Tuesday, September 30, 2008

Paying For Chinese Subprime

This is getting to be worse than a bad drive-in horror movie. The villain not only refuses to die, but comes back in an even more hideous form. As if $700B for American financial toxic waste (yes, that's what it is called) wasn't enough, we now are going to pay for as much Chinese, Japanese, English, and Arabian toxic waste as they can shovel at us.

Don't believe me? Here is a copy of the bill that will be attached in the Senate on Wednesday. [Edit: The Senate Bill is here.]

Go to page 33 and read Section 112

The Secretary shall coordinate, as appropriate, with foreign financial authorities and central banks to work toward the establishment of similar programs by such authorities and central banks. To the extent that such foreign financial authorities or banks hold troubled assets as a result of extending financing to financial institutions that have failed or defaulted on such financing, such troubled assets qualify for purchase under section 101.
Is this a great country, or what? We are going to buy all the US toxic debt and as much toxic debt the world's bankers can throw at a US subsidiary of their bank. We are going to fund the Communists and terrorists with AAA rated, US taxpayer backed governement bonds.

I would like to thank Congressman Brad Sherman (D-San Bernardino) for getting this into the public dialogue. You can see the YOUTUBE of his time on CNBC where he discussed the matter.

Normally, foreign leaders don't take much interest in US spending legislation. I don't recall any foreign leader panting at the prospect of each of us getting a stimulus check, but they certainly have come out and supported this.

Now we know why. They want a huge slice of free government cheese.

If the Chinese sent their revenue collection agents to the US to shake you down for tens of thousands of dollars, we would shoot them where they stand. Thousands of Chinese tax agents would be lying in a pool of their own blood on American doorsteps. However, under this plan, US IRS agents would be shaking you down on behalf of the Chinese bankers that wrote bad loans on Chinese real estate.

You read that correctly.


The bought and paid for lapdogs in the US Senate will likely pass this because only 1/3 will have to face the voters this fall. Expect most of that 1/3 to vote against this and the bulk of the 2/3 that is not up for reelection to vote in favor.

Our battle is in the House - OUR HOUSE!

When the word gets out that Main Street America has to bailout Chinese high-finance, the US will be shaken to its core. The stock market is going to lose value, and it will happen with vigor once the rush has worn off of dim-bulb US equity investors. I fear for any politician that votes for this.

Bush and Paulson have sold us out. No matter how you slice this, it comes up rancid. The Administration was either asleep at the switch, intentionally lied to us, or holds us in such contempt as to enslave our children to Chinese bankers.

When asked by Congress if the Administration would accept a bill without the foreign toxic waste purchases, Paulson told the leaders of Congress that the bill would be vetoed if such a provision were not present.


So, we now know what happened in the past few weeks. Paulson got a margin call from China and Dubai. They waited until the elections were drawing near and held out their money from the US markets. The credit market froze and China said that we have to take their bad bets, or they quit funding our deficit ($2B/day - $200/mo for every man, woman, child). China's stock market has lost 2/3 of its value in the past year, and they need money. They sold us cheap plastic crap, and we sold them toxic mortgage paper. They want a refund.

They did this during the Fannie/Freddie bailout. Paulson said that foreign interests needed this bailout, as the NON GUARANTEED Fannie/Freddie bonds started dropping in value. That's why THE US TAXPAYER had to make good on NON GUARANTEED bonds purchased by China. Now you know why these bailouts never include you.

Economic terrorism - and we are not only negotiating with these terrorists, but giving in to their every demand.

Why? So Wal-Mart wil continue to "roll back prices?"

This has the potential to get extremely ugly. Call your Congressman and call him now. Explain section 112 and how you will not stand for US taxpayers paying for Chinese and Arabian high-finance gambits gone bad. You stood firm against bailing out American bankers. Now is the time to tell them that you will not stand for this treasonous bill that is before the Congress.

This will not help you get a mortgage, auto loan, college loan, or even help your paycheck clear. This will make all of those things harder to obtain. You are being asked to float the bill for the entire world's spending orgy.

Oppose this. Pray for your country. Call for impeachment. Pull the plug on China while we still can.

The following is a more detailed explanation by a friend of mine. Please take the time to learn more.

Monday, September 29, 2008

Thanks To Jay Inslee

Here is a letter that I just faxed to Congressman Inslee's office. I would encourage all in the First District to do likewise.

For those of you in the Sixth District, you may want to get out your pitchforks and torches.

What Inslee did today took guts - LOTS OF GUTS! When the biggest, most powerful lobbying force in world history pushed all its chips to the center of the table and said "all-in," Inslee called. He went against the banking lobby (which runs the DNC), The Speaker of the House (whom he voted for), the leadership of his party (which is his lifeline), the President of the US (OK, no big deal there. Bush is radioactive), the Treasury Secretary, and the Chair of the Federal Reserve. He sided with the American People, and for that I am extremely proud to be an American and a resident of the Washington First District.

Jay, you did the right thing. The problem with the credit markets does not go back weeks or months. It goes back decades, and $700B was going to vaporize on contact. The FED shot $630B into the markets today, and look what happened. Had this passed, and the markets sold off before election day, every "yes" vote would have been running for cover.

To all the members of the First District that wrote in to OUR CONGRESSMAN and gave him the courage to do the right thing, you should hold your heads high. What you did was keeping with the greatest traditions of American citizenship. You gave your Congress a way out of Paulson's Hobson's Choice.

This is still our country. Be proud.

September 29, 2008

The Honorable Jay Inslee:

I understand that you have voted against the Wall Street Bailout. As someone that has been in close contact with your various offices and has been actively lobbying against this bill, I would like to say one thing:



Sunday, September 28, 2008

What's The Big Bad Secret?

One theory that I have held for several months is that the US banking system has been insolvent since the Dec07/Jan08 time period. Since then, the US Federal Reserve has been keeping these rancid banks on life support by loaning good money (US Treasury instruments) for bad money (various flavors of Mortgage Backed Securities). Back in the spring of this year, I noticed that the "burn rate" of the FED's reserves would put them in the red by September 2008.

Note that the crisis was brought to the Congress on September 18, 2008.

Here is a chart to illustrate what I am talking about.

If the mortgages are bad (and we know they are), then the FED is out of money. This would certainly get the Congress' attention, and explain all the panic and hush-hush over the specific problems.

Again, Paulson and Bernanke had to have known about this months ago.

If this theory is true, then giving $700B isn't going to solve the problem. It just rolls back the Day of Reckoning to March, if that. It would likely come sooner because the problem with the US banking system is one of confidence.

Panic, hush-hush, fictional accounting, infinite leverage (yes, that is part of the new bill), and Banana Republic dark-of-night rule changes do not inspire confidence.

Friday, September 26, 2008

Welcome Kitsap Sun Readers

Thanks for taking the time to stop by. The purpose of this is to discuss the rise, fall and consequences of the property bubble, or more accurately how the underlying credit bubble caused the property bubble and how it will play out in the coming years.

My basic thesis is that the US economy was underpinned on the false premise that "real estate always goes up," and since that is economically and mathematically impossible, the US economy is going to suffer for that mistake.

If you disagree, I want to hear from you. I don't offend easily, so don't be shy.

All I ask is that you stay on topic and not be excessively profane.

Tuesday, September 23, 2008

A Way Out Of This Mess

The following is a letter that I have given to Inslee, Cantwell, and Murray. I have also put this to every member of the House Financial Services Committee and the Senate Banking Committee.

If you agree with this, please visit:


Please take this letter, put it under your name and send it to your representitives. I have been working with Inslee's staff in DC to get this into the hands of someone that can get this moving. If you would like to help, please do so. Call Inslee's office at 202-225-6311 and tell them you like the FedUpUSA.org proposal and want to see it implemented. It gives Congress a "way out" of the current mess that Paulson and Bernanke have trapped them.

If you are in Norm Dicks' district, I encourage you to press his office. He is one of the most powerful members of Congress and he can get things done.

Please leave a comment if you have any questions. Due to the serious nature of this matter, I will have to pass on my normal snarky tone. I hope you understand.


A Solution That Works

The Honorable Jay Inslee:

By now, you have been thoroughly deluged by angry phone calls and letters from your constituents. They do not wish to pay Wall Street bankers trillions of dollars of their hard earned money for putting our financial system at this level of peril. You should respect their wishes.

However, you can’t leave without doing “something,” and that “something” always seems to come with a hefty price tag and an uncomfortable level of trust given to those, who for the last 18 months, have told us not to panic and that all is well. There is a solution that costs the government nothing, eliminates “moral hazard,” and ensures we never have to do this again. Any variation of the current proposal lacks all these features.

The solution is to fix the problem, not paper it over.

For the past 13 months, every “crisis” in the banking sphere has descended from three basic flaws in the current regulatory structure:

- Over leverage. The failures of the Bear Stearns, Lehman Bros., Merrill Lynch and various hedge funds descend directly from their level of financial leverage. At the present levels of leverage, one mistake and you are dead. Back when these financial institutions were regulated to carry no more than 12:1 leverage, we didn’t have banks blowing up every 13 weeks.

- Unregulated derivatives. This is what caused the trillion dollar insurance company, AIG, to be taken under by the Treasury Department. Financial service providers made billions writing insurance policies that were unregulated and carried no regulatory oversight that ensured they would be paid in the event they were triggered. No other category of insurance policies is unregulated in this manner. Warren Buffet refers to these instruments as “financial weapons of mass destruction.” The notional value of these numbers in the tens of trillions.

- Fictional Accounting. This is the precise reason that “short sellers” have pounced on the various financial institutions. The current accounting allows banks to intentionally produce fraudulent financial statements, regarding the value of various assets they claim as part of their net worth. The short sellers understand that the value of these stocks are grossly under their current price and act accordingly. Banning short selling does not change the fact that these companies are priced well above their value. You NEVER see short sellers attempt this with healthy, truthful companies.

The solution is to pass a comprehensive regulatory reform bill that:

- Reduces leverage to safe levels. This needs to happen over the next two quarters. Company reports shall be required to show that financial leverage is within statutory limitations, or enforcement action will follow.

- Put Credit Default Swaps on a regulated exchange. This ensures the insured party can be paid and prevents the nightmare scenario of a chain-reaction of defaults across the system. The equity options markets are a good example of how this needs to be structured. No company may be allowed to write these derivatives without the capital backing necessary for performance.

- End fictitious accounting practices. Every company must mark all of their assets to current market value on their quarterly and annual statements. Each asset must have its own accounting as to its value. This way, full transparency is brought to the marketplace and investors know exactly what they are buying. This will end the practice of hiding unhealthy companies within the larger herd of structurally sound companies, as is the current practice in the US banking system. Capital will immediately flow to the healthy companies and the assets of the unhealthy companies will be taken into the market and deployed to their most efficient use. The current practice only serves to cast a pall of doubt over the entire sector until it fails en masse.

Note that these proposals end the current “crisis” within two quarters. These proposals do not cost the taxpayer one dime. They fix the problem, and most importantly, they eliminate the enormous moral hazard that is present in any derivation of the current Paulson/Bernanke proposal. They establish the framework for building a healthy, stable, and useful financial system in the United States. “Bailouts” and dark-of-night enforcement changes are obviated.

The Congress retains all of its financial oversight and regulatory powers. The Administration is consigned to its enforcement role, as the Founders had set forth.

For more information, please go to:


We are a non-partisan organization dedicated to banking transparency and regulatory reform. Our proposal is simple, effective, permanent, and cost neutral. We are not coming to you at the last minute with some hideous scenario that we denied for 18 months.

We are giving you a way out of the present mess in a manner that the taxpayers you have been hearing on your telephones will cheer.

Please do the right thing. Do not give our money to Wall Street. Force them to take their marks like the rest of America.

Very truly yours,

Sunday, September 21, 2008

Enabling Act of 2008: The Rise of The Fourth Reich

The following is a letter that I have sent to Senators Murray and Cantwell, as well as Congressman Inslee. Please feel free to copy this and send it to anyone you believe will benefit from the content.

Enabling Act of 2008

Dear Member of Congress:

You are being asked to assign unprecedented powers to an unelected, and unaccountable former Wall Street banker, under the guise of bringing stability to the markets and solvency to our banking system. With one hastily thrown together vote, you are going to create the most powerful human being in world history – Henry Paulson.

This is being done for the purposes of fixing a “crisis” that has suddenly, in the last hour, been presented to Congressional leaders. This act would remove the constitutionally mandated powers of regulation of the money supply, and the value thereof, from Congress and give it to an unelected member of the President’s cabinet. According to the act, this person would be above judicial review, and be allowed a $700,000,000,000 revolving line of credit to print money on behalf of the United States government. That is more power than anyone has ever had – anyone. Caesar did not have this power.

This should sound eerily familiar.

In March of 1933, after the “crisis” of the Reichstag Fire, newly named Chancellor of Germany, Adolf Hitler, petitioned the German Reichstag to give him plenary powers over the affairs of German government. The Reichstag transferred its power, on an emergency basis, to the Cabinet of Germany for a period of four years, and this was called “The Enabling Act”. This was to deal with the perceived “crisis” of Communists within the German government, when the “crisis” was never fully substantiated. It is believed by most historians that the Reichstag Fire was a deliberate act to coax the Reichstag into giving up its power.

That history did not end well.

You are being goaded into giving Henry Paulson plenary powers over the economy and government spending, money supply, and value of that money. Those powers belong to you, held in trust for the citizens of the United States. Our Founders gave you those powers TO PREVENT THE VERY SCENARIO THAT SECRETARY PAULSON HAS PRESENTED TO YOU.

You are being manipulated.

For the past 13 months, Paulson, and Federal Reserve Chairman, Bernanke have repeatedly given public statements through the various media, and have testified to Congress on the soundess of our banking system. As that time has worn on, they have repeatedly come to Congress for various bailouts (Bear Stearns, AIG, Fannie/Freddie), as well as acted to install confidence through the manipulation of the Federal Reserve Monetary Policy, and announcing various liquidity programs to keep money in the banking system (TAF, TSLF). While they have been taking extraordinary measures to shore-up the banking system, they have always maintained that the system is sound and just needs a little time to get through a “soft spot,” or a “contained” problem (Subprime).

You now know that they were lying the entire time. There is no way to sugar coat this. They have been lying to you since March of 2007. They are lying now. This was plainly known to many in the professional and amateur investment community, recently smeared as “short sellers.” It turns out that the cynics were right all along.

Ask yourself, why didn’t they come to you for this unprecedented bailout last October, when Paulson attempted the same thing with various Wall Street banks? Surely, the problem was known last fall when Paulson attempted to create his “super SIV.”

Had he come to you at that time, there would have been at least 11 months to debate the issue, open it for public review, and deal with it while the stock market was trading at an all-time high. Why did he wait until the weekend before the Congressional recess for the bi-annual election cycle, and present the plan over a weekend where the public could not comment? Why did he have to wait until the stock market teetered on collapse, and the credit markets were frozen solid?

He needs a “crisis” so you will not oppose him.

Ask yourself, why did the Senate Majority Leader and Speaker of the House, as late as September 16, attempt to leave the issue in Washington and head back to their districts, leaving the Administration to clean up the mess, then suddenly have a change of heart less than 36 hours later? What was said? Why are the details of the briefing given to Congressional leaders not available for public review? Why are you being asked to vote for something so hastily and without proper briefing or public review? Does Democracy flourish in the dark, or does tyranny and fraud?

We know the following:

-Paulson and Bernanke have lied for the duration of the credit crisis.
-Every bailout has been bigger, more frequent, and has resulted in a much bigger “crisis.”

Now, Paulson and Bernanke are telling you that they really are telling you the truth and this bailout will work.

You are being played.

They are framing the issue in terms of Congress voting to rescue the banks and the markets. Let me be clear on this point: YOU ARE NOT VOTING ON THE HEALTH OF THE BANKS OR THE MARKETS. YOU ARE DECIDING WHO GETS WHAT MONEY IS LEFT OVER AFTER THEY FAIL. The markets (equity and credit) are going to experience a large dislocation, or in the common lexicon, “a crash.” That is an absolute certainty. You are merely deciding if the US citizens are going to keep their money, or give it to Wall Street bankers. You are deciding if the US government is going to survive or collapse. Giving Paulson unlimited spending powers will ensure that the government collapses. That is a certainty.

Paulson and Bernanke need to be removed from office for malfeasance. For 18 months, the health of the banking system has been very suspect. They have known all along what is happening and have failed to act. Their actions have been limited to lying to Congress and the American people and manipulating the accounting to cover the insolvency of the US banking system.

You are being asked to abdicate. The American people want their Constitution and their government to survive. We will rebuild what Wall Street has destroyed, but we need to keep our money in order to do it.

Vote against this unprecedented power grab. History shows the folly of such endeavors.

Very truly yours,