by Joel Skousen, World Affairs Brief

While this isn’t news to readers of the WAB, it is confirmation of my extensive analysis throughout the crisis last fall. Henry Blodget and Bloomberg News get it mostly right, but they still shy away from exposing the wider outright conspiracy that exists between the US Treasury and the Federal Reserve.

“When the historians finally finish sorting through the appalling decisions that have been made in the past two years, this one will probably be at the top of the heap. Last fall, as AIG began to realize how screwed it was, it started negotiating with the counterparties to all the credit default swaps it had written. One of the AIG’s goals was to persuade these counterparties–including Goldman Sachs–to accept buyout discounts of as much as $0.40 cents on the dollar.

“But then Tim Geithner, head of the New York Fed, stepped in. A few weeks later, the counterparties–all of whom voluntarily did business with AIG and understood the risks [no, they were deceived about the risks]–were bailed out at par: 100 cents on the dollar [In fact, it was not ALL the creditors—but only the larger insider banks and institutions both here and abroad].

“Thus began the most nauseating giveaway in the history of the country. Bloomberg has the whole sickening story: ‘The Federal Reserve Bank of New York, the regional NY Fed office with special responsibility for Wall Street [run by Tim Geithner], opened an $85 billion credit line for New York-based AIG. That bought it 77.9 percent of AIG and effective control of the insurer [a willing partnership between thieves]. The government’s commitment to AIG through credit facilities and investments would eventually add up to $182.3 billion.’

“‘Geithner’s team circulated a draft term sheet outlining how the New York Fed wanted to deal with the swaps –insurance-like contracts that backed soured collateralized-debt obligations… Part of a sentence in the document was crossed out. It contained a blank space that was intended to show the amount of the ‘haircut’ the banks would take, according to people who saw the term sheet. After less than a week of private negotiations with the banks, the New York Fed instructed AIG to pay them par, or 100 cents on the dollar. The content of its deliberations has never been made public…The New York Fed’s decision to pay the banks in full cost AIG — and thus American taxpayers — at least $13 billion. That’s 40 percent of the $32.5 billion AIG paid to retire the swaps. Under the agreement, the government and its taxpayers became owners of the dubious CDOs, whose face value was $62 billion and for which AIG paid the market price of $29.6 billion. The CDOs were shunted into a Fed-run entity called Maiden Lane III.’”

Now that this accusation is hitting the streets, the Washington Post, comes to the rescue to give the Federal Reserve’s reason for giving favored banks 100 cents on the dollar. “The Federal Reserve Bank of New York said Tuesday that it had no choice but to instruct American International Group last November to reimburse the full amount of what it owed to big banks on derivatives contracts… The officials said AIG lost its leverage in demanding a better deal once the company had been saved from bankruptcy”

That’s circular reasoning, and quite untrue. They only lost their leverage because of federal intervention which stopped their negotiations. The reason the Fed stepped in precipitously was to specifically save their banking buddies from having to accept 40 cents on the dollar. AIG did default on some obligations to non-insider institutions and pension funds. That’s the untold story.

It’s no wonder that a backlash is building in Congress against the Obama administration’s new regulatory plan—which is more of a cover for making future bailouts permanent. Reuters reports that “Both Democrats and Republicans broadly criticized the strategy at a public hearing convened by the U.S. House of Representatives Financial Services Committee chaired by Barney Frank [who is in bed with the Fed on this]. ‘The bill we’re considering today would merely institutionalize ‘too big to fail’,’ said Republican Representative Jeb Hensarling, referring to a perception that financial giants could count on government [future] bailouts.

“Democratic Representative Brad Sherman said the Obama plan would provide ‘permanent, unlimited bailout authority.’ He said it would give ‘unprecedented powers for the executive to decide spending and taxes, without congressional approval; and, depending on the desires of the executive branch from time to time, the greatest transfer of money from the Treasury to Wall Street in U.S. history.’” Indeed.

IS THE STIMULUS WORKING?

Yes and No. Yes, in a temporary artificial way; but not in the long run. Direct injections of cash to buyers as in the Cash for Clunkers program worked, but only until the money ran out. Total cost of the program to taxpayers was $24,000 per car! The $180B tax rebates “worked” (in an inflationary way) last year, but can’t be sustained. House price declines leveled off in tandem with the government’s $8000 incentive program, but new home sales have dropped again, proving that temporary stimulus only works as long as there exists potential first-time buyers who can afford a loan. Once that group was exhausted, housing prices started down again. Congress is now looking to broadening the program for everyone to keep the stimulus going. It would be a greater boon to the economy to simply let house prices fall further, making them more affordable in the long term for everyone.

One of the problems created by past incentives is that there were plenty of ineligible applications for rebates, so now the IRS is being forced to audit manually all tax returns claiming the $8,000 federal housing new home credit—causing long delays.

The stimulus money is actually concentrating its effect on the speculative markets, fired up by the “carry trade” in dollars. A carry trade is created when one government offers below market interest rates for borrowing currency, just as Japan did during their decades-long recession. The money is borrowed and invested elsewhere (carried) and the investor pockets the interest rate difference. Now it’s the dollar dominating the carry trade instead of the Yen. Insiders can borrow at the Fed for almost zero interest and invest those dollars in other nations and in any number of hedges with a profit potential. That’s how the biggest US banks, in a declining economy, showed such massive profits less than a year after government bailouts.

Countries like Brazil are trying to take advantage of this new speculative influx of dollars in the carry trade. The government just slapped a tax on foreign investors of 2% on all foreign purchases of Brazilian fixed_income securities and stocks, effective immediately.

ANOTHER FALSIFIED “PROOF” OF OBAMA’S FOREIGN BIRTH

The internet continues to be flooded with falsified stories of proof that Obama was born in Kenya. He was foreign born, and that is the real reason for these efforts by agent provocateurs—to get the truth discredited.

The first was an archived copy of the Kenyan Sunday Standard newspaper that is still visible here:

http://web.archive.org/web/20040627142700/eastandard.net/headlines/news26060403.htm

stating that “Kenyan_born US Senate hopeful, Barrack Obama, appeared set to take over the Illinois Senate seat after his main rival, Jack Ryan, dropped out of the race on Friday night amid a furor over lurid sex club allegations.” In fact, the original AP report did not say “Kenyan-born” and spelled his name, Barack, correctly. Someone in Kenya working for the newspaper embellished the AP report, stating a truth that was common knowledge in Kenya. Thus, while the sloppy journalist was not the perpetrator of this posting to the US internet, someone else was, who either didn’t do his homework or was taking advantage of an error to give the debunkers another excuse to excoriate the “birther” movement.

The next case was more enticing, but manufactured out of whole cloth—clearly the work of an agent provocateur out to discredit the movement. This report claims that in one of the 3 public debates between Senate candidates Barack Obama and Alan Keyes, Keyes faulted Obama for not being a ‘natural born citizen.’ Obama is supposed to have said in response, “So what? I am running for Illinois Senator, not the presidency”, a tacit admission that he was not eligible for the office. I was fooled for a while, not thinking that anyone would be so brazen as to put this out with Alan Keyes alive and able to dispute it. When someone asked Keyes about it, he said he had “no recollection of it.” I’ve checked the 3 transcripts of the debate and it is not there. Be forewarned.

BRITISH POLICE RAID HUGE PRIVATE SAFETY DEPOSIT VAULT

The London Daily Mail reported on a huge raid British Police made on a private safety deposit box company, physically opening all of the 6,717 safety deposit boxes and carting away the contents. The justification was based on allegations of breaking a guns and drug ring. The government claims everyone will eventually get their valuables back, but if it comes up missing, how could you prove it was there? In any case, it will take years to resolve, and many people will have to go to court to get their property back. The Daily Mail estimates this unprecedented raid “could cost taxpayers a fortune.” Worse, the government now has an inventory of everyone’s box contents, and more than likely will require that owners prove they weren’t involved in the drugs and gun conspiracy to avoid having their valuables confiscated. All cash and jewels without a provenance will be suspect. Lesson to learn: Don’t trust your valuables to a safety deposit box. Even American courts have denied “owners” access when a bank closes.

ARMY COVER-UP: FEMALE SOLDER KILLS SELF OVER TORTURE TECHNIQUES

As Greg Mitchell reports, “Thanks to a reporter’s FOIA request, [we now know] that one of the first women to die in Iraq shot and killed herself after objecting to harsh ‘interrogation techniques.’

“She was Army specialist Alyssa Peterson, 27, a Flagstaff, Az. native serving with C Company, 311th Military Intelligence BN, 101st Airborne. Peterson was an Arabic_speaking interrogator assigned to the prison at our air base in troubled Tal_Afar in northwestern Iraq. According to official records, she died on Sept. 15, 2003, from a ‘non_hostile weapons discharge.’

“Newspaper reporter named Kevin Elston, unsatisfied with the public story, decided to probe deeper in 2005, ‘just on a hunch,’ he told E&P today. He made ‘hundreds of phone calls’ to the military and couldn’t get anywhere, so he filed a Freedom of Information Act request. When the documents of the official investigation of her death arrived, they contained bombshell revelations.

“‘Peterson objected to the interrogation techniques used on prisoners. She refused to participate after only two nights working in the unit known as the cage. Army spokespersons for her unit have refused to describe the interrogation techniques Alyssa objected to. They say all records of those techniques have now been destroyed.”

Of course they were destroyed. The Army was covering up for torture clear back then, and hushed up her subsequent suicide as well. The suicide only took place after Peterson was required to go to a suicide prevention course, where she said, “she learned how to kill myself.” Sad.