release and Taco Bell clerks. Actually, come to think of it, why are we even giving taxpayer money to you people? Why are we not throwing your ass in jail instead?"

But before you even finish saying that, they're rolling their eyes, because You Don't Get It. These people were never about anything except turning money into money, in order to get more money; valueswise they're on par with crack addicts, or obsessive sexual deviants who burgle homes to steal panties. Yet these are the people in whose hands our entire political future now rests.

Good luck with that, America. And enjoy tax season.

Source - Rolling Stone

Friday, March 20, 2009


New Move To Dump The US Dollar

A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

"It is a good moment to move to a shared reserve currency," he said.

Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value -- though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits.

Some analysts said news of the U.N. panel's recommendation extended dollar losses because it fed into concerns about the future of the greenback as the main global reserve currency, raising the chances of central bank sales of dollar holdings.

"Speculation that major central banks would begin rebalancing their FX reserves has risen since the intensification of the dollar's slide between 2002 and mid-2008," CMC Markets said in a note.

Russia is also planning to propose the creation of a new reserve currency, to be issued by international financial institutions, at the April G20 meeting, according to the text of its proposals published on Monday.

It has significantly reduced the dollar's share in its own reserves in recent years.


Persaud said that the United States was concerned that holding the reserve currency made it impossible to run policy, while the rest of world was also unhappy with the generally declining dollar.

"There is a moment that can be grasped for change," he said.

"Today the Americans complain that when the world wants to save, it means a deficit. A shared (reserve) would reduce the possibility of global imbalances."

Persaud said the panel had been looking at using something like an expanded Special Drawing Right, originally created by the International Monetary Fund in 1969 but now used mainly as an accounting unit within similar organizations.

The SDR and the old Ecu are essentially combinations of currencies, weighted to a constituent's economic clout, which can be valued against other currencies and indeed against those inside the basket.

Persaud said there were two main reasons why policymakers might consider such a move, one being the current desire for a change from the dollar.

The other reason, he said, was the success of the euro, which incorporated a number of currencies but roughly speaking held on to the stability of the old German deutschemark compared with, say, the Greek drachma.

Persaud has long argued that the dollar would give way to the Chinese yuan as a global reserve currency within decades.

A shared reserve currency might negate this move, he said, but he believed that China would still like to take on the role.

Source - Reuters

Wednesday, March 18, 2009


China Buying Up Global Resources

Chinese companies have been on a shopping spree in the past month, snapping up tens of billions of dollars' worth of key assets in Iran, Brazil, Russia, Venezuela, Australia and France in a global fire sale set off by the financial crisis.

The deals have allowed China to lock up supplies of oil, minerals, metals and other strategic natural resources it needs to continue to fuel its growth. The sheer scope of the agreements marks a shift in global finance, roiling energy markets and feeding worries about the future availability and prices of those commodities in other countries that compete for them, including the United States.

Just a few months ago, many countries were greeting such overtures from China with suspicion. Today, as corporations and banks in other parts of the world find themselves reluctant or unable to give out money to distressed companies, cash-rich China has become a major force driving new lending and investment.

On Feb. 12, China's state-owned metals giant Chinalco signed a $19.5 billion deal with Australia's Rio Tinto that will eventually double its stake in the world's second-largest mining company.

In three other cases, China has used loans as a way of securing energy supplies. On Feb. 17 and 18, China National Petroleum signed separate agreements with Russia and Venezuela under which China would provide $25 billion and $4 billion in loans, respectively, in exchange for long-term commitments to supply oil. And on Feb. 19, the China Development Bank struck a similar deal with Petrobras, the Brazilian oil company, agreeing to a loan of $10 billion in exchange for oil.

On Saturday, Iran announced that it had signed a $3.2 billion agreement with a Chinese consortium to develop an area beneath the Persian Gulf seabed that is believed to hold about 8 percent of the world's reserves of natural gas.

Even as global financial flows have slowed sharply overall, China has dramatically stepped up its outbound investment. In 2008, its overseas mergers and acquisitions were worth $52.1 billion -- a record, according to the research firm Dealogic. In January and February of this year, Chinese companies invested $16.3 billion abroad, meaning that if the pace holds, the total for 2009 could be nearly double last year's.

Worldwide, the value of mergers and acquisitions transactions so far this year has dropped 35 percent to $384 billion. By comparison, the United States had $186.2 billion in outbound mergers and acquisitions in 2008 and Japan had $74.3 billion.

China's state-run media outlets are calling the acquisition spree an opportunity that comes once in a hundred years, and analysts are drawing parallels to 1980s Japan.

"That China started investing or acquiring some overseas mineral resources companies with relatively low prices during the global economic crisis is quite a normal practice. Japan did the same thing in its prime development period, too," said Xu Xiangchun, consulting director for, a market research and analysis firm.

It's not just Chinese corporations that are taking advantage of the economic crisis to help others while helping themselves.

The Chinese government also has come to the rescue of ailing countries, such as Jamaica and Pakistan, that it wants as allies, extending generous loans. Even Chinese consumers are taking their money abroad. In a shopping trip last month organized by an online real estate brokerage, a group of 50 individual investors from China traveled to New York, Los Angeles and San Francisco to purchase homes at prices that have crashed since the subprime crisis.

"As soon as we launched the project, we had 100 people registered and ready to go," said Dai Jianzhong, chief executive of SouFun Holdings, which organized the trip. "Now the number has reached 400. Apparently, the American real estate market has a great appeal to Chinese buyers."

China's Commerce Ministry organized a similar shopping expedition -- but for Chinese companies to visit foreign companies -- the week of Feb. 25. Commerce Minister Chen Deming took with him about 90 executives, who signed contracts worth about $10 billion in Germany, $400,000 in Switzerland, $320 million in Spain and $2 billion in Britain. The deals were mostly for the purchase of goods, including olive oil, 3,000 Jaguars and 10,000 Land Rovers.

The Commerce Ministry said Monday that it intends to send more investment missions abroad this year. Although details are still being worked out, the itineraries will probably include the United States, Japan and Southeast Asia, the ministry said.

Foreign automakers may be next on China's acquisitions list.

On Feb. 23, Weichai Power, a diesel engine company, said it would spend about $3.8 million to acquire the products, technology and brand of France's Moteurs Baudouin, which designs and manufactures marine propulsive equipment such as engines and propellers.

That was a relatively small deal, but Chen Bin, director general of the National Development and Reform Commission's Department of Industry, hinted that larger acquisitions may be in the works. He noted on the sidelines of a news conference on the economy late last month that overseas car companies are facing cash difficulties at the same time their Chinese counterparts "need their technology, brands, talent and sales networks."

"It will be a very big challenge for Chinese companies to stabilize the operations of foreign automakers and to maintain growth," Chen acknowledged, according to the official People's Daily, but he added that if the companies decide to acquire such assets, "the government will support them."

The one country that appears conspicuously absent from China's corporate bargain-hunting spree is the United States.

Many Chinese investors are still stung by the memory of China National Offshore Oil's 2005 attempt to buy a stake in the U.S. energy company Unocal. The deal fell apart after U.S. lawmakers expressed concern about the national security implications of China controlling some of the country's oil resources.

Xiong Weiping, president of Chinalco, whose bid for a larger stake in Rio Tinto is China's biggest outbound investment to date, has taken measures to address concerns as scrutiny of that deal has increased. The deal will be put to a shareholder vote in May or June and must also be approved by Australia's Foreign Investment Review Board.

At a news briefing in Sydney on March 2, Xiong assured the country that Chinalco is not seeking a majority share of the mining giant and that its management and corporate strategy would not change. Xiong emphasized that "the transaction will in no way lead to any control of the natural resources of Australia."

Zha Daojiong, an energy researcher at Peking University, said Chinese companies feel they may be discriminated against in the United States because of the mistaken perception that they are all state-owned or state-directed.

"Foreigners question these companies' intentions and tend to link their moves with government instructions," Zha said, "but I should say it is really hard to tell whether this is true nor not."

Source - Washington Post


Flight From US Treasuries

Foreign investors cut their holdings of US long-term securities in January although China and Japan purchased more Treasury bonds, according to data released by the Treasury on Monday.

The latest Treasury International Capital report, known as Tic, revealed net sales of $43bn in long-term US securities in January, following purchases of $34.7bn in December.

US residents purchased a net $24.2bn of foreign securities, the first net buying since last June as repatriation flows halted.

Foreign net purchases of US Treasury notes and bonds totalled $10.7bn in January, down from net purchases of $15bn in December.

While private foreign investors bought a net $12.7bn in Treasury notes and bonds, official institutions sold a net $1.9bn as Treasury yields rose sharply in January from record lows.

China at $739.6bn, up from $727.4bn, and Japan at $643.8bn, up from $626bn, remained the largest foreign holders of Treasury debt in January.

“Countries far more important to the ultimate direction of interest rates were net buyers of Treasuries in January,” said Tony Crescenzi, strategist at Miller Tabak.

Selling was widespread across other fixed-income asset classes.

Foreign investors sold a net $22.5bn of agency debt, issued by Fannie Mae and Freddie Mac, which was less than the $37.4bn in sales during December.

Net foreign sales of corporate bonds in January reached $8.4bn after the purchase of $41bn in December.

Net foreign purchases of US equities fell to $1.4bn, down from $3.9bn of purchases in December.

A key measure of net foreign capital outflow for the US, “monthly Tic flows” was a record negative $148.9bn in January after an inflow of $86.2bn in December.

The big reversal in January was not accompanied by a drop in the dollar. The dollar index rallied nearly 6 per cent in the month, marked by a notable decline in the euro.

Alan Ruskin, strategist at RBS Greenwich Capital, said: “Sizeable net long-term outflows, with very weak net short-term inflows would normally smack of dollar weakness.” One way to explain the dollar’s strength in January may be the role played by dollar swap lines set up by the Federal Reserve. In January, the Fed’s balance sheet showed a contraction of $115bn in dollar swap lines with other central banks.

Traders said this may explain how the drop in net dollar liabilities had not unsettled the dollar.

Source - Financial Times

Sunday, March 01, 2009


68 USA Bank Failures Since 2000

With the financial meltdown continuing unabated, US has already seen the collapse of 16 banks in the last two months -- which is more than one-fourth the total number of failures in the last nine years.

With ten bank collapses in February, a total of 68 banks have failed since 2000 in the US.

Moreover, 16 bank failures this year is more than half of the total collapses in 2008. Last year, a whopping 25 banks went belly up, mainly after the financial crisis turned severe with the bankruptcy of Lehman Brothers in September.

According to the Federal Deposit Insurance Corporation, which is often appointed as the receiver for failed banks, two more entities were closed down on February 27.

With the collapse of Security Savings Bank, Henderson and Heritage Community Bank, Glenwood, the figure has touched 16 so far this year. In January, just six banks had failed.

In addition, the failure of ten banks in February is the highest for any month in the last nine years.

As on December 5, 2008, Heritage Community Bank had assets worth 232.9 million dollars and deposits to the tune of 218.6 million dollars. On the other hand, Security Savings Bank had assets of about 238.3 million dollars and deposits of 175.2 million dollars, as on December 31.

Source - Times Of India