Corporate Welfare Bear

The Federal Reserve decision to underwrite and guarantee $30 billion of Bear Stearns securitized mortgages for the fire-sale of the firm to JP Morgan was nothing short of a corporate welfare stamp of approval by America’s Central Bank of the irresponsible short sighted lending practices of greedy bankers ─ to prevent Bears collapse that will have a domino effect on other major financial institutions ─ and their greedy short-sighted bankers.

There is a real problem when the next day investment bank giants Lehman Brothers and Goldman Sachs report profits down 50%-60% from the previous year ─ and the market rallies. It is a problem that is received with a sigh of relief in the wake of Bear Stearns $2 a share fire sale. The company corporate headquarters is worth more than $1.2 billion, yet Bear was sold for a mere $236 million and a $30 billion guarantee from the Fed as a sweetener. It confirmed its multi-billion dollar mortgaged backed securities portfolio ─ like that of many other investment banks ─ is worth zero.

If Bear Stearns, a company that has been independent in the true American capitalist way for 85 years, survived the Great Depression, was valued at $20 billion in January 2007, and made a fortune in mortgage-backed securities has to be bailed out of bankruptcy, how many more stellar U.S. household name financial institutions will be put on the Bear corporate welfare program before they are cut off and allowed to lose it all like the foreclosed homeowners they profited from? Why doesn’t the government do the same for the dispossessed homeowners?

The Fed’s decision to bail Bear Stearns, lend $200 billion to investment banks, $100 billion in credit lines for banks and other financial institutions, that is pump over $300 billion of taxpayers reserves to prop up investment banks in the fast melting financial markets, merely delayed the collapse of the bear market as the Fed signifies a significant shift in policy and raises the question why aren’t investment banks and hedge funds subject to more stringent regulation? It is time all financial institutions capital and collateral requirements, and regulatory oversight, are overhauled. By throwing out its longstanding rule about lending only to commercial banks and extending this facility to investment banks, the Fed is admitting it was asleep at the wheel as the entire financial system went into meltdown mode before the Fed realized that long-term illiquid assets are not sustainable in short-term money markets ─ and the Fed has became a corporate welfare mom to avoid a global financial meltdown because of its late wake up call.

Mullahs Out of Fire Power at The Polls

The low voter turnout in the March 15, 2008 parliamentary elections in Iran, was the result of inbred apathy and the boycott by government critics, who wanted to send a message to the Mullahs and President Mahmoud Ahmadinejad. “Up Yours!” They wanted to make it clear to Iran’s conservatives that they will not listen to them and will do what they want, when they want.

Yet these critics, many of who were disqualified to run for office and their supporters who did not vote , received an overwhelming outpouring of support from voters nationwide and their Reformist and Independent parties won several seats in parliament. The conservatives split their vote between the mullahs and Ahmadinejad. Jointly, the reformists, independents and conservative mullah faction, can outmaneuver and outvote Ahmadinejad and company ─ and even defeat him at the polls in the next presidential election in 2009.

America should be actively supporting the mullahs critics, including the anti-Iranian government group Mujahedeen-e-Khalq, who have been fighting for a secular democracy to replace the mullahs theocratic regime since the shah was replaced by a mulllahtocracy. Before that, they opposed the shah’s regime and his backing and support from America. That got them blacklisted and they’ve been left on the blacklist so as not to annoy the mullahs. Why? They should be removed from the blacklist and be openly supported by America the way Iran openly supports the insurgents in Iraq and Afghanistan that kill and maim Americans.

Attacking Iran is not the solution to stopping it from developing weapons grade plutonium. Supporting all anti Ahmadinejad factions, including the MEK after they are removed from America’s blacklist, to remove Ahmadinejad and his supporters from office, together with strong financial sanctions on the movement of currencies trading with Iran or belonging to the government that are strictly enforced. Incremental sanctions don’t work. The three U.N. Security Council sanctions, the 110 plus times the U.S. has imposed sanctions against foreign entities that engaged in proliferation or terrorism-related activities with Iran, and the hundreds of litigation cases the U.S. Treasury Department has brought against companies for violating the ban against trade and investment with the Islamic Republic, have failed to stop its nuclear program.

Imposing heavier sanctions in the financial markets against Iran is not sabotaging the on-and-off dialogue between America and Iran. It is expediting the process. If Iran is serious about only developing nuclear power for peaceful means, and not militaristic, it should sit down with America and come up with a mutually acceptable plan that will stop Armageddon. China can be the facilitator.

America can and must pull harder on the financial purse strings as well as the political strings with Chinese chopsticks in order to get America and Iran back together again in a warm embrace.

False Hopes

The global meltdown triggered a $145 billion government stimulus package dubbed Project Lifeline. Project False Hope is more appropriate. The stimulus was created and advocated by the banks that service half of the U.S. mortgage market ─ Bank of America, Citigroup, Countrywide Financial, J.P. Morgan Chase, Washington Mutual and Wells Fargo ─ all members of the so-called Hope Now Alliance. You bet banks are always hoping to be given a lifeline by taxpayers whenever they mess up. And guess who cleans up and pays for the mess? Why should the government repeatedly come to the banks rescue whenever enough of them are in trouble at the same time?

The subprime story is a bad rerun. Nothing new here. It happens repeatedly. New financial instruments and an enthusiasm for risk-taking create dramatic increases in credit, which drive up asset prices thereby justifying still more credit expansion and still higher asset prices. Then comes a top to asset prices and they have to be marked to market. Panic selling followed by a credit freeze results in mass insolvencies and a recession ─ or worse. All the millions of struggling homeowners receive is false hope. Borrowers who have outstanding student or automobile loans and consumer credit will face the same false hope unless real political will to tackle the credit crisis is asserted.

“I was gradually coming to believe that the U.S. economy’s greatest strength was its resiliency ─ its ability to absorb disruptions and recover, often in ways and at a pace you’d never be able to predict, much less dictate,” former Federal Reserve Chairman Alan Greenspan wrote in his book The Age of Turbulence. Wishful thinking by the man who created the mess. Man was he wrong. Now is that any way to manage a monetary policy? Any wonder the financial system is broken and broke?

The Bank for International Settlements said credit default swaps totaling $43 trillion, half the entire asset base of the global banking system were outstanding at the end of 2007. That is reality.

False hope and austerity measures are not the way to correct global imbalances. America needs to export its way back to balancing its books with countries like China and OPEC members increasing their imports from America. It doesn’t make sense and is unsustainable for America, with only five percent of the world population, to continue to consume 30 percent of global resources. Growth and prosperity in the developing world also offer America more export opportunities.

Saudi Love--bin Laden Style

Saudi Arabia bans roses on Valentine’s Day because they are un-Islamic. Now is that any way to portray Muhammad’s love for his women and people? Wouldn’t he have given them a red rose if, in his time, it was the practice to show love?

Muhammad’s youngest and favourite wife, Aisha, vigorously contested the chauvinism of early Muslim clerics. She was the first Islamic feminist.

In 2008, Saudi religious police arrested and prosecuted Fawza Falih who was accused of witchcraft and supernatural occurrences by a man’s claim that he became impotent after being bewitched by her. Witchcraft is considered an offence against Islam in Saudi Arabia. She was sentenced to death.

The House of Saud depends on the most radical southern and eastern clans for their political base. The southern faction is the center of popular support for al-Qaeda and the Taliban because it is the home of the most extreme Muslim sect, the Wahabbis. Ninety percent of the Muslim world rejects the Wahabbi religious tenets as utterly repugnant to the teachings and examples of the prophet as written in the Hadith.

Since most Wahabbis are functionally illiterate, they cannot read about this conflict on their own. Typically they memorize a few passages of the Koran taken out of context, and are unaware of the explanations contained in the accompanying Hadith. The Wahabbis, for example, are taught that Jews are sub-humans and should be killed as a religious duty. In contrast, the Hadith explains that the Prophet Muhammad honoured Jews, married a Jewish woman and forbade forced conversions of Jews, or any religion. He always bowed in respect when a Jewish funeral passed, and promised that good and faithful Jews would go to paradise just as good Muslims and Christians would. He taught that the Jews had their holy place in the west, meaning Jerusalem, while Muslims had their holy place in the east ─ Mecca.

The austere teachings of Mohammad bin Abd al-Wahhab have been prevalent in Saudi Arabia for more than two centuries. The House of Saud owes its control of the fractious tribes of the Arabian Peninsula to the fact that ancestors championed his teachings. Bookshops in Mecca and Medina sell 1,265-page souvenir tomes of his “greatest hits” fatwas or religious edicts. Most are rulings mandating the shunning of non-Muslims: do not smile at them, don’t wish them well on their holidays and don’t call them “friend.” Muslims living in foreign lands are ordered to “harbor enmity and hatred for infidels.” If we didn’t have to fill up our SUVs, would we have to bother with these people? And would these people have enough money to be a bother anyway?

The Saudi royal family and their Wahabbi protagonists have decreed that women cannot work or even sit in the front seat of a car ─ and that includes the Saudi Queen. In contrast, the Hadith records that the prophet worked for his wife, and that she drove her own caravans in international commerce. The prophet forbade racism, whereas the Wahabbis practice it, especially against their non-Arab Shiite minority. The Wahabbis discriminate viciously against women. The prophet, who lovingly raised three daughters, insisted that women should have essentially equal rights in contract, ownership and divorce.

The Arab-Saudi, Wahabbi and Sunni custodians of Islam and Mecca are creating as big a divide in the Middle East as their Texas protectors did in America. They actually fore-wrote it.
Muslim Reformation must do to Islam what the Scottish Reformation did to the Catholic Church: Break the theocratic monopolists. Improving knowledge is about understanding others and improving relations.

Dismayed Land

Hong Kong Disneyland, America’s iconic theme park in China, like America’s iconic financial institutions doing business in China, received a financial wakeup call in late 2007 when they reviewed their year end operating results and discovered they got it wrong and were operating at a loss. Not because of their dealings with the Chinese, but corporate mismanagement, reckless projections, stratospheric expectations and misguided promises ─ by bankers and their government regulators at central banks.

Yet these bankers are rewarded for their misdeeds with handsome severance packages while the regulators continue to espouse and promote deregulation. The global meltdown of 2008, that started with subprime, is the third financial crisis I have experienced in 20 years caused by bankers and their regulators that We the Apathetic Maids repeatedly allow to happen ─ and then pay to clean up the financial wreckage. First there was the savings and loan crisis of 1989, followed by the Enron/Worldcom crisis of 2002 and the grand dame of financial crisis, the global bank run and meltdown of 2008.

The world celebrated Martin Luther King’s birthday in 2008 with a financial fireworks show the likes of which the world has never experienced. First, Federal Reserve Chief Ben Bernanke makes a surprise un-scheduled 75 basis points rate cut after global stock markets collapsed, followed by an announcement by French bank Societe General that it was the victim of a $7.1 billion fraud by a rogue trader ─ the world’s largest. Understandably, financial markets panicked.

The rate cut was too little and to late and further exposed how out of touch Washington policy makers are with the severity and depth of the financial meltdown. The financial dominos were not stopped from falling by the Federal Reserve or the government’s rescue plans. The hastily drawn up “shot in the arm” of between $140 to $150 billion, or about one percent of the US gross domestic product, of tax rebates was the result of panic in the White House at the unraveling of the global financial architecture put in place by America as a component of globalization. Any wonder U.S stocks fell further after Bush’s announcement of his plan to post their biggest weekly drop in five years? That is just the beginning of the panic selling. Some fund managers predict the Dow Jones Industrial Average will plunge to 6,000 points by the end of the year, shedding more than half its value.

No one really knows how bad the subprime crisis is. Losses may soar to $500 billion. The Bank for International Settlements said credit default swaps totaling $43 trillion, half the entire asset base of the global banking system were outstanding at the end of 2007. Total derivatives are estimated to be in the $500 trillion blackhole ballpark. Any wonder financial markets are anxious and politicians in Washington are blamed for the lack of regulation and oversight? Politicians in both parties should be panicked.