Depression Era Tactics

We have really hit the shit now people. Labor is dusting off tactics that they haven't used since the bad old days of company towns and anarchists. Laid off workers have occupied a factory in Chicago. They were given short notice of the closing of the plant and are attempting to get the severance and vacation pay due to them. This is actually connected to the $700,000,000,000.00 bailout because one of the banks that got assistance from the Treasury is the bank that finances this company that employees these workers and said bank refuses to loan the company the money it needs to keep up with its payroll, forcing it to close its factory doors. Which is exactly why there needed to be better controls put on this massive act of corporate welfare so that Paulson wasn't left with the sole option of begging the banks to not horde the cash but deploy it. Because if they won't spend the money then the bailout can't serve the purpose it was authorized for.

The Burning Questions

Whether you supported John McCain, Ron Paul, or even Brian Moore, the real Socialist candidate, congratulations are certainly in order for the winner of the 2008 Presidential Election, Barack Obama, there are more than a few questions he needs to answer almost immediately. Sure, he can have a few days to bask in the glory of the acceptance of an entire nation-state, if not the entire world, but try to keep it short. Some of these questions may have already been answered in campaign promises, but as the last few presidential campaigns have demonstrated, promises can be forgotten so easily, and so these need to be asked. So without further avail, in no particular order, are the list of questions we here at the Fringe Element would like to see Barack Obama answer. 

• Will you promise not to lie to the American people, even if the truth will hurt your political aspirations?
• Will you move the U.S.A.'s foreign policy away from the Bush Doctrine of pre-emptive strikes into foreign countries?
• Will you free the West Memphis Three and Mumia Abu-Jamal?
• Do you plan to amend the FISA Act and discontinue the NSA's domestic surveillance programs?
• Will you use neutral experts to evaluate science and policy before committing tax money to any specific plans and regulations?
• Your running mate is famous for having been the reason for the creation of PGP encryption. Will you enunciate a series of principles governing your administration's relationship to the internet, and will you continue to support net neutrality? Furthermore, will you enforce net neutrality regulations with civil and criminal penalties?
• Do you realize and acknowledge that infrastructure, the environment, the economy, taxes, energy, crime, prisons, and drugs are all interrelated facets of one national domestic problem that must be solved with a cohesive effort and a comprehensive policy?
• How do you plan to address the ongoing global economic crisis? Do you want to convene a Bretton Woods II, or try to create a novel set of policies?
• How will you direct your appointed Treasurer to manage the funds under the Emergency Economic Stabilization Act? Will you direct these funds to help homeowners or businesses?
• Will the focus of whatever economic plan you craft be to create jobs, like Franklin Delano Roosevelt with his New Deal, or to help corporations?
• How do you plan to regulate big business? That is to say, how do you plan to regulate corporations so that no corporation is "too big to fail"?
• How do you plan to encourage the creation and growth of small businesses while protecting the public interest?
• Do you plan to trim down the budget of the Department of Defense? Or, if not, at least demand better accountability of funds that are spent?
• How will you encourage private, self-interested companies to develop alternatives to fossil fuels and solutions for our energy crisis?
• How do you plan to address the shortage in funds in the Social Security trust that were promised to the now-retiring baby boomer generation?
• Do you plan to continue the War on Drugs?
• To what extent, if any, are you going to restructure the military-industrial complex?
• To what extent, if any, are you going to restructure the prison-industrial complex?
• What measures do you plan to take in fostering a so-called green economy?
• What is your plan for addressing America's crumbling infrastructure?
• Do you plan on re-tasking the FBI from its current counter-terrorism mission to being more focused on domestic crime, such as white collar crime and political corruption?
• Do you promise not to politicize the Justice Department and the various U.S. Attorneys?
• What type of Judge will you appoint to the Supreme Court if given the chance?
• How do you plan to address the Bush Administration's last minute changes to federal regulations governing such matters as consumer safety and the management of federal lands, and such bureaucracies as the Environmental Protection Agency?
• Do you plan to drill for oil and natural gas offshore and in the Alaska National Wildlife Refuge?
• How do you plan to address the growing shortage of lending for college students and their families?
• Do you have any plan to provide health care for all American citizens?
• Are you going to follow-up on Vice President-elect Joe Biden's promise to prosecute former members of the Bush Administration for their various allegend misdemeanors and felonies?
• Do you plan to continue to develop a new generation of nuclear weapons?
• Would you be interested in negotiating a multilateral treaty governing Space, the Internet, and other facets of information warfare?
• Will you continue to address terrorism as a national security issue, or view it as a problem of criminal justice?
• Do you plan to rehabilitate ties with Russia?
• Are you going to continue with the installation of the missile defense shield, especially in the Czeck Republic and Poland?
• Do you plan to change America's foreign policy in regards to the Republic of Georgia?
• Do you plan to change government policy as it relates to selling weapons to foreign nations?
• What will be your administration's policy towards Israel? Are you going to take meaningful steps in creating a Palestinian state or otherwise realizing peace between the Israelis and the Palestinians?
• Will you denounce Israeli settlements in the West Bank that have been recognized as illegal under international law?
• You have already expressed a willingness to negotiate with the government of the Republic of Iran directly, but will you continue to enforce unilateral sanctions placed upon that country by the Bush Administration?
• How long is your timeline for pulling American troops out of Iraq?
• What is your plan for Afghanistan? Will you follow-up on your promise of deploying additional troops to the region? How will you address the concerns of the Afghani government about civilian casualties? 
• You have also addressed a willingness to address the various problems in Pakistan, such as the Taliban haven along its shared border with Afghanistan, but will you direct the Department of Defense to continue using Predator drone missile strikes into Pakistani territory to kill militants? Will you continue to support the Pakistani government's campaign to fight the aforementioned militants in the form of cash payments and limited training, or will you try a different approach? Do you have any plan for addressing Pakistan's foreign exchange problem?
• Do you plan to convene peace talks between Pakistan, India, and the People's Republic of China over the disputed territory of Jammu and Kashmir?
• Do you have any plan to address the ongoing civil war in Sri Lanka?
• Do you plan to engage in talks with the military government of Myanmar?
• At the risk of asking too large of a question, what will be your administration's policy towards the People's Republic of China? Will you continue to sell armaments to Taiwan?
• Do you have any plan to address the ongoing violence in the Democratic Republic of Congo?
• How do you plan to address piracy in the Gulf of Aden based in Somalia?
• Do you have any plan to engage in talks with Robert Mugabe's government and alleviate the humanitarian crisis in Zimbabwe?
• Do you plan to continue the DEA's coca eradication program in South America?
• Do you plan to lift the embargo on Cuba?
• How do you plan to mend ties between the U.S.A. and Latin America?
• Do you have any ideas for combating the rise in drug-related violence in Mexico?

The Ben Franklin Report: Pessimism Abounds

With renowned economist Nouriel Roubini of NYU predicting the worst economic contraction in more than 40 years, author Bill Bonner predicting the Dow Jones will fall to 5,000, and some very interesting analysis about the role of credit default swaps in creating some of the worst excesses of the real estate market, it's easy to understand why investors would want to avoid assets in the United States. What's particularly important about the aforementioned analysis, is that it reports that there is a provision in the recently approved $700 billion bailout that allows the Federal Reserve to pay interest on collateral held in exchange for loans. Under this scenario, the financial institutions can give take a loan out at the Fed, offering equity or some of the worst financial derivatives that mathematicians can imagine supported by some of the worst lending since the 1920's as collateral. Then, with the Treasuries or cash that the institution has borrowed, earn profit, and also earn more in interest than the derivative might be worth, thanks to the end of mark-to-market accounting. Which, in summation, amounts to one of the subtlest giveaways in an era of high-priced socialization. 

However, one doesn't need to be an investor to feel worried about the economy. Simply talk to state and local employees and the citizens who rely on their services, in places such as Chicago; King County, WA; Iowa; Maryland; and Massachusetts. In other news, the federal government announced a $455 billion budget deficit for Fiscal Year '08, which doesn't count Treasurer Hank Paulson's commitments to the financial industry, which will push the deficit in '09 even higher, in addition to whatever additional economic stimulus is passed in the coming months. 

There's even more pessimism in whether the announced $250 billion equity binge on nine of the largest financial institutions in America will have any effect on their behavior whatsoever. Despite the investments, up to $25 billion in some cases, the Treasury didn't receive the right to make policy decisions, such as board appointments. So other than hold more meetings and perhaps more begging on one knee, the Treasury's hands are tied.

Ben Franklin Report: Warning Signs

Parroting the same policy as many previous Treasury Secretaries before him, Sec. Henry Paulson has come in favor of a 'strong dollar.' Of much more interest, though, is his sound byte saying that the government will not step in to intervene in the market on behalf of investors who made poor decisions and took on way too much of the worst kind of risk. Federal Reserve Chairman Ben Bernanke, in some of the most constructive testimony of his tenure thus far, indicated without words that the U.S. economy is probably already in a recession, that there will be bank failures in the near future, and yet he does not anticipate stagflation in the near-term.

In other pressures on the U.S. Dollar, OPEC has agreed to not lift output, which has pushed crude oil to a new record close, even further exasperating the oil standard. Pricing barrels of oil in euros is undoubtedly just around the corner. Expect to see oil ministers from the various OPEC countries begin speaking about it openly before their next production meeting.

As municipal bond markets continued to deteriorate, forcing yields up on long-term bonds, the city of Vallejo becomes the largest city in California to look bankruptcy square in the eye. This probably is the beginning of the trend, rather than the end of it, especially as houses will continue to have their values reappraised downward.

As an interesting aside, Fannie Mae paid $200K to lobby those who decide upon its workings. FNM's $2.1 billion loss on the year announced yesterday could put pressure on the ability of the mortgage giant to tap into credit pools, as Moody's announced that Fannie Mae's B+ rating is under review.

If you're wondering tomorrow morning why your wallet feels lighter, it's because it probably is. As of publishing the dollar was at a new record low against the Euro, weaker than the Canadian Dollar, and near a 4-year low with the Yen.

Cleveland, Clinton, and Capitalism, That's a Twisted Trifecta

The courts are now being called in to help arbitrate the ramifications of the subprime crisis. Cleveland, one of the worst cities, or was it the worst, is now suing 21 different lenders that "knowingly created a public nuisance by exploiting the city of Cleveland." The city is seeking hundreds of millions of dollars "at least" to help cover the cost of demolishing thousands of abandoned homes. The plummeting population of Cleveland is putting the city in a budgetary squeeze to maintain services. Baltimore, on Thursday, beat them to the punch, though, and filed suit against Wells Fargo Bank NA, subsidiary of Wells Fargo & Co. Of these two suits, it's easier to see the Baltimore suit going farther because of its limited scope, but I'm not a lawyer. The Cleveland suit seems more like a shot in the dark, but may get much more interesting if the suburbs become involved in a class action type action.

Washington is all abuzz with talk of an economic stimulus package to help offset the downside pressures in the market. Bipartisanship is a word that's hardly mentioned without a curse, but congressional leaders are falling over themselves trying to say it the most. As well they should, because any deal will have to accord with the wishes of our King, I mean, President. Treasury Secretary Paulson says that Bush has yet to decide, but stresses that any stimulus package should be temporary at best. It should make Bush's State of the Union Address more interesting.

The Democrats, for their part, are now faced with breaking their "pay as you go" promise, and could potentially borrow billions more to help finance their version of an economic stimulus package. In a bipartisan fashion, everyone agrees that the measure should be permanent and it needs to be felt by the general population very quickly. With the coming Presidential election, the stakes are much higher, and Hillary Clinton is trying to be one of the first in the field to offer a plan to offset the downside risks. Ben Bernanke is going to pow wow with the Democrats at a policy retreat later this month, to consult with them as they try to find a way out of this fiscal nightmare. The Fed Chairman's words are being parsed for hints at the January board meeting and what moves the Fed will take. Most economists are betting on a rate decrease of at least half a percentage point, down to 3.75%. Ben will meet with Nancy Pelosi on Monday for what will amount to little more than a photo opportunity and a chance for the Speaker of the House to appear as though she's doing something in the midst of growing signs that the economy might be in real trouble.

Among these signs are the rising price of gold, which is expected to hit $900 per troy ounce, as investors seek reliable shelters in the face of market uncertainty. Another sign of troubled times in the economy are the anemic holiday sales at all of the major retailers, with the notable exception of Wal-Mart. Considering Tiffany's was also subject to the slow down, the upper echelons of earners no longer appear immune to these downward risk pressures. Another interesting note is that the Treasury Department's last issuance of inflation protected securities fell to 1.65%, down from October's rate of 2.36%.

The difference in response between the Federal Reserve and the European Central Bank couldn't be more stark. Whether the glass is half full of half empty, it would appear that the philosophical difference lies in whom the stimulus package and the results are directed at. The Federal Reserve, in lowering rates, makes it more appealing for businesses to earn money and to help money move through the economy, hopefully in the form of capital investment. The European Central Bank, on the other hand, appears to be betting that keeping rates up will encourage people to save money in depository institutions, which will then be on a much sounder footing to issue new loans and securities. The question remains to be seen whether investors will respond to this strategy, but so far it would appear not.

Among the companies named in the city of Cleveland's law suit are some of the most troubled financial institutions in the U.S. Countrywide Financial, the biggest mortgage dealer which helped spur the growth in subprime mortgages is being purchased by the Bank of America. Citigroup is turning towards Kuwait and China to seek billions more in capital infusions to stay afloat. Merrill Lynch is looking at a much larger loss in the fourth fiscal quarter in attempting to move stock options issued to its employees off of its balance sheet.

All of this talk of moving the economy out of recession through a temporary spending measure, as Ron Paul said in the debate on Thursday night, would be productive in that it would inject capital into the economy in a way that the Fed cannot, but would be counter productive in that the United States government has no money to pay for anything that it would want to.

Taxpayer Exposure

Treasury Secretary Henry Paulson is scheduled to give a speech today, outlining the administration's efforts to ameliorate the effects of the ongoing financial crisis. In mentioning the investor reluctance to fund mortgages, Sec. Paulson also seems to depend on "market discipline" to restore confidence in the markets. He also plans to use the occasion to defend a freeze in subprime borrowing costs. Although the author of this article, Jeanne Sahadi, seems to believe that there are two exclusive camps surrounding the crisis, one camp that feels that the Treasury's plan is too little, and another that feels that free market principles should prevail and those who took on risk should learn the meaning of risk, I find merit to both arguments.

Regardless, some are wishing that they had agreed with Ron Paul in 2005 when he wanted to remove the implicit taxpayer backing for the GSEs, such as Fannie Mae and Freddie Mac, to avoid a government bailout after the housing bubble burst. After a closer look at the liquidity figures of the Federal Reserve and the European Central Bank and the regulatory options available to forestall the crisis, "Mish" Shedlock says that there is no possible rescue plan, and clears up the mistaken notion that liquidity is capital, which can be used to underwrite shaky markets, which it is not.

"Raghu" offers up some advice through his new book, on how the subprime crisis can be further averted, although I have to wonder how he thinks the government will find the money to bail out the market, for even 1%, nonetheless 20%.

IndyMac Bancorp Inc. is looking at darker days as Fannie Mae and Freddie Mac have raised fees and surcharges to securitize risky loans.