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Today's Stories October 20 / 21, 2007 Alexander Cockburn The Man Who Builds Hillaryworld October 19, 2007 John Ross Che's Mexican Legacy Sheldon Rampton Shared Values Revisited: a Case Study in the Limits of Propaganda Rahul Mahajan A Tale of Two Atrocities: Blackwater and Haditha Devra Davis Deadly Secrets: Chemical Pollution and Cancer Christopher Brauchli Blasphemous Science Wadner Pierre Haiti After the Deluge Bill Quigley Jailed for Justice Website of the Day Textbook Sticker Shock   October 18, 2007 Saree Makdisi Academic Freedom is at Risk Meg Dwyer What I Learned from 9/11: Who Wouldn't Want Us Dead? Alevtina Rea Sketches of Russian Life Norman Solomon The United States of Violence Kristoffer Larsson Something is Rotten in Sweden Harvey Wasserman Nukes are Back and So are We Website of the Day Eve Ensler: "A Filibuster Would Stop This War"   October 17, 2007 Steve Niva Counter-Insurgency, American-Style Andy Worthington The Case of Mohamed Jawad Alan Farago The Credit Shock Russell Mokhiber The New Billionaire-Criminal Class Sharon Smith Democrats, AWOL When It Mattered Mike Whitney Time for the Banks to Face the Hangman Robert Fantina Iraq, Iran and the US: Business as Usual Chris Irwin Where Have All the Rednecks Gone? Website of the Day Sex Ed at Oral Roberts University October 16, 2007 Peter Linebaugh Doris Lessing and the Dynamite Prize Paul Findley Follow the Leader: The Open Secret About the Israel Lobby Robert Bryce Inconvenient Corrections: Al Gore's Wacky Facts Uri Avnery The Mother of All Pretexts Paul Craig Roberts The Iraqi Genocide Ray McGovern What Did Nancy Pelosi Know About NSA Spying and When Did She Know It? Norman Solomon The Pro-War Undertow of the Blackwater Scandal Martha Rosenberg The Curse of Cymbalta William S. Lind Out of the Frying Pan Joel S. Hirschborn Time to Boycott Voting Website of the Day Pipeline Through Paradise: Big Oil's Arctic Play   October 15, 2007 Gary Leupp Response to an Angry Marine Andy Worthington A Gitmo Detainee Finally Gets a Break Heather Gray Al Krebs, a Fighter for Family Farmers John Walsh Blacks Turn Against the War: Why Won't Liberals Join Them? Joshua Frank Nobel Gore? Dave Lindorff Slaughter of the Innocents in Iraq Matt Vidal Squaring the Circle on Children and Health Care Ali Khan Pakistan's Constitutional Mess Sen. Russ Feingold The CIA's Detention and Interrogation Program Johnny Barber The Balm of a Peace Process Infuses the War on Terror Website of the Day The Real Gore October 13 / 14, 2007 Alexander Cockburn Al Gore's Peace Prize Wajahat Ali Privatizing Terror, Outsourcing Diplomacy: an Interview with P. W. Singer Jeffrey St. Clair A Half Mile of Hell Ralph Nader Impeachment, Cowardice and the Democrats David Heleniak Gitmo at Home Laura Carlsen Plan Mexico and the Billion Dollar Drug Deal Brian Cloughley The Flat Drug World Richard Rhames Here Come the "Bankrupted Social Security" Scamsters, Again Ron Jacobs For the Sake of a Future Fred Gardner The Overrated Importance of Being "On Message" John Ross The Betray Us Flap Russell Hoffman Another Pro Nuker Wins the Peace Prize Missy Beattie Will Someone Please Give Lou Dobbs a Lobotomy? Poets' Basement Gibbons, Buknatski and Ford Website of the Day "Psychokiller", the Blackwater Version October 12, 2007 Cindy Sheehan Leadership Void Brendan Cooney Washington's Holocaust Deniers Alan Farago Gore Still Lost Florida Jan Oberg Gore's Peace Prize, a Grand Misjudgment M. Shahid Alam The Mercenary State: Pakistan's Killer Elites David Macaray Lies About Teachers and Unions Julia Kendlbacher Urban Legend, We Love Our Forest People Peter Rost, MD Drug Money and the Clinton Campaign Website of the Day Nader Live: "Things are a Lot Worse Than We Thought" October 11, 2007 Al Giordano Bill Clinton as Ambassador to the World? Saul Landau Killing for Profit: Blackwater in Iraq Jacob G. Hornberger The Failed Legacy of Interventionism William S. Lind The Iraq Mirage Joshua Frank Big Sky Rebels Josh Mahan Colorado River Blues Pat Williams Where Are You, Paul Wellstone?     October 10, 2007 Michael Yates Travels Across Greenspan's America Gary Leupp Spreading Awareness or Smearing a Religion? David Macaray How Wal-Mart Can be Beaten Alan Farago Corruption and the Law of Intended Consequences Tom Clifford Homeless in Their Own Land: Iraq's Deepening Refugee Crisis Col. Douglas MacGregor Washington's War Sunsara Taylor Nooses at Columbia George Wuerthner Behind the Bovine Curtain Roxanne Dunbar-Ortiz Indigenous Peoples' Day Michael Dickinson Forgetting Lennon's Birthday Website of the Day Paying for War   October 9, 2007 Paul Craig Roberts Blinded by Ideology: Cato, Trade and Outsourcing Andy Worthington Fourth Whistleblower Rocks Guantánamo Alan Farago The Fall of Florida's Largest Land Developer Brian Eno Exporting Democracy with Missiles David Rovics The RIAA vs. the World Farzana Versey Two Lovers and the Funeral of Secularism Andrew Buncombe and Omar Waraich Musharraf's Landslide Website of the Day Romney and the Wheelchair Bound Medical Marijuana Patient   October 8, 2007 David Macaray Lesbians for Hillary? or Teamsters for Hillary? Jeff Ballinger Nike, Steroids and Marion Jones Brian Eno This Ban Won't Stop Us Christopher Brauchli Translating Bush Louay Safi End the Disgrace of Guantánamo Matt Reichel Homocide by Cops at the Phoenix Airport Dave Lindorff Finally, A Good Day for the Constitution Thomas P. Healy The Politics of Mercury Pollution Martha Rosenberg E. Coli Spreading Slaughter Allowed to Stay Open Richard Rhames A Democrat's Lament Website of the Day Not All Italians Love Columbus   October 6 / 7, 2007 Alexander Cockburn A Rainbow Over a Graveyard Norman Finkelstein Jeffrey Goldberg's Prison James Bovard Are Presidents Entitled to Kill Foreigners? Patrick Cockburn The Invasion of Afghanistan, Six Years Later Jeffrey St. Clair At Disaster Falls Ralph Nader Where Are the Lawyers of America? Ray McGovern So Who's Afraid of the Israel Lobby? Saul Landau A River Runs Through It Ben Tripp Bring on the Next War! Terry Lodge The Grateful Dead Body Parts Delivered to Your Door Reform Act Seth Sandronsky Market Mystification and the Liberal Virus Kevin Funk / Steve Fake Divestment and Darfur Missy Beattie In the Custody of Bush and Cheney Website of the Weekend Snoop Dogg vs. Bill O'Reilly   October 5, 2007 Andy Worthington The Anonymous Victims of Guantánamo David Macaray De-Skilling America's Labor Force Lee Sustar The Democrats and Iran: Can They Sink Any Lower? Dan La Botz Cincinnati Six Years After the Killings and the Riots Aaron Hess Hate Week Comes to Campus William A. Cook Unmasking AIPAC Website of the Day Range of Memory   October 4, 2007 Uri Avnery The Power of the Israel Lobby Dave Marsh Dick Cheney, a Eulogy Valerio Volpi How Italy Became a Launching Pad for the US Military Cecilie Surasky Dissenting at Your Own Risk Dave Lindorff Remaking Iraq, as Vietnam Norman Solomon Sputnik, 50 Years Later Laura Carlsen Costa Rica and CAFTA: Memo Reveals Manipulation Scheme Walter Brasch When Compassion Fails: Bush and the Children's Health Act Ben Terrall Haitian Human Rights Advocate Kidnapped William S. Lind Beyond the OODA Loop Website of the Day Musicians in Handcuffs   October 3, 2007 Vijay Prashad Gang of Four Anita Sinha Black Ties and Bulldozers in New Orleans Winslow T. Wheeler Posturing at the Petraeus Hearings: Where was the Oversight? Sharon Smith The Kucinich Quandary Jeff Leys Our Bonhoeffer Moment Sen. Russ Feingold We Must End This Tragedy Mohamad Bazzi Playing Into the Hands of Ahmadinejad Brenda Norrell A Cry from the Top of the World Robert Weissman No Sex, Still a Scandal at the IMF Website of the Day Jena by Mellencamp   October 2, 2007 Ibrahim Warde Logical Lies About Bin Laden's Wealth Gary Leupp "I Hate All Iranians": Frank Talk from a Defense Dept. Official David Macaray The Hunt for a Blue November: In Pursuit of the Labor Vote Conn Hallinan Religion and Foreign Policy John Ross The Great American Chess Match Alan Farago Ripping Off Miami's Poor Sonja Karkar The Right to Exist: States or People? Niranjan Ramakrishnan The Meteor and the Mahatma Website of the Day Grandin on Che's Legacy   October 1, 2007 Al Giordano The Clinton Campaign's Reckless Race for Big Money Donors Paul Craig Roberts From Burma to Iraq: Hypocrisy Rules the West Moshe Adler The Crimes of Microsoft Ingmar Lee My Kayak Journey Down the Wild Pacific Coast John V. Walsh Ahmadinejad is Not My Enemy Norman Solomon Political Science and Truth of Consequences Roger Burbach Historic Victory in Ecuador for the Left Ramzy Baroud The Politics of Assassination Stephen Lendman The Maestro of Misery: Greenspan's Dark Legacy Susie Day Honey, I Shrank the Military! Website of the Day Letters from Fort Lewis Brig   September 29 / 30, 2007 Alexander Cockburn Clinton Time: Do We Set Our Clocks Forward or Back? Uri Avnery So What About Iran? Andrew Cockburn Iraq's WMD Myth: Why Clinton is Culpable Jeffrey St. Clair Through the Gates of Lodore Wajahat Ali The Good, the Bad and the Iraqi Andy Worthington The Curse of the Military Commissions Don Santina Ethnic Cleansing in San Francisco Ralph Nader Free Lunches, for Corporations! Fred Gardner The Man Behind the MoveOn Ad Seth Sandronsky The US Economy Since 1980 Gideon Levy The Children of 5767 William S. Lind A Ticking Bomb Reza Fiyouzat An Anti-Imperialist Case Against a Nuclear Iran Richard Rhames Wag the Tail, Frag the Dog David Michael Green Buyer's Remorse: Their Purchase, Our Regret Zach Mason Hate and Hope in Herndon Poets' Basement Gibbons, Ali, Davies and Suss Website of the Weekend Domestic Crusaders     September 28, 2007 Kathleen and Bill Christison The Teflon Alliance with Israel Roberto J. González / David H. Price When Anthropologists Become Counter-Insurgents Saul Landau September, the Cruelest Month in Chile Tom Clifford Burma by the Numbers Christopher Brauchli Of Toxic Almonds and Bad Beef Martha Rosenberg Spinning Suicide Statistics Dave Zirin Soldier in Winter: John Carlos Speaks Out on the Jena 6 Laray Polk Bush Library or Lockbox? Binoy Kampmark When Reagan Turned Brown James McEnteer Hell, Columbia: an Academic Hotshot Introduces a Petty Tyrant Website of the Day Concerned Anthropologists   September 27, 2007 Alan Farago Housing Market Crashes and Burns Andy Worthington A Bad Week at Guantánamo Jonathan Cook Why Did Israel Attack Syria? William Hughes Billy Graham, a Prince of War Exposed Ray McGovern Bush, Oil and Moral Bankruptcy Ron Jacobs Joe Biden's Plan to Chop Up Iraq Dave Lindorff Quit the Party! Join the Mass Resignation Movement! Joshua Frank Pruning the Green Party Anne Dachel The CDC, Vaccines and Autism Website of the Day The God-O-Meter   September 26, 2007 Bill Quigley HUD's Home Wreckers Paul Craig Roberts A Pandemic of Police Brutality Jeff Kisseloff Still Smearing Alger Hiss China Hand Is China the True Target of Financial Sanctions Against Iran? Behzad Yaghmaian At the Gates of Paradise Sonja Karkar The Quality of Mercy in Gaza Mike Ferner Interrupting the Empire, 30 Seconds at a Time Col. Dan Smith Freedom to Speak, Freedom to Learn Clifton Ross Bollinger's Barbarous and Ignorant Speech Brenda Norrell A Meeting of Indigenous Peoples in Caracas Website of the Day The Smearing of Jean Maria Arrigo, a Psychologist Opposed to Torture   September 25, 2007 Nicole Colson On the March Against Racism Uri Avnery Foam on the Water Brendan Cooney Ahmadinejad on Broadway: Free Speech? Arrest Him! Harry Browne Bruce Springsteen Comes Home ... to Hell Marjorie Cohn The Drift Toward War with Iran David Macaray The UAW-GM Strike: the Long Knives are Already Out Ralph Nader Hypocrisy and Inverted Priorities in Congress Dan Bacher Schwarzenegger, the Climate Change Hypocrite Anthony Papa Perverted Justice & America's Drug Laws Christopher Ketcham All Politicos Now Classed as Sexual Deviants Website of the Day John Waters on Free Speech   September 24, 2007 George Ciccariello-Maher Racist Violence from Jena to Oakland Saree Makdisi The War on Gaza's Children David Keen Action-as-Propaganda: Learning About the Iraq War from Hannah Arendt Sherwood Ross Just How Powerful is the Israel Lobby? Only Cheney Knows for Sure Ron Jacobs Greenspan's Open Secret Donna Saggia The Cult of the Military and the Decline of Democratic Values Mike Ferner Free Speech Takes a Capitol Beating Malini Johar Schueller Norman Hsu is a Model Minority Monique Dols and Dylan Stillwood Ahmadinejad and Columbia Website of the Day The Promotion September 22 / 23, 2007 Alexander Cockburn On Naomi Klein's "The Shock Doctrine" Jennifer Loewenstein Beneath the Hideous Veneer of Security Linn Washington, Jr. The Injustice in Jena: Prosecutorial Misconduct More Dangerous Than Racism Jeffrey St. Clair Going Down in Dinosaur: Oil, Dams and Whitewater (Part One) Alan Farago Genuflecting to China Brian Cloughley Of Hate, Hubris and Atrocities Robert Fantina The Deadly Pattern of US Imperialism Roxanne Dunbar-Ortiz Land Tenure and Resistance in New Mexico Jason Hribal Fear of an Animal Planet David Rosen Slugger Sex: Athletes, Violence and Male Sexuality Mike Whitney The Era of Global Financial Instability John V. Walsh Who Will Lead a Filibuster of the Iraq War Spending Bill? Dave Lindorff Why Aren't We Banning Blackwater Here? David Michael Green Hiding Behind a Camouflage Skirt Fred Gardner Claudia Jensen (Look Back in Anger) Cassandra Jones Support Our Mercenaries Roger van Zwanenberg Pluto Press Under Attack by Israel Lobby Poets' Basement Buknatski, Davies and Ford Website of the Weekend "For the Bible Tells Me So"   September 21, 2007 Karim Makdisi Letter from Lebanon M. Shahid Alam A History of Violence Alan Farago Who Will Buy My House? Joshua Frank The Demise of the Congressional Black Caucus Dave Zirin Notre Dame and the Economy of Sports Kenneth Couesbouc A Short History of Lending and Borrowing Dr. Steffie Woolhandler and Dr. David Himmelstein Mass Health Care Failure Ben Terrall The Streets of San Francisco: Where Impeachment is Taken Seriously--By Everyone But Pelosi Steve Fournier Ex-Dems, Sign Up Here Frederico Fuentes, et al Voices in Defense of Bolivia Website of the Day Sabra and Shatila, Remembered   September 20, 2007 Kathleen Christison Whatever Happened to Palestine? Zoltan Grossman An Endless Occupation? Paul Craig Roberts As the Empire Slips: Greenspan and the Economy of Greed Stan Cox and Wes Jackson Carbon-Free and Still Wrecking the Planet Russell Mokhiber AARP to Kucinich: Drop Dead Charles Modiano Jim Crow's Children: the Jena 6, Shaquanda Cotton and Blog Power Raymond J. Lawrence Bush's Worrisome Use of Religion Brendan Cooney Body-Snatched Nation Website of the Day Mind Control for Breakfast   September 19, 2007 Paul Craig Roberts Why Did Senator John Kerry Stand Idly By? Paul Krassner The Power of Laughter Sgt. Martin Smith The New Private Warriors: Blackwater in Iraq Seth Sandronsky Living in a Dilapidated Market: To Rent or Own? Claud Cockburn Looking back at the Great Crash Victoria Buch Israel's Agenda for Ethnic Cleansing and Transfer Robert Weissman Oil Warriors: From Greenspan to Kissinger Mike Ferner Can We Talk? Dan Bacher Schwarzenegger's $9 Billion Boondoggle for Big Water Website of the Day Housing Cost Calculator   September 18, 2007 Mike Whitney U.S. Banks Brace for Storm Surge as Dollar and Credit System Reel Alan Farago Interviewing Alan Greenspan: How 60 Minutes Blew It John Ross America's Great Wall: Where Will the Workers Go When They Finish It? Ron Jacobs Nooses Hung From Jena, La. to College Park, Md. Alex Doherty Britain's 9/11 "Truth Movement": Who's Responsible? September 17, 2007 Marjorie Cohn Erwin Chemerinsky and the Post-9/11 Attack on Academic Freedom Paul Craig Roberts Conservatism Isn't What It Used to Be Ricardo Alarcón The Return of C. Wright Mills Amid the Dawn of a New Era Marc Levy Fake Vets Chasing Fame Eva Liddell In 1969 We Already Knew What 2007 Would Look Like Website of the Day Propaganda: Your Job in Germany. Directed by Frank Capra, and written by Theodor Geisel Sept. 15-16, 2007 Alexander Cockburn The General Came to Washington Vicente Navarro How the U.S. Schemed Against Spain's Transition from Dictatorship to Democracy Mike Whitney Plummeting Dollar, Credit Crunch Herman Mindshaftgap Has There Ever Been a Surge? If so, Has it a Future? Ellen Cantarow Girls! Music! Palestine! Jordan Flaherty K-Ville: Fox's New Paean to the N.O.P.D. Zachary Hurwitz Julio Cusurichi on Amazonian Development September 14, 2007 Debbie Nathan New York Times reporter was a member of an illegal underage porn site, claims he was only "posing as online predator" Franklin Lamb Sabra-Shatilla, 25 Years Later Patrick Cockburn Greet Bush and Die: The Killing of Abu Risha Farzana Versey The World's Richest Muslim Tycoon Alan Farago This is Florida, Epicenter of the Housing Bust and of Public Corruption Hank Edson Bill's New Book is Giving Me a Headache September 13, 2007 Patrick Cockburn Petraeus Confided Presidential Ambitions to Iraqi Official Scott Vest, former Air Force Captain at Minot The Barksdale Nukes Andy Worthington Guantánamo: "Ghost" Prisoners Speak At Last Michael Baney Mr. Fixit of Quake-Stricken Peru Has Death Squad Past Dr. Susan Block Is U.S. Run by Secret Homintern? September 12, 2007 Paul Craig Roberts American Economy: RIP Stan Goff The Petraeus Report William Blum When Soldiers Mutiny...Only Those Fighting the War Can End It. Manuel Garcia Forgetting 9/11 Debbie Nathan Why One Sex Survey Didn't Make the Big Time               Subscribe Online

Weekend Edition October 20 / 21, 2007 California Falls Into the Sea Housing Flameout By MIKE WHITNEY Is it really fair to blame one man for destroying the US economy? Probably not. But Alan Greenspan is still tops on our list. After all, Greenspan "presided over the greatest expansion of speculative finance in history, including a trillion-dollar hedge fund industry, bloated Wall Street-firm balance sheets approaching $2 trillion, and a global derivatives market with notional values surpassing an unfathomable $220 trillion." (Henry Liu, "Why the Subprime Bust will Spread" Asia Times) Greenspan is also responsible for slashing the real Fed Funds Rate so that it was negative for 31 months from 2002 to 2005. That decision flooded the housing market with trillions of dollars in low interest credit creating the largest equity bubble in history. Now that that bubble is crashing; Greenspan has hit the road. He now spends his time leap-frogging from city to city hawking his revisionist memoirs of how he steered the ship of state through troubled waters while fending off protectionist liberals. Look for it in the Fiction section of your local bookstore. Still, can we really blame "Maestro" for what appears to have been a spontaneous flurry of "free market" speculation in real estate? To a large extent, yes. Apart from Greenspan's tacit endorsement of all the dubious loans (subprime, ARMs etc) which flourished during his reign; and despite his brusque rejection of the Fed's role as regulator; the Federal Reserve's own documents ("House Prices and Monetary Policy: A Cross-Country Study") indicate that housing was "specifically targeted" acknowledging that it would serve as "a key channel of monetary policy transmission". This is not even particularly controversial any more. In fact, we can see that this same scam has been used in England, Spain and Ireland---all now suffering the ill-effects of massive real estate inflation. Low interest rates continue to be the most efficient way of stealthily shifting wealth from one class to another while decimating the foundations of a healthy economy. Bankers fully understand the effects of cheap credit on the economy. It is branded on their DNA. CALIFORNIA HOUSING FALLS OFF A CLIFF We are now beginning to see the first signs that the listless housing bubble has sprung a leak and is careening towards earth. This week's news from Southern California confirms that home sales have plummeted a whopping 48.5% from the previous year. This represents the biggest decline in home sales since the industry began keeping records more than 20 years ago. Sales are at a standstill and builders and homeowners have begun slashing prices in desperation. (See you tube "Central California Housing Crash) The news is only slightly better in the Bay Area where DataQuick reports that "Bay Area home sales plummet amid mortgage woes": Bay Area home sales sank to their lowest level in more than two decades in September, the result of a continuing market slowdown and borrowers' increased difficulties in obtaining "jumbo" mortgages A total of 5,014 new and resale houses and condos were sold in the nine-county Bay Area in September. That was down 31.3 percent from 7,299 in August, and down 40.1 percent from 8,374 for September a year ago. 40.1% year over year. That is the definition of a market collapse. "Foreclosure activity is at record levels." September sales figures for the rest of the country are not yet available, but what is taking place in California, is what we anticipated after the stock market "froze over" on August 16th. Most people don't understand that the market nearly crashed on that day and that the tremors from that cataclysm changed the way the banks do business. Many of the loans which were available just months ago (subprime, piggyback, ARMs, "no doc", Alt-A, reverse amortization etc) are either much harder to get or have been discontinued altogether. Additionally, the banks are no longer able to bundle loans into securities and sell them to investors. In fact, the future of "securitization" of mortgage-debt is very much in doubt now. An article in the Financial Times shows how this process has slowed to a trickle: "Only $9.9 billion of home equity loan securitizations have come to market since July 1---A 95% DECLINE FROM THE $200.9 BILLION IN THE FIRST HALF OF THIS YEAR AND A ROUGHLY 92% DECREASE FROM THE SAME PERIOD LAST YEAR." Also---and perhaps most importantly---many potential buyers are now finding that they no longer meet the stricter standards the banks are using to determine credit worthiness. This is especially true for jumbo loans, that is, any home loan that exceeds $417,000. The banks are getting increasing skeptical (some believe they are hoarding capital to cover bad bets on mortgage-backed derivatives) in determining who is a qualified mortgage applicant. Understandably, this has thrown a wrench in sales figures and slashed the number of September closings in half. In other words, the credit meltdown on Aug 16 changed the basic dynamics of home mortgage-lending. Decreasing demand and mushrooming inventory are only part of a much larger problem; the financing mechanism has completely changed. The banks don't want to lend money. And, when banks don't lend money---bad things happen. The economy goes into freefall. Despite the valiant efforts of the Plunge Protection Team in engineering a late-day turnaround to the August rout; the damage is done. Tighter lending will put additional downward pressure on a housing market that is already in distress speeding up an unavoidable recession. The economic storm clouds are already visible on the horizon. Treasury Secretary Henry Paulson has finally admitted that the slumping housing market is now the "most significant risk to the economy". Fed chairman Ben Bernanke agrees and adds that he believes that housing would be a "significant drag" on GDP. The troubles at the banks and the news from California have put the "fear of God" in both men. But there's little they can do. Millions of people are "in over their heads" living in homes they clearly can't afford. They'll be forced to move in the next year or so. Foreclosures will soar. That can't be avoided. Also, the industry has a 10 month backlog of existing homes that must be reduced before new sales have any chance of rebounding. That takes time. Construction and construction-related industries will suffer substantial losses. The problems facing the banks are much more serious than anyone cares to openly discuss. The banking system is over-extended and under-capitalized. The Fed has provided more than $400 billion in repos since the August meltdown, and yet, the troubles persist. The Treasury Dept has joined with Citigroup, Bank of America and JP Morgan Chase in an attempt to repackage bad debts and sell them to wary investors via "Super conduit" mega fund. The desperation is palpable and these latest shenanigans are only adding to rising stock market jitters. There's a myth that the Fed chief can wave a magic wand and make things better. But that is not the case. Bernanke's decision to cut to the Fed's Fund Rate last month did not affect long term rates and, therefore, did not make it cheaper to buy (or refinance) a home. The rate-cut was really just a gift to the banks that are currently buried under $500 billion in mortgage-backed debt and CDO sludge. The increase in liquidity hasn't made these toxic securities any more sellable or solvent. Nor has it increased the banks willingness to provide new home financing to mortgage applicants. That process has slowed to a crawl. All the Fed's repos have done is buy more time for the banks while they try to wriggle out of reporting their true losses. The banks serve as a key conduit for the transferal of credit to consumers. That conduit has turned into a chokepoint due to defaults in the mortgage industry and the banks own humongous debt-load. The Fed cannot get money to the people who need it and who can keep the economy (which is 70% dependent on consumer spending) growing. This is a structural problem and it cannot be resolved by merely cutting rates. We've already begun to see signs of a slowdown in consumer spending at Target, Lowes and Walmart. If that deceleration continues, the economy will slip quickly into recession. American consumers have withdrawn over $9 trillion from their home equity in the last 7 years. That spending-spree has kept the economy whirring along at a healthy clip. Now that housing prices have stabilized"and in many cases, gone down---that easy money is no longer available setting the stage for shrinking economic growth, slower home sales, and declining demand. Deflation is the Fed's worst nightmare and will be fought with every weapon in their arsenal. Regrettably, Bernanke does not have the tools to fix this problem and he is likely to destroy the currency if he keeps cutting rates. The recent cuts have already sent oil and gold to new highs while the dollar continues to nosedive. (The euro stands at $1.42 per dollar"up 63% since Bush took office) The weak dollar and the persistent credit problems in the markets, has sent foreign investors scampering for the exits. August was the biggest month on record for the withdrawal of foreign capital from US securities and Treasuries---$163 billion in capital flight. (Japan and China led the way) Confidence in US markets, leadership and integrity has never been lower. Investors are voting with their feet. They've had enough. With capital fleeing the country at the present pace, the US will not be able to maintain its $800 current account deficit, which means that prices will rise, the dollar will fall, and consumer spending will dry up. No amount of financial tinkering at the Federal Reserve will make a damn bit of difference. Barring a dramatic change in economic policy"which seems unlikely---we appear to be quick-stepping towards a system-wide market-busting break-down. THE MESS THAT GREENSPAN MADE The ruinous effects of Greenspan's housing bubble can't be fully appreciated unless one spends a bit of time studying some of the charts and graphs that are now available. These graphs are the best way to dispel any lingering suspicion that the housing bubble may be some a left-wing conspiracy theory. It's not, and these links should provide ample evidence to the contrary. http://www.bubbleinfo.com/statistics-2007/2007/3/15/arm-reset-schedule.html http://static.seekingalpha.com/uploads/2007/9/7/amortization_1.jpg http://static.seekingalpha.com/uploads/2007/9/7/amortization_2.jpg The first graph is the ARM (adjustable rate mortgages) reset schedule---totaling hundreds of billions of dollars in the next 2 years. The next 2 are the interest only and negative amortization share of total purchase mortgage originations 2000-2006. Keep in mind, when studying the ARM reset graph that "A study commissioned by the AFL-CIO shows that nearly half of homeowners with ARMs don't know how their loans will adjust, and three-quarters don't know how much their payments will increase if the loan does reset. 73% of homeowners with ARM's don't even know how much their monthly payment will increase the next time the rate goes up." (Calculated Risk) The unwinding of the housing bubble is now beginning to show up in other areas of the economy. Credit card debt has skyrocketed to 17% annually now that homeowners are no longer able to tap into their vanishing home equity. Americans already owe over $500 billion on their credit cards. Now that debt is increasing faster than retail sales, which suggests that many people are so over-extended they are using their cards for basic necessities and medical expenses. Industry analysts now expect an unprecedented wave of credit card defaults in the next 6 to 12 months. Unfortunately, for the tapped-out consumer, the credit card represents his last access to an unsecured loan. We can also expect the downturn in housing to swell the unemployment lines. Oddly enough, while home sales have declined 40% from their peak in 2005, construction-related employment has only slipped 5%.That is really astonishing. It could be that the BLS is fabricating the numbers using its Birth-Death model. (which magically produces millions of fictitious jobs) But we know that construction has accounted for 2 out of every 5 new jobs in the US for the last 6 years, so we are sure to see a significant rise in unemployment as the bubble deflates. The financial and mortgage industries have already experienced significant layoffs. Similarly, we can expect to see substantial correction in home prices. Housing prices typically lag 6 months after sales peak and inventory rises. So far, prices have dropped a mere 3.5%, whereas inventory is at historic highs and sales have decreased 40%. It is impossible to know how low prices will go (some experts like Robert Schiller predict 50% cuts in the hotter markets) but the downward pressure on housing prices is bound to be enormous. Growing unemployment, o% personal savings, rising foreclosures, the weakening dollar, and the prevailing mood of gloominess (a recent poll showed that a majority of Americans believe we are ALREADY in a recession!) suggest that the impending fall in home prices will be precipitous. DEFLATIONARY DOWNWARD SPIRAL There is a debate raging on the econo-blogs about whether the country is headed towards hyperinflation or a deflationary cycle. The argument for hyperinflation is compelling since the Fed has already shown that it is prepared to savage the dollar in order to keep the economy running. As a result, we've seen inflation is heating up at a pace not seen in over a decade.(despite the government's mendacious figures) In September gasoline costs rose 4%, heating oil soared 9%, food jumped 5%, and dairy products lurched ahead 7.5%. Everything is up except the greenback which appears to be in its death throes. Still, there are signs that America's debt-fueled consumer economy is on its last legs as shoppers and homeowners are increasingly forced to accept that they have maxed-out nearly all of their available lines of credit. They will have to curtail their spending and live within their means. That means less growth, a continuing decline in housing, and a sharp fall in equities prices. These are all the harbingers of deflation. Treasury Secretary Paulson's new "Master Liquidity Enhancement Conduit", M-LEC---which allows the investment banks to delay reporting their losses---is particularly ominous in this regard, since it was the Japanese banks unwillingness to write-off their bad debts which extended their deflationary recession for 15 years. Can the same thing happen here? Probably. An interesting exchange took place last month between the widely-respected economic blogger, Mike Shedlock ("Mish's Global Economic Trend Analysis") and economist Paul L. Kasriel. The interview provides details of the Japanese crisis which offer some striking similarities to our present predicament. I have transcribed an extended portion of that discussion: Paul L. Kasriel: "Japan experienced a deflation in recent years because the bursting of its asset-price bubble in the early 1990s created huge losses in its banking system. The Japanese banks had financed the asset-price bubble. When it burst, the debtors could not keep current on their loans to the banks and therefore were forced to turn back the collateral to the banks. The market value of the collateral, of course, was less than the amount of the loans outstanding, thereby inflicting huge losses of capital to the Japanese banks. With the decline in bank capital, the Japanese banks could not extend new credit to the private sector even though the Bank of Japan was offering credit to the banks at very low nominal rates of interest. Banks are an important transmission mechanism between the central bank and the private economy. If the banks are unable or unwilling to extend the cheap credit being offered to them by the central bank, then the economy grows very slowly, if at all. This happened in the U.S. during the early 1930s. U.S. banks currently hold record amounts of mortgage-related assets on their books. If the housing market were to go into a deep recession resulting in massive mortgage defaults, the U.S. banking system could sustain huge losses similar to what the Japanese banks experienced in the 1990s. If this were to occur, the Fed could cut interest rates to zero but it would have little positive effect on economic activity or inflation. Short of the Fed depositing newly-created money directly into private sector accounts, I suspect that a deflation would occur under these circumstances. Again, crippled banking systems tend to bring on deflations. And crippled banking systems seem to result from the bursting of asset bubbles because of the sharp decline in the value of the collateral backing bank loans." Mish: What if Bernanke cuts interest rates to 1 percent? Kasriel: In a sustained housing bust that causes banks to take a big hit to their capital it simply will not matter. This is essentially what happened recently in Japan and also in the US during the great depression. Mish: Can you elaborate? Kasriel: Most people are not aware of actions the Fed took during the Great Depression. Bernanke claims that the Fed did not act strong enough during the Great Depression. This is simply not true. The Fed slashed interest rates and injected huge sums of base money but it did no good. More recently, Japan did the same thing. It also did no good. If default rates get high enough, banks will simply be unwilling to lend which will severely limit money and credit creation. Mish: How does inflation start and end? Kasriel: Inflation starts with expansion of money and credit. Inflation ends when the central bank is no longer able or willing to extend credit and/or when consumers and businesses are no longer willing to borrow because further expansion and /or speculation no longer makes any economic sense. Mish: So when does it all end? Kasriel: That is extremely difficult to project. If the current housing recession were to turn into a housing depression, leading to massive mortgage defaults, it could end. Alternatively, if there were a run on the dollar in the foreign exchange market, price inflation could spike up and the Fed would have no choice but to raise interest rates aggressively. Given the record leverage in the U.S. economy, the rise in interest rates would prompt large scale bankruptcies. These are the two "checkmate" scenarios that come to mind." ("Mish's Global Economic Trend Analysis") Well put. Thank you, Mish. Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com

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