Today's Stories

September 15, 2008

Mike Whitney
The Tumbrils Roll at Dawn

Peter Morici
Toxic Lehman

Patrick Cockburn
Take Another Look at the Surge

Charles R. Larson
The Maverick Has No Clothes

Jonathan Cook
The Expulsion of Palestinians from Jaffa

Nikolas Kozloff
Racist Rhetoric in Bolivia

Roger Burbach
Morales Confronts the Insurrection: Bolivia and the Echoes of Allende

Helen Redmond
Where's the Health Care Bailout?

David Michael Green
The Democrats Do Poland

David Macaray
The Boeing Strike

Ralph Nader
Remembering Peter Camejo

Website of the Day
The Ballad of Sarah Palin

September 13 / 14, 2008

Alexander Cockburn
Panic!

Jeffrey St. Clair
Inside Dirk Kempthorne's Closet

Wajahat Ali
Playing with the Constitution

Robert Fantina
Cheney Scales New Heights of Hypocrisy

Marcus Rediker
Notes on a Visit to the Favelas of Medellín, Colombia

Richard Neville
The Baby Killers

Ed Gaffney
Breaking the Siege of Gaza

Carla Blank
Neglecting a Grand Old Lady

P. Sainath
The Almighty and the U.S. Elections

Lee Sustar
Working Harder; Falling Further Behind

Joshua Frank
Liberalism and Its Bounds

M. Junaid Levesque-Alam
The Guantanamoized Age

Dennis Loo
Shock and Awe Comes Home to Roost

Zach Zill
Squeezed Out in New York City

Omar Barghouti
So You Think You Can Dance? Israeli Profiling of African-American Dancers

Bill Quigley
Social Justice Quiz, 2008

Andy Worthington
Bush's Bitter Legacy

Stephen Dunifer
Free Radio: Liberating the Commons

Seth Sandronsky
Bailing Out Big Auto

David Yearsley
Portabella's Bach: Grim, Trite and Incredibly Boring

Patrick B. Barr
Obama's Punchless Campaign

Rannie Amiri
Tasting Ramadan

Niranjan Ramakrishnan
The Flight Not Taken

Richard Rhames
What, Me Reason?

Manuel Garcia, Jr.
The Large Hadron Collider Powers Up

Poets' Basement
Deer Cloud and Buknatski

Website of the Weekend
Wasilla Valley PTA?

September 12, 2008

Nikolas Kozloff
The Next Cuban Missile Crisis?

Michael Hudson
More Dangerous Than the A-Bomb? The Chicago School's Record of Infamy

Lloyd Miller
Palin and Alaskan Native and Tribal Rights: a Dismal Record

Steve Breyman
Georgia in NATO?

Maria Rivera
Cuba After Gustav and Ike: an Eyewitness Account

Jonathan Cook
Israel and the Dark Arts

Ayesha Ijaz Khan
U.S. Designs on Pakistan

M. Shahid Alam
The Mendacity of Missed Opportunities

Robert Weissman
Executive Pay and the "Market Economy"

Tanya Golash-Boza / David Brunsma
Immigration Raids Must Be Stopped

Website of the Day
Know Your Rights

September 11, 2008

Noam Chomsky
Towards a Second Cold War?

Sharon Smith
Afghanistan: You Call This a Good War?

Ron Jacobs
Palinomics: She Ain't No Working Class Hero

Marjorie Cohn
God, Guns and Oil: A Palin Theocracy?

Mike Whitney
Cheney in the Caucasus

Jeffery R. Webber
Bolivia: a Coup in the Making?

Paul Cantor
The Other 9/11

Peter Morici
The Surging Trade Deficit

Ray McGovern
Iran's Road Less Traveled to Nukes

Linn Washington, Jr.
Screening Mumia: The Suppression of Dissent in America

Website of the Day
Palin (Michael) for President!

September 10, 2008

Paul Craig Roberts
A Temporary Respite from Permanent Decline

Conn Hallinan
The Return of U.S. Death Squads

Ralph Nader
Who Needs Regulations When You've Got a Golden Parachute?

Peter Morici
Can the Bailout Work?

Joanne Mariner
The Horrendous Case of Aafia Siddiqui

Laura Tate Kagel /
Jen Marlowe
The Pending Execution of Troy Davis: a Case for Clemency

Chuck Spinney
Incestuous Amplification and the Madness of King George

Dave Lindorff
Lazy Thinking and Prejudice

Scott Campbell
Where Now for Oaxaca's Social Movement?

Paul Farmer
Haiti and the Hurricanes

Anne Kilkenny
Letters from Wasilla: the Sarah Palin I Know

Website of the Day
Democrats and Zombies

September 9, 2008

Michael Colby
The Obama Poll Drop

Chellis Glendinning
Retorno a 1968: From Berkeley to Mexico City

Vijay Prashad
Losing Game

Jeffery R. Webber/
George Ciccariello-Maher
Venezuela From Below

David Michael Green
Country Last

Brian J. Foley
The New Face of Republican Power

John Ross
Mexican Flag Wrap

Pierre M. Sprey /
Winslow T. Wheeler
Joint Strike Fighter: Another Defense Acquisition Disaster

Nicole Colson
Sami Al-Arian's Long Road to Freedom

Marc Gardner
California's Anti-Homosexual Laws are Alive and Unwell

William S. Lind
The Baltic States and Russia: Toy Armies or Accomodation?

Website of the Day
All Hope Rests with Piper Palin

September 8, 2008

Mike Whitney
An Interview with Michael Hudson on the Worsening Debt Crisis

Tariq Ali
The Godfather as President

Pam Martens
The Man Who Vetted Palin

Bill Quigley
The Weary Road Home: Displaced Poor Continue to Return to New Orleans

Malini Johar Schueller /
Ed White
Not About Me: Obamamania, Racial Porn-fest and Palinama

Robert Jensen
Pop Music and 9/11

Uri Avnery
Lonely Rider

Win McCormack
Palin Family Values

Howard Lisnoff
How Far From a Police State?

Maria C. Khoury
Taybeh Oktoberfest in Palestine

Website of the Day
Scaring Students from Voting in Virginia

September 6 / 7, 2008

Alexander Cockburn
Sarah Palin and the Good Book

Jeffrey St. Clair
That Dam Senator: A River Ran Through Him

Linn Washington, Jr.
The GOP Excluded Black-Owned Businesses from Contracts at St. Paul Convention

Patrick Cockburn
Did Bush Spies Monitor Iraqi Allies?

Gary Leupp
The September 3 Attack on Pakistan: a Precursor to More War Crimes?

Nancy Kurshan
CHI-town Lowdown: Memories of 1968

William Blum
Has Obama Already Lost?

Michael Winship
The St. Paul Police vs. the Independent Media

Fred Gardner
Joe Biden, Drug Warrior

Nikolas Kozloff
Sarah Palin and the Wal-Mart Moms: the Cultural Packaging of VP Candidates

Wajahat Ali
The Cryptkeeper and His Pitbull: the Past and Future of the GOP

Robert Fantina
Change Agents?

Karyn Strickler
Palin by Comparison: Sarah and the Hillary Voters

David Yearsley
What Their Fanfares Told Us About the Candidates

Richard Rhames
Bad Campaign Moon Rising

James L. Secor
Bandwagon Politics

Missy Beattie
Missy for Vice POTUS

Eric Patton
Baseless in Obamaland

Ben Terrall
Haiti and the Washington Consensus

Thom Rutledge
Mr. Magoo and the Kind Stranger: a Serious Political Problem

Dan Bacher
Arnold and the Manufactured Drought

David Macaray
Is Union Democracy at Risk?

Jane Stillwater
The Admiral's Child: a Psychological Reason for McCain's Flip Flops

Grady Harper
Should Hunting Really be High on Our Priority List?

Poets' Basement
Wolff, Payne and Holt

Website of the Weekend
We'll See Your Sarah Palin and Raise You With Maria McKee

September 5, 2008

Elizabeth Walters
Old Fears, New Worries in Louisiana

Bill Quigley
Gustav's Path of Destruction

Alan Farago
Nothing Means Anything: The Fantasy of John and Sarah

Dave Lindorff
The Things They Left Behind (Including McCain's First Wife)

Ira Glunts
A Lesson Before Lying: How Republicans Solved Sarah Palin's Jewish Problem

Peter Morici
The Big Slump

Deepak Tripathi
Politics, Morality and the GOP: John McCain as John Major?

Manuel Garcia, Jr.
The Energy of a Hurricane

Michael Donnelly
Change. God. POW.: a Summary of McCain's Big Speech

Martha Rosenberg
Free to Good Home, SUVs

Website of the Day
Sarah Palin's Air War: On Wolves and Bears

September 4, 2008

Jeffrey St. Clair
The Real McCain

Paul Craig Roberts
Who is Wrecking America?

Ron Jacobs
The Perishing Republicans, the RNC 9 and the Twin Cities Cops

M. Junaid Levesque-Alam
The Soft Surge

Andy Worthington
Rendered to Egypt for Torture

Osama Dawoud
How I Lost My Fulbright Scholarship

Stephen Lendman
Katrina Redux: the Militarization of New Orleans

Fidel Castro
Hurricane as Nuclear Strike

Website of the Day
Is McCain Palin's Bitch?

September 3, 2008

Patrick Cockburn
The Fake U.S. Victory in Iraq

Sen. Mike Gravel
Good Luck, Sarah!

Vijay Prashad
The Indian Left and the Indo-US Nuclear Deal

Nikolas Kozloff
Palin, Hunting and the American Psyche

Ralph Nader
Repeal Taft-Hartley

Howard Lisnoff
Forty Years in the Streets (And They're Still Beating Up Journalists)

Steve Early / Cal Winslow
Can SEIU Members Exorcize the Purple Shades of Jackie Presser?

Shepherd Bliss
A Field Report From Slow Food Nation

Bill Quigley
Living in the Car After Gustav

Website of the Day
Growing Up Okie: an Interview with Roxanne Dunbar-Ortiz

September 2, 2008

Marjorie Cohn
Raiding Democracy in St. Paul

Jonathan Cook
Palestinian Village Faces Army Reign of Terror

Robert Weitzel
Biden and Israel

Corey D. B. Walker
Where Do We Go From Here?

John Ross
The Kidnapping Boom in Mexico

Eric Walberg
Wag the Dog in Georgia

Judith Scherr
No Day in Court for Ronald Dauphin

Richard Morse
Haiti, 2008

B. R. Gowani
What If the Israel Lobby was the African-American Lobby?

Michael Greenberg
Loofah Day in Cleveland

Website of the Day
Thanks for the Memories!

September 1, 2008

Nikolas Kozloff
Making a Killing in Iraq: McCain and the Telecoms

C. G. Estabrook
The War Will Go On

Manuel Garcia, Jr.
Will a Russo-American Nuclear War Happen (Soon)?

David Macaray
An Elegy for Labor Day

B. R. Gowani
The Lobby as Juggernaut

Saul Landau
Real Gold Winners

Charles Orloski
Going Down to Hell's Cul-de-Sac

Gloria La Riva
Profit and Disaster in New Orleans

Website of the Day
Springsteen: Factory

August 30 / 31, 2008

Alexander Cockburn
Obama's Speech; McCain's Palinomy

Bill Quigley
Gustav is Coming

Jeffrey St. Clair
Valley Boy: The Rise and Fall of Richard Pombo

Andy Worthington
Shining a Light on the Dark Prison

Deepak Tripathi
The Race for the White House: Notes From a European Observer

Stanley Howard
A Prisoner's Tale of Abuse

Dave Lindorff
Troopergate in Alaska

Wajahat Ali
Palin on the Prowl: a Cougar for the PUMAs?

Robert Fantina
McCain and Palin

Josh Schlossberg
A Bias for Life: the Role of the Environmentalist

Benjamin Dangl
Beyond Voting

Missy Beattie
Stars, Stripes, War and Shame

Howard Lisnoff
Better Cuba Than Florida?

Suzan Mazur
Rethinking Evolution with Stuart Newman

Rev. Jim Rigby
What Would Jesus Ride to the Conventions?

David Yearsely
Katy Perry Meets Mozart

Serge Quadruppani
Italy's Years of Lead

B.R. Gowani
What If the Israeli Lobby Was the Islamic Lobby?

Richard Rhames
Empty Political Calories

Poets' Basement
Holt, Davies, Corsale and Landau

Website of the Day
Return of the Druids

August 29, 2008

Mike Whitney
How the Chicago Boys Wrecked the Economy

Brian Cloughley
Resurgent Russia

David Ker Thomson
Jacko and Me: Dispatches From Fifty

Joanne Mariner
A UK Window on CIA Abuses

Neve Gordon
The Ordeal of Sahar Vardi, Refusenik

Chris Genovali
Of Whales and Off-Shore Drilling

Ron Jacobs
What's a Godfearing Country to Do?

Michael Donnelly
Honest Abe in Denver?

August 28, 2008

Judy Gumbo Albert
The Battle of Chicago

Paul Cantor
Who Killed Victor Jara?

Saul Landau /
Farrah Hassen
Axis of Evil Defeats Neocons

Andy Worthington
Clearing Out Guantánamo

Ben Terrall
Return to Port-au-Prince

Leonard Peltier
Message to Obama: Symbolism Alone Will Not Bring Change

Niranjan Ramakrishnan
The Miasma of Bi-Partisanship

Donna J. Volatile
The Obama Construct

Website of the Day
Ishmael Reed, Alice Walker and Maya Angelou on the Meaning of Obama

August 27, 2008

Anthony DiMaggio
The Myths of Joe Biden

Jordan Flaherty
Three Years After Katrina

Ralph Nader
The Politics of Avoidance

Melissa Checker
Carbon Offsets, More Harm Than Good?

Bob Sommer
Blaming the Sixties

Cynthia McKinney
How the Democrats Helped Bush Hijack the Country

Ali Khan
Pakistan's Flawed Presidency

M. Junaid Levesque-Alam
The Only Good Muslim is the Anti-Muslim

Dave Lindorff
Strip-Search Nation

David Macaray
Labor's Hard Lessons

Website of the Day
Stagnant Income in an Eroding Economy

August 26, 2008

Patrick Cockburn
The Big Questions About Iraq

Michael D. Yates
Obama and the Working Class

Paul Craig Roberts
Is War With Russia on the Agenda?

Andy Worthington
The Guantánamo Suicide Report

Rev. Jesse L. Jackson
Obama's Promised Land?

Huwaida Arraf
Sailing into Gaza

Joseph Grosso
Back to the Future: New York's Housing Crisis

Sheldon Richman
What About the Ossetians?

Binoy Kampmark
Impasse at Singur

Website of the Day
Taser Bait in Denver

August 25, 2008

Patrick Cockburn
US Out of Iraq by "2011"

Bill Quigley
Katrina, the Pain Index

Jonathan Cook
Israeli Outposts Seal Death of Palestinian State

James McEnteer
Death by Paranoia

Uri Avnery
The Devil's Hoof

Will Potter
The State Deparment's Green Scare Wing

Robert Jensen
Technological Fundamentalism

Stephen Lendman
Reinventing the Evil Empire

Wajahat Ali
Biden His Time

Carl Finamore
The Future of Trade Unions in China

Website of the Day
Don't Blow Up the Mountain, Boys

August 23 / 4, 2008

Alexander Cockburn
"Change," "Hope"...Why They Must be Talking About Joe Biden!

Jeffrey St. Clair
Killing Salmon with Paul O'Neill: Power, Profits and the Future of the Columbia River

Patty O'Grady
John McCain in a New Context: Why the Senator is No War Hero

Nicole Colson
Obama and Big Corn

Steve Conn
Obama and the Mining Cartel

Deepak Trapathi
Pakistan in Uncertain Times

Robert Fantina
Once Upon a Time in America: a McCain Administration

Jonathan M. Feldman
Obamanomics: Does the Left Have Anything to Say?

Joshua Frank
Targeting Pelosi (and the War Machine): an Interview with Cindy Sheehan

Osama Qashoo
Sailing to Gaza

Howard Lisnoff
The Long Silence: American Jews and the Palestinians

David Michael Green
Sen. McShame and the Wreckage: John McCain Discovers America

Dave Lindorff
Why Not Let the Republicans Deal With This Mess?

Christopher Brauchli
A Banner Month for Passports

Alan Farago
Who Crippled the Government?

Michael Winship
Cash Register Conventions

Richard Rhames
Vlad the Derailer: Can Putin Save America From Itself?

David Rosen
The Culture Wars Are Over: But Culture Warriors Are Still Terrorizing America

Patrick B. Barr
Don't Try to Tame the Lightning Bolt

Jamie Newlin
Western Turf Wars: the Politics of Public Lands Ranching

Poets' Basement
Glendinning, McEnteer and Bonner

Website of the Weekend
Cafe Reconcile, New Orleans

August 22, 2008

Boris Kagarlitsky
Fallout from the Georgian War

Laura Carlsen
Obama and Latin America: Change or Continuity?

Bob Barr
No War for Georgia

Marwan Bishara
From Russia with Love: Putin Hits Georgia, Bloodies Bush

Peter Morici
Is the Fed Still a Central Bank?

Manuel Garcia, Jr.
The Big Heat

Charles Mostoller
The Battle for the Amazon

Sumbul Ali-Karamali
Obama is Not a Muslim: But Would It Be So Terrible If He Were?

Keith Rosenthal
Standing Up to Union-Bashing

John F. Miglio
The Devolution of the Baby Boom Generation

Website of the Day
Fire Sale in the Markets!

August 21, 2008

Allan J. Lichtman
Is Georgia 2008 a Repeat of Hungary 1956?

Dave Lindorff Loserville: How Obama Blew It

Ralph Nader
The Problem with Problem Banks

Joanne Mariner
The Military Commissions, So Far

Wajahat Ali
Descent Into Chaos: an Interview with Ahmed Rashid on Pakistan, Afghanistan and the Taliban

Ron Jacobs
Georgia and Historical Farce

Rostam Purzal
The Left and Iran

Anthony Papa
Unlocking the Power of Art to Counter Injustice

Website of the Day
Rocky Mountain Way

August 20, 2008

Michael Neumann
Russia and Georgia: Proportion and Distortion

Ray McGovern
Musharraf Out Like Nixon

Eric Walberg
Georgia's Ossetian Debacle

Fidaa Abed
Blocking a Gazan's Path to San Diego

Daniel Haack
The Pentagon's Most Prolific Pundit

Mike Whitney
Greenback Surges, Euro Shrivels

Website of the Day
Hands Off South Africa's Centre for Civil Society

August 19, 2008

Paul Craig Roberts
Are You Ready for Nuclear War?

Deepak Tripathi
A New Age of Torture

Marwan Bishara
The Politics of Evil in the US Elections

Saul Landau
Baseball Diplomacy or Just Baseball?

William S. Lind
Leave Georgia Alone, George

Martha Rosenberg
Whole Foods and Other Food Offenders

James Brittain
The Road to Tyranny in Colombia

Pratyush Chandra
Krugman's Great Illusion

David Macaray
AFSCME's Strike Against the University of California

Website of the Day
McCain Plagiarizing Solzhenitsyn

September 15, 2008

Lehman Gone; Merrill Lynch Swallowed Up; AIG Going… Who’s Next for Madam Defarge?

The Tumbrils Roll at Dawn

By MIKE WHITNEY

Bank of America is buying Merrill Lynch for $45 billion, AIG needs an emergency $40 billion bail-out from Uncle Sam to stay afloat, and Lehman Bros is kaput. Whew! The financial world has been turned upside-down overnight. It'll be a rough day of trading ahead."

The news of Wall Street's Sunday night massacre  sent foreign stock markets into a deep swoon. Shares tumbled in Asia and dropped more than 4 per cent in Europe. The dollar is steadily losing ground to the euro and gold is on the rise. The question is not whether the Dow will fall, but "how far" and what affect that will have on increasingly fragile financial institutions. 

Lehman Brothers, the 158 year old Wall Street warhorse, announced Sunday that it will file for bankruptcy after weekend rescue plans broke down without finding a buyer. Fears of credit contagion and a global recession have resurfaced and become more widespread. Lehman's failure suggests that that the other Wall Street giants will soon be following the same path to extinction. Economist Nouriel Roubini put it like this:

"All of the independent broker dealers are going to disappear. In March it was Bear Stearns. Tonight it was Lehman and Merrill Lynch. Morgan Stanley and Goldman Sachs should go find a buyer tomorrow. The business model of broker dealers is fundamentally flawed. They cannot survive."

Roubini may be right. The funny thing about capitalism is that you need capital to play. When the bank-vault is full of nothing but worthless mortgage-backed securities (MBS) and overvalued junk bonds; the whole thing goes belly-up fast. That appears to be the case with Lehman Bros, the century-old Wall Street warhorse that has joined the long procession of underwater banking establishments now hurtling towards the cliff. Lehman had a great go of it during the boom times when all it took to make oodles of money was a predictable flood of low interest credit from the Fed and a compliant ratings agency that would stamp every crappy securitized pool of mortgages with a big Triple A before hawking it to some gullible investor in Shanghai or Heidelberg.

Lehman travails are not much different from anyone else in the banking fraternity. The problem is that the entire system is under-capitalized and over-leveraged. When Bear Stearns went down last year, it was levered at a ratio of 26 to 1. When Hedgie Carlyle Capital blew up, it was levered at 32 to 1. And when Fannie and Freddie were finally taken over  by the US Treasury; the two behemoths were levered at 80 to 1, which is to say that they had a one dollar capital cushion for every $80 they had loaned out. They would have continued on the same erratic path --buying up toxic mortgages and MBS from people who had no chance of ever repaying their loans -- had they not been taken into federal "conservatorship", which is a fancy way of saying they were insolvent. Treasury Secretary Henry Paulson unwisely attached a 6 inch-wide money-hose from the bowels of the Treasury to Fannie’s front office so the two mortgage giants could continue to teeter-along at taxpayer expense regardless of the fact that the securitization business model has completely broken down and foreign investors--including China--have already started cutting back on their purchases of GSE debt. This is no laughing matter. The $700 billion US current account deficit is financed through foreign investors who are getting increasingly jittery about sinking money into a system that looks more like casino-poker all the time. Here's a clip from China daily on Friday:

"China, which holds a fifth of its currency reserves in Fannie Mae and Freddie Mac debt, may cut the portion held in US dollars, according to China International Capital Corp (CICC), one of the nation's biggest investment banks.

"The crisis has made Chinese officials realize it's a bad idea to put all their eggs in one basket,’wrote CICC Chief Economist Ha Jiming. ‘This will likely lead to greater diversification of foreign exchange reserve investments.’ China held $447.5 billion of US agency bonds as of June 2008, according to the CICC calculations using disclosures by the US Treasury. It is likely to reduce the portion of reserves in dollar assets from the current 60 percent by purchasing more non-dollar assets with new reserves, he said.”(China Daily)

Naturally, foreign investors and central banks will curtail their purchases of US securities and Treasuries until there's some indication that US markets have stabilized and will be able to withstand the ferocious headwinds of the biggest housing crash in history, a frozen corporate bond market, a paralyzed banking system, and steadily waning consumer demand. But Americans still seem breezily unaware of what all this means for the country's future. They'd rather savor every new bit of gossip about the Bible beating, Grizzly-hunting Alaska governor who wants to lead the country back to Frontierland lips rather than learn about the about the firestorm raging through the financial markets. 

When the net foreign purchases of US financial assets begin to slow; the game is over. The Fed will be forced to raise interest rates to attract foreign capital which will put downward pressure on the economy and accelerate the housing crash. Paulson's decision to provide unlimited capital to Fannie and Freddie, will stack more and more debt atop the faltering dollar and US Treasuries. It is the equivalent of lashing the greenback to an anvil and tossing it overboard. Paulson's attempts to stave off a systemic banking crisis ensures that the federal government will undergo an unprecedented funding crisis sometime in the near future. There will be higher taxes for the battered middle class and higher interest rates for businesses and consumers. This will trigger a  protracted economic slowdown and weaker growth. Credit will get tighter, banks will default, unemployment will soar and GDP will shrivel. A negative feedback loop will develop from the faltering financial system to the real economy; a vicious circle ending in massive layoffs, weakening demand, falling stock prices, and withering consumer confidence. Welcome to Soup kitchen USA.

Presently, Paulson and New York Fed chief Timothy Geithner are pressing Wall Street banking elites to pony-up enough money to buy up Lehman's devalued real estate assets. The Fed's proposal is similar to Greenspan's rescue of Long-Term Management LP (LTCM) which roiled financial markets in the late 1990s. Paulson has signaled that there be NO government bailout like Bear Stearns when the Fed bought up $29 billion in mortgage-related assets. The Fed is tapped out, having already committed half of its balance sheet -- nearly $500 billion -- in repos through its "auction facilities" which have recently skyrocketed to record highs of $19 billion per week for the last 3 weeks. The crisis is deepening by the day. Similarly, the Treasury has hitched its wagon to Fannie and Freddie which expands the National Debt by another $5.2 trillion and seriously undermines the "full faith and credit" of the US in the process. Keep in mind, the biggest source of American power is its access to cheap capital via the US taxpayer. Paulson has now put that source of revenue at risk by nationalizing the housing industry and burdening the taxpayer with (potentially) astronomical future obligations, even though he knows full-well that the market could drop another 15 to 20 per cent before the end of 2010. Paulson's recklessness has doomed the country to years of struggle.

As of Sunday afternoon, no deal had been struck to buy Lehman Bros. and it looked like the bank was headed for bankruptcy. Wall Street prepared for the worst. Nouriel Roubini gave a particularly grim assessment of a Lehman default in his latest post on his blogsite Global EconoMonitor:

"It is now clear that we are again – as we were in mid- March at the time of the Bear Stearns collapse – an epsilon away from a generalized run on most of the shadow banking system, especially the other major independent broker dealers (Lehman, Merrill Lynch, Morgan Stanley, Goldman Sachs). If Lehman does not find a buyer over the weekend and the counterparties of Lehman withdraw their credit lines on Monday, you will have not only a collapse of Lehman but also the beginning of a run on the other independent broker dealers...Then this run would lead to a massive systemic meltdown of the financial system. That is the reason why the Fed has convened in emergency meetings the heads of all major Wall Street firms on Friday and again today to convince them not to pull the plug on Lehman and maintain their exposure to this distressed broker dealer."

The giant investment banks are inescapably trapped in a net of complex, unregulated, over-the-counter derivatives contracts which -- given the right conditions -- could threaten  every financial skyscraper in lower Manhattan. 

A sizable portion of Lehman's $128 billion in long-term debt will probably be ring-fenced in a "bad bank" which will hold its toxic mortgage-backed assets and be financed by either the Treasury or the other Wall Street banks. The good assets can then be separated and sold off to either Bank of America or Barclays, the two prospective buyers. That way, according to Forbes, "the bad bank would be kept afloat while its assets could be unwound over a period of time in a way that wouldn't disrupt the financial system more than it already has been."

Some variation of the "Forbes solution" will probably be enacted, but, let's be clear; this is really no solution at all. It's just a way of buying time by rolling-over debt to avoid the ugly consequences of accounting for the massive losses. In other words, it is cheaper to keep burning up capital to prop up moribund assets than take the loss and make a genuine effort to restructure the dysfunctional system. Here's how former Fed chief Paul Volcker summed it up just two weeks ago: 

"This bright new system, this practice in the United States, this practice in the United Kingdom and elsewhere, has broken down. Growth in the economy in this decade will be the slowest of any decade since the Great Depression, right in the middle of all this financial innovation. The current financial system is dysfunctional. That is a polite way of saying it failed.''

Securitization has failed. The cuts to the Fed's Funds rate have failed. The auction facilities -- TAF, PDCF, and TSLF -- have all failed. The off-balance sheets operations, the debt-pyramiding asset-inflation, the Enron-style accounting, the SIVs, the CP, MBS, CDOs, have failed. The subprimes, the piggybacks, the option-ARMs, the Alt-As have all failed. Structured finance has failed. The system doesn't work; won't work; can't work. It's built on the misguided assumption that capitalism can thrive without capital; that one dollar can be infinitely magnified by complex debt-instruments and mega-leveraging to generate real wealth and keep the wheels of finance and industry humming along. It can't be done. The system is under-water. Economist and author Henry Liu put it like this:

"Yet this approach is preferred by those in authority, trapped in self deception about unregulated market capitalism being still fundamentally sound. They try to calm markets by asserting that the current turmoil is merely a minor liquidity bottleneck that can be handled by the central bank releasing more liquidity against the full face value of collateral of declining worth. (There are) No signs of any coherent grand strategy or plan to save the cancerous system from structural self-destruction."

Instead, the marauding of a handful of Wall Street "innovators"--drunk with hubris and blinded by their own bizarre sense of entitlement---have thrust the financial markets to the brink of catastrophe and pushed the  the broader "real" economy towards a painful retrenchment. Now everyone will pay for the greed of the few.

So, what's next?

An article in the Financial Times spells it out, but government officials will undoubtedly deny it until after the November presidential election.

From the Financial Times:

“The debate over whether an RTC-style  (Resolution Trust Corporation)vehicle is needed – perhaps just to ring-fence troubled mortgage assets – also gained traction among central bankers at the Jackson Hole symposium hosted by the Federal Reserve Bank of Kansas City in August....

“The problem that an RTC vehicle could help to solve is that there are very few buyers for troubled mortgage assets, and few investors now willing to inject fresh capital into the tattered balance sheets of the banks left holding them. As a result, banks such as Lehman and Washington Mutual have struggled to sell their soured mortgage portfolios, and to broker deals for fresh capital. The takeover of Fannie and Freddie, which virtually wiped out preferred equity holders, has also made banks’ access to the preferred capital market increasingly difficult. Through a new RTC, the government could provide financial support if needed in return for a share in potential profits once the assets were liquidated.”

What the Feds are refusing to admit, is that there is already a plan in place to make the government  an active, "shareholding" partner in failing commercial banks. (There's no way the FDIC could pay for all the projected losses anyway) That will give the US Treasury the authority to provide insolvent banks with enough capital to muddle through while their impaired assets are liquidated via the RTC; a morgue for distressed mortgage-backed garbage.

How this will affect the already-anemic dollar is anyone's guess. But it won't be pretty.

Mike Whitney lives in Washington state. He can be reached at fergie@msn.com

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