Today's Stories

March 4, 2009

Marjorie Cohn
Blueprints for a Police State

March 3, 2009

Conn Hallinan
Ethnic Cleansing and Israel

Fawzia Afzal-Khan
The Long, Dark Night of Pakistan

Brian M. Downing
The Changing Game in Afghanistan

Robert Larson
External Damnation: Companies are Designed for Destruction

Daniel P. Wirt, MD
Single-Payer Health Reform

Russell Mokhiber
Burn Your Health Insurance Bill!

William Loren Katz
Obama, One Ape and Two Newspapers

Kathy Sanborn
The Lazy Man's Guide to the Economic Crisis

Pauline Imbach
A New Start for the World Social Forum?

Christopher Ketcham
The Best Journalism You'll Write is Priceless

Website of the Day
The Surveillance Self-Defense Project

March 2, 2009

Andrea Peacock
A Poisoned Town's Shot at Justice

Paul Craig Roberts
Obama's Budget

Peter Lee
Pakistan Lurches Toward the Abyss

John Blair
Locking Down Big Coal

Peter Morici
Treasury's Flawed Plan for Citigroup

Uri Avnery
10 Ways to Kill Fatah

Michael Donnelly
Resistance to the War on the Wild

Fred Gardner
The Judge Who Ruled Marijuana is Medicine

Sonia Nettnin
Middle East Medical Mission Heroes

Andrew Lehman
A New Deal for the Web

Website of the Day
Pentagon Papers II?

Feb. 27 - March 1, 2009

Alexander Cockburn
Is Nancy Pelosi Really Against War Crimes?

Harry Browne
Where the Cheats Have No Shame

Anthony DiMaggio
From Bush to Obama: Seven Years of Wartime Propaganda

Sasan Fayazmanesh
Dennis Ross and Iran: the Fox and the Chicken Coop

Mischa Gaus
The Banks' War on Workers

Felice Pace
The Economy and the Big Picture

Mike Whitney
Is Free Market Capitalism Possible Without Accountability?

Lee Sustar
Blaming the Autoworkers

Peter Lee
The Other Side of the Coin in Afghanistan

Nicole Colson
Ruining Young Lives for Profit

Roger Burbach
Et Tu, Daniel? The Betrayal of the Sandinista Revolution

Rannie Amiri
King Abdullah Has No Robes

Missy Beattie
Owning Disaster

Dave Lindorff
America's Stupid Health Care Debate

Robert David Steele Vivas
Intelligence for the President--and Everyone Else

John Ross
Teotihuacan Gets Mickey-Moused

Ralph Nader
Civic Heroism Awards

Yves Engler
Haiti's Harsh Realities

Alan Farago
The Story of Leonard Abess, Banker

Zulfikar Majid
Understanding Kashmir

David Yearsley
Don't Stay Up Too Late, Johan!

Charles R. Larson
Sleeping with Dogs

Kim Nicolini
Spitting at Dark Times: Mike Leigh's "Happy-Go-Lucky"

Lorenzo Wolff
So You Wanna Be a Garage Rock Star

Poets' Basement
Puthoff, Payne, Gaffney and Gray

Website of the Weekend
Sleep Now in the Fire

February 26, 2009

Dave Lindorff
Obama's Address to Congress

Jonathan Cook
Israel's Military Mephistopheles

Patrick Cockburn
Did the US Learn Anything in Iraq?

Mike Whitney
The Geithner Put

Eamonn McCann
"Make Bono Pay Tax"

Tim Wise
Eric Holder and the Whitewashing of Racism

Tom Barry
Napolitano's Hard Line

Harvey Wasserman
Obama's Excellent Atomic Omission

Adam Turl
The Enemies of Unions and the Lies They Tell

David Macaray
When People are Fired Illegally

James McEnteer
Rush to the Rescue: Limbaugh's Secret Plan to Save the Economy

Website of the Day
The Carbon Casino

February 25, 2009

Chris Sands
Afghanistan: Chaos Central

M. Shahid Alam
Israel in 1948: Poised for Expansion

Chris Floyd
Obama's Non-Withdrawal Withdrawal Plan

Dave Lindorff
Wall Street and Bernanke: the Blind Leading the Blind

Norman Solomon
The Slow Pullout Method

Rachel Godfrey Wood
Neoliberals Do The Amazon

Niranjan Ramakrishnan
Teacher and Student: the New Class Struggle

Ron Jacobs
It Ain't Over Till It's Over

Nadia Hijab
The First Waltz

Dennis Loo
The Water Line

Website of the Day
Hitchens Gets Stomped by Syrian Nerd

February 24, 2009

Paul Craig Roberts
How the Economy was Lost

Uri Avnery
Coalition Theory

Peter Morici
Is Nationalization Inevitable?

Jonathan Cook
Arab Parties Face Most Hostile Knesset in History

Paul Fitzgerald /
Elizabeth Gould
The Man Who Shouldn't be King (of Afghanistan)

Andy Worthington
Who is Binyam Mohamed?

Brian Horejsi
Crisis Creates Hope for Reality

Julia Stein
I was a Writer for the Government

Norm Kent
How Judges Disgrace the Bench

Rachel Smolker /
Brian Tokar
Biofuels, Promise or Threat?

Dennis Loo
The Water Line: Doing What Must be Done

James McEnteer
The Oscar for Denial

Website of the Day
How to Destroy a Fox News Anchor

February 23, 2009

Michael Hudson
The Language of Looting

Mike Roselle
On Cherry Pond: Going Up Against Big Coal in W. Virginia

Patrick Cockburn
The New War in Iraq

Franklin Spinney
Obama Steps on the Pentagon Escalator

Einar Már Guðmundsson
A War Cry From the North

Ralph Nader
How Credit Unions Survived the Crash

Jordan Flaherty
A New Orleans Intifada?

Helen Redmond
Ted's Table: Kennedy and the Corporate Lobbyists Craft a Health Plan

Dennis Loo
The Water Line

Harvey Wasserman
Jet Crashes and Nuclear Reactors: Feds Ignore a Serious Risk

Terry Lodge
The Intelligence is Wrong

Website of the Day
BadCreditReport.Com

February 20 / 22, 2009

Alexander Cockburn
The Lawyer's Tale

Michael Neumann /
Osha Neumann
Remove Our Grandmother's Name from the Wall at Yad Vashem

Ismael Hossein-zadeh
Herbert Hoover Copycats

Paul Craig Roberts
Bill of Rights Under Fire

Linn Washington Jr.
The NY Post's Chimpanzee Cartoon

Saul Landau
On the Road Again

Marjorie Cohn
War Criminals Must be Prosecuted (And Their Lawyers Too)

Binoy Kampmark
Cricket and Cartels: the Fall of Sir Allen Stanford

Dave Lindorff
Using the Recession to Hammer Workers

David Yearsley
Edward Said's Greatest Musical Writings

David Macaray
A Closer Look at the Employee Free Choice Act

James McEnteer
Last Mambo in Minnehaha

Rick Salutin
A Canadian Looks at Obama

Wayne Clark
South Carolina Nears the Abyss

Richard Rhames
Got Farms?

Stephen Martin
Silver Mist Descending

Mitu Sengupta
Slumdog Millionaire's Dehumanizing View of India's Poor

Charles R. Larson
Slumdog Reality?

Richard Morse
Carnival Ramble in Haiti

Lorenzo Wolff
Desperation in an Unavoidable Groove

Poets' Basement
Three Poems of Tu Fu (Trans. K. Rexroth)

Website of the Weekend
Ron Paul: What If the People Wake Up?

February 19, 2009

Norman Finkelstein
The Cleanser: Lobbyists Whistle Up Cordesman to "Prove" Israel Waged a Clean War in Gaza

Harry Browne
How Ireland Went Bust

Robert Bryce
Why the Promise of Biofuels is a Lie

Brian M. Downing
The Winding Road: From Western Europe to Kyrgyzstan

Fred Gardner
The DEA Chief's $123,000 Flight

Andy Worthington
Obama's Uighur Problem

Wajahat Ali
Aftermath of a Beheading

Laura Carlsen
A New Attitude at the White House Toward Bolivia and Venezuela?

Deb Reich
Gaza: Choose Life!

Christopher Ketcham
Crisis? What Crisis?

Website of the Day
Taking Back NYU

February 18, 2009

Paul Craig Roberts
President of Special Interests

Mike Whitney
Trouble at Treasury

M. Shahid Alam
Afghan Pitfalls

Patrick Cockburn
A Real Surge at Last

Conn Hallinan
Death's Laboratory

Dave Lindorff
Whatever Happened to Antitrust?

Rannie Amiri
The Perils of Blogging in Egypt

Gareth Porter
Pushing Back Against Petraeus on Pullout Risks

Eric Hobsbawm
Remembering V. G. Kiernan

Christopher Brauchli
The Pope's Predicament

Martha Rosenberg
It's the Cymbalta Stupid

Website of the Day
Red Gold

February 17, 2009

Michael Hudson
The Oligarchs' Escape Plan

Mike Whitney
The Global Ditch

Ralph Nader
The One-Dimensional Congress

Joanne Mariner
Benchmarking Obama: How to Evaluate the New Administration's Counter-Terrorism Policies

John Ross
Commodifying the Revolution: Zapatista Villages Become Hot
Tourist Destinations

Belén Fernández
The Venezuelan Referendum From the Back of a Pickup Truck

Mats Svensson
Who is a Terrorist?

David Macaray
Why America Needs Labor Unions

Gregory Vickrey
$400 in Change

M. Junaid Levesque-Alam
Another Hamastan?

Michael Dickinson
Unrest in Istanbul

Website of the Day
Take a Stand for Open Access

February 16, 2009

Patrick Cockburn
Iraq Reconstruction: the Greatest Fraud in US History?

Oscar Guardiola-Rivera
The Truth About Colombia's New Emperor

Paul Craig Roberts
Who Remembers Guns and Butter?

Uri Avnery
Livni's Bitter Options

P. Sainath
The Meltdown: Whose Crisis Is It?

Dedrick Muhammad / Michael Brown
White Recession, Black Depression

Carla Blank
A New New Deal for the Arts

Patrick Irelan
Venezuela Ends Term Limits

Dan Bacher
Is Delta Pumping Driving Salmon and Orca Decline?

Fidel Castro
Chavez's Clarion Call

Harvey Wasserman
Hail to the Spleef: Did George Washington Smoke Pot?

Website of the Day
Mining Black Mesa

February 13 - 15, 2009

Alexander Cockburn
On the Rocks

Joshua Frank
The Myth of Clean Coal

Mike Whitney
Geithner's Coming Out Party

George Ciccariello-Maher
Venezuela's Term Limits: More Hypocrisy From the NYT

Nikolas Kozloff
Venezuela Beyond the Referendum

Brian M. Downing
Pakistan on the Brink

Paul Craig Roberts
Deficit Nonchalance

Christopher Ketcham
Israel's Ball Boys

Ron Jacobs
At a Campus Sit-In Against Israeli Occupation

Dave Lindorff
Why Can Judd Gregg See What Obama Can't?

Alan Maass
Lincoln at 200

Chuck Spinney
Grassley Sounds Off on Obama's Man at the Pentagon

Phil Gasper
Mr. Darwin's Reluctant Revolution

Stephen Lendman
A Short History of Business Handouts

Charles Thomson
Tate Cruises: Caveat Emptor on the High Seas

Kathy Sanborn
The Suicide Rush

Saul Landau
Bowled Over

Len Wengraf
The Nightmare in Somalia

Harvey Wasserman
Striking a Blow Against Nuclear Power

David Macaray
An Easy Call for Obama on Joining a Union

Tom Stephens
Four Freedoms, Four Changes

Seth Sandronsky
Lincoln and the Collective Mind

David Yearsley
On the Road Again

Lorenzo Wolff
Freaking Out With Danny Barnes

Kim Nicolini
The Body of the Worker: What "The Wrestler" Says About the State of America

Poets' Basement
Anderson, Buknatski and French

Website of the Weekend
The Iranian Revoution and the US Dual Containment Policy: a Presentation

March 4, 2009

How Securitization Lit the Fuse

Blowing Up the Economy

By MIKE WHITNEY

"Nothing we do for banks is for banks. It's all for the benefit of the people that depend on banks -- the businesses, the families, the students -- that require credit in order to do things that are important to their future."

--Treasury Secretary Timothy Geithner, PBS Jim Lehrer News Hour

This isn't a normal recession. In a normal recession aggregate demand declines, economic activity slows, and GDP shrinks. While those things are taking place now, the reasons are quite different. The present slump wasn't brought on by a downturn in the business cycle or a mismatch in supply and demand. It was caused by a meltdown in the credit system's central core. That's the main difference. Wall Street's credit-generating mechanism, securitization, has broken down cutting off roughly 40 percent of the credit that had been flowing into the economy.  As a result, consumer demand has collapsed, inventories are growing, and manufacturing has contracted for the 13th consecutive month. The equities markets are in freefall and all the economic indicators are pointed south. The so called "shadow banking system" which provided wholesale funding for mortgages, car loans, student loans, and credit card debt, has stopped functioning entirely.

Journalist David K Richards describes the modern credit system in his article "Humpty Dumpty Finance":

"To begin, it is important to recognize how Wall St. has transformed the bank-based credit system, which existed in the 1930's and prevailed until the mid-1990's, into the 'modern' securities-based credit system we have today. Non-bank sources currently supply more than half the credit needs of businesses and consumers. This transformation in the way credit is supplied has made it difficult for the Federal Reserve to reignite credit growth through massive expansion of the Federal Reserve balance sheet, which was the supposed 1930's style antidote. The old-style banking system, in which banks kept the loans they made on their balance sheets, would have responded quickly to Bernanke's interest rate cuts and aggressive injections of excess reserves. But banks today no longer keep most of the credits they underwrite on their own balance sheets, nor do they keep them in the form of individual loans. Instead, banks gather credits together to form asset-based or mortgage-based bonds which they then distribute or sell to pension funds, insurance companies, banks, hedge funds, and other investors worldwide. ("Humpty Dumpty Finance" David K Richards, Huffington Post)

This new "securities-based" credit system emerged almost entirely in the last decade and had never been stress-tested to see if it could withstand normal market turbulence. As it happens, it couldn't survive the battering. The market for mortgage-backed bonds and other securitized investments disintegrated at the first whiff of grapeshot. As soon as subprime foreclosures began to rise, investors fled the market en masse and securitization hit the canvas. Now the wholesale funding for MBS and other consumer loans has slowed to a trickle. That means that housing prices will continue to crash dragging the stock market behind it.

The Fed and Treasury are determined to revive securitization. They're planning to provide $1 trillion for the so-called "public-private partnership" and the Term Asset-Backed Securities Loan Facility (TALF). The money is a taxpayer-provided subsidy for a deeply-flawed system which is inherently unstable. Consider this: subprime mortgages were only defaulting at a rate of  6 percent when the entire market for securitized investments folded like a house of cards. The Fed and Treasury are wasting their time trying to fix a dysfunctional system instead of focusing on debt relief for underwater homeowners and struggling working people. That's where the money needs to be spent

It's no surprise that the banks were big players in the securitization racket. Converting mortgages and other debts into securities has many perks including transfer of risk, a reduction in funding costs, lower capital requirements and additional liquidity. Banks can actually create a security and then sell it to itself at a profit in what amounts to an "in house" transaction. There are also considerable benefits from maintaining off-balance sheets operations which, through the magic of modern accounting, allow loans to be held as assets that don't require the same capital reserves as conventional mortgages. All this sleight-of-hand increases the amount of credit that banks can balance on smaller and smaller morsels of capital.

The financial sector now represents 40 percent of GDP, which is to say that the exchange of paper claims to wealth is the driving force behind economic growth. The production of useful things, that actually improve people's lives and raise the standard of living, has been replaced by the trading of complex debt instruments and opaque derivative contracts. Securitization is at the very heart of Wall Street's Ponzi-finance scam. It creates profits by transforming liabilities into "cash flow" which can be sold at market. Bottom line: Factories and manufacturing are out. Toxic paper and garbage loans are in.

As ringleader of the banking fraternity, the Federal Reserve has a big stake in securitization and would like to see it succeed.  Bernanke's job is to provide the liquidity and capital that's needed to put the credit markets back in order. To that end, Bernanke has spared no expense to underwrite all of the toxic loans which have presently brought the financial system to its knees. According to Bloomberg:

"The U.S. government has pledged more than $11.6 trillion on behalf of American taxpayers over the past 19 months, according to data compiled by Bloomberg.  Changes from the previous table, published Feb. 9, include a $787 billion economic stimulus package. The Federal Reserve has new lending commitments totaling $1.8 trillion. It expanded the Term Asset-Backed Lending Facility, or TALF, by $800 billion to $1 trillion and announced a $1 trillion Public-Private Investment Fund to buy troubled assets from banks.  The U.S. Treasury also added $200 billion to its support commitment for Fannie Mae and Freddie Mac…” (Bloomberg News)

There's literally no end to the Fed's generosity when it comes to providing for its friends on Wall Street. Only a small portion of Bernanke's largesse was bestowed with proper congressional authorization. Bernanke simply doesn't care if the public sees him as the unelected oligarch that he really is.

Securitization soared between 2003 and 2006 when US current account deficit skyrocketed to nearly $800 billion per year. That's when "America's banks discovered that they could borrow money cheaply from Asia and lend it out in higher-yielding domestic mortgages while using sophisticated financial engineering to wall off and strictly control their risks."(Brad Delong) The US was consuming $800 billion more per year than it was producing, but the damage remained invisible because foreign governments and investors were recycling their savings back into US Treasuries, GSE bonds (Fannie Mae), and mortgage-backed securities (MBS). It was a windfall for Wall Street that put the investment banks and hedge funds deep in the clover. A number of  economists sounded the alarm, saying that the burgeoning account imbalances were unsustainable, but the business media just brushed them off as Chicken Littles. Now, foreign investment has slowed, the credit markets are frozen, real estate is retreating and $40 trillion of wealth has drained from the global equities markets. The tremors from Wall Street's mortgage-laundering swindle have rippled through the broader economy causing an unprecedented contraction in retail, imports, durable goods, transports, high tech, electronics, and cyclicals. The unemployment roles have mushroomed while asset prices have continue to plummet. The Dow has dropped 54 percent from its peak and is sliding inexorably towards 6,000. Pessimism abounds.

The economy is now caught in a deflationary downdraft. The sharp decline in asset prices is making it more difficult for businesses to roll over loans. Without financing, tens of thousands of businesses will  default. Bernanke assumed it would be easy to reflate the bubble economy by increasing the money supply. Now he knows he was wrong; the printing presses haven't worked. The Fed's trillions are sitting in stagnant pools on bank balance sheets rather than churning through the credit markets. Monetary policy has failed; velocity is down and capital injections have not stabilized the financial system.

The TALF and "public-private partnership" is just more grasping at straws; another attempt to stop the debt deflation by trying to rev up securitization. It won't work. Bernanke and Geithner still don't understand the main problem, which is the explosion of private debt. Consumers are tapped out and easy credit won't help. Homeowners just lost 28 percent of their home equity in the last two years and more than half of their retirement (401K). They are much poorer than they thought and they need to increase their savings fast. What most people need is a reduction in the face value of their mortgage and a write down on their other main debts. Otherwise they will be forced to curtail spending and circle the wagons. That will trigger an even more precipitous decline. Have Bernanke and Geithner even considered how long the recession will last if the savings rate continues to rise at its present pace? 

Until the two Bears Stearns hedge funds defaulted 19 months ago, securitization had been Wall Street's most reliable source of revenue; a real cash cow. It was the main reason that total mortgage debt jumped from $4.5 trillion in 1999 to $11 trillion in 2006; more than double in just 7 years.  At the same time, the asset-backed securities (ABS) market, which packaged other types of business and consumer debt into securities, shot up by more than 500 percent to $4.5 trillion. Securitization turned out to be the Mother Lode. The torrent of surplus capital from the savings glut in the Far East (as well as "yield seeking" insurance companies, retirement funds and investment banks) turned mortgage-backed securities and other structured investments into a multi-trillion dollar industry. The process recycled revenue to mortgage originators where low interest rates and lax lending standards kept the volume of MBS high, but the quality low. It's clear now, that securitization created incentives for fraud by transferring credit risk from the originator of the loan to the investor. The originator makes his money on the volume of securities sold; the quality of the underlying mortgages is secondary.  This week, the Wall Street Journal reported that 7 out of 10 subprime mortgages vintage 2006 will default. The failure rate proves that the system had deteriorated into little more than a scam.

It was securitization and the 25 to 1 leveraging of toxic assets at the hedge funds, investment banks and private equity firms, that brought on the current financial crisis. When trouble broke out in the subprimes, the secondary market shut down, and the flow of credit from nonbank financial institutions dried up. Unfortunately, the real economy has become addicted to easy credit and sky-high asset prices. Now that the bubble has burst, the phony prosperity of the Bush years has been wiped out in one fell swoop. The stock market has plunged to its 1996 level and housing prices are returning to the mean. The question now should be, do we really want to restore a crisis-prone credit-generating system (securitization) by providing a $1 trillion subsidy to profit-oriented hucksters who are largely responsible for the current recession?

As Barack Obama stated last week, "Credit is the economy's life-blood". It should distributed through government-owned and regulated financial institutions that operate as public utilities. Credit is everyone's business. It shouldn't be controlled by speculators.

Mike Whitney lives in Washington state. He can be reached at fergiewhitney@msn.com

Now Available from CounterPunch Books!

Waiting for Lightning
to Strike:
The Fundamentals
of Black Politics
Kevin Alexander Gray

Click Here to Buy!

Click Here to Buy!

The Inside Story of the Shannon Five's Smashing Victory Over the
Bush War Machine
By Harry Browne

Born Under a Bad Sky:
Notes from the Dark Side
of the Earth
By Jeffrey St. Clair

Buy End Times Now!

Click Here to Buy!

Click Here to Order!

Humanitarian Imperialism
By Jean Bricmont