The Grand Design

“Who will provide the grand design
What is yours and what is mine?
There is no more new frontier
We have got to make it here.” Eagles – The Last Resort

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http://www.breadwithcircus.com/ March 7th, 2009

…I want to send people back to something I wrote in October. This piece may help you to get a better sense of why we're in a depression, and why it's all the fault of firms like Goldman Sachs, Citigroup, Morgan Stanley and other mafia-style organizations known as investment banks.

Explaining the Credit-Crisis: Why The Bailout Won't Work

People don't seem to understand the conditions that have led to what is being called the "Credit-Crisis. "I've been doing a lot of research on this and I think that I have a pretty good handle on what really happened here, so I'm going to try to explain it in a way that people unfamiliar with the disastrous practices of Wall Street can easily understand. It's complicated, but bear with me.

First, banks and other agencies began issuing what have been called sub-prime loans. These were mostly mortgages with really low interest rates. The loans were structured so that the people who took them out would have very low payments for the first eighteen months or two years of the agreement, but much higher payments after that. In many cases these loans were given to people who had no income, no job, no assets, and no ability to make payments once the higher rates kicked in. However, because of the time-lag between the issuing of the loans, and the day when payments would inevitably stop, firms realized that they had a brief window of opportunity to turn temporarily valuable loan papers into billions of dollars.

Enter the Collateralized Debt Obligation. (CDO) Firms would carve the sub-prime loan debts that they owned into pieces and repackage them as a product called a CDO. A CDO would have little slivers of all sorts of different loans pieced together. A CDO might consist of 1% of Mary's second mortgage on a house in San Diego, 1% of Manuel's car-loan in Atlanta, 1% of Mohammed's mortgage on a house in Kansas City, and 1% of the money that Acme Widgets Inc. borrowed when they wanted expand their factory in Pittsburgh.

Even though the firms knew that many of their loans would and could never be repaid, because of the time-lag between when the loans were good and when they went bust, the firms could temporarily list their CDO's as assets. Because of this, it was in the interest of firms to issue as many dodgy loans as possible, in order to create as many CDO's as possible, in order to hold as many assets as possible. Firms began buying and selling their CDO's and using them as collateral when taking out loans of their own.

Enter the Credit-Default Swap. (CDS) Firms holding CDO's made deals with highly-rated firms. (Companies with good credit ratings like the now nationalized AIG) The small firm would pay the bigger firm to co-sign with them on a very large loan, often from a privately owned bank called the Federal Reserve. The small firms would list the income they were making on their CDO's as collateral, and then make a payment to the large firm for their golden signature. Having a large firm with a good credit rating as co-signer, dubious firms were able to borrow at astronomical rates, in some cases at a ratio of up to 40 times of what the CDO's were (temporarily) worth.

Big firms saw windfall profits through their ability to sell their signature to smaller firms. Smaller firms borrowed tens of billions of electronic dollars at low interest rates from the Federal Reserve Bank, among others. The stocks of the firms involved in the scheme went through the roof as they were able to show massive amounts of money on their balance sheets. A handful of CEO's made billions of dollars.

Now the chain reaction. The time-lag has caught up to us, and the higher payments on the sub-prime loans have kicked in.

People can't make these payments, so one of the slivers in a CDO package, then another and another becomes worthless.

The value of the CDO is compromised, but the firm who holds it had already borrowed an astronomical amount of money against it. With nothing coming in from these now worthless CDO's, firms holding them no longer have enough income to make payments on their debts. Since the smaller firm can't meet its debt obligations, the company that co-signed the CDS deal with it has to pay. The larger firm, which has made many CDS deals finds themselves owning the debts of many smaller firms, and they have to "write-down" their profits. Stock prices dive and some firms go bankrupt while others are nationalized.

Now the final piece. These large firms are the ones who have been lending money to regular people, regular businesses, and your bank. Perhaps your RRSP or 401K has put part of your life savings into some of these firms' stock. Now the big firms can't make loans anymore, they have diverted all of their assets to making payments on the bad debts they hold. It is all that many of these firms can do to avoid going bankrupt themselves. One fails, then another, and the problem is compounded. There is very little money available now for people to get a loan to do anything at all, from buying a house, to sending their kids to college or buying new infrastructure for their businesses.

The suggested solution to this problem has been for the US treasury to give troubled firms a "bailout", but that's not even going to come close to solving the problem. With interest factored in, there are tens, or maybe even hundreds of trillions of dollars worth of bad debts out there. The bailout, if it were passed, would do very little to solve the problem, though perhaps it would delay the inevitable collapse of the credit markets until after the US election.

Personally I think that the bailout is just a scheme for Bush to loot the treasury as a parting gift to the US...he did this to the other companies he bankrupted earlier in his career. A better option than the bailout would be for the US government to nationalize the Federal Reserve Bank, but that's a discussion for another day.

Really, things are way worse than the media is letting on. Wall Street bet your house and mine, and now everybody loses.

There are some monumental days in our near future. The entire financial system is about to be re-organized. Think of the last days of the Soviet Union. It could only be a matter of weeks before the American System comes crashing down. If this happens, try to remember that the money being played with is actually an illusion, and that troubled times will pass.

On a positive note, the destructive ideologies of the "Free-Market" and "Neo-Liberalism" are about to be completely discredited. I hope that whatever financial system rises up from the ashes will be more principled, transparent, and equitable for everyone.

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BEIJING, China -- Sources at the United States Embassy in Beijing China have just CONFIRMED that the United States of America has tendered to China a written agreement which grants to the People's Republic of China, an option to exercise Eminent Domain within the USA, as collateral for China's continued purchase of US Treasury Notes and existing US Currency reserves.

The written agreement was brought to Beijing by Secretary of State Hillary Clinton and was formalized and agreed-to during her recent trip to China.

This means that in the event the US Government defaults on its financial obligations to China, the Communist Government of China would be permitted to physically take -- inside the USA -- land, buildings, factories, perhaps even entire cities - to satisfy the financial obligations of the US government.

http://www.rense.com/general85/give.htm

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http://www.guardian.co.uk/world/2009/mar/13/china-us-economy

Tania Branigan in Beijing guardian.co.uk, Friday 13 March 2009 13.42 GMT



The many gestures of Chinese premier Wen Jiabao during the press conference to mark the closing session today of the annual National People's Congress at the Great Hall of the People in Beijing.

Photograph: Liu Jin/AFP/Getty Images

China is worried about its vast United States treasury holdings, premier Wen Jiabao said today, urging Washington to safeguard their value.

Wen also pledged to expand the country's stimulus package if necessary, as Beijing undertakes what he admitted was the difficult task of shoring up growth.

His remarks came ahead of the meeting of finance ministers and central bankers in London this weekend to lay the groundwork for next month's G20 summit on the global downturn.

Beijing wants to head off protectionism and pressure for further appreciation of the yuan, which would cripple its plummeting export sector. It is also pressing for restructuring of the International Monetary Fund to pay more attention to the interests of developing countries.

While relations with the US are broadly stable, there was displeasure when treasury secretary Timothy Geithner said President Barack Obama believed China was manipulating its currency. The administration subsequently rowed back from the remarks.

This week also saw a spat between the two countries when America accused the Chinese navy of harassing one of its surveillance ships in international waters in the South China Sea. Beijing alleged that the US vessel was operating illegally.

Speaking at his annual press conference at the close of China's parliament, Wen said: "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried."

He called on Washington "to honour its words, stay a credible nation and ensure the safety of Chinese assets". China had worked to diversify its $2tn-worth of foreign exchange reserves, although it remains the single largest holder of US government debt, which accounts for about half of its stockpile.

Washington needs to continue selling treasury notes to fund its $787bn stimulus package. Last month, the secretary of state, Hillary Clinton, urged Beijing to maintain its stock as she visited China.

"They are worried about forever-rising deficits, which may devalue treasuries by pushing interest rates higher," Frank Gong, a JP Morgan economist, told Reuters. "Inside China there has been a lot of debate about whether they should continue to buy treasuries."

Any change would be gradual because abrupt action would punish the dollar – damaging the value of existing holdings and further hitting the sale of goods to the US, its biggest export market.

Wen said it would be difficult but possible to reach China's 8% growth target. Independent economists suggest the figure could be as low as 5% – enviable for most major economies, but potentially too low to keep unemployment down.

Beijing announced a 4tn yuan (about £400bn) plan in November, but Wen promised: "We have prepared enough ammunition and we can launch new economic stimulus policies at any time."

He said years of growth and prudent management had left more leeway to run a larger fiscal deficit and take on more debt. "The most direct, powerful and effective way to deal with the current financial crisis is to increase fiscal spending – the quicker the better," he said.

The premier acknowledged that unemployment was a "very serious" problem but said the country was still stable.

"I really believe we will be able to walk out of the shadow of the financial crisis at an early date," he said. "After this trial, I believe the Chinese economy will show greater vitality."

He promised to focus on job creation and give more help to smaller companies, which he said generated 90% of Chinese new employment. Many economists think the government has done too little to aid entrepreneurs.

Figures released this week show a mixed picture for the Chinese economy, with exports slumping by more than 25% in February and retail sales weakening, but a sustained surge in bank lending which some analysts believe offers hope of a recovery.

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Eminent Domain

According to news reports the main item on Hillary Clinton’s discussions with China was the agreement of the Chinese government to continue to support US debt which it holds. What undertakings were given by Ms. Clinton to protect the value of those holdings was not specified.

http://www.rense.com/general85/give.htm

FEDS GRANT EMINENT DOMAIN AS COLLATERAL TO CHINA FOR U.S. DEBTS
BEIJING, China -- Sources at the United States Embassy in Beijing China have just CONFIRMED that the United States of America has tendered to China a written agreement which grants to the People's Republic of China, an option to exercise Eminent Domain within the USA, as collateral for China's continued purchase of US Treasury Notes and existing US Currency reserves.

The written agreement was brought to Beijing by Secretary of State Hillary Clinton and was formalized and agreed-to during her recent trip to China.

This means that in the event the US Government defaults on its financial obligations to China, the Communist Government of China would be permitted to physically take -- inside the USA -- land, buildings, factories, perhaps even entire cities - to satisfy the financial obligations of the US government.

Put simply, the feds have now actually mortgaged the physical land and property of all citizens and businesses in the United States. They have given to a foreign power, their Constitutional power to "take" all of our property, as actual collateral for continued Chinese funding of US deficit spending and the continued carrying of US national debt…

Our federal government has now granted to China, this power to "take"our homes and businesses in the event the US Gov't defaults on its debts. Let's play this out as a worst case scenario. . . .

The US Gov't goes belly-up and China comes in and says, "they owed us $2 Trillion in Treasury Notes and another $2 Trillion in actual cash money which is now worthless. We are taking the entire state of Hawaii and the entire state of California in lieu of this bad debt. "

With the stroke of a Chinese chop stick, Hawaii and California -- all the land and buildings in those states -- are now owned by China.

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“In early February nine U.S. States began the process of re- asserting their Sovereignty pursuant to the Ninth and Tenth Amendments to the US Constitution; declaring null and void any actions by Congress that violated the Constitution.
The states took action to make certain the feds couldn't give away cities or the states themselves!” Rense