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The Financial Storm

Stephen Lendman
Global Research
May 15, 2009

Reviewing Ellen Brown’s “Web of Debt:” Part III

This is the fourth in a series of articles on Ellen Brown’s superb 2007 book titled “Web of Debt,” now updated in a December 2008 third edition. It tells “the shocking truth about our money system, (how it) trapped us in debt, and how we can break free.” This article focuses on America’s “web of debt” entrapment.

The Debt Spider Captures America - American Workers Consigned to Debt Serfdom

America has been trapped for over two centuries, with today’s debt level way exceeding developing nations. Like bankrupt people staying “afloat by making the minimum payment(s) on (their) credit card(s), the government (avoids) bankruptcy by paying just the interest on its monster debt” - now double in size since Brown’s first edition and onerous enough for Controller of the Currency David Walker to warn earlier of its unaffordability by this year. If America can’t service the amount, it’s officially bankrupt and the economy will collapse. If it happens, IMF austerity will follow and turn America into Guatemala. Other vulnerable economies as well - permanent debt bondage and worker serfdom.

Catherine Austin Fitts was a former high-level Wall Street and government insider. She points to a “financial coup d’etat” conspiracy between the two to hollow out America, centralize power and knowledge, shift wealth to the top, destroy communities and local infrastructure, create new wealth by rebuilding them, and leave human wreckage in its wake.

She also calls today’s crisis “a criminal leveraged buyout of America (meaning) buying (the) country for cheap with its own money and then jacking up the rents and fees to steal the rest.” She calls it the “American Tapeworm” model:

It’s “to simply finance the federal deficit through warfare, currency exports, Treasury and federal credit borrowing and cutbacks in domestic ‘discretionary’ spending…This will then place local municipalities and local leadership in a highly vulnerable position - one that will allow them to be persuaded with bogus but high-minded sounding arguments to further cut resources. Then to ‘preserve bond ratings and the rights of creditors,’ our leaders can be persuaded to sell our water, national resources and infrastructure assets at significant discounts of their true value to global investors” - masquerading as a plan to “save America by recapitalizing it on a sound financial footing.”

In fact, it’s to loot the country by shifting wealth offshore and to the top. Also, to destroy the country’s middle class, consign US workers to serfdom, then meet expected civil disobedience with military force, followed by mass internment in over 800 FEMA detention camps in every state.

Today, the rich are getting richer while millions of Americans struggle daily to get by and live perilously from paycheck to paycheck, a mere one away from insolvent disaster.

Given where we’re heading, Warren Buffett warns that America is changing from an “ownership society” to a “sharecroppers’ ” one, no different than feudal serfdom. Economist Paul Krugman calls it “debt peonage,” much like the post-Civil War South that forced debtors to work for their creditors.

Make no mistake, it’s a corporate America scheme for a plentiful reserve army of labor no better off than in developing countries - at low wages, no benefits, weak unions if any, and government engineering the whole scheme. Even personal bankruptcy protection eroded under the Bankruptcy Abuse Prevention and Consumer Protection of 2005 - benefitting lenders at the expense of borrowers by keeping them chained to their debts.

It requires many more people “to file under Chapter 13, which does not eliminate debts but mandates that they be repaid under a court-ordered payment schedule over a three to five year period.” Homes, in some cases, may be seized and even owe a “deficiency, or balance due” if its sales price doesn’t cover it. This Act “eroded the protection the government once provided against (various) unexpected catastrophes (like job loss and high medical expenses) ensuring that working people (henceforth) are kept on a treadmill of personal debt.”

Even worse are loopholes in the law letting “very wealthy people and corporations….go bankrupt….and shield(ing) their assets from creditors…” This bill was written at the behest of credit card companies that entrap consumers in debt, charge usurious interest, and demand repayment no matter what besets them. In one respect, debt bondage is worse than slavery. As property, slaves had to be cared for. Debt slaves have to fend for themselves and pay tribute (interest) to their captors.

The Illusion of Home Ownership

In 2004, household home ownership rates were “touted” to be nearly 69%. In fact, only 40% of homes are debt-free, but that percentage fell given the amount of refinancing in recent years. As a result, “most mortgages on single-family properties today are less than four years old” meaning they’re many years away from free and clear ownership.

“The touted increase in home ownership actually means an increase in debt (and) Households today owe more relative to their disposable income than ever before,” although in recent months they’ve been repaying it and saving more.

Earlier, and still now, low “teaser rates” entrapped households in onerous debt, fueling the housing bubble as another Federal Reserve/lender ploy to pump “accounting-entry money into the economy,” set it up for trouble, then let financial predators exploit it for profit. The same strategies for Third World countries are playing out in America with too few people the wiser.

The 19th century “Homestead Laws that gave settlers their own plot of land (cost and debt free) have been largely eroded by 150 years of the ‘business cycle,’ in which bankers have periodically raised interest rates and called in loans, creating successive waves of defaults and foreclosures” - worst of all for subprime and other risky mortgage holders defaulting in record numbers with millions still ahead in what’s playing out as the nation’s worst ever housing crisis showing no signs of ending.

The Perfect Financial Storm

It looms in the form of inflation and deflation given the enormity of newly created money at the same time borrowers can’t repay loans that then default. When that happens, “the money supply contracts and deflation and depression result.”

When the housing market corrected between 1989 - 1991, “median home prices dropped by 17%, and 3.6 million mortgages” defaulted. The equivalent 2005 decline “would have produced 20 million defaults, because the average equity-to-debt ratio….had dropped dramatically” - from 37% in 1990 to 14% in 2005, a record low as a result of equity extracted refinancings.

“What would 20 million defaults do to the money supply?” Two trillion dollars would evaporate or about one-fifth of M3. The fallout would cause huge stock and home value declines, income taxes needing to be tripled, Social Security, Medicare and Medicaid benefits halved, and pensions and comfortable retirements gone for the vast majority of workers. And that’s assuming a modest housing price decline when it’s already far more severe and continuing, giving pause to the virtually certain calamity ahead and devastation for the millions affected.

Policy changes in 1979 - 1981 laid the groundwork for today’s crisis by “flood(ing) the housing market with even more new money,” and much more. They let Fannie and Freddie speculate in derivatives and mortgage-backed securities and by so doing assume enormous risk.

In June 2002, writer Richard Freeman warned of the impending dangers in an article titled: “Fannie and Freddie Were Lenders - US Real Estate Bubble Nears Its End.” He cited the largest housing bubble in history made all the greater by Fannie and Freddie manipulation and stated: ….”what started out as a simple home mortgage has been transmogrified into something one would expect to find at a Las Vegas gambling casino. Yet the housing bubble now depends on (highly speculative derivatives as new) sources of funds,” made all the riskier through leverage.

In 2003, Freddie was caught cooking its books to make its financial health look sound. In 2004, Fannie did the same thing. Meanwhile, housing peaked in 2006, then steadily imploded, bringing the economy down with it.

Read The Entire Article:

There Will Be No Recovery


by James West, MidasLetter.com | May 15, 2009
All the glad-handing, back-slapping self-congratulatory accolades the Obama administration and Wall Street are heaping upon themselves in the press is scant comfort for the vast majority of citizens now unemployed and of no fixed address. For them, this economic crisis isn’t so much a temporary crisis as a permanent redistribution of wealth and living standards representative of a downgrade in the quality of life.

A dispassionate eye, equitably minded, would regard the current gross imbalance among haves and have nots as a simple case of injustice, easily rectified. Those travelling daily in jets and Escalades leveraged the savings and credit ratings of the common people to agglomerate assets onto their own balance sheets to satisfy a sense of entitlement derived from an overpriced education.

Simply go back into all the family trusts and holdings of the top 10% of the population, see who made what from which leveraged revenue scheme (or scam, as the case should be), and liquidate the assets of each to the benefit of every impoverished bank account until the distribution of wealth and purchasing power is restored to something approaching equilibrium.

I can hear the howls of protest from the neo-conservative right already, accusations of socialism and communism manifest in their strident shouts. But this nation must surely be growing tired of a financial elite who wave the democracy banner when their hand is in your pocket, and the socialist banner when their little game of marbles goes bust and they stand crying and wailing for government help. Lets reach up high into the financial food chain and pull down a little manna from heaven.

The feeble feints towards the regulation of derivatives is already transparently disingenuous in the preservation of non-standardized privately negotiated contracts from the balancing forces of clearing houses. These are the very contracts that represent the highest dollar figures in the hundreds of trillions of dollars worth of contracts leaning hard over the economy’s tattered remains still. Lets quit faking regulation, and either drop the charade or regulate everything equitably.

If I overuse the term “equitably” in this rant, please forgive me, but that is the commodity most impaired by the government-banking-media mafia’s perennial raids on the American pantry. Equity is the foundation of, if not the spirit, then at least the ideals behind the Constitution. There will be no recovery until that basic premise is liberated from the dungeon under the White House into which it disappeared decades ago.

The terms “equity”, “equitable”, and “equality”, though having different meanings under various subjective subsets, are all derived from a concept embracing fairness.

According to the definition at InvestorWords.com, equity is:

“Definition 1
Ownership interest in a corporation in the form of common stock or preferred stock. It also refers to total assets minus total liabilities, in which case it is also referred to as shareholder's equity or net worth or book value. In real estate, it is the difference between what a property is worth and what the owner owes against that property (i.e. the difference between the house value and the remaining mortgage or loan payments on a house). In the context of a futures trading account, it is the value of the securities in the account, assuming that the account is liquidated at the going price. In the context of a brokerage account, it is the net value of the account, i.e. the value of securities in the account less any margin requirements.

Definition 2
Ownership interest in a corporation in the form of common stock or preferred stock.

Definition 3
Total assets minus total liabilities; here also called shareholder's equity or net worth or book value.

Definition 4
The value of a property minus the owner's outstanding mortgage balance.

Definition 5
Fairness in law.”

Another decree from the dispassionate eye equitably minded would be to forbid the foreclosure upon any home by an institution who received a bailout under the TARP, TALF, or any other anagrammed government financial rescue program. That would be fair, and equitable. Which, unfortunately, considering the incarceration of those twin concepts, is almost guaranteed not to happen.

Is it coincidental that the “recovery” apparent in inexplicable stock index exuberance happened to coincide with the expiration of the majority of moratoriums on foreclosures? Was the happy countenance of a healthy economy required to distract the nation from the other face whose fangs are now rotating into full view?

The idea of revolution keeps popping up, albeit intermittently, in the fringe blogosphere. I wonder just how far the disconnect goes between what the government-banking-media mafia thinks the public will swallow without complaint, versus the grave and solemn outrage dangerously smoldering in the hearts and minds of its victims that is the reality that brings that idea closer to an explosive existence?

This is the real and stark potential future for the United States. With crime on the rise in virtually all sectors, and the population already armed to the teeth, there is a fine line on the horizon that this organized crime gang seems intent on crossing.

The basic requirement of all humanity is food, shelter, and gainful employment. Historically, armed revolutions are ignited when those basic elements disappear from the daily lives of a majority of the population, such that most have nothing better to do than steal, beg, or roll over and die. When enough of that despair permeates any portion of humanity, there is an organic, deeply-rooted fury that, expressed collectively, has never failed to topple governments and rewrite the world order.

Proponents of globalization point to the fact that there has never been a longer period in the history of the planet where more people have enjoyed a peaceful and prosperous existence. That may be true, but one must question if that is because we have been living under a system that is for the most part fair and equitable, or have we just so thoroughly mastered the arts of manipulation and delusion through the offices of mass media that there has also never been a time where such astonishingly massive concentrations of personal wealth have accrued to such a proportionate few in the same time span?

The larger question in terms of a recovery is exactly what must we recover? The mafia most clearly wants us to believe that a return to over-leveraged and exuberant economic growth is the priority underlying the idea of recovery. I opine that there is something far more valuable that needs to be recovered, and issues economic are puny in comparison. For without the recovery of equity, there can be no recovery.

SOURCE: http://www.midasletter.com/commentary/090515-1_There-will-be-no-economic-recovery.php

Copyright © 2009 James West

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