"Warning: Crash Dead Ahead. Sell. Get Liquid. Now"...

http://www.marketwatch.com/story/crash-is-dead-ahead-sell-get-liquid-now-2010-05-25

MarketWatch: by Paul B. Farrell May 25, 2010

ARROYO GRANDE, Calif. (MarketWatch) -- "This game's in the refrigerator! The door's closed, the lights are out, the eggs are cooling, the butter's getting hard and the Jell-O is jiggling ..."

That was legendary Lakers' radio announcer Chick Hearn's signature way of calling a game early, telling fans the home team won ... you can head for the exits before the final buzzer. Chick wrote the book with popular sports phrases like "slam dunk," "air ball," "charity stripe," and a "bunny hop in the pea patch" for a traveling violation.

Niall Ferguson: Investing amid uncertaintyEconomic historian and author of The Ascent of Money: A Financial History of the World, Niall Ferguson gives his predictions on gold prices, emerging markets and the Swiss franc. Ferguson also tells Dow Jones Veronica Dagher where he's investing his money amid the uncertainty.

Chick's our inspiration today: Last March I wrote "6 reasons I'm calling a bottom and a new bull." Today it's time for a new call. We've had a good year. Net gains over 50% in 2009. But now: "Game over, head for the exits." Bears beating bulls.

No, no, "it's a buying opportunity," says another legend, hedge fund manager, Barton Biggs. Buying opportunity? For who? Remember, Biggs isn't advising Joe Lunchbox about what to do with his little 401(k). Biggs' customers are mega-millionaires in his $1.5 billion Traxis Partners Fund. Main Street investors like Joe are prey in his casino.

Read on, you decide: As you stare from high up in the nose-bleed bleachers watching the game, staring at a Dow that not long ago was above 11,000 and heading for 12,000. Now the Dow's sitting on the bench, ready for the showers, weak after a couple air balls around 10,000. No more timeouts. "This game's in the refrigerator."

How bad is your bookie's point spread in this game? A blowout? Will the Dow drop below 9,000 again? Now that it's broken technical supports, will it drop below 6,470, where the last bull rally started in early 2009? Can you handle the nerve-racking volatility generated by Wall Street's high-frequency traders playing the game at warp-speed with algorithms making thousands of micro-bets in milliseconds, betting billions daily?

So who should you listen to? Barton and I arrived at Morgan Stanley about the same time. He stayed decades longer, became one of the world's leading strategists, advising the kind of high-rollers who also bet at private tables in a Vegas casino.

You remember Biggs: In his book "Wealth, War & Wisdom" he advises his high rollers to prepare for a "breakdown of the civilized infrastructure." Buy a farm: "Your safe haven must be self-sufficient and capable of growing some kind of food ... It should be well-stocked with seed, fertilizer, canned food, wine, medicine, clothes, etc. Think Swiss Family Robinson." Biggs is not advising small investors on what to do with their 401(k)s.

If you're gambling at Wall Street's casino, folks, the odds-makers are betting against Biggs. It's "game over."

Main Street lost 20% last decade ... yet like sheep keep going back.

Yes, if you're channeling Chick, here's your "mixed metaphor" cue card: "This game's in the refrigerator ... Wall Street won (proof, Goldman's $100-million-profit trading days and Blankfein's $68 million bonus) ... Main Street's headed for another losing streak ... Congress' lights are out ... the refrigerator door's closing on financial reforms ... the lobbyists are laying some rotten eggs, poisoning capitalism ... the Tea Party-of-No-No ideologies are hardening ... the bull's Jell-O is jiggling to a flat line ... and this market's going into hibernation, with the bears ... run, don't walk, to the exits, folks."

But will Main Street exit? Will we ever learn? No. The Wall Street casino makes mega-billions for insiders like Blankfein and the Goldman Conspiracy. Yet "The Casino" is still below the 2000 record of 11,722. So after accounting for inflation, Wall Street lost over 20% of Main Street's 401(k) retirement money between 2000 and 2010. Yes, Wall Street's a big loser the past decade. Their advice is self-serving. Period.

Given their miserable track record, only a fool would bet with Wall Street. Betting odds are Wall Street will lose another 20% in the next decade from 2010-2020. Yes, today's market is a "buying opportunity," but only for Wall Street casino insiders like Biggs, Blankfein and even low-level staffers inside "The Casino." But not for our 95 million Main Street investors, there's more pain ahead, this market's dropping.

Correction? New crash imminent, worse than 2008
More proof: Earlier economist Gary Shilling said price-to-earnings ratios are at a "nosebleed 22.5 level." The Dow was around 11,000. Money manager Jeremy Grantham recently said the market's overvalued 40%. That could mean a collapse to 6,600. Last week in Reuters' "Markets Could Be Derailed Again," George Soros echoed a "game over" warning with a "stark warning ... that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis."

Now Dow Theory's Richard Russell is warning the public of an imminent crash:

"Sell ... get liquid ... by the end of this year they won't recognize the country."

A bigger meltdown than the credit crisis? Yes, Bush's team drove America into a ditch. But now Obama and his money men, Summers, Geithner, Bernanke, are digging the hole deeper. Soros says we have not learned "the lessons that markets are inherently unstable." As a result, "the success in bailing out the system on the previous occasion led to a super-bubble." Now "we are facing a yet larger bubble." Worse than 2008?

Yes, the game may be "in the refrigerator," the lights will go out, but as Soros hints, the electricity may get turned off too. Get it? This may not be a correction. Not even a bear. What's coming could be worse than the 2000 dot-com crash and the 2008 meltdown combined, a "Super-Bubble" says Soros. And the biggest reason, Nouriel Roubini and Stephen Mihm tell Newsweek, is that "the president's half-measures won't fix our failed financial system" because he refuses to "bust up the too-big-to-fail banks."

Yes, Congress will pass something. But unfortunately, as reported on MSNBC, Senator Dodd, the reform bill's sponsor, is a turncoat, working overtime with Wall Street lobbyists "to weaken financial reform," leave us vulnerable to a new, bigger crash in the near future. And Wall Street lobbyists are spending hundreds of millions to kill reform.

'White Swans:' 2000 and 2008 crashes were predictable, next one too.

Recently Roubini was interviewed by Charlie Rose in BusinessWeek. His message confirms the worst. Roubini was questioned about his new book, "Crisis Economics." Rose began by asking, "what have we learned from these crises of capitalism?" Roubini could easily have said, "nothing, we learned nothing." His actual reply:

"The first lesson is that crises are not 'black swan' events ... they're not just random outcomes. They are the result of a buildup of financial and policy vulnerability and mistakes -- excessive risk-taking, leverage, debt, and so on." They are 'White Swans' "because these events are predictable. But generation after generation, we seem to forget the past. When there's a bubble, there's euphoria. There's irrational exuberance. Consumers can use their homes like ATM machines. Governments and policy makers are happy because they get reelected. Wall Street makes billions of dollars of profits. Everybody's delusional."

Sound familiar? Yes indeed, in "This Time Is Different: Eight Centuries of Financial Folly," economists Carmen Reinhart and Kenneth Rogoff pinpoint the key signal that will blow the whistle and call the game: The "90% ratio of government debt to GDP is a tipping point in economic growth." For 800 years "you increase it over and beyond a high threshold, and boom!"

Warning, fans, the numbers on the game-clock are flashing wildly. America's ratio is now 92%, thanks to Obama's $1.7 trillion budget, future deficits, exploding debt. Soon, Ka-Booom! Another great nation bites the dust. Depression follows. Goodbye retirement.

Warning: 800 years of history are calling 'game over'
But can't we change destiny? Or are Dodd, Congress, Obama, Wall Street, the Party of No-No and 300 million Americans all just playing their parts in a historical script well-known to historians like Reinhart and Rogoff, Kevin Phillips, Niall Ferguson and others? The message of "This Time Is Different" is very simple:

"We have been here before. No matter how different the latest financial frenzy or crisis always appears, there are usually remarkable similarities from past experience from other countries and from history. ... no country, irrespective of its global importance, appears to be immune to it. The fading memories of borrowers and lenders, policy makers and academics, and the public at large do not seem to improve over time, so the policy lessons on how to 'avoid' the next blow-up are at best limited."

So please listen closely: All the TARP bailouts, stimulus debt and Fed loans won't work. Neither will a new conservative government. This is not a basketball game. We are not channeling Chick Hearn, calling this game before the final buzzer. While we prefer the illusion that "this time really is different," eight centuries of history suggest otherwise:

"The lesson of history, then, is that even as institutions and policy makers improve there will always be a temptation to stretch the limits. ... If there is one common theme to the vast range of crises ... it is that excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. ... Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang -- confidence collapses, lenders disappear and a crisis hits. ... Highly leveraged economies ... seldom survive forever ... history does point to warnings signs that policy makers can look to access risk -- if only they do not become too drunk with their credit bubble-fueled success and say, as their predecessors have for centuries, 'This time is different'."

No, "this time" it's never different. Get it? In the end, it doesn't matter what happens to the Dodd-Obama financial reforms. The endgame's never a Black Swan, it's a very White Swan well known to historians -- guaranteed, inevitable and inescapable. This time is never different.

The clock's flashing. Huge point spread. Think bear, think crash, think end of capitalism, think Great Depression II ...

This is no buying opportunity, this game's in the refrigerator, call it...

US Employment May Be Hammered By Euro Plunge:

By Daniel R. Amerman, CFA May 24, 2010

http://news.goldseek.com/GoldSeek/1274726687.php

Overview

Still deep in recession / depression, it is possible and perhaps even likely that the US economy will be dealt a sledgehammer blow over the coming months. The full price for the European crisis might be paid in American jobs, with four categories of job losses imperiling the US economy and threatening the standards of living for millions of people. If you are employed in the US, UK, Canada, or Australia (among other nations), don’t pity the continental Europeans, because it may be a European that ends up taking your job.

The next stage of the sovereign debt crisis has arrived, and we are seeing how the differential recognition of national problems can rapidly redistribute the real wealth of nations as well as individuals. In this article we’ll discuss how some Europeans will be forced (kicking and screaming) into a state of “Accidental Virtue”, and how this may protect them from the worst of the damage that will occur in nations with stronger currencies.

Sharp Currency Changes & Market Share

Not everyone in Europe is upset about the fall of the euro. As Daimler Chief Executive Officer Dieter Zetsche stated in a Bloomberg interview, “Because of massive growth in markets like the US and China... The fall of the euro is a benefit."

According to Airbus Chief Operating Officer John Leahy, each ten cent drop in the euro adds 1 billion euros to operating profits at Airbus.

The relationship that turns a plunge in the euro from disaster into an occasion to pop the champagne, comes down to each company's cost and revenue structure. If most of your costs are in euros that are falling in value, but a big chunk of your revenues are in dollars that are rising in value, then a rapidly falling euro will redistribute wealth to you on a pleasantly rapid basis.

There is a particular benefit that goes to companies where a large portion of their expense structure is paying their employees. It just got significantly cheaper to pay European workers to make products relative to US workers – and the differential could grow with further euro troubles. This relationship of the competitive advantage dramatically shifting to Europe applies to all nations where the euro is suddenly much weaker compared to their own currency, including such countries as the UK, Canada and Australia.

While the financial media focuses on the effects on near-term corporate profits, let me suggest that the much more important fallout from a fundamental change in the valuation of the euro is market share, employment, and national economies. In the very short-term, yes, a plunging euro means companies that employ European workers are going to gain a powerful profit advantage. When we move to the medium and long term however, (assuming the euro stays down compared to the dollar), then the companies can gain something even more important from an economic perspective -- increased market share.

Companies that employ European workers, generally speaking, have just gained a 13% advantage over US companies this year. This means they can lower their prices by 13%, relative to companies employing American workers, and grab great big chunks of market share. Indeed, they can lower prices by 8% in dollar terms, and have the dual advantage of both grabbing a bigger share of the market, and having each dollar in that market of sales be more profitable than it was before the euro fell. (For ease of illustration, these examples assume 100% of costs are labor. If 50% of cost were labor, then the advantages would be 6.5% and 4%, roughly speaking.)

As the crisis in the euro continues to develop, some are calling for parity between the dollar and euro by next spring. (That and worse could happen a whole lot faster than that, of course.) This would be about a 30% plunge in the value of the euro compared to where it started in January. Thus, companies that employ European workers gain a extraordinary advantage over companies that employ US workers (and Canadian, Australian and UK workers, if their currencies move with the US dollar rather than the euro). An advantage that would of course lead to increased profits for those companies, but much more importantly, could lead to dramatic changes in market share – with sales rising fast at companies that employ European workers, while sales plummet at companies that employ US workers.

You may have wondered about my using the somewhat awkward phrasing of talking about companies that employ European workers, and companies that employ the American workers, rather than the shorthand of European companies and American companies. The distinction is far from minor, and understanding the difference is essential. Indeed, if you want to understand the makeup of the world economy over the next several years, if this situation persists with a very weak euro and strong dollar, it is this distinction between the location of companies versus the location of their workers that will be one of the most important influences on the national economies of both the United States and Europe.

A Powerful Blow To A Reeling Economy

A nation’s workforce taking on a 13% cost disadvantage would be painful for a healthy economy – but manageable. That’s the normal course with currencies over time, there are significant fluctuations. A potential 30% differential is a different story, however, and could fundamentally change economies and countries – but doesn’t by itself destroy a healthy economy. A more accurate assessment might be that a 30% differential could severely stress a healthy economy.

Unfortunately, the US economy is anything but healthy.

The US economy is currently in the worst shape that it has been since the 1930s. The economy has been shrinking for at least two years, and if we accept official government statistics and then adjust them for the different measurement methodology we use compared to the 1970s and before -- then some current estimates for the real rate of US unemployment range between 17% and 22%. For what holds it down to the official total of about 10% is simply that when people are unemployed for too long the government decides they are no longer part of the labor force. So technically, the “long-term discouraged” are no longer unemployed, they merely cease to exist for the statistics that are reported by the government to the media.

The economy is reeling, employment has not been growing, and unemployment claims were rising again even before the euro's plummet began. Yet, the so-called recovery remains a prediction of many economists and government officials, almost all of whom would've assured you two or three years ago that the current situation was impossible.

The US economy was already knocked down to the floor and in the worst shape in more than 70 years, even before it received the current kick to the stomach. Currencies are not weight-lifting competitions, being strongest is not necessarily the best, and ironically, a strong dollar can potentially pummel US employment in four distinct ways.

One. Companies that employ US workers just likely lost substantial international market share to companies that employ European workers, not only in Europe but around the rest of the globe. It may take six months or a year before the full damage occurs and makes it through official reporting channels, but the effects are already likely beginning to occur today in terms of contracts and purchases that are still being negotiated – or are being suddenly renegotiated. This substantial loss in market share of course translates to large numbers of US jobs being lost.

Two. Companies that employ US workers to make products for the domestic US market are likely to lose substantial market share to cheaper European imports over the coming year. With globalized trade, a major change in the competitiveness of your workforce necessarily can hit your domestic market every bit as hard as international markets. Again, this substantial loss in market share translates to large numbers of US jobs being lost.

Three. The strong dollar leading to decreased competitiveness for US workers (through no fault of their own) means that “job flight” is likely to return with a vengeance. Companies that employ American workers, whether they are US companies or foreign-owned companies, are not going to passively accept a major, perhaps even bankruptcy-inducing loss in market share. Naturally, they are going to aggressively do everything they can to try to protect their market share in markets around the world. That will likely mean a rapid shift in jobs inside of multinational corporations, as plants and offices employing US workers are closed down, with the jobs shifted to new or existing subsidiaries and suppliers abroad, particularly in Europe. If the euro plunges further versus the dollar, this migration of jobs within companies could happen fast and hard, dealing a third blow to American workers.

Four. All of this is taking place in the midst of a global financial and economic crisis that means economies outside of Asia are in many cases shrinking rather than growing. When the sales “pie” to be split is shrinking – so is employment. If American workers are being underbid by European workers for shares of a shrinking pie, this is a devastating one-two combination for total US employment. This also creates a feedback loop as falling US employment lowers US sales, which leads to further job losses. US workers then attempt to secure employment at lower wage levels, which would usually put a floor under the fall.

However, in this case, an artificially high dollar means that wages must fall further than would otherwise be needed, to overcome the cost advantage enjoyed by Europeans. This means that the jobs aren’t created, or that they are at such low wages that discretionary spending is near non-existent. Each of which then leads to lower sales, which lead to further job losses. Effectively, the currency driven decline in the price of employing Europeans at least partially jams the self-correcting mechanism within the US labor market that would usually kick in.

Thus we have a recipe for national economic disaster. Indeed, with a further plunge in the euro from today’s levels, there is potential for real US unemployment to reach levels last seen in the 1930s, unless aggressive action is taken by the US government to bring down the value of the dollar.

The Perils Of Differential Problem Recognition

What makes this situation quite ironic is that the reason the dollar has soared versus the euro is not because the US economy is fundamentally sounder, but rather that Europe has been forced to recognize its problems, while the US continues to refuse to deal with its own equally powerful economic problems. The dollar is soaring because Europe has a “sovereign debt” crisis (which is just the current catch phrase for saying governments have made more promises than they can pay for). But when it comes to unfunded government promises – the US has no equal, with approximately $100 trillion in unfunded obligations for Social security, Medicare and pensions.

So even while the dollar “wins” versus the euro in the headlines, what is going on is a fundamental weakening of the US economy, which brings forward the day when the US experiences problems that are every bit as severe as the problems in the eurozone.

Another way of looking at this is differential problem recognition. For a long time now – because these pressures have been building for a very long time – the US and Europe have both had fundamental economic and demographic problems coming at them like a freight train, which the markets have by and large ignored. Now the markets are recognizing the problems in Europe, while ignoring similar and equally massive problems in the United States. While the headlines may sound very negative for Europe – and Europe is indeed in crisis mode – it's worth noting that a couple of the side effects are that European investors can now command a higher return on their investments, all else being equal, because the prices of those investments have fallen even while European competitiveness has increased on a global basis. So lower prices for better economic performance relative to what would otherwise be the case with a higher value on the euro. Economic growth may still be negative, but less negative than would otherwise be the case.

On the other hand, the US dollar status as a reserve currency means that US investments become relatively more expensive for US and global investors to buy even as economic prospects for the US economy grow steadily worse. This translates to higher prices for lower fundamental economic strength. Which then operates to increase the differential between current prices and future value, and therefore increases the size and pain associated with the eventual convergence between market prices and economic fundamentals.

Crisis Economics & Accidental Virtue

Stefan Hofrichter, chief economist at Allianz Global Investors RCM unit, made a statement with wide-ranging implications when he said, “My concern is that the (falling euro) benefits will at most compensate for the headwind stemming from fiscal tightening, a more restrictive Chinese monetary policy and weakening growth momentum.”

His point, of course, is that a greater market share– in a market that has been shrunk by the economic chaos accompanying the global financial crisis – may work out to be about the equivalent of breaking even for some European companies. If this works out to be true for Allianz, it means that they will likely be doing much better than many other companies in the world.

A falling euro is not all sunshine for European workers and consumers. Everything Europeans import from abroad just became substantially more expensive. This includes the oil from Saudi Arabia and the natural gas from Russia, as well is the other raw materials that must be imported from around the world. European manufacturers with cost structures that are heavily tilted to the acquisition of raw materials may be badly hurt, with accompanying job losses.

Indeed for the more efficient economic producers in Europe, the main side effect of the fall in the value of the euro may be to be pushed into a reluctant state of what I will call “Accidental Virtue”. By the time all is said and done, there's a good chance that consumption will fall across European countries and that the standard of day-to-day living may fall for many or most Europeans. Every finished product imported from the US and Asia just grew more expensive. Even as every raw material and commodity imported from the rest of the world grew more expensive. This drop in consumption lowers the standard of living, even while jobs associated with exports grow rapidly.

This could lead many of the citizens of Europe to become more like the citizens of China and Japan, as they become much more competitive producers of real goods and services, even while their consumption of foreign goods and materials drops. In at least some nations, this may lead to the Accidental Virtue of being a nation of savers with strong jobs but lowered consumption. The word “Accidental” is important, because those involved may be quite reluctant, indeed they are likely to be dragged to this state of virtue kicking and screaming – but once they are there, they may be substantially better positioned for the coming decades than those in the US.

They will need every bit of “virtue” – and the jobs which come from that “virtue” – that they can get, because we have to remember that the fall of the euro is not the problem, but a symptom. The problem is the fundamental economic and societal crisis of a continent that has entered into promises with its own population that it will be unable to honor. The breaking of these promises, which must occur in substance, even if not in legal form (meaning inflation), will be painful – and that price will be very real. There will be turmoil, popular government safety nets will not have the funding that has been promised, and investment markets will be devastated. As always in times of major economic and monetary crisis, the workers will likely find a way to adapt (so long as the jobs are there), but the heaviest pain is likely to fall on the retirees.

While reduced consumption in combination with austerity programs and broken pensioner promises is not likely to be politically popular, even with a relatively stronger global economic position, it is nonetheless an enviable state compared to the alternatives.

What will hurt even more is if you have just as many or more government promises to be broken, but instead of having a resurging real economy – your real economy is imploding. This may be the fate that awaits the US, particularly if it continues to ignore this emergency and does not take the urgent action required.

Do keep in mind that this article is an extrapolation of current events in the news, and not a prophecy of unavoidable doom. If the US were to go a step further than Europe in recognizing its problems, and deal with its real issues, then it would be the US real economy that would be at the competitive advantage. The short-term turmoil would appear catastrophic to markets, politicians and the banking system – but you have to keep in mind that markets and banks aren’t what determines standards of livings for a nation as a whole. It’s the real economy that does that, and a strategy that attempts to mask real pain with short term manipulations – which has the result of increasing the damage to the real economy of workers, jobs and production – goes directly against the national interest.

When it comes to the “sovereign debt” crisis, the earlier a nation steps forward to accept what is inevitably coming – the better the real economy of that nation performs relative to how it otherwise would have, and the less the long term damage from the breaking of promises.

Euro Collapse Could Be Catastrophic For US & World

In order to explore the vital issues covered in this article, an assumption had to be made that the euro would be deeply wounded, but that it wouldn’t collapse. That is, whether we’re talking about the current 13% drop in the value of the euro versus the dollar, or the potential for a 20%, 30% or 40% total decline, these all assume that the euro and European Monetary Union remain intact and functional. It is these assumptions that lead to our hypothetical future state of “Accidental Virtue” in Europe with a reduced average standard of living for employed families, but with greater employment levels.

In the real world we have no such assurance. The situation is grave, a monetary union among sovereign nations with different objectives and situations is inherently fragile, and a collapse in the euro remains a strong possibility. While there will be winners, and lucrative windfall profits will be realized in the event of a monetary collapse (as covered in my article linked below), for the average citizen, living through a monetary collapse has always been – and will be – a nightmare scenario.

http://danielamerman.com/articles/Windfall.htm

Savings are wiped out across the continent. Pension plans become meaningless. During the peak of monetary crisis it is difficult for an economy to function at all, and unemployment becomes massive. These times of monetary crisis also can bring radical political change in a very short period of time that the average person would have said was impossible just two or three years beforehand. It is this political change that makes the process so unstable and unpredictable, as parties previously on the fringe may end up taking control. Politics and even culture can become quite pliable during crisis, and the characteristics of the Europe that would emerge on the other side of crisis can almost be considered a roll of the dice.

As this article has demonstrated, this is not just a European problem. And what needs to be clearly understood is that in a globalized world, if the euro collapses then the problems described in this article become much larger, much faster. The European market for US exports collapses – taking the associated US jobs with it. Meanwhile, the cost advantages of using highly educated and trained European workers over their American counterparts just grew much greater than that which we’ve been discussing.

This means that unless trade barriers are erected, US workers will be at a terrible disadvantage, and likely face a declining standard of living. However if political pressure leads to rapid erection of trade barriers, then the US inability to pay for its own standard of living unless it has cheap foreign imports, immediately comes to the fore. The US could face a 28% decline in discretionary income, as well as a series of rapid exogenous inflationary supply shocks, as covered in two videos / articles in my “Crisis & Globalization” series:

http://danielamerman.com/Video/PSL.htm

http://danielamerman.com/Video/Shock.htm

The Sharp And Unfair Redistribution Of Wealth

The first step in dealing with any problem is to accept that it is real, and that wishing, hoping and ignoring won’t make it go away.

Impossible promises get broken by definition. One way or another. If the real economic resources are not there to cover the retirement standard of living than had been promised to an entire nation, then the average retiree is going to have a lower standard of living than what was promised. No amount of legislation can overcome that simple reality.

If the retirement plan for a nation is to invest with the assumption that we already know the future, and it is one of never-ending economic growth -- but that growth does not occur -- then the investment implications are grim for the average retirement investor who has been following conventional financial planning techniques.

But here's the key, as we are seeing with Europe: bad news has an uneven distribution. Not everyone is affected equally, far from it. What economic crisis does is rapidly redistribute wealth. The unfortunate likelihood is that tens of millions of people who have lived good responsible lives, are going to see their lifestyles crushed, through no fault of their own. Other tens of millions of people will experience substantial but manageable declines in their standard of living. There will be another group, and the Europeans are particularly well-positioned at this time, where they will more or less break even.

There will be a smaller group that will position themselves so that the rapid redistribution of wealth will radically increase their net worth. These individuals will be found in every nation, but their numbers will be relatively few.

To position yourself to have a fighting chance of keeping what you’ve built, and maybe even increasing it substantially – there is simply no substitute for understanding how wealth is rapidly redistributed by economic crisis. If you don't understand how the redistributions work and you keep the same investments and strategies that everyone else has, then you will just be impoverished along with everyone else. To protect your financial capital, to protect what you have for you and your family, the very best step you can take is to build your intellectual capital.

Seek to acquire an uncommon education in the redistribution of wealth during crisis...

Naked Truth on Default Swaps:

By Floyd Norris May 20, 2010

http://www.nytimes.com/2010/05/21/business/economy/21norris.html

Should people be able to bet on your death? How about your financial failure?

In the United States Senate, Wall Street won one this week when the Senate voted down a proposal to bar the so-called naked buying of credit-default swaps. If that were the law, you could not use swaps to bet a company would fail. The exception would be if you already had a stake in the company succeeding, such as owning a bond issued by the company.

On the other side of the Atlantic, Germany announced new rules to bar just such betting — but only if the creditors were euro area governments.

None of this argument would be taking place if regulators had done their jobs years ago and classified credit-default swaps as insurance.

As it happened, however, clever people on Wall Street followed the prescription laid down by Humpty Dumpty in Lewis Carroll’s “Through the Looking Glass:”

“When I use a word,” Humpty Dumpty said, in rather a scornful tone, “it means just what I choose it to mean — neither more nor less.”

When Alice protested, Humpty Dumpty replied that the issue was “which is to be master — that’s all.”

The word here is “swap.” It used to mean, well, a swap. In a currency swap, one party will win if one currency rises against another and lose if the opposite happens.

Credit-default swaps are, in reality, insurance. The buyer of the insurance gets paid if the subject of the swap cannot meet its obligations. The seller of the swap gets a continuing payment from the buyer until the insurance expires. Sort of like an insurance premium, you might say.

But the people who dreamed up credit-default swaps did not like the word insurance. It smacked of regulation and of reserves that insurance companies must set aside in case there were claims. So they called the new thing a swap.

In the antiregulatory atmosphere of the times, they got away with it. As Humpty would have understood, Wall Street was master. Because swaps were unregulated, calling insurance a swap meant those who traded in them could make whatever decisions they wished.

That decision, perhaps more than anything else, enabled the American International Group to go broke — or, more precisely, to fail into the hands of the American government. Had it been forced to set aside reserves, A.I.G. would have stopped selling swaps a lot sooner than it did.

The decision that swaps were not insurance meant that anyone could buy or sell them — or at least anyone who could find a counterparty.

Had credit-default swaps been classified as insurance, the concept of “insurable interest” might have been applied. That concept says that you cannot buy insurance on my life, or on my house, unless you have an insurable interest.

Gary Gensler, the chairman of the Commodities Future Trading Commission, recently laid out the history of that concept. It did not exist until the 18th century, when many people — not just owners of ships or cargos — began buying insurance against ships sinking.

More ships began sinking, and insurers cried foul.

The British Parliament outlawed such sales of ship insurance in 1746. Ever since, to buy that insurance you had to have an interest in the ship or its cargo. But it was another 28 years before Parliament extended the idea to life insurance.

So should it be illegal for me to buy credit-default swaps on companies even if I have no other interest in the company? And if I have an interest, should I be limited to buying only enough insurance to cover my exposure? That is, if I own $100 million in XYZ Corporation bonds, should I be able to buy $1 billion in insurance against an XYZ default?

To most on Wall Street, the answer is obvious: let markets function. My buying that insurance will probably drive up the price, and serve as a market indication that people are worried about the credit, which is good because it gives a warning to others.

In any case, it is legal to sell stocks short. That, too, is a way to bet that a company will fail. So what’s the difference?

One difference is that many people short stocks because they deem them overvalued, not because they think the company will go broke. They can profit even if the company does well, so long as the stock does turn out to have been overvalued.

Many who despise credit-default swaps argue that they can be used to force companies to fail. The swap market is thin, and even a relatively small purchase can drive up prices. That very movement may make lenders nervous, cause liquidity to dry up and bring on unnecessary bankruptcies.

There is another, little noticed, possible impact of credit-default swaps. They can undermine bankruptcy laws.

Normally, a creditor wants to keep a company out of bankruptcy if there is a decent chance it can survive. If it does go broke, the creditor wants to maximize the value of the company anyway, so that more will be available to pay creditors.

But what happens if a major creditor, who might even control one class of bonds, has a much larger position in credit-default swaps?

Will he not have interests directly at odds with those of other creditors, since he will do better if the company ends up with less to pay its creditors? Might that creditor seek to, and perhaps be able to, sabotage the company’s best hopes for revival?

At a minimum, such things should be disclosed, but that gets tricky when one part of a megabank (the one with the bonds) claims it is run independently from the other (the one with the swaps).

I don’t know whether it is necessary to treat credit-default swaps like insurance and require someone to have an insurable interest before swaps can be purchased.

The financial reform bill now being debated in the Senate has provisions intended to assure that many of the previous swap abuses are not repeated.

But I do think Germany’s decision was ill considered. First, it may have little effect if other countries do not join in. Buying a swap in New York or London, rather than Frankfurt, will not be difficult.

But the more important issue is one of limiting the targets of credit-default swap purchases. If Germany had simply required buyers of credit-default swaps to have an insurable interest, it would have been standing up for a principle.

By limiting the scope to swaps on debt of euro area governments, the German government sends two signals: it is acting in self-interest, and it is still worried that it may have to finance more bailouts.

VIDEO - Fundamental & Technical Analysis of the S&P 500's Daily & Weekly Charts:

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Technical Analysis of the S&P 500's daily and weekly charts, plus a look at the important Economic and Earnings Reports due out next week...

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Market Decline Based On More Than Fear:

Comstock Partners, Inc.
May 20, 2010

http://www.comstockfunds.com/default.aspx?MenuItemID=29&&AspxAutoDetectCookieSupport=1

Today marked a new phase in investors' understanding of the EU crisis. Although the Euro itself recovered a bit, investors realized that Europe's problems could spread to the U.S. and impede or stop its economic recovery. This would possibly mean that the 14-month market rebound in U.S. stocks may not have been justified. The possibility is more than just a fear, but a realistic assessment of a dire situation. Even if the EU and the Euro survive, all of the member governments, including the relatively stronger ones, would have to undertake severe spending cuts and pay down debt to rectify their budgets. These actions would lead to a long and serious economic slump that would most likely spread across the globe.

The crisis is also reminding investors that we have undergone two 50% plus market declines in the same decade and that the S&P 500 today closed at same level it first reached over 12 years ago in mid-March 1998. The two major declines are a reminder to traders of the benefits of getting out relatively early, while the lack of progress over 12 years make long-term investors wonder what they doing in the market. For those who didn't get out on time at the tops in early 2000 and late 2007, the bell is ringing for a third time.

The potential impact of the European crisis on the American economy and markets is not just Comstock's opinion. In testimony before a Congressional committee yesterday, Fed Governor Daniel Tarullo stated that sovereign debt problems in "peripheral" Europe could spill over and cause problems throughout Europe that, in turn, could be transmitted to global financial markets. This, he said, could cause banks and other financial institutions to pull back on lending as they did following the Lehman bankruptcy. "The result could be another source of risk to the U.S. recovery in an environment of still-fragile balance sheets and considerable slack".

The Fed's minutes of its last meeting, released this week, indicated that the economy was not doing quite as well as advertised, even before the impact of Europe's problems. Attributing the recent increases in consumer spending to temporary factors and a lowered savings rate, they concluded that it was unlikely that consumer spending would be the major factor in driving economic growth. They added that the housing market appeared to have flattened despite major government support and that both sales and starts had stalled at depressed levels. They also saw the possibility of increased foreclosures adding to already bloated inventories of vacant homes, threatening a downside risk to prices. The minutes mentioned that commercial real estate continued to fall as a result of deteriorating fundamentals, while bank lending was declining and credit remained tight.

Other recent economic releases were also not encouraging. The Mortgage Bankers Association (MBA) reported a record 4.63% of mortgages in foreclosure in the first quarter with combined foreclosures and delinquencies amounting to 14% of all mortgages. We note that this is before an expected surge of new defaults and foreclosures as a result of foreclosures being delayed due to attempted workouts and the pending increase of adjustable-rate mortgages due for reset in coming months. In addition applications for new mortgages for home purchases plunged in the week following the expiration of the latest home buyers' tax credit. It was also reported today that initial weekly claims for unemployment insurance unexpectedly jumped to 470,000. While one week doesn't necessarily mean anything, we note that claims have now been flat since year-end, indicating that the labor market still remains weak.

We would be remiss if we didn't mention increasing concern about China as a negative market factor. The Chinese housing market has been booming, and the authorities have been slowly tightening monetary policy. In the first quarter the nation reported its first trade deficit since 2004. If the Chinese economy slows down at the same time that Europe is dealing with its crisis the U.S. and global economy will stall. This is already being reflected in a sudden decline in commodity prices on anticipation of a drop in Chinese purchases. We'll have more on this topic in subsequent comments.

In our view the 14-month rally since March 2009 is over and a major decline is underway. The recent decline has been extreme in the short-term, and some sharp rallies are likely. However, we believe that none of these rallies will hold and that the eventual market bottom will be far lower than today's level.

Europe's Mounting Crisis: "We're on Life Support," Chris Whalen Says:

May 19, 2010 07:30am EDT by Heesun Wee

http://tinyurl.com/262m6oa

Despite a nearly $1 trillion rescue plan, concerns about Europe continue to haunt the financial markets. Late Tuesday, the euro slid to more than a 4-year low against the dollar, triggering another sell-off in U.S. stocks.

Beyond the obvious problems with Europe's "PIIGS", investors worldwide are nervously wondering how badly Europe's sovereign debt crisis is affecting the banking system -- both over there and here at home.

"In some ways European banks are worse than ours. They're certainly less transparent," says our guest Chris Whalen, managing director at Institutional Risk Analytics. "It's a strange time. And I think it talks to the basic lack of competitiveness, the lack of productivity really in Europe. And you also have the same problem in the U.S. We just have the flexibility of being able to print money."

So what does Europe's end game look like?...

"For Europe, basically they have two options: Individual countries can continue to borrow money until they can't. Then they hit the wall," says fellow guest John Mauldin, president of Millennium Wave Advisors and author of the Thoughts from the Frontline e-letter. "Or they can willingly throw themselves into a Depression by cutting their deficits dramatically."

For now, Whalen says politicians aren't willing to make the tough choices about spending and cutting deficits. Instead, "we're just managing bubbles here," he says. "To me we're on life support right now. We still haven't figured out as a society, both Europe and the US, how we fix these economies and make them go again," Whalen says.

Anxiously Watching the Euro...

With the global financial markets seemingly hanging on its every move, the fate of the euro is obviously a huge wild-card right now. But Mauldin or Whalen believe it's unlikely the EU will disintegrate and the euro disbanded, as Paul Volcker suggested last week, but both believe the currency is heading lower.

"I think the euro's going to parity. The pound's going to parity," Mauldin says. "And we're going to see the yen go to $100, then $125, then $150. Pretty soon we'll get a bid for $200 and $250," which will have huge implications for global trade.

"Not one of those countries [in Europe and the rest of Asia], not any of those businesses, and any of those exporters in those countries are going to be upset," Mauldin says. "They're going to be happy because they're going to be able to export with cheap currencies against us."

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 US Intelligentsia and Middle Class Are In the Firm Grip of Fear, Fraud and Denial:

Posted by Jesse at 11:27 AM May 16, 2010

http://jessescrossroadscafe.blogspot.com/2010/05/us-is-in-grip-of-fraud-and-denial.html

The lie is comfortable, an illusion easy to live with, familiar, and safe.

Writing from the 'disgraced profession' of economics, James K. Galbraith speaks of the unspoken, the many frauds and deceptions underlying the recent financial crisis centered in the US. Many will read this and shake their heads in agreement, but will be unable to take the next logical step and internalize the implications of the depth and breadth of the dishonesty that enabled it then, and continues to sustain it, even today. Galbraith is asking 'why' and framing a further inquiry into the consequences of this unwillingness to reform.

"Some appear to believe that "confidence in the banks" can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion."
It is easier to go with the flow, relax, rationalize, and be diverted and entertained by 'the show.' The truth may set you free, but before that it can make you feel very insecure and uncomfortable, especially when it requires challenging the 'official story' and policy decisions. Better to say nothing offensive to the oligarchs, and even occasionally to utter intelligent sounding condemnations of those who dare to question the very things you wonder about, and fear, in order to prove your loyalty and to reassure yourself that you are a right-thinking, practical individual. For the disparity that is unavoidably noticed between what is seen and what is said makes one uneasy, fearful that they are losing their bearings, if not reason. And the vested interests play on those fears. See Techniques of Propaganda

The consequences of 'extend and pretend' will be to worsen the final outcome, the day of reckoning.

"The initial deviation from the truth will be multiplied a thousandfold." -Aristotle
The banks must be restrained, the financial and political system reformed, and balance restored to the economy, before there can be any sustained recovery.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Why the 'Experts' Failed to See How Financial Fraud Collapsed the Economy:

By James K. Galbraith
May 16, 2010

Editor's Note: The following is the text of a James K. Galbraith's written statement to members of the Senate Judiciary Committee delivered this May.

Chairman Specter, Ranking Member Graham, Members of the Subcommittee, as a former member of the congressional staff it is a pleasure to submit this statement for your record.

I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis. Concepts including "rational expectations," "market discipline," and the "efficient markets hypothesis" led economists to argue that speculation would stabilize prices, that sellers would act to protect their reputations, that caveat emptor could be relied on, and that widespread fraud therefore could not occur. Not all economists believed this – but most did.

Thus the study of financial fraud received little attention. Practically no research institutes exist; collaboration between economists and criminologists is rare; in the leading departments there are few specialists and very few students. Economists have soft- pedaled the role of fraud in every crisis they examined, including the Savings & Loan debacle, the Russian transition, the Asian meltdown and the dot.com bubble. They continue to do so now. At a conference sponsored by the Levy Economics Institute in New York on April 17, the closest a former Under Secretary of the Treasury, Peter Fisher, got to this question was to use the word "naughtiness." This was on the day that the SEC charged Goldman Sachs with fraud.

There are exceptions. A famous 1993 article entitled "Looting: Bankruptcy for Profit," by George Akerlof and Paul Romer, drew exceptionally on the experience of regulators who understood fraud. The criminologist-economist William K. Black of the University of Missouri-Kansas City is our leading systematic analyst of the relationship between financial crime and financial crisis. Black points out that accounting fraud is a sure thing when you can control the institution engaging in it: "the best way to rob a bank is to own one." The experience of the Savings and Loan crisis was of businesses taken over for the explicit purpose of stripping them, of bleeding them dry. This was established in court: there were over one thousand felony convictions in the wake of that debacle. Other useful chronicles of modern financial fraud include James Stewart's Den of Thieves on the Boesky-Milken era and Kurt Eichenwald's Conspiracy of Fools, on the Enron scandal. Yet a large gap between this history and formal analysis remains.

Formal analysis tells us that control frauds follow certain patterns. They grow rapidly, reporting high profitability, certified by top accounting firms. They pay exceedingly well. At the same time, they radically lower standards, building new businesses in markets previously considered too risky for honest business. In the financial sector, this takes the form of relaxed – no, gutted – underwriting, combined with the capacity to pass the bad penny to the greater fool. In California in the 1980s, Charles Keating realized that an S&L charter was a "license to steal." In the 2000s, sub-prime mortgage origination was much the same thing. Given a license to steal, thieves get busy. And because their performance seems so good, they quickly come to dominate their markets; the bad players driving out the good.

The complexity of the mortgage finance sector before the crisis highlights another characteristic marker of fraud. In the system that developed, the original mortgage documents lay buried – where they remain – in the records of the loan originators, many of them since defunct or taken over. Those records, if examined, would reveal the extent of missing documentation, of abusive practices, and of fraud. So far, we have only very limited evidence on this, notably a 2007 Fitch Ratings study of a very small sample of highly-rated RMBS, which found "fraud, abuse or missing documentation in virtually every file." An efforts a year ago by Representative Doggett to persuade Secretary Geithner to examine and report thoroughly on the extent of fraud in the underlying mortgage records received an epic run-around.

When sub-prime mortgages were bundled and securitized, the ratings agencies failed to examine the underlying loan quality. Instead they substituted statistical models, in order to generate ratings that would make the resulting RMBS acceptable to investors. When one assumes that prices will always rise, it follows that a loan secured by the asset can always be refinanced; therefore the actual condition of the borrower does not matter. That projection is, of course, only as good as the underlying assumption, but in this perversely-designed marketplace those who paid for ratings had no reason to care about the quality of assumptions. Meanwhile, mortgage originators now had a formula for extending loans to the worst borrowers they could find, secure that in this reverse Lake Wobegon no child would be deemed below average even though they all were. Credit quality collapsed because the system was designed for it to collapse.

A third element in the toxic brew was a simulacrum of "insurance," provided by the market in credit default swaps. These are doomsday instruments in a precise sense: they generate cash-flow for the issuer until the credit event occurs. If the event is large enough, the issuer then fails, at which point the government faces blackmail: it must either step in or the system will collapse. CDS spread the consequences of a housing-price downturn through the entire financial sector, across the globe. They also provided the means to short the market in residential mortgage-backed securities, so that the largest players could turn tail and bet against the instruments they had previously been selling, just before the house of cards crashed.

Latter-day financial economics is blind to all of this. It necessarily treats stocks, bonds, options, derivatives and so forth as securities whose properties can be accepted largely at face value, and quantified in terms of return and risk. That quantification permits the calculation of price, using standard formulae. But everything in the formulae depends on the instruments being as they are represented to be. For if they are not, then what formula could possibly apply?

An older strand of institutional economics understood that a security is a contract in law. It can only be as good as the legal system that stands behind it. Some fraud is inevitable, but in a functioning system it must be rare. It must be considered – and rightly – a minor problem. If fraud – or even the perception of fraud – comes to dominate the system, then there is no foundation for a market in the securities. They become trash. And more deeply, so do the institutions responsible for creating, rating and selling them. Including, so long as it fails to respond with appropriate force, the legal system itself.

Control frauds always fail in the end. But the failure of the firm does not mean the fraud fails: the perpetrators often walk away rich. At some point, this requires subverting, suborning or defeating the law. This is where crime and politics intersect. At its heart, therefore, the financial crisis was a breakdown in the rule of law in America.

Ask yourselves: is it possible for mortgage originators, ratings agencies, underwriters, insurers and supervising agencies NOT to have known that the system of housing finance had become infested with fraud? Every statistical indicator of fraudulent practice – growth and profitability – suggests otherwise. Every examination of the record so far suggests otherwise. The very language in use: "liars' loans," "ninja loans," "neutron loans," and "toxic waste," tells you that people knew. I have also heard the expression, "IBG,YBG;" the meaning of that bit of code was: "I'll be gone, you'll be gone."

If doubt remains, investigation into the internal communications of the firms and agencies in question can clear it up. Emails are revealing. The government already possesses critical documentary trails -- those of AIG, Fannie Mae and Freddie Mac, the Treasury Department and the Federal Reserve. Those documents should be investigated, in full, by competent authority and also released, as appropriate, to the public. For instance, did AIG knowingly issue CDS against instruments that Goldman had designed on behalf of Mr. John Paulson to fail? If so, why? Or again: Did Fannie Mae and Freddie Mac appreciate the poor quality of the RMBS they were acquiring? Did they do so under pressure from Mr. Henry Paulson? If so, did Secretary Paulson know? And if he did, why did he act as he did? In a recent paper, Thomas Ferguson and Robert Johnson argue that the "Paulson Put" was intended to delay an inevitable crisis past the election. Does the internal record support this view?

Let us suppose that the investigation that you are about to begin confirms the existence of pervasive fraud, involving millions of mortgages, thousands of appraisers, underwriters, analysts, and the executives of the companies in which they worked, as well as public officials who assisted by turning a Nelson's Eye. What is the appropriate response?

Some appear to believe that "confidence in the banks" can be rebuilt by a new round of good economic news, by rising stock prices, by the reassurances of high officials – and by not looking too closely at the underlying evidence of fraud, abuse, deception and deceit. As you pursue your investigations, you will undermine, and I believe you may destroy, that illusion.

But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.

In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work. Or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case. Thank you.

James K. Galbraith is the author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too, and of a new preface to The Great Crash, 1929, by John Kenneth Galbraith. He teaches at The University of Texas at Austin.

VIDEO - Fundamental & Technical Analysis of the S&P 500's Daily & Weekly Charts:

Technical Analysis of the S&P 500's daily and weekly charts, plus a look at the important Economic and Earnings Reports due out next week...

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America's Ten Most Corrupt Capitalists:

Wall Street's captains of industry and top policymakers in Washington are often the same people. A lot of them get rich by playing for both teams.

http://www.alternet.org/news/146819?page=entire

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...