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>How Bush Joined The Socialist Party

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Spending Stimulus Plans Fail, Dummkopfs

By Don White

What does President Bush have in common with John McCain, Barry Obama and Congressional Democrats? Regarding the U.S. economy, they’re all ignoramuses, Nichtswisser, unwisenders, and outright dummkopfs.

It should be against the law to run for national office without passing an economics test. They also should be required to pass an idiot tests. Well, they did pass, but somewhere along the line they thought they had to be idiots to run the country and we got the dregs from the bottom of the pot.

None of them know enough to stop spending. Even Bush, who ran on a conservative platform, does not know that when you try to bail out someone or something you merely redistribute wealth. Hey, that isn’t even an original idea. Democrats like Obama have run on that one for years. If Obama has his way the rich will give to the poor and we’ll have a “leveling” of wealth take place in America–something that will deal a death blow to democracy and capitalism.

Bush should know better. He comes from wealthy parents who know how money is made. Come on, Barb and Dad Bush, start talking to your errant son. Didn’t you teach him nothin? If not, let me give you the economic scoop, too:

George W. Bush doesn’t understand enough to even balance his bank statement, let alone guide a county away from insolvency. The country is wondering if he is using drugs again. Isn’t it terrible, all three of the presidents from Clinton down were drug users, and we expect there is no permanent damage?

Bush is so sick that all he wants to do is sign bills this awful Treasury Secretary, Hank Paulson, pushes before him, assuring the soon to be out of office Texan that it’s the only ways America can avoid a depression. Nothing could be further from the truth. Doesn’t Bush have a mind of his own?

The biggest crisis of 2008 wasn’t the financial meltdown, it was when the Democratic Congress and the president signed the bill authorizing Secretary Paulson to deliver $700 billion in handouts to banks, Fannie and Fredie and similar defunct and unstable private institutions, all without controls and supervision.

Government stimulus bills are based on the idea that feeding “new money” into the economy will increase demand, and thus boost production.

Brian Ridel believes that the best measure of a policy’s impact on economic growth is through productivity rates. Lower marginal tax rates encourage working, saving and investment, all of which increase productivity (as opposed to tax rebates, which are grants that require no additional productive efforts). Reforming — rather than merely throwing money at — education and infrastructure will raise future productivity. These necessary improvements would take time and shouldn’t be considered short-term “stimulus.”

In an OP ED article he said: It’s time for lawmakers to stop futilely trying to wave the magic wand of short-term “stimulus” spending, which threatens to push the deficit above $1 trillion. Focusing on productivity will build a stronger economy over the long run and leave America better prepared to handle future economic downturns.

Mr. Riedl is a fellow at the Heritage Foundation.

Government doesn’t have any money, unless they beg, borrow or tax for it. Every dollar it injects into the economy must first be taxed or borrowed out of the economy. No new spending power is created. That’s where these financial geniuses go wrong. They think when the treasury prints new money it’s manna from heaven. In reality it has to eventually come from somewhere. That somewhere is you and me, the taxpayer.

Eventually we’re stuck, we’re on the line to pay it back–or in this case it might be our grandchildren and their children, and it isn’t fair. I would have let all the banks and the AIGs fail. Well, people say the entire U.S. society would come tumbling down since companies don’t have money and must borrow. And if the banks don’t have money to lend, business owners can’t get the money and, therefore, they must fire all the employees and stop making and selling widgets. That was the line we were fed.

But when we give money to banks, insurance companies, auto makers or investment bankers–or to anyone–it’s merely redistributed from one group of people to another.Of course, advocates of stimulus respond that redistributing money from “savers” to “spenders” will lead to additional spending. That assumes that savers store spare cash in their mattresses, thereby removing it from the economy. In reality, nearly all Americans either invest their savings (where it finances business investment) or deposit it in banks (which quickly lend it to others to spend). The money gets spent whether it is initially consumed or saved.

Governments don’t create new purchasing power out of thin air. If Congress funds new spending with taxes, it is redistributing existing income. If the money is borrowed from American investors, those investors will have that much less to invest or to spend in the private economy. If the money is borrowed from foreigners, the balance of payments must still balance. That means reducing net exports through exchange-rate adjustments, thereby leaving net spending on the economy unchanged.

Congressional Democrats just squandered another $15 billion on GM and Chrysler. The prepared red hen, /Ford Motors, had saved its money and merely said keep our share for later. But that’s small change for the Democrats. Now they are considering another large economic stimulus package to “inject” as much as $300 billion into the economy. The package will fail — just like last year’s $333 billion in emergency spending and $150 billion in tax rebates failed. There’s a simple reason why. It’s because that money hasn’t created anything, hasn’t changed raw materials into something valuable. It’s just money setting there to be handed out. We presume the banks will loan out the $300 billion and small businesses will make more widgets, but we can’t even be sure of that. Many of these banks will merely put that money into its reserves and won’t loan it out, and that’s part of the problem..

Congress will soon borrow $300 billion from one group of people and then give it to another group of people and tell us we’re all wealthier for it. We’re not. It’s a shell game. Money is just pushed around on the table, but you still have the same amount in the economy. You didn’t just happen to have this money sitting around doing nothing, you took it from one group and gave it to another. In my book that’s socialism of the worst kind. Bush is doing exactly what Obama said he wanted to do, level the economic status of all Americans, and I understand Obama is angry that Bush had to go and steal his thunder.

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>Why Taxpayers Should Bail Out Wall Street

>One stormy morning, Obama leads by nine points in the polls. Here we are, 41 days from election and the tall guy starts sprinting down the track and opens up a 9 point lead over the short, old guy. How long can the young “empty suit” go this fast is anyone’s guess. But unless something is done–and the debates start Friday–the old, stout guy is done. That, despite predictions to the contrary by other pollsters and experts.

Unfortunately, neither the fast “empty suit” or the old, slow guy knows what to do about the proposed Wall Street bailout. The young guy can only read scripts and his handlers are puzzled. Was the old guy right, should we not bail out Wall Street? I think he will say whatever will supercharge his election campaign. We’ll see on Friday. Meanwhile, read on and you decide.
By the way, I don’t believe in polls.

I did enjoy a Washington Post story by Robert Samuelson this morning that said Paulson and Bernanke are rewriting the text books and running scared–“panic” was the operative word. “Paulson’s Panic” was the headline.

I commented that what Americans need most at this time is a better understanding of the markets. Most people think this bailout is just to help the rich guys. Actually, it is meant to protect the people more than help the once rich and fat.

Think of the stock market as a mother. Mothers have kids and they nourish them until they can eat, walk, speak, and blunder on their own. Our markets are our mothers. They are the source of capital for all business in America, so they are the mothers or the source. If we don’t help the moms out, there will be no milk or cash for the kids, the many businesses that are capitalized will fail.

To capitalized means to issue stock that is sold on Wall Street that produces the money needed to move the trucks, pay the workers, and produce the goods–it’s the money that gets main street and rural business going and makes them viable manufacturers, transporters, farmers, and everything else that qualifies for an American business.

There’s a big bully called stupidity, greed, and bad judgment stalking our moms. They will go under if we don’t help. Actually they have “Mom” in a strangle hold. She’s ready to expire. If she does, there won’t be any mother’s milk or financial support for all the kids who have these businesses. If that happens, everyone goes to bed hungry at night because jobs dry up and there aren’t paychecks or money to buy groceries; no money to buy gas or to pay for the heat and lights. That’s called DEPRESSION.

Then government must jump in and create jobs–make work projects like they had in the great depression. My dad was only 24 years old and he had one of those jobs. He made a dollar a day building “a road to nowhere” and our family of five barely survived. No one wants that, so instead of waiting for the big GONG to sound in the sky or depression to hit, we help out Wall Street now instead of bailing out the public later. “Pay me now or pay me later?”

Here’s what I wrote in the Washington Post “comment” slot today. Then I’ll follow with a smart guy’s comments. He explains stuff that may be over all our heads, except those who work in the markets. And I’m not sure how his comments help educate us to the point where we can decide if Congress should do a bailout or not. That’s for you to decide. As you may know, Congress is stymied, almost in a state of rigor mortis. It’s brain damaged and in permanent shock and awe and delay. Of course most of them were that way when they came to Washington, so what else is new?

http://dusanotes@yahoo.com (me):For we the taxpayer, Washington should do something to educate us. Unfortunately, no one in government, the economists, or market gurus really know what’s going on in this financial crisis, much less know how to solve it. I doubt Paulson, Bernanke, or any of the economists advising Congress know what to do and this is creating delay and panic in some quarters including the halls of Congress. No one wants to make a mistake that worsens the problem.

Is it really true that delay is bad for America? Along with others including McCain, initially I argued that the government should not bail out anyone. It is basically against the free enterprise notion that companies live and fail on their own. Then comes along Bernanke and Paulson who are running scared, telling us action today or the crisis will create a depression. What are these two–some kind of socialists? What–we own all the companies in America? I don’t think so…

None of the above does the taxpayer understand, much less believe. Government should not expect support for it’s programs without first telling the public what the **$$!! are the options. We’re smart. We can figure things out. We just need some help re-explaining Free Enterprise 101 and how all this “hurry-up and bail-out ” stuff is germaine to anything.
Don White
PoliticalDisconnect.blogspot.com

Here’s the smart guy’s comments:

DCX2 wrote:
It all starts with bad mortgages that are pooled into Mortgage Backed Securities (MBS) and expands from there. The MBSs are used to create fake capital that can be used for a wide variety of purposes when you don’t have enough money, increasing your leverage.

The first avenue of exploit was structured finance; over-the-counter derivatives that are unregulated. MBSs are collected and sliced into different tranches as part of a Collateralized Debt Obligation (CDO). The upper tranches are low-risk low-yield (they get money back first), and the lower tranches are high-risk high-yield (they get money back last). Knowing that these subprime loans will eventually default, they rig the game so they can skim off the good money with “super senior” tranches and then sell the rest of the junk that won’t ever be paid back in junior tranches. Ta-da, they keep real money and you get imaginary money.

But they didn’t plan on recursion. Sometimes a bunch of CDO slices are combined to create a CDO squared (and, further, CDO cubed, and so on). This is how imaginary money can get a good rating and be sold to institutions who normally only buy real money.

Even further, Fannie Mae and Freddie Mac enjoyed access to a special interest rate discount window. They would take out loans from the discount window, and then buy up MBSs and CDOs that had a better rate of return, and take advantage of the interest rate gap (Alan Greenspan called it a “Big Fat Gap” of profit). Then they would use their profits to lobby Congress and ensure that the Office of Federal Housing Enterprise Oversight (OFHEO) was practically neutered, thus minimizing regulation and oversight.

Finally, we have the Credit Default Swap (CDS) market. Someone (like UBS) would buy a bunch of bad debt (like $1.3b in CDOs) and then would seek insurance from a hedge fund (like Paramax) for an annual premium (like $2m). Since the CDS market is unregulated, there are no capital requirements, so Paramax is ensuring $1.3b with $4.6m. Paramax is now ultra-leveraged and a lot of the money involved is imaginary (both Paramax’s lack of capital to insure the CDO, and the subprime borrowers’ inability to fulfill their obligation)

This gigantic web of financial foolishness created an intense hunger on Wall Street for more MBSs. In order to get more CDOs to tranche up and sell to Fannie/Freddie/UBS/Citibank/Bear Stearns/etc, they need more MBSs, so some lenders lower lending standards so they can feed Wall Street’s hunger. Lenders who don’t lower standards might get knocked off by those who do, so everyone feels compelled to be evil. And with more CDOs out there, there are more hedge funds and insurance companies who can make easy cash off of the insurance scam with nearly zero collateral.

Regulation at any point – keeping sane lending standards, regulating the maximum leverage, monitoring the real risk of CDOs, stopping Fannie/Freddie from exploiting the Big Fat Gap, regulating CDSs to at least require significant capital – could have minimized or even eliminated this problem.

And the solution, contrary to Paulson’s plan, is to make sure people keep paying their mortgages, and to try to sell the foreclosed homes. Then the money will start flowing again, CDOs won’t default, CDSs won’t need to be paid out, and life will return to normal.

9/24/2008 12:57:34 PM

Do you understand more now than you did five minutes ago about what Congress should do with the Bush-Paulson plea for $700 billion?

Read Robert Samuelson’s report in the Washington Post

>Some Don’t Want A Financial Bailout

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Newsmax’s Ben Stein is angry that the Treasury Department is bailing out the banks and Wall Street.

Now, that’s a new twist. Are there others of you–especially taxpayers–who feel a bailout is not in order?

Apparently Stein, an economist, author, former presidential speech writer, and occasional actor, is angry about the current “economic earthquake” that he says has rattled U.S. and global markets and he wants everyone to know.

Newsmax says Ben is particularly peeved with the $700 billion proposed Wall Street bailout and its architect, Treasury Secretary Henry Paulson, but it appears he’s most peeved about the fact that Paulson in 2006 as CEO of a large Wall Street firm, Goldman Sachs, took an eighteen million bonus. But nowhere do I see where the government is contemplating the bailout of Goldman. They haven’t even been mentioned, and we all hope they are in the clear. So what’s all this shouting by make believe school teacher Ben Stein about? Apparently, it’s his way of getting his writing career off and running with Newsmax, but it isn’t selling.

Bloomberg.com has weighed in with an article headlined “Wall Street’s Woes May Be Wall Street’s Fault, U.S. Chiefs Say.” Written by Christopher Donville and Chris Burritt, the article says that the

“At the end of the day we are here because we have moved from sound fundamentals of doing business to shady get-rich- quick programs,” Dan DiMicco, chief executive officer of steelmaker Nucor Corp., said in an e-mail Sept. 19. “It is very discouraging that we have come to this point through gross mismanagement and greed and the wrong kinds of regulatory rules changes over the last several years.”

As we reported in earlier blogs, Treasury Secretary Henry Paulson devised a proposal over the weekend aimed at averting a credit freeze that would bring the financial system and economic growth to a halt. The plan, which is being considered and elaborated on by lawmakers, follows the bankruptcy of Lehman Brothers Holdings Inc. and the government takeover of American International Group Inc. last week.

A collapse of the financial industry might leave U.S. corporations unable to raise money to build new plants, invest in research or even pay salaries, and might threaten to throw the country into an economic depression.

The Securities and Exchange Commission banned short selling — the sale of borrowed shares by investors betting on a drop in the stock — on shares of 799 financial companies through Oct. 2 to limit declines. Meanwhile, Paulson, who headed Goldman Sachs Group Inc. until two years ago, called for the use of public funds to buy $700 billion of bad mortgage investments by financial institutions.

In a CNN interview, Stein said Paulson should be “fired yesterday.” If Stein had a brain he would tell us why, when all the evidence points at his being able to keep the company he led out in front and profitable despite other firms that have gone under.

“Paulson is a disgrace to the Republican Party and to his country,” said Stein. Another target of Stein’s ire is Wall Street itself.

Stein says he’d like to see President Bush on national TV “with Mr. Obama to his left and Mr. McCain to his right and say we are going to make sure that you Americans are going to stop being looted by Wall Street.” Now, this is something I can agree with him on. It’s high time the Administration takes a strong stand against using taxpayer money to bail out business.

This bail-out stuff is not a Republican principle, and it sure as heck isn’t what we learned in college “Private Enterprise 101” because the next step is printing a big red sign on the Statue of Liberty calling “America, The Land of Political Takeovers and Bailouts.”

“It’s a first-class disaster. The worst Treasury regulation of the economy in my lifetime…” says Stein. “The effect of this on the ordinary investor and pre-retiree … is just catastrophic for the free enterprise system.”

John Gapper, the Financial Times columnist, has a simpler solution: Get Henry Paulson to give some money back.

Well, Gapper, that would be appropriate if Paulson had done anything to break a law or make the bailouts unnecessary. But he didn’t. He ran a tight ship at Goldman Sachs. The worst we can say is that he isn’t a prophet and didn’t see this coming. But, then, neither did Congress, the president and millions of Americans.

“Mr. Paulson now declares himself shocked,” says Gapper, “shocked that structured finance was going on Wall Street but he was there at the time, and the $18.7 million bonus he received for the first half of 2006 presumably reflected it.” That’s what Gapper wrote on his FT blog, but I don’t think he knows what he’s talking about. He’s just like a lot of other Americans, angry, and wants to lash out at anyone in sight.

Yes, Paulson was “there” for two years. But this didn’t come about overnight. We were heading into it during the administration of Bill Clinton and Secretary of Treasury Robert Rubin who, with Alan Greenspan’s help, printed up all that money to make the dollar worth next to nothing, to make the stock market soar out of control.

Then there were Congressmen Barney Frank, Charlie Rangle and their ilk with their left-wing liberality, their shouts that down echoed down the halls of Congress calling for looser loan requirements for the “poor” and Bush fell for it. That’s really what caused this problem. And it all stems from the Democrats’ innate desire to get re-elected at all costs and to patronize poor black folks, many of whom felt they couldn’t get those bank loans more qualified people were getting bcause of racial discrimination. At least that’s what Frank and Rangle pounded into their heads.

Listen to Gapper speculate: “I wonder if, as a public gesture, Mr. Paulson might consider handing that bonus over to the Treasury’s fund and lowering the U.S. taxpayer’s bill by $18.7 million?” Now, Mr. Gapper, that would be very fine and I’m all for it, but to be fair, every person who made profits on Wall Street the past ten years–especially since 2005–should do likewise and then we the taxpayers wouldn’t have to shell out anything, now would we?

>Can The Fed Bail Out An Insurance Company?

>Readers must distinguish the Fed, an instrument of government but technically not part of it, in regulating monetary policy. Distinguish the Fed from Hank Paulson who is President Bush’s Secretary of Treasury. Remember that the Secretary said the government would not bail out the world’s largest insurer, and it didn’t. It appears that was left to the Fed.

The interesting thing about what I call a huge mistake is this: When you consider who oversees American International Group (AIG) you go back to the State of New York’s Insurance Department. Something to understand about insurance companies–and I don’t care how big they are, whether they’re huge like State Farm Mutual and AIG or some little Podunk Mutual in Sorrysville, Alabama, in America they are regulated by state insurance departments. The irony is this: Despite the fact the Feds have no jurisdiction over AIG, they came in with federal funds to bail them out.

New York Governor David Paterson is happy to shuffle this big problem off on someone else and seems pleased the Fed is loaning AIG $85 billion.

Though Hank Paulson of the Treasury Department seems to be going along with it, I find this quite extraordinary and there is an awful lot of impropriety in this. Are we getting to the stage in the financial world that an agency of the Federal Government that is not part of the government must take regulation of insurance away from the states? If so, there’s a legal backlog of thousands of pages of record showing they have no business doing so. This is an old states rights issue and what has happened with this takeover is the precise thing we’re talking about–a takeover of regulation of one insurer. Because you can’t see the Fed just idly sitting there letting AIG do something that is not in keeping with “the Fed’s good judgment” now can you? This whole thing is a mess. It reeks of socialism at its worst.

The Fed has fired all of AIG’s management. Edward Liddy, the former head of insurer Allstate Corp (ALL, Fortune 500)., will lead the company, the Wall Street Journal reported.

Federal Reserve Board is lending as much as $85 billion to rescue crumbling insurer American International Group, officials announced Tuesday evening.

The Fed authorized the Federal Reserve Bank of New York to lend AIG (AIG, Fortune 500) the funds. In return, the federal government will receive a 79.9% stake in the company.

Officials decided they had to act lest the nation’s largest insurer file bankruptcy. Such a move would roil world markets since AIG (AIG, Fortune 500) has $1.1 trillion in assets and 74 million clients in 130 countries.

An eventual liquidation of the company is most likely, senior Fed officials said. But with the government loan, the company won’t have to go through a tumultuous fire sale.

Can you imagine the Federal Government, the new owner of AIG, now being regulated by the State of New York? But that’s precisely what has happened. Or has the Fed placed AIG in the same company as Social Security with all of its stumble-bum decisions? One difference, since the Fed did this, anything they do cannot and will not be subject to presidential or congressional oversight. Can a state legally oversee the Federal Government? With AIG, a best case can be made that the state is the only jurisdiction that has the power to do so.

Even a better question: We know AIG didn’t go under because of its superior insight and management ability. When we the people now own the giant insurer with liabilities estimated at more than $450 trillion, what happens to “we the people’s” pocketbooks if this stumbling giant continues to stumble under Federal Reserve Board oversight? AIG will continue to fail and must sell off assets to pay us back plus about 13% interest. But what if it doesn’t work the way Bernanke envisions?

Who then will bail out the taxpayers who will be called upon to come up with that $450 trillion–assuming, of course, all of AIG’s invested reserves also go curplunk? What we have been doing to less developed nations (LDN) for years and years is coming home to roost. Through companies like MAIN, and Halliburton many LDNs have mortgaged their souls to the devil in the name of U.S. imperialism and our effort to create international empires.

Ecuador is a good example of a poor nation developing oil wells, oil lines, and building power plants, roads and other infrastructure for which their leaders have sold their people into bondage. They can never live long enough to pay it back. Third world debt has grown to more than $2.5 trillion, and the cost of servicing it–over $375 billion per year as of 2004. It’s more than all third world spending on health and education and more than twenty times what developing countries receive annually in foreign aid. Over half the people in the world survive on less than two dollars per day, which is roughly the same amount they received in the early 1970s. Meanwhile, the top 1 percent of third world households accounts for 70 to 90 percent of all private financial wealth and real estate ownership in their country; the actual percentage depends on their country (James S. Henry, “Where The Money Went,” Across The Board, March/April 2004, pp42-45. For more information, see henry’s book: The Blood Blood Bankers: Tales from the Global Underground Economy (New York: Four Walls Eight Windows, 2003).

The reason I mention third world countries is because they don’t have money and have become indebted up to their ears. We Americans are quickly following in that pathway. Our country is broke and our leaders don’t know it. If they do they’re not telling. Isn’t it about time we elected a president and Congress with conservative values?

To my question about who will bail out us taxpayers, the answer is no one. We’re the pocketbook of last resort. Maybe we could call up King Abdullah bin Abdul Aziz Al Saud. He could help, but would want the State of New York in exchange. Or, maybe Hank Paulson can help. He knows a lot of people in China because he was a good Boy Scout; he could talk to Chinese President Hu Jintao. Maybe good old Hu could bail us out. But he would want the State of California.

Good, give them California and New York. Let Hu deal with the Spanish immigrant problem. Good, give them New York. Let King Abdullah deal with the Democrats and the Jews in New York.

In my view, the Feds have no business throwing around taxpayer money to salvage an insurance company. That’s state business. Maybe we would end up there, but where’s the good-sense protocol? If you’re Bernanke you naturally would have had lunch with New York Governor David Paterson and NY insurance commissioner Eric A. Dinallo and ironed out an agreement beforehand. And maybe they did. Everyone should have been placed on the same page here, especially the financeers of this grandiose deal, the American taxpayer. We know it’s our money, but we weren’t even consulted.

There will be a lot of political backlash on this Fed move. John McCain was right–we should let AIG fail, and that’s pretty much what the Bush Administration decided to do rather than expose our national assets on a private enterprise like this. Of course, Obama was silent. He doesn’t even know to this day and hour what he would have done because he’s an “empty suit”–a deadhead.

A lot of national leaders must have quizzical looks on their faces this morning. Commerce Committee Chairman Daniel K. Inouye (D-Hawaii) should call for hearings and start questioning the likes of Greenspan and Bernanke. Ask them how they feel this is all going to fall out? At the least, Bernanke has overstepped the bounds of his authority.

And at most, he has done something that should have called for pre-counseling from others, including the Treasury and the President. How does Bernanke even know the U.S. Treasury has enough money in the bank to pay for this kind of socialistic maneuvering? If we’re halfway broke, who delegated him to completely break the bank?

When we look into what has turned out to become–The grand AIG fiasco–we’ll find the U.S. is on the ropes with money. In fact the U.S. is broke and our elected officials haven’t yet awakened to that fact.

It is quite disheartening to see the Fed use taxpayer money this massively when they have no accountability. Blog onto this story. Do you believe the Fed should be so powerful, first off; second, doesn’t it seem weird and wrong for a private group like the Fed to be able to tap into your pocketbook and mine whenever they please?

My position is that this is very wrong. In this case, the Fed has stepped way beyond their previously-given mandate. Maybe Congress should look into what the Fed can or cannot do and change something here. Next, they’ll be selling the Capital buildings and the White House.

Or maybe not. Can you imagine how badly the Fed would perform–not to say that Alan Greenspan and Ben Bernanke have been angels and highly competent--if we had a political hack making these decisions? Who is to say Bernanke is not beholden to somebody–perhaps many of AIG’s biggest stockholders? If anyone has information on that, sound off, please.

The following fits in nicely with this from Slate:
In for a Pound

By Daniel Politi
Posted Wednesday, Sept. 17, 2008, at 6:42 AM ET

News keeps pouring out of Wall Street and all the papers lead with the Federal Reserve‘s startling decision to lend insurance giant American International Group up to $85 billion in a bailout deal that would give the government control over the company.

The New York Times calls it “the most radical intervention in private business in the central bank’s history.” In exchange for its cash, the government would get a 79.9 percent equity stake in the company. The Washington Post notes that the rescue package “effectively nationalizes one of the central institutions in the crisis that has swept through markets this month.” The Wall Street Journal points out that this is “a historic development, particularly considering that AIG isn’t directly regulated by the federal government.”

The move marked an astounding about-face for the government that had been resisting AIG’s pleas for help over the last few days and earlier chose to let Lehman Bros. fail rather than put forward more taxpayer money. “The main difference between the two situations: AIG is so huge and its operations so intertwined in the financial system that the Fed feared an AIG failure could harm the broader economy,” USA Today summarizes. Or as the WSJ puts it: “This time, the government decided AIG truly was too big to fail.” The Los Angeles Times notes that while Fed officials said the action was due to the fact that AIG insures the assets of millions of Americans, it seems the main reason “was fear that the company’s failure could weaken or destroy nearly a half-trillion dollars’ worth of financial protection that AIG provides Wall Street firms and the biggest companies of Europe and Asia.”

To continue reading, click here.

Daniel Politi writes “Today’s Papers” for Slate. He can be reached at todayspapers@slate.com.

>The AIG Insurance Bailout–What A Surprise

>Readers must distinguish the Fed, which is an instrument of the government but technically not part of the government in regulating monetary policy. Distinguish the Fed from Hank Paulson who is President Bush’s Secretary of Treasury. Remember that the Secretary said the government would not bail out the world’s largest insurer, and it didn’t. It appears that was left to the Fed.

The interesting thing about it is this: When you consider who oversees AIG you go back to the State of New York’s Insurance Department. Something to understand about insurance companies–and I don’t care how big they are, whether they’re State Farm Mutual and AIG or some Podunk Mutual in Sorrysville, Alabama, in America they are regulated by state insurance departments. The irony is that despite the fact the Feds have no jurrisdiction over AIG, that they would come in with federal funds to bail them out.

I find this quite extraordinary and there is an awful lot of impropriety in this. Are we getting to the stage in the financial world that the Federal Government must take regulation of insurance away from the states? If so, there’s a legal backlog of thousands of pages of record showing they have no business doing so. This is an old states rights issue and what has happened with this takeover is the precise thing we’re talking about–a takeover of regulation of one insurer. Because you can’t see the Fed just idly sitting there letting AIG do something that is not in keeping with “the Fed’s good judgment” now can you? This whole thing is a mess. It reeks of socialism at its worst. What is this country coming to?

Can you imagine the Federal Government, the new owner of AIG, now being regulated by the State of New York? But that’s precisely what has happened. Or has the Fed placed AIG in the same company as Social Security with all of its stumble-bum decisions? Can a state legally oversee the Federal Government? With AIG, a best case can be made that the state is the only jurisdiction that has the power to do so.

Even a better question: We know AIG didn’t go under because of its superior insight and management ability. When we the people now own the giant insurer with liabilities estimated at more than $450 trillion, what happens to “we the people’s” pocketbooks if this stumbling giant continues to stumble under federal government oversight–which is even more likely now that government has its hands in things?

Who then will bail out the taxpayers who will be called upon to come up with that $450 trillion–assuming, of course, all of AIG’s invested reserves also go curplunk? What we have been doing to less developed nations (LDN) for years and years is coming home to roost. Through companies like MAIN, and Halliburton many LDNs have mortgaged their souls to the devil in the name of U.S. imperialism and the effort to create international empires.

Ecuador is a good example of a poor nation developing oil wells, oil lines, and building power plants, roads and other infrastructure for which their leaders has hocked the soul of every poor citizen. They can never live long enough to pay it back. Third world debt has grown to more than $2.5 trillion, and the cost of servicing it–over $375 billion per year as of 2004. It’s more than all third world spending on health and education and more than twenty times what developing countries receive annually in foreign aid. Over half the people in the world survive on less than two dollars per day, which is roughly the same amount they received in the early 1970s. Meanwhile, the top 1 percent of third world households accounts for 70 to 90 percent of all private financial wealth and real estate ownership in their country; the actual percentage depends on their country (James S. Henry, “Where The Money Went,” Across The Board, March/April 2004, pp42-45. For more information, see henry’s book: The Blood Blood Bankers: Tales from the Global Underground Economy (New York: Four Walls Eight Windows, 2003).

The reason I mention third world countries is because they don’t have money and have become indebted up to their ears. We Americans are quickly following in that pathway. Our country is broke and our leaders don’t know. Isn’t it about time we elected a president and Congress with conservative values?

To my question about who will bail out us taxpayers, the answer is no one. We’re the pocketbook of last resort. Maybe we could call up King Abdullah bin Abdul Aziz Al Saud. He could help, but would want the State of New York in exchange. Or, maybe Hank Paulson, who knows a lot of people in China because he was a good Boy Scout, could talk to Chinese President Hu Jintao. Maybe good old Hu could bail us out. But he would want the State of California.

Good, give them California and New York. Let Hu deal with the Spanish immigrant problem. Good, give them New York. Let King Abdullah deal with the Democrats and the Jews in New York.

In my view, the Feds have no business throwing around taxpayer money to salvage an insurance company. That’s state business. Maybe we would end up there, but where’s the good-sense protocol? If you’re Bernanke you naturally would have had unch with New York Governor David Paterson and NY insurance commissioner Eric A. Dinallo and ironed out an agreement beforehand. Everyone should have been placed on the same page here, and I fear they weren’t.

There will be a lot of political backlash on this Fed move. John McCain was right–we should let AIG fail, and that’s pretty much what the Bush Administration decided to do rather than expose our national assets on a private enterprise like this. Of course, Obama was silent. He doesn’t even know to this day and hour what he would have done because he’s an “empty suit”–a deadhead.

A lot of national leaders must have quizzical looks on their faces this morning. Commerce Committee Chairman Daniel K. Inouye (D-Hawaii) should call for hearings and start questioning the likes of Greenspan and Bernanke. Ask them how they feel this is all going to fall out? At the least, Bernanke has overstepped the bounds of his authority.

And at the most, he has done something that should have called for pre-counseling from others, including the Treasury and the President. How does Bernanke even know the U.S. Treasury has enough money in the bank to pay for this kind of socialistic maneuvering? If we’re halfway broke, who delegated him to completely break the bank?

When we look into what has turned out to become the AIG fiasco, we’ll find the U.S. is on the ropes with money. In fact the U.S. is broke, and our elected officials haven’t yet awakened to that prospect.

It is quite interesting for the Fed to use taxpayer money this massively when they have no accountability. Blog onto this story. Do you believe the Fed should be so powerful, first off; second, doesn’t it seem weird and wrong for a private group like the Fed to be able to tap into your pocketbook and mine whenever they please?

My position is that this is very wrong. In this case, the Fed has stepped way beyond their previously-given mandate. Maybe Congress should look into what the Fed can or cannot do and change something here.

Or maybe not. Can you imagine how badly the Fed would perform–not to say that Alan Greenspan and Ben Bernanke have been angels and highly competent--if we had a political hack making these decisions? Who is to say Bernanke is not beholden to somebody–perhaps many of AIG’s biggest stockholders? If anyone has information on that, sound off, please.

The following fits in nicely with this from Slate:
In for a Pound

By Daniel Politi
Posted Wednesday, Sept. 17, 2008, at 6:42 AM ET

News keeps pouring out of Wall Street and all the papers lead with the Federal Reserve‘s startling decision to lend insurance giant American International Group up to $85 billion in a bailout deal that would give the government control over the company.

The New York Times calls it “the most radical intervention in private business in the central bank’s history.” In exchange for its cash, the government would get a 79.9 percent equity stake in the company. The Washington Post notes that the rescue package “effectively nationalizes one of the central institutions in the crisis that has swept through markets this month.” The Wall Street Journal points out that this is “a historic development, particularly considering that AIG isn’t directly regulated by the federal government.”

The move marked an astounding about-face for the government that had been resisting AIG’s pleas for help over the last few days and earlier chose to let Lehman Bros. fail rather than put forward more taxpayer money. “The main difference between the two situations: AIG is so huge and its operations so intertwined in the financial system that the Fed feared an AIG failure could harm the broader economy,” USA Today summarizes. Or as the WSJ puts it: “This time, the government decided AIG truly was too big to fail.” The Los Angeles Times notes that while Fed officials said the action was due to the fact that AIG insures the assets of millions of Americans, it seems the main reason “was fear that the company’s failure could weaken or destroy nearly a half-trillion dollars’ worth of financial protection that AIG provides Wall Street firms and the biggest companies of Europe and Asia.”

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Daniel Politi writes “Today’s Papers” for Slate. He can be reached at todayspapers@slate.com.

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