Blackwater's Unwritten Death Contract

Reading - Blackwater's Unwritten Death Contract -http://bit.ly/3vKPia

Hats off to Mark Mazzetti of the New York Times for ferreting out what it was that sent CIA Director Leon Panetta scurrying over to Congress in late June.

According to Mazzetti, Panetta's top lieutenants, many of them holdovers from the last administration, had just told him that, under President Bush, they had farmed out assassinations to their Blackwater subsidiary. I use "they" advisedly, since the CIA holdovers that had kept Panetta in the dark continue to function as Panetta's top managers.

Panetta abruptly stopped the project and contritely briefed the intelligence committees. Until now, it was not clear what had prompted Panetta to set up hurried consultations with the intelligence "oversight" committees of the House and Senate.

An odd odor still hangs over the affair. After being briefed by Panetta, one committee member described him as "stunned" that his lingering lieutenants had kept information on the program from him until nearly five months into his tenure. Yet there is not the faintest hint that anyone on either committee dared to ask why Panetta continues to leave such tainted officials in very senior positions.

Anyone know why he does not send them packing?

Mazzetti quotes officials as admitting that "the C.I.A. did not have a formal contract with Blackwater" for a program with "lethal" authority. Putting out contracts on other people, I suppose you might call it, without a contract. http://www.nytimes.com/2009/08/20/us/20intel.html?_r=2

What Mazzetti does not mention -- and what he, like the vast majority of Americans, may not know -- is that there is a one-sentence umbrella "contract" available for use as authorization for such activities. It creates a structural fault, so to speak, and a legal loophole through which Bush and Cheney drove a Mack truck of lawlessness.

Useful Ambiguity

Bush administration lawyers were not the first to read considerable leeway into that loophole created by just one sentence in the language of the National Security Act of 1947. The sentence can be (ab)used as authorization for all manner of crime -- irrespective of existing law or executive order.

A Cheney-esque "unitary executive" perspective and a dismissive attitude toward lawmakers reinforced the Bush team's predilection to exploit the ambiguous language, taking it further than it had ever been taken in the past.

The Act (as slightly amended) stipulates that the CIA Director shall:

"Perform such functions and duties related to intelligence affecting the national security as the President or the National Security Council may from time to time direct."

There's the "umbrella contract." While more than one past President (I served under seven during my tenure at CIA) has taken advantage of that open language, the Bush administration translated the dodging into a new art form. This, in turn, was sustained by Frankenstein cottage industries like Blackwater to launch and operate the administration's own Gestapo. I use the word advisedly; do not blanch before it.

As for outsourcing, it is nothing new. The earlier Nazi Gestapo enjoyed umbrella authorization from the Fuhrer; they and the SS knew what was wanted, and famously "followed orders." There was absolutely no need to go back to supreme authority for approval to contract out some of their work. And German legislators turned out to be even more intimidated than ours -- if you can imagine it.

Charlatans Can Apply...and Some Stay On

As for an American President's freedom of action, all a President need do is surround himself with eager co-conspirators like the sycophant former Director of Central Intelligence, George Tenet (not to mention his, and Panetta's, lingering lieutenants), who give allegiance to their secret world of unchecked power, rather than to the Constitution of the United States. True, a Vice President thoroughly versed in using the levers of power also can be a valuable asset.

But the sine quo non for successful subversion of our Constitutional process is this: cowardly members of Congress so afraid of being painted pastel on terrorism that they abdicate their oversight responsibility. George W. Bush and Dick Cheney may have "misunderestimated" some things, but not Congress. They held it in scorn and contempt, and the Congress' behavior gave them every reason to believe they were right.

The Bush White House gave very high priority to "terrorification" of Congress and it paid off handsomely. The most senior congressional leaders caved, winking even at torture, kidnapping, warrantless eavesdropping, etc., etc., etc.

And on the subject of contracting, Congress' oversight role was, in a real sense, "contracted out" -- to eight invertebrate leaders from the House and Senate. Their see-no-evil acquiescence in whatever Bush and Cheney painted as a weapon in the so-called "war on terror" was driven solely by the lawmakers' felt need to appear tough on terrorism.

"After 9/11 everything changed," is certainly an overused aphorism. But it does apply to what happened to the spirit and soul of our country after President Bush was given the pulpit at the National Cathedral. Vengeance is ours, said the President. And the vast majority of Christian leaders were cowed into razoring out of their Bibles "Blessed are the Peacemakers."

Clergy and Congress clapped, and so did the Fawning Corporate Media (FCM). Don't you remember?

The situation bears striking resemblance to that described by German writer Sebastian Haffner, who was in Berlin in 1933 after the Reichstag fire (Germany's 9/11):

"What was missing is what in animals is called ‘breeding.' This is a solid inner kernel that cannot be shaken by external pressures, something noble and steely, a reserve of pride, principle, and dignity to be drawn on in the hour of trial. It is missing in Germans. "As a nation they are without backbone. That was shown in March 1933. At the moment of truth, when other nations rise spontaneously to the occasion, the Germans collectively and limply collapsed, yielded to a nervous breakdown, and became a nightmare to the rest of the world." ("Defying Hitler," p. 135)

Congress' Stormy Applause...

And our Congress? During the President's infamous State-of-the-Union address on Jan. 28, 2003 (yes, the one with the uranium-from-Africa-to-Iraq and other make-believe), Bush got the most unbridled applause when, after bragging about the 3,000 "suspected terrorists" whom he said had been arrested, he added:

"And many others have met a different fate. Let's put it this way: They are no longer a problem to the United States and our friends and allies."

The lawmakers' reaction and the cheering that followed in the FCM reminded me of the short italicized note that Pravda regularly tacked onto the bottom of paragraphs recording similarly fulsome leadership speeches: Burniye aplodismenty; vce stoyat! - Stormy applause; all rise! Even so, Soviet leaders generally avoided (as not quite presidential) seeking applause for thinly veiled allusions to extrajudicial killing.

...and Fawning Over Creeps

It is Congress that is collectively responsible for abdicating its oversight responsibility, while cheering creeps like Cofer Black, CIA's top counter-terrorism official from 1999 to May 2002 and now one of Blackwater's senior leaders.

On Sept. 26, 2002 in his prepared testimony to the Joint Congressional Inquiry on 9/11, the swashbuckling Black said this about "operational flexibility":

"All I want to say is that there was ‘before' 9/11 and ‘after' 9/11. After 9/11 the gloves came off. ... I know that we are on the right track today and as a result we are safer as a nation. ‘No Limits' aggressive, relentless, worldwide pursuit of any terrorist who threatens us is the only way to go and is the bottom line."

What were those "gloves" to which you referred, Mr. Black? Do you mean that legal restrictions were gone? And "No Limits?" Is it the case that there now are no limitations on your pursuit of terrorists? Whence do you derive that kind of authority, Mr. Black? These are just some of the pertinent questions that members of the congressional panel apparently felt would be impertinent to ask.

And authorization? In the Bush/Cheney White House, all it took was a presidential signature, like the one appearing in broad strokes of felt-tipped pen under the two-page executive memorandum of Feb. 7, 2002. http://www.gwu.edu/~nsarchiv/NSAEBB/NSAEBB127/02.02.07.pdf )

Last December the Senate Armed Forces Committee, without dissent, concluded that this memo, "opened the door" to abuse by exempting al Qaeda and Taliban detainees from Geneva protections. Alberto Gonzales, in a felicitous but inadvertent blunder, released that memo five years ago. It is a smoking gun. Someone, please, tell the FCM.

As for assassinations, the special presidential memoranda (often referred to as "Findings") that authorized covert action like the lethal activities of the CIA and Blackwater have not yet surfaced. They will, in due course, if the patriotic truth tellers who have now discussed assassination with the Times and Washington Post continue to put the Constitution and courage above secrecy oaths. Such oaths are aimed at protecting secrets, not crimes.

Vengeance is Ours

CIA operative Gary Schroen has told National Public Radio that, just days after 9/11, Cofer Black sent him to Afghanistan with orders to "Capture bin Laden, kill him, and bring his head back in a box on dry ice." As for other al Qaeda leaders, Black reportedly said, "I want their heads up on pikes."

Schroen told NPR he had been stunned that, for the first time in 30 years of service, he had received orders to kill targets rather than to capture them. Contacted by the radio network, Black would not confirm the exact words of the order to Schroen, but did not dispute Schroen's account.

This quaint tone reverberated among macho, Bush-friendly pundits in the FCM. Washington Post veteran Jim Hoagland, for example, published an open letter to President Bush on Oct. 31, 2001. It was no Halloween prank.

In his letter, Hoagland strongly endorsed what he termed the "wish" for "Osama bin Laden's head on a pike," an objective he attributed to Bush's "generals and diplomats." The consummate insider, Hoagland then virtually gave the real neoconservative game plan away by giving Bush the following ordering of priorities:

"The need to deal with Iraq's continuing accumulation of biological and chemical weapons and the technology to build a nuclear bomb can in no way be lessened by the demands of the Afghan campaign. You must conduct that campaign so that you can pivot quickly from it to end the threat Saddam Hussein's regime poses."

I have the feeling we are in for many more chapters recording how the lawlessness and savagery of post-9/11 Washington played out during the last seven years of the Bush/Cheney administration.

Ray McGovern works with Tell the Word, the publishing arm of the ecumenical Church of the Saviour in inner-city Washington. He was a CIA analyst for 27 years and now serves on the Steering Group of Veteran Intelligence Professionals for Sanity (VIPS).

This article appeared first on Consortiumnews.com.

No USA buyers? = U.S. Helps Spanish Company to Buy Texas Bank

Reading - No USA buyers? = U.S. Helps Spanish Company to Buy Texas Bank http://tinyurl.com/l8opra

Guaranty Bank, a deeply troubled Texas lender, was sold on Friday to Banco Bilbao Vizcaya Argentaria of Spain in one of the largest government-assisted deals offered to a foreign firm.

The federal government agreed to absorb most of the losses on $11 billion of Guaranty Bank assets in the sale agreement.

Federal regulators seized Guaranty Bank and simultaneously brokered the sale of its branches as well as most of the deposits and assets to BBVA Compass, the Spanish bank’s American subsidiary. The government, however, agreed to absorb most of the losses on $9.7 billion, or more than 80 percent, of the Guaranty assets included in the deal.

The failure is the fourth-largest since the financial crisis began, and the Federal Deposit Insurance Corporation projects that it will cost its deposit insurance fund about $3 billion.

Regulators also arranged for the sales of three smaller banks in Alabama and Georgia on Friday, bringing the total number of bank failures so far this year to 81. That compares with only 25 bank failures in all of 2008.

News that BBVA had submitted the winning bid leaked out earlier this week, but regulators waited until late Friday to orchestrate the takeover. That may be another sign that confidence in the financial system is being restored, since in contrast to past leaks, regulators did not immediately seize the bank over fears of rumors stoking a bank run.

Stockholders in Guaranty Bank will be wiped out, but the deal ensures that its depositors will not suffer losses. Although BBVA did not take control of the failed bank’s $344 million of brokered deposits, the F.D.I.C. said that it would reimburse brokers directly for those funds.

The government also agreed to shoulder the bulk of the losses on all of Guaranty’s loans — a deal sweetener that the government has rarely extended to overseas buyers.

BBVA agreed to buy $12 billion of the $13 billion assets left at Guaranty Bank, which it will ultimately sell to private investors. The F.D.I.C. agreed to take on the remaining $1 billion of assets, as well as cover losses on the $9.7 billion pool of risky loans that BBVA bought. The agreement calls for the government to take on about 80 percent of the first $2.3 billion of losses, and 95 percent of the losses above that threshold.

Loss-sharing agreements have become a standard part of the F.D.I.C.’s toolkit for resolving troubled banks, but rarely have they covered such a big portion of a failed bank’s assets.

And seldom are they offered to foreign buyers. Indeed, it appears the last time that an overseas bank received federal assistance in a failed bank deal was when the Bank of Ireland scooped up four New Hampshire banks in September 1991.

Analysts say the BBVA deal may signal that the F.D.I.C. will be more open to bids from foreign banks. Many of the strongest American banks are occupied with deals they did last fall, while private equity firms have struggled to meet the high bar set by regulators. Weaker banks, meanwhile, have been hamstrung by their own losses. That has left regulators scrambling to drum up buyers.

José Maria Garcia Meyer, the head of BBVA’s American operations, said in a statement that the deal provided convincing evidence of the bank’s strength and stability during the current crisis. “This transaction further demonstrates BBVA’s clear commitment in building its U.S. franchise,” he added.

Along with its Spanish rival Banco Santander, BBVA has been ramping up its business in fast-growing American markets that have strong ties to Latin America. It made a series of expensive acquisitions in Texas over the last few years.

Guaranty, which is based in Austin, will add another 103 locations in Texas and 59 branches in California, where BBVA has been trying to establish a beachhead. That will give it a total of 767 locations in seven Sun Belt states and make it the nation’s 15th-largest commercial bank with about $49 billion in deposits.

More Banks to Fail, and That's Good

Reading - More Banks to Fail, and That's Good -http://www.cnbc.com/id/3248...

U.S. banks will continue to fail at a steady rate over the next two years, and that's not necessarily a bad thing, former FDIC Chairman Bill Isaac told CNBC.

Isaac, who presided over one of the most tumultuous periods in banking history during the savings and loan crisis of the 1980s, said there remains a large amount of contagion in the system that needs to be removed.

"It's cleanup time," he said during a live interview. "For the next couple of years we will continue to have a steady flow of banking failures. I'm not expecting anything we can't handle or extraordinary in terms of size, but we will see a steady diet of bank failures over the next two years."

Bank failures have come amid a lack of liquidity that began with the collapse of the subprime mortgage business.

Five banks have failed in the past week, bringing the 2009 total to 77, according to the FDIC. The number pales to the situation during the S&L crisis, when the nation lost 3,000 institutions.

Click here for video of Isaac's full comments

"The (dollar) numbers are bigger today because everything's bigger today," Isaac said. "I don't think the failures are any larger today proportionate to the economy."

RELATED LINKS

Banks Will Lag Economic RecoveryBank Bailout Cash Cut

In fact, he said getting banks to the point where they are seized by the FDIC is a critical step to making sure the system functions properly.

"I would say the bank failures are not necessarily a bad thing,"" Isaac said. "When a bank fails we've got a deeply troubled institution that cannot lend money. If we go in and resolve the failure, the cleanup of that situation ... will enable the institution to get on with lending. The FDIC cleans out the problem loans. So it really does cleanse the system and help us get lending started again, which is what we need."

Fractured Wall Street Fairy Tales #3: It's a Kinder, Gentler, Chastened Wall Street

Reading - Fractured Wall Street Fairy Tales #3: It's a Kinder, Gentler, Chastened Wall Street http://seekingalpha.com/a/3clv

In his interview with the Wall Street Journal on Friday, Treasury Secretary Timothy Geithner said the Obama administration “wouldn't allow Wall Street to return to such old habits as taking on excessive risk,” or that Wall Street could be “returning to business as usual.”

"I don't think the financial system is reverting to past practice, and we won't let that happen," Mr. Geithner said.

Secretary Geithner said it and I believe him. He’s right, they aren’t ‘reverting to past practice.’ They never stopped their business as usual practice! OK, maybe long enough for Hank Paulson, as Treasury Secretary, to dispatch his personal nemesis, Dick Fuld of Lehman Brothers (and coincidentally, 24,0000 other employees in the process.)

And maybe long enough to slurp at the taxpayer trough when taxpayer-funded loans were offered. The scent of free money will attract Wall Street like corn brings in the pigs. So they cried poor and talked about how dreadful their exposure was to risk that could bring the whole economic system of the United States crashing down if they didn’t get a few tens of billions of that free money themselves. It was only when they discovered that the free money came with a cap on salaries and bonuses that – miraculously – they all managed to unwind all those apocalyptic positions and were suddenly solvent enough to return our money – after ensuring their bonuses were covered, of course.

What planet is Secretary Geithner living on?

Using Goldman Sachs (GS) as but one example, The Firm went from “we’re drowning out here! Send us a taxpayer lifeline!” to (less than six months after “nearly going under”) a quarter in which 97% of all trading days reflected massive profits. That is a statistically impossible feat – unless somebody was lying one of those times. Which is it, Goldman? Did you really not need that lifeline from us? Or did you not resort to front-running and other chicanery – you know, Wall Street business as usual – in your most recent reporting period?

Mr. Geithner further notes, "The consequence of achieving stability is that people can raise money, can raise equity, can borrow more easily at lower rates, that these markets have liquidity again.”

How’s that working for you, Mr. and Mrs. American? Can you raise money? Borrow more easily at lower rates? And with nearly a third of all American homes carrying mortgages in “negative-equity” (there is more owed on the mortgage than the property is worth) are you feeling like you have ‘liquidity’ again?

Mr. Geithner and the rest of the Administration aren’t so much worried about the cause of the problem – Wall Street continuing to cheat the rest of America via shady trading practices – as they are about the effect. As the article notes, “the administration is concerned about the potential for populist anger, particularly as banks resume paying high salaries and bonuses to executives.”

Populist anger? How very condescending of them! Rather than worry about the effect, “populist anger” – which shifts the responsibility to those of us poor unwashed out here unable to control our frustration instead of discussing this over a 40-year-old scotch at The Club, the way gentlemen do – let’s place the onus back where it should be: on the cause.

It’s business as usual on Wall Street. Program trading, dark pools, algorithmic trading and high-frequency trading are but a few of the terms you may have heard that evince ways in which Wall Street ensures the playing field is uneven versus individual investors.

These terms are tossed around all to freely, so let’s take a moment to try to define them. They mean very different things to different people so I’ll stick with the best plain vanilla definitions I can.

For instance “program trading” means, in common usage, massive “black box” computer-generated trading in which computers are programmed to execute hundreds of millions of shares in toto based upon some event like a close above x or CPI coming in below y or the price of oil going to z, all without the pesky time-wasting hand of man getting in the way. If the order can’t be executed within 25 milliseconds – less time than your brain can comprehend that the period at the end of this sentence means the end of a thought, then some other computer on Wall Street beat you to the trade. (And I do mean “on” Wall Street. If you’re more than a couple blocks from Wall and Broad, the delay in transmission of an extra 10 milliseconds will lock you out of every trade.)

Actually, that definition refers more to algorithmic trading. The NYSE defines program trading rather more benignly as "a wide range of portfolio trading strategies involving the purchase or sale of 15 or more stocks having a total market value of $1 million or more." Of course the NYSE is an organization that defines one of those delightfully Orwellian terms Wall Street lawyers are so fond of: it is an SRO, or a Self-Regulatory Organization. The definition of a Self-Regulatory Organization? “Foxes guarding the henhouse.”

Australian Senate Rejects Rudd’s Cap and Trade Emissions Plan

Reading - Australian Senate Rejects Rudd’s Cap and Trade Emissions Plan http://tinyurl.com/nffcyr

Australia’s Senate rejected the government’s climate-change legislation, forcing Prime Minister Kevin Rudd to amend the bill or call an early election.

Senators voted 42 to 30 against the law, which included plans for a carbon trading system similar to one used in Europe. Australia, the world’s biggest coal exporter, was proposing to reduce greenhouse gases by between 5 percent and 15 percent of 2000 levels in the next decade.

Rudd, who needs support from seven senators outside the government to pass laws through the upper house, can resubmit the bill after making amendments. A second rejection after a three-month span would give him a trigger to call an election.

“We may lose this fight, but this issue will not go away,” Climate Change Minister Penny Wong told the Senate in Canberra. “Australia cannot afford for climate change to be unfinished business.”

Five members from the Australian Greens party sought bigger cuts to emissions while the opposition coalition and independent Senator Nick Xenophon wanted to wait for further studies on the plan’s impact on the economy.

Continue reading - http://tinyurl.com/nffcyr

Fed extends time but not amount of debt buy

Reading - Fed extends time but not amount of debt buy http://tinyurl.com/mswj4k

WASHINGTON (Reuters) - The U.S. Federal Reserve said on Wednesday the economy was showing signs of leveling out after 20 months of recession and it will extend the duration but not the size of a program to buy long-term government securities to minimize any disruptions from completing it.

The U.S. central bank also kept its benchmark short-term interest rate steady near zero and said it would likely stay there for an extended period.

"To promote a smooth transition in markets as these purchases of Treasury securities are completed, the committee has decided to gradually slow the pace of these transactions and anticipates that the full amount will be purchased by the end of October," the Fed said in a statement at the conclusion of its policy-setting meeting.

The Fed launched the debt buying program in March when it had already chopped interest rates to zero but wanted to open the money taps even wider to support the struggling economy. Treasury purchases were previously scheduled to expire in September.

"They see the worst with the economy is behind us but they don't want to jump the gun and pull back quickly," said Craig Thomas, a senior economist at PNC Financial Services in Pittsburgh.

U.S. Treasury prices fell after the Fed statement in apparent disappointment that the Fed did not increase the amount of debt that it plans to buy but subsequently regained some ground.

However, major U.S. stock indexes extended gains and the dollar rose against the yen.

The Fed slashed interest rates to a range of between zero and 0.25 percent in December and has pumped hundreds of billions of dollars into financial markets to stimulate economic activity in the worst recession in decades.

The economy has shown signs it is coming out of its swoon and job losses, which have already topped 6 million, may be moderating.

The Fed gave its clearest statement to date that it sees the recession nearing an end and that shattered financial markets are healing.

"Information since the Federal Open Market Committee met in June suggests economic activity is leveling out," the Fed said. "Conditions in financial markets have improved in recent weeks."

It is the first time since August 2008 the panel's statement has not characterized the economy as contracting, weakening or slowing.

The Fed in July forecast that growth would return in the second half of the year after contraction in five out of the last six quarters, but cautioned that unemployment should stay high well into 2011.

In its statement, the Fed renewed its warning that economic activity is likely to stay soft for "a time." Household spending, while stabilizing, is still weak as a result of the grim labor market and tight credit, the Fed said.

The Fed renewed its pledge to keep rates exceptionally low for an extended period.

To quell worries the Fed's bloated balance sheet may sow the seeds of dangerous inflation once the recovery gains traction, Fed Chairman Ben Bernanke has taken pains to explain the Fed's tools to pull money out of the financial system to prevent price pressures from rising.

Geithner Asks Congress to Increase Federal Debt Limit

Reading - Geithner Asks Congress to Increase Federal Debt Limit http://online.wsj.com/artic...

U.S. Treasury Secretary Timothy Geithner asked Congress to increase the $12.1 trillion debt limit on Friday, saying it is "critically important" that they act in the next two months.

Mr. Geithner, in a letter to U.S. lawmakers, said that the Treasury projects that the current debt limit could be reached as early mid-October. Increasing the limit is important to instilling confidence in global investors, Mr. Geithner said.

The Treasury didn't request a specific increase in the letter.

"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," Mr. Geithner said in a letter to lawmakers.

Mr. Geithner said the that it is "clearly a moment in our history" that requires support from both Democrats and Republicans for the increase.

"Congress has never failed to raise the debt limit when necessary," Mr. Geithner said.

The non-partisan Congressional Budget Office said Thursday the federal government's budget deficit reached $1.3 trillion through the first ten months of fiscal 2009, on track to reach a record high of $1.8 trillion for the 12-month period.

The World needs a breather from the US

Reading - The World needs a breather from the US. And they'll get it sooner than many think - http://tinyurl.com/lz34gv

The World needs a breather from the US. And they'll get it sooner than many think

We're making this way too complicated. It's simple really.

The Fed has only one tool at its disposal; to create more money. Typically, the way the Fed adds to the money supply is by lowering interest rates. When the Fed lowers rates below the rate of inflation; they're basically selling dollars for under a buck. That's a good deal, so, naturally, speculators jump on it and trigger a credit expansion. What follows is a frenzy of market activity that ends in a housing, credit, tech or equity bubble. Eventually, the bubble bursts and the economy goes into a tailspin. Then, after a period of digging-out, the process resumes again. Wash, rinse, repeat. It's always the same. The moral is: Cheap money creates bubbles; and bubbles move wealth from workers to rich motherporkers. It's as simple as that. That's why the wealth gap is wider now than anytime since the Gilded Age. The rich own everything.

The Federal Reserve is the policy arm of the big banks and brokerage houses. Period. Ostensibly, its mandate is to maintain "price stability and full employment". Right. Anyone notice how many jobs the Fed has created lately? How about the dollar? Is it really supposed to zig-zag like it has been for the last decade? The central task of the Fed is to shift wealth from one class to another. And it succeeds at that task admirably. The Fed's "mandate" is public relations claptrap. Bernanke hasn't lifted a finger for homeowners, consumers or ordinary working stiffs. "Yer on yer own. Just don't expect a handout. That's socialism!" All the doe is flowing upwards...according to plan. The Fed is a social engineering agency designed to serve as the de facto government behind the smokescreen of democratic institutions. Did you really think a black, two year senator with no background in foreign policy or economics was calling the shots?

Puh-leeese! Obama is a public relations invention who's used to cut ribbons, console the unemployed, and convince Americans they live in a "post racial" society. Right. (Just take a look at the footage from Katrina again) The Fed has complete control over monetary policy and, thus, the country's economic future. Bernanke doesn't even pretend to defer to Congress anymore. Why bother? After Lehman caved in, Bernanke invoked the "unusual and exigent" clause in the Fed's charter and declared himself czar. Now he has absolute power over the nation's purse-strings.

The $13 trillion the Fed has committed to the financial system since the beginning of the crisis --via loans and outright purchases of mortgage-backed garbage and US sovereign debt--was never authorized by Congress. In fact, the Fed stubbornly refuses to even identify which institutions got the "loans", how much the loans were worth, what kind of collateral was accepted for the loans, or when the loans have to be repaid.

In truth, the loans are not loans at all, but gifts to the industry to keep asset prices artificially high so that the entire financial system does not come crashing down. Check this out:

"In an analysis written by economist Gary Gorton for the Federal Reserve Bank of Atlanta’s 2009 Financial Markets Conference titled, "Slapped in the Face by the Invisible Hand; Banking and the Panic of 2007", the author shows that mortgage-related securities ballooned from $492.6 billion in 1996 to $3,071.1 in 2003, while asset backed securities (ABS) jumped from $168.4 billion in 1996 to $1,253.1 in 2006. All told, more than $20 trillion in securitized debt was sold between 1997 to 2007. "

$20 trillion! How much of that feces paper--which is worth just pennies on the dollar-- is sitting on the balance sheets of banks and other financial institutions just waiting to blow up as soon as the Fed asks for its money back? And the Fed will never get its money back because the prices of complex securities and derivatives will never regain their pre-crisis values. Why? Because these derivatives are linked to underlying collateral (mortgages) which have already declined 33% from their peak and are headed lower still. Also, these toxic assets were sold as risk-free (many of them were rated triple A) and have now been exposed as extremely risky or fraudulent. Because these assets were heaped together in bundles to strip out their interest rates, they cannot be easily separated which means that they are worth considerably less than the 33% that has been lost on the underlying collateral (mortgages) The securitization markets are not expected to rebound for a decade or more, which means that the Fed will have to find other more-creative way to goose the credit system to avoid a downward spiral.

But how?

Zero percent interest rates haven't worked because qualified borrowers are cutting spending and saving their disposable income, while people who need to borrow, no longer meet the banks' tougher lending standards. Bank credit is shrinking even though excess bank reserves are nearly $900 billion. When banks stop lending, the economy contracts, business activity slows, unemployment soars and growth sputters. Presently, the economy is still contracting, but at a slower pace than before. "Less bad" is the new "good". All the recession indicators are still blinking red--income, employment, sales, and production--all down big! But it doesn't matter because it's a "Green Shoots" rally; plenty of cheap liquidity for the markets and a freeway off-ramp (for sleeping) for the unemployed.

The Fed's lending facilities are designed to pump liquidity into the system and inflate another bubble by generating more debt. Unfortunately, most people accept Bernanke's feeble defense of these corporate-welfare programs and fail to see their real purpose. An example may help to explain how they really work:

Say you bought a house at the peak of the bubble in 2005 and paid $500,000. Then prices dropped 40% (as they have in Calif) and your house is now worth $300,000. If you only put 5% down, ($25,000) then you are underwater by $175,000. Which means that you own more on the mortgage than your house is currently worth. (This is essentially what has happened to the entire financial system. The equity has vaporized, so institutions are using dodgy accounting tricks instead of reporting their real losses.) So Bernanke comes along and gives you $175,000 no interest, rotating loan to you so that no one knows that you are really busted and you can continue spending just as you had before. Not bad, eh? This is what the lending facilities are all about. It is a charade to conceal the fact that a large portion of the nation's financial institutions are insolvent and propped up by state largess.

But there's more, too.

Now that Bernanke has given you $175,000 no interest, rotating loan; you expect that eventually he will ask for his money back. Right? So your only hope of saving your home, in the long run, is to engage in risky behavior, like dabbling the stock market. It's like playing roulette, except you have nothing to lose since you are underwater anyway.

This is exactly what the financial institutions are doing with the Fed's loans. They're betting on equities and hoping they can avoid the Grim Reaper.

Here's how former hedge fund manager Andy Kessler summed it up last week in the Wall Street Journal: "By buying U.S. Treasuries and mortgages to increase the monetary base by $1 trillion, Fed Chairman Ben Bernanke didn't put money directly into the stock market but he didn't have to. With nowhere else to go, except maybe commodities, inflows into the stock market have been on a tear. Stock and bond funds saw net inflows of close to $150 billion since January. The dollars he cranked out didn't go into the hard economy, but instead into tradable assets. In other words, Ben Bernanke has been the market." (Andy Kessler, "The Bernanke Market" Wall Street Journal)

Only a small portion of the money that has gone into the stock market in the last 6 months (since the March lows) has come from money markets. The fed's loans are being laundered into stocks via financial institutions that are rolling the dice for their own survival. The uptick in the markets has helped insolvent banks raise equity in the capital markets so they don't have to grovel to Congress for another TARP bailout. Everybody's elated with Bernanke's latest bubble except working people who have seen their wages slashed by 4.5%, their credit lines cut, the home values plunge, and their living standards sink to third world levels. And the Fed's spending-spree is not over yet; not by a long shot. The next wave of home foreclosures (already 1.9 million in the first half of 2009) is just around the corner--the Alt-As, option arms, prime loans. The $3.5 trillion commercial real estate market is capsizing. The under-capitalized banking system will need assistance. And there will have to be another round of fiscal stimulus for ailing consumers. Otherwise, foreign holders of US Treasurys will see that the US can no longer provide 25% of global demand and head for the exits.

Bernanke's back is against the wall. The only thing he can do is print more money, shove it though the back door of the stock exchange and keep his fingers crossed. The rest is up to CNBC and the small army of media cheerleaders.

There is some truth to the theory that Bernanke saved the financial system from a Chernobyl-type meltdown. But that doesn't change the facts. Accounts must be balanced; debts must be paid. The Fed chief has committed $13 trillion to maintain the appearance of solvency. But the system is bankrupt. The commercial paper market, money markets, trillions of dollars of toxic debt instruments, and myriad shyster investment banks and insurance companies are now backed by the "full faith and credit" of the US Treasury. The financial system is now a ward of the state. The "free market" has deteriorated into state capitalism; a centralized system where all the levers of power are controlled by the Central Bank. If Bernanke's Politburo withdraws its loans--or even if he raises interest rates too soon-- the whole system will collapse.

The economy is now balanced on the rickety scaffolding of the dollar. As the Obama stimulus wears off, the rot in the economy will become more apparent. Household red ink is at record highs, so personal consumption will not rebound. That means US assets and US sovereign debt will become less attractive. Foreign capital will flee. The dollar will fall.

The world needs a breather from the US. And they'll get it sooner than many think.

The Fed’s UST-POMO Pyramid Scheme Exposed

Reading - The Fed’s UST-POMO Pyramid Scheme Exposed http://tinyurl.com/xiam007-12

In a brilliant piece of investigative reporting, Chris Martenson(original article here) has uncovered that the Fed, merely a week after issuing $28 billion in 7 year bonds (which Zero Hedge discussed previously) via its puppet, the US Treasury, of which $10 billion ended up being purchased by primary dealers, has turned and bought 47% of the primary allocated bonds in Open Market Purchases. This is undisputed monetization removed simply via one primary dealer and less than 5 days of temporal separation in order to leave no easy trace. As Martenson points out:

"A more honest and open approach would have been for the Fed to simply buy them outright at the auction but this way, using "primary dealers" and "POMOs" and all these other extra steps the basic fact that the Fed is openly monetizing US government debt is effectively hidden from a not-too-terribly inquisitive US press and public."

The question is did the Fed implicitly tell the primary dealers they are merely holding the treasuries for a flip, and that it would acquire them immediately. Absent this $4.8 billion in effectively monetized bonds, what would the Bid To Cover have been for the primaries? Would this have been the second practically failed auction for USTs after the deplorable 5 year auction results a day prior? One wonders if there would have been 62% indirect interest in these bonds (which the day before had a measly 32.5% indirect bid) if the purchasers were aware of the Fed's immediate prompt monetization of a large part of the directs' balance.

It is truly a sad state of affairs when the Fed has to manipulate public and media perception in this way, and has to cover up for the complete lack of interest in US Treasuries.

Here is the evidence Martenson dug up:

Martenson's conclusion needs no elaboration:

"The speed of the shell game is accelerating.

This immediate repurchase of newly auction bonds by the Fed tells us that demand for these bonds is not nearly as high as advertised, and that things are not quite as strong as represented.

And oh, by the way, don't expect any stock market weakness while so many billions are being shoveled out the Fed and into the pockets of the primary dealers. They'll have to do somethingwith all that freshly minted cash....."

Zero Hedge salutes CM for this brilliant piece of sleuthing: now if only the MSM would have the guts to demonstrate the pyramid scheme that the US Bond and Equity markets have become.

Poll: Three in Four Americans Want a Federal Reserve Audit

Reading - Poll: Three in Four Americans Want a Federal Reserve Audit http://www.digitaljournal.c...

For years, Congressman Ron Paul has urged Washington and the American people to check the Federal Reserve's books. Now, Dr. Paul's bill HR 1207, which audits the Fed is receiving tremendous support.

A new Rasmussen telephone poll suggests that 75 per cent of Americans support the Federal Reserve System being audited. 9 per cent of respondents oppose any effort to audit the nation’s central bank. 15 per cent are unsure.

Former 2008 Republican Presidential Candidate and current 13-term Congressman from Texas Ron Paul introduced H.R. 1207, which would audit the Federal Reserve and provide transparency to the general public.

At the present time, HR 1207 has 282co-sponsors, including every Republican and 101 Democrats. The Senate version of the bill, S. 604, is also receiving support and momentum by getting 20 co-sponsors.

Campaign for Liberty’s members have been a tremendous part of this initiative by canvassing door to door, going to conventions, speaking to their neighbors and basically becoming active members of the political structure.

President of Campaign for Liberty John Tate told Business Wire, “Campaign for Liberty is proud to be the leader in the nationwide push for Federal Reserve transparency, and this Rasmussen poll is a strong indication that efforts are working. The Fed is at the heart of so many of our Nation’s financial problems and Americans deserve to know what is going on behind the shroud of secrecy. Through innovative mobilization efforts, both online and on the ground, we are bringing this critical issue to the American people with overwhelming success. Politicians everywhere should take note: Americans are demanding transparency at the Fed. Campaign for Liberty will continue our fight to pass legislation to produce a full audit of the Federal Reserve”

Another Rasmussen poll shows that 26 per cent of Americans have a somewhat favorable opinion of the Federal Reserve Chairman Ben Bernanke. The poll also shows that 33 per cent have an unfavorable opinion of the Fed Chairman, while 42 per cent do not know.

Campaign for Liberty was founded in July 2008 to further the grassroots movement of liberty by Ron Paul’s Presidential campaign. The group has over 180,000 activist members in all fifty states.