Dow Jones Bloodbath Mirroring 1929 Rout
Bottom should be around 27 per cent below “bailout bounce” according to analyst
Paul Joseph Watson
Prison Planet
Thursday, October 16, 2008
A comparison of the current Wall Street crash with the events of 1929 shows that the Dow has at least another 27 per cent drop below the bailout bounce before it bottoms out, despite another rout yesterday after which the Dow had lost over 700 points.
“In 1929 we saw a two day rally of almost 19 per cent followed by a decline of 6 per cent and finally from the recovery high we lost 27 per cent,” Edward Loef from Theodoor Gilissen Bankiers told CNBC this morning.
That two day spike has been replicated by events at the start of this week before the Dow crashed again yesterday and is set to suffer again today.
A comparison of the two charts indicates that the Dow has not bottomed out, as many traders are claiming.
At least one more significant plunge is anticipated.
“If you look at the Dow Jones index in this context we’ve seen also a two day rally which managed to recover almost 24 per cent from its Friday low and yesterday we saw renewed selling pressure so I think when history is our guide you should expect another decline until we have a bottom of 27 per cent below the recent bailout bounce, which I expect will be by the end of next week because the new lows in 1929 was in duration 7 days since the bounce we saw then and now,” said Loef.
Loef’s predictions have proven accurate in the past. On September 18th he predicted that the Dow would sink to 8,0000 within a month at a time when it was around 11,000. The Dow has just another 500 or so points to fall before Loef is proven accurate in his forecast.
U.S. stocks dropped the most since the 1987 crash yesterday after a report confirmed the economy had suffered its biggest drop in retail sales in three years.
Thursday, October 16, 2008
Tuesday, October 14, 2008
Capitalism Without Capital?
Capitalism Without Capital? October 14, 2008 By Dr. Ron Paul
It has been long understood that our federal government is going deeper into debt, consistently raising the debt ceiling and demonstrating no fiscal restraint. In recent years, debt ceiling increases have been placed in “must pass” legislation as a means to guarantee that Republicans as well as Democrats would vote for them when Congress was under Republican control.
We also know our nation’s “negative savings rate” reflects the habits of private citizens, showing those habits to be not tremendously different than the habits of the public sector. Yet, the signs of decline are becoming ever more apparent. So apparent, in fact, that it seems unlikely that bailouts or other gimmicks will have even short term success. More inflation, and creating moral hazard by bailing out egregious offenders, is a recipe for disaster. These activities can seem to provide some short term relief, but it seems we are now at a significant crisis point, where monetary policy gimmicks don’t provide the band-aids they did in the past.
Not only is our nation on the verge of bankruptcy, but so are its people and private institutions. We are now repeatedly hearing about businesses “needing to access the credit market to make payroll.” This is an unmistakable sign of more dire consequences ahead for the economy. If businesses must borrow just to make payroll, this is evidence of a severe undercapitalization that cannot be sustained, even for the short run.
Couple these facts with items such as the explosion of the “pay day loan” industry and the unmasking of the false sense of economic well-being is nearly complete. These pay day loan companies use preferred access to easy credit to inject cash into the hands of the working poor. They are nearly always set up in lower-income neighborhoods. These people, who are struggling to buy food and pay rent, get addicted to the credit drug. Their standard of living is only further depressed by the interest payments on these loans that make them profitable to their providers. Thus, the recipients are left even less capable of paying for items such as food and housing in the long run, without using this credit again and again.
These people are often the very ones being paid by businesses who “borrow to make payroll.” This is the dark underbelly of the fiat money, borrow and spend economy this nation has been building. As the government takes over more and more functions of the economy many see the rise of socialism as an antidote to this failure of “capitalism”. However, the fact remains that our economy has been increasingly running on debt, not capital. Capitalism does not exist without capital and debt is not, has never been and will never be a form of capital. Only now are we seeing the more dire implications of an economy without capital.
It has been long understood that our federal government is going deeper into debt, consistently raising the debt ceiling and demonstrating no fiscal restraint. In recent years, debt ceiling increases have been placed in “must pass” legislation as a means to guarantee that Republicans as well as Democrats would vote for them when Congress was under Republican control.
We also know our nation’s “negative savings rate” reflects the habits of private citizens, showing those habits to be not tremendously different than the habits of the public sector. Yet, the signs of decline are becoming ever more apparent. So apparent, in fact, that it seems unlikely that bailouts or other gimmicks will have even short term success. More inflation, and creating moral hazard by bailing out egregious offenders, is a recipe for disaster. These activities can seem to provide some short term relief, but it seems we are now at a significant crisis point, where monetary policy gimmicks don’t provide the band-aids they did in the past.
Not only is our nation on the verge of bankruptcy, but so are its people and private institutions. We are now repeatedly hearing about businesses “needing to access the credit market to make payroll.” This is an unmistakable sign of more dire consequences ahead for the economy. If businesses must borrow just to make payroll, this is evidence of a severe undercapitalization that cannot be sustained, even for the short run.
Couple these facts with items such as the explosion of the “pay day loan” industry and the unmasking of the false sense of economic well-being is nearly complete. These pay day loan companies use preferred access to easy credit to inject cash into the hands of the working poor. They are nearly always set up in lower-income neighborhoods. These people, who are struggling to buy food and pay rent, get addicted to the credit drug. Their standard of living is only further depressed by the interest payments on these loans that make them profitable to their providers. Thus, the recipients are left even less capable of paying for items such as food and housing in the long run, without using this credit again and again.
These people are often the very ones being paid by businesses who “borrow to make payroll.” This is the dark underbelly of the fiat money, borrow and spend economy this nation has been building. As the government takes over more and more functions of the economy many see the rise of socialism as an antidote to this failure of “capitalism”. However, the fact remains that our economy has been increasingly running on debt, not capital. Capitalism does not exist without capital and debt is not, has never been and will never be a form of capital. Only now are we seeing the more dire implications of an economy without capital.
Monday, October 13, 2008
Blatant Banker Manipulation Of Gold Prices
Blatant Banker Manipulation Of Gold Prices
One ounce bullion still being sold $200-300 above spot value, proving official spot price is divorced from reality
Paul Joseph Watson
Monday, October 13, 2008
Despite the dramatic fall in gold prices from Friday’s high of around $930 an ounce to today’s current low of $830, sales of actual physical gold continues to trade for anything up to $300 over spot price, proving again that official COMEX gold future numbers are completely divorced from reality and banker manipulation is rife.
Panic buying of physical gold has gripped Europe as consumers fear their savings accounts are no longer safe in light of numerous bank failures, prompting dealers to run dry on gold bullion which in turn is driving up premiums.
Since buyers are finding it near impossible to get gold bullion from recognized dealers, many are turning to Ebay where auctions for one ounce Krugerrands and Maple Leafs are fetching anything up to £150 ($260) over spot price.
Over the weekend, when gold was around £500 an ounce, a Krugerrand went for £645.75. A one ounce bullion bar, with nearly 3 days of the auction still to run, has already attracted a bid of £670 - a whopping $336 above current spot price, despite the fact that bars are usually subject to lower premiums than gold coins.
Respected bullion dealers who charge lower premiums because they are able to buy gold in bulk are still slapping customers with $150+ premiums - and judging by the continued dearth of one ounce coins such as the American Eagle and the Austrian Philharmonica - people are perfectly willing to pay the exorbitant premiums.
The true value of gold is what people are prepared to pay to obtain it, and judging by that criteria, the actual value of gold is currently around $1,100 an ounce based on a conservative estimate.
The official spot price of gold is currently around $830, but this merely represents a rush by investors to sell their paper contracts in search of liquidity and as a means of jumping back on the stocks and shares bandwagon.
As Alex Wallenwein at The Market Oracle points out, “Gold is gold, paper is paper, and “Comex gold” is nothing but paper masquerading as gold while simultaneously pretending to be the price-setting medium for actual gold in the world. Now, finally, Comex-gold is in the process of being unmasked.”
“Real investors in real gold are enjoying their shopping spree – except that the spree turned into a treasure hunt as the shelves and display cases of gold dealers look more and more like the supermarket shelves in the old Soviet Union - bare.”
“With this split, this disconnect, between Comex illusion and gold reality, one thing or the other will have to give, and it won’t be physical gold that gives.”
Numerous fund managers and top investors like Jim Rogers are now predicting that global central banks’ insistence on printing their way out of economic turmoil is setting the stage for a hyperinflationary holocaust, a knock-on effect of which will be gold’s acceleration towards $2,000.
But as many have pointed out, gold price manipulation is rife as central banks desperately attempt to stem the flight from paper currencies into gold, a process that anecdotal evidence strongly suggests is happening across Europe at an alarming pace.
One ounce bullion still being sold $200-300 above spot value, proving official spot price is divorced from reality
Paul Joseph Watson
Monday, October 13, 2008
Despite the dramatic fall in gold prices from Friday’s high of around $930 an ounce to today’s current low of $830, sales of actual physical gold continues to trade for anything up to $300 over spot price, proving again that official COMEX gold future numbers are completely divorced from reality and banker manipulation is rife.
Panic buying of physical gold has gripped Europe as consumers fear their savings accounts are no longer safe in light of numerous bank failures, prompting dealers to run dry on gold bullion which in turn is driving up premiums.
Since buyers are finding it near impossible to get gold bullion from recognized dealers, many are turning to Ebay where auctions for one ounce Krugerrands and Maple Leafs are fetching anything up to £150 ($260) over spot price.
Over the weekend, when gold was around £500 an ounce, a Krugerrand went for £645.75. A one ounce bullion bar, with nearly 3 days of the auction still to run, has already attracted a bid of £670 - a whopping $336 above current spot price, despite the fact that bars are usually subject to lower premiums than gold coins.
Respected bullion dealers who charge lower premiums because they are able to buy gold in bulk are still slapping customers with $150+ premiums - and judging by the continued dearth of one ounce coins such as the American Eagle and the Austrian Philharmonica - people are perfectly willing to pay the exorbitant premiums.
The true value of gold is what people are prepared to pay to obtain it, and judging by that criteria, the actual value of gold is currently around $1,100 an ounce based on a conservative estimate.
The official spot price of gold is currently around $830, but this merely represents a rush by investors to sell their paper contracts in search of liquidity and as a means of jumping back on the stocks and shares bandwagon.
As Alex Wallenwein at The Market Oracle points out, “Gold is gold, paper is paper, and “Comex gold” is nothing but paper masquerading as gold while simultaneously pretending to be the price-setting medium for actual gold in the world. Now, finally, Comex-gold is in the process of being unmasked.”
“Real investors in real gold are enjoying their shopping spree – except that the spree turned into a treasure hunt as the shelves and display cases of gold dealers look more and more like the supermarket shelves in the old Soviet Union - bare.”
“With this split, this disconnect, between Comex illusion and gold reality, one thing or the other will have to give, and it won’t be physical gold that gives.”
Numerous fund managers and top investors like Jim Rogers are now predicting that global central banks’ insistence on printing their way out of economic turmoil is setting the stage for a hyperinflationary holocaust, a knock-on effect of which will be gold’s acceleration towards $2,000.
But as many have pointed out, gold price manipulation is rife as central banks desperately attempt to stem the flight from paper currencies into gold, a process that anecdotal evidence strongly suggests is happening across Europe at an alarming pace.
Sunday, October 12, 2008
Reserving the right to destroy the dollar (Must Read)
Asia Times
Oct 11, 2008
Reserving the right to destroy the dollar
By The Mogambo Guru
I woke up on the floor where I had collapsed in a dead faint, my heart having gone into spasms of fibrillation at finding out Total Fed Credit went up by another staggering $253.6 billion last week! A quarter of a trillion dollars in One Freaking Week (OFW)!
Stunned to incoherence, I was fortunate to have gold adviser Ed Bugos at Agora Financial take over for me, who says, "The news that should be driving gold prices to the moon is out! The Federal Reserve has just expanded its balance sheet more in one month than it has in almost all of its first 86 years of existence. This number is unprecedented. It is difficult to predict gold's short-term response to this shock, but the market cannot ignore the
fundamental effect of this crackup for long. With interventions like this, we should get a few more $100-up days soon enough."
This TFC, in case you were wondering, is the magical stuff from which credit in the banks instantly appears, at the literal push of a button at the literal whim of the Federal Reserve, as the Fed makes all the money that the government wants to spend.
And this credit in the banks is the miracle stuff from which money will be multiplied by the banks a hundred times over, a thousand times over, a million times over, all of it used to make new loans, all courtesy of the fraud known as fractional-reserve banking, which means that the Fed has, in the last two weeks alone, created over half a freaking trillion dollars' worth of new credit, which is turned into unknown Umpteen Freaking Gazillions (UFG) of dollars when the banks get finished multiplying it through insane degrees of fractional-reserve banking!
And it is not just American banks, either! The Federal Reserve, on behalf of the people of the United States, is giving hundreds of billions of dollars to foreign central banks to bail them out, too!
And then those selfsame foreign central banks used this money to buy $43 billion of US government and agency debt last week! Gaaaahhh! My head is spinning! This is insane!
The Federal Reserve, in case you did not realize it, is not federal, in that it is a private bank owned by shadowy, nasty, greedy people hiding behind corporate shells, and it has no real reserves, but can create money anytime it likes, like last week, as the Fed created some money and then used the money to buy government bonds for itself! Hahaha! The Fed's stash of government bonds rose last week by $8.27 billion!
To show you that the Federal Reserve should instead be called the Government Slush Fund (GSF), the government borrowed most of this new money, as we realize when we see that Treasury Gross Public Debt went up by an eye-popping $336 billion last week, reaching the staggering total of $10.124 trillion!
In fact, in the last 12 months, the national debt went up by $1.062 trillion! Gaah! We're freaking doomed! Not only is the federal budget a mind-blowing $3 trillion in the $14 trillion American economy, but Congress is now spending an average of $88 billion per month (every damned month!) more than the government's revenues, which is 30% more than what they budgeted! Insane, incompetent morons!
And all of this money created by the Federal Reserve - all those stupefying trillions and trillions of new dollars and credit - increases the money supply, which will increase prices in a persistent, grinding inflation, getting worse and worse, which will destroy America as it has destroyed every other idiotic country that tried such a stupid, stupid thing.
Sure enough, John Williams of shadowstats.com writes, "In last night's (October 2) H.6 Money Stock Measures, seasonally-adjusted M2 - the currently official broad money measure - reportedly exploded in the week-ended September 22nd by $165.5 billion to $7,900.0 billion, an annualized growth rate of 200%. M1 rose at an annualized 800%, up $60.9 billion to $1,272.2 billion."
But there is no reason for crying, because soon enough we will be happily convening vengeful kangaroo courts in which to convict Alan Greenspan and the other hateful, low-IQ lowlife morons who caused all of this, and it is better, in the meantime, that we should make some Big Wonderful Money (BWM) on it.
And right now I gotta think that the Big Glorious Money (BGM) is going to be made in silver, mostly because Ted Butler, in the Market Update from investmentrarities.com, writes that "silver has never been a better investment at precisely the same time its price performance has never been more extreme", by which he concludes from the latest Commitment of Traders report that the commercial traders at the COMEX "have built up a record or near-record net long position in both gold and silver futures" and that they have also "established a record long position in call options for the first time in history."
Suddenly, being a really stupid guy, I was instantly lost, and I realized with horror that his seemingly cryptic remarks about futures and options meant that I was being asked to do some thinking to make any sense of it, and I was going to complain like the little crybaby that I am that I don't like to think, and that, like most people, I just want things handed to me.
Apparently, Mr Butler could see the sudden blank look of incomprehension and total befuddlement on my face, and, taking pity on me and fellow mental midgets everywhere, offers that he figures it means that these commercial traders are "positioned for an upside move in gold and silver" and "they are positioned for it to occur soon."
The real significance of this is that, as a result of long experience, he deems these commercial traders (other than the eight largest traders) as being "nearly-always-correct"! Whee!
And that means that I, being "nearly-always-incorrect" about everything, will soon be right for a change! How nice! Hey! This investing stuff is easy!
Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
Republished with permission from The Daily Reckoning. Copyright 2008, The Daily Reckoning.
Oct 11, 2008
Reserving the right to destroy the dollar
By The Mogambo Guru
I woke up on the floor where I had collapsed in a dead faint, my heart having gone into spasms of fibrillation at finding out Total Fed Credit went up by another staggering $253.6 billion last week! A quarter of a trillion dollars in One Freaking Week (OFW)!
Stunned to incoherence, I was fortunate to have gold adviser Ed Bugos at Agora Financial take over for me, who says, "The news that should be driving gold prices to the moon is out! The Federal Reserve has just expanded its balance sheet more in one month than it has in almost all of its first 86 years of existence. This number is unprecedented. It is difficult to predict gold's short-term response to this shock, but the market cannot ignore the
fundamental effect of this crackup for long. With interventions like this, we should get a few more $100-up days soon enough."
This TFC, in case you were wondering, is the magical stuff from which credit in the banks instantly appears, at the literal push of a button at the literal whim of the Federal Reserve, as the Fed makes all the money that the government wants to spend.
And this credit in the banks is the miracle stuff from which money will be multiplied by the banks a hundred times over, a thousand times over, a million times over, all of it used to make new loans, all courtesy of the fraud known as fractional-reserve banking, which means that the Fed has, in the last two weeks alone, created over half a freaking trillion dollars' worth of new credit, which is turned into unknown Umpteen Freaking Gazillions (UFG) of dollars when the banks get finished multiplying it through insane degrees of fractional-reserve banking!
And it is not just American banks, either! The Federal Reserve, on behalf of the people of the United States, is giving hundreds of billions of dollars to foreign central banks to bail them out, too!
And then those selfsame foreign central banks used this money to buy $43 billion of US government and agency debt last week! Gaaaahhh! My head is spinning! This is insane!
The Federal Reserve, in case you did not realize it, is not federal, in that it is a private bank owned by shadowy, nasty, greedy people hiding behind corporate shells, and it has no real reserves, but can create money anytime it likes, like last week, as the Fed created some money and then used the money to buy government bonds for itself! Hahaha! The Fed's stash of government bonds rose last week by $8.27 billion!
To show you that the Federal Reserve should instead be called the Government Slush Fund (GSF), the government borrowed most of this new money, as we realize when we see that Treasury Gross Public Debt went up by an eye-popping $336 billion last week, reaching the staggering total of $10.124 trillion!
In fact, in the last 12 months, the national debt went up by $1.062 trillion! Gaah! We're freaking doomed! Not only is the federal budget a mind-blowing $3 trillion in the $14 trillion American economy, but Congress is now spending an average of $88 billion per month (every damned month!) more than the government's revenues, which is 30% more than what they budgeted! Insane, incompetent morons!
And all of this money created by the Federal Reserve - all those stupefying trillions and trillions of new dollars and credit - increases the money supply, which will increase prices in a persistent, grinding inflation, getting worse and worse, which will destroy America as it has destroyed every other idiotic country that tried such a stupid, stupid thing.
Sure enough, John Williams of shadowstats.com writes, "In last night's (October 2) H.6 Money Stock Measures, seasonally-adjusted M2 - the currently official broad money measure - reportedly exploded in the week-ended September 22nd by $165.5 billion to $7,900.0 billion, an annualized growth rate of 200%. M1 rose at an annualized 800%, up $60.9 billion to $1,272.2 billion."
But there is no reason for crying, because soon enough we will be happily convening vengeful kangaroo courts in which to convict Alan Greenspan and the other hateful, low-IQ lowlife morons who caused all of this, and it is better, in the meantime, that we should make some Big Wonderful Money (BWM) on it.
And right now I gotta think that the Big Glorious Money (BGM) is going to be made in silver, mostly because Ted Butler, in the Market Update from investmentrarities.com, writes that "silver has never been a better investment at precisely the same time its price performance has never been more extreme", by which he concludes from the latest Commitment of Traders report that the commercial traders at the COMEX "have built up a record or near-record net long position in both gold and silver futures" and that they have also "established a record long position in call options for the first time in history."
Suddenly, being a really stupid guy, I was instantly lost, and I realized with horror that his seemingly cryptic remarks about futures and options meant that I was being asked to do some thinking to make any sense of it, and I was going to complain like the little crybaby that I am that I don't like to think, and that, like most people, I just want things handed to me.
Apparently, Mr Butler could see the sudden blank look of incomprehension and total befuddlement on my face, and, taking pity on me and fellow mental midgets everywhere, offers that he figures it means that these commercial traders are "positioned for an upside move in gold and silver" and "they are positioned for it to occur soon."
The real significance of this is that, as a result of long experience, he deems these commercial traders (other than the eight largest traders) as being "nearly-always-correct"! Whee!
And that means that I, being "nearly-always-incorrect" about everything, will soon be right for a change! How nice! Hey! This investing stuff is easy!
Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
Republished with permission from The Daily Reckoning. Copyright 2008, The Daily Reckoning.
Who is Behind the Financial Meltdown?
Who is Behind the Financial Meltdown?
Michel Chossudovsky
Global Research
Sunday, Oct 12, 2008
The market is heavily manipulated. The driving force behind the meltdown is speculative trade. The system of “private regulation” serves the interests of the speculators.
While most individual investors loose when the market falls, the institutional speculator makes money when there is a financial collapse.
In fact, triggering market collapse can be a very profitable undertaking.
There are indications that the Security Exchange Commission (SEC) regulators have created an environment which supports speculative transactions.
There are several instruments including futures, options, index funds, derivative securities, etc. used to make money when the stock market crumbles.
The more it falls, the greater the gains.
Those who make it fall are also speculating on its decline.
With foreknowledge and inside information, a collapse in market values constitutes a lucrative and money-spinning opportunity, for a select category of powerful speculators who have the ability to manipulate the market in the appropriate direction at the appropriate time.
Short Selling
One important instrument used by speculators to make money out of a financial meltdown is “short selling”.
“Short selling” consists in selling large amounts of stocks which you do not possess and then buying them in the spot market once the price has collapsed, with a view to completing the transaction and cashing in on the profits.
The role of short selling in bringing down companies is well documented. The collapse of Lehman, Merrill Lynch and Bear Stearns was in part due to short selling.
Short selling has also been used extensively in currency markets. It was one of the main instruments used by speculators during the 1997 Asian Crisis to bring down the Thai baht, the Korean won and Indonesian rupiah.
Speculation in major currency markets also characterizes the ongoing financial crisis. There have been major swings in currency values with the Canadian dollar, for instance, loosing 10% of its value in the course of a few trading days.
Temporary Ban on Short Selling
Following the stock market meltdown on Black Monday September 15, the Security Exchange Commission (SEC) introduced a temporary ban on short selling. In a bitter irony, the SEC listed a number of companies which were “protected by regulators from short sellers”. The SEC September 18 ban on short selling pertained largely to banks, insurance companies and other financial services companies.
The effect of being on a “protected list” was to no avail. It was tantamount to putting those listed companies on a “hit list”. If the SEC had implemented a complete and permanent ban on short selling coupled with a freeze on all forms of speculative trade, including index funds and options, this would have contributed to reducing market volatility and dampening the meltdown.
The ban on short selling was applied with a view to establishing the protected list. It expired on Wednesday October 8 at midnight.
The following morning, Thursday 9th of October, when the market opened up, those companies on the “protected list” became “unprotected” and were the first target of the speculative onslaught, leading to a dramatic collapse on of the Dow Jones on Thursday 9th and Friday 10th.
The course of events was entirely predictable. The lifting of the ban on short selling contributed to accentuating the downfall in stock market values. The companies which were on the hit list were the first victims of the speculative onslaught.
The shares of Morgan Stanley dropped 26 percent on October 9th, upon the expiry of the short-selling ban and a further 25 percent the following day.
Financial warfare
There are indications that the downfall of Morgan Stanley was engineered by financial rivals. A day prior to the September 18th ban on short selling, Morgan Stanley was the object of rival speculative attacks:
John Mack, chief executive of Morgan Stanley, told employees in an internal memo Wednesday [September 17]: “What’s happening out there? It’s very clear to me – we’re in the midst of a market controlled by fear and rumours, and short sellers are driving our stock down.”’ (Financial Times, September 17, 2008)
Morgan Stanley was also the object of doubts expressed by the ratings agency Moody’s, which contributed to investors dumping Morgan Stanley stock.
Moody’s cited an expectation that “an expected downturn in global capital market activity will reduce Morgan Stanley’s revenue and profit potential in 2009, and perhaps beyond this period”.
In contrast JP Morgan Chase, controlled by the Rockefeller family climbed by almost 12%. JP Morgan Chase and Bank America have consolidated their control over the US banking landscape.
Regulators Serve the Interests of Speculators
The SEC was fully aware that the ban on short selling would serve to exacerbate the downfall.
Why did they carry it out? How did they justify their decision?
In a twisted logic, the SEC, which largely serves the interests of institutional speculators, contends, quoting the results of an academic research paper, that short selling contributes to reducing market instability, thereby justifying the repeal of the September 18 short selling ban.
Michel Chossudovsky
Global Research
Sunday, Oct 12, 2008
The market is heavily manipulated. The driving force behind the meltdown is speculative trade. The system of “private regulation” serves the interests of the speculators.
While most individual investors loose when the market falls, the institutional speculator makes money when there is a financial collapse.
In fact, triggering market collapse can be a very profitable undertaking.
There are indications that the Security Exchange Commission (SEC) regulators have created an environment which supports speculative transactions.
There are several instruments including futures, options, index funds, derivative securities, etc. used to make money when the stock market crumbles.
The more it falls, the greater the gains.
Those who make it fall are also speculating on its decline.
With foreknowledge and inside information, a collapse in market values constitutes a lucrative and money-spinning opportunity, for a select category of powerful speculators who have the ability to manipulate the market in the appropriate direction at the appropriate time.
Short Selling
One important instrument used by speculators to make money out of a financial meltdown is “short selling”.
“Short selling” consists in selling large amounts of stocks which you do not possess and then buying them in the spot market once the price has collapsed, with a view to completing the transaction and cashing in on the profits.
The role of short selling in bringing down companies is well documented. The collapse of Lehman, Merrill Lynch and Bear Stearns was in part due to short selling.
Short selling has also been used extensively in currency markets. It was one of the main instruments used by speculators during the 1997 Asian Crisis to bring down the Thai baht, the Korean won and Indonesian rupiah.
Speculation in major currency markets also characterizes the ongoing financial crisis. There have been major swings in currency values with the Canadian dollar, for instance, loosing 10% of its value in the course of a few trading days.
Temporary Ban on Short Selling
Following the stock market meltdown on Black Monday September 15, the Security Exchange Commission (SEC) introduced a temporary ban on short selling. In a bitter irony, the SEC listed a number of companies which were “protected by regulators from short sellers”. The SEC September 18 ban on short selling pertained largely to banks, insurance companies and other financial services companies.
The effect of being on a “protected list” was to no avail. It was tantamount to putting those listed companies on a “hit list”. If the SEC had implemented a complete and permanent ban on short selling coupled with a freeze on all forms of speculative trade, including index funds and options, this would have contributed to reducing market volatility and dampening the meltdown.
The ban on short selling was applied with a view to establishing the protected list. It expired on Wednesday October 8 at midnight.
The following morning, Thursday 9th of October, when the market opened up, those companies on the “protected list” became “unprotected” and were the first target of the speculative onslaught, leading to a dramatic collapse on of the Dow Jones on Thursday 9th and Friday 10th.
The course of events was entirely predictable. The lifting of the ban on short selling contributed to accentuating the downfall in stock market values. The companies which were on the hit list were the first victims of the speculative onslaught.
The shares of Morgan Stanley dropped 26 percent on October 9th, upon the expiry of the short-selling ban and a further 25 percent the following day.
Financial warfare
There are indications that the downfall of Morgan Stanley was engineered by financial rivals. A day prior to the September 18th ban on short selling, Morgan Stanley was the object of rival speculative attacks:
John Mack, chief executive of Morgan Stanley, told employees in an internal memo Wednesday [September 17]: “What’s happening out there? It’s very clear to me – we’re in the midst of a market controlled by fear and rumours, and short sellers are driving our stock down.”’ (Financial Times, September 17, 2008)
Morgan Stanley was also the object of doubts expressed by the ratings agency Moody’s, which contributed to investors dumping Morgan Stanley stock.
Moody’s cited an expectation that “an expected downturn in global capital market activity will reduce Morgan Stanley’s revenue and profit potential in 2009, and perhaps beyond this period”.
In contrast JP Morgan Chase, controlled by the Rockefeller family climbed by almost 12%. JP Morgan Chase and Bank America have consolidated their control over the US banking landscape.
Regulators Serve the Interests of Speculators
The SEC was fully aware that the ban on short selling would serve to exacerbate the downfall.
Why did they carry it out? How did they justify their decision?
In a twisted logic, the SEC, which largely serves the interests of institutional speculators, contends, quoting the results of an academic research paper, that short selling contributes to reducing market instability, thereby justifying the repeal of the September 18 short selling ban.
Friday, October 10, 2008
Rogers: Global Bankers Have Unleashed Inflationary Holocaust
Rogers: Global Bankers Have Unleashed Inflationary Holocaust
CNBC hosts unable to grasp basic economic principles
Paul Joseph Watson
Prison Planet
Friday, October 10, 2008
Legendary investor Jim Rogers warned during a CNBC interview this morning that global central banks are creating the environment for an inflationary holocaust by their ceaseless overprinting of currency, a measure that isn’t even successful in stabilizing the stock market.
Rogers said that the only solution to the market crisis was to let failing banks and speculators go bankrupt and stop pumping endless amounts of liquidity into the system, labeling it outrageous that responsible investors and taxpayers are being made to bail out crooks on Wall Street.
“The way to solve this problem is to let people go bankrupt,” Rogers stressed, “All of this pumping money into the system is not going to save it - see what the market is saying, it’s saying we don’t buy that, let people go bankrupt,” he added.
“Then you will hit bottom and then you start over. The people who are sound will take over the assets from the people who aren’t sound and we will start over. This is the way the world has worked for a few thousand years,” said Rogers.
Rogers warned that the reliance on governments printing money would not aid a recovery and would only lead to the problem becoming worse in the future.
“We’re setting the stage for when we come out of this of a massive inflation holocaust,” he said.
Rogers said that excesses of credit and people becoming over-leveraged meant that they would now have to take some pain.
“Never before in world history were people able to buy houses with no money down, many people bought four or five houses with no money down and no job and then they did it with cars and student loans and credit card loans, you just think we say well that’s too bad we’re gonna start over nobody loses his job….be realistic,” said Rogers.
Rogers said that the G7 leaders, who are meeting this weekend, should “go down to the bar, have a beer and leave the rest of us alone, let the people who are sound succeed and let the other people fail.”
“What I’m afraid of is they’re gonna keep doing what they’ve been doing - which the market hates, you can see the market hates it - because this is going to unleash rampant inflation around the world, rampant confusion in the currency markets and you’re gonna have currencies gyrating all over the world,” said Rogers, repeating that the central bankers were unleashing an “inflationary holocaust”.
A CNBC expert then expressed his confusion at Rogers’ argument that overprinting of currency caused hyper inflation, seemingly displaying less grasp of basic economic cause and effect principles than a 5-year-old would.
Rogers again made the point, “When you print gigantic amounts of money and you flood the world with money, throughout history that has led to inflation.
CNBC hosts unable to grasp basic economic principles
Paul Joseph Watson
Prison Planet
Friday, October 10, 2008
Legendary investor Jim Rogers warned during a CNBC interview this morning that global central banks are creating the environment for an inflationary holocaust by their ceaseless overprinting of currency, a measure that isn’t even successful in stabilizing the stock market.
Rogers said that the only solution to the market crisis was to let failing banks and speculators go bankrupt and stop pumping endless amounts of liquidity into the system, labeling it outrageous that responsible investors and taxpayers are being made to bail out crooks on Wall Street.
“The way to solve this problem is to let people go bankrupt,” Rogers stressed, “All of this pumping money into the system is not going to save it - see what the market is saying, it’s saying we don’t buy that, let people go bankrupt,” he added.
“Then you will hit bottom and then you start over. The people who are sound will take over the assets from the people who aren’t sound and we will start over. This is the way the world has worked for a few thousand years,” said Rogers.
Rogers warned that the reliance on governments printing money would not aid a recovery and would only lead to the problem becoming worse in the future.
“We’re setting the stage for when we come out of this of a massive inflation holocaust,” he said.
Rogers said that excesses of credit and people becoming over-leveraged meant that they would now have to take some pain.
“Never before in world history were people able to buy houses with no money down, many people bought four or five houses with no money down and no job and then they did it with cars and student loans and credit card loans, you just think we say well that’s too bad we’re gonna start over nobody loses his job….be realistic,” said Rogers.
Rogers said that the G7 leaders, who are meeting this weekend, should “go down to the bar, have a beer and leave the rest of us alone, let the people who are sound succeed and let the other people fail.”
“What I’m afraid of is they’re gonna keep doing what they’ve been doing - which the market hates, you can see the market hates it - because this is going to unleash rampant inflation around the world, rampant confusion in the currency markets and you’re gonna have currencies gyrating all over the world,” said Rogers, repeating that the central bankers were unleashing an “inflationary holocaust”.
A CNBC expert then expressed his confusion at Rogers’ argument that overprinting of currency caused hyper inflation, seemingly displaying less grasp of basic economic cause and effect principles than a 5-year-old would.
Rogers again made the point, “When you print gigantic amounts of money and you flood the world with money, throughout history that has led to inflation.
A Possible Solution to the Economic Crisis: What is to be Done?
A Possible Solution to the Economic Crisis: What is to be Done?
PAUL CRAIG ROBERTS
COUNTER PUNCH
Friday, October 10, 2008
Readers have been pressing for a solution to the financial crisis. But first it is necessary to understand the problem. Here is the problem as I see it. If my diagnosis is correct, the solution below might be appropriate.
Let’s begin with the fact that the financial crisis is more or less worldwide. The mechanism that spread the American-made financial crisis abroad was the massive US trade deficit. Every year the countries with which the US has trade deficits end up in the aggregate with hundreds of billions of dollars.
Countries don’t put these dollars in a mattress. They invest them. They buy up US companies, real estate, and toll roads. They also purchase US financial assets. They finance the US government budget deficit by purchasing Treasury bonds and bills. They help to finance the US mortgage market by purchasing Fannie Mae and Freddie Mac bonds. They buy financial instruments, such as mortgage-backed securities and other derivatives, from US investment banks, and that is how the US financial crisis was spread abroad. If the US current account was close to balance, the contagion would have lacked a mechanism by which to spread.
One reason the US trade deficit is so large is the practice of US corporations offshoring their production of goods and services for US markets. When these products are brought into the US to be sold, they count as imports.
Thus, economists were wrong to see the trade deficit as a non-problem and to regard offshoring as a plus for the US economy.
The fact that much of the financial world is polluted with US toxic financial instruments could affect the ability of the US Treasury to borrow the money to finance the bailout of the financial institutions. Foreign central banks might need their reserves to bail out their own financial systems. As the US savings rate is approximately zero, the only alternative to foreign borrowing is the printing of money.
Financial deregulation was an important factor in the development of the crisis. The most reckless deregulation occurred in 1999, 2000, and 2004.
Subprime mortgages became a potential systemic threat when issuers ceased to bear any risk by selling the mortgages, which were then amalgamated with other mortgages and became collateral for mortgage-backed securities.
Federal Reserve chairman Alan Greenspan’s inexplicable low interest rate policy allowed the systemic threat to develop. Low interest rates push up housing prices by lowering monthly mortgage payments, thus increasing housing demand. Rising home prices created equity to justify 100 percent mortgages. Buyers leveraged themselves to the hilt and lacked the ability to make payments when they lost their jobs or when adjustable rates and interest escalator clauses pushed up monthly payments.
Wall Street analysts pushed financial institutions to increase their earnings, which they did by leveraging their assets and by insuring debt instruments instead of maintaining appropriate reserves. This spread the crisis from banks to insurance companies.
Finance chiefs around the world are dealing with the crisis by bailing out banks and by lowering interest rates. This suggests that the authorities see the problem as a solvency problem for the financial institutions and as a liquidity problem. US Treasury Secretary Paulson’s solution, for example, leaves unattended the continuing mortgage defaults and foreclosures. The fall in the US stock market predicts a serious recession, which means rising unemployment and more defaults and foreclosures.
In place of a liquidity problem, I see an over-abundance of debt instruments relative to wealth. A fractional reserve banking system based on fiat money appears to be capable of creating debt instruments faster than an economy can create real wealth. Add in credit card debt, stocks purchased on margin, and leveraged derivatives, and debt is pyramided relative to real assets.
Add in the mark-to-market rule, which forces troubled assets to be under-valued, thus threatening the solvency of institutions, and short-selling, which drives down the shares of trouble institutions, thereby depriving them of credit lines, and you have an outline of the many causes of the current crisis.
If the diagnosis is correct, the solution is multifaceted.
Instead of wasting $700 billion on a bailout of the guilty that does not address the problem, the money should be used to refinance the troubled mortgages, as was done during the Great Depression. If the mortgages were not defaulting, the income flows from the mortgage interest through to the holders of the mortgage-backed securities would be restored. Thus, the solvency problem faced by the holders of these securities would be at an end.
The financial markets must be carefully re-regulated, not over-regulated or wrongly regulated.
To shore up the credibility of the US Treasury’s own credit rating and the US dollar as world reserve currency, the US budget and trade deficits must be addressed. The US budget deficit can be eliminated by halting the Bush Regime’s gratuitous wars and by cutting the extravagant US military budget. The US spends more on military than the rest of the world combined. This is insane and unaffordable. A balanced budget is a signal to the world that the US government is serious and is taking measures to reduce its demand on the supply of world savings.
The trade deficit is more difficult to reduce as the US has stupidly permitted itself to become dependent not merely on imports of foreign energy, but also on imports of foreign manufactured goods including advanced technology products. Steps can be taken to bring home the offshored production of US goods for US markets. This would substantially reduce the trade deficit and, thus, restore credibility to the US dollar as world reserve currency. Follow-up measures would be required to insure that US imports do not greatly exceed exports.
The US will have to restore sound lending practices. It the US government itself wishes to subsidize at taxpayer expense home purchases by non-qualified buyers, that is a political decision subject to electoral ratification. But the US government must cease to force private lenders to breech the standards of prudence.
The issuance of credit cards must be brought back to prudent standards, with checks on credit history, employment, and income. Balances that grow over time must be seen as
a problem against which reserves must be provided, instead of a source of rising interest income to the credit card companies.
Fractional reserve banking must be reined in by higher reserve requirements, rising over time perhaps to 100 percent. If banks were true financial intermediaries, they would not have money creating power, and the proliferation of debt relative to wealth would be reduced.
Does the US have the leadership to realize the problem and to deal with it?
Not if Bush, Cheney, Paulson, Bernanke, McCain and Obama are the best leadership that America can produce.
The Great Depression lasted a decade because the authorities were unable to comprehend that the Federal Reserve had allowed the supply of money to shrink. The shrunken money supply could not employ the same number of workers at the same wages, and it could not purchase the same amount of goods and service at the same prices. Thus, prices and employment fell.
The explanation of the Great Depression was not known until the 1960s when Milton Friedman and Anna Schwartz published their Monetary History of the United States. Given the stupidity of our leadership and the stupidity of so many of our economists, we may learn what happened to us this year in 2038, three decades from now.
PAUL CRAIG ROBERTS
COUNTER PUNCH
Friday, October 10, 2008
Readers have been pressing for a solution to the financial crisis. But first it is necessary to understand the problem. Here is the problem as I see it. If my diagnosis is correct, the solution below might be appropriate.
Let’s begin with the fact that the financial crisis is more or less worldwide. The mechanism that spread the American-made financial crisis abroad was the massive US trade deficit. Every year the countries with which the US has trade deficits end up in the aggregate with hundreds of billions of dollars.
Countries don’t put these dollars in a mattress. They invest them. They buy up US companies, real estate, and toll roads. They also purchase US financial assets. They finance the US government budget deficit by purchasing Treasury bonds and bills. They help to finance the US mortgage market by purchasing Fannie Mae and Freddie Mac bonds. They buy financial instruments, such as mortgage-backed securities and other derivatives, from US investment banks, and that is how the US financial crisis was spread abroad. If the US current account was close to balance, the contagion would have lacked a mechanism by which to spread.
One reason the US trade deficit is so large is the practice of US corporations offshoring their production of goods and services for US markets. When these products are brought into the US to be sold, they count as imports.
Thus, economists were wrong to see the trade deficit as a non-problem and to regard offshoring as a plus for the US economy.
The fact that much of the financial world is polluted with US toxic financial instruments could affect the ability of the US Treasury to borrow the money to finance the bailout of the financial institutions. Foreign central banks might need their reserves to bail out their own financial systems. As the US savings rate is approximately zero, the only alternative to foreign borrowing is the printing of money.
Financial deregulation was an important factor in the development of the crisis. The most reckless deregulation occurred in 1999, 2000, and 2004.
Subprime mortgages became a potential systemic threat when issuers ceased to bear any risk by selling the mortgages, which were then amalgamated with other mortgages and became collateral for mortgage-backed securities.
Federal Reserve chairman Alan Greenspan’s inexplicable low interest rate policy allowed the systemic threat to develop. Low interest rates push up housing prices by lowering monthly mortgage payments, thus increasing housing demand. Rising home prices created equity to justify 100 percent mortgages. Buyers leveraged themselves to the hilt and lacked the ability to make payments when they lost their jobs or when adjustable rates and interest escalator clauses pushed up monthly payments.
Wall Street analysts pushed financial institutions to increase their earnings, which they did by leveraging their assets and by insuring debt instruments instead of maintaining appropriate reserves. This spread the crisis from banks to insurance companies.
Finance chiefs around the world are dealing with the crisis by bailing out banks and by lowering interest rates. This suggests that the authorities see the problem as a solvency problem for the financial institutions and as a liquidity problem. US Treasury Secretary Paulson’s solution, for example, leaves unattended the continuing mortgage defaults and foreclosures. The fall in the US stock market predicts a serious recession, which means rising unemployment and more defaults and foreclosures.
In place of a liquidity problem, I see an over-abundance of debt instruments relative to wealth. A fractional reserve banking system based on fiat money appears to be capable of creating debt instruments faster than an economy can create real wealth. Add in credit card debt, stocks purchased on margin, and leveraged derivatives, and debt is pyramided relative to real assets.
Add in the mark-to-market rule, which forces troubled assets to be under-valued, thus threatening the solvency of institutions, and short-selling, which drives down the shares of trouble institutions, thereby depriving them of credit lines, and you have an outline of the many causes of the current crisis.
If the diagnosis is correct, the solution is multifaceted.
Instead of wasting $700 billion on a bailout of the guilty that does not address the problem, the money should be used to refinance the troubled mortgages, as was done during the Great Depression. If the mortgages were not defaulting, the income flows from the mortgage interest through to the holders of the mortgage-backed securities would be restored. Thus, the solvency problem faced by the holders of these securities would be at an end.
The financial markets must be carefully re-regulated, not over-regulated or wrongly regulated.
To shore up the credibility of the US Treasury’s own credit rating and the US dollar as world reserve currency, the US budget and trade deficits must be addressed. The US budget deficit can be eliminated by halting the Bush Regime’s gratuitous wars and by cutting the extravagant US military budget. The US spends more on military than the rest of the world combined. This is insane and unaffordable. A balanced budget is a signal to the world that the US government is serious and is taking measures to reduce its demand on the supply of world savings.
The trade deficit is more difficult to reduce as the US has stupidly permitted itself to become dependent not merely on imports of foreign energy, but also on imports of foreign manufactured goods including advanced technology products. Steps can be taken to bring home the offshored production of US goods for US markets. This would substantially reduce the trade deficit and, thus, restore credibility to the US dollar as world reserve currency. Follow-up measures would be required to insure that US imports do not greatly exceed exports.
The US will have to restore sound lending practices. It the US government itself wishes to subsidize at taxpayer expense home purchases by non-qualified buyers, that is a political decision subject to electoral ratification. But the US government must cease to force private lenders to breech the standards of prudence.
The issuance of credit cards must be brought back to prudent standards, with checks on credit history, employment, and income. Balances that grow over time must be seen as
a problem against which reserves must be provided, instead of a source of rising interest income to the credit card companies.
Fractional reserve banking must be reined in by higher reserve requirements, rising over time perhaps to 100 percent. If banks were true financial intermediaries, they would not have money creating power, and the proliferation of debt relative to wealth would be reduced.
Does the US have the leadership to realize the problem and to deal with it?
Not if Bush, Cheney, Paulson, Bernanke, McCain and Obama are the best leadership that America can produce.
The Great Depression lasted a decade because the authorities were unable to comprehend that the Federal Reserve had allowed the supply of money to shrink. The shrunken money supply could not employ the same number of workers at the same wages, and it could not purchase the same amount of goods and service at the same prices. Thus, prices and employment fell.
The explanation of the Great Depression was not known until the 1960s when Milton Friedman and Anna Schwartz published their Monetary History of the United States. Given the stupidity of our leadership and the stupidity of so many of our economists, we may learn what happened to us this year in 2038, three decades from now.
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