Dangerous Economic Misconceptions:

http://stockmarketchartanalyst.blogspot.com/

I won't be posting my usual fundamental and technical analysis of the S&P 500's daily and weekly charts this weekend for a couple of reasons...The first is, we have family visiting from far away, and creating and posting my charts takes many hours...And secondly, what's the point?...

If you've been following my blog lately, I've been harping on how corrupt the market has become lately, and how much more difficult it is to predict near terms movements because of this...The mainstream media/propaganda machine and bogus government economic reports were in full force again this week...So it's no surprise that the market went UP!...Here is just one example of a bogus economic report put out by the gubbermint this week...The weekly jobless claims numbers were "estimated" because numerous states didn't report their numbers to the BLM because of the Labor Day holiday!...So what did the gubbermint do?...They LIED/FUDGED the numbers as usual:

Nine States Did Not File Initial Claims Data Due To Labor Day, Hundreds Of Thousands Of Estimates In Data "Beat"

http://www.zerohedge.com/article/nine-states-did-not-file-initial-claims-data-due-labor-day-hundreds-thousands-estimates-data

So you can see that the powers that be are doing all they can to make the market rally again, even though there is no real reason for it to do so...IMO

And this article backs up everything I've been saying for months now...It took me a number of hours to read the entire story yesterday...And by that, I mean also reading every story included in it, because there are numerous links in this article that verify the paragraph written above it...These are the kinds of TRUTHS you will NOT hear from the mainstream media/gubbermint propaganda machine!...

In my humble opinion, this has to be one of the top ten articles I've read so far this YEAR!...And I highly encourage you to take the time and read the whole article, and also follow every link below every paragraph so you can verify that what the author has written is the TRUTH...

http://neithercorp.us/npress/?p=748

Please! SHARE this to all you Friends on numerous Social Media sites, using the "Bookmark" button below...

And also...Take a few moments out of your day to remember the thousands of lives lost in the attack on the World Trade Center that happened nine years ago today...September 11, 2001

NEWS - From "Alternative" Sources - NOT the Mainstream Propaganda Machine...

http://stockmarketchartanalyst.blogspot.com/

Here are a number of articles I read this morning, from my favorite "alternative" news sources:

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Shadow Government Statistics:
Analysis Behind and Beyond Government Economic Reporting

http://www.shadowstats.com/

If you've watched my last few updates on the market, you'll notice that I'm quite cynical when it comes to any economic report put out by the government (and I'm also very skeptical that earnings reports aren't continually being fudged. Just look at the recent SEC case against Dell as an example). This site gives you the REAL scoop when it comes to the government's reports of economic data...

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Show Me the Recovery:
While second-quarter sales increases are encouraging, weak cash generation is worrisome.

http://www.cfo.com/article.cfm/14522495

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Claims of Recovery But Results Nowhere To Be Found:
A weekly excerpt from the subscription issue of The International Forecaster, taken from Bob Chapman's weekly publication.

http://theinternationalforecaster.com/International_Forecaster_Weekly/Claims_of_Recovery_But_Results_Nowhere_To_Be_Found

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Economists Cut U.S. Growth Forecast - AGAIN!:
Projected U.S. economic growth for the rest of this year and next was revised down for a third month in a row by a panel of about 50 economists.

http://finance.yahoo.com/news/Economists-cut-US-growth-rb-1119878296.html?x=0

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Hell Yes It’s Class Warfare! Part 1:
There is an intentional misconception out there in the market place of talking points and political discussion – it is that liberals are waging class warfare on the wealthy.

http://cons-lie.com/2010/09/07/hell-yes-its-class-warfare-part-1/

Hell Yes It’s Class Warfare! Part 2:

http://cons-lie.com/2010/09/08/hell-yes-its-class-warfare-part-2/

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The Wholly Fallible Ben Bernanke:
Despite three crucial errors at the Federal Reserve, its chairman is still revered as if he is the pope – while we pay the price.

http://www.guardian.co.uk/commentisfree/cifamerica/2010/sep/08/ben-bernanke-federal-reserve

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Rome is Burning:
There is a critical point that I fear the commentariat is just not getting.

http://modeledbehavior.com/2010/09/07/rome-is-burning/

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In The Headlights:
The toils of summer are bygone now. The days grow shorter and America stands in the darkling road of its own prospects like a dumb animal frozen in the blinding light of approaching fury.

http://www.kunstler.com/blog/2010/09/in-the-headlights.html#more

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Death By Globalism:
Have economists made themselves irrelevant? If you have any doubts, have a look at the current issue of themagazine, International Economy, a slick publication endorsed by former Federal Reserve chairmen Paul Volcker and Alan Greenspan, by Jean-Claude Trichet, president of the European Central Bank, by former Secretary of State George Shultz, and by the New York Times and Washington Post, both of which declare the magazine to be “ahead of the curve.”

http://www.counterpunch.org/roberts09012010.html

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And finally, the winner of the "Doom and Gloom Award" goes to this piece, which I found to be a fascinating read...

Doomsdayers Not Cynical Enough:
[Like your editor, Rick’s Picks forum regular Wayne Razzi (aka “Red Will”) is a veteran floor-trader who grew up in South Jersey. When I asked him if he would like to contribute a guest commentary, I was not expecting the provocative tour de force that unfolds, step by step, below. In the essay, Will asserts nothing less that that the impending collapse of our economic system was meticulously engineered by financial and political sociopaths. Let me attest that his is not some whack-o conspiracy theory; rather, it is the closely-reasoned argument of a highly intelligent person who values truth sufficiently to have searched for it, in the form of an answer to a profoundly disturbing question, for many years. Judge for yourself whether his conclusions tally with your own thoughts as to why the American Dream is about to go bust. RA]

http://news.goldseek.com/RickAckerman/1284012060.php

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That's it for today...
I hope you enjoy reading these articles as much as I did!

Happy Trading!...
the zigzagman

A Plea for Freedom:

http://www.infowars.com/a-plea-for-freedom/

THIS IS A MUST READ!!!...IMO

It's one of the best articles I've read all year...

H.R. 5741 Slave Bill Now in Committee:

Slavery has a new name: “Mandatory Service” - Introduced July 15th 2010 by Rep. Charles Rangle (D).

(If Americans sit still for this, then they deserve to be slaves...)

Rob Dew - July 26, 2010

http://www.prisonplanet.com/h-r-5741-slave-bill-now-in-committee.html

H.R. 5741 will give the president the authority “To require all persons in the United States between the ages of 18 and 42 to perform national service, either as a member of the uniformed services or in civilian service in furtherance of the national defense and homeland security, to authorize the induction of persons in the uniformed services during wartime to meet end-strength requirements of the uniformed services, and for other purposes.”

Barely a year after introducing H.R. 1444, which was supposed to form a “Congressional Commission on Civic Service to study methods of improving and promoting volunteerism and national service, and for other purposes”, Congress has upped the ante.

Anyone between 18 and 42 will be eligible for a two year commitment of civilian or military service.

With more college graduates working for the fast food industry, a depression era unemployment rate and less people retiring; the government will have plenty of eligible able bodies to move into the slave ranks.

This echos the sentiment of President Obama who asked Congress in Febuary 2009 to send him a bipartisan bill in the spirit of national service. His Chief of Staff Rahm Emanuel outlined a similar plan in his book The Plan.

But even Emanuel aims low looking at only 18 to 25 year olds for three months of compulsory service. Under this new legislation nearly all, able bodied Americans will be sentenced to two years of forced labor.

The infrastructure is already in place for those unwilling to participate in mandatory service and now the army is looking to fill it’s ranks with Interment/Resettlement Specialists.

There are very few loopholes to opt of out national service, even CONSCIENTIOUS OBJECTORS (SEC. 109) will be forced to choose the mandatory option of A. noncombatant service (as defined by the President) or B. national civilian service. It seems the congressional commission on civic service will no longer be needed thanks to the hard work of a suspected Congressional tax cheat from New York.

The slavery bill is currently in debate in the House Committee on Armed Services chaired by Rep Ike Skelton a democrat from Missouri. Those who oppose mandatory slavery should contact Rep. Skelton. Many bills die in committee and this bill should meet the same fate.

Nothing Was Sacred: The Theft of the American Dream...

http://jessescrossroadscafe.blogspot.com/2010/07/phil-it-is-end-of-world-as-we-know-it.html

Posted by Jesse at 1:07 PM - July 17, 2010

America must decide what type of country it wishes to be, and then conform public and foreign policy to those ends, and not the other way around. Politicians have no right to subjugate the constitutional process of government to any foreign organization.

Secrecy, except in very select military matters, is repugnant to the health of a democratic government, and is almost always a means to conceal a fraud. Corporations are not people, and do not have the rights of individuals as such.

Banks are utilities for the rational allocation of capital created by savings, and as utilities deserve special protections. All else is speculation and gambling. In banking, simpler and more stable is better. Low cost rules, as excessive financialisation is a pernicious tax on the real economy.

Financial speculation, as opposed to entrepreneurial investment, creates little value, serving largely to transfer wealth from the many to the few, often by exploiting the weak, and corrupting the law. It does serve to identify and correct market inefficiencies, but this benefit is vastly overrated, because those are quickly eliminated. As such it should be allowed, but tightly regulated and highly taxed as a form of gambling.

When the oligarchy's enablers, hired help is the politer word, and assorted useful idiots ask, "But how then will we do this or that?" ask them back, "How did we do it twenty years ago?" Before the financial revolution and the descent into a bubble economy and a secretive and largely corrupted government with a GDP whose primary product is fraud.

Other nations, such as China, are surely acting for their own interests, and in many cases the interests of their people, much more diligently and effectively than the kleptocrats who are in power in Washington and New York these days. How then could we possibly subvert the Constitution and the welfare of the people to unelected foreign organizations? If this requires a greater reliance on self-sufficiency, then so be it. America is large enough to see to its own, as the others see to theirs.

Economics will not provide any answers in and of itself. Economics without an a priori policy and morality, without a guiding principle like the Constitution, is a heartless monster easily manipulated to say whatever one wishes it to say, if they are willing to pay enough economists to say it. Its reputation as a science is greatly exaggerated.

"Eliminating government" is a trap put forward by the plutocrats for those unable to reason except by prejudice, as they desire to exercise their power unimpeded by the rule of law. Once you knock down the protections and the safeguards in the name of reform, the wolves will turn on the public in an orgy of looting and exploitation. This is an old story, and sadly it often works.

Efficient markets hypothesis is almost as great a hoax as the benefits of globalization and 'free trade' have been to the American people as a whole. These things are promoted by the few, at the expense of the gullible many, for their own personal benefit.

Hatred, mean spiritedness, and resentment of the weak, the old, the different, is a trick played on the masses by oligarchs and would be dictators from time immemorial. They play to the darker side of the crowd. It is a trap, and the means to the demise of freedom. And these tricksters play it well, because deceit is their specialty, their stock in trade.

"First they ignore you, then they ridicule you, then they fight you, then you win." - Mohandas K. Gandhi

So it will not be easy, and it is a mistake to think that it will be. But what greater task can we set ourselves to, other than justice and freedom for ourselves and children?


It’s the End of the World As We Know It:

By Phil of Phil’s Stock World

What are 308,367,109 Americans supposed to do?



First of all, despite clamping down on immigration, our population grew by 2.6M people last year. Unfortunately, not only did we not create jobs for those 2.6M new people but we lost about 4M jobs so what are these new people going to do? Not only that, but nobody is talking about the another major job issue: People aren’t retiring! They can’t afford to because the economy is bad – that means there are even less job openings… The pimply faced kid can’t get a job delivering pizza because his grandpa’s doing it.

There are some brilliant pundits who believe cutting retirement benefits will fix our economy. How will that work exactly? Pay old people less money, don’t cover their medical care and what happens? Then they need money. If they need money, they need to work and if they need to work they increase the supply of labor, which reduces wages and leaves all 308,367,109 of us with less money. Oh sorry, not ALL 308,367,109 – just 308,337,109 – the top 30,000 (0.01%) own the business the other 308,337,109 work at and they will be raking it in because labor is roughly 1/3 of the cost of doing business in America and our great and powerful capitalists have already cut their manufacturing costs by shipping all those jobs overseas, where they pay as little as $1 a day for a human life so now, in order to increase their profits (because profits MUST be increased) they have now turned inward to see what they can shave off in America.



How does one decrease the cost of labor in America?

Well first, you have to bust the unions. Check. Then you have to create a pressing need for people to work – perhaps give them easy access to credit and then get them to go so deeply into debt that they will have to work until they die to pay them off. Check. It also helps if you push up the cost of living by manipulating commodity prices. Check. Then, take away people’s retirement savings. Check. Lower interest rates to make savings futile and interest income inadequate. Check. And finally, threaten to take away the 12% a year that people have been saving for retirement by labeling Social Security an “entitlement” program – as if it wasn’t money Americans worked their whole lives to save and gave to the government in good faith. Check.

As Allen Smith says:

“Ronald Reagan and Alan Greenspan pulled off one of the greatest frauds ever perpetrated against the American people in the history of this great nation, and the underlying scam is still alive and well, more than a quarter century later. It represents the very foundation upon which the economic malpractice that led the nation to the great economic collapse of 2008 was built. Essentially, Reagan switched the federal government from what he critically called, a “tax and spend” policy, to a “borrow and spend” policy, where the government continued its heavy spending, but used borrowed money instead of tax revenue to pay the bills. The results were catastrophic. Although it had taken the United States more than 200 years to accumulate the first $1 trillion of national debt, it took only five years under Reagan to add the second one trillion dollars to the debt. By the end of the 12 years of the Reagan-Bush administrations, the national debt had quadrupled to $4 trillion!“

Both Reagan and Greenspan saw big government as an evil, and they saw big business as a virtue. They both had despised the progressive policies of Roosevelt, Kennedy and Johnson, and they wanted to turn back the pages of time. They came up with the perfect strategy for the redistribution of income and wealth from the working class to the rich. If Reagan had campaigned for the presidency by promising big tax cuts for the rich and pledging to make up for the lost revenue by imposing substantial tax increases on the working class, he would probably not have been elected. But that is exactly what Reagan did, with the help of Alan Greenspan. Consider the following sequence of events:

1) President Reagan appointed Greenspan as chairman of the 1982 National Commission on Social Security Reform (aka The Greenspan Commission)

2) The Greenspan Commission recommended a major payroll tax hike to generate Social Security surpluses for the next 30 years, in order to build up a large reserve in the trust fund that could be drawn down during the years after Social Security began running deficits.

3) The 1983 Social Security amendments enacted hefty increases in the payroll tax in order to generate large future surpluses.

4) As soon as the first surpluses began to role in, in 1985, the money was put into the general revenue fund and spent on other government programs. None of the surplus was saved or invested in anything. The surplus Social Security revenue, that was paid by working Americans, was used to replace the lost revenue from Reagan’s big income tax cuts that went primarily to the rich.

5) In 1987, President Reagan nominated Greenspan as the successor to Paul Volcker as chairman of the Federal Reserve Board. Greenspan continued as Fed Chairman until January 31, 2006. (One can only speculate on whether the coveted Fed Chairmanship represented, at least in part, a payback for Greenspan’s role in initiating the Social Security surplus revenue.)

6) In 1990, Senator Daniel Patrick Moynihan of New York, a member of the Greenspan Commission, and one of the strongest advocates the 1983 legislation, became outraged when he learned that first Reagan, and then President George H.W. Bush used the surplus Social Security revenue to pay for other government programs instead of saving and investing it for the baby boomers. Moynihan locked horns with President Bush and proposed repealing the 1983 payroll tax hike. Moynihan’s view was that if the government could not keep its hands out of the Social Security cookie jar, the cookie jar should be emptied, so there would be no surplus Social Security revenue for the government to loot. President Bush would have no part of repealing the payroll tax hike. The “read-my-lips-no-new-taxes” president was not about to give up his huge slush fund.

The practice of using every dollar of the surplus Social Security revenue for general government spending continues to this day. The 1983 payroll tax hike has generated approximately $2.5 trillion in surplus Social Security revenue which is supposed to be in the trust fund for use in paying for the retirement benefits of the baby boomers. But the trust fund is empty! It contains no real assets. As a result, the government will soon be unable to pay full benefits without a tax increase. Money can be spent or it can be saved. But you can’t do both. Absolutely none of the $2.5 trillion was saved or invested in anything.

That is how the largest theft in the history of the world was carried out.

300M people worked and saved their whole lives to set aside $2.5Tn into a retirement system that, if it were paying a fair compounding rate of 5% interest over 40 years of labor (assuming an even $62Bn a year was contributed), would be worth $8.4Tn today – enough money to give 100M workers $84,000 each in cash!

The looting of FICA hid the massive deficits of the last 30 years in the Unified Budget. Presidents and Congresses were able to reduce taxes on the wealthiest Americans without complaint from the deficit hawks, because they benefited. The money went directly from the pockets of average Americans into the pockets of the rich.



Now that it is time to repay those special bonds in the Trust Fund, we are inundated in opinion pieces in the leading newspapers and magazines complaining about Social Security and its horrible impact on the budget. Government finances have been trashed by foolish tax cuts, unpaid wars, tax loopholes for corporations and the very wealthy, the failures of economists, the greedy search for greater returns in financial markets and the collapse of moral values in giant businesses, but Social Security is supposed to be the problem that needs fixing…

Social Security is not “broken“–the money is in the Trust Fund. But the people who manage the finances of the United States don’t want to repay the bonds held by the Trust Fund. They want to default selectively against average people, their fellow citizens, who paid their taxes expecting to be protected in their retirement. Refusing to repay the $2.54 trillion dollars in bonds held by the Social Security Trust makes the US look like Greece, just another nation unable to govern itself coherently. The people who manage US finances come from the financial elites, the best that Wall Street and enormous corporations have to offer. Selective default exposes them as charlatans. The claims of the economics profession to expertise are puffery. Their theories about the benefits of tax cuts are proven false. Their mathematical proofs about free markets collapse in the real world.



So, what is this all about? It’s about forcing 5M people a year who reach the age 65 to remain in the work-force. The top 0.01% have already taken your money, they have already put you in debt, they have already bankrupted the government as well so it has no choice but to do their bidding. Now the top 0.01% want to make even MORE profits by paying American workers even LESS money. If they raise the retirement age to 70 to “balance” Social Security – that will guarantee that another 25M people remain in the workforce (less the ones that drop dead on the job – saving the bother of paying them severance).

What’s next? Is it fair to say that children can’t work in a struggling family business? Isn’t it to everybody’s benefit that kids should be allowed to help out at the family store? That will be the next step towards turning America into a 3rd World country. The seemingly innocent concept of “letting” kids work will deprive another 5M people of paying jobs – throwing them out into the labor force as well and driving labor costs down even further.

There’s an expression that goes “give them an inch and they’ll take a yard.” The top 0.01% of this country have taken their inches and they are foreclosing on the yards and they will come for the rest of your stuff next. If you think you are “safe” from the looting of America, it is only because they haven’t gotten around to you yet. As I explained in “America is 234 Years Old Today – Is It Finished?” – the game is rigged very much like a poker tournament. The people at the top table don’t care how well you do wiping out your fellow players at the lower tables, they know they will get you eventually and your efforts to scoop up a pile of cash for yourself simply makes their job easier when they are ready to take it from you.



The average American is $634,000 in debt thanks to the efforts that Reagan and Greenspan put in motion 30 years ago and the richer you are, the more of that money is going to come out of your hide eventually and the more you lobby to make sure that the “rich” are not taxed unfairly, the less fair it will be to you because, no matter how rich you THINK you are, unless your income is measured in MILLIONS PER MONTH, you aren’t even close to the top 30,000.

No progressive tax? That means that people and corporations who make $1M PER DAY should pay no more tax than a person making $1M per year, right? Well that means that the $2.5M debt that your family of four owes will be paid by you over 2.5 years of labor while the $2.5M owed by your Billionaire competitor will be paid over a long weekend, after which he can turn his attention back to crushing your business by creating cheaper goods – maintaining profit margins by driving down local labor costs and outsourcing the rest.

It’s a new world, America, and you’d better get used to it – we were sold down the river on a slow boat to China long ago and we’re only just beginning to feel the first effects of waves that wash back to our own shores. The people who own the media don’t want CHANGE. That’s why you never hear this stuff in the MSM – things are going exactly according to plan and the old money crowd is playing a long, patient game and they already have most of the chips – the last thing they want is people questioning the system…

http://www.philstockworld.com/2010/07/17/its-the-end-of-the-world-as-we-know-it/

Fix America? = Fix the Politicians!...

By Dylan Ratigan - July 4th, 2010, 2:00PM

http://www.ritholtz.com/blog/2010/07/fix-america-fix-the-politicians/

Today we end Fix It week on my show, although we hope to keep this recurring theme. But the largest hindrance to solutions for all of the problems we’ve discussed – be it the Deficit, Energy, Education or the Wars – goes back to one place: the current Political Process in our country.

We practically all share the same list of problems, regardless of ideology: The undue influence of moneyed interest, the focus on inane Culture Wars instead of proper governance, the low quality of our politicians coupled with their high incumbency rates, the lack of ethics, disclosure etc. The only question left is how to fix them and then, how do we muster the will?

These are the questions we will address for my entire show today – and just to get the ball rolling, here are four of my favorite solutions:

1. ONE FOR ME, ONE FOR YOU:

I don’t have to explain to anyone why we need to fix the campaign finance system. The question is how do we do it fairly. Publicly financed campaigns are one solution, but they seem to go against our very nature as Americans. After all, who wants to be forced into having their tax money going to politicians they don’t like? Meanwhile, infringing on the amounts people can donate gives an advantage to wealthy candidates. But I think there is pretty easy solution to this:

I propose that we make a law that charges 100% fee on all political spending, with the that fee going into a public campaign financing fund that given solely to candidates with low campaign coffers on a per petition signature basis. This means that if a well-moneyed candidate like Barack Obama wants to spend $740 million of campaign donations, $370 million of that can go to his campaign and the other half to public campaign fund.

Even better, if a wealthy person like Michael Bloomberg wants to spend $108 million of his fortune trying to get elected, half goes to other, less-moneyed candidates. As far as those “poorer” candidates go, the more valid petition signatures they have, the more money they should get from the fund.

In addition to curtailing the power of the dollar in elections, this would especially help new candidates take advantage of modern marvels like social networking etc. to jumpstart a serious challenge to more-moneyed opponents.

And if you don’t want your money going to candidates you don’t like, then don’t get in to the game in the first place.

2. DISCLOSE EVERYTHING TO ALL:

It is a sad state of affairs when corporations, who clearly don’t work for us, are forced to disclose more to than Politicians who do (or at least are paid by us). We need to put the legal onus on Politicians to disclose every single potential conflict of interest, be it an invite to a BBQ or getting their nephew a job with a contractor. This means that if it could in any conceivable way be considered a conflict, it’s on them to disclose it even if there is no specific rule against it. Then, if they are found being negligent of material disclosure, they need to be fired, fined and possibly jailed.

Finally, this information MUST be updated weekly into open-source searchable databases. There is no shortage of smart, patriotic Americans who can take it from there.

3. COOL YOUR HEELS FOR SEVEN YEARS:

The revolving door from Politics to corresponding positions of undue influence in the private sector has to be stopped. There needs to be a seven year cooling off period for all Politicians, staffers and regulators from working in any related industry or lobbying their former colleagues.

While this might sound draconian, ask yourself, do you really think we are getting high quality public servants with the current incentive structure? I am betting we will get much more capable public servants once we hinder their ability to get rich off of their service.

4. END THE LEFTY-RIGHTY FACADE:

As far as I can tell, at this point the major differences in the traditional Political Parties has basically become their stance on gay marriage – and even that looks pretty similar once they are in power. Both like to give away money they don’t have and are unwilling to stand up to the special interests that fund them.

Furthermore, the false choice of “Republican” or “Democrat” is keeping some of the best candidates from making it to the general election. If politicians want to align themselves into two Political Parties, that is their right. But the government shouldn’t allow them to hold separate primaries. Hopefully this recent move to open primaries in California will take off across the country.

The question now is how do we get these same complicit politicians to make the fundamental changes that we need to the system. My hope is that in the coming years, we will see more and more people deciding that they have had enough and will enter into the political spectrum or push their neighbors and friends to do so.

Also, I am waiting patiently for serious candidates in the United States to sign a legally binding contract guaranteeing that they will support initiatives like the ones outlined above. Don’t laugh, it’s already on its way across the pond.

Politicians held personally liable for breaking their promises to the voter? That’s change we all could believe in.

Follow Dylan Ratigan on Twitter: www.twitter.com/DylanRatigan

Yet Another Bailout for Reckless Savers and Investors:

Weiss Research Group - Nilus Mattive - June 29, 2010

http://www.moneyandmarkets.com/yet-another-bailout-for-reckless-savers-and-investors-39534?FIELD9=1

We all watched in horror as Washington bailed out failing financial institutions … dishonest lenders … and greedy borrowers and speculators with our tax dollars.

And as responsible savers and investors, we continue to suffer from the fallout as the Federal Reserve’s policies are keeping interest rates on traditional savings vehicles near zero.

Yet now our legislators are going to add one more little piece of insult to all this injury in their sweeping financial overhaul package by retroactively compensating thousands of depositors who lost money beyond the amounts covered by FDIC insurance.

A Quick Recap of FDIC Insurance:

Most individual bank accounts — including checking, savings, trust, certificates of deposit (CDs), etc. — are covered by the Federal Deposit Insurance Corporation up to certain limits.

Until the financial crisis hit in 2008, that limit was $100,000 for each individual account owner per financial institution. Yes, a single owner could get higher amounts covered depending on the specific types of accounts owned — but in most cases, this simple rule is the easiest and simplest way to guarantee coverage.

So if a husband and wife had a joint savings account, for example, they were typically protected up to $200,000. If a sole account owner had the same $200,000 … he would have been wise to open two $100,000 accounts at two separate banks to get full coverage.

I am probably not telling you anything you don’t already know. After all, these fairly simple rules of FDIC coverage were advertised and drilled into our collective heads about as frequently as the idea that smoking cigarettes causes cancer.

Simply put, back in 2008, nearly everyone in America — especially anyone with assets in the six figures! — should have known darn well how much of their money was covered by FDIC insurance, and how to easily get full coverage if they had more than $100,000.

But apparently, thousands of people using Indymac Bank — the California behemoth that went under in July 2008 — did NOT understand these things.

I say that because under the financial regulation overhaul now working its way through Washington, a little-known provision will retroactively insure about 8,700 depositors at Indymac Bank and five other institutions that went belly up before lawmakers increased FDIC coverage to $250,000 per account owner. All told, the cost of this bailout will be anywhere from $180 million to $200 million.

In a small Los Angeles Times article, one depositor who will get reimbursed put the bailout this way:

“It’s nothing to the U.S. government but it will help keep my wife and I slightly above poverty level for a couple more years.”

Okay, wait a minute. You had deposits in excess of $100,000 and this bailout will keep you above the “poverty level?” And at the same time, a couple hundred million is a drop in the bucket for everybody else?

This is the logic that bailouts are founded upon.

Meanwhile, in the same story, another depositor blamed everyone from a misinformed teller to bank regulators for the fact that she put $360,000 in a single account.

Never once did she acknowledge that two minutes of research on her own part would have made it completely clear that all her money wouldn’t be protected in one account.

Call me crazy, but if I was about to deposit that amount of money, I might spend a little time performing a simple web search or calling the FDIC myself.

I Wonder Why We Even Pretend to Have Rules At All:

Let’s put this in another context: Say you decide to drive your car around without collision insurance. You should know darn well that if you get into an accident you’re going to pay out of pocket, right? And you probably understand how to get collision insurance added to your policy, too. If not, you probably shouldn’t be driving in the first place!

Now, let’s say you get into an accident. Should you be allowed to call up the insurance company and add collision insurance after the fact to cover your accident?

Of course not! Heck, even if the insurance company decides to provide collision insurance to all its customers a month later, why on earth would you expect your accident to be covered?

It’s the same thing with this FDIC situation.

To be fair, some of the affected depositors are claiming paperwork wasn’t filed correctly … that joint owners weren’t added … and that other clerical errors caused some of them to miss out on coverage that they thought they had.

I don’t want to seem unsympathetic. Some of that could be true, and I really do feel bad for their losses. However, it’s still on each depositor to check that things have been done properly, isn’t it? And what about all the other people who get bailed out undeservedly?

I should also note that even before this measure, the FDIC had already reimbursed depositors $0.50 for every $1 in deposits they had above the original $100,000 coverage, too.

So in the end, emotions aside, this seems like yet another example of “he who behaves most irresponsibly and whines the loudest, wins.”

I’m left wondering why we even pretend to have rules at all, when they’re so easily bent and exceptions are so easily made.

More to the point, I’m left wondering when the rest of us — hard-working savers, yield-starved retirees, responsible borrowers, and people who perform their due diligence — will get a fair shake!

Really, the only silver lining of this financial overhaul is that the raised $250,000 FDIC coverage will probably get made permanent. But with interest rates remaining so pathetically low, that’s an awfully thin thread to celebrate.

As far as I’m concerned, you’re still far better off looking at higher-yielding alternatives that provide solid income, relative safety, and are far less subject to the rather arbitrary and unfair decisions coming out of Washington these days.

And obviously, if you do have more than $250,000 under a single social security number at a single bank … please reconsider your strategy immediately. Many banks are still going belly up, and there is absolutely no reason any of your money has to be at risk.

My God, Is There A Rule Of Law? by Karl Denninger:

http://stockmarketchartanalyst.blogspot.com/2010/06/my-god-is-there-rule-of-law-by-karl.html

Posted at 08:37 - Monday, June 7. 2010

It may not be here in the US, but this could be a start! ( http://tinyurl.com/38quko9 )
(Warning: In German!)

Interestingly enough, Der Spiegel, which usually has an English version of most articles, doesn't have one of this entry I can find. I was therefore forced to Google Translate it - take a read. ( http://tinyurl.com/2crovme )

The keys to this are the allegation that the "greek bailout" is unlawful under the Lisbon Treaty (no really?)

The government has responded (big surprise - NOT!) that if an injunction issues the result would be a self-fulfilling default and cites that "EU countries could be vulnerable."

No, really? I thought that was what you called it when you didn't have the money to pay your bills!

That of course isn't the point of the complaint. The complaint rests (properly, in my opinion) on the premise that the so-called "boom" in many parts of Europe was financed with German capital, which was effectively appropriated under false pretenses.

Gee, where have we seen this before? Banksters lying and cheating (cough-liar loans-cough!) and trading in derivatives without any money behind them (cough-AIG-cough!) and when the smoke clears suddenly the national governments are told "hand over hundreds of billions right now or the puppy dies!"

Uh huh...

G20 governments are increasingly coming to the realization that "borrow and spend" doesn't - and can't - work in the intermediate and longer term. Despite the bleating of Geithner at the G20 meeting he got nowhere trying to jawbone people into more Keynesian-style games.

We blew $4 trillion in the United States over the last two years and change and got nothing for it, and as a consequence we are stuck with the debt and haven't solved the problem. $4 trillion, of course, is about 30% of GDP, and this "support" has amounted to roughly 11% of GDP over the last three years.

We can either recognize that this won't work (just as it didn't in 2003 - all it did was create asset bubbles) and stop it, taking the pain we tried to defer (and added to) or we can take the risk of a complete detonation in the weeks and months ahead. Europe and the rest of the G20 appear to have woken up and decided that the Keynes-cum-idiocy is in fact idiocy, irrespective of the foolhardy and even criminally-insane bleating by Geithner and the Obama Administration.

The game, my friends, is afoot...

http://market-ticker.org/archives/2379-My-God,-Is-There-A-Rule-Of-Law.html

The Government as Identity Thieves:

Dr. Ron Paul Tuesday, May 18, 2010

http://www.thedailybell.com/1056/Ron-Paul-The-Government-as-Identity-Thieves.html

The spotlight remains on the Greek sovereign debt crisis as the riots continue. The terms of the Greek bailout from the IMF and Eurozone countries remain contentious with citizens on all sides. Europeans hate having their governments throw public money away as much as Americans do. The Greeks are not happy about having their taxes raised while their pensions and salaries are cut. Meanwhile, it is rumored by the Financial Times, AFP and others that Greece may spend more than it saves from austerity measures on arms deals with Germany, France and the US as a potential condition of receiving bailout funds. If true, it is certainly not unprecedented for the global military industrial complex to benefit from deals made by their friends in the central banking community. After all, war is the health of the state. The last thing big government proponents want is for peace to break out in the world.

This free flow of fiat money from around the globe to Greece will not really save Greece as much as it will grant a temporary reprieve to central bankers from the consequences of their mistakes. Sadly, this will come at the expense of the Greek people and taxpayers in Europe and America. Taxpayers are of no consequence to either European or American central bankers. Even the mere desire for complete information on what they are up to in our name is rebuffed, as we saw last week in the Senate with the failure of Senator Vitter's amendment containing my language to fully audit the fed. The hubris of powerful and secretive central bankers seems to know no bounds.

If someone incurred debts against you as an individual, without your knowledge or consent, you would call it identity theft. You would call your bank for a full accounting of the debts incurred in your name, and after some verification, those debts would be declared invalid and you would not be held responsible for them. Furthermore, if the culprit was found, they would be prosecuted and sent to jail.

Not so with governments and central banks. Governments that are supposed to be of the people and for the people routinely incur debts against the people. Some governments even borrow money to oppress their citizens, and then expect them to pay for their own oppression with interest. With a fiat monetary system, the sky is the limit for how much debt a government can place on the backs of the people.

We have reached the point in the United States where the debt our government has accumulated against us is mathematically impossible to pay off. Harder times, likely due to a wave of hyperinflation, will eventually find its way to our streets and I am fearful of how Americans will react. My hope is that we will come together peacefully and help each other, and that enough of us will be aware that the blame rests securely on the shoulders of the Federal Reserve and the special interests. They should not be looked to for salvation. They should not be given more power. Rather, they should be stripped of the powers that allowed them to create this mess in the first place.

Resistance to public transparency regarding public debts should be denounced in the strongest of terms, and the central bankers that incurred them should be seen as no better than common identity thieves.

The New World Order is Now Complete:

by John Galt May 10, 2010

http://johngaltfla.com/blog3/2010/05/10/the-new-world-order-is-now-complete-2/

It took them a long time. I was stupid not to realize the obvious fact. Here we are, finally, united in a new world order of happiness and a future so bright that I have to wear shades. For most people much like myself, we always thought it was the United States and the armed citizenry that stalled and prevented the establishment of this new order, both economic and political. Sadly us Americentric types focused on our nation as the center of the universe failed to see the big picture and I did not realize until tonight that it was not Presidents Bush and Obama that prevented the new order from taking hold. It was not the Tea Party, Republican Party or the Libertarian Party which obstructed the globalist regime. It was not Joe Redneck, Joe Six-Pack or Joe the Plumber that intimidated or slowed down the establishment of this order.

It was our friends in Europe.

And last night a shotgun wedding was performed, Miss America, meet your groom, the European Union.

The idea that the European Union needed $1 trillion to bail out Greece, Italy, Ireland, Portugal, and Spain is absurd. Even if all of that money was obtainable on the open markets or via fiat creation it does nothing to repair or restore the economic engine of hybrid Corporatist Statism, but does indicate the level of desperation that the powers in the West are willing to resort to in a last ditch effort to insure the expansion of and maintenance of their fortunes and power. Here we are, at the crux of another crisis and a “miracle” cure is found by creating more debt to service, not pay off, existing debt from various member nations who were resistant to the idea of a unified political structure. Ireland and the other PIIGS nations wanted no part of a unified Parliamentary structure for the EU with the ability to dictate law and settle on a series of Constitutionally mandated rights for the member nations. Yet here we are with those very nations who opposed such a regime surrendering their economic freedoms and in turn insuring such an animal will exist, a beast to America’s east.

Despite years of people calling others ‘tinfoil freaks’ of whom I have been guilty of that years and years ago, the conspiracy is not that nor has it been for two years now. The conspiracy has turned into a course of action where people are being deceived into believing that according to the leaders of the West, aka the United States and Europe, that there is no other choice if we wish to survive as a civilization. Common sense tells the informed citizen otherwise but the panic and hysteria created on an almost scheduled, regular basis, be it an oil spill in the Gulf of Mexico, financial crisis, war, or terrorist act keeps many citizens from understanding or realizing the activities being undertaken behind the scenes. How many people realize that the new financial reform package expands the powers of the Federal Reserve to the point of extra-Constitutional authorities not implied nor given to the Executive Branch as written within that damned piece of paper? How many people who run a small business now understand that starting in 2012 you have to give a 1099 to every vendor you purchase $600 or more from? How many citizens understand that Homeland Security is working with the Congress to create a standardized National Identification program under the guise of the Health Care legislation to provide the ability to monitor not just the consumption patterns of citizens but the transportation habits, domestic and international, of our citizens to enable further taxation due to the risks created by those who can afford to travel to and fro?

And that’s just the United States side of the equation. Once the European Parliament convenes when the dust settles and the last fire from the riots are extinguished, the Eurosheeple much like the Amerisheeple will begin to understand that gee, we really do have a lot in common and perhaps unifying our financial systems and legal systems would be a logical extension from where we are now. The fact that we just put their precious European Monetary Union into debt to the Federal Reserve via the currency swaps and the International Monetary Fund loan program does sort of entitle those who are in charge to demand concessions of the citizens to insure a guarantee of repayment and streamlining of operations now, doesn’t it?

The next wave of the now completed new order will be to unify financial and corporate regulatory regimes because we “have to” and thus with that logic our sovereign rights along with the individual participants within the EU will agree to do the same. Beyond that, the human rights campaigns masked by their Eurosocialist masters will demand we in turn surrender key freedoms and rights as provided by the Constitution to insure financial and corporate stability, thus leaving the American citizen with no voice because we will have none in this matter.

The end game arrived with little fanfare but as expected a warning shot across the bow of the world economies with the shock of last Thursday. The Untied States has a banking cartel which was already engaged to be married to their Eurosocialist brethren but the right trigger event was never created to insure that the “people” would cooperate in such an event. Americans, due to the demographic shift, will support any and all actions that guarantee their retirement accounts as large numbers of the Baby Boomer generation is more than happy to sell the rest of us out to insure a comfortable period of time from retirement to their death. The Eurosocialist want to protect their 32 hour work week with 12 weeks of vacation so they are willing to accept a more “diversified” society if the United States citizens are willing to pay for it, thus they will accept their new immigrants, their new laws, and their new compliance with a budding world council to manage their affairs because after all the “New World” is going to share in their pain.

Thus the table has been set. Elections are somewhat irrelevant in the United States after the 2010 mid-term election unless upwards of 50% of the incumbents are turned out at every level, be it dog catcher or Congressman. The path has been set upon not by a desperation to insure world peace, as many thought it would in the late 1970’s and early 1980’s, but instead a dying desire to make sure they can retire with their surround sound DVD player and golf every Thursday with Bob at the community country club. The Greatest Generation, the ones who fought and died during World War II and endured the pains of the Great Depression of the 1930’s have finally given way. The Sellout Generation, their spawn, will insure world peace and stability for a generation to come.

By enslaving us all to the whims of a cartel of corporatist Marxists hell bent on a twisted Fascist world domination.

More Investigations on Wall Street:

Things are Heating Up for the Banks...Wall Street Probe Widens:

http://seekingalpha.com/article/204854-more-investigations-on-wall-street?source=yahoo

by Susan Pulliam, Kara Scannell, Aaron Lucchetti, and Serena Ng,WSJ:

Federal prosecutors, working with securities regulators, are conducting a preliminary criminal probe into whether several major Wall Street banks misled investors about their roles in mortgage-bond deals, according to a person familiar with the matter.

The banks under early-stage criminal scrutiny—J.P. Morgan Chase & Co., Citigroup Inc., Deutsche Bank AG and UBS AG—have also received civil subpoenas from the Securities and Exchange Commission as part of a sweeping investigation of banks' selling and trading of mortgage-related deals... Under similar preliminary criminal scrutiny are Goldman Sachs Group Inc. and Morgan Stanley, as previously reported by The Wall Street Journal. ...

At issue is whether the Wall Street firms made proper representations to investors in marketing, selling and trading pools of mortgage bonds called collateralized debt obligations, or CDOs. ...

Prosecutors so far are simply gathering evidence. ... It's possible the probe could end with no charges being brought against any of the firms. ...

And:

Prosecutors Ask if 8 Banks Duped Rating Agencies, by Louise Story, NY Times:

The New York attorney general has started an investigation of eight banks to determine whether they provided misleading information to rating agencies in order to inflate the grades of certain mortgage securities...

The investigation parallels federal inquiries into ... interactions between the banks and their clients who bought mortgage securities, this one expands the scope of scrutiny to the interplay between banks and the agencies that rate their securities. ... The inquiry ... suggests that ... the agencies may have been duped by one or more of ... Goldman Sachs, Morgan Stanley, UBS, Citigroup, Credit Suisse, Deutsche Bank, Crédit Agricole and Merrill Lynch...

The companies that rated the mortgage deals are Standard & Poor’s, Fitch Ratings and Moody’s Investors Service. ... Mr. Cuomo’s investigation follows an article in The New York Times that described some of the techniques bankers used to get more positive evaluations from the rating agencies.

Mr. Cuomo is ... interested in the revolving door of employees of the rating agencies who were hired by bank mortgage desks to help create mortgage deals that got better ratings than they deserved... His ... focus is on information the investment banks provided to the rating agencies and whether the bankers knew the ratings were overly positive...

Edmund Andrews says financial reform legislation is not yet a done deal, and could still be watered down to appease banking interests:

Financial overhaul, perils ahead, by Edmund L. Andrews:

It’s tempting to think that financial regulatory reform is already a done deal in Congress... Don’t be fooled. It’s true that the Senate is likely to pass some kind of bill. Unfortunately, the legislation is still at risk of death by a thousand cuts: scores of seemingly anodyne amendments that, if passed, turn the bill into a cynical joke.

You know the drill..., some people – on Wall Street, or at the banks -- want to spare us from “unintended consequences.”

Today, Senate Democrats managed to vote down a major Republican push to gut portions of the bill to regulate derivatives, like the credit-default swaps that blew apart AIG. ...

Tomorrow, Republican Sam Brownback will push an amendment to exclude car dealers from oversight by the new Consumer Financial Protection Bureau. ...

But I would like to focus on a third imminent that seems drier than derivatives or car loans but is at least as important: federal pre-emption of state financial regulations. And this time, it's moderate Dems who are carrying water for the banks.

In the run-up to the mortgage meltdown, federal bank regulators fought hard to pre-empt any state efforts to crack down on shady bank practices. A number of states, like North Carolina and New York, were trying to crack down on abusive mortgage practices by subprime lenders. But many of the lenders were subsidiaries of national banks, and the Office of the Comptroller of the Currency declared that states had no right to touch them whatsoever. ...

The amendment to watch out for in the days ahead actually comes from a Democrat: Tom Carper of Delaware. Carper’s amendment would forbid state attorney generals from prosecuting banks that violate national consumer laws, much as the fed’s blocked Elliott Spitzer and Andrew Cuomo of New York from investigating racial and ethnic targeting by subprime lenders. It would also allow the Feds to override state consumer laws...

Don’t let it happen.

The bill needs to be made stronger, not weaker, so let's hope that amendments to water down the bill's impact continue to lack the necessary support.

On a broader note, there seems to be a shift in the narrative about what caused the crisis. Fraud, deception, and other questionable if not illegal behaviors are beginning to take on a larger role in the story of what happened to bring about the problems in the financial sector. The turning point was, of course, the investigation of Goldman (GS), and the investigations have been growing more numerous ever since.

The shift in attitude has probably helped to stave off challenges designed to weaken the legislation, and if a smoking gun turns up in one of the investigations like those described above, that would likely make it even harder for banks get the political support needed to water down the legislation. But I'm not counting on that happening, and as noted above, the deal isn't done yet. It's still possible for the legislation to be weakened, and as pointed out above there's no shortage of attempts to do just that.

Here Is Why the Fed Cannot Simply Continue to Inflate Its Way Out of Every Financial Crisis That It Creates:

The return on each new dollar of US debt is plummeting to new lows according to figures from the Federal Reserve.

http://jessescrossroadscafe.blogspot.com/2010/05/here-is-why-fed-cannot-simply-inflate.html

The chart below is from the essay, Not Just Another Greek Tragedy by Cornerstone.



I have been watching this chart for the past ten years, as part of the dynamic of the sustainability of the bond and the dollar as the limiting factor on the Fed's ability to expand the money supply.

The ability to expand debt is contingent on the ability to service debt. If the cost of the debt rises over the net income of the country's capital investment, or even gets close to it, the currency issuing entity is trapped in a debt spiral to default without a radical reform.

In other words, if each new dollar of debt costs ten percent in interest, largely paid to external entities, and it generates less than ten cents in domestic product, it is a difficult task to grow your way out of that debt without a default or dramatic restructuring.

So we are not quite there yet. But we are getting rather close on an historic basis. Without the implicit subsidy of the dollar as the world's reserve currency it would be much closer.

As it is now, this chart indicates that stagflation at least, rather than a hyperinflation, is in the cards for the US. But the trend is not promising, and the lack of meaningful reform is devastating.

A 'soft default' through inflation is the choice of those countries that have the latitude to inflate their currencies. Greece, being part of the European Monetary Union, did not. The US is not so constrained, especially since it owns the world's reserve currency.

The economy is out of balance, heavily weighted to a service sector, especially the financial sector which creates no new wealth, but merely transforms and transfers it. With stagnation in the median wage, and an historic imbalance in income distribution skewed to the top few percent, with the banks levying de facto taxation and inefficiency on the economy as a function of that income transfer, there should be little wonder that the growth of real GDP is sluggish in relation to new debt.

Or as Joe Klein so colorfully phrased it, the elite have been strip-mining the middle class in America for the past thirty years.

Along with the 'efficient market hypothesis,' trickle-down economics is also a fallacy. This is why the stimulus program being conducted by the Federal Reserve, in an egregious expansion of its authority to conduct monetary policy, in subsidies and transfer payments to Wall Street is not working to stimulate the real economy. It merely inflates the bonuses of the few, and extends the unsustainable.

So obviously one might say, "The Banks must be restrained, and the financial system reform, and the economy brought back into balance, before there can be any sustained recovery.

Did a Big Universa Hedge Fund Bet Help Trigger 'Black Swan' Stock Swoon?

By Scott Patterson And Tom Lauricella

http://online.wsj.com/article/SB10001424052748704879704575236771699461084.html

Shortly after 2:15 p.m. Eastern time on Thursday, hedge fund Universa Investments LP placed a big bet in the Chicago options trading pits that stocks would continue their sharp declines.

On any other day, this $7.5 million trade for 50,000 options contracts might have briefly hurt stock prices, though not caused much of a ripple. But coming on a day when all varieties of financial markets were deeply unsettled, the trade may have played a key role in the stock-market collapse just 20 minutes later.

The trade by Universa, a hedge fund advised by Nassim Taleb, author of "Black Swan: The Impact of the Highly Improbable," led traders on the other side of the transaction—including Barclays Capital, the brokerage arm of British bank Barclays PLC—to do their own selling to offset some of the risk, according to traders in Chicago.

Then, as the market fell, those declines are likely to have forced even more "hedging" sales, creating a tsunami of pressure that spread to nearly all parts of the market.

The tidal wave of selling fed into a market already on edge about the economy in Europe. As the selling spread, a blast of orders appears to have jarred the flow of data going into brokerage firms, such as Barclays Capital, according to people familiar with the matter.

Exchanges, in turn, were clogged by huge volumes of offers to buy and sell stocks, say traders and exchange executives. Even before some individual stocks collapsed to just a penny a share, data from the NYSE Euronext's electronic Arca exchange started to appear questionable, say traders.

In the disarray, some huge superfast-trading hedge funds that now provide much of the liquidity for the stock market pulled to the sidelines. The working theory among traders and others involved in the exchange meltdown is that the "Black Swan"-linked fund may have contributed to a "Black Swan" moment, a rare, unforeseen event that can have devastating consequences.

"Universa alone couldn't have caused the meltdown," said Mark Spitznagel, Universa's founder. "We had reached a critical point in the market, and it was poised to collapse." Barclays Capital declined to comment.

As more details of Thursday's collapse become clear, there is less evidence to suggest a "fat finger" data-entry error caused the collapse. Instead, the picture is one of a rare confluence of events, some linked, some unrelated, that exposed weaknesses in the stock market large and small. Within five minutes, the Dow Jones Industrial Average had lost 700 points as trading seized up in individual stocks such as Procter & Gamble and even exchange-traded mutual funds.

"It did point out that there is a structural flaw," said Gus Sauter, chief investment officer at Vanguard Group. "We have to think through how you preserve the immediacy and yet preserve the liquidity."

The episode highlights a bigger question about the stock market. In recent years, the market has grown exponentially faster and more diverse. Stock trading's main venue is no longer the New York Stock Exchange but rather computer servers run by companies as far afield as Austin, Texas; Kansas City, Mo.; and Red Bank, N.J.

This diversity has made stock-trading cheaper, a plus for both institutional and individual investors. It has also made it more unruly and difficult to ensure an orderly market. Today that responsibility falls largely on a group of high-frequency traders who make up an estimated two-thirds of stock-market volume. These for-profit hedge funds look out for their own investors' interests and not those of investors in the stocks they trade.

Hours before the panic began, there were signs that Thursday wasn't shaping up to be a humdrum day. By 11 a.m., when the Dow was down only about 60 points, selling volume was unusually heavy. One measure of selling—the percentage of stocks falling without first moving upward—was at its highest since the day the market reopened after the Sept. 11 terror attacks, according to Barclays.

By 2 p.m., financial markets of just about every sort were under significant strain. In Europe, the spillover from the Greek debt crisis led to a huge drop in the euro against the dollar and the Japanese yen, as well as a broad bond-market decline. European banks were charging each other higher interest rates to borrow money.

Some 2,800 miles away from Wall Street, in Santa Monica, Calif., Universa placed its trade.

The trade wasn't out of character for Universa, which has about $6 billion under management. Mr. Taleb, who is an adviser to the firm and an investor, gained fame for "The Black Swan," a book that suggested unlikely events in the financial markets are far more likely than most investors believe.

Universa frequently purchases options contracts that will pay off if the market makes a sharp move lower. It posted big gains in the market selloff of late 2008 and launched a fund last year designed to benefit if inflation surges.

Through the trading desks at Barclays, Universa bought 50,000 options contracts, according to people familiar with the matter. The contracts would pay off about $4 billion should the Standard & Poor's 500-stock index fall to 800 in June. It was at 1145 points at the time of the trade.

Back across the country in Chicago, the big trade appeared to have had an immediate ripple in the markets. The traders on the other side of the Universa trade were essentially betting stocks wouldn't post big losses.

But to minimize the risk of losing money, they in turn needed to sell, according to traders.

The more the market fell, the more the traders at places like Barclays had to sell to protect their own positions. This, along with likely dozens of other trades across the market, led to a cascade of selling in the futures markets.

As the stock-trading volume soared, data systems across the stock market began to get clogged. At Barclays Capital, a market data feed that delivers to the firm data on "buy" and "sell" orders went down, although a backup system immediately went online without any impact to the firm.

As the turmoil unfolded, every second saw some 300,000 pieces of stock information—stock prices moves, trades—pour into Barclays's system. A normal peak is some 60,000 ticks a second, says Barclays Capital's head of electronic trading sales, Brian Fagen, who was monitoring the chaos in the market on his screens.

Large hedge funds were juggling huge positions as volume spiked. Two Sigma Investments LLC, a New York hedge-fund manager that engages in complex trading strategies, saw its highest-volume day since launching in 2001, according to a person familiar with the matter.

By 2:37 p.m., the overload seemed to have taken its toll on the NYSE's Arca electronic-trading system. At that point, its rival, the Nasdaq, owned by Nasdaq OMX Group Inc., detected what it felt was questionable information in the data. It sent out a message saying it would no longer route quotes to Arca.

This step, known as declaring "self help," doesn't happen often among the major exchanges. But in the coming minutes, the BATS exchange also stopped automatically routing orders to Arca.

For a crucial set of players—high-frequency-trading hedge funds—all this turmoil was becoming too risky to handle. One fear that would prove all too real was that in the extreme swings, some, but not all, trades would later be canceled, leaving them on the hook for unwanted positions.

Manoj Narang, whose Tradeworx Inc. firm runs a high-frequency trading operation in Red Bank, N.J., began to worry the extreme volatility could lead to painful losses in his fund.

At about 2:40, he and a small team of traders scrambled to close the positions held by the high-speed fund, which trades rapidly between stock indexes and the individual stocks in the index.

Normally, it takes about a fraction of a second to unwind the trades because of the high-powered computers Mr. Narang uses. But as the market plunged, it took about two minutes—an eternity in today's computer-driven market. Tradebot Systems Inc, a large high-frequency firm based in Kansas City, Mo., was also seeing chaotic action in many of the securities it traded and decided to pull back from the market.

With the high-frequency funds either selling or pulling out of the market, Wall Street brokerage firms pulling back and the NYSE temporarily halting trading on some stocks, offers to buy stocks vanished from underneath the market. Normally there can be hundreds of offers to buy the iShares Russell 1000 Growth Index exchange-traded fund, but at 2:46 p.m., there were just four bids north of $14 for a fund that had been trading at $51 minutes earlier, according to data reviewed by The Wall Street Journal.

Around 3 p.m., the selling pressure abated. Just as swiftly as the market fell, it recovered ground. One factor behind the swift recovery, traders say, were funds that use computers and formulas to sniff out bargains in the market. These funds swooped in on hundreds of cheap stocks, helping push the market higher.

High Frequency Terrorism: How the Big Banks and Federal Reserve Maintained Their Death Grip Over the United States:

By David DeGraw & Max Keiser, AmpedStatus Report
Posted on Monday, May 10th, 2010 at 1:11 am

http://ampedstatus.com/high-frequency-terrorism-how-the-big-banks-and-federal-reserve-maintained-their-death-grip-over-the-united-states

The following article is the third-part of a six-part report titled: “The Financial Oligarchy Reigns: Democracy’s Death Spiral From Greece to the United States.” The full report is available here:

http://ampedstatus.com/the-financial-oligarchy-reigns-democracys-death-spiral-from-greece-to-the-united-states

III: Financial Terrorism Operations: 9/29/08 & 5/6/10

In the aftermath of Goldman Sachs’ public flogging before the world in Congress, and while under investigation, on the very day that Congress was voting on the “break up the too big to fail banks” amendment and cutting behind the scenes deals to gut the audit of the Federal Reserve, the stock market had its greatest sudden drop in history, plummeting 700 points in ten minutes - shades of September 29, 2008 all over again.

If you recall, back in September ‘08, as Congress was voting down the first bailout, the big banks made the market plunge a record 778 points in one day, fear and panic then led Congress to pass the bailout. Trillions of our tax dollars, the money that we desperately need to keep our society functioning over the long run, then went out the window and into the pockets of the very people who caused the crash.

What happened on September 29, 2008 will go down in history as one of the greatest acts of terrorism ever.

9/29/08 proved that when you have so much power concentrated in the hands of a few, you can manipulate a computer algorithm and make the market and economy go which ever way you want it to go. So on 5/6/10, just as the power of the big banks was threatened again on the floor of the Senate and a deal on auditing the Federal Reserve was being negotiated, in came a sudden and unprecedented ten-minute 700 point market drop. A precision-guided High Frequency Trading (HFT) attack to show Congress who’s boss.

If you think the massive sudden drop happened because one lowly trader hit one wrong button, if you actually believe that the entire stock market can plunge because of one mistaken key stroke by a low level trader, you are stunningly naïve. I hate to burst your bubble, but this was a direct attack.

In a market where 70% of all trades are executed by computer algorithms via High Frequency Trading (HFT), Goldman Sachs has the power to make the market crash or rise at will. In fact, Goldman has a major Weapon of Mass Destruction in its Program Trading monopoly of the New York Stock Exchange, as Tyler Durden described on Zero Hedge:

“Goldman’s dominance of the NYSE’s Program Trading platform, where in addition to recent entrant GETCO, it has been to date an explicit monopolist of the so-called Supplementary Liquidity Provider program, a role which affords the company greater liquidity rebates for, well providing liquidity, and generating who knows what other possible front market-looking, flow-prop integration benefits. Yesterday [5/6/10], Goldman’s SLP function was non-existent. One wonders - was the Goldman SLP team in fact liquidity taking, or to put it bluntly, among the main reasons for the market collapse….

… here is the most recently disclosed NYSE program trading data….

What is notable here is that of the 1.4 billion in principal shares, or shares traded for the firm’s own account, Goldman was the top trader by a margin of over 100% compared to the second biggest program trader.

We have long claimed that Goldman is the de facto monopolist of the NYSE’s program trading platform. As such, it is certainly the case that Goldman was instrumental in either a) precipitating yesterday’s crash or b) not providing the critical liquidity which it is required to do, when the time came. There are no other options.”

For further investigation, I turned to Max Keiser, who has written and authored similar Program Trading and HFT computer algorithms. I asked him if he thought this was an attack, here is what he had to say:

“May 6th was an unequivocal act of domestic financial terrorism in America. A day that will live in infamy.

To scare the lawmakers, themselves large owners of the very banks and stocks that they are supposed to be regulating, a financial Weapon of Mass Destruction was put to their head and they acquiesced.

As the inventor of the continuous double-auction, market-making technology (VST tech. US pat. no. 5950176) that is referenced 132 times by program trading and HFT patents since 1996, I can tell you that Goldman, JP Morgan and the gang simply pulled the ‘buys’ from their computer trading programs and manufactured a crash. And when the coast was clear, and it was clear the politicians were not going to vote for anything that would break up the ‘too big to fail’ banks; all the ’sells’ were pulled from the computers and the market roared back.

This is a Manchurian Candidate market where program trading bots start the ball rolling in whatever direction Wall St. wants the market to go - and then hundreds of thousands of day-traders watching Cramer on CNBC jump on the momentum bandwagon and commit the crime for the Wall St. financial terrorists, who then say, ‘It wasn’t us, it was ‘the market!’”

On Friday, the next day, after the “break up the too big to fail banks” amendment was soundly defeated by a 61 to 33 margin in Senate and a deal was struck to eliminate key provisions from the audit of the Federal Reserve bill, Goldman was meeting with the SEC to work out a settlement in their case against them. Once again, Goldman proves that crime pays. Welcome to the New Mafia World Order.

Other than the two major operations carried out on 9/29/08 and 5/6/10, we must also recall a smaller attack on January 21st and 22nd of 2010, when Obama had a press conference and came out in favor of the Volcker Rule, which would have limited these HFT and “proprietary trading” schemes. At that time, the market dropped 430 points. Soon after this attack, all follow up talk on the Volcker Rule faded away and this reform has not been seriously addressed by Obama since then.

The bottom line, the United States has been taken over by a financial terrorism network. Let’s face it, we are all hostages of these financial terrorists and our puppet politicians rather be in on the scam than defend our interests. If these terrorists don’t get their way at all times, they have the power to throw their tremendous weight around and turn millions of lives upside down in a matter of minutes, and as they have shown they have no hesitation in executing that power, no matter how many millions of lives they destroy.

They set off this crisis with a wave of bombings in their initial Economic Shock and Awe campaign two years ago, resulting in massive devastation. Just to name a few of their greatest hits within the U.S.:

* 50 million Americans are now living in poverty, which is the highest poverty rate in the industrialized world;

* 30 million Americans are in need of work;

* Five million American families foreclosed upon, 15 million expected by 2014;

* 50% of US children will now use a food stamp during childhood;

* Soaring budget deficits in states across the country and a record high national debt, with austerity measures on the way;

* Record-breaking profits and bonuses for themselves.

Like other terrorists, they don’t use IEDs, they use CDOs. They don’t use precision laser-guided missiles, they use High Frequency Trading. They don’t have WMDs, they have derivatives. Let’s also not forget that they have toxic assets and dirty debt bombs just waiting to be deployed upon the American public once there is any true growth in the economy. Their nuclear arsenal includes hundreds of Trillions in secretive derivatives and hidden debt bombs, just ticking away, waiting to be set off… at their whim...

"Your Big, Fat-Fingered Debacle" (Collapse):

By Randall W. Forsyth

http://online.barrons.com/article/SB127320706419088061.html?mod=googlenews_barrons

YOU KNOW IT'S A BEAR MARKET when the Dow Jones Industrials end down 348 points and traders breathe a sigh of relief.

The collapse is blamed on computers, but that misses the point. Debt deflation is unabated by the ECB.

At its low Thursday, the Dow was gripped with a thousand points of fright as the result of an apparent "fat finger" trade that, according to numerous stories circulating around the market, entered a sell order for billions when it was supposed to be for millions.

The stock in question supposedly was Procter & Gamble (PG), which was trading steadily around 62 until it collapsed to as low as 39.37 in a flash before rebounding almost immediately and closed at 60.75, down 1.41 or 2.27%, which is bad enough. But consider Accenture (ACN), which went from over $40 to a mere penny in the same flash before recovering to 41.09, for a loss on the session of 1.08 or 2.56%.

Some of these errant trades will be cancelled. Trades that were more than 60% above or below levels at 2:40 PM EDT will be cancelled, Nasdaq said late Thursday. Yet that doesn't compensate all that was lost in this fiasco.

I'm not talking about the $1 trillion of market value that evaporated in the past three sessions. That's based on the Wilshire 5000, the broadest measure of the U.S. stock market, which reflects closing prices.

But ordinary stock investors were directly affected by the mindless selling of stocks by electronic, high-frequency trading algorithms that reacted to the sudden plunge in the market.

Limit orders to buy stocks at below-market prices were executed, which got bargains for buyers. Conversely, sellers got correspondingly lower prices.

For instance, an investor who might have placed a stop-limit order (which gets triggered if a stock drops to a certain price to limit losses) would have had that order executed unexpectedly. But it wouldn't be because of a fundamental market drop but a computer gone wild. (I know, because it happened to me.)

Thursday's thousand-Dow point fiasco is just another black eye for Wall Street at a time it is already under attack.

After Congressional hearings with bewildering references to CDS, CDO and all manner of mind-bending market arcana, the bizarre swings seen on a day such as this only confirms Washington's and Middle America's worst suspicions about Wall Street.

Instead of being a provider of capital to finance growth of the great American economy, days like this make Wall Street seem as if it is nothing but a casino. And as with all casinos, it seems one that is designed to separate the customer from his money.

Yet even after the near-thousand-point drop was reversed, the major U.S. averages were still down more than 3% and holders of equities $1 trillion poorer than three days earlier. Something more than fat fingers is afoot.

"Those losses, led by financials, were no glitch, but a clear reflection of the fact that sovereign debt woes due to indiscriminate Keynesian deficit spending is outrunning tepid global recovery and threatening the next financial blowout," asserts Uwe Parpart, Cantor Fitzgerald's chief economist and strategist for Asia.

"A machine or bad entry may have been the catalyst, but the scene was set for a big fall," he continues. "The fact that gold prices jumped and barely came back down; that the euro dropped one big figure [that is, more than a full cent against the dollar] and stayed down; that oil tanked -- and all that accompanied by a sharp unwinding of carry trades…amply proves the point."

The unwinding of carry trades was evident in a sharp drop in the Australian dollar's cross-rate against the yen, Parpart points out. Carry trades involve buying high-yielding assets, such as those in Aussie dollars, with borrowings in low-yielding currencies, in this case Japanese yen.

It could also be in dollars. And the unwinding of carry trades means buying greenbacks to repay those borrowings. As a result, the dollar soared further against the euro, with the common currency plunging below $1.27 amid continuing protests in Greece and the European Central Bank's stand-pat policy position.

Not surprisingly, the flight to quality accelerated, with Treasuries soaring again and yields plunging to 2010 lows. The benchmark 10-year note yield ended at 3.40%, down sharply from 4% a month ago. The popular way to play long Treasuries, the iShares Barclays 20+ Year Treasury Bond exchange-traded fund (ticker: TLT) gained over 3% Thursday and is up over 10% from a month ago.

But corporate credits decoupled from Treasuries amid continued stresses in the money markets, especially the European interbank markets. The iShares iBoxx $ Invesment Grade Corporate Bond ETF (LQD) fell 1.65% while Treasuries were soaring. Liquidity in the corporate bond market is diminishing, Loomis Sayles' veteran bond manager Dan Fuss said at a mutual-fund conference Thursday.

Beyond the monster, momentary glitches that sent the equity markets into freefall momentarily, it is the reemergence of the credit stresses that were at the core of the 2008 meltdown that is important.

In 2008, that was the result of funding difficulties by institutions left on the hook for errant credit decisions. In the case of Lehman Brothers, the U.S. authorities claimed they didn't have the power to step in to stop the panic resulting from its collapse. When it came to AIG, they found the necessary authority to stanch the bleeding.

Ultimately, the federal government came to the fore with the much-criticized TARP, or Troubled Assets Relief Program. The Federal Reserve followed with its massive purchases of Treasury, agency and mortgage-backed securities totaling $1.75 trillion. The recovery in the markets roughly dates from the March 2009 Federal Open Market Committee when that program, commonly referred to as quantitative easing.

Now, with civil unrest in Greece instead of the collapse of U.S. financial institutions, the ECB Thursday declined to take the same decisive actions that the Fed took in March of last year. For better or worse, the ECB refused to step in to monetize the debts of the beleaguered nations even as civil unrest continued in the Streets of Athens.

The aggressive actions to counter the credit crises in the U.S. and the U.K. have been roundly criticized on the Right and the Left of both countries.

British authorities worried about civil unrest had they let Northern Rock fail. The run on banks and especially money-market funds could have been destabilizing in the U.S. Moreover, the steps taken to counter the crisis by the outgoing Bush administrations were continued and extended by the Obama administration.

The lesson is this goes far beyond some computer glitches, fat fingers or other technical difficulties. And the Greek crisis is no more just a European problem than the subprime mortgage collapse was solely an American problem. In sum, to think that this is only a momentary downdraft is a delusion.

High-Speed Trading Glitch Costs Investors Billions:

On Thursday May 6, 2010, 9:22 pm EDT

http://tinyurl.com/2b43wk8

The glitch that sent markets tumbling Thursday was years in the making, driven by the rise of computers that transformed stock trading more in the last 20 years than in the previous 200.

The old system of floor traders matching buyers and sellers has been replaced by machines that process trades automatically, speeding the flow of buy and sell orders but also sometimes facilitating the kind of unexplained volatility that roiled markets Thursday.

“We have a market that responds in milliseconds, but the humans monitoring respond in minutes, and unfortunately billions of dollars of damage can occur in the meantime,” said James Angel, a professor of finance at Georgetown University’s McDonough School of Business.

In recent years, what is known as high-frequency trading — rapid computerized buying and selling — has taken off and now accounts for 50 to 75 percent of daily trading volume. At the same time, new electronic exchanges have taken over much of the volume that used to be handled by the New York Stock Exchange.

In fact, more than 60 percent of trading in stocks listed on the New York Stock Exchange takes place on other, computerized exchanges.

Many questions were left unanswered even hours after the end of the trading day. Who or what was the culprit? Why did markets spin out of control so rapidly? What needs to be done to prevent this from happening again?

The Nasdaq exchange said it would cancel trades that moved shares more than 60 percent up or down at 2:40 p.m., when stocks like Accenture plummeted to a penny a share, for seemingly no reason. Exelon, the utility operator, fell to a hundredth of a penny, from $44.

Procter & Gamble, a big component of the Dow Jones industrial average, dived 37 percent for a brief time before rebounding. The move by Procter alone pushed down the Dow by more than 150 points, providing cause for a broad alarm among investors, followed by panicked selling.

The Securities and Exchange Commission and the Commodity Futures Trading Commission said they were examining the cause of the unusual trading activity.

Mary Schapiro, the chief of the S.E.C., and Gary Gensler, the head of the C.F.T.C., held conference calls with overseers of the exchanges who were reviewing trading tapes from the day.

One official said they identified “a huge, anomalous, unexplained surge in selling, it looks like in Chicago,” at about 2:45 p.m. The source remained unknown, but that jolt apparently set off trading based on computer algorithms, which in turn rippled across all indexes and spiraled out of control.

How the markets managed to snap back remained a question Thursday night.

The near-instantaneous swings left brokers dumbfounded. Dermott W. Clancy, who runs a New York Stock Exchange broker, said Thursday was one of the five worst days he has seen in 24 years in the business. When the market dropped across all indexes in a matter of minutes, customers were calling him nonstop.

“They’re calling saying ‘Is there something I’m missing? Is there somebody valuing these securities at this level? Is there some news in the marketplace I’m not aware of?’ ” he said.

The answer — that it all started with an apparent error — infuriated Mr. Clancy. “There are so many things wrong with what happened today,” he said. “The market was never down one thousand points. Procter & Gamble should never have traded at $39. But a lot of people lost money as if the prices were meant to drop. This is an injustice to the public.”

The whole trading system, Mr. Clancy said, went into what brokers call “slow mode.” When the large sell order came in, the market makers for each of those stocks were overwhelmed trying to sell that order and they could not take other orders. It was sort of like a traffic jam on one highway that spread to create traffic jams everywhere.

Suddenly, traders started to distrust what they were seeing.

“There was no pricing mechanism,” Mr. Clancy said. “There was nothing. No one knew what anything was worth. You didn’t know where to buy a stock or sell a stock. You didn’t know if the market was down $500 or $1,000.”

Ten Ways the American Economy Is Built on Fraud:

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