US Banks Prepare For Collapse Of Federal Reserve Banking System

September 20, 2007

US Banks Brace For Storm Surge

As Dollar & Credit System Reel

By Mike Whitney

9-19-7

By now, you've probably seen the photos of the angry customers queued

up outside of Northern Rock Bank waiting to withdraw their money. This

is the first big run on a British bank in over a century. It's lost an

eighth of its deposits in three days. The pictures are headline news

in the U.K. but have been stuck on the back pages of U.S.newspapers.

The reason for this is obvious. The same Force 5 economic-hurricane

that just touched ground in Great Britain is headed for America and

gaining strength on the way.

On Monday night, desperately trying to stave off a wider panic, the

British government issued an emergency pledge to Northern Rock savers

that their money was safe. The government is trying to find a buyer

for Northern Rock.

This is what a good old fashioned bank run looks like. And, as in

1929, the bank owners and the government are frantically trying to

calm down their customers by reassuring them that their money is safe.

But human nature being what it is, people are not so easily pacified

when they think their savings are at risk. The bottom line is this:

The people want their money, not excuses.

But Northern Rock doesn't have their money and, surprisingly, it is

not because the bank was dabbling in riskysubprime loans. Rather, NR

had unwisely adopted the model of "borrowing short to go long" in

financing their mortgages just like many of the major banks in the

U.S. In other words, they depended on wholesale financing of their

mortgages from eager investors in the market, instead of the

traditional method of maintaining sufficient capital to back up the

loans on their books.

It seemed like a nifty idea at the time and most of the big banks in

the US were doing the same thing. It was a great way to avoid

bothersome reserve requirements and the loan origination fees were

profitable as well. Northern Rock's business soared. Now they carry a

mortgage book totaling $200 billion dollars.

$200 billion! So why can't they pay out a paltry $4 or $5 billion to

their customers without a government bailout?

It's because they don't have the reserves and because the bank's

business model is hopelessly flawed and no longer viable. Their assets

are illiquid and (presumably) "marked to model", which means they have

no discernible market value. They might as well have been "marked to

fantasy",it amounts to the same thing. Investors don't want them. So

Northern Rock is stuck with a $200 billion albatross that's dragging

them under.

A more powerful tsunami is about to descend on the United States where

many of the banks have been engaged in the same practices and are

using the same business model as Northern Rock. Investors are no

longer buying CDOs,MBSs, or anything else related to real estate. No

one wants them, whether they're subprime or not. That means that US

banks will soon undergo the same type of economic gale that is

battering the U.K right now. The only difference is that the U.S.

economy is already listing from the downturn in housing and an

increasingly jittery stock market.

That's why Treasury Secretary Henry Paulson rushed off to England

yesterday to see if he could figure out a way to keep the contagion

from spreading.

Good luck, Hank.

It would interesting to know if Paulson still believes that "This is

far and away the strongest global economy I've seen in my business

lifetime", or if he has adjusted his thinking as troubles in subprime,

commercial paper, private equity, and credit continue to mount?

For weeks we've been saying that the banks are in trouble and do not

have the reserves to cover their losses. This notion was originally

pooh-poohed by nearly everyone. But it's becoming more and more

apparent that it is true. We expect to see many bank failures in the

months to come. Prepare yourself. The banking system is mired in fraud

and chicanery. Now the schemes and swindles are unwinding and the

bodies will soon be floating to the surface.

"Structured finance" is touted as the "new architecture of financial

markets". It is designed to distribute capital more efficiently by

allowing other market participants to fill a role which used to be

left exclusively to the banks. In practice, however, structured

finance is a hoax; and undoubtedly the most expensive hoax of all

time. The transformation of liabilities (dodgy mortgage loans) into

assets (securities) through the magic of securitization is the biggest

boondoggle of all time. It is the moral equivalent of mortgage

laundering. The system relies on the variable support of investors to

provide the funding for pools of mortgage loans that are chopped-up

into tranches and duct-taped together as CDOs (collateralized debt

obligations). It's madness; but no one seemed to realize how crazy it

was until Bear Stearns blew up and they couldn't find bidders for

their remaining CDOs. It's been downhill ever since.

The problems with structured finance are not simply the result of

shabby lending and low interest rates. The model itself is defective.

John R. Ing provides a great synopsis of structured finance in his

article, "Gold: The Collapse of the Vanities":

"The origin of the debt crisis lies with the evolution of America's

financial markets using financial engineering and leverage to finance

the credit expansion. Financial institutions created a Frankenstein

with the change from simply lending money and taking fees to

securitizing and selling trillions of loans in every market from Iowa

to Germany. Credit risk was replaced by the "slicing and dicing" of

risk, enabling the banks to act as principals, spreading that risk

among various financial institutions.. Securitization allowed a vast

array of long term liabilities once parked away with collateral to be

resold along side more traditional forms of short term assets. Wall

Street created an illusion that risk was somehow disseminated among

the masses. Private equity too used piles of this debt to launch ever

bigger buyouts. And, awash in liquidity and very sophisticated

algorithms, investment bankers found willing hedge funds around the

world seeking higher yielding assets. Risk was piled upon risk. We

believe that the subprimecrisis is not a one off event but the

beginning of a significant sea change in the modern-day financial

markets."

The investment sharks who conjured up "structured finance" knew

exactly what they were doing. They were in bed with the ratings

agencies----off-loading trillions of dollars of garbage-bonds to

pension funds, hedge funds, insurance companies and foreign financial

giants. It's a swindle of epic proportions and it never would have

taken place in a sufficiently regulated market.

When crowds of angry people are huddled outside the banks to get their

money, the system is in real peril. Credibility must be restored

quickly. This is no time for Bush's "free market" nostrums or

Paulson's soothing bromides (he thinks the problem is "contained") or

Bernanke's feeble rate cuts. This requires real leadership.

The first thing to do is take charge, alert the public to what is

going on and get Congress to work on substantive changes to the

system. Concrete steps must be taken to build public confidence in the

markets. And there must be a presidential announcement that all bank

deposits will be fully covered by government insurance.

The lights should be blinking red at all the related government

agencies including the Fed, the SEC, and the Treasury Dept. They need

to get ahead of the curve and stop thinking they can minimize a

potential catastrophe with their usual public relations mumbo jumbo.

Last week, an article appeared in the Wall Street Journal, "Banks

Flock to Discount Window". (9-14-07) The article chronicled the sudden

up-tick in borrowing by the struggling banks via the Fed's emergency

bailout program, the "Discount Window":

"Discount borrowing under the Fed's primary credit program for banks

surged to more than $7.1 billion outstanding as of Wednesday, up from

$1 billion a week before."

Again we see the same pattern developing; the banks borrowing money

from the Fed because they cannot meet their minimum reserve

requirements.

WSJ: "The Fed in its weekly release said average daily borrowing

through Wednesday rose to $2.93 billion."

$3 billion.

Traditionally, the "Discount Window" has only been used by banks in

distress, but the Fed is trying to convince people that it's really

not a sign of distress at all. It's "a sign of strength". Baloney.

Banks don't borrow $3 billiounless they need it. They don't have the

reserves. Period.

The real condition of the banks will be revealed sometime in the next

few weeks when they report earnings and account for their massive

losses in "down-graded" CDOs and MBSs.

Market analyst Jon Markman offered these words of advice to the

financial giants

"Before they (the financial industry) take down the entire market this

fall by shocking Wall Street with unexpected losses, I suggest that

they brush aside their attorneys and media handlers and come clean.

They need to tell the world about the reality of their home lending

and loan securitization teams' failures of the past four years -- and

the truth about the toxic paper that they've flushed into the world

economic system, or stuffed into Enron-like off-balance sheet entities

-- before the markets make them walk the plank."." Since government

regulators and Congress have flinched from their responsibility to

administer "tough love" with rules forcing financial institutions to

detail the creation, securitization and disposition of every ill-

conceived subprime loan, off-balance sheet "structured investment

vehicle," secretive money-market "conduit" and commercial-paper-

financing vehicle, the market will do it with a vengeance."

Good advice. We'll have to wait and see if anyone is listening. The

investment banks may be waiting until Tuesday hoping that Fed-chief

Ken Bernanke announces a cut to the Fed's fund rate that could send

the stock market roaring back into positive territory.

But interest rate cuts do not address the underlying problems of

insolvency among homeowners, mortgage lenders, hedge funds and

(potentially) banks. As market-analyst John R. Ing said, "A cut in

rates will not solve the problem. This crisis was caused by excess

liquidity and a deterioration of credit standards.A cut in the Fed

Fund rate is simply heroin for credit junkies."

The cuts merely add more cheap credit to a market that that is already

over-inflated from the ocean of liquidity produced by former-Fed chief

Alan Greenspan. The housing bubble and the credit bubble are largely

the result of Greenspan's misguided monetary policies. (For which he

now blames Bush!) The Fed's job is to ensure price stability and the

smooth operation of the markets, not to reflate equity bubbles and

reward over-exposed market participants.

It's better to let cash-strapped borrowers default than slash interest

rates and trigger a global run on the dollar. Financial analyst

Richard Bove says that lower interest rates will do nothing to bring

money back into the markets. Instead, lower interest rates will send

the dollar into a tailspin and wreak havoc on the job market.

"There is no liquidity problem, but a serious crisis of confidence,"

Bove said:

"In a financial system where there is ample liquidity and a desire for

higher rates to compensate for risk, the solution is not to create

more liquidity and lower the rates that are available to compensate

for risk. ... (The Fed) cannot reduce fear by stimulating inflation

"It is illogical to assume that holders of cash will have a strong

desire to lend money at low rates in a currency that is declining in

value when they can take these same funds and lend them at high rates

in a currency that is gaining in value. By lowering interest rates the

Federal Reserve will not stimulate economic growth or create jobs. It

will crash the currency, stimulate inflation, and weaken the economy

and the job markets".

Bove is right. The people and businesses that cannot repay their debts

should be allowed to fail. Further weakening the dollar only adds to

our collective risk by feeding inflation and increasing the likelihood

of capital flight from American markets. If that happens; we're

toast.

Consider this: In 2000, when Bush took office, gold was $273 per

ounce, oil was $22 per barrel and the euro was worth $.87 per dollar.

Currently, gold is over $700 per ounce, oil is over $80 per barrel,

and the euro is nearly $1.40 per dollar. If Bernanke cuts rates, we're

likely to see oil at $125 per barrel by next spring.

Inflation is soaring. The government statistics are thoroughly bogus.

Gold, oil and the euro don't lie. According to economist Martin

Feldstein, "The falling dollar and rising food prices caused market-

based consumer prices to rise by 4.6 per cent in the most recent

quarter." (WSJ)

That's 18.4 per cent a year, and yet Bernanke is still considering

cutting interest rates and further fueling inflation.

What about the American worker whose wages have stagnated for the last

six years? Inflation is the same as a pay-cut for him. And how about

the pensioner on a fixed income? Same thing. Inflation is just a

hidden tax progressively eroding his standard of living. .

Bernanke's rate cut may be boon to the "cheap credit" addicts on Wall

Street, but it's the death-knell for the average worker who is already

struggling just to make ends meet.

No bailouts. No rate cuts. Let the banks and hedge funds sink or swim

like everyone else. The message to Bernankeis simple: "It's time to

take away the punch bowl".

The inflation in the stock market is just as evident as it is in the

price of gold, oil or real estate. Economist and author Henry Liu

demonstrates this in his article "Liquidity Boom and the Looming

Crisis":

"The conventional value paradigm is unable to explain why the market

capitalization of all US stocks grew from $5.3 trillion at the end of

1994 to $17.7 trillion at the end of 1999 to $35 trillion at the end

of 2006, generating a geometric increase in price earnings ratios and

the like. Liquidity analysis provides a ready answer".(Asia Times)

Market capitalization zoomed from $5.3 trillion to $35 trillion in 12

years? Why?Was it due to growth in market-share, business expansion or

productivity?

No. It was because there were more dollars chasing the same number of

securities; hence, inflation.

If that is the case, then we can expect the stock market to fall

sharply before it reaches a sustainable level. As Liu says, "It is not

possible to preserve the abnormal market prices of assets driven up by

a liquidity boom if normal liquidity is to be restored." Eventually,

stock prices will return to a normal range.

Bernanke should not even be contemplating a rate cut. The market needs

more discipline not less. And workers need a stable dollar. Besides,

another rate cut would further jeopardize the greenback's increasingly

shaky position as the world's "reserve currency". That could

destabilize the global economy by rapidly unwinding the U.S. massive

current account deficit.

The International Herald Tribune summed up the dollar's problems in a

recent article, "Dollar's Retreat Raises Fear of Collapse."

"Finance ministers and central bankers have long fretted that at some

point, the rest of the world would lose its willingness to finance the

United States' proclivity to consume far more than it produces - and

that a potentially disastrous free-fall in the dollar's value would

result.

"The latest turmoil in mortgage markets has, in a single stroke,

shaken faith in the resilience of American finance to a greater degree

than even the bursting of the technology bubble in 2000 or the terror

attacks of Sept. 11, 2001, analysts said. It has also raised prospect

of a recession in the wider economy.

"This is all pointing to a greatly increased risk of a fast unwinding

of the U.S. current account deficit and a serious decline of the

dollar".

Other experts and currency traders have expressed similar sentiments.

The dollar is at historic lows in relation to the basket of currencies

against which it is weighted. Bernanke can't take a chance that his

effort to rescue the markets will cause a sudden sell-off of the

dollar.

The Fed chief's hands are tied. Bernanke simply doesn't have the tools

to fix the problems before him. Insolvency cannot be fixed with

liquidity injections nor can the deeply-rooted "systemic" problems in

"structured finance" be corrected by slashing interest rates. These

require fiscal solutions, congressional involvement, and fundamental

economic policy changes.

Rate cuts won't help to rekindle the spending spree in the housing

market either. That charade is over. The banks have already tightened

lending standards and inventory is larger than anytime since they

began keeping records. The slowdown in housing is irreversible as is

the steady decline in real estate prices. Trillions in market

capitalization will be wiped out. Home equity is already shrinking as

is consumer spending connected to home-equity withdrawals.

The bubble has popped regardless of what Bernanke does. The same is

true in the clogged Commercial Paper market where hundreds of billions

of dollars in short-term debt is due to expire in the next few weeks.

The banks and corporate borrowers are expected to struggle to

refinance their debts but, of course, much of the debt will not roll

over. There will be substantial losses and, very likely, more

defaults.

Bernanke can either be a statesman---and tell the country the truth

about our dysfunctional financial system which is breaking down from

years of corruption, deregulation and manipulation---or he can take

the cowards-route and buy some time by flooding the system with

liquidity, stimulating more destructive consumerism, and condemning

the nation to an avoidable cycle of double-digit inflation.

We'll know his decision soon enough.

http://www.rense.com/general78/usn.htm

September 20, 2007

On Sep 19, 7:53 pm, "www.freedomtofascism.com" <hemlock...@yahoo.com>

wrote:

> US Banks Brace For Storm Surge

> As Dollar & Credit System Reel

> By Mike Whitney

> 9-19-7

>

> By now, you've probably seen the photos of the angry customers queued

> up outside of Northern Rock Bank waiting to withdraw their money. This

> is the first big run on a British bank in over a century. It's lost an

> eighth of its deposits in three days. The pictures are headline news

> in the U.K. but have been stuck on the back pages of U.S.newspapers.

> The reason for this is obvious. The same Force 5 economic-hurricane

> that just touched ground in Great Britain is headed for America and

> gaining strength on the way.

>

> On Monday night, desperately trying to stave off a wider panic, the

> British government issued an emergency pledge to Northern Rock savers

> that their money was safe. The government is trying to find a buyer

> for Northern Rock.

>

> This is what a good old fashioned bank run looks like. And, as in

> 1929, the bank owners and the government are frantically trying to

> calm down their customers by reassuring them that their money is safe.

> But human nature being what it is, people are not so easily pacified

> when they think their savings are at risk. The bottom line is this:

> The people want their money, not excuses.

>

> But Northern Rock doesn't have their money and, surprisingly, it is

> not because the bank was dabbling in riskysubprime loans. Rather, NR

> had unwisely adopted the model of "borrowing short to go long" in

> financing their mortgages just like many of the major banks in the

> U.S. In other words, they depended on wholesale financing of their

> mortgages from eager investors in the market, instead of the

> traditional method of maintaining sufficient capital to back up the

> loans on their books.

>

> It seemed like a nifty idea at the time and most of the big banks in

> the US were doing the same thing. It was a great way to avoid

> bothersome reserve requirements and the loan origination fees were

> profitable as well. Northern Rock's business soared. Now they carry a

> mortgage book totaling $200 billion dollars.

>

> $200 billion! So why can't they pay out a paltry $4 or $5 billion to

> their customers without a government bailout?

>

> It's because they don't have the reserves and because the bank's

> business model is hopelessly flawed and no longer viable. Their assets

> are illiquid and (presumably) "marked to model", which means they have

> no discernible market value. They might as well have been "marked to

> fantasy",it amounts to the same thing. Investors don't want them. So

> Northern Rock is stuck with a $200 billion albatross that's dragging

> them under.

>

> A more powerful tsunami is about to descend on the United States where

> many of the banks have been engaged in the same practices and are

> using the same business model as Northern Rock. Investors are no

> longer buying CDOs,MBSs, or anything else related to real estate. No

> one wants them, whether they're subprime or not. That means that US

> banks will soon undergo the same type of economic gale that is

> battering the U.K right now. The only difference is that the U.S.

> economy is already listing from the downturn in housing and an

> increasingly jittery stock market.

> That's why Treasury Secretary Henry Paulson rushed off to England

> yesterday to see if he could figure out a way to keep the contagion

> from spreading.

>

> Good luck, Hank.

>

> It would interesting to know if Paulson still believes that "This is

> far and away the strongest global economy I've seen in my business

> lifetime", or if he has adjusted his thinking as troubles in subprime,

> commercial paper, private equity, and credit continue to mount?

>

> For weeks we've been saying that the banks are in trouble and do not

> have the reserves to cover their losses. This notion was originally

> pooh-poohed by nearly everyone. But it's becoming more and more

> apparent that it is true. We expect to see many bank failures in the

> months to come. Prepare yourself. The banking system is mired in fraud

> and chicanery. Now the schemes and swindles are unwinding and the

> bodies will soon be floating to the surface.

>

> "Structured finance" is touted as the "new architecture of financial

> markets". It is designed to distribute capital more efficiently by

> allowing other market participants to fill a role which used to be

> left exclusively to the banks. In practice, however, structured

> finance is a hoax; and undoubtedly the most expensive hoax of all

> time. The transformation of liabilities (dodgy mortgage loans) into

> assets (securities) through the magic of securitization is the biggest

> boondoggle of all time. It is the moral equivalent of mortgage

> laundering. The system relies on the variable support of investors to

> provide the funding for pools of mortgage loans that are chopped-up

> into tranches and duct-taped together as CDOs (collateralized debt

> obligations). It's madness; but no one seemed to realize how crazy it

> was until Bear Stearns blew up and they couldn't find bidders for

> their remaining CDOs. It's been downhill ever since.

> The problems with structured finance are not simply the result of

> shabby lending and low interest rates. The model itself is defective.

>

> John R. Ing provides a great synopsis of structured finance in his

> article, "Gold: The Collapse of the Vanities":

>

> "The origin of the debt crisis lies with the evolution of America's

> financial markets using financial engineering and leverage to finance

> the credit expansion. Financial institutions created a Frankenstein

> with the change from simply lending money and taking fees to

> securitizing and selling trillions of loans in every market from Iowa

> to Germany. Credit risk was replaced by the "slicing and dicing" of

> risk, enabling the banks to act as principals, spreading that risk

> among various financial institutions.. Securitization allowed a vast

> array of long term liabilities once parked away with collateral to be

> resold along side more traditional forms of short term assets. Wall

> Street created an illusion that risk was somehow disseminated among

> the masses. Private equity too used piles of this debt to launch ever

> bigger buyouts. And, awash in liquidity and very sophisticated

> algorithms, investment bankers found willing hedge funds around the

> world seeking higher yielding assets. Risk was piled upon risk. We

> believe that the subprimecrisis is not a one off event but the

> beginning of a significant sea change in the modern-day financial

> markets."

>

> The investment sharks who conjured up "structured finance" knew

> exactly what they were doing. They were in bed with the ratings

> agencies----off-loading trillions of dollars of garbage-bonds to

> pension funds, hedge funds, insurance companies and foreign financial

> giants. It's a swindle of epic proportions and it never would have

> taken place in a sufficiently regulated market.

>

> When crowds of angry people are huddled outside the banks to get their

> money, the system is in real peril. Credibility must be restored

> quickly. This is no time for Bush's "free market" nostrums or

> Paulson's soothing bromides (he thinks the problem is "contained") or

> Bernanke's feeble rate cuts. This requires real leadership.

>

> The first thing to do is take charge, alert the public to what is

> going on and get Congress to work on substantive changes to the

> system. Concrete steps must be taken to build public confidence in the

> markets. And there must be a presidential announcement that all bank

> deposits will be fully covered by government insurance.

>

> The lights should be blinking red at all the related government

> agencies including the Fed, the SEC, and the Treasury Dept. They need

> to get ahead of the curve and stop thinking they can minimize a

> potential catastrophe with their usual public relations mumbo jumbo.

> Last week, an article appeared in the Wall Street Journal, "Banks

> Flock to Discount Window". (9-14-07) The article chronicled the sudden

> up-tick in borrowing by the struggling banks via the Fed's emergency

> bailout program, the "Discount Window":

>

> "Discount borrowing under the Fed's primary credit program for banks

> surged to more than $7.1 billion outstanding as of Wednesday, up from

> $1 billion a week before."

> Again we see the same pattern developing; the banks borrowing money

> from the Fed because they cannot meet their minimum reserve

> requirements.

> WSJ: "The Fed in its weekly release said average daily borrowing

> through Wednesday rose to $2.93 billion."

> $3 billion.

>

> Traditionally, the "Discount Window" has only been used by banks in

> distress, but the Fed is trying to convince people that it's really

> not a sign of distress at all. It's "a sign of strength". Baloney.

> Banks don't borrow $3 billiounless they need it. They don't have the

> reserves. Period.

>

> The real condition of the banks will be revealed sometime in the next

> few weeks when they report earnings and account for their massive

> losses in "down-graded" CDOs and MBSs.

> Market analyst Jon Markman offered these words of advice to the

> financial giants

>

> "Before they (the financial industry) take down the entire market this

> fall by shocking Wall Street with unexpected losses, I suggest that

> they brush aside their attorneys and media handlers and come clean.

> They need to tell the world about the reality of their home lending

> and loan securitization teams' failures of the past four years -- and

> the truth about the toxic paper that they've flushed into the world

> economic system, or stuffed into Enron-like off-balance sheet entities

> -- before the markets make them walk the plank."." Since government

> regulators and Congress have flinched from their responsibility to

> administer "tough love" with rules forcing financial institutions to

> detail the creation, securitization and disposition of every ill-

> conceived subprime loan, off-balance sheet "structured investment

> vehicle," secretive money-market "conduit" and commercial-paper-

> financing vehicle, the market will do it with a vengeance."

>

> Good advice. We'll have to wait and see if anyone is listening. The

> investment banks may be waiting until Tuesday hoping that Fed-chief

> Ken Bernanke announces a cut to the Fed's fund rate that could send

> the stock market roaring back into positive territory.

> But interest rate cuts do not address the underlying problems of

> insolvency among homeowners, mortgage lenders, hedge funds and

> (potentially) banks. As market-analyst John R. Ing said, "A cut in

> rates will not solve the problem. This crisis was caused by excess

> liquidity and a deterioration of credit standards.A cut in the Fed

> Fund rate is simply heroin for credit junkies."

>

> The cuts merely add more cheap credit to a market that that is already

> over-inflated from the ocean of liquidity produced by former-Fed chief

> Alan Greenspan. The housing bubble and the credit bubble are largely

> the result of Greenspan's misguided monetary policies. (For which he

> now blames Bush!) The Fed's job is to ensure price stability and the

> smooth operation of the markets, not to reflate equity bubbles and

> reward over-exposed market participants.

>

> It's better to let cash-strapped borrowers default than slash interest

> rates and trigger a global run on the dollar. Financial analyst

> Richard Bove says that lower interest rates will do nothing to bring

> money back into the markets. Instead, lower interest rates will send

> the dollar into a tailspin and wreak havoc on the job market.

> "There is no liquidity problem, but a serious crisis of confidence,"

> Bove said:

>

> "In a financial system where there is ample liquidity and a desire for

> higher rates to compensate for risk, the solution is not to create

> more liquidity and lower the rates that are available to compensate

> for risk. ... (The Fed) cannot reduce fear by stimulating inflation

>

> "It is illogical to assume that holders of cash will have a strong

> desire to lend money at low rates in a currency that is declining in

> value when they can take these same funds and lend them at high rates

> in a currency that is gaining in value. By lowering interest rates the

> Federal Reserve will not stimulate economic growth or create jobs. It

> will crash the currency, stimulate inflation, and weaken the economy

> and the job markets".

>

> Bove is right. The people and businesses that cannot repay their debts

> should be allowed to fail. Further weakening the dollar only adds to

> our collective risk by feeding inflation and increasing the likelihood

> of capital flight from American markets. If that happens; we're

> toast.

>

> Consider this: In 2000, when Bush took office, gold was $273 per

> ounce, oil was $22 per barrel and the euro was worth $.87 per dollar.

> Currently, gold is over $700 per ounce, oil is over $80 per barrel,

> and the euro is nearly $1.40 per dollar. If Bernanke cuts rates, we're

> likely to see oil at $125 per barrel by next spring.

>

> Inflation is soaring. The government statistics are thoroughly bogus.

> Gold, oil and the euro don't lie. According to economist Martin

> Feldstein, "The falling dollar and rising food prices caused market-

> based consumer prices to rise by 4.6 per cent in the most recent

> quarter." (WSJ)

>

> That's 18.4 per cent a year, and yet Bernanke is still considering

> cutting interest rates and further fueling inflation.

>

> What about the American worker whose wages have stagnated for the last

> six years? Inflation is the same as a pay-cut for him. And how about

> the pensioner on a fixed income? Same thing. Inflation is just a

> hidden tax progressively eroding his standard of living. .

> Bernanke's rate cut may be boon to the "cheap credit" addicts on Wall

> Street, but it's the death-knell for the average worker who is already

> struggling just to make ends meet.

>

> No bailouts. No rate cuts. Let the banks and hedge funds sink or swim

> like everyone else. The message to Bernankeis simple: "It's time to

> take away the punch bowl".

> The inflation in the stock market is just as evident as it is in the

> price of gold, oil or real estate. Economist and author Henry Liu

> demonstrates this in his article "Liquidity Boom and the Looming

> Crisis":

>

> "The conventional value paradigm is unable to explain why the market

> capitalization of all US stocks grew from $5.3 trillion at the end of

> 1994 to $17.7 trillion at the end of 1999 to $35 trillion at the end

> of 2006, generating a geometric increase in price earnings ratios and

> the like. Liquidity analysis provides a ready answer".(Asia Times)

>

> Market capitalization zoomed from $5.3 trillion to $35 trillion in 12

> years? Why?Was it due to growth in market-share, business expansion or

> productivity?

> No. It was because there were more dollars chasing the same number of

> securities; hence, inflation.

>

> If that is the case, then we can expect the stock market to fall

> sharply before it reaches a sustainable level. As Liu says, "It is not

> possible to preserve the abnormal market prices of assets driven up by

> a liquidity boom if normal liquidity is to be restored." Eventually,

> stock prices will return to a normal range.

>

> Bernanke should not even be contemplating a rate cut. The market needs

> more discipline not less. And workers need a stable dollar. Besides,

> another rate cut would further jeopardize the greenback's increasingly

> shaky position as the world's "reserve currency". That could

> destabilize the global economy by rapidly unwinding the U.S. massive

> current account deficit.

>

> The International Herald Tribune summed up the dollar's problems in a

> recent article, "Dollar's Retreat Raises Fear of Collapse."

>

> "Finance ministers and central bankers have long fretted that at some

> point, the rest of the world would lose its willingness to finance the

> United States' proclivity to consume far more than it produces - and

> that a potentially disastrous free-fall in the dollar's value would

> result.

> "The latest turmoil in mortgage markets has, in a single stroke,

> shaken faith in the resilience of American finance to a greater degree

> than even the bursting of the technology bubble in 2000 or the terror

> attacks of Sept. 11, 2001, analysts said. It has also raised prospect

> of a recession in the wider economy.

> "This is all pointing to a greatly increased risk of a fast unwinding

> of the U.S. current account deficit and a serious decline of the

> dollar".

>

> Other experts and currency traders have expressed similar sentiments.

> The dollar is at historic lows in relation to the basket of currencies

> against which it is weighted. Bernanke can't take a chance that his

> effort to rescue the markets will cause a sudden sell-off of the

> dollar.

> The Fed chief's hands are tied. Bernanke simply doesn't have the tools

> to fix the problems before him. Insolvency cannot be fixed with

> liquidity injections nor can the deeply-rooted "systemic" problems in

> "structured finance" be corrected by slashing interest rates. These

> require fiscal solutions, congressional involvement, and fundamental

> economic policy changes.

> Rate cuts won't help to rekindle the spending spree in the housing

> market either. That charade is over. The banks have already tightened

> lending standards and inventory is larger than anytime since they

> began keeping records. The slowdown in housing is irreversible as is

> the steady decline in real estate prices. Trillions in market

> capitalization will be wiped out. Home equity is already shrinking as

> is consumer spending connected to home-equity withdrawals.

> The bubble has popped regardless of what Bernanke does. The same is

> true in the clogged Commercial Paper market where hundreds of billions

> of dollars in short-term debt is due to expire in the next few weeks.

> The banks and corporate borrowers are expected to struggle to

> refinance their debts but, of course, much of the debt will not roll

> over. There will be substantial losses and, very likely, more

> defaults.

> Bernanke can either be a statesman---and tell the country the truth

> about our dysfunctional financial system which is breaking down from

> years of corruption, deregulation and manipulation---or he can take

> the cowards-route and buy some time by flooding the system with

> liquidity, stimulating more destructive consumerism, and condemning

> the nation to an avoidable cycle of double-digit inflation.

> We'll know his decision soon enough.

>

> http://www.rense.com/general78/usn.htm

September 22, 2007

This is basically a very simple problem that can be just as easily solved.

Bank customers at say Bank A, wants to withdraw money that they have in that

bank. NO, bank has enough funds available to pay off EVERY depositor, for a

very simple reason. When we deposit money in ANY bank, they take that money

and lend it to someone else. So, they do not have the money to pay you, it

has been loaned to someone else. So, then what is the solution to this

Catch 22 situation. The solution is simple, the Federal Reserve Bank steps

in that provides that bank with the funds to pay off their depositors. Once

that occurs, the customers of other banks, see that those who demanded their

money got their money, and are then not inclined to make a run of their

bank. But, just in case that does not work, and another bank has a "run" of

customers that demand their deposits, the Federal Reserve Bank will once

again step up to the plate and provide that bank with the funds they need to

pay of the demand by their customers. And sooner rather than later, you

will have stopped any further run of any other banks. And in practice,

those that did demand their money (and get it) are going to put it into a

bank because they have no where else to put their money, and still be able

to pay bills.

"www.freedomtofascism.com" <hemlock432@yahoo.com> wrote in message

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