-- 15 August 2007 --

IT’S YOUR TURN TO ACT.

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Maybe the lesson is perseverance or possibly stupidity. For more than a year, I have been grabbing every megaphone I could find to shout like some Chicken Little that "the sky is falling,” and that the debt bomb would go off. We have been trying to get our film IN DEBT WE TRUST seen to heighten public awareness and have used sites such as Stop The Squeeze to argue for a fight back.

I hate to admit it, but most of the media has acknowledged the problem but then ignored it. I was feeling more marginalized than ever. How, I asked concerned people, could the anti-Bush Majority, the progressive movements---shucks, anyone—ignore this obvious menace?

The people who weren’t listening are listening now—not necessarily to us but to the whooshing sound of money, large amounts of it, being flushed away as the market drops and central banks pump HUNDREDS OF BILLIONS into the financial system worldwide as the subprime—what I call the subCRIME—scandal leads to a loss of confidence in credit markets.

Suddenly the story is everywhere—still not covered with a "who gets hurt" perspective like the one in IN DEBT WE TRUST, or any focus on the rip-off and crooked operators who were profiting off the crisis but it is getting out there. Yes Houston, we have a problem and it's not just a few tiles on the shuttle. This ENDEAVOUR is, as they say in deep ship.

Let's recap. Last week President Bush tried to bolster confidence in the system with a morning press conference. While all may have been well in his mind, the market got the signal and went KABOOM. A 387 point drop in the afternoon and then the big money boys got scared and started pumping money like ballast to keep the ship afloat. We know that it was more than $100 BILLION from the Fed but other Central Bankers joined in to try to CONTAIN the CONTAGION of more slippage. As far as I know, I was the only one who called for a CRIMINAL INVESTIGATION in a commentary that got lots of pick up and comment. Check it out and see what you think.

The response showed that I and those of you reading this newsletter are not alone in seeing the dimensions of this crisis. But the plot is, shall we say, thickening because of concerns that the government’s response will aid Wall Street, and bail out the very people who caused the crisis in the first place. Horrors, what irony—or maybe that is what we have come to expect.

“The issue is often referred to as “moral hazard,” reports the now shrunk-in-size New York Times,” meaning that the risk-takers who brought on the panic would feel bailed out and would be more likely to do it again.”

The optimists are counseling that all is basically well and that a cut in interest rates will end the volatility and permit us to go back to sleep, but not everyone is so sure, as Reuters reported at week’s end:

NEW YORK, Aug 12 (Reuters) - High volatility and low liquidity will likely dominate emerging sovereign debt trading this week, as investors wonder how many more funds or banks carry toxic assets backed by U.S. subprime loans.
While some, like chief-economist Vladimir Caramaschi from Factor brokerage in Sao Paulo, argue that "at least for now the crisis is restricted to the credit market, without a relevant impact on the real economy,"

others foresee trouble not so far ahead.

"The central bank's actions signaled that there is a serious problem, this time regarding liquidity. If you have less liquidity, you may reduce the availability of cash for consumers in the future, impacting the whole economy," said Kelly Trentin, an analyst with SLW brokerage in Sao Paulo.

The report continues: “There is a growing fear of a recession down the line. Most forecasters say a recession is not on the immediate horizon, especially now that the Fed has sent a "We're here to help" signal to stressed markets. But the consensus view is for a 26 percent chance of recession in the next 12 months, says the August release of the widely watched Blue Chip Economic Indicators survey. That's up from 23 percent in July.”

BE VERY AFRAID

None of this was supposed to happen, as Indian analysts Vinod Kothari & Rochak Agarwal reminded us:

Circa 2005, the US housing market was booming. As conveyed by the June 2005 Time magazine’s cover title “Home $weet Home,” the housing market was minting money for everyone. Amid this, every individual in the US was living the American dream to own a house. Housing prices were consistently rising and appreciation was the highest over the past 30 years. This, coupled with historically low interest rates, prompted most people to buy “investment properties”.

Now many are in danger of losing those properties and their homes as real estate market sours and foreclosures rise. They conclude: “So, the worry that the problems that emanated in the sub-prime market might spread into a crisis of global scale is not entirely unfounded.” Mark Trumbull of the Christian Science Monitor says that many Americans are getting VERY, Very afraid:

"The current upheaval in financial markets is hitting some highly specialized lenders and investors the hardest, but it hasn't stopped there: It has big implications for the whole economy.

The stock market has become much more volatile in the past few weeks. Borrowing has become tougher for home buyers and some businesses.

These effects come as ordinary Americans have greater financial wealth but also more debt than ever before. It also coincides with financial industries becoming increasingly complicated and global in scope.

Behind all this lies a big question: If the turmoil on Wall Street gets worse, how large an effect will it have on Main Street – in communities where consumers are already burdened by high gas prices and falling home values?"

RUN ON THE BANKS?

There are even fears of a run on banks according to Mike Whitney who has been following all of this closely:

Stock Market Brushfire; Will There Be a Run On The Banks?
By Mike Whitney

The contamination from the massive real estate bubble has now infected nearly every area of the broader market. The swindle which began at the Federal Reserve--with cheap, low interest credit---has spread through the entire system and is threatening to wreak financial havoc across the planet. The Fed's multi-billion dollar bailout will do nothing to contain the brushfire they started or avert the catastrophe that lies just ahead. Read more...

A report on a related issue of great interest was sent to me by our advisor Robert Manning, author of CREDIT CARD NATION. It's an article on the Pentagon’s new “incentives” to get manpower for Iraq by offering to give people money to pay off their debts.

AP reports:

Need a down-payment for your home? Seed money to start a business? The Army wants to help — if you're willing to join up. Despite spending nearly $1 billion last year on recruiting bonuses and ads, Army leaders say an even bolder approach is needed to fill wartime ranks.

Under a new proposal, men and women who enlist could pick from a "buffet" of incentives, including up to $45,000 tax-free that they accrue during their career to help buy a home or build a business. Other options would include money for college and to pay off student loans.

STAY INFORMED

I am covering all of these issues daily on my News Dissector blog on Mediachannel.org.

We are also continuing to do screenings or the film and hope you will join us in organizing one in your community. BRAVE NEW THEATERS is now making the film available. As is AOL’s new documentary portal TRUE STORIES Check it out and also see my earlier film WMD (Weapons of Mass Deception.)


There is no hiding this problem any more. The crisis is here and many fear it will get worse, Its time to make this an issue with a popular movement for Debt Relief. Please pass this newsletter along to your lists, tell you friends to visit STOPTHESQUEEZE.ORG and Get involved.

For more on our campaign with IN DEBT WE TRUST, see Hartley Pleshaw’s interview in IMAGINE, the Massachusetts film magazine.

* * *

From the Washington Post:
Credit Crunch In U.S. Upends Global Markets

NEW YORK, Aug. 9 — The turmoil in the U.S. credit markets turned global Thursday, prompting central banks in Europe and the United States to pump more than $150 billion into the financial system to keep it operating smoothly.

THE SUB-PRIME CRISIS IS REALLY A “SUB-CRIME” CRISIS

It Is Time To Investigate and Prosecute This Scandal
By Danny Schechter, Editor, Mediachannel.org

There comes a time when the frame of a news story changes. It happened in Iraq when the “war for Iraqi freedom” became seen as a bloody occupation, not a beneficent liberation. It is happening as the war on terror is increasingly perceived a war of error and when voting problems are reframed as electoral fraud. Check it out and see what you think

In Debt We Trust Screenings

There are more screenings of In Debt We Trust underway. You can organize a screening in your neighborhood.

Help us get the word out.

* * *

Your comments and experiences are welcome. Write: Dissector@mediachannel.org. You can read more of my daily blogs and articles on Mediachannel.org

We are also maintaining a DEBT BLOG on this site. Please visit it and tell us what you think

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If you have comments or suggestions, share them with me at dissector@mediachannel.org.

Danny Schechter
Editor Mediachannel.org
Director IN DEBT WE TRUST
InDebtWeTrust.com
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Letters from readers

"It's all very simple Danny - Virtually all "money" arises from debt.

For every dollar of debt, there is a dollar of credit (money, bank deposit) somewhere.

The debt is an ASSET to the banking system and the "money" is a LIABILITY to the banking system. You can check this for yourself through the SNA (System of National Accounts) required of all members of the international financial institutions.

However the interest on the debt is not created with the debt.

So debt has to continually expand so the interest on existing debt can be paid.

Effectively someone else has to borrow more to keep the system going.

The home loan and consumer credit expansion has been the modus operandus the financial sector uses to achieve this.

Keep ma and pa borrowing more and everything will be OK, and all that interest paid through the productive economy migrates very rapidly indeed to the investment sector.

So investment "values", the values of existing assets like shares and property must keep expanding.

The only way orthodox economics can deal with this is through bankruptcy and default and debt repayment effected through reduction in spending

Bankruptcy and default shift ASSETS from the banks' and institutions' balance sheets to LOSSES.

In other words, the bankruptcies and defaults have to be written off.

The leverage of the financial system has become so large that a relatively small quantum of defaults is enough to wipe out the net worth of financial institutions.

Even quite modest recent increases in interest rates mean Ma and Pa have become debt saturated.

Crudely, if they pay their mortgage they will starve. So some of them default. The system collapses.

All because interest (as unearned income) was charged in the first place."

PS my debt modeling as a first approximation basically says that

New debt = Unearned interest on existing total debt + inflation+ growth

There are a number of secondary influences, but the first approximation figures will be in the right ball park.

Check it out for yourself if you like - but be careful- total debt is government domestic and foreign debt + private sector domestic and foreign debt."

Kind regards,
-- Lowell Manning.

* * *

California cities fill top 10 foreclosure list
NEW YORK (CNNMoney.com) -- The binge that many housing markets went on in the early- to mid-2000s is over, and some of the hottest markets like California are now experiencing the worst hangovers.

 

Read this on iTulip site:

We reported earlier this week that:

Hank Paulson, who made $700 million at Goldman Sachs before taking over the US Treasury this year ... has reactivated a crisis team with a command centre in Washington to cope with the 'systemic risk' in a market melt-down. His worry? 8,000 unregulated hedge funds with $1.3 trillion at hand, and derivative contracts now worth $370 trillion. 'We need to be very careful here,' he said.

A well-sourced article in Washington's Weekly Standard says Mr Paulson fears a "serious crisis that would be a body-blow to the US economy".

Average house prices have fallen from $244,000 in April to $221,000 last month, with more violent corrections in Florida, Arizona, and New England.
Builders have warned of a "death spiral" as they slash prices to off-load a glut of unsold homes.

"The US needs a trillion dollars a year just to stand still," says David Bloom, currency guru at HSBC. Modern financial crises have always begun on the peripheries of global economy, setting off a chain reaction. Mr Bloom says the seizure this time will be at the heart of the system as the dollar buckles, pressing down on the "aorta of capitalism".
Eight thousand unregulated speculative investment pools pose a risk of a "serious crisis that would be a body-blow to the US economy"? After running the world's biggest and most successful USIP, Paulson ought to know.

What would Hunter say?