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welcome to the socialist paradise of, erm, america!

Postby bigearth » Wed Oct 15, 2008 8:28 am

Wall Street humiliated by nationalisation of banks

By Stephen Foley in New York
Wednesday, 15 October 2008


Reuters
Image
George Bush makes his statement on the economy in the Rose Garden of the White House



The US government is set to become the largest shareholder in its national banks, pumping in $250bn (£143bn) to prop up its financial system and marking one of the most startling moments in a credit crisis that has broughtquasi-nationalisation to the home of free-market capitalism.

President George Bush appeared in the White House Rose Garden yesterday morning to declare that his government was immediately taking stakes in nine of the biggest banks in America, and would extend its hand to hundreds and possibly thousands more.

The moves are "not intended to take over the free market but to preserve it", he promised. "This is an essential short-term measure to ensure the viability of America's banking system."

With the government as their most important new shareholder, some of the most powerful companies in the banking world will face tough curbs on executive pay, including on the "golden parachutes" that give millions in compensation to bosses who are fired.

In return, the banks will get cheap capital that they can use to lend to each other and to the businesses and consumers that rely on credit to fund wages and buy houses – and without which the US economy is threatening to plunge into a deep recession.

The White House had resisted the part-nationalisation of the country's big banks until days ago, when a panic on the stock market and dramatic moves in Europe led by Gordon Brown forced its hand. With European governments guaranteeing bank deposits and lending, the US could ill-afford not to follow suit for fear that capital may flee to the country to safer banks across the Atlantic.

The G7 group of major nations agreed at the weekend that direct government bailouts had to be part of the solution to the banking crisis gripping the world.

Yesterday, a number of other plans were unveiled that take the US government deeper into the business of the financial markets. It will guarantee all deposits in business accounts, start buying corporate debt through the Federal Reserve and underwrite future debt issues by banks in the hope that the private sector will step up to fund the banking system.

The US Treasury Secretary Hank Paulson had summoned the chief executives of the biggest US banks to a meeting in Washington on Monday to tell them that they must accept the government as a significant new shareholder, even though several declared that they did not need or want the money. Mr Paulson said yesterday that seeing Goldman Sachs, Morgan Stanley, Bank of America and other powerful banks taking taxpayer cash would reduce the stigma for others.

Congress approved a $700bn bail-out package for the US financial sector after a protracted battle last month but at the time few people realised that cash would be used to buy equity directly in banks. Instead, the Treasury had pushed a proposal to buy up the toxic mortgage debts that have been rotting the core of the banking system for the past year and a half. Now, $250bn will be carved out for direct investments, half of which was immediately earmarked for the major institutions named yesterday – Citigroup, JP Morgan Chase, Bank of America (which is acquiring Merrill Lynch), Wells Fargo, Goldman Sachs, Morgan Stanley, Bank of New York Mellon and State Street.

The actions are "not what we ever wanted to do", Mr Paulson conceded, "but today, there is a lack of confidence in our financial system – a lack of confidence that must be conquered because it poses an enormous threat to our economy."

In recent weeks, governments around the world have had to respond to the financial crisis with extraordinary measures and dizzying speed. The financial system came close to calamity in the days after the Bush administration, arguing that markets should be allowed to work difficulties through without government help, let the investment bank Lehman Brothers fail last month. Before a week was out, however, the US government had to take over the world's largest insurance giant, AIG, and promise to guarantee all the money in the $3 trillion money market industry. Last month, it became the country's largest mortgage lender when it took over the tottering mortgage finance giants Fannie Mae and Freddie Mac in a rescue bid that could cost taxpayers $200bn.

Almost without any thought, the actions usher in a new and unpredictable era in American capitalism.

"It wasn't just the right move, it was the only move," Ken Rogoff, Harvard University economist, said of yesterday's cash injection. "Thank goodness they didn't dally for another week to finally figure it out."

The details of yesterday's moves were unveiled at a hastily convened press conference by Mr Paulson, Ben Bernanke, chairman of the Federal Reserve, and Sheila Bair, who runs the Federal Deposit Insurance Corporation, which regulates US banks.

Mr Bernanke – a scholar of the Great Depression – said there would be setbacks but he believed the intervention could mark the beginning of the end of the credit crisis. "History teaches us that government engagement in times of severe financial crisis often arrives very late, usually at a point at which most financial institutions are insolvent or nearly so. Waiting too long to act has usually led to much greater direct costs of the intervention itself and, more importantly, magnified the painful effects of financial turmoil on households and businesses. That is not the situation we face today."

There were signs yesterday that the moves had an immediate effect on the credit markets, as banks became more willing to lend to each other now that there is a federal guarantee underwriting many transactions. Global stock markets – which soared on Monday by amounts that were, in some cases, new records – continued their ascent in Asian and European trading, although some investors took profits and the Dow Jones was lower by lunchtime.

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Postby bigearth » Wed Oct 15, 2008 8:51 am

Undertakers deliver last rites for US capitalism

By Krishna Guha in Washington

Published: October 14 2008 21:59 | Last updated: October 14 2008 21:59

The Cash Room of the US Treasury, with its marbled walls, faux columns and giant chandeliers, was an oddly appropriate place to bury free market capitalism.

For a few minutes all was still, apart from the buzz of the camera crews lined up to film the funeral. The podium stood empty, flanked with two giant flags. Behind it an open door revealed six more flags, as if an abundance of stars and stripes would reassure a troubled nation that the partial nationalisation of America’s banking system was indeed a truly patriotic act.

EDITOR’S CHOICE
Editorial Comment: Paulson at last goes systemic - Oct-14
FT interview: Hank Paulson - Oct-15
Analysis: Whatever it took - Oct-14
Video: John Authers on anxiety in markets - Oct-14
Full coverage: Global financial crisis - Oct-15
Interactive feature: Government interventions - Oct-14

Above the door a silver seal depicted the US Treasury’s crest: scales, a chevron and a key, with the date 1789. This crest had long proclaimed the genius of the US private financial sector. But now America’s banks had been weighed in the balance and found wanting: government intervention was the only key to unlock a global financial crisis. In strode the undertakers: all in black save the blue-suited undertaker-in-chief, who marched to the podium to deliver such a ringing hymn to the American spirit that the audience wondered for a second why it was there.

“America is a strong nation. We are a confident and optimistic people,” declared Hank Paulson, Treasury secretary.

“Our confidence is born out of our long history of meeting every challenge we face.” But then reality reared its ugly head. “There is a lack of confidence in our financial system . . . it poses an enormous threat to our economy. Investors are unwilling to lend to banks, and healthy banks are unwilling to lend to each other.”

So was America confident or terrified? Apparently it was confident that it could stop being terrified but only if the government came to the rescue.

Deputy undertaker Ben Bernanke, Federal Reserve chairman, stared grimly into space; Sheila Bair, head of the Federal Deposit Insurance Corporation, nodded occasionally. Tim Geithner, president of the New York Fed, stood with both hands in his pockets, looking concerned.

Mr Bernanke’s turn came next, promising to do whatever it took to save the nation from disaster while letting slip that even yesterday’s giant intervention might not be enough. Then up strode Ms Bair, her head barely visible above the podium Mr Paulson had towered over, to detail the “extraordinary steps” the government was taking to save its banks.

Saving the economy would require “a sustained and co-ordinated effort by government authorities”. People may have lost faith in the private sector but not the power of federal authorities to rescue them. “Above all else, there must be no doubt in our government.”

A loss of faith in the private sector but no doubt in government? In America? Ronald Reagan must be turning in his grave.

Copyright The Financial Times Limited 2008

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Postby Gouda » Wed Oct 15, 2008 8:59 am

bigearth, do you really agree (with the articles you've posted) that Wall Street is 'humiliated' by these interventions, and do you really mean to imply that the USA is now socialist? Would be interested to hear your thoughts on that.
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Postby bigearth » Thu Oct 16, 2008 8:57 am

i'm joshin'..

america is hardly "socialist", is it?!

even so, you have to say that bailing out gamblers bad debts isn't exactly the best advert for free market capitalism, is it???


america is too corrupt to be a genuine socialist country.

the $700bn call is FRAUD, imo.

You know where that very important $700-billion figure came from?

Here's a quote from that Forbes story:

"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."

They made it up to be sufficiently ginormous to frighten everyone into rapid action.



while i have your attention, what do you think about the credit default swap situation?

regards :)
. is it a wise man, who knows that he is not wise
. it's good to have cynicism but not be cynical
. the more truth you live with, in your life, the stronger you are
. intelligence is merely an attitude to knowledge and learning
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Postby Gouda » Tue Oct 21, 2008 10:49 am

bigearth asked:
what do you think about the credit default swap situation?
.
.
.
.
.

As Peter "Crash Proof: How to Profit From the Coming Economic Collapse" Schiff said:
It was like writing fire insurance, assuming no one is ever going to have a fire, only now they're turning around and watching as the whole town burns down."


A related, instructive metaphor:

http://stangoff.com/?p=264


The capitalist state is owned and operated by the capitalist class. Under conditions of stability and productivity, it represents capital-in-general. This often means that it has to suppress or even eliminate certain fractions of capital – whose range of view is limited by its own business cycle – in order to ensure continued power by the class as a whole.

In the classic Brando film “Burn,” based loosely on the history of Haiti, the colonial military commander orders an entire island colony set ablaze, including its lucrative sugar plantations, in order to crush a Black proletarian rebellion. One of the island’s capitalists pleadingly objects that the commander has wiped out the island’s profits. The commander then explains that the destruction of the island is necessary to send the message to other workers on the rest of the colonized islands, and that this “pacification” is required to ensure profits for all, not just over the next business cycle, but for the next decade.
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Postby bigearth » Tue Oct 21, 2008 2:28 pm

Gouda wrote:As Peter "Crash Proof: How to Profit From the Coming Economic Collapse" Schiff said:

with respect, i asked for your own thoughts...!
. is it a wise man, who knows that he is not wise
. it's good to have cynicism but not be cynical
. the more truth you live with, in your life, the stronger you are
. intelligence is merely an attitude to knowledge and learning
bigearth
 
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