House members Told Martial Law in USA if Bailout fails

[thomaspaine]

Rep Brad Sherman went on record in the house and via cspan
saying house members threatened with martial law in the USA
if bailout fails....

http://www.youtube.com/watch?v=HaG9d_4zij8

[Supercilious]

Re: House members Told Martial Law in USA if Bailout fails

Heil Wall Street!

[Guest]

Re: House members Told Martial Law in USA if Bailout fails

Duplicate Post

[Guest]

Re: House members Told Martial Law in USA if Bailout fails

Heil Wall Street!

Yes all right. Democracy is under the gun and we are heading into a fascist business model. But get real, before we all sit down and discuss how to save democracy, we have to keep this moral hazard ridden banking system alive - even if only so that we can have something resembling a functioning economy within which to discuss the necessary subsequent draconian reforms!

The patient has been wheeled into the E.R. He's in cardiac arrest. Read the following description and take a second look at the incongruity of the surgeons standing around deliberating on procedure for more than a couple of minutes!

_______________

SELF FULFILLING PROPHECY & THE FED IS ALREADY BANKRUPT?

Oct. 2nd, 2008

It is incredible to me that only a few people seem to realize just how close to a total banking collapse we are. Even more incredible is that among those who “get it” are George Bush, Henry Paulson and some Senators and (fewer) Congressmen. Rumors are flying wild (some in the comment section of this site) that a banking holiday is imminent.

There hasn’t been much focused on this, but Washington Mutual actually failed due to a bank run ($18 billion in deposits withdrawn within a few days). Wachovia was close to the same situation before it was sold out of desperation to Citigroup. These were the 4th and 6th largest U.S. banks by asset size! Will the bailout package, even if it passes, restore enough confidence that the 1st (JPMorgan Chase), 2nd (Citibank), 3rd (Bank of America) and 5th (Wells Fargo) largest U.S. banks can avert similar bank runs? These 4 banks now hold over $5 trillion of bank assets and over $2 trillion in deposits.

If the following missive from Jim Sinclair is any guide, the answer might be a “no”:

Dear CIGAs,

I have no doubt that $1650 will come. My concern is not that it will not happen, but that I am much too conservative in my long-term price objective since 2000.

If major banks can be torn apart how can we have faith in the small local institutions that hold most of your ready cash?
When I said ?This is IT,? it is not something that I take lightly. Never in 49 years in finance have I seen a set of circumstances so challenging to the man in the street.
What I am getting at is a simple question. Are you prepared? You have heard us talk repeatedly on removing financial intermediaries between you and your assets, but the time has come for us to recommend going one step further:

Hold enough cash at your household to last you a month or two. It may be largely unnecessary for the majority, but what do you have to lose? If your bank should fail this will save you a lot of grief in the short term. If they do not, you still have all your cash that can easily be deposited back into your account.

Regards,
Jim

I know Mr. Sinclair means well and is simply trying to watch out for the best interests of his readers, but this is precisely the type of thing that can start or add to an ongoing bank run. In other words, this is a self-fulfilling prophesy. It would only take a few percent of bank deposits to be withdrawn and the whole house of cards would come crashing down. Or would it? It is not entirely clear given some of the recent programs that have been announced (see below).

In any case, Bernanke and the Fed know there is a significant chance that things could blow up and thus the helicopter engine is already being warmed up. I know some people have talked about the Fed already dropping money from helicopters but in reality that has not been the case (except as I discuss below). So far, all that has taken place with the various “credit facilities” and bailouts is a substitution of assets. No new money was created as a result. For example, when a bank borrows under a credit facility, it is exchanging an illiquid asset (such as certain agency MBS securities) for Treasury securities held by the Fed. The bank then goes into the market to sell the Treasury securities and uses the cash proceeds to meet liquidity needs.

But at this point it is no longer enough. A not-so-secret secret of our monetary system is that most Federal Reserve Notes — the actual paper money that people are now trying to withdraw in larger and larger droves — are physically held offshore (presumably by foreigners). Indeed, this statement on the FRB New York website is pretty shocking in light of what could imminently happen:

The Federal Reserve estimates that the majority of the cash in circulation today is outside the United States.

As an aside, the latest Factors Affecting Reserve Balances report (from Sep 25) indicates that an absolutely massive $472.8 billion of Federal Reserve Notes (59%) are now collateralized by non-federal (federal includes Freddie Mac, Fannie Mae, Federal Home Loan Bank, etc.) securities. In effect, this means the Federal Reserve itself is virtually bankrupt and the U.S. government will likely need to soon provide direct backing for Federal Reserve Notes if there is any hope of saving the monetary system. When considering this, it seems pretty silly that people are actually withdrawing Federal Reserve Notes from the banking system to hide under the mattress. And in fact, the Federal Reserve looks to continue even further along the current path to insolvency with the announcement just this Monday (virtually ignored by the media due to the focus on the $700 billion bailout plan) that the Term Auction Facility will be doubled from $150 billion to $300 billion.

But now let me discuss the first real preview of what a helicopter operation involving the Fed and Treasury will look like. This seems to have gone unnoticed by the media, but the U.S. Treasury Dept. has started to lend directly to the Fed under its Supplementary Financing Program. The way this program is explained is that the U.S. Treasury issues Treasury securities to the public and deposits the cash proceeds with the Fed. But in reality, what seems to be happening is that the U.S. Treasury is issuing Treasury securities to the Fed and then the Fed is exchanging these Treasury securities with banks for non-federal debt securities. In just the first week of operation, the U.S. Treasury Department has in essence loaned $160 billion directly to the Fed. Sure sounds like insolvency to me!


Given a bank run where people are withdrawing Federal Reserve Notes (remember, most of these Notes are offshore and not available according to the Fed’s own admission) from their checking and savings accounts, it will not be enough to simply have the Fed and banks exchange Treasury securities for illiquid securities. What the banks will need is actual bona fide Federal Reserve Notes. At present, the Federal Reserve has about $190 billion in Federal Reserve Notes that could be made available to the banking system, but any issuance will require the banks to pledge certain bank assets as collateral (most likely performing loans). Unfortunately, doing so will create a deduction against bank capital since it is presumed the Federal Reserve Notes will be withdrawn as soon as they are made available at a branch or ATM, and at the same time the pledged loans (which must be performing) cannot be counted in capital ratios. This is the quandary that makes Ben’s helicopter so difficult to fly, but I believe soon we could see a decision to take off anyway.

What this would look like is the Fed aggressively bidding for Treasury securities in the secondary market (Open Market Operations) and at the same time the U.S. Treasury Department issuing a massive tranche of Treasury securities directly to the Fed in exchange for newly printed Federal Reserve Notes. The U.S. Treasury would then use the Federal Reserve Notes to buy bank assets directly, presumably under the $700 billion bailout program (should it pass Congress) or even an emergency presidential declaration (should it not pass Congress). The combined effect would be to put into circulation the $190 billion of Federal Reserve Notes currently held in the Fed’s vaults as well as introduce an additional supply of Federal Reserve Notes as the Treasury conducts its bailout. The result would be the dreaded helicopter operation whereby deflation would be fought using hyperinflation (of money supply; hyperinflation of prices would come later).

The mess that a helicopter operation would cause is a key reason why many economists believe the only way to save the banking system at this point is through a direct recapitalization (buying preferred shares in the bank). Yet if the U.S. government were to do this (which is very possible given nobody else wants to step up to the plate), it would be the equivalent of nationalizing the U.S. banking system (hello France). An alternative that Professor Fekete may be working on is a recapitalization using gold (and silver). More on this later. Also more on my alternative to use the U.S. Gold Reserves to create a second currency to help the U.S. dollar avoid collapse and instead die a slow, manageable death.


Posted in Windbag Wisdom |

Tom Szabo (Silver Axis)

[thomaspaine]

Re: House members Told Martial Law in USA if Bailout fails

Not a duplicate post, unless someone else posted a video that was taken
1 hour before the VP debates....

[Supercilious]

Re: House members Told Martial Law in USA if Bailout fails

Yes all right. Democracy is under the gun and we are heading into a fascist business model. But get real, before we all sit down and discuss how to save democracy, we have to keep this moral hazard ridden banking system alive - even if only so that we can have something resembling a functioning economy within which to discuss the necessary subsequent draconian reforms!

Yes this bailout has to go, but we don't need draconian reforms. The solution is simple:
1) Dismantle forever the Federal Reserve System (put it as an amendment to the Constitution)
2) Restore all the safety laws resulted after the Great Depression (starting with the Glass-Steagall act)

That's all what's needed. It's simple and easy. It can be done in less than one year with reasonable pain.

I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.
" Thomas Jefferson - letter to the Secretary of the Treasury Albert Gallatin (1802).

[D-Mack]

Re: House members Told Martial Law in USA if Bailout fails

Heil Wall Street!

Maybe it's going to work this time

The Whitehouse Coup

The coup was aimed at toppling President Franklin D Roosevelt with the help of half-a-million war veterans. The plotters, who were alleged to involve some of the most famous families in America, (owners of Heinz, Birds Eye, Goodtea, Maxwell Hse & George Bush’s Grandfather, Prescott) believed that their country should adopt the policies of Hitler and Mussolini to beat the great depression.

Mike Thomson investigates why so little is known about this biggest ever peacetime threat to American democracy.

http://www.bbc.co.uk/radio4/history/...t_20070723.ram

http://www.bbc.co.uk/radio4/history/...20070723.shtml

[Guest]

Re: House members Told Martial Law in USA if Bailout fails

BANKING SYSTEM IS DETONATING BEFORE OUR EYES

By Mike Whitney

The financial system is blowing up. Don't listen to the experts; just look at the numbers. Last week, according to Reuters, "U.S. banks borrowed a record amount from the Federal Reserve nearly $188 billion a day on average, showing the central bank went to extremes to keep the banking system afloat amid the biggest financial crisis since the Great Depression." The Fed opened the various "auction facilities" to create the appearance that insolvent banks were thriving businesses, but they are not. They're dead; their liabilities exceed their assets. Now the Fed is desperate because the hundreds of billions of dollars of mortgage-backed securities (MBS) in the banks vaults have bankrupted the entire system and the Fed's balance sheet is ballooning by the day. The market for MBS will not bounce back in the foreseeable future and the banks are unable to roll-over their short term debt.

The Federal Reserve itself is in danger. So, it's on to Plan B; which is to dump all the toxic sludge on the taxpayers before they realize that the whole system is cratering. It's called the Paulson Plan, a $700 billion outrage which has already been disparaged by every economist of merit in the country.

From Reuters: "Borrowings by primary dealers via the Primary Dealer Credit Facility, and through another facility created on Sunday for Goldman Sachs, Morgan Stanley, and Merrill Lynch, and their London-based subsidiaries, totaled $105.66 billion as of Wednesday, the Fed said."

See what I mean; they're all broke. The Fed's rotating loans are just a way to perpetuate the myth that the banks aren't flat-lining already. Bernanke has tied strings to the various body parts and jerks them every so often to make it look like they're alive. But the Wall Street model is broken and the bailout is pointless.

Last week, there was a digital run on the banks that most people never even heard about; a "real time" crash. An article in the New York Post by Michael Gray gave a blow by blow description of how events unfolded. Here's a clip from Gray's "Almost Armageddon":

QUOTE:

The market was 500 trades away from Armageddon on Thursday...Had the Treasury and Fed not quickly stepped into the fray that morning with a quick $105 billion injection of liquidity, the Dow could have collapsed to the 8,300-level - a 22 percent decline! - while the clang of the opening bell was still echoing around the cavernous exchange floor. According to traders, who spoke on the condition of anonymity, money market funds were inundated with $500 billion in sell orders prior to the opening. The total money-market capitalization was roughly $4 trillion that morning.

The panicked selling was directly linked to the seizing up of the credit markets - including a $52 billion constriction in commercial paper - and the rumors of additional money market funds ‘breaking the buck,’ or dropping below $1 net asset value.

The Fed's dramatic $105 billion liquidity injection on Thursday was just enough to keep key institutional accounts from following through on the sell orders and starting a stampede of cash that could have brought large tracts of the US economy to a halt.

Commercial paper is the lubricant that keeps the financial markets functioning. When confidence vanishes, investors withdraw their money, normal business operations become impossible, and the markets collapse. End of story. So, rather than restore the public's confidence by strong leadership and behavior designed to reassure investors; President Bush decided to give a major prime-time speech stating that if Paulson's emergency bailout package was not passed immediately, the nation's economy would vaporize into the ether.

Last week, the commercial paper market, (much of which is backed by mortgage-backed securities) shrunk by $61 billion to $1.702 trillion, the lowest level since early 2006. So, Paulson's bailout will effectively underwrite CP as well as the whole alphabet soup of mortgage-backed derivatives for which there is currently no market. The US taxpayer is not only getting into the plummeting real estate market, he is also backstopping the entire financial system including defaulting car loan securities, waning student loan securities, flailing home equity loan securities and faltering credit card securities. The whole mountainous pile of horsecrap-debt is about to be stacked on the back of the maxed-out taxpayer and the ever-shriveling greenback.

How did Treasury Secretary Paulson figure out that recapitalizing the banking system would cost $700 billion? Or did he just estimate the amount of money that could be loaded on the back of the Treasury's flatbed truck when it sputters off to shower his buddies at Goldman Sachs with freshly minted greenbacks? The point is, that Paulson's calculations were not assisted by any economists at all, and they cannot be trusted. It is a purely arbitrary, "back of the envelope" type figuring. According to Bloomberg: Swiss investor Marc Faber, known for a long track record of good calls, believes the damage may come to $5 trillion:

"Marc Faber, managing director of Marc Faber Ltd. in Hong Kong, said the U.S. government's rescue package for the financial system may require as much as $5 trillion, seven times the amount Treasury Secretary Henry Paulson has requested...

"The $700 billion is really nothing,'' Faber said in a television interview. "The Treasury is just giving out this figure when the end figure may be $5 trillion.''

Most people who follow these matters would trust Faber's assessment way over Paulson's. In his latest blog entry, economist Nouriel Roubini said that "no professional economist was consulted by Congress or invited to present his/her views at the Congressional hearings on the Treasury rescue plan." Roubini added:

QUOTE:

The Treasury plan is a disgrace: a bailout of reckless bankers, lenders and investors that provides little direct debt relief to borrowers and financially stressed households and that will come at a very high cost to the taxpayer. And the plan does nothing to resolve the severe stress in money markets and interbank markets now close to a systemic meltdown.

Roubini is right on all counts. So far, more than a 190 prominent economists have urged Congress not to pass the $700 bailout bill. There is growing consensus that the so-called "rescue package" does not address the central economic issues and has the potential to make a bad situation even worse.

The Bankers’ Coup

Financial industry rep. Paulson is the ringleader in a bankers’ coup the results of which will decide America's economic and political future for years to come. The coup leaders have drained tens of billions of dollars of liquidity from the already-strained banking system to trigger a freeze in interbank lending and hasten a stock market crash. This, they believe, will force Congress to pass Paulson's $770 billion bailout package without further congressional resistance. It's blackmail.

As yet, no one knows whether the coup-backers will succeed and further consolidate their political power via a massive economic shock to the system, but their plan continues to move jauntily forward while the economy follows its slide to disaster.

The bailout has galvanized grassroots movements which have flooded congressional FAXs and phone lines. Callers are overwhelmingly opposed to any bailout for banks that are buckling under their own toxic mortgage-backed assets. One analyst said that the calls to Congress are 50 per cent "No" and 50 percent "Hell, No". There is virtually no popular support for the bill.

From Bloomberg News: "Erik Brynjolfsson, of the Massachusetts Institute of Technology's Sloan School, said his main objection ‘is the breathtaking amount of unchecked discretion it gives to the Secretary of the Treasury. It is unprecedented in a modern democracy.’

QUOTE:

"I suspect that part of what we're seeing in the freezing up of lending markets is strategic behavior on the part of big financial players who stand to benefit from the bailout,’ said David K. Levine, an economist at Washington University in St. Louis, who studies liquidity constraints and game theory.’” (Mish's Global Economic Trend Analysis)

Brynjolfsson's suspicions are well-founded. "Market Ticker's" Karl Denninger confirms that the Fed has been draining the banking system of liquidity in order to blackmail Congress into passing the new legislation. Here's Denninger:

QUOTE:


The Effective Fed Funds rate has been trading 50 basis points or more below the 2% target for five straight days now, and for the last two days, it has traded 75 basis points under. The IRX is demanding an immediate rate cut. The Slosh has been intentionally drained by over $125 billion in the last week and lowering the water in the swamp exposed one dead body - Washington Mutual - which was immediately raided on a no-notice basis by JP Morgan. Not even WaMu's CEO knew about the raid until it was done....The Fed claims to be an ‘independent central bank.’ They are nothing of the kind; they are now acting as an arsonist. The Fed and Treasury have claimed this is a ‘liquidity crisis’; it is not. It is an insolvency crisis that The Fed, Treasury and the other regulatory organs of our government have intentionally allowed to occur.

Grassroots resistance, spearheaded by Internet bloggers (like Mish, Roubini and Denninger) are demonstrating that they can mobilize tens of thousands of "peasants with pitchforks" and be a factor in political decision making. It also helps to have elected officials, like Senator Richard Shelby, who stand firm on principle and don't faint at the first whiff of grapeshot (like his weak-kneed Democratic counterparts) Shelby has shouldered the full-weight of executive pressure which has descended on him like a Appalachian rockslide. As a result, there's still a slight chance that the bill will have to be shelved and the industry reps will have to go back to Square One.

The country's economic predicament is steadily deteriorating. Orders for manufactured durable goods were off 4.5 percent last month while inventories continued to rise. Unemployment is soaring and the housing crash continues to accelerate. Credit Suisse now expects 10.3 million foreclosures (total) in the next few years. Numbers like that are not accidental, but part of a larger scheme to use monetary policy as a way to shift wealth from one class to another while degrading the nation's overall economic well-being. More alarming, the country's primary creditors are now staging a rebellion that is likely to cut off the flow of capital to US markets sending the dollar plummeting and triggering a deflationary credit collapse. This is from Reuters:

Chinese regulators have asked domestic banks to stop lending to U.S. financial institutions in the interbank money markets to prevent possible losses during the financial crisis, the South China Morning Post reported Thursday. The China Banking Regulatory Commission's ban on interbank lending of all currencies applied to U.S. banks, but not to lenders from other countries, the report added.

Bloomberg News reports that Dallas Federal Reserve Bank President Richard Fisher has broken with tradition and lambasted the proposed bailout saying that it "would plunge the U.S. government deeper into a fiscal abyss." From Bloomberg:

QUOTE:

The plan by Treasury Secretary Henry Paulson to buy troubled assets from financial institutions would put 'one more straw on the back of the frightfully encumbered camel that is the federal government ledger,' Fisher said today in the text of a speech in New York. 'We are deeply submerged in a vast fiscal chasm.'...The seizures and convulsions we have experienced in the debt and equity markets have been the consequences of a sustained orgy of excess and reckless behavior, not a too-tight monetary policy," Fisher said to the New York University Money Marketeers Club.

Surely, the cure for hyperbolic "credit excesses and reckless behavior" cannot be "more of the same." In fact, Paulson's bailout does not even address the core issues which have been obscured by demagoguery and threats. The worthless assets must be written-down, insolvent banks must be allowed to go bust, and the crooks and criminals who engineered this financial blitz on the nation's coffers must be held to account.

The carnage from Greenspan's low interest rate, "easy money" binge is now visible everywhere. Inflated home and stock values are crashing as the gas continues to escape from the massive equity bubble. The FDIC will have to be recapitalized--perhaps, $500 billion--to account for the anticipated loss of deposits from failing banks caught in the cross-hairs of asset-deflation and steadily contracting credit. Recession is coming, but economic collapse can still be avoided if Paulson's misguided plan is abandoned and corrective action is taken to put the country on solid financial footing. Market Ticker lays out framework for a workable solution to the crisis, but they must be acted on swiftly to rebuild confidence that major systemic changes are underway:

1--Force all off-balance sheet "assets" back onto the balance sheet, and force the valuation models and identification of individual assets out of Level 3 and into 10Qs and 10Ks. Do it now. : (In other words, no more Enron-type accounting mumbo-jumbo and no more allowing the banks assign their own "values" to dodgy assets)

2--Force all OTC derivatives onto a regulated exchange similar to that used by listed options in the equity markets. This permanently defuses the derivatives time bomb. Give market participants 90 days; any that are not listed in 90 days are declared void; let the participants sue each other if they can't prove capital adequacy. (If trading derivatives contracts can damage the "regulated" system, than that trading must take place under strict government regulations)

3--Force leverage by all institutions to no more than 12:1. The SEC intentionally dropped broker/dealer leverage limits in 2004; prior to that date 12:1 was the limit. Every firm that has failed had double or more the leverage of that former 12:1 limit. Enact this with a six month time limit and require 1/6th of the excess taken down monthly. (Ed: The collapse in the "structured finance" model is mainly due to too much leverage. For example, Fannie Mae and Freddie Mac had $80 of debt for every $1 dollar of capital reserves when they were taken into government conservatorship.)

If there's going to be a bailout, let's get it right. Paulson's $700 billion bill does nothing to fix the deep structural problems in the financial markets; it merely pushes the day of reckoning a little further into the future while shifting the burden of payment for toxic assets onto the taxpayer.

[D-Mack]

Re: House members Told Martial Law in USA if Bailout fails

BANKING SYSTEM IS DETONATING BEFORE OUR EYES

By Mike Whitney
....

Similar headlines everywhere

Bailout Fixes Nothing, Banking System Collapse Approaches Climax
http://www.marketoracle.co.uk/Article6587.html

[don]

Re: House members Told Martial Law in USA if Bailout fails

With no end to the surprises....

http://www.nytimes.com/2008/10/04/bu...hp&oref=slogin

In a surprise twist, the West Coast bank Wells Fargo & Company, said Friday that it had reached an agreement to acquire a rival, the Wachovia Corporation, for about $15.1 billion in stock.
The announcement came just four days after Citigroup had agreed to buy Wachovia’s banking operations of Wachovia for $2.2 billion of about $1 a share. But Wachovia, which is based in Charlotte, N.C., has now rejected that deal in favor of one where the entire company would be acquired. How Citigroup will respond to the news remained a question Friday morning.
In a statement, Wells Fargo, which is based in San Francisco, said that the deal required no assistance from the Federal Deposit Insurance Corporation or any other government agency.
The bank plans to raise up to $20 billion by issuing shares, primarily common stock.

[Sapiens]

Re: House members Told Martial Law in USA if Bailout fails

I think this is the video about martial law being implemented if the Bailout bill didn't pass.

[LazyBoy]

Re: House members Told Martial Law in USA if Bailout fails

In related news....

http://www.democracynow.org/2008/9/22/headlines ---

Army Unit to Deploy in October for Domestic Operations

Beginning in October, the Army plans to station an active unit inside
the United States for the first time to serve as an on-call federal
response in times of emergency. The 3rd Infantry Division's 1st
Brigade Combat Team has spent thirty-five of the last sixty months in
Iraq, but now the unit is training for domestic operations. The unit
will soon be under the day-to-day control of US Army North, the Army
service component of Northern Command.

The Army Times reports this new mission marks the first time an active
unit has been given a dedicated assignment to Northern Command. The
paper says the Army unit may be called upon to help with civil unrest
and crowd control. The soldiers are learning to use so-called
nonlethal weapons designed to subdue unruly or dangerous individuals
and crowds.