-- 27 November 2007 --

IT’S YOUR TURN TO ACT.

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STOP THE SQUEEZE WEEKLY NEWSLETTER
Compiled by In Debt We Trust Director Danny Schechter, author of SQEEEZED: America As The Bubble Bursts and director of In Debt We Trust
Comments to Dissector@mediachannel.org

November 27: Last Saturday, the NY Times carried a front-page story from Iraq with the headline: “MARKET BOMB SHATTERS LULL FOR BAGHDAD.” That same headline might be appropriate in the US as well as one market debt-related bomb after another goes off in our economy sending tremors though our society and leading to a growing sense of crisis. The stock market was down but the people in the financial world are even downer, if that is a word, because they don’t see a recovery on the horizon.

There has been no “lull” in bad news about the economy.

Yes there was a respite for holiday shopping with retailers hoping that the Black Friday sales would revive their fortunes, if not the economy. Local media outlets nationwide hyped the bargains to be found and millions flocked to the malls. And, yes, sales went up but that’s because stores opened earlier and were selling for longer hours. Since the prices were often so low its not clear if the sales were as profitable as hoped for. More people shopped but, on average, bought less.. A report covered on Monday in the NY Times cut through the self-congratulatory mood of “all is well”:

The reports suggest that jittery consumers are flocking to rock-bottom prices and to little else — a boon for discount stores but trouble for higher-end chains.

I wrote about this in an article showing how our media is complicit in encouraging the mindless hyping of consumption. I argue that thus is irresponsible given what most consumers have to look forward to as inflation increases and the recession rolls in. You can check out my story on the “shopocalypse” which is also dramatized in a new must see documentary: WHAT WOULD JESUS BUY?

A day later after all the shopping mania, the NY Times was less upbeat with a front page report saying that the bargains drew the crowds but the “thrill is gone.” Their front page article noted that a sense of desperation has replaced a spirit of celebration. Retailers expect this to be the weakest shopping season in years. One group that is shopping America are Europeans. They see the US as one big outlet store. Why? Because, as the Boston Globe headline shouted, “With dollar low, US is one big outlet -- Europeans arriving in droves for bargains

"The euro has shot up by 33 percent compared with the dollar since 2002, so Europeans who exchange 1,000 euros now get close to 1,500 US
dollars.”

TEARY EYES ON WALL STREET

On Monday morning, the Wall Street Journal front page reported: “Sinking stocks and rising bonds are signaling a recession may be near.”

Former Treasury Secretary Larry Summers explained why he is so gloomy in a blog for the Financial Times:

“First, forward-looking indicators suggest that the housing sector may be in free-fall from what felt like the basement levels of a few months ago.”

“Second, it is now clear that only a small part of the financial distress that must be worked through has yet been faced”

“Third, the capacity of the financial system to provide credit in support of new investment on the scale necessary to maintain economic expansion is in increasing doubt.”

THE FUNDAMENTALS

Let’s look at the “fundamentals” of our economy and try to see the bigger picture. Andy Sutton does that on the Financial Sense University website:

Despite a reported GDP growth of 3.9% annualized for the third quarter, it is becoming more and more obvious that we are already in a recession or at least on the verge of one. Housing has continued to be a boat anchor, the banking sector is being hit with massive writedowns for mortgages gone bad, and fuel prices across the board have remained stubbornly high, forcing consumers to make the choice between cutting back on other areas or taking on even more debt.

Couple all of this with the tab on our national credit card (now well over $9 TRILLION), and it is hard to imagine a scenario in which we pay of this massive accumulated debt honestly through overproduction and underconsumption. In my view, the fundamentals have been and will continue to be a drag on our economic performance, our economic standing in the world, and the American standard of living.

AS FOR THE HOUSING INDUSTRY---FERGETTABOUTIT

Housing once drove the economy. Now where is it driving it? Yahoo carried this report:

Borrowers who took out loans in the first six months of this year are already falling behind on their payments faster than those who took out loans in 2006, according to a report from Arlington, Va.-based investment bank Friedman, Billings Ramsey. That's making it even harder for would-be buyers to get new mortgages -- a frightening prospect for home builders with projects going begging on the market, and for homeowners desperate to unload property to avoid defaulting on their loans."

ARE WE IN A GLOBAL CRISIS?

A group of European economists who follow these trends warned last December that the US economy was unsustainable. They predicted that the real estate sector would plunge and bring the whole country down. When I read this a year ago, I thought it was alarmist and exaggerated. I don’t anymore. They wrote in part:

… In the event of a strong and sustained fall in the prices and volumes of the real estate market simultaneously on the whole of the US territory, the “magic circle” of individual enrichment and the collective growth would become an “infernal spiral” of personal debt and generalized recession. Indeed, households in debt would suddenly become insolvent because of the collapse in the price of the real estate guaranteeing their loans, while the whole of the banking sector would be found in a double trap with on one side an increasing share of the loans not refunded due to personal bankruptcy, and on the other a financial assessment quickly down-grading because of the depreciation of the value of the guaranteed loans (namely the real estate)

For the LEAP/E2020 team, it is from now on time to remove the ‘conditional' from this scenario. It is currently happening throughout all the United States and constitutes a catalyst of the impact phase of the global systemic crisis. The US consumer, i.e. the US middle class, basically becomes insolvent (, victim of overwhelming debt, a negative rate of saving, the bursting of the real estate bubble, the rise of interest rates and the collapse of US growth. All these elements are dependent, and mutually reinforcing, to plunge the United States, starting from the end 2006, into an economic, social and political crisis without precedent

A “BLACK HOLE?”

This same group offered a new prognosis in October of this year. They fear bank collapse.

LEAP/E2020 now estimates that at least one large US financial institution (bank, insurance, investment fund) will file for bankruptcy before February 2008, sparking off bankruptcies among a series of other financial institutions and banks in Europe (in the UK especially), in Asia and in various emerging countries. According to an expression by Blackstone president Tony James's , a financial « black hole » was formed after the US subprime crisis.

CREDIT CARD BUBBLE NEXT TO GO?

Last week, Larry Summers, our former Treasury Secretary was in Dubai warning that the credit card bubble may be the next to go. If that happens all bets are off for a recovery anytime soon. And we are talking years here, not weeks or months.

HOW BAD IS IT?

Here’a part of an article from a European publication called NEW EUROPE. They are concerned because the mortgage meltdown and credit crisis is affecting them deeply. Listen to this:

In Europe, things were even worse. The German government expressed fears that the parity of the Euro with the dollar may reach 1.60. This very past week the European currency continued to appreciate vis-a-vis the American currency. On November 22, it broke the 1.48 barrier and reached 1.4875. The idea is that as the credit crisis deepens and American banks are forced to write off even larger parts of their assets, the real problem emerges in all its ugliness and everybody can see that this is rather the beginning, surely not the end, but probably the beginning of the end.

The OECD estimates that the cost to American banks from bad credits could reach USD 300 billion, and this is not the total cost to the US economy, which could go as high as USD two trillion, which is more than half the annual GDP.

HOW MANY ZEROES IN TWO TRILLION DOLLARS?

This is the first time I saw an estimate of a TWO TRILLION dollar drop in our economy. Now we are talking real money. Already the big Airbus consortium in France is saying that they are facing a big business crunch because the falling dollar is making Boeing planes much cheaper Maybe this is why the French President warned of the dangers of an outbreak of an ECONOMIC WAR. The rest of the world is blaming the Bush Administration for not even trying to prop up the dollar. The result could be economic attacks on the US. From overseas as our angry “allies” become adversaries.

FORTUNE MAGAZINE has now discovered the crisis with a big cover story on the banks writing off BILLIONS. Their headline: WHAT WERE THEY SMOKING? The Brilliant at Breakfast website noted:

It's interesting that Fortune only started caring about the carnage when it began hitting the banks. When the housing bubble was actually going on, and even when it started to collapse and middle-class Americans were being affected, the business community didn't care. But now that it's hitting the banks, and the people who make huge sums of money may not get their obscene bonuses this year, suddenly it's a problem. It's also interesting that the Fortune article doesn't even mention the compensation these guys receive for running these companies into the ground while middle-class Americans are ruined.

Economist and op-ed columnist Paul Krugman writes about this financial insanity:

…even as the danger signs multiplied, Wall Street piled into bonds backed by dubious home mortgages. Most of the bad investments now shaking the financial world seem to have been made in the final frenzy of the housing bubble, or even after the bubble began to deflate.

In fact, according to Fortune, Merrill Lynch made its biggest purchases of bad debt in the first half of this year — after the subprime crisis had already become public knowledge.

Now the bill is coming due, and almost everyone — that is, almost everyone except the people responsible — is having to pay.

The losses suffered by shareholders in Merrill, Citigroup, Bear Stearns and so on are the least of it. Far more important in human terms are the hundreds of thousands if not millions of American families lured into mortgage deals they didn’t understand, who now face sharp increases in their payments — and, in many cases, the loss of their houses — as their interest rates reset.

The subprime scandal is just the beginning, says this article:

SUBPRIME MORTGAGE DEBT IS THE TIP OF THE ICEBERG

What almost no one I know understands is that the Sub-Prime problem is but the tip of a colossal iceberg that is in a slow meltdown. I offer one recent example to illustrate my point that the "Financial Tsunami" is only beginning.

Deutsche Bank got a hard shock a few days ago when a judge in the state of Ohio in the USA made a ruling that the bank had no legal right to foreclose on 14 homes whose owners had failed to keep current in their monthly mortgage payments. Now this might sound like small beer for Deutsche Bank, one of the world's largest banks with over ¤1.1 trillion in assets worldwide. As Hilmar Kopper used to say, "peanuts." It's not at all peanuts, however, for the Anglo-Saxon banking world and its European allies like Deutsche Bank, BNP Paribas, Barclays Bank, HSBC or others. Why?

A US Federal Judge, C.A. Boyko in Federal District Court in Cleveland Ohio ruled to dismiss a claim by Deutsche Bank National Trust Company. DB's US subsidiary was seeking to take possession of 14 homes from Cleveland residents living in them, in order to claim the assets.

Here comes the hair in the soup. The Judge asked DB to show documents proving legal title to the 14 homes. DB could not. All DB attorneys could show was a document showing only an "intent to convey the rights in the mortgages." They could not produce the actual mortgage, the heart of Western property rights since the Magna Carta, if not longer.

Again why could Deutsche Bank not show the 14 mortgages on the 14 homes? Because they live in the exotic new world of "global securitization", where banks like DB or Citigroup buy tens of thousands of mortgages from small local lending banks, "bundle" them into Jumbo new securities which then are rated by Moody's or Standard & Poors or Fitch, and sell them as bonds to pension funds or other banks or private investors who naively believed they were buying bonds rated AAA, the highest, and never realized that their "bundle" of say 1,000 different home mortgages, contained maybe 20% or 200 mortgages rated "sub-prime," i.e. of dubious credit quality.

HOW LONG DO WE HAVE?

iTulip.com Says the Big Down Turn will happen in June. Editor Eric Janzsen writes”

The Fed, Treasury, and Congress have been fighting the recession we forecast last fall as due to start in Q4 2007, led by the housing market correction. Throwing the dollar under the bus to briefly boost exports and bring plane loads of tourists into the U.S. has helped avert a far more blatant recession from occurring than the subtle one we're already in. With inflation rising as quickly as the U.S. economy is slowing, picking the exact month or quarter when the real (inflation-adjusted) GDP growth recession starts–or started–will not be possible until after the inevitably revised GDP and inflation figures come in. We expect to see confirmation June 2008 at the earliest.

Asia is being hit hard too:

CREDIT HEART ATTACK IN CHINA AND KOREA

In this crisis, we can expect banks to fail in the USA.
COULD YOUR BANK FAIL?

THE BIG QUESTION: WHY ARE PUR POLITICAL LEADERS SO SILENT

We all know we are being affected by rising prices and economic insecurity. Yet these issues and the depending economic inequality this is causing has not yet become part of the presidential campaign. I for one am tired of trivial and predictable questions at the political debates as newscaster seek more heat than light. Blogger Ray Abernathy suggests one of the questions that should be asked of all the presidential wannabes.

Here is a questions that astoundingly was not asked by Tim Russert or Brian Williams during the Democratic presidential candidate debate on MSNBC last Wednesday night (in Russert’s windy, hectoring style):

“The Internal Revenue Service recently issued a report saying that in 2005 the richest Americans’ share of income hit a postwar record with the wealthiest 1 percent in our country taking home 21.2 percent of all income and the bottom 50 percent getting only 12.8 percent. CEOs are now making 400 times what an average worker makes. Economists from across the political spectrum are raising warning signals about the growing income disparity in our country. What will you do as president to close what has now become the widest wage and wealth gap of any industrialized nation in the world.”

BEWARE: DEBT ELIMINATION SCAMS TO WATCH OUT FOR

Finally for fun, check out the Predatory Lenders Association. The subject is not funny but…..

ALSO NEW: THE IN DEBT WE TRUST FAMILY FINANCIAL SECURITY VIDEO FEATURING FINANCIAL ADVISOR GARY KORNEGAY.  YOU CAN ORDER IT HERE.

WE NEED YOU

We can only continue this work of informing you about the crisis with the news we need to know with your support. Tax Deductible donations to the Financial Awareness Project at the Global Center are urgently needed. The Global Center is at 575 8th Avenue #2200, New York, N.Y. 10018

Comments to Dissector@mediachannel.org

Danny Schechter
Editor Mediachannel.org
Director IN DEBT WE TRUST
InDebtWeTrust.com
212 246-0202x3006

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Here’s something special for StopTheSqueeze.org subscribers: a copy of the timely new 180-page e-book by Danny Schechter, the News Dissector …

Squeezed: America As The Bubble Bursts

Free with a donation of $25 or more to Globalvision

Here’s how Danny Schechter describes his latest work:

‘This instant internet E-Book, published by ColdType.net in Canada in a first edition in the Adobe PDF format, was inspired by the tradition of American pamphleteering exemplified by the work of the American revolutionary Tom Paine (who, of course, has no responsibility for this effort) and the Soviet-era samizdat publishers forced to work underground.

‘In our culture, we do have many publishers of small and large presses but as someone who has had eight books published that way, I know how long it takes to go from pitch or proposal to book in hand. And then the real battle begins for attention and distribution in an environment dominated by big names and bigger budgets. I don’t want to get into how many books reflecting years of work languish because of poor marketing and promotion.

Often, issue-oriented books appear well after the fact, not when they can best stimulate or contribute to an ongoing debate. Publishing this way is more immediate, accessible and timely. Squeezed primarily chronicles events over six months in 2007 and the explosion/implosion of an economic crisis that had been building for many years. Happily, it can be available in this same year just in time for the Christmas shopping season which the prognosticators already fear will be a disaster.

‘It is the work of a journalist who often finds himself ‘ahead of the curve.’ My book Embedded: Weapons of Mass Deception on the media war in Iraq was published by ColdType.net this way in the early summer of 2003 in a stunning climate of patriotically correct denial. I can only hope that this one has more impact if only because of the way so many institutions we trusted are loosing that trust so quickly. And also, lest I remind you, how this affects our wallets and financial survival.

‘I am sure we will soon be deluged with barrels of more books on the issues I treat, written by authors far more expert than I. Journalism has been called the ‘first draft of history’ but this is a history we can, hopefully, still influence if we wake up and have the courage to proclaim a state of economic emergency to do what must be done. For starters, we need to arm ourselves with information (or harm ourselves) and then drive the money changers from our temples.’

SEND A TAX-DEDUCTIBLE CONTRIBUTION TO THE FINANCIAL AWARENESS PROJECT AT THE GLOBAL CENTER (575 8th Avenue #2200 NY NY 10018. We will tell you where to download the book)