Response to Treasury Secretary Paulson's October 8, 2008, Speech
Derivatives not even mentined- cry FRAUD
Mark Wyatt, October 8, 2008
SUMMARY: Secretary Paulson made a detailed speech addressing the current failure of the US and world's financial systems. Treasury Secretary Paulson did not once directly (at best barely indirectly) mention the existence of the roughly $1 QUADRILLION derivatives bubble (see the BIS report starting on page 24 here. For interpretation, see here and here). This is worrisome, not to mention scary. Is Secretary Paulson incompetent? This is quite worrisome- he is going to solve a problem he does not realize exists? More likely, he does know about the $1 QUADRILLION derivatives bubble but for unstated reasons is not talking about it. Why? Why do the two presidential candidates (nor the vice-presidential candidates) not speak about the $1 QUADRILLION dollar derivatives bubble? Are they completely incompetent? What are their reasons for not discussing it and "talking straight to the American people" if they do know? In short, It is likely that the federal government does know, and may be planning drastic action it chooses not to speak about. Likely it is not going to be good for the American people nor for the republic.
"U.S. and global financial markets continue to be severely strained. A chain of events caused by the ongoing housing correction has reverberated through U.S. banks and financial institutions, and has seriously impacted the underlying economy, reaching American households and businesses. A root cause of this situation is the housing correction and a lack of confidence in mortgage assets, as well as a lack of confidence in many of the financial institutions that hold these assets. Because of this widespread uncertainty, investors are hesitant to commit capital to financial institutions. Investor confidence is critical to restore liquidity and enhance the stability of our financial system. "
While there is some truth in this statement, it needs to be recognized that a much bigger problem, one that dwarfs the housing correction, is the web of bets known as the $1 QUADRILLION notional derivatives bubble. It is the derivative instruments that required more paper in 2006, to which the mortgage brokers responded by creating bad mortgages, which the investment banks and other financial entities bought willingly, and knowingly. These entities then securitized the mortgatges (or bought the securities) and used them in various derivative instruments. In addition, the entities themselves, and in some cases unrelated others gambled on the securities through credit default swaps (a derivative). Not addressing the derivatives issue shows a complete ignorance of what is occuring, and is interpreted as lying.
"By September, uncertainty had led to a credit market freeze and it became clear that we needed to take a systemic approach on a significant scale, to get at the underlying cause of much of this turmoil. "
Uncertainty, and likely freezing up of the $1 QUADRILLION derivatives bubble. The only systemic approach that could possibly free up these markets are to place the entire Fedral Reserve System into bankruptcy, repeal their charter, create a new currency, and try to keep the economy alive. Anything else is, for all practical purposes financial masturbation.
"The Treasury Department is moving rapidly to implement the EESA to help strengthen financial institutions while also protecting taxpayer interests. As I have said before, the ultimate taxpayer protection will be a stable financial system that supports normal economic activity."
It is in the taxpayer's interest that CONGRESS, not the executive branch, use its sole constitutional authority to repeal the Federal Reserve Act, and put the entire system into bankruptcy, as well as create a new currency. Creation of a new currency may be the smart first choice, or it can be done in parallel.
"We will implement our new authorities with one simple goal - to restore capital flows to the consumers and businesses that form the core of our economy. "
Here we have the very institutions that created the problem (Fed through encouraging the spread of derivatives and Treasury for ignoring it) gaining new powers to "fix" it.
"It is the policy of our federal government to use all resources at its disposal to make our financial system stronger. In light of current conditions, the FDIC, with the full support of the Fed and the Treasury, will use its authority and resources, as appropriate to mitigate systemic risk, by, as appropriate, protecting depositors, protecting unsecured claims, guaranteeing liabilities and adopting other measures to support the banking system. "
The federal government can only fix the current system, which is a hopelessly frozen web of derivatives bets, or fulfill the mandate of congress. Congress can mandate the abolition of the Federal Reserve system, and mandate the creation of a new currency.
"Today's announcement of a coordinated rate cut, including Europe, China and other large economies, is a welcome sign that central banks around the world are prepared to take the necessary steps to support the global economy during this difficult time."
It is a sign that the the web of derivatives bets, which is woldwide, and is now taking out the entire world's financial system, not just America's. It is a sign that for the moment the world's governments and banks are going to try and join the US federal government in saving the $1 QUADRILLION derivatives gambling casino. I would not depend on the world following through on that. If Europe wises up and chooses to not save the bubble, the entire financial system will collapse at once. We (the US) need to contact our allies in Europe and the rest of the world and propose a new financial system, not pretend to save the gambling casino.
"Yesterday, the Federal Reserve announced a new facility to provide a liquidity backstop to U.S. issuers of commercial paper. Through a special purpose vehicle the Fed will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. I expect this initiative to significantly improve the availability of funding for financial institutions and corporations that depend on the commercial paper market."
This may be a helpful short term step to keep THE ECONOMY alive while the fionancial system dies. The economy still has the capibility of operating- homes are still physically standing and largely occupied, schools still educate, cars still drive on streets, grocery stores still have food, and farmers are still growing it. Trucks and trains still deliver commodities and food to wholesale and retail outlets, steel is still produced as iron continues to be mined. In short, the economy is functioning (though damaged), while the financial system is not. It is therefor the priority of congress to replace the FAILED financial system as soon as possible, and stop allowing the federal government to pretend to fix it.
"As I have long said, the housing correction is the root cause of the current financial market turmoil. We must continue to keep mortgage credit available and support the housing market, so that we can more quickly turn the corner on the housing correction. "
At www.siv0.com, www.TakeBackTheFed.com, and www.FinancialBlackmail.US, the contention is that the "housing correction" is part of the much larger $1 QUADRILLION derivative bubble. As Alan Greenspan recently said, "...The demand for them, the hedge funds, pension funds, and everybody else looked to be an exceptionally high return, exceptionally low risk, became extraordinarily large the say hedge funds puts pressure on the ... basically the investment bankers in the United States, and the security returns to the lenders say ‘we need more paper' and what they basically did, they said to the lenders effectively - although I'm sure contracts are involved - is whatever you can get we will take to securitize and the underwriting standards collapsed. I mean, the amount of egregious action was quite extraordinary..." . The housing bubble was a throw-away to save the larger, growing derivatives bubble. Not hearing the word derivative mentioned from a presumably credible Treasury Secretary is worrisome, and indicates that the federal government knows that there is no solution to the problem, but because of reasons unstated, this will be kept from the public.
"We see evidence every day that world economies and financial markets are more connected and interdependent than at any time in history."
This is exactly the argument put forth by www.siv0.com, www.TakeBackTheFed.com, and www.FinancialBlackmail.US . The difference is that either Secretary Paulson does not realize (which indicates gross incompetence) or is not stating (which indicates gross deception) that the $1 QUADRILLION gambling casino has created immense inter-connectivity throughout the world's FAILED financial system, and in fact, is likely the the very cause of the failure.
"This weekend I will be meeting with my G-7 colleagues to discuss the steps that each of us are taking to confront this crisis and ways to further enhance our collective efforts. In addition, in consultation with Brazil, the G-20 President, I am calling for a special meeting of the G20 that will include senior finance officials, central bankers, and regulators from key emerging economies to discuss how we might coordinate to lessen the effects of global market turmoil and the economic slowdown on all of our countries. "
It is STRONGLY suggested that you plan for an orderly dissolution of the current world's fiat based central banking system, started by and led by the United States. It is also strongly suggested that the topic of derivatives gambling (to the tune of $1 QUADRILLION notional) be discussed. It is clear that you do not want to let the cat out of the bag for "Joe Six-Pack", but do not expect the world's governments to follow in madness.
"While most Americans understand that economic cycles occur, we are experiencing some extraordinary and difficult challenges at home and abroad - challenges that make it clear Congress was correct to take swift and bold action, and that we have no time to waste implementing the new law."
To even imply this is even related to a normal economic cycle is insanity. The only analogous cycle is the collapse of empires and the onset of dark ages, followed by recovery. The onset of the dark age is usually because the empire is unwilling and too greedy to let go of the ill gotten gain, and unwilling to save the greater society.