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Today's Stories December 17, 2007 Mike Whitney Staring Into the Abyss Tom Barry Planning the War on Immigrants Uri Avnery A Gaza Massada? Greg Moses Crossing the Line in Texas Allan Nairn Terrorism; Counter- Terrorism: Excuses for Murder Patrick Bond South Africa's Fight Between Hostile Brothers Stephen Lendman Police State America Charles Jonkel Grizzly Right of Way Laray Polk An Inside-Out Crisis in Gaza Stephen Fleischman Pawns in Their Game December 15 / 16, 2007 Peter Linebaugh A People's Penny for the Magna Carta Howard Zinn Bomb After Bomb Standard Schaefer The Greening of Big Tobacco Raymond J. Lawrence Let's Take Christ Out of Christmas Alan Farago Down on Desolation Row: the Vultures and the Growth Machine Saul Landau Lord Byron and the Bad Tourists Jenna Orkin Lying to "Reassure" the Public: Bush's EPA and the Post-9/11 Toxic Air Cover-Up Ahmad Samih Khalidi Why a Palestinian "State" is a Punitive Construct Robert Fantina Politics By Photo-Op Missy Comley Beattie Resistance Amid the Ruins Ramzy Baroud Of Mormons and Muslims James L. Secor A Vision for China's Future Elijah Wald Ike Turner's Music Won't be Forgotten Website of the Weekend The Alliance for the Wild Rockies Needs (and Deserves) Your Support   December 14, 2007 JoAnn Wypijewski The Dirty Cad: What Giuliani's Sex Life Tells Us About Him John Ross Iraqi Refugees Return: One Cruel Hoax Jacob Hornberger Terror Suspects Belong in Federal Court Andy Worthington Guantánamo and the Supreme Court: What Happened? Allan Nairn "Shoot Them on the Spot": Rewarding War Crimes Dave Zirin The Mitchell Report: Absolving the Owners Dave Lindorff The First Cut is the Deepest Misty MacDuffee Toxic Grizzlies Ben Terrall What Happened to Lovinsky Pierre-Antoine? Dr. Mustafa Barghouthi Prerequisites for Peace Website of the Day Sen. Kit Bond: "Waterboarding is Like Swimming"   December 13, 2007 Paul Craig Roberts Shrinking the Dollar from the Inside-Out Mike Whitney Dershowitz for the Defense--of Waterboarding Ron Jacobs Blank Check DemocratsL the Great War Funding Conspiracy Norman Solomon The USA's Human Rights Daze Peter Morici The Dragon and the Toothless Dog: China Doesn't Flinch Sandy Mayes Blocking the Strykers: 13 Days of War Resistance at Port Olympia Franklin Lamb The UN in Lebanon: Whose Mission Is It Fulfilling? Jacob Hornberger Don't Reform the CIA, Abolish It Nadim Rouhana An Interloper in My Own Land Dave Zirin On Pigskin and Petrol Website of the Day Rachel's Needs (and Deserves) Your Support! December 12, 2007 Allan Nairn US Intelligence is Tapping Indonesian Phones Alan Farago How Sprawl Eats Its Young Ray McGovern Torture, Lies and Videotape Winslow T. Wheeler The Phony Pentagon Budget Cuts Evan Jones The Raid on Great Western: Why an Australian Bank Might Spell Doom for the US Farm Belt James Petras An Open Letter to Sarkozy on the Exchange of Political Prisonsers Joel Hirschorn The Horserace Fiction: Clinton, Obama and the Democratic Machine Joshua Frank Why Ron Paul Deserves Our Attention Sherry Wolf Why the Left Should Reject Ron Paul Dan Bacher Survey of a Fish Graveyard Website of the Day Men Eating Bugs   December 11, 2007 Patrick Cockburn What's Really Happened During the Surge? Diana Johnstone The Next Kosovo War Paul Craig Roberts It's Waco All Over Again: Preventive Detention and the Constitution David Macaray Impasse in Hollywood Ralph Nader Gail Collins Versus the Underdogs Andy Worthington Guantánamo Britons to be Released: a Mixed Result Martha Rosenberg No Holiday for High Risk Sex Workers Steve Champion / Anthony Ross Words for Our Brother, Tookie Williams Kim Nicolini Tangled Up in Dylan Michael Dickinson Say Goodbye to Purgatory: Pope Rat Gets Indulgent Website of the Day A Charming (and Worthy) Pitch December 10, 2007 Uri Avnery How They Stole the Bomb From Us Debbie Nathan The Perils of Journalism and Child Porn JoAnn Wypijewski Is There a Left Here Left? If So, What Can It Do? Steve Kelly Cheap Chips, Counterfeit Wilderness Donna J. Volatile Welcome to the Revolution   December 8 / 9, 2007 Alexander Cockburn The Coup Against Bush and Cheney Brenda Norrell Seize the Land, Chain the Peace Activists Saul Landau The Ruins of Empire R. F. Blader A Rape in Every Drink? Ray McGovern Spinning Iran's Centrifuges Allan Nairn Imposed Hunger in Gaza, the Army in Indonesia Linn Washington, Jr Spotlight on Death Row Paul Craig Roberts When Will Bush Come Clean?   December 7, 2007 Sean Penn Piano Wire Puppeteers Arthur Versluis Mining Water in the Desert M. G. Piety Racism and the American Psyche: Some Thoughts on Race and Intelligence Pam Martens Banksters Gone Wild Alan Farago Will the Free Market Kill Suburbia? Sprawl and the Credit Crisis Allan Nairn It Takes (Out) a Village Col. Dan Smith Bush, Iran and the Politics of Doomsday Alice Slater The Iran Opening Robert Weissman The Story of Stuff Website of the Day Something About Mitt   December 5, 2007 Mike Whitney Why the CFR Hates Putin Sharon Smith The Anti-War Enablers: Tom Hayden and the Dead End Democrats James Petras Venezuela in the Aftermath Ron Jacobs The Iran Charade Dave Zirin Kicking a Dead Man: the Sliming of Sean Taylor John V. Whitbeck Two States or One? Time to Choose Peter Zinn Covered in New Orleans Niranjan Ramakrishnan Impeach Pelosi Instead Alan Farago The Credit Bomb Detonates in Florida Heather Gray US Meddling in Australian Politics Website of the Day A Donner Summit Night Before Xmas   December 4, 2007 Alexander Cockburn Jackboot State Stubs Its Toe in Ann Arbor Andy Worthington Guantánamo and the Supreme Court Paul Craig Roberts The Lies at the End of the American Dream Ray McGovern No-Nuke Iran Winslow T. Wheeler Admiral Mullen and the Defense Budget: When White Elephants are Too Small Allan Nairn The Regime Still Stands in Burma, Where "the People Just Want Food" Russell Mokhiber The USA v. Al Arian Nikolas Kozloff As Chávez Falters: Raising the Stakes for the South American Left John V. Walsh Peace Movement Paralyzed Ghada Ageel Will Peace Cost Me My Home? Stephen Soldz The Facts be Damned!: Psychologists' President Defends Psychologist Involvement in Interrogations Website of the Day Hands Off the People of Iran     December 3, 2007 Tariq Ali Venezuela After the Referendum Bill Quigley New Orleans: Bulldozers for the Poor, Tax Credits for Developers Eric Walberg The Bible and Middle East History Uri Avnery After Annapolis Marjorie Cohn Operation Iraqi Freedom Exposed Dave Lindorff Vengeance Isn't Sweet Stephen Fleischman Homeless in Paradise Martha Rosenberg Perp Walks for the Mink Clad on Chicago's Mag Mile Website of the Day So Just Lead!   December 1 / 2, 2007 Alexander Cockburn Emblems of the Bush Age: Adrift in a Sea of Booze Jeffrey St. Clair The Bear Minimum: the Grizzly and the Future of the Rocky Mountain West Mike Whitney "Iraq Doesn't Exist Anymore": an Interview with Nir Rosen Shemon Salam A Visit From the FBI Roger Burbach The Battle in Bolivia Benjamin Dangl New Politics in Old Bolivia Brian M. Downing The Quiet on the Middle Eastern Front: How Much Credit Goes to the Surge? Greg Moses Night of the Living Redneck: a Texas Horror Story Sonja Karkar The "Never-Never" Peace Conference Saul Landau Ethics and Evil in South Boston Margaret Kimberley Black America Left Behind John Ross What are the Prospects for a New Mexican Revolution? Reza Fiyouzat Exit on the Left: When Che's Children Visited Iran Judith Scherr Berkeley Turns Right for the Holidays Lance Olsen Of Forests and Finance: Logging for the Wealthy Christopher Brauchli Mr. Bush and the Despots Robert Fantina Iraq as U.S. Colony Dan Bacher Fish Triage on Prospect Island Michael Donnelly Remembering How to be Human: John Trudell and the Music of Urgency Website of the Weekend Appalachian Voices   November 30, 2007 Peter Stone Brown The Re-Packaging of Bob Dylan Wajahat Ali The Volatile Mistress: an Interview with Javed Jabbar, Pakistan's Former Minister of Information Allan Nairn Cold-Blooded Celebrity: Thomas L. Friedman and the Bali Bombers Alan Farago The Sorrows of Suburbia: Politics, Sprawl and the Housing Crash John Ross The Death of Latin America's First Revolution Corporate Crime Reporter America's Corporate Crime Capitals Lucia Alvarez Diego Gonzalez Argentina's Political Future James Rothenberg The Iraqi Miracle Website of the Day Bio-Bling?   November 29, 2007 R. F. Blader The Most Dangerous Kind of Bribe Ismael Hossein-Zadeh Distorting Fascism to Demonize Iran Stephen Soldz War on the Couch: Fear, Aggression and Empire Sheldon Richman Iraq 3.0 George Wuerthner Forest Fires, Lies and Chainsaws Felice Pace Did All Things Considered Self-Censor on Annapolis? Col. Dan Smith The Meaning of Annapolis Harvey Wasserman Terror Target Nukes Nikolas Kozloff Primetime Hate Debate: Lou Dobbs, Immigration and Campaign '08 Paul Krassner Huffington Post Bloggers Go On Strike! Dave Lindorff News Not Fit to Print: US Coup Planned for Venezuela? CP News Service The One State Declaration Website of the Day A Native View of Yellowstone Bison Slaughter November 28, 2007 James Petras CIA Destabilization Memo Surfaces on Venezuela Jeff Halper Annapolis: When the Roadmap is a One Way Street Pam Martens Crashing Citigroup Peter Morici Economy in Crisis: Avoiding a Recession Mohammed Khatib Separate and Unequal in Palestine Helen Redmond The Horror and the Hope: Health Care in America William S. Lind In the Fox's Lair: Quiet Before a New Iraq Storm? Ben Tripp We, the People: a Trope for All Seasons Liaquat Ali Khan Pakistan: First, Restore the Constitution and Reinstate the Judges Jeff Berg Holbrooke Says Bush Won't Attack Iran Website of the Day The Lies of Joe Klein   November 27, 2007 Joe DeRaymond On the Road to the Torture School Paul Craig Roberts Meet the Only Two Candidates Worse Than Bush and Cheney: Hillary and Rudy Marjorie Cohn Remembering Victor Rabinowitz Mike Whitney A Dollar the Size of a Postage Stamp Ron Jacobs The Myths of Military Progress Col. Dan Smith The Pentagon's "People System" Still Doesn't Work Ralph Nader Family Learning Karim Makdisi Annapolis and the Unholy Alliance: the View from Beirut Christopher Ketcham Memo to Hollywood Writers: Strike Until You Drop Ronan Bennett Martin Amis Does a Coulter Website of the Day Celebrating the Uncensored Media   November 26, 2007 Kathleen and Bill Christison Heading for Annapolis Paul Craig Roberts The End of All That David Macaray Enter Mediator Sameer Dossani Pakistan's Wounded Dictator Roger Burbach The Final Battle in Bolivia Mark Scaramella Guns and Greed in the Emerald Empire Brian McKinlay Howard's End Rick Kuhn The Fall of a Racist Union Buster Binoy Kampmark Ruddslide and Dull Alec Monica Benderman What Do You Know of War? Brenda Norrell Return to Alcatraz Website of the Day Ghostworld by DJ Spooky   November 24 / 25, 2007 Alexander Cockburn The Ordeal of Catherine Wilkerson, MD Robert Fisk Darkness Falls on the Middle East Saul Landau Norman Mailer will Not R.I.P. Jeffrey St. Clair Justice Stephen Breyer, Cancer Bonds and the Origins of Neoliberal Environmentalism Rannie Amiri Beirut's Black Friday Christopher Brauchli Iraq Embassy as Gilded Palace Daniel Gross The Gap and Black Friday Mike Whitney "A Generalized Meltdown of Financial Institutions" Marjorie Cohn Iran and the 2008 Elections David Rosen Senior Sex: the Real Sexual Life of Aging Americans David Michael Green If Conservatism is the Ideology of Freedom .... Kenneth Rexroth When Euripides Played the Hindu Kush: Greeks and Buddhists in Afghanistan Muhammad Iqbal Trans. Shahid Alam Ghazal Website of the Day Aerial Footage of Delta Fish Kill November 23, 2007 Gary Leupp Killing the Buddha in Pakistan's Swat Valley Laura Carlsen Coming to Terms with Diversity in Bolivia: an Interview with Alvaro Garcia, Bolivia's VP David Macaray Keeping Labor Unions Out Andy Worthington Former Guantánamo Detainee Seeks Asylum in Sweden Clifton Ross Trashing Chavez: Keith Olberman's Toxic Rant Seth Sandronsky Battling Sodexho Dan Bacher Death in the Delta: Thousands of Fish Stranded by Bureau of Reclamation William A. Cook The Myth of Middle East Peace Website of the Day Waiting for the Guards: Stress Techniques as Torture, a Short Film   November 22, 2007 Alan Farago Who Lost America's Everglades? Greg Moses A Thanksgiving Basting Dave Lindorff Impeachment is Back on the Table Mike Ely Native Blood: the Myth pf Thanksgiving Omar Azfar Gore for President of Pakistan?   November 21, 2007 Vijay Prashad Our Dictator, Their Democracy Martha Rosenberg Undercover at a Turkey Slaughtering Plant Manuel Garcia, Jr. Epiphany on the Glacier John Ross The Last Days of Mexican Corn Brian McKenna Cancer Terrorists Unmasked Stephen Soldz Isolation Torture Routine at Guatánamo Monica Benderman Needing Peace Ben Terrall Slavery in the Fields: The Real Price of Sugar Website of the Day Mercy for Animals   November 20, 2007 Oren Ben-Dor Why Israel Has No "Right to Exist" as a Jewish State Wajahat Ali An Interview with Norman Finkelstein Alan Farago The Dark Arts and the Bush Dynasty Marjorie Cohn Musharraf Plays Bush for a Fool Ralph Nader Green is Gold? Andy Worthington Guantánamo Whistleblower Launches a New Attack on Rigged Tribunals Sara Olson When Going AWOL is the Only Escape Dave Lindorff Likelihood of Iran Attack Gains Credence Paul Krassner The First Amendment, a Dialogue Website of the Day Joanne Mariner on Torture November 19, 2007 Winslow T. Wheeler Why Congress Won't Reform China Hand The U.S. Game Plan in Pakistan Allan Nairn Sitting Around Talking, in Indonesia Uri Avnery How to Get Out? David Macaray The Chalice that Poisoned the Labor Movements Dave Lindorff Democrats in Future Shock: They Could Lose It All in 2008! Bill Quigley Twenty Thousand Protest at Ft. Benning; Eleven Face Federal Criminal Trials Ron Jacobs Sitting on the Group W Bench: War, Thanksgiving and Arlo Guthrie Sunsara Taylor Legalized Rights for Fertilized Eggs? Binoy Kampmark Why Steve Irwin--You're Dead! Heather Gray Another Look at W.E.B. DuBois Website of the Day The Meat Market     November 17 / 18, 2007 P. Sainath Neoliberalism's Price Tag: 150,000 Farm Suicides in India David Rosen The Scarlet Hypocrites: Republicans, Christians and the Politics of Adultery Mike Whitney Pentagon Cover Up: 15,000 or More US Deaths in Iraq War? George Wuerthner Saving the Big Wild Brenda Norrell The Case of Jim Main, Jr: In Montana, Indians are Guilty Until Proven Innocent George Ciccariello-Maher Of Submarines and Loose Screws Karim Makdisi Lebanon is Hanging by a Thread Marie Trigona Wal-Mart in Argentina Valerio Volpi The Catholic Church, Incorporated Fred Gardner The Straight-Ahead Runner Robert Fantina The White House Press Office Mike Ferner Thank God for the Senate Republicans! Missy Comley Beattie The Radical Majority Kenneth Couesbouc Circles of Power Patrick O'Hayer A Portrait of Mailer and a Young Poet Poets' Basement Davies, Buknatski and Ford   November 16, 2007 Cockburn / St. Clair The Vices of Hillary Clinton: Secrecy, Intransigence and War Dave Zirin The Indictment of Barry Bonds: Busted by a Broken System Gary D. Barnett A Day in the Life of an Unwilling Federal Agent Alan Farago Sprawl, Mortgage Fraud and Political Corruption Dave Lindorff Two Brothers and Two Scandals Russell Mokhiber Pelosi and Me: "What Should be Done with Those Protesters?" Robert Ovetz Cargo Ships in Paradise: Shipping Lanes Threaten the Yosemite of the Sea Brenda Norrell "Today We Experienced America:" Arresting Indigenous People on the Border David Swanson Wolf Blitzer Loses Democratic Debate Peter Letheby Outside the Box on the Great Plains Website of the Day Why Activism Fails   November 15, 2007 Cockburn / St. Clair Hillary Clinton in Arkansas Adolfo Gilly The Spirit of Revolt Peter Bohmer 10 Days That Shook Olympia Andy Worthington The Trials of Omar Khadr: Gitmo's Child Soldier Gray / Derks Obama's Pitch to South Carolina's Black Churches Affronts Gay Groups Liaquat Ali Khan Liberating Pakistan Dave Lindorff Where's the Party? Christopher Brauchli Tipping Point: the Politics of Gossip Anthony Papa Racism as Law: Crack Cocaine Sentences Martha Rosenberg Merck's Big Write Off Ben Terrall Thank You, Ehren Watada Website of the Day On the Colorado: Drought, Climate Change and Water Supplies November 14, 2007 Cockburn / St. Clair The Making of Hillary Clinton James Petras Venezuela Between Ballots and Bullets Al Giordano Campaign 08: Don't Trust Anyone Over 50 Paul Craig Roberts The Lobby Andy Worthington Innocents and Foot Soldiers Stephen Lendman Torturing Palestinian Detainees Fatima Bhutto Aunt Benazir's False Promises: the Dismantling of Pakistani Democracy Martin Smith Norman Mailer and the "Good War" Jeff Leys Slip Sliding Away: House Votes on War Funding Website of the Day Why the Writers are Striking November 13, 2007 Alexander Cockburn Hillary's Big Problem and How Bill Can Fix It Jeffrey St. Clair Mailer and Us: the Writer as Fighter Robert Bryce The Pakistan Fuel Connection David Macaray The Teamsters and the Hollywood Strike Mike Whitney Bulletins from the Titanic Ralph Nader Pakistani Lawyers vs. American Lawyers Nikolas Kozloff Chavez Blasts the Spanish King Jordan Flaherty Education Versus Incarceration in Tallulah, Louisiana B. R. Gowani Dear Mrs. Bhutto Website of the Day Monty Python: "Fuck You, Very Much FCC"   November 12, 2007 Vicente Navarro Why Hillary's Health Care Plan Really Failed Ben Brown Letter from Ho Chi Minh City: a Tribute to My Vietnam Vet Father Omar K. A Pakistani Lawyer's Testimony: Life Under the Brutal Emergency Sadia Abbas The Roots of Pakistan's Political Crisis: Corrupt Elites and a Kleptocratic Military Farzana Versey Mailer's Miasma Richard W. Behan The Political Crimes of Complicity Paul Krassner Asshole of the Year: Congratulations Tim Russert! Cindy Sheehan Faith and War Peter Stone Brown The Return of Levon Helm Dave Lindorff Dennis, You are Not Alone Website of the Day Police Attack in Olympia   November 10 / 11, 2007 Alain Gresh Uncle Sam's New Backyard: How to Turn a Region into a Graveyard Mike Whitney For Whom the Closing Bell Tolls: the Last Dead Bull on Wall Street Ron Jacobs A View from the Pakistani Left: an Interview with Farooq Tariq Jeffrey St. Clair The First Dambuster: a Coyote Story Alan Farago Tangled Up in Blue: a Brief History of Florida Environmentalism Binoy Kampmark When Language Drowns: Torture in America Robert Fantina Legitimizing Torture Fred Gardner Psychological Torture in the Name of Family Values Ayesha Ijaz Khan The General in His Labyrinth Nicola Nasser NATO's Southward Drift Philip Rizk The Blame Game in Gaza Michael Dickinson Condom Nation: the Pope vs. Terry Higgins Joel S. Hirschhorn The Grand Delusion: a Conspiracy of Two Parties Paul Krassner Flunking Out of the Electoral College Wadner Pierre / Joe Emersberger The Ongoing War on Journalists in Haiti           Subscribe Online

December 17, 2007 The Coming Collapse of the Modern Day Banking System Staring Into the Abyss By MIKE WHITNEY Stocks fell sharply last week on news of accelerating inflation which will limit the Federal Reserves ability to continue cutting interest rates. On Tuesday the Dow Jones Industrials tumbled 294 points following the Fed's announcement of a quarter point cut to the Fed Funds rate. On Friday, the Dow dipped another 178 points when government figures showed consumer prices had risen 0.8 per cent last month after a 0.3 per cent gain in October. The stock market is now lurching downward into a "primary bear market". There has been a steady deterioration in retail sales, commercial real estate, and the transports. The financial industry is going through a major retrenchment, losing more than 25 per cent in aggregate capitalization since July. The real estate market is collapsing. California Gov. Arnold Schwarzenegger announced on Friday that he will declare a "fiscal emergency" in January and ask for more power to deal with the $14 billion budget shortfall from the meltdown in subprime lending. Economists are beginning to publicly acknowledge what many market analysts have suspected for months; the nation's economy is going into a tailspin. Morgan Stanley's Asia Chairman, Stephen Roach, made this observation in a New York Times op-ed on Sunday: This recession will be deeper than the shallow contraction earlier in this decade. The dot-com-led downturn was set off by a collapse in business capital spending, which at its peak in 2000 accounted for only 13 percent of the country's gross domestic product. The current recession is all about the coming capitulation of the American consumer - whose spending now accounts for a record 72 percent of G.D.P. Most people have no idea how grave the present situation is or the disaster the country will face if trillions of dollars of over-leveraged bonds and equities begin to unwind. There's a widespread belief that the stewards of the system - Bernanke and Paulson - can somehow steer the economy through this "rough patch" into calm waters. But they cannot, and the presumption shows a basic misunderstanding of how markets work. The Fed has no magical powers and will not allow itself to be crushed by standing in the path of a market-avalanche. As foreclosures and bankruptcies increase; stocks will crash and the fed will step aside to safety. In the last few weeks, Bernanke and Paulson have tried a number of strategies that have failed. Paulson concocted a plan to help the major investment banks consolidate and repackage their nonperforming mortgage-backed junk into a "Super SIV" to give them another chance to unload their bad investments on the public. The plan was nothing more than a public relations ploy which has already been abandoned by most of the key participants. Paulson's involvement is a real black eye for the Dept of the Treasury. It makes it look like he's willing to dupe investors as long as it helps his d Wall Street buddies. Paulson also put together an "industry friendly" rate freeze that is supposed to help struggling homeowners avoid foreclosure. But the plan falls well short of providing any meaningful aid to the estimated 3.5 million homeowners who are facing the prospect of defaulting on their loans if they don't get government assistance. Recent estimates by industry experts say that Paulson's plan will only help 140,000 mortgage holders, leaving millions of others to fend for themselves. Paulson has proved over and over that he is just not up to the task of confronting an economic challenge of this magnitude head-on. Fed chief Bernanke hasn't done much better than Paulson. His three-quarter point cut to the Fed's Funds rate hasn't lowered interest rates on mortgages, stimulated greater home sales, stabilized the stock market or helped banks deal with their massive debt-load. It's been a flop from start to finish. All it's done is weaken the dollar and trigger a wave of inflation. In fact, government figures now show energy prices are rising at 18.1 per cent annually. Bernanke is apparently following Lenin's supposed injunction ­ though there's no conclusive evidence he actually said it -- that "the best way to destroy the Capitalist System is to debauch the currency." On Wednesday, the Federal Reserve initiated a "coordinated effort" with the Bank of Canada, the Bank of England, the European Central Bank, the and the Swiss National Bank to address the "elevated pressures in short-term funding of the markets." The Fed issued a statement that "it will make up to $24 billion available to the European Central Bank (ECB) and Swiss National Bank to increase the supply of dollars in Europe." (Bloomberg) The Fed will also add as much as $40 billion, via auctions, to increase cash in the U.S. Bernanke is trying to loosen the knot that has tightened Libor (London Interbank Offered Rate) rates in England and reduced lending between banks. The slowdown is hobbling growth and could send the world into a recessionary spiral. Bernanke's "master plan" is little more than a cash giveaway to sinking banks. It has scant chance of succeeding. The Fed is offering $.85 on the dollar for mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) that sold last week in the E*Trade liquidation for $.27 on the dollar. At the same time, the Fed has promised to keep the identities of the banks that are borrowing these emergency funds secret from the public. The Fed is conducting its business like a bookie. Unfortunately, the Fed bailout has achieved nothing. Libor rates---which are presently at seven-year highs---have not come down at all. This is causing growing concern among the leaders of the Central Banks around the world, but there's really nothing they can do about it. The banks are hoarding cash to meet their capital requirements. They are trying to compensate for the loss of value to their (mortgage-backed) assets by increasing their reserves. At the same time, the system is clogged with trillions of dollars of bad paper which has brought lending to a halt. The huge injections of liquidity from the Fed have done nothing to improve lending or lower interbank rates. It's been a flop. The market is driving interest rates now. If the situation persists, the stock market will crash. Staring Into the Abyss One of Britain's leading economists, Peter Spencer, issued a warning on Saturday: The Government must suspend a set of key banking regulations at the heart of the current financial crisis or risk seeing the economy spiral towards a future that could make 1929 look like a walk in the park. Spencer is right. The banks don't have the money to loan to businesses or consumers because they're trying to raise more cash to meet their capital requirements on assets that continue to be downgraded. (The Fed may pay $.85 on the dollar, but investors are unwilling to pay anything at all.)Spencer correctly assumes that the reason the banks have stopped lending is not because they "distrust" other banks, but because they are capital-strapped from all their "off balance" sheets shenanigans. If the Basel regulations aren't modified, money markets will remain frozen, GDP will shrink, and there'll be a wave of bank closings. Spencer said: The Bank is staring into the abyss. The Financial Services Authority must go round and check that all banks are solvent, and then it should cut the Basel capital requirement level from 8pc to about 6pc. ("Call to Relax Basel Banking Rules, UK Telegraph) Spencer confirms what we already knew; the banks are seriously under-capitalized and will come under growing pressure as hundreds of billions of dollars of mortgage-backed securities (MBSs) and collateralized debt obligations (CDOs) continue to lose value and have to be propped up with additional capital. The banks simply don't have the resources and there's going to be a day of reckoning. Pimco's Bill Gross put it like this: "What we are witnessing is essentially the breakdown of our modern day banking system." Gross is right, but he only covers a small portion of the problem. The economist Ludwig von Mises is more succinct in his analysis: There is no means of avoiding the final collapse of a boom brought on by credit expansion. The question is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. The basic problem originated with the Federal Reserve when former Fed chief Alan Greenspan lowered interest rates below the rate of inflation for 31 months straight which pumped trillions of dollars of low interest credit into the financial system and ignited a speculative frenzy in real estate. Greenspan has spent a great deal of time lately trying to avoid any blame for the catastrophe he created. He is a first-rate "buck passer". In Wednesday's Wall Street Journal, Greenspan scribbled out a 1,500-word defense of his actions as head of the Federal Reserve, pointing the finger at everything from China's "low cost workforce" to "the fall of the Berlin Wall". The essay was typical Greenspan gibberish. In his trademark opaque language; Greenspan tiptoes through the well-documented facts of his tenure as Fed chief to absolve himself of any personal responsibility for the ensuing disaster. Greenspan's apologia is a masterpiece of circuitous logic, deliberate evasion and utter denial of reality. He says: I do not doubt that a low U.S. federal-funds rate in response to the dot-com crash, and especially the 1 per cent rate set in mid-2003 to counter potential deflation, lowered interest rates on adjustable-rate mortgages (ARMs) and may have contributed to the rise in U.S. home prices. In my judgment, however, the impact on demand for homes financed with ARMs was not major. "Not major"? 3.5 million potential foreclosures, 11-month inventory backlog, plummeting home prices, an entire industry in terminal distress pulling down the global economy is not major? But Greenspan is partially correct. The troubles in housing cannot be entirely attributed to the Fed's "cheap credit" monetary policies. They were also nursed along by a Doctrine of Deregulation which has permeated US capital markets since the Reagan era. Greenspan's views on how markets should function were -- to great extent -- shaped by this non-interventionist/non-supervisory ideology which has created enormous equity bubbles and imbalances. The former-Fed chief's support for adjustable-rate mortgages (ARMs) and subprime lending shows that Greenspan thought of himself as more as a cheerleader for the big market-players than an impartial referee whose job was to monitor reckless or unethical behavior. Greenspan also adds this revealing bit of information in his article: The value of equities traded on the world's major stock exchanges has risen to more than $50 trillion, double what it was in 2002. Sharply rising home prices erupted into major housing bubbles world-wide, Japan and Germany (for differing reasons) being the only principal exceptions." ("The Roots of the Mortgage Crisis", Alan Greenspan, Wall Street Journal) This admission proves Greenspan's culpability. If he knew that stock prices had doubled their value in just 3 years, then he also knew that equities had not risen due to increases in productivity or demand.(market forces) The only reasonable explanation for the asset inflation, therefore, was monetary policy. As his own mentor, Milton Friedman famously stated, "Inflation is always and everywhere a monetary phenomenon". Any capable economist would have known that the explosion in housing and equities prices was a sign of uneven inflation. Now that the bubble has popped, inflation is spreading like mad through the entire economy. Greenspan is a very sharp man. It is crazy to think he didn't know what was going on. This is basic economic theory. Of course he knew why stocks and housing prices were skyrocketing. He was the one who put the dominoes in motion with the help of his printing press. But Greenspan's low interest credit is only part of the equation. The other part has to do with way that the markets have been transformed by "structured finance". What's so destructive about structured finance is that it allows the banks to create credit "out of thin air", stripping the Fed of its role as controller of the money supply. David Roache explains how this works in an excerpt from his book "New Monetarism" which appeared in the Wall Street Journal: The reason for the exponential growth in credit, but not in broad money, was simply that banks didn't keep their loans on their books any more-and only loans on bank balance sheets get counted as money. Now, as soon as banks made a loan, they "securitized" it and moved it off their balance sheet. There were two ways of doing this. One was to sell the securitized loan as a bond. The other was "synthetic" securitization: for example, using derivatives to get rid of the default risk (with credit default swaps) and lock in the interest rate due on the loan (with interest-rate swaps). Both forms of securitization meant that the lending bank was free to make new loans without using up any of its lending capacity once its existing loans had been "securitized." So, to redefine liquidity under what I call New Monetarism, one must add, to the traditional definition of broad money, all the credit being created and moved off banks' balance sheets and onto the balance sheets of nonbank financial intermediaries. This new form of liquidity changed the very nature of the credit beast. What now determined credit growth was risk appetite: the readiness of companies and individuals to run their businesses with higher levels of debt. (Wall Street Journal) The banks have been creating trillions of dollars of credit (by originating mortgage-backed securities, collateralized debt obligations and asset-backed commercial paper) without maintaining the proportional capital reserves to back them up. That explains why the banks were so eager to provide mortgages to millions of loan applicants who had no documentation, no income, no collateral and a bad credit history. They believed there was no risk, because they were making enormous profits without tying up any of their capital. It was, quite literally, money for nothing. Now, unfortunately, the mechanism for generating new loans (and fees) has broken down. The main sources of bank revenue have either been seriously curtailed or dried up entirely. (Mortgage-backed) Commercial paper (ABCP) one such source of revenue, has decreased by a full-third (or $400 billion) in just 17 weeks. Also, the securitization of mortgage-backed securities is DOA. The market for MBSs and CDOs and other complex bonds has followed the Pterodactyl into the history books. The same is true of structured investment vehicles (SIVs) and other "off balance-sheet" swindles which have either gone under entirely or are presently withering with every savage downgrade in mortgage-backed bonds. The mighty juggernaut that was grinding out the hefty profits ("structured investments") has suddenly reversed and is crushing everything in its path. The banks don't have the reserves to cover their downgraded assets and the Federal Reserve cannot simply "monetize" their bad bets. There's no way out. There are bound to be bankruptcies and bank runs. "Structured finance" has usurped the Fed's authority to create new credit and handed it over to the banks. Now everyone will pay the price. Investors have lost their appetite for risk and are steering clear of anything connected to real estate or mortgage-backed bonds. That means that an estimated $3 trillion of securitized debt (CDOs, MBSs and ASCP) will come crashing to earth delivering a violent blow to the economy. It's not just the banks that will take a beating. As Professor Nouriel Roubini points out, the broker dealers, the investment banks, money market funds, hedge funds and mortgage lenders are in the crosshairs as well. Non-bank institutions do not have direct access to the Fed and other central banks liquidity support and they are now at risk of a liquidity run as their liabilities are short term while many of their assets are longer term and illiquid; so the risk of something equivalent to a bank run for non-bank financial institutions is now rising. And there is no chance that depository institutions will re-lend to these to these non-banks the funds borrowed by central banks as these banks have severe liquidity problems themselves and they do not trust their non-bank counterparties. So now monetary policy is totally impotent in dealing with the liquidity problems and the risks of runs on liquid liabilities of a large fraction of the financial system. (Nouriel Roubini's Global EconoMonitor) As the downgrades on CDOs and MBSs continue to accelerate, there'll likely be a frantic "flight to cash" by investors, just like the recent surge into US Treasuries. This could well be followed by a series of spectacular bank and non-bank defaults. The trillions of dollars of "virtual capital" that were miraculously created through securitzation when the market was buoyed-along by optimism will vanish in a flash when the market is driven by fear. In fact, the equity bubble has already been punctured and the process is well underway. Mike Whitney lives in Washington state. He can be reached at: fergiewhitney@msn.com     Your Ad Here

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