The implications of the following are so severe that it is best to reproduce
the entire article. The very careful engineering of world financial systems
--begun with the launch of the Euro; sealed with the post-9/11 entry of
China to the WTO-- is about to come to fruition.
The full-scale dollar dump is underway. The pain will continue
until the people of the USA capitulate and willingly enter the Amero.
Then the NAU.
As feared, foreign bond holders have begun
to exercise a collective vote of no confidence in the
devaluation policies of the US government.
The Fed faces a potential veto of its rescue measures.
Foreign investors veto Fed rescue
By Ambrose Evans-Pritchard, International Business Editor
17/03/2008 - Telegraph UK
Asian, Mid East and European investors stood aside at last week's auction of 10-year US Treasury notes. "It was a disaster," said Ray Attrill from 4castweb. "We may be close to the point where the uglier consequences of benign neglect towards the currency are revealed."
The share of foreign buyers ("indirect bidders") plummeted to 5.8pc, from an average 25pc over the last eight weeks. On the Richter Scale of unfolding dramas, this matches the death of Bear Stearns.
Rightly or wrongly, a view has taken hold that Washington is cynically debasing the coinage, hoping to export its day of reckoning through beggar-thy-neighbour policies.
It is not my view. I believe the forces of debt deflation now engulfing America - and soon half the world - are so powerful that nobody will be worrying about inflation a year hence.
Yes, the Fed caused this mess by setting the price of credit too low for too long, feeding the cancer of debt dependency. But we are in the eye of the storm now. This is not a time for priggery.
The Fed's emergency actions are imperative. Last week's collapse of confidence in the creditworthiness of Fannie Mae and Freddie Mac was life-threatening. These agencies underpin 60pc of the $11,000bn market for US home loans.
With the "financial accelerator" kicking into top gear - downwards - we may need everything that Ben Bernanke can offer.
"The situation is getting worse, and the risks are that it could get very bad," said Martin Feldstein, head of the National Bureau of Economic Research. "There's no doubt that this year and next year are going to be very difficult."
Even monetary policy à l'outrance may not be enough to halt the spiral. Former US Treasury secretary Lawrence Summers says the Fed's shower of liquidity cannot cure a bankruptcy crisis caused by a tidal wave of property defaults.
"It is like fighting a virus with antibiotics," he said.
We can no longer exclude a partial nationalisation of the American banking system, modelled on the Nordic rescue in the early 1990s.
But even if you think the Fed has no choice other than to take dramatic action, the critics are also right in warning that this comes at a serious cost and it may backfire.
The imminent risk is that global flight from US Treasury and agency debt drives up long-term rates, the key funding instrument for mortgages and corporations. The effect could outweigh Fed easing.
Overall credit conditions could tighten into a slump (like 1930). It's the stuff of bad dreams.
Is this the moment when America finally discovers the meaning of the Faustian pact it signed so blithely with Asian creditors?
As the Wall Street Journal wrote this weekend, the entire country is facing a "margin call". The US has come to depend on $800bn inflows of cheap foreign capital each year to cover shopping bills. They may have to pay a much stiffer rent.
As of June 2007, foreigners owned $6,007bn of long-term US debt. (Equal to 66pc of the entire US federal debt). The biggest holdings by country are, in billions: Japan (901), China (870), UK (475), Luxembourg (424), Cayman Islands (422), Belgium (369), Ireland (176), Germany (155), Switzerland (140), Bermuda (133), Netherlands (123), Korea (118), Russia (109), Taiwan (107), Canada (106), Brazil (103). Who is jumping ship?
The Chinese have quickened the pace of yuan appreciation to choke off 8.7pc inflation, slowing US bond purchases. Petrodollar funds, working through UK off-shore accounts, are clearly dumping dollars amid rumours that Gulf states - overheating wildly - are about to break their dollar pegs. But mostly likely, the twin crash in the dollar and US agency debt reflects a broad exodus by global wealth managers, afraid that America is spinning out of control. Sauve qui peut.
The bond debacle last week tallies with the crash in the dollar index to an all-time low of 71.58, down 14.6pc in a year. The greenback is nearing parity with the Swiss franc - shocking for those who remember when it was 4.375 francs in 1970. Against the euro it has hit $1.57, from $0.82 in 2000. Against the yen it has smashed through Y100. Spare a thought for Toyota. It loses $350m in revenues for every one yen move. That is an $8.75bn hit since June. Tokyo's Nikkei index is crumbling. Less understood, it is also causing a self-reinforcing spiral of credit shrinkage throughout the global system.
Japanese investors and foreign funds are having to close their yen "carry trade" positions. A chunk of the $1,400bn trade built up over six years has been viciously unwound in weeks. The harder the dollar falls, the further this must go.
It is unsettling to watch the world's reserve currency disintegrate. Commodities from gold to oil and wheat are taking on the role of safe-haven "currencies". The monetary order is becoming unhinged.
I doubt the dollar can fall much further. What is it to fall against? The spreading credit contagion will cause large parts of the globe to downgrade in hot pursuit - starting with Europe.
Few noticed last week that the Italian treasury auction was also a flop. The bids collapsed. For the first time since the launch of EMU, Italy failed to sell a full batch of state bonds.
The euro blasted higher anyway, driven by hot money flows. The funds are beguiled by Germany's "Exportwunder", for now. It cannot last. The demented level of $1.57 will not be tolerated by French, Italian and Spanish politicians. The Latin property bubbles are deflating fast.
The race to the bottom must soon begin. Half the world will be slashing rates this year to stave off credit contraction. The dollar will have a lot of company. Small comfort.
This time the market for default insurance is flashing bright red warning signals across the entire spectrum of US finance.
The swap spreads on Lehman Brothers rocketed to 465 yesterday, mirroring the moves in Bear Stearns debt days before. Fannie Mae and Freddie Mac - the venerable agencies created by Roosevelt that underpin 60pc of the $11 trillion mortgage market - had a heart attack on Monday. Their bonds were in free-fall, threatening to set off another cascade of bank writedowns.
These are not sub-prime outfits. They sit at the apex of the US mortgage credit industry....
The 'monoline' bond insurers - MBIA, Ambac, and others - that guarantee most of the $2,600bn market for US municipal bonds have seen their shares collapse by 90pc since the Autumn.
"We are now experiencing the first truly major crisis of financial globalisation," said the Swiss central bank governor Philipp Hildebrand this week.
As luck would have it, the world's greatest expert on the financial causes of depressions - Ben Bernanke - happens to be chairman of the Federal Reserve.
NEW YORK (Reuters) - Financial firms face a "new world order" after a weekend fire sale of Bear Stearns and the Federal Reserve's first emergency weekend meeting since 1979, research firm CreditSights said in a report Monday.
More industry consolidation and acquisitions may follow after JPMorgan Chase (nyse: JPM - news - people ) & Co on Sunday said it was buying Bear Stearns for $236 million, or deep discount of $2 a share, a fraction of the $30 price on Friday and record share price of about $172 last year.
"Last evening the Bear Stearns situation reached a crescendo, as JPMorgan agreed to acquire the wounded broker for a token amount of $2 per share," CreditSights said. "The reality check is that there are many challenged major banks, brokers, thrifts, finance/mortgage companies, and only a handful of bonafide strong U.S. banks.
CreditSights said it lowered its broker, bank and finance company recommendations to "market weight" due to the credit crisis and stresses in the market.
In the event of future consolidation, potential acquirers identified by CreditSights include JPMorganChase, Wells Fargo , US Bancorp, Goldman Sachs and Bank of America , once it works through its recent agreement to acquire Countrywide Financial Corp. the largest U.S. mortgage lender.
Possible foreign bank acquirers include HSBC, Barclays and Canadian firms, said CreditSights, which said the Bear Stearns deal should be good for bondholders.
"The debt side whether at the parent level or on the broker/dealer levels seems to be in rather good shape with the capital structure to be assumed by JPMorgan at deal close," which is expected in about 90 days, CreditSights said.
Financial stocks are likely to trade lower but the overall market may begin to stabilize, according to Morgan Stanley's chief U.S. credit analyst.
"I view the stabilization of Bear Stearns coupled with the liquidity action by the Fed as constructive for the proper functioning of the lending system," said Gregory Peters, chief U.S. credit analyst at Morgan Stanley. "Financial stocks will trade lower, but these are important steps in the path of trying to stabilize the credit markets."
Global stocks fell sharply Monday, and U.S financial stocks tumbled in early trading, led by a 89 percent slump in Bear Stearns. Lehman Brothers shares sank more than 35 percent.
The cost of protecting Lehman Brothers debt with credit default swaps widened by 40 basis points to 490 basis points, or $490,000 a year for five years to protect $10 million of debt, according to data from Phoenix Partners Group.
Bear Stearns' credit default swaps narrowed by 380 basis points to 350 basis points, while JP Morgan's swaps widened by 25 basis points to 215 basis points, according to Phoenix Partners.
Joined: 16 Jun 2006 Posts: 3201 Location: Capacious Creek
Posted: Tue Mar 18, 2008 3:21 pm Post subject:
Bush, Bush, Bush, Bush, Bush
Obama, Clinton Cite Economic Distress
By TOM RAUM – 1 day ago
MONACA, Pa. (AP) — Democratic Sen. Barack Obama urged the government Monday to cut middle class taxes this year to ease the spreading economic crisis, as he and rival Sen. Hillary Rodham Clinton criticized President Bush for failing to take the lead in addressing the nation's economic woes.
"Our economy is in a shambles," Obama said at a town hall meeting at a community college near Pittsburgh. "This economy is contracting, it is heading toward recession. We probably already are in one."
He later said the economic stimulus package signed by Bush needs to be supplemented by enacting this year the tax cuts for middle-income Americans that he had earlier proposed for the first year of the next administration. And he hinted that, if market conditions continue to deteriorate, he might even reconsider his call to roll back Bush tax cuts on capital gains and dividends.
"I want to monitor the situation. I never want to project a year from now and say, no matter what happens, I'm determined to do what I said a year or a year and a half ago," the Illinois senator told reporters.
But, Obama added, "The problem we have right now is not that the wealthy don't have enough tax breaks. The problem is ordinary Americans don't have spending power."
Clinton, meanwhile, told reporters in Washington it was a time of economic "stress and uncertainty" and said there was "urgency to continue the action that was started yesterday."
The comments from the presidential candidates came after the Federal Reserve approved a $30 billion loan for a $2-a-share takeover by JPMorgan Chase & Co. of Bear Stearns & Co. to help keep the stricken investment bank — one of the nation's largest — from collapse. The Fed also lowered the rates it charges to loan directly to banks by a quarter-point, following moves last week to lend $100 billion in cash to banks and $200 billion in government bonds to cash-strapped Wall Street investment banks.
"I'm not going to second guess the Fed," Clinton said, either on its steps to consummate the sale of Bear Stearns, on its decision to assume the risk of some of mortgage loans now assumed by JP Morgan Chase or on a decision to cut a key interest rate.
She complained about President Bush's handling of the problems.
"Now we are in the soup and we better get ourselves out of it before the consequences get drastic," Clinton said.
Obama said, "Things weren't that great before we tipped into recession."
He said the latest news from Wall Street "has confirmed our fears that the financial fallout from the mortgage crisis would spill over into the wider economy."
"Now, as the Federal Reserve does its best to bring stability to the market, we must focus on what we can do to restore the public's confidence in the market and help the millions of Americans who are worried about their jobs, their homes, and their financial future."
Both candidates said they were speaking with decision makers and monitoring developments.
Clinton said she spoke Monday morning with Treasury Secretary Henry Paulson and New York Federal Reserve President Tim Geithner about their actions to insure liquidity and restore confidence in the market. "I relayed to them my thoughts and concerns," she said.
Obama said he talked to the heads of some large Wall Street firms and had other calls scheduled. "Frankly, I think Secretary Paulson, along with (Fed Chairman) Ben Bernanke are taking some creative steps to deal with the issue. I'm encouraged that they're trying to act swiftly. I think it is important that Congress, the White House and the Fed are all working in concert."
He derided Bush for suggesting that the stimulus package should be given a chance to work and that policymakers shouldn't overreach at this time. He said the Fed might have limited ammunition left and urged steps to deal with the human consequences.
"Real people are losing their homes or at risk of losing their homes. Businesses can't get the credit they need to keep their doors open. My approach would be to be pragmatic."
Obama reiterated earlier calls to offer tax breaks to companies that "invest right here in Pennsylvania and all across America" and to give tax breaks "to ordinary Americans who deserve them right now."
He also urged Congress to pass legislation he is sponsoring with Sen. Chris Dodd, D-Conn., to create incentives for lenders to buy or refinance existing mortgages to help those facing foreclosure keep their homes.
"This is not a bailout for lenders or investors who gambled recklessly, and it is not a windfall for borrowers. It is a fair and responsible way to help stem the foreclosure crisis," he said.
As senator from New York, Clinton has received the most money from employees of large Wall Street firms. Bear Stearns employees contributed the most to Clinton with total donations of $152,000. Likely Republican nominee John McCain received $47,000 from Bear Stearns employees and Obama got $36,000.
Obama is the biggest recipient of donations from JPMorgan employees — Obama received $270,000, Clinton's contributions were nearly $200,000 and McCain's were more than $60,000. According to McCain's latest personal financial disclosure report, his wife and dependent children had between $3 million and $7 million invested in JPMorgan financial instruments.
Last edited by bri on Tue Mar 18, 2008 3:28 pm; edited 1 time in total
Joined: 16 Jun 2006 Posts: 3201 Location: Capacious Creek
Posted: Tue Mar 18, 2008 3:27 pm Post subject:
Is Jim Cramer a CIA asset?
Cramer doesn't seem like any dummy. He sure is treating this whole deal very lightly. The entire news media seems to be shuffling this under the typical garbage, Spetzer especially. No economic disaster, no war in Iraq...except for the occasional frightening blurb..."WILL THE DOLLAR COLLAPSE?".....ensue arguments from chosen left and right winger.
Last edited by bri on Fri Mar 21, 2008 5:25 pm; edited 1 time in total
Joined: 11 Feb 2006 Posts: 2950 Location: 36ï¿½ 3'N x 86ï¿½40'W
Posted: Tue Mar 18, 2008 7:08 pm Post subject:
My GF is the stock guru in the house, and she became very active in the market again about 6 months ago. One of the first shows she tuned in to was Cramer's Mad Money. She found his approach abrasive, but the show overall entertaining, and she liked some of what she heard.
About 2 months ago, she began to comment that she "no longer trusted him", for several reasons. Around that time, I had gotten a copy of John Hanky's educational video, "Critical Thinking", and we watched it together. It definitely started her mental juices flowing.
The next day, after Cramer's show, she told me (and I'm paraphrasing), "That Critical Thinking DVD got me wondering, and I've decided that Jim Cramer is a flake, if not a total phony. All you have to do is pay attention to what he says from week to week and you can see he's pointing people in convoluted directions. There's something weird going on here."
When I played the DonHarrold.net vids, she was in complete agreement. Thanks for those links, guys. _________________ "No matter what happens, ever... there's ALWAYS at least one reason. And the top reason is ALWAYS money."
Shares in Lehman Brothers plunged as much as 40 per cent before closing down about half that at $31.75 as traders worried that the investment bank would experience the same lack of confidence from its counterparts and customers as Bear Stearns had faced at the end of last week and would suffer a surge in liquidity demands.
Traders ignored comments by Richard Fuld, Lehman’s chairman and chief executive, as he insisted that the bank had $35 billion (£17.5 billion) of cash and liquid assets and a further $160 billion of unencumbered assets, which could be sold to generate cash.
The stock of its bigger rivals also fell sharply. Shares in Morgan Stanley were down 8 per cent at $36.38 at the close, those of Merrill Lynch were off 5 per cent at $41.18, Citigroup ended the day down 6 per cent at $18.62 and Goldman Sachs closed down 4 per cent $151.02. The Dow Jones industrial average swung wildly within a 300-point range before closing up 21.20 points at 11,972.30.
Interbank lending almost ground to a halt yesterday, with banks fearful of dealing with each other, prompting talk of another round of coordinated central bank aid.
In an effort to minimise the fallout and in conjunction with the firesale of Bear Stearns to JPMorgan Chase, on Sunday the Fed cut its discount lending rate by a quarter of a percentage point to 3.25 per cent and announced another series of liquidity measures.
The problem was particularly acute in sterling markets, with the gap between indicative three-month interbank borrowing rates and the Bank of England loans more than 70 basis points – the highest for the year. Some analysts said that big players on the interbank market had been doing as little as £700 million a day of business over the past week, a fraction of the several billions that would have been executed a year ago.
Panic-selling of shares in MF Global - a derivatives broker – pushed its shares down by as much as 70 per cent in New York.
Shares in Bear Stearns, the bank that was rescued in an all shares deal by JPMorgan Chase at the weekend at a 94 per cent discount, plunged almost 84 per cent to close at $4.81. JPMorgan was expected last night to dismiss about half of Bear Stearns’s staff, making about 200 redundant from its office in Canary Wharf, London.
The severe losses among banking stocks came as one of the world’s leading economists said that the US Federal Reserve’s dramatic actions over the past few days had been interpreted as evidence that the central bank believes that there is another banking group facing severe funding difficulties.
Robert Shiller, of Yale University, who is co-founder of America’s leading house price index, told The Times: “It signals that the Fed must know how bad things really are. It looks like they think something is really wrong.”
Chris Whalen, head of the Wall Street consultancy Institutional Risk Analytics, said: “Any firm not affiliated with a large commercial bank is vulnerable to suffer from severe funding difficulties.
We have reached the end of the game. Around two thirds of all hedge funds won’t be around by the year end because they can’t survive without leverage.”
Terrific. Looks like a shareholder revolt is on the cards over the totally
derisory $2-a-share JPM offer for the stock. Too right! This "deal" stinks.
The stink is one of low-down dirty-dealing by powerful market players.
The guy who is going to screw this ripoff is high-school dropout and now
billionaire Joe Lewis. He has over $1 Billion of his $3 Billion fortune
tied up in Bear Stearns stock. Whisper is he has hedged this investment,
but he has the deep pockets and motivation to fight this all the way.
And he will.
Bear Stearns management should have told JPM to stick their offer and
backed the Fed into a corner: telling them that the market confidence
was THEIR problem; that BS management responsibility was to their own
shareholders --so they would file for Chapter 11 on last Monday morning.
The Fed would have had no choice but to ante up. But of course, all that
presumes that Bear Stearns managment were on the up and up.
Latest is that Bear Stearns shares are already at four times the offer
from JPMorgan. One analyst has priced the stock as worth $22, not far
off the back-of-an-envelope figure I posted on Monday of $20 a share.
Bear Stearns faces action over cut-price takeover
By Stephen Foley in New York - Tuesday, 18 March 2008
Enraged shareholders at Bear Stearns are threatening an assault on the company's cut-price takeover by JPMorgan Chase, and its share price yesterday reflected hopes of an alternative outcome for the bank.
Because the book value of the company remained close to $84 per share, chief executive Alan Schwartz had suggested last week – and some investors, analysts and employees argued yesterday – that shareholders would have got more money back if the company had been liquidated.
Some complained Bear Stearns shareholders had been sacrificed by the Fed in its desperation for a fix that did not destabilise the financial system. The company's second largest shareholder, Joe Lewis, the British currency trader whose disastrous investment in Bear Stearns last autumn has lost more than $1bn, predicted shareholders would reject what he called "a derisory offer".
Anger began as early as Sunday night's conference call to discuss the deal. An individual Bear Stearns shareholder asked why the transaction benefited the bank's investors more than a liquidation, but JPMorgan's finance chief Mike Cavanagh said he should direct his question to Bear managers instead. The unidentified called concluded: "I vote not to approve this sale."
JPMorgan shares jumped more than 10 per cent yesterday as investors decided its acquisition was a steal, but Mr Cavanagh said the deal will cost it much more than the $236m (£118m) it is paying for Bear Stearns shares. He put the figure at $5bn-$6bn, including integration costs, a restructuring of Bear's trading positions and – top of the list – provisions for potential legal actions from shareholders, trading partners and others.
Jeff Harte, analyst at Sandler O'Neill, told clients: "We suspect many Bear Stearns shareholders will be disappointed with the outcome, and, while we believe an approval is the more likely outcome, we do not believe it is incomprehensible that this deal may have bought the company additional time to assess its situation which may lead shareholders to reject the offer."
Bear Stearns has promised to put the deal to its shareholders within the next few weeks. In an emergency review over the weekend, regulators have already given the deal the green light, JPMorgan said that it was expected to close in record time before the end of June.
It remained highly uncertain last night what the consequences of a shareholder rejection of the deal might be, but a closing price of $4.81 per Bear Stearns share suggested that some investors were betting on a more positive outcome.
JPMorgan's agreement to guarantee all Bear Stearns transactions means it already has the right "to direct the business, operations and management" of the company. If the deal is not approved, it has the right to buy Bear Stearns' midtown Manhattan headquarters, making an independent future particularly complicated.
Meredith Whitney, the bearish financial sector analyst at Oppenheimer & Co, said there was no bank with the balance sheet strength to take over Bear Stearns, other than JPMorgan. She advised shareholders to cut their losses. "They should take the money and run."
Hopeful investors bet on higher offer for Bear Stearns
By Nick Clark
Wednesday, 19 March 2008
Investors in the US were betting yesterday on a higher offer for Bear Stearns, as the bank's share price soared four times higher than Sunday's $2-a-share offer from JPMorgan Chase.
Shares in Bear stormed up 68.8 per cent to $8.12 on the New York Stock Exchange yesterday morning as investors predicted JPMorgan's $236m (£117m) takeover offer would meet resistance from Bear's shareholders. The stock retreated later on, but still closed nearly 23 per cent higher than the previous night's close at $5.91.
Rob Hegarty, managing dir-ector of the securities and investment practice at the res-earch firm TowerGroup, said: "There have been rumblings in the market that shareholders might not accept the offer, as well as rumours of higher bids. This has all given hope to some investors that Bear Stearns won't be sold for $2 a share." Mr Hegarty said the stock was also experiencing volatility on short-term trading.
Shareholders were taken by surprise by the merger. Last week, the bank was forced to rush out a denial that it faced liquidity problems after spec-ulation in the market, only to be bailed out with emergency funding by the Federal Reserve and JPMorgan days later. On Sunday, news emerged that Bear had agreed to a $236m offer from JP.
Shareholders have seen their holdings practically wiped out in days, and some have said they are unhappy with JP's offer. The second largest shareholder on the register, the British billionaire Joe Lewis, has already said he intended to reject the bid. Mr Lewis, whose holding has disintegrated from $967.8m on Christmas Eve to $22.1m under the terms of JPMorgan's offer, told CNBC: "I think it is a derisory offer and I don't think they will get shareholder approval." Last night, Mr Lewis was understood to be considering his options.
Mr Hegarty said: "This is where things become interesting. Do shareholders settle for the offer or risk the potential bankruptcy of Bear as they push to try and get a higher price?"
Bear Stearns marks the moment when the global financial crisis went critical.
Up until last Friday, it had been possible - just about - to believe that the worst was over and that things were about to get better. That pretence was stripped away when JP Morgan, at the behest of the Federal Reserve, stepped in when the hedge funds pulled the plug on the fifth-biggest US investment bank.
It is now clear that no end is in sight to the turmoil, and the reason for that is that the Fed and the US treasury are no closer to solving the underlying problem than they were eight months ago.
The crisis will only end when house prices stop falling and banks stop racking up huge losses on their loans. Doing that, however, will require the US government to intervene directly in the real estate market to end the wave of foreclosures.
Ideologically, it is ill-equipped to take that step and, as a result, property prices will fall and the financial meltdown will go on and on.
Ultimately, though, action will be taken because there will be political pressure for it. Indeed, it is somewhat surprising that there is not already rioting in the streets, given the gigantic fraud perpetrated by the financial elite at the expense of ordinary Americans.
The US has just had its weakest period of expansion since the 1950s. Consumption growth has been poor. Investment growth has been modest. Exports have been sluggish. But if you are at the top of the tree, the years since the last recession in 2001 has been a veritable golden age. Salaries for executives have rocketed and profits have soared, because the productivity gains from a growing economy have been disproportionately skewed towards capital.
For ordinary Americans, though, it has been a different story. Real wages have been growing slowly; at just 1.6% a year on average over the latest upswing, well down on the experience of earlier decades. Business, of course, needs consumers to carry on spending in order to make money, so a way had to be found to persuade households to do their patriotic duty.
The method chosen was simple. Whip up a colossal housing bubble, convince consumers that it makes sense to borrow money against the rising value of their homes to supplement their meagre real wage growth and watch the profits roll in.
As they did - for a while.
Now it's payback time and the mood could get very ugly.
Americans, to put it bluntly, have been conned. They have been duped by a bunch of serpent-tongued hucksters who packed up the wagon and made it across the county line before a lynch mob could be formed.
The debate now is not about whether the US is in recession but how deep and long that recession will be.
Super-bears have started to say that this is perhaps "The Big One", by which they mean the onset of a new Great Depression. The need to rescue Bear Stearns has done little to still those voices.
As the economics team at HSBC recently pointed out, there has been a "catastrophic breakdown" of trust, and when that has happened in the past - the US in the 1930s, Japan in the 1990s - chucking extra money at the banks in the hope that they will start lending again proves ineffective.
It's not hard to see why trust has become such a rare commodity: Wall Street at the height of the securitisation mania had, in effect, become London at the time of the South Sea Bubble crisis in 1720. Vast quantities of funny paper were changing hands even though those involved in the deals had no idea of their true worth. Nor did they care. Inevitably, now the bubble has burst and the huge Ponzi securitisation scam has been exposed, there has been a reaction. The securitisation market is dead, there is less money sloshing round the system, banks are hoarding their cash.
Having allowed the housing boom to rage out of control for too long and then delaying cuts in interest rates until the housing market was gripped by recessionary forces, the Fed is now trying to make up for lost time with a burst of hyperactivity. It will cut interest rates on Wednesday and keep cutting them: financial markets expect the Fed funds rate to be 1% by the summer, and they are probably right. In most downturns, easier monetary policy does the trick. Lower interest rates make it cheaper to borrow and also change the trade-off between saving and spending. This may not be the usual sort of downturn, however, with consumers going through a period of debt revulsion after the excesses of recent years, even so the consensus is that after two or three quarters of falling output, a slow and sluggish recovery will be under way.
These hopes are likely to be dashed, unless there is intervention at home and internationally to tackle the crisis. Domestically, the priority should be to stop homes that have been foreclosed being auctioned on the open market, since by selling them at a 50% discount property prices are driven down. The US does not seem to have learned the lessons from Japan, which encouraged a fire sale of property in the 1990s and was sucked into a classic debt deflation trap as a result. Those who argue, with some force, that it would be counter-productive to intervene in the market because the US needs to work the rottenness out of its system must recognise that the cold turkey option will be very long and painful.
The second form of intervention should be to shore up the dollar, the collapse of which is worrying countries that rely heavily on exports and is the main reason for the surge in commodity prices.
Co-ordinated intervention by the major central banks needs to be at the top of the agenda at next month's G7 meeting in Washington, and there could be action even sooner if the dollar continues to tank.
In the longer term, lessons must be learnt from the turmoil. One is that you don't solve the problems of a collapsing bubble by blowing up another, which is what Alan Greenspan did after the dotcom fiasco in 2001 - the most irresponsible behaviour of any central banker in living memory.
The second lesson is that there has to be far stricter regulation not just of the US real estate market but of Wall Street, to prevent the return of irresponsible lending as soon as the recovery is firmly under way.
If this is, heaven help us, The Big One, one of the only consolations will be that the repugnance at the orgy of speculation that has sapped the strength of the US economy will put a new New Deal on the political agenda.
But for this to happen there has to be a political response and even though this year's presidential election will be held in the shadow of recession, there appears not to be a potential FDR among the contenders for the White House.
Yet if this crisis really does get as bad as some are forecasting, the public will rightly demand more than a slap on the wrist for Wall Street.
Wednesday March 19 2008
Ben Bernanke is in the spotlight as never before, two years after taking over at the US Federal Reserve from Alan Greenspan . The Fed's chief is facing potentially the worst financial crisis the world has seen since the Great Depression of the 1930s and now, as then, this one is Made in America.
So it is fortunate that in his academic life Bernanke was a student of the Depression and so should have as good an idea as anyone of how to get out of one or, preferably, avoid one.
Six years ago he famously said the Fed could resort to cutting interest rates to zero and, quoting from Milton Friedman, suggested dropping money from helicopters if the US economy slid into deflation or falling prices. That earned him the label Helicopter Ben from critics who disliked the idea of expanding the money supply in that way.
The 54-year old was chief of George Bush's council of economic advisers for four years before taking the top job at the Fed. During his academic career at MIT, Stanford and Princeton he wrote extensively about the Great Depression and acknowledged in a speech at Friedman's 90th birthday party in 2002 that the Fed was at fault during the Depression for not expanding demand.
"I would like to say to Milton and Anna [Friedman] regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again."
Now with house prices in freefall Bernanke is widely expected by economists to cut interest rates ultimately to 1% or even zero as he does whatever he can to prevent a slump.
He is also likely to sanction further injections of funds into frozen money markets to try to thaw them. Bernanke has until recently drawn attention to rising inflationary pressures. But most observers think he will put those concerns to one side while he battles against a recession which will push inflation lower as demand contracts. He knows he cannot be the Fed chief who let the economy fall into recession or worse.
Raise your hand if you don’t quite understand this whole financial crisis.
It has been going on for seven months now, and many people probably feel as if they should understand it. But they don’t, not really. The part about the housing crash seems simple enough. With banks whispering sweet encouragement, people bought homes they couldn’t afford, and now they are falling behind on their mortgages.
But the overwhelming majority of homeowners are doing just fine. So how is it that a mess concentrated in one part of the mortgage business — subprime loans — has frozen the credit markets, sent stock markets gyrating, caused the collapse of Bear Stearns, left the economy on the brink of the worst recession in a generation and forced the Federal Reserve to take its boldest action since the Depression?
I’m here to urge you not to feel sheepish. This may not be entirely comforting, but your confusion is shared by many people who are in the middle of the crisis.
“We’re exposing parts of the capital markets that most of us had never heard of,” Ethan Harris, a top Lehman Brothers economist, said last week.
Robert Rubin, the former Treasury secretary and current Citigroup executive, has said that he hadn’t heard of “liquidity puts,” an obscure kind of financial contract, until they started causing big problems for Citigroup.
I spent a good part of the last few days calling people on Wall Street and in the government to ask one question, “Can you try to explain this to me?” When they finished, I often had a highly sophisticated follow-up question: “Can you try again?”
I emerged thinking that all the uncertainty has created a panic that is partly unfounded. That said, the crisis isn’t close to ending, either. Ben Bernanke, the Federal Reserve chairman, won’t be able to wave a magic wand and make everything better, no matter how many more times he cuts rates. As Mr. Bernanke himself has suggested, the only thing that will end the crisis is the end of the housing bust.
So let’s go back to the beginning of the boom.
It really started in 1998, when large numbers of people decided that real estate, which still hadn’t recovered from the early 1990s slump, had become a bargain. At the same time, Wall Street was making it easier for buyers to get loans. It was transforming the mortgage business from a local one, centered around banks, to a global one, in which investors from almost anywhere could pool money to lend.
The new competition brought down mortgage fees and spurred some useful innovation. Why, after all, should someone who knows that she’s going to move after just a few years have no choice but to take out a 30-year fixed-rate mortgage?
As is often the case with innovations, though, there was soon too much of a good thing. Those same global investors, flush with cash from Asia’s boom or rising oil prices, demanded good returns. Wall Street had an answer: subprime mortgages.
Because these loans go to people stretching to afford a house, they come with higher interest rates — even if they’re disguised by low initial rates — and thus higher returns. The mortgages were then sliced into pieces and bundled into investments, often known as collateralized debt obligations, or C.D.O.’s (a term that appeared in this newspaper only three times before 2005, but almost every week since last summer). Once bundled, different types of mortgages could be sold to different groups of investors.
Investors then goosed their returns through leverage, the oldest strategy around. They made $100 million bets with only $1 million of their own money and $99 million in debt. If the value of the investment rose to just $101 million, the investors would double their money. Home buyers did the same thing, by putting little money down on new houses, notes Mark Zandi of Moody’s Economy.com. The Fed under Alan Greenspan helped make it all possible, sharply reducing interest rates, to prevent a double-dip recession after the technology bust of 2000, and then keeping them low for several years.
All these investments, of course, were highly risky. Higher returns almost always come with greater risk. But people — by “people,” I’m referring here to Mr. Greenspan, Mr. Bernanke, the top executives of almost every Wall Street firm and a majority of American homeowners — decided that the usual rules didn’t apply because home prices nationwide had never fallen before. Based on that idea, prices rose ever higher — so high, says Robert Barbera of ITG, an investment firm, that they were destined to fall. It was a self-defeating prophecy.
And it largely explains why the mortgage mess has had such ripple effects. The American home seemed like such a sure bet that a huge portion of the global financial system ended up owning a piece of it. Last summer, many policy makers were hoping that the crisis wouldn’t spread to traditional banks, like Citibank, because they had sold off the underlying mortgages to investors. But it turned out that many banks had also sold complex insurance policies on the mortgage debt. That left them on the hook when homeowners who had taken out a wishful-thinking mortgage could no longer get out of it by flipping their house for a profit.
Many of these bets were not huge, but were so highly leveraged that any losses became magnified. If that $100 million investment I described above were to lose just $1 million of its value, the investor who put up only $1 million would lose everything. That’s why a hedge fund associated with the prestigious Carlyle Group collapsed last week.
“If anything goes awry, these dominos fall very fast,” said Charles R. Morris, a former banker who tells the story of the crisis in a new book, “The Trillion Dollar Meltdown.”
This toxic combination — the ubiquity of bad investments and their potential to mushroom — has shocked Wall Street into a state of deep conservatism. The soundness of any investment firm depends largely on other firms having confidence that it has real assets standing behind its bets. So firms are now hoarding cash instead of lending it, until they understand how bad the housing crash will become and how exposed to it they are. Any institution that seems to have a high-risk portfolio, regardless of whether it has enough assets to support the portfolio, faces the double whammy of investors demanding their money back and lenders shutting the door in their face. Goodbye, Bear Stearns.
The conservatism has gone so far that it’s affecting many solid would-be borrowers, which, in turn, is hurting the broader economy and aggravating Wall Streets fears. A recession could cause credit card loans and other forms of debt, some of which were also based on overexuberance, to start going bad as well.
Many economists, on the right and the left, now argue that the only solution is for the federal government to step in and buy some of the unwanted debt, as the Fed began doing last weekend. This is called a bailout, and there is no doubt that giving a handout to Wall Street lenders or foolish home buyers — as opposed to, say, laid-off factory workers — is deeply distasteful. At this point, though, the alternative may be worse.
Bubbles lead to busts. Busts lead to panics. And panics can lead to long, deep economic downturns, which is why the Fed has been taking unprecedented actions to restore confidence.
“You say, my goodness, how could subprime mortgage loans take out the whole global financial system?” Mr. Zandi said. “That’s how.”
AS sterling fell to parity with the old Irish pound, the Small Firms Association (SFA) warned that many small export companies are struggling to survive.
Yesterday, the British pound fell further, to reach 78.2p to the euro, despite high inflation figures which suggested the Bank of England will find it difficult to cut interest rates much further. The Irish pound converted into euro in 1999 at an entry level of 78.76p. It is the first time that sterling has approached these levels since.
The assistant director of the SFA, Avine McNally, warned of "devastating effects" on exporters if sterling fell as low as 74p to the euro, as some forecasters have suggested.
"It is unrealistic to expect small Irish companies to compete at such a rate against sterling," McNally said.
There were already cases of firms moving to Britain or Northern Ireland, or thinking of doing so, she added.
"One involves a company in Roscommon which exports all its products to the UK and employs 24 people and is moving to England. According to the owner, the loss of 24 jobs will be devastating in one of the country's unemployment blackspots," she said.
Another company, 12 miles from the border, was operating almost entirely in sterling and said it might as well be located across the border.
She said specific measures would have to be taken to reduce employment costs for the most vulnerable and exposed companies.
"Significant rebalancing will have to take place to reduce our transport, energy and service costs," McNally said.
Some of the most-promising new export companies were on "survival alert".
"It will be an absolute tragedy if they fail to survive because of a problem which is outside their control," she said.
The SFA says that Britain accounts for one-third of all the exports from small firms. With 70pc of all small exporters selling into the UK market, around 60,000 jobs are dependent on UK trade links.
"There are a whole series of negatives for the economy flowing from the current situation.
Further increases in the value of the euro will have a devastating effect on our competitiveness.
"The reluctance of the ECB to cut interest rates because of eurozone inflationary pressures, will further compound the competitive pressures already impacting on small exporting countries."
As Bear Stearns collapses and the dollar dives to new international lows,
stock analyst Don Harrold joins us to discuss the decidedly dark financial
future of the USA; high financial skullduggery; investing tactics; and the
role of mass media hacks who serve as the marketing arm of Wall Street.
Greg Palast Connects up
the Spitzer+Subprime dots:
The $200 billion bail-out for predator banks and Spitzer charges are intimately linked
Greg Palast 3/14/08 - Reporting for Air America Radio’s Clout
While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators.
Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.
This week, Bernanke’s Fed, for the first time in its history, loaned a selected coterie of banks one-fifth of a trillion dollars to guarantee these banks’ mortgage-backed junk bonds. The deluge of public loot was an eye-popping windfall to the very banking predators who have brought two million families to the brink of foreclosure.
Up until Wednesday, there was one single, lonely politician who stood in the way of this creepy little assignation at the bankers’ bordello: Eliot Spitzer.
Who are they kidding? Spitzer’s lynching and the bankers’ enriching are intimately tied.
How? Follow the money.
The press has swallowed Wall Street’s line that millions of US families are about to lose their homes because they bought homes they couldn’t afford or took loans too big for their wallets. Ba-LON-ey. That’s blaming the victim.
Here’s what happened. Since the Bush regime came to power, a new species of loan became the norm, the ‘sub-prime’ mortgage and it’s variants including loans with teeny “introductory” interest rates. From out of nowhere, a company called ‘Countrywide’ became America’s top mortgage lender, accounting for one in five home loans, a large chuck of these ‘sub-prime.’
Here’s how it worked: The Grinning Family, with US average household income, gets a $200,000 mortgage at 4% for two years. Their $955 a month payment is 25% of their income. No problem. Their banker promises them a new mortgage, again at the cheap rate, in two years. But in two years, the promise ain’t worth a can of spam and the Grinnings are told to scram - because their house is now worth less than the mortgage. Now, the mortgage hits 9% or $1,609 plus fees to recover the “discount” they had for two years. Suddenly, payments equal 42% to 50% of pre-tax income. Grinnings move into their Toyota.
Now, what kind of American is ‘sub-prime.’ Guess. No peeking. Here’s a hint: 73% of HIGH INCOME Black and Hispanic borrowers were given sub-prime loans versus 17% of similar-income Whites. Dark-skinned borrowers aren’t stupid – they had no choice. They were ‘steered’ as it’s called in the mortgage sharking business.
‘Steering,’ sub-prime loans with usurious kickers, fake inducements to over-borrow, called ‘fraudulent conveyance’ or ‘predatory lending’ under US law, were almost completely forbidden in the olden days (Clinton Administration and earlier) by federal regulators and state laws as nothing more than fancy loan-sharking.
But when the Bush regime took over, Countrywide and its banking brethren were told to party hardy – it was OK now to steer’m, fake’m, charge’m and take’m.
But there was this annoying party-pooper. The Attorney General of New York, Eliot Spitzer, who sued these guys to a fare-thee-well. Or tried to.
Instead of regulating the banks that had run amok, Bush’s regulators went on the warpath against Spitzer and states attempting to stop predatory practices. Making an unprecedented use of the legal power of “federal pre-emption,” Bush-bots ordered the states to NOT enforce their consumer protection laws.
Indeed, the feds actually filed a lawsuit to block Spitzer’s investigation of ugly racial mortgage steering. Bush’s banking buddies were especially steamed that Spitzer hammered bank practices across the nation using New York State laws.
Spitzer not only took on Countrywide, he took on their predatory enablers in the investment banking community. Behind Countrywide was the Mother Shark, its funder and now owner, Bank of America. Others joined the sharkfest: Goldman Sachs, Merrill Lynch and Citigroup’s Citibank made mortgage usury their major profit centers. They did this through a bit of financial legerdemain called “securitization.”
What that means is that they took a bunch of junk mortgages, like the Grinnings, loans about to go down the toilet and re-packaged them into “tranches” of bonds which were stamped “AAA” - top grade - by bond rating agencies. These gold-painted turds were sold as sparkling safe investments to US school district pension funds and town governments in Finland (really).
When the housing bubble burst and the paint flaked off, investors were left with the poop and the bankers were left with bonuses. Countrywide’s top man, Angelo Mozilo, will ‘earn’ a $77 million buy-out bonus this year on top of the $656 million - over half a billion dollars – he pulled in from 1998 through 2007.
But there were rumblings that the party would soon be over. Angry regulators, burned investors and the weight of millions of homes about to be boarded up were causing the sharks to sink. Countrywide’s stock was down 50%, and Citigroup was off 38%, not pleasing to the Gulf sheiks who now control its biggest share blocks.
Then, on Wednesday of this week, the unthinkable happened. Carlyle Capital went bankrupt. Who? That’s Carlyle as in Carlyle Group. James Baker, Senior Counsel. Notable partners, former and past: George Bush, the Bin Laden family and more dictators, potentates, pirates and presidents than you can count.
The Fed had to act. Bernanke opened the vault and dumped $200 billion on the poor little suffering bankers. They got the public treasure – and got to keep the Grinning’s house. There was no ‘quid’ of a foreclosure moratorium for the ‘pro quo’ of public bail-out. Not one family was saved – but not one banker was left behind.
Every mortgage sharking operation shot up in value. Mozilo’s Countrywide stock rose 17% in one day. The Citi sheiks saw their company’s stock rise $10 billion in an afternoon.
And that very same day the bail-out was decided – what a coinkydink! – the man called, ‘The Sheriff of Wall Street’ was cuffed. Spitzer was silenced.
Do I believe the banks called Justice and said, “Take him down today!” Naw, that’s not how the system works. But the big players knew that unless Spitzer was taken out, he would create enough ruckus to spoil the party. Headlines in the financial press – one was “Wall Street Declares War on Spitzer” - made clear to Bush’s enforcers at Justice who their number one target should be. And it wasn’t Bin Laden.
It was the night of February 13 when Spitzer made the bone-headed choice to order take-out in his Washington Hotel room. He had just finished signing these words for the Washington Post about predatory loans:
“Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which he federal government was turning a blind eye.”
Bush, said Spitzer right in the headline, was the “Predator Lenders’ Partner in Crime.” The President, said Spitzer, was a fugitive from justice. And Spitzer was in Washington to launch a campaign to take on the Bush regime and the biggest financial powers on the planet.
Spitzer wrote, “When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners the Bush administration will not be judged favorably.”
But now, the Administration can rest assured that this love story – of Bush and his bankers - will not be told by history at all – now that the Sheriff of Wall Street has fallen on his own gun.
A note on “Prosecutorial Indiscretion.”
Back in the day when I was an investigator of racketeers for government, the federal prosecutor I was assisting was deciding whether to launch a case based on his negotiations for airtime with 60 Minutes. I’m not allowed to tell you the prosecutor’s name, but I want to mention he was recently seen shouting, “Florida is Rudi country! Florida is Rudi country!”
Not all crimes lead to federal bust or even public exposure. It’s up to something called “prosecutorial discretion.”
Funny thing, this ‘discretion.’ For example, Senator David Vitter, Republican of Louisiana, paid Washington DC prostitutes to put him diapers (ewww!), yet the Senator was not exposed by the US prosecutors busting the pimp-ring that pampered him.
Naming and shaming and ruining Spitzer – rarely done in these cases - was made at the ‘discretion’ of Bush’s Justice Department.
This is Eliot Spitzer's swansong article
in the Washington Post last month:
Predatory Lenders' Partner in Crime
How the Bush Administration Stopped the States From Stepping In to Help Consumers
By Eliot Spitzer - Thursday, February 14, 2008; A25
Several years ago, state attorneys general and others involved in consumer protection began to notice a marked increase in a range of predatory lending practices by mortgage lenders. Some were misrepresenting the terms of loans, making loans without regard to consumers' ability to repay, making loans with deceptive "teaser" rates that later ballooned astronomically, packing loans with undisclosed charges and fees, or even paying illegal kickbacks. These and other practices, we noticed, were having a devastating effect on home buyers. In addition, the widespread nature of these practices, if left unchecked, threatened our financial markets.
Even though predatory lending was becoming a national problem, the Bush administration looked the other way and did nothing to protect American homeowners. In fact, the government chose instead to align itself with the banks that were victimizing consumers.
Predatory lending was widely understood to present a looming national crisis. This threat was so clear that as New York attorney general, I joined with colleagues in the other 49 states in attempting to fill the void left by the federal government. Individually, and together, state attorneys general of both parties brought litigation or entered into settlements with many subprime lenders that were engaged in predatory lending practices. Several state legislatures, including New York's, enacted laws aimed at curbing such practices.
What did the Bush administration do in response? Did it reverse course and decide to take action to halt this burgeoning scourge? As Americans are now painfully aware, with hundreds of thousands of homeowners facing foreclosure and our markets reeling, the answer is a resounding no.
Not only did the Bush administration do nothing to protect consumers, it embarked on an aggressive and unprecedented campaign to prevent states from protecting their residents from the very problems to which the federal government was turning a blind eye.
Let me explain: The administration accomplished this feat through an obscure federal agency called the Office of the Comptroller of the Currency (OCC). The OCC has been in existence since the Civil War. Its mission is to ensure the fiscal soundness of national banks. For 140 years, the OCC examined the books of national banks to make sure they were balanced, an important but uncontroversial function. But a few years ago, for the first time in its history, the OCC was used as a tool against consumers.
In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules.
But the unanimous opposition of the 50 states did not deter, or even slow, the Bush administration in its goal of protecting the banks. In fact, when my office opened an investigation of possible discrimination in mortgage lending by a number of banks, the OCC filed a federal lawsuit to stop the investigation.
Throughout our battles with the OCC and the banks, the mantra of the banks and their defenders was that efforts to curb predatory lending would deny access to credit to the very consumers the states were trying to protect. But the curbs we sought on predatory and unfair lending would have in no way jeopardized access to the legitimate credit market for appropriately priced loans. Instead, they would have stopped the scourge of predatory lending practices that have resulted in countless thousands of consumers losing their homes and put our economy in a precarious position.
When history tells the story of the subprime lending crisis and recounts its devastating effects on the lives of so many innocent homeowners, the Bush administration will not be judged favorably. The tale is still unfolding, but when the dust settles, it will be judged as a willing accomplice to the lenders who went to any lengths in their quest for profits. So willing, in fact, that it used the power of the federal government in an unprecedented assault on state legislatures, as well as on state attorneys general and anyone else on the side of consumers.
ABC is reporting that Eliot Spitzer came under the attention of the Feds because his bank reported "suspicious money transfers" to the IRS. The Justice Department brought it to the FBI's Public Corruption Squad, who looked into it and found that payments were made to a company called QET, which did business as The Emperor's Club.
All kinds of questions arise here:
1. Why would the bank tell the IRS and not Spitzer himself if there was a suspicious transfer? Spitzer is a longtime client, a rich guy and the governor. We're talking thousands of dollars here, not millions. It doesn't make a whole lot of sense that they spotted a "suspicious transfer" made by the governor, and that this is how things began. It's possible it was just ordinary paperwork the bank had to file with the government whenever some particular flag was raised, but if that's the case, why did the DoJ go to DefCon 3?
2. What is a USA doing prosecuting a prostitution case? This isn't normally what the feds spend their time with.
3. Mike Garcia is a Chertoff crony. Sources familiar with the investigation say that he sent a prosecution memo to DC two months ago asking for authority to indict a public figure (Spitzer). Which means they had their case made long before the wire tap of February 13. Why did they then include this line from that conversation in the complaint?
LEWIS continued that from what she had been told "he" (believed to be a reference to Client-9) "would ask you to do things that, like, you might not think were safe -- you know -- I mean that...very basic things...."Kristen" responded: "I have a way of dealing with that...I'd be like listen dude, you really want the sex?...You know what I mean."
This salacious detail does not seem like it's necessary to make their case, and appears to be added for no other purpose than to destroy Spitzer's career.
4. How did Spitzer's name get leaked to the media, and who did it? Didn't happen to Dave Vitter.
5. Why did Mike Bloomberg suddenly start talking about running for governor recently? And why did he give $500,000 to Joe Bruno? He's good buddies with Mike Mukasey. What did he know and how did he know it?
Here's the article mentioned just above
in those Roger Stone references:
Political Consultant Resigns After Allegations of Threatening Spitzer’s Father
By DANNY HAKIM and NICHOLAS CONFESSORE
Published: August 23, 2007
ALBANY, Aug. 22 — The Senate majority leader, Joseph L. Bruno, forced one of his top political consultants to resign on Wednesday after allegations that he left a threatening telephone message at the office of Gov. Eliot Spitzer’s father.
The consultant, Roger J. Stone Jr., continued to insist that the recorded message — which was made public by lawyers representing the governor’s 83-year-old father, Bernard Spitzer — was not authentic. He said allies of the governor had plotted against him, though an alibi he offered in a statement on his Web site appeared to be problematic.
The episode has inflamed the already poisonous political atmosphere here, just weeks after Attorney General Andrew M. Cuomo issued a report that found the Spitzer administration had misused the State Police as part of an attempt to discredit Mr. Bruno.
Mr. Bruno, a Republican, cut short questions during a news conference after vowing that the allegations against Mr. Stone would not divert attention from efforts by Senate Republicans to investigate the Spitzer administration. Democrats called for a new investigation into the phone call and chided Mr. Bruno for not apologizing.
“I don’t know what Roger Stone did,” Mr. Bruno said. “Roger no longer has a relationship with the Senate, based on the allegations.”
“Whether it’s true or not,” he said, “we are, until there’s clarity, severing our relationship.”
Mr. Stone, 55, has been a controversial figure in state and national political circles for decades. He cut his political teeth as a teenager in the campaign of Richard M. Nixon, working for the Committee to Re-elect the President, and later was a partner of Lee Atwater, one of the highest-profile political consultants of the 1980s.
Aside from some notable political victories, Mr. Stone has left behind a trail of short-lived campaigns, feuds with former friends and clients, and, above all, rumors of dirty tricks. As he once put it in an interview, “if it rains, it was Stone.”
He oversaw Ronald Reagan’s campaign operations in New York but was on the outs in some Republican circles after backing the upstate billionaire Tom Golisano’s third-party bid against Gov. George E. Pataki in 2002. A dossier about Mr. Stone’s past exploits prepared by a former opponent and still circulating among New York Republicans runs to 74 pages.
During the Florida recount in 2000, George W. Bush’s campaign enlisted Mr. Stone and his wife, Nydia, who is of Cuban ancestry, to rally support among Cuban exiles in Miami, according to Jeffrey Toobin’s “Too Close to Call,” a book about the recount battle. Mr. Stone was also instrumental in organizing the so-called Brooks Brothers Riot, the book said, when hundreds of Republican activists stormed a county election office in Miami and demanded that workers there cease recounting presidential ballots.
Mr. Stone had an unlikely political relationship with the Rev. Al Sharpton during his 2004 run for the presidency, and some of Mr. Sharpton’s aides said Mr. Stone played a central role in the campaign. But Mr. Stone says his role has been greatly overstated.
Mr. Stone, who mostly does corporate consulting work now, has also been an adviser to the real estate developer Donald J. Trump, especially during Mr. Trump’s efforts in the late 1990s to prevent the expansion of gambling in New York. In 2000, Mr. Stone and Mr. Trump were fined by state lobbying regulators after an investigation revealed that the developer had secretly financed newspaper ads opposing Mr. Pataki’s plans to approve new casinos in the Catskills.
Mr. Stone’s reputation for hard-edged political tactics appeared to be a selling point for the Senate Republicans, who after Mr. Spitzer’s election last fall were facing an aggressive Democratic governor eager to wipe out the state’s last redoubt of Republican strength.
Mr. Stone was hired near the end of the legislative session in June and was paid $20,000 a month. In a closed-door meeting last month, Mr. Stone presented a road map for aggressively defending and rebuilding the party.
“When you’re in kind of a war posture or an under-attack posture, that’s certainly appealing,” said a senior Republican aide in the Senate. The aide said that Mr. Stone had had little contact with rank-and-file members, aside from the July meeting, and that opinion about his presentation had been mixed.
The Senate Republicans appeared newly emboldened in the weeks after Mr. Stone’s arrival, which coincided with the emergence of more aggressive Web-based activity opposing Mr. Spitzer. Reporters and others around the capital began receiving e-mail messages from addresses like SpitzerFile.com and NYFacts.net, most of them reprinting newspaper stories critical of Mr. Spitzer or containing political cartoons attacking him. Those two services are run by Michael Caputo, a Buffalo-area Republican who has worked with Mr. Stone in the past but who has said he is working on his own now.
The phone message left at the office of Bernard Spitzer, who is suffering from Parkinson’s disease, said that Mr. Spitzer, a wealthy real estate developer, would be “compelled by the Senate sergeant-at-arms” to testify about “shady campaign loans” he made to his son during his unsuccessful campaign for attorney general in 1994. (Senate Republicans have said they might investigate those loans.)
The message, left just before 10 p.m. on Aug. 6, went on to say that the elder Spitzer would be “arrested and brought to Albany” if he resisted. It also used profanities in referring to the governor.........
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