Tuesday, December 29, 2009

How Wal-Mart is Destroying America

You have to admit that is a provocative blog post. I could have entitled it "How Trade with China is ........."
The reason I chose to come down on the world's largest retailer is because their business model has been the indirect cause of massive job losses in the United States and in China. Their original business motto was "Always low prices." Wal-Mart scours the world for the lowest cost goods to sell in their low cost big box stores and for the past few decades that has largely meant goods from China as any visit to your local Wal-Mart will establish. The company began as a publicly traded company in 1970 but it didn't really accelerate its expansion until the late 70's and 80's which was also not coincidentally the beginning of the Reagan Republican deregulation and Globalization movements. Therein hangs our tale.
There is a long established concept in economics called The Law of Comparative Advantage first elucidated by Robert Torrens and David Ricardo in the second decade of the 19th century. This law refers to the ability of one country to produce something at a lower cost more efficiently than might be the case in another country. This may occur because of an abundance of a particular resource or the skilset of the population. Other countries may also be able to produce the same good but at a higher cost. Countries can take advantage of these differentials to market goods in which they hold a comparative advantage by trading with countries which also hold a comparative advantage in the production of something else. Country A might produce beautiful durable pottery and stoneware while country B might make equally good metal pots and pans. Both countries can then trade to get the best quality and price for the respective goods and thus both countries benefit from the trade. Capital can move within the countries borders among the different industries to facilitate trade and industry but historically capital did not flow freely between countries. Historically the IMF, the WTO, the World Bank and others pushed free trade under the comparative advantage principle but the ascent of the globalization paradigm in the past several decades has killed that model of comparative advantage and replaced it with absolute advantage where production is shifted to the lowest cost producer in the world.Cost is the sole driver of the business. It's the bottom line. How many times have you heard that! Not quality, service, reliability, growth in the company, but cost, low cost and just low cost.That's what Wal-mart says right in the front of it's blue buildings. So what do you get for the lowest cost? JUNK ! But low cost JUNK! We now have a global zero sum game where global corporations able to move capital and companies across borders unimpeded for the purpose of making the greatest possible profit for the corporation by procuring the lowest cost of production. As a result some countries benefit and some do not. These globalized corporations do not concern themselves with the chaos and destruction of native industries that result from this business model. These corporations and especially the financial TBTF have been able to perform what is in effect gang rape of the American middle class by waving free trade slogans and policies that ridicule manufacturing and promoting the new information and financial economy. The result has been that real wages adjusted for inflation for the shrinking middle class has actually contracted over the past thirty years. This has occurred because the US manufacturing base has also been contracting and now represents only 13 % of our economy. You may not care if you are a bankster or an orthopedic surgeon or one of the few winners in this new wunderwirtshaftssystem, but if you are not one of those lucky beneficiaries, you may have noticed that you are circling the drain. My view is that this horrific decline of our middle class economy has been caused by these neoclassical and libertarian economists who came into ascendancy at about the time of the Reagan Administration but which has continued under both Republican and Democratic administrations. Now I will ask again, should you care? Damn straight you should care because this economic damage to the American economy has real true national security implications. Wal-Mart and globalized mega corporations like Wal-Mart have subcontracted our manufacturing economy over to China. Now I don't care if your plastic salad shooters now come from Shanghai instead of Skokie but really vital components like machine tools, auto and truck and plane parts, computer and electronic and communication components and even certain parts in weapons are manufactured overseas. Those overseas workers have real jobs making real things designed by American educated engineers which the world absolutely needs while Americans have jobs in a declining and even frivolous service sector. Does America really need any more human resource or marketing consultants or fast food or retail clerks? More nail salons in strip malls and more geriatric wal-mart greeters luring us into their fluorescent lit junkboxes to buy their always low cost Chinese junk?
Industrial products today are assembled from many parts and the lack of a key component can mean that the product cannot be completed until the part arrives. And if the part comes from a factory in Chongqing, then what? What if the whole product comes from Chongqing? The really annoying feature of having products arriving from China is that they may still retain their American names. In many cases the American corporations moved everything, lock, stock and drill press to China, everything but the workers. American companies using American machinery run by Chinese laborers . The corporations were ably assisted by friendly tax laws devised by their lobbyists lawyers who ensured that the cost of the decommissioning and closure of the factories, the transport of the machinery, and even the travel and entertainment and living expenses of the executives were all deductible corporate expenses. Now instead of having to pay American workers $17/hr and provide pensions and health care, these executives can now pay 70 cents/hour to poor Chinese girls from distant rural villages who are virtually slave labor. And if business falls off, well then you just send those poor girls back to their villages and shutter the factory. Nothing personal, ma'am. Its just business. Oh by the way, you have to buy your own bus ticket.This is virtually what happened when the giant Broyhill furniture factory in the Carolinas moved their furniture manufacturing to China in this last lost decade. So if you're a corporate executive, what's there not to like. Ronnie said it would be like this if we could just get guvment off our backs. What's there not to like, you ask again? Well these corporations have allowed one of history's great wealth transfers from a rich nation to what had been the worlds most populated poor nation. So much has been transferred that the USA is now in debt to China who hold more than $2 trillion of our treasury and agency securities. With all this new found wealth funneled by our corporations into the Communist government of China, they have been able to embark on a massive industrial, military, infrastructure, and energy buildup such that they are now the world's second largest economy. They are scouring the world building refineries and buying exclusive energy contracts from African and South American oil producers who formerly supplied an open world oil market. China has surpassed the US to become the world's largest producer of greenhouse gasses. China is now the world's largest car producing nation, on track this year to produce 13 million vehicles from 117 car and truck plants. It should be kept in mind that our money is being transferred to a nation that has 1.3 billion hard working, rugged and clever people who had little difficulty fighting the giant US military behemoth to a decisive standstill in Korea in the 1950's . The US had a great deal of difficulty defeating the tiny nation of Japan while suffering horrendous losses in the waning years of WW 2. The US military fights wars by dropping bombs .That advantage would be marginalized if we tried it on the Chinese.And nuclear weapons would be virtually useless in a modern great power conflict as was realized by the cold war with Russia. It would be a MAD option. Trying to fight a land war in Asia would be a fools errand. The smart money would be on the Chinese. Our last land war in Asia didn't go too well despite clouds of aircraft and high tech weapons. We were defeated by a pajama clad peasant army on bicycles. I don't think the Chinese Communist government deliberately decided to co opt our manufacturing economy to achieve military, economic and technological superiority but the fact remains that they are well on the way to just that. Our globalization free trade champions on Wall St and K street have handed our economic destiny over to the totalitarian government of China with the acquiescence and cooperation of our own government which of course is no longer a representative democracy any longer but instead an organized cadre of Wall Street Bankers and Global corporations who control the agenda, the bills and the purse strings by virtue of their minions on K Street .The noise from Washington about stimulus measures and restoring jobs and reestablishing lending is posturing and peristaltic flatus wafting across the plain and there is little to indicate that the politicians and bankers or the corporations are changing their modus vivendi as they go about god's work amassing mammon. This corporate dominated Washington political establishment with it's shock troops in the WTO, the IMF, Goldman Sachs run Federal Reserve and the World Bank have brought the citizens of this country to their knees as they live in opulence and suck on the teats of the shrinking udder that once was the milk of the American economy.

Tuesday, December 22, 2009

The Lost Decade

There is no shortage of news items crossing my desk here in the waning days of the worst decade in our history. The shadow government nominated and elected an inarticulate third rate Texas governor and a paranoid chicken hawk vice president who then chose a coterie of like minded neo conservative ideologues who launched the last imperial war with an ill thought out invasion of Iraq and Afghanistan, The stated goal in Bush's words was to establish a stable and permanent democracy, The transparently obvious goal was to control access to the vast oil and gas fields of the region. Almost ten years on, the US remains mired in what conservatively could be described as a debacle which has no end.
This was the decade that the shadow government deregulated the banks who then ran amok through the world spreading their newly devised financial instruments which largely involved the securitization of mortgage assets and the creation of an unregulated and unseen derivatives market. The failure of this business model collapsed the banking system. The same shadow government of private bankers within the Federal Reserve and Treasury then deftly transferred these vast losses to the taxpayer. During this same decade the Chair of the Fed Alan Greenspan inflated a vast asset bubble in real estate and other assets . Credit was extended to anyone with a pulse and consumer, corporate, state,local, municipal, and Federal(including GSEs) debt levels soared such that that debt is now 557% of GDP according to Forbes Magazine.( Current GDP is around $14 Trillion.). If you add in the various entitlement programs, the number soars to 840%. There has been no attempt to address this mountain of debt either by the Bush or Obama administrations.
The US stock market turned in the worst decade in the history of the United States which has had a stock market of sorts since about the 1820's. The worst decade, even worse than all the other financial panics including the decade of the Great Depression. The S&P average yielded -.0.5% annual return for the decade. The Dow hit 10,000 in 1999, about where it is now.
I include this graph of inflation and the Dow during the decade of the Great Depression. You can see the steep cliff dive descent in 1929 followed by a surprising spike of about 60% in 1930, a so called bear market rally. My contention is that we are in a similar bear market rally and I think the next moves are down mirroring the graph shown. All the chess pieces of fiscal and political incompetence are in place and I see no way to avoid the next crash. I have begun to sell off what stocks I own in my dwindling personal retirement position and I have urged everyone I know to do the same. 2010 looks to be an interesting year.

Wednesday, December 16, 2009

Barak Obanker and Fed Chair Ben Banke

I try to add a new post when I read about some new outrage or insult to sensibility that comes across my desk here in die blogezimmer, my chilly unheated computer room in our log cabin in Jackson Hole. But I just can't keep up any more. From one outrage to the next insult, I'm simply overwhelmed. Barak told 60 minutes he didn't get elected to bail out fat cat bankers. Whaaaat?
Translation: I got elected to bail out fat cat bankers. The next day he sat in his oval orifice with a partial collection of those fat cats he bailed out begging:" Puleeze, pretty puleeeeze, make loans to our insolvent american economy because I am standing for re election in just a few years and we're running out of time to re-inflate the world's biggest debt machine." What I found interesting was that some of the biggest and fattest cats of all stayed home or had to be put on speakerphone, like Lloyd Blankfein of Goldman Sachs who was doing god's work by staying at home. And did you see who sat at the left hand of President Obanker? Why none other than the shadow president, Bob Rubin, lately of Goldman Sachs and Citigroup. Who does President Obanker think he's kidding? This is the same guy who took home the Nobel Peace Prize which this year was given to the biggest warlord in the world. And Ben Bernanke winning TIME's Man of the Year? I mean, how much cognitive dissonance can a body take? And this morning I see Senator John McCain proposing reinstatement of the Glass- Steagal Act which Bob Rubin tore up just 10 years ago. You know things are really in the toilet when you are agreeing with McCain/Palin on anything. Barak doesn't have much more time to throw the money changers out of the temple. We Americans may be stupid obese milling baying sheep but even sheep aren't that stupid and the sheep in this country are armed sheep and if I were a Goldman or a Sachs banker returning to my chalet in the Hamptons, I think I would be sleeping with my piece under my pillow.

Wednesday, December 9, 2009

Depression or Recession?

Readers of this blog know my opinion on whether we are in a depression. Whether you think it is a depression or recession is beside the point as there is no good definition of either. Oh I know, it used to be said that 2 negative quarters were a recession if the referee the US government employs, the NBER(National Bureau of Economic Research), decides to call it one. Other economists have opined that a recession is a 1.5% rise in unemployment. But NBER does not referee depressions because they are on the Fed payroll and if they said we were in a depression, why folks would panic, consumer confidence would drop and sales of Wallmart's salad shooters would plunge. In fact I read that the Great Depression wasn't even called that until 1937 when a journalist dubbed it the Great Depression. Most economic writers do seem to agree that a recession morphs into a depression if it lasts a long time(3-4 years), if unemployment really increases, credit availability drops or goes unused, banks fail, companies fail at a high rate, the stock market collapses, trade and commerce falls and so forth . It is a time of fiscal and financial crises and collapses. Virtually everyone I read say the recession is an unfortunate but normal component of any business cycle. I doubt that any government would ever call a recession, no matter how severe, a depression. That is left to journalists, economists and now us bloggers. The government has gone to great lengths to minimize and obfuscate and conceal any information or data that would give a true and accurate picture of our economic situation. Our government and probably most governments no matter which party is in control, or which continent they are on, have no incentive to engage in truth telling. It makes them look bad and they are afraid the citizens would take to the streets if they really knew the facts. It is rare that government officials lay out the facts in a truthful fashion. Paul Volker got away with doing it for a while 30 years ago but when his President, Jimmy Carter put on his cardigan and told Americans they should conserve energy and move to a more sustainable way of life, he was crushed by an aged republican who developed full blown Alzheimer dementia in his second term and he has been replaced by a steady stream of advisers with economic dementia. The government statistics are manipulated and modeled until they are meaningless. If a particular statistic is bad, government statisticians will make it less bad. If it's good, they will spin it better. I completely ignore government statistics and so should you. John Williams gives unvarnished statistics at his website: http://www.shadowstats.com/. On John's site you will find official government numbers and John's take usually listed as "SGS" and with what I find particularly useful, older official government statistical methodologies. Here are some examples: Official unemployment is 10% which is the U-3 government number. A broader government number is U-6 which is 17.8%, and John's number which he says approximates the methodology used 50 years ago is 22%. Similarly, official CPI inflation is -.2% and using pre-Clinton era methods, the inflation rate is 3%. I am unable to post John's graphs here and would urge the reader to just go to his website. John says that the recession started in the 4th quarter of 2007 which would make this recession 2 years old. If this downturn, as Obama calls it, lasts another year or two, then we will have met even the conservative definition of a depression. You can be sure TPTB will not allow this recession to be re characterized as a depression. Even the way government economists calculate GDP is inherently flawed. For example. Let's take a worker at Rockford Products in Illinois, where my wife worked briefly. A worker getting paid $10/hr might produce in one hour bolts or screws which could be sold for $50, thus adding $50 to the nations GDP. An MBA at Goldman Sachs making $250/hr(before taxpayer assisted bonuses of course), might craft a CDO or CDS derivative product which could be sold for $10,000,000. Let's give Goldman Sachs a net profit on that very small transaction $1 million and so that gets added to GDP. Now there is no way to make the productivity of these two disparate laborers equivalent but don't tell that to the BLS. If there were just two workers in the country then BLS would say that the average hourly salary in the US was($130/hr...250+10/2.) They would also calculate worker productivity in similar fashion. Now of course there are many workers in the country to lump together but when over 20% of your GDP is related to financial services, as it was before our recent cliff diving economy, then calculating and posting the notional value of the nation's goods and services and comparing them to to other nations becomes somewhat meaningless. I would think that our GDP should be broken out into several categories of GOODS production and SERVICES production which is the only way I can see to make comparisons to other nations economies even possible. I do not think our current severe recession meets the criteria of a depression but only because it has only gone on for 2 years. Unemployment is not yet at the 25-30% rate of the Great D, but it is close. Many other metrics of this recession match or exceed the Great D such as the debt to GDP ratio and certainly unfunded liabilities far exceed what existed in the 1930s. The main reason I think that we are in a depression is that the government is doing nothing to resolve or attenuate the mountain of debt built up and in fact is doing the exact opposite by shielding the bondholders in the big financial institutions as well as attempting to save favored industries and propping up the housing market and other asset classes while at the same time urging continued expansion of debt and credit. Christine Romer on Obama's economic nothinktank even said today that"spending our way out of recession is sensible policy." She means of course"printing our way out of recession is sensible policy." With economic advisers of this caliber, I will stick to my opinion that this recession will meet the definition of depression within the next year or two.

Tuesday, December 8, 2009

Viet Nam 2.0

It's been an easy winter so far here in Jackson Hole other than a week of sub zero weather this past week and only minimal snowfall. Helicopter Ben has been mocked before Congress and Obama continues along his blundering way using the worst ideas of the Republican party to ensure the ruin of his presidency and his country's future. Lie follows lie on a daily basis as he tells us the recession is over with green shoots galore. Unemployment is down and his Afghan surge will certainly work so well that 18 months after our hapless soldiers arrive in country, they will be able to leave. No one including Obama has stated what this Afghan invasion is supposed to accomplish. A well armed and trained conventional military force that relies on high tech weapons and air strikes wont have a chance combating a popular Islamic insurgency armed with simple primitive weapons and a burning desire to drive invaders from their soil. The Brits and the Russians were driven out and the American Army will suffer the same fate in Afghanistan as it suffered in Viet Nam and Somalia. The American Military is in the region to ensure access to oil and the fundamental flaw is the assumption that a military occupation can dominate a disintegrating collection of failed and failing states long run by warring tribes and clans. In any war between guerrillas and a standing army,the smart money is on the guerrillas whether those guerrillas were ragtag colonists facing the world's most powerful army in 18th century America or pajama clad Viet Cong facing down a massive American Army in Indochina. The Islamic insurgents in the Persian Gulf and Central Asia regard the West with the same hatred as the American Marines felt toward the "japs" in the South Pacific. In the end it wont be defeat by a determined insurgency that drives the US out of Afghanistan and Iraq but our coming economic collapse that dooms this tragic foolish incursion into the lion's lair.

Tuesday, December 1, 2009

United Sachs of Amerika

I really don't like to re use images but I do it to make a point. I have spent several years puzzling over why our country's economy went over a cliff like Wily Coyote. Our political and financial leaders and our media have their take on the causes of this collapse and what they think are the proper solutions to address the problem. Their advice has filled me with unease. After the twin towers fell down with the help of 15 Saudi nationals and three of their friends, our president was asked what Americans could do and he said"Shop." I knew then that America had a problem far bigger than the loss of 3000 of our citizens inside two collapsed buildings.There were two obvious questions that the media did not ask:1. Why would these Arab terrorists do such a thing and 2. Why would our president say such a thing? It was at that moment that I suffered a cognitive dissonance breakdown. This was cognitive dissonance on steroids. No one in power asked the questions. All I could think was "What in heck is going on here?" It has taken me a long time to figure out how we got to this point and it has involved a lot of reading and conversations and I have come to a general set of conclusions that I think explains why all this happened and who the responsible parties might be. I do not have definitive proof and my conclusions are more in the nature of allegations. My research has involved retrospective looks at the history of economic collapses as well as financial panics, cultural collapses, social collapses and collapses of civilizations. I assumed that I might find clues to our current economic collapse by looking at others in the near and distant past and I have addressed aspects of these in past blogs and will likely do the same in future blogs. But in this posting I think I have found the proximate causes and source of this current depression or recession if you will. Plainly stated, the causes are the policies of the Federal Reserve Central Bank and the US Treasury with the help of now massive too big to fail central banks and global banks both here and around the world. I think I can trace the beginning of this current problem as far back as the 1980's and 1990's. President Reagan got the ball rolling when he fired then Federal Reserve Chief Paul Volker and replaced him with an Ayn Rand libertarian by the name of Alan Greenspan. There is ample documentation from the 1990's laying out how this policy evolved. In the early 1990's the US was the unchallenged economic and military super power with the collapse of the Soviet Union. This allowed our military and political and corporate leaders to imagine the US as THE new Imperial Power in the world.
When you are the only imperial power, you get to tell the world to jump and all they can ask is "How high?". If you are the sole imperial power, you get to decide who is with you and who is against you. And if you cross an imperial power, you will pay a price and anyone who interferes with an imperial power's access to energy will pay the ultimate price.
Any questions?
And so it went. One of the first items on this new agenda was money, that little item that makes the world go round. It would be a whole lot simpler if the US could just deal with one global currency. Let's just make the US dollar the global reserve currency and we'll price everything important like oil in dollars. That would make trading and commerce nice and simple for everybody, like us.Any objections out there in the trading pits of the world? No? Good.
Now that we had the global reserve currency, everybody wanted it, so our merchants caught on to the Wall Mart model
of the lowest price, Always! My pappy always used to say that there were two ways to get rich: don't spend it or go out and earn it. Our leaders chose the former and the fedsters and the banksters and all their associated chums in the IMF and the World Bank went along with this idea by loaning dollars all over the world to any country that wanted to build sweatshops to sell cheap stuff to the US. Somewhere along the way the boys behind those marble and glass facades had decided that stuff made in a sweatshop in China was a better deal than at a factory in Ohio. And why not just tweak the tax law to allow our own good ole American companies to build those factories. That way they could insure that that stuff could be made for half the quality but one fourth of the price and the US tax system could allow these American companies to write off all those pesky expenses of closing factories and paying pensions and health care to those lazy middle class union workers. By now children of those middle class union workers were pouring out of colleges with MBA and law degrees and quickly finding out that the real money was not in using air tools building stuff but using the new fangled computer tools to move money at warp speed. So instead of putting on tool belts, they donned pin striped suits and headed downtown to join the new industrial revolution, the Information Economy. They handed off their tool belts to the hard working brown folks now pouring over the porous southern border. Meanwhile back inside the big banking towers there were guys with computer science degrees and MBA's living the American Dream and trying to think up new ways to use that most fundamental tenet of the American Dream:Something for Nothing! It was the computer revolution that fueled the next leg up. With the aid of computers, sharp eyed traders and economists were finding little discrepancies in the pricing of assets such as bonds in world markets and they discovered that they could use those very slight differences in prices to make money. They discovered that trading these slight differences might only net say .01 % on a trade but it worked every time. The next step was to leverage the bet, 10 times. That made the return 1 %. 100 times made it 10%. . So investment banks turned into betting casinos. New words were invented to describe what they were doing like arbitrage, pairs trading, and a myriad of other names were invented to describe these complicated bets. Initially they bet on government bonds using complex strategies of going long and short and taking options. Most of this began with a new hedge fund in Wall Street called Long Term Capital Management(LTCM). The members included traders and statisticians from most of the Wall Street Trading houses and even a few Nobel prize winners. They felt they had a can't miss strategy and no one had yet heard of Taleb's term Black Swan, to describe rare events. But the East Asia Financial crisis and the Russian bond defaults became those Black Swan events and LTCM collapsed. The Federal Reserve stepped in because the losses were enormous but the Fed managed to put together a bailout of LTCM by passing the hat around Wall Street to the big banks. I'll skip over the details but this helped to cement the Fed/Big Bank marriage even more. People took to calling these trading strategies derivative trading, and in the late 1990's many people like CFTC Chairperson Brooksley Born began to question the wisdom of allowing this unseen unregulated trading which clearly had huge risks to the economy. But these wealthy bankers like John Corzine and Hank Paulson of Goldman Sachs and Robert Rubin and Larry Summers and supportive Senators like Phil Graham and of course Al Greenspan of the Fed wanted nothing to do with any stinking regulation of their casino. How they crushed Brooksley Born and abolished the last wall to their trading strategies, the depression era Glass-Steagall Act with the help of President Clinton has been well covered in several books and documentaries. With Brooksley Born and other troublesome pests now passing under the FED/Banking steamroller and Glass-Steagall out of the way, the way was clear for the banks aided by the hands off Fed to really expand derivative trading worldwide. The banks wasted no time developing the next product that would make everyone's payday for the next decade: Securitization of Assets. They used the US mortgage market as their playground and since mortgages no longer resided at the local S&L or bank, they could buy these mortgages and "bundle" them converting a "debt" into an asset . It was magic and they could mix and match mortgages, slice and dice mortgages and covert them into something like a stock or bond that could be sold to unsuspecting buyers. To make these debts more palatable they bribed and paid the big rating agencies to put their good housekeeping seal of approval on them. And with easy Al Greenspan keeping interests rates as low as possible to get a new bubble inflating to replace the tech bubble popping, these new securities seemed to be just the ticket paying a nice rate of return to unsuspecting suckers which included not only other banks but municipalities, individuals andpension firms both here and abroad. Profits exploded at these banks as they spread these securities all over the world. But down in the dungeon levels of Goldman Sachs there was another branch of the company who were nervous enough about these securities that they crafted secret derivative shorting strategies of these securitized mortgages just in case the housing market didn't keep rising . Hank Paulson was careful to make sure that this dirty secret never saw the light of day. Things went swimmingly with the whole cast of rogues passing through the swinging doors between Government, the Fed and Wall Street and everyone making more and more money right up to the waning months of the junior bush administration. By then Hank Paulson had moved over from Goldman Sachs to the Treasury so he could have the 500 million or so he had in Goldman Sachs retirement tax free as one of the perks for going through that swinging door. When the housing market began its collapse and the securities became less secure, and when people started to refer to them as "toxic waste", the banks discovered they were holding on to a huge declining asset that no one wanted and dozens of banks became essentially insolvent when these assets became in effect liabilities. The Fed and Hank Paulson knew that this problem threatened him and a lot of his cronies with ruin so he did what any robber would have done: He held up the American People telling everyone that Armageddon would certainly happen if the banks weren't covered for their bad bets. He had to have been particularly worried about his own plummeting net worth because Goldman stock was dropping in value just like all the other banks. In a mere 3 page paper he told the Congress and the American People that they had to come up with three quarters of a Trillion dollars virtually overnight or it was Armageddon and the world financial establishment would collapse. We are now more than one year past that amazing con job by Treasury and the Fed and many trillions has been given or promised since in a series of futile gestures to prevent Armageddon. We have been served up all manner of justification for these actions which have convincingly demonstrated to discerning observers that the Federal Reserve would do whatever it took to protect and preserve its own even if it meant bypassing the Congress and the Constitution in the process. High net worth individuals, Sovereign Wealth Funds around the world, Hedge Funds and Banks were holding the bonds in these sinking banks and GSE's like Freddie Mac and Fannie along with Insurance companies like AIG. They had been the aiders and abettors of this bubble and they stood to lose big if their badbets weren't covered. The American People didn't want it, members of congress not on the bankers payroll didn't want it, but the Fed and Treasury wanted it. Thus it happened. How on earth did it happen? Where did the Fed get the money? Ben Bernanke once remarked that, “the US government has a technology, called the printing press (or today, its electronic equivalent), that allows it to produce as many US dollars as it wishes at essentially no cost”. And so there you have it. That building above is the De facto White House. It is where the real power resides in this country. It is the Fourth Branch of Government and arguably, the most powerful. That Fed with Goldman Sachs and other bankers pulling the strings,has decided that no bondholders In these banks and insurance companies will get financial haircuts and Lloyd Blankfein, current CEO of Goldman, has decreed that if he wants to pay his executives $30 Billion in bonuses this Christmas, he will, even if the taxpayer has bailed him out. It should be clear to anyone that these people have no shame and no limits to their chutzpah, their greed, and their contempt of the American taxpayer . And as I write this, absolutely nothing has happened to change or limit the influence of these Wall Street banks. They can still trade derivatives to their heart's content with no oversight whatever and they can securitize anything within their reach. In effect, they are the shadow government and they know it. The only glimmer of hope is that Republican Representative Ron Paul of Texas has a bill with over 300 cosponsors to have the GAO audit the Fed and I urge anyone who is reading to write or call their congressman to support this audit. The banks and the senators who are tools of the banking lobby such as Barney Frank, Mel Watt, and Charles Schumer are fighting tooth and nail to stop this grass roots movement which is perhaps might be the only bipartisan bill to appear in the Congress this year. I will also provide a link to a petition which is perhaps worth signing. If this bill passes, there is no assurance Barak will sign it, but that is another matter. Here is the link:http://stopbailoutben.com/?source=e2-fix. I have a myriad of sources for the information contained in this posting with especial thanks to theautomaticearth.com , and Mish at http://globaleconomicanalysis.blogspot.com/ as well as a number of other economic books and fellow bloggers out there in cyberland who I do not have the time or space to thank at this time. Ron Paul's book is called End the Fed. The gigantic building early in the blog is of course, the seat of government, Goldman Sachs.