Meltdown Inevitable As Ultimate Bush43 Legacy

Meltdown of the financial sector in late 2008 in the days leading up to the election of the successor to the fiasco presidency of Bush 43 is the logical conclusion and ultimate legacy of the Bush Administration and its policies of secrecy, blind ideology and crony-incompetence. The attempt to prevent full disclosure and open investigation continues to fuel panic and extend the crisis without limit.

Ultimately, this meltdown is simply the personality of Bush43 finding its expression as the background of the entire American nation during his presidency: A lack of any awareness or concern for human relationships or institutional background, grounding or traditions combined with a self-perpetuating momentum feeding upon itself with an emphasis upon Creative Genius for Various Alternatives highlighting What is In this For ME. All of this whirlwind feeding upon itself until The Rising Son >> Falls In.

There could be no let up in this financial meltdown until someone else occupied the presidency. McCain has always been part of the problem in terms of the scams and tricks of deregulation and elite profiteering and lacks any grasp of what is even going on! Objectively, the situation is simple and its causes clear from the logical realities involved. Unregulated markets given unfettered license and global leverage will create an illogical bubble that will grow until the extent exceeds the scope of available funds. This mortgage credit bubble was given the secrecy to expand to at least triple total world GDP without any underlying capital at all!

Only the presidency of Bush43 could all for such a humungous orgy of excess. Although many of the roots of this meltdown go back before 2005, it was only after the re-election of Bush43 that the stage was set for the complete and total license of his fundamental character to spin itself out through the economy.

It was simply the Sorcerer’s Apprentice left on his own in the dark to run amok. Nothing could be done to stop or even slow down the train wreck since secrecy was considered a sacred right of the financial titans involved. The attitude prevailed they were too well-connected and too important to fail—so when the meltdown eventually occurred, like the S&L crisis of the ‘80’s the fraud would go unpunished and the taxpayer would pay the cost. As was the case with Bush43 brother Neil in that scandal.

If the bubble could have been kept going through the election and used to fund a McCain victory that is exactly what would have happened. However, the modern global economy with instant reactions spread the news and the panic too fast to keep the bubble going through November when the major collapses began in July.

Secrecy is great for allowing toxic assets to be brewed and marketed as being magical derivatives better than gold with great interest rates and absolute insurance through even more secret and unregulated credit default swaps. The most conservative reserves of major banks, government entities and inside investors with loaded with these toxic assets no one understood, questioned or worried about as they offered the best hype and promised the best returns and interest rates.

Once some naivete mentioned the emperor was not clothed in gold, but naked, then the market recoiled and all these toxic assets became unmarketable as no one could figure out a price or discount that would work. Once the market rejected them, then major banks ceased to have hundreds of billions of dollars of assets and the fear arose they would go bankrupt. When Lehman Bros. did go into bankruptcy, taking many millions of perfectly good financial instruments into limbo, no one in the market would trust that anyone the loaned money to, even overnight, would be there to repay the loan in the morning.

Once the news of the largest financial institutions going under broke, the secrecy bred rumors. The rumors couldn’t be eliminated since they had a larger kernel of truth that anyone dared to admit. This gave rise to paranoia, turned the dominant market sentiment from greed to share in the upside of the bubble momentum into fear of being caught in the collapse of the bubble.

All possible attempts were made to keep things under wraps and the bubble shrouded in secrecy. This had the effect of spreading doubt until it grew to true panic and global meltdown. Would any specific financial institution survive to pay back even the shortest term loan agreement? No one knew. It was only when the entire global credit market seized up and froze solid that the existence of any crisis was admitted. Once admitted that there was a problem, the continued secrecy about exactly how terrible it was turned doubt into paranoia to true market meltdown in an old style financial panic forgotten about since the reforms after the Great Depression.

The detail that those reforms were eliminated to spur the upside of the bubble was never even considered. Now that the market has begun to meltdown, just how bad things got after the Great Crash of ’29 will have to be relearned. The current Fed Chairman is an academic who spent his career studying how the mistakes of the Fed after that crash brought on the Great Depression and the global rise of Fascism. Academics follow what history says happened and speculate upon how that historical scenario could have been different.

How things will unfold when you recreate a newer and more extensively leveraged repeat of those conditions is beyond academic understanding. The situation in 1929 was clear and well-known. The comments in Time Magazine at the time stated that the bubble burst as all the smart money knew it must, but expected there would be a return to normal financial functioning very soon. The fact that the stock market continued to slide for years took the insiders by surprise.

That is what has been recreated; Hoover style free-market laissez faire with the suspicion that workers are really to blame by still demanding better wages although they should take more of the loss than their betters. This thinking continues today and is clearly seen the original Paulson, 3-page bailout plan and the attitudes of the AIG executives in Congressional Hearings. They may never ‘get it’ and now nothing will improve until they are deprived of any power to cling to their status quo and prevent any general solution that will bring them only justice and punishment.

Analysis of the Bush43 reality that caused the meltdown

The real history of this
myth-based credit meltdown

The Clinton administration had made a reform, trying to outlaw redlining or the discrimination against perfectly credit worthy minority homeowners and communities. Traditionally, the highest profits were taken from the limited options available to the minority neighborhoods and residents. How could the financial sharpies evade the law demanding just treatment for all neighborhoods to find excess profits to replace the general decline in the total economy?

The mechanism had been developed to process any loan generating an income stream into a security as part of a pool of securities which could be processed to make some tranches or slices of the entire pool more secure than other subordinate portions. By 2003 Congress was holding hearings into the abuses of predatory lenders and the advocates of these MBS or mortgage backed securities were testifying how important they were to enable extensive investor involvement that would allow lenders to originate many more loans and thus assist in the extension of home ownership.

As the process of creating MBS expanded into the only highly profitable financial arena, questions of possible risk were answered by mathematical magic. Sophisticated mathematical physics algorithms were used to generate hundreds of pages of financial contract which claimed to eliminate risk and turn home mortgage loans into AAA investment grade real estate asset back securities to be sold for cash to all the most conservative major financial institutions in the world. When doubts continued, since no one could figure out what exactly was the original mortgage content of these mathematical mazes, a form of mortgage insurance developed called Credit Default Swaps (CDS).

Although developed and sold as mortgage insurance they had to be called something else since such insurance was highly regulated and under close oversight. This new entity the CDS was quite secret and without any regulation at all. The fees were good on them and the commissions to sell them were high. The biggest names on Wall St. issues scores of trillions of dollars of these instruments for great profits as the financial sector become the bright spot of the economy, singlehandedly supplying the GDP growth statistics to offset the general loss of manufacturing jobs and the rest of the domestic economy.

The sales of these magically engineered MBS with the additional safeguards of the best names on titles of the CDF soared without limit, oversight, regulation or limitation. The names involved were ‘too big to fail’ and the profits and commissions were too attractive to not plow full speed ahead. However, the deterioration of the wage base of the United States resulted in loss of middle class income which made mortgage defaults soar. This generated foreclosures and mortgage losses that encouraged even more and more profitable sales of Credit Default Swaps.

As the number of available mortgage applicants slowed down, but mortgage rates were being held low to keep the economy seeming to remain sound (admitting a slowing economy was politically unpalatable and personally distasteful for the Bush Administration) new mortgage applicants were sought. NINJA loans (No Income, No Job or Assets) to anyone that could be recruited to apply were all the rage. Many of these loans went into default as soon as the first payment came due. However, nothing was done to restrict the boom.

Any disclosure would expose hundreds of trillions of dollars of nearly worthless paper that had been fraudulently sold and foolishly bought by the biggest, most reputable and best connected firms in the world. The foreclosure crisis accelerated and the torrent of defaulted mortgages began to interfere with housing valuations. The bubble was burst in an explosive collapse of housing values. First, suspicions of losses in the financial sector began to fuel market runs against those firms known to have vast exposure.

Individual firms were taken over and it was hoped that the crisis could be contained by just quietly seizing individual firms that got caught with their balance sheets loaded with more worthless paper than they had capital backing. Then the major investment banks got caught. They had lobbied was special permission to extend their leverage to 40 times their capital to allow scores of billions of dollars of new fees, commissions and profits to swell their share price.

As the bubble burst and the meltdown in financial stocks accelerated the sums required to maintain investor confidence exceeded even the largest private capital available. The first round of the Paulson bailout proposal was a three page outline of getting a $700 blank check of taxpayer National Debt funds for the secret, unaccountable use of the former CEO of Goldman Sachs to transfer these now questionable toxic assets out of the balance sheets of the Investment Banks and major insurance houses.

Congress refused to play along and the market meltdown expanded and intensified as various major players went under one way or another. The ultimate problem was that these toxic assets were developed in secret and could not bear being brought out into the sunlight. If not bought at face value and secretly hidden in the Federal Treasury until the next administration an even more horrible and extensive meltdown in all the financial markets of the world would ensue.

The Paulson plan was modified to a system with regulation, oversight and transparency that would create an open market to value these toxic assets and buy them for their discounted value along with ownership of the firms that were sinking under them and hold them for future profitable sale by the Treasury. Once that became the reality, became impossible for so much as a single toxic asset to be bought until after the election. Any honest re-evaluation of a single value would, by the mark-to-market accounting rule, require all other assets of that class to take that discount and be declared as a loss by all firms holding them.

The whole point of it all was to avoid admitting how totally the capital reserves of the world had been raided and destroyed by this scam. Unable to admit the full truth, unwilling to expose specific firms no longer solvent, the situation generated a general credit meltdown. Enough firms had suddenly gone under trapping all those who held any of their paper that no one was willing to lend anything to anyone without an absolute guarantee from the Federal authorities.

Hung upon a true Cross of Gold now turned into toxic Mortgage Based Securities and Credit Default Swaps, the market meltdown is in full swing. Business can not continue without credit. Those who had cash reserves were holding them tight looking to pick up great bargains as the rest of the market meltdown forced asset deflation—the forced sale for cash at pennies on the dollar just to get something to pay required debts and avoid bankruptcy. The election season guarantees a standoff with the world economy and financial institutions held hostage while the scammers and thieves desperately try to make a getaway somehow.

Where does the meltdown go from here? Iceland is going broke; the major banks of the world are requiring major government bailouts. However, until the losses are exposed in public and the fallout of that lack of net capital admitted, no one will dare extend credit to anyone without absolute government security. The Fed and FDIC are pumping out hundreds of billions of dollars on their own authority without any concern for how this will be paid for eventually. The meltdown crisis is fueled by the need to try to evade exposure during the presidential election campaign.

Yet this continuing secrecy, lack of exposure and ongoing collapses with great losses of various highly respected firms is creating a general panic that is fueling an ever expanded meltdown. There are two endgames in the works now. The first is a credit meltdown taking down the business and economy of the world. The second is the eventual realization that the exposure, investigation and punishment of all those involved can not be avoided in the next administration. The combination increases the desperation of the criminals knowing their fate is getting uglier daily so they are resisting all the more forcefully. Only when everything breaks, the meltdown becomes true panic with total capitulation into the market can anything unwind.

Looking at the timing patterns shows clearly this will continue to get worse through the 79th anniversary of the Great Stock Market Crash of ’29 and culminate on the 3rd of November with the presidential election of 4 November 2008 being the first sign of relief. If McCain wins, the relief will be the continued influence of the Wall St Lobbyists and Republican free-market ideologues against the total fury of the world population. If Obama wins, the relief will be that the great change is indeed achieved and a channel for popular fury and middle-class renewal can be built at last.

McCain and general Conservative Republican ideology is as much in meltdown as the financial institutions, world markets and credit sources. There is no organized resistance, so not even military occupation would do any good. The economy is just coming to a grinding halt. There is no power solution to that disorganized general strike. It is economic failure that has ended the major right-wing tyrannies of recent times. They can not keep normal business or social activity going and thus must let go and leave the political stage.

True Meaning Found
Through Myths

This financial meltdown is explained best through the myth of the Emperor’s New Clothes. The wealth of the financial institutions of the world were exchanged for these scam mortgage backed securities and naked credit default swaps. They were scams since they claimed to be mortgages upon U.S. homes with appreciating free market prices but that was a lie. Technically, property is not the actual tangible thing, such as a house, by definition “property” is only the legal instrument such as a deed that controls the object of property or the actual house.

With MBS (Mortgage Backed Securities or now massive BS) the legal instrument underlying the security were these hundred pages of mathematical magic allocating pieces of the expected income stream at various times to these securities. There is no clarity at all to know what actual value is there—which is why no one wants to buy them. Any sale except at face value would force admission of the loss which would show everyone who owned these assets to now be insolvent. Secrecy is the order of the day. Secrecy prevents free market valuation. The result is that the markets are frozen until this is resolved which requires admission that the Bush Administration presided over the most extensive scam to allow sharpies to raid the financial reserves of the top quality financial entities of the world, spend them on their own upscale extravagance keeping the national economic stats glowing and the GDP growing while the rest of the economy deteriorated from not benign but rather malignant neglect.

The Credit Default Swaps (CDF) were Naked in the sense that they had no actual capital behind them to pay for actual defaults. They were titled with the 5 massive investment banks of global renown, but they far exceeded any capital of even the U.S. or the world as more and more were issued at ever higher profit to avoid allowing the MBS to be dumped onto the open market and exposed.

The Emperor's New Clothesby Hans Christian Anderson

Once upon a time there lived a vain Emperor whose only worry in life was to dress in elegant clothes. He changed clothes almost every hour and loved to show them off to his people.

Word of the Emperor's refined habits spread over his kingdom and beyond. Two scoundrels who had heard of the Emperor's vanity decided to take advantage of it. They introduced themselves at the gates of the palace with a scheme in mind.

"We are two very good tailors and after many years of research we have invented an extraordinary method to weave a cloth so light and fine that it looks invisible. As a matter of fact it is invisible to anyone who is too stupid and incompetent to appreciate its quality."

The chief of the guards heard the scoundrel's strange story and sent for the court chamberlain. The chamberlain notified the prime minister, who ran to the Emperor and disclosed the incredible news. The Emperor's curiosity got the better of him and he decided to see the two scoundrels.

"Besides being invisible, your Highness, this cloth will be woven in colors and patterns created especially for you." The emperor gave the two men a bag of gold coins in exchange for their promise to begin working on the fabric immediately.

"Just tell us what you need to get started and we'll give it to you." The two scoundrels asked for a loom, silk, gold thread and then pretended to begin working. The Emperor thought he had spent his money quite well: in addition to getting a new extraordinary suit, he would discover which of his subjects were ignorant and incompetent. A few days later, he called the old and wise prime minister, who was considered by everyone as a man with common sense.

"Go and see how the work is proceeding," the Emperor told him, "and come back to let me know."

The prime minister was welcomed by the two scoundrels.

"We're almost finished, but we need a lot more gold thread. Here, Excellency! Admire the colors, feel the softness!" The old man bent over the loom and tried to see the fabric that was not there. He felt cold sweat on his forehead.

"I can't see anything," he thought. "If I see nothing, that means I'm stupid! Or, worse, incompetent!" If the prime minister admitted that he didn't see anything, he would be discharged from his office.

"What a marvelous fabric, he said then. "I'll certainly tell the Emperor." The two scoundrels rubbed their hands gleefully. They had almost made it. More thread was requested to finish the work.

Finally, the Emperor received the announcement that the two tailors had come to take all the measurements needed to sew his new suit.

"Come in," the Emperor ordered. Even as they bowed, the two scoundrels pretended to be holding large roll of fabric.

"Here it is your Highness, the result of our labour," the scoundrels said. "We have worked night and day but, at last, the most beautiful fabric in the world is ready for you. Look at the colors and feel how fine it is." Of course the Emperor did not see any colors and could not feel any cloth between his fingers. He panicked and felt like fainting. But luckily the throne was right behind him and he sat down. But when he realized that no one could know that he did not see the fabric, he felt better. Nobody could find out he was stupid and incompetent. And the Emperor didn't know that everybody else around him thought and did the very same thing.

The farce continued as the two scoundrels had foreseen it. Once they had taken the measurements, the two began cutting the air with scissors while sewing with their needles an invisible cloth.

"Your Highness, you'll have to take off your clothes to try on your new ones." The two scoundrels draped the new clothes on him and then held up a mirror. The Emperor was embarrassed but since none of his bystanders were, he felt relieved.

"Yes, this is a beautiful suit and it looks very good on me," the Emperor said trying to look comfortable. "You've done a fine job."

"Your Majesty," the prime minister said, "we have a request for you. The people have found out about this extraordinary fabric and they are anxious to see you in your new suit." The Emperor was doubtful showing himself naked to the people, but then he abandoned his fears. After all, no one would know about it except the ignorant and the incompetent.

"All right," he said. "I will grant the people this privilege." He summoned his carriage and the ceremonial parade was formed. A group of dignitaries walked at the very front of the procession and anxiously scrutinized the faces of the people in the street. All the people had gathered in the main square, pushing and shoving to get a better look. Applause welcomed the regal procession. Everyone wanted to know how stupid or incompetent his or her neighbor was but, as the Emperor passed, a strange murmur rose from the crowd.

Everyone said, loud enough for the others to hear: "Look at the Emperor's new clothes. They're beautiful!"

"What a marvelous train!"

"And the colors! The colors of that beautiful fabric! I have never seen anything like it in my life!" They all tried to conceal their disappointment at not being able to see the clothes, and since nobody was willing to admit his own stupidity and incompetence, they all behaved as the two scoundrels had predicted.

A child, however, who had no important job and could only see things as his eyes showed them to him, went up to the carriage.

"The Emperor is naked," he said.

"Fool!" his father reprimanded, running after him. "Don't talk nonsense!" He grabbed his child and took him away. But the boy's remark, which had been heard by the bystanders, was repeated over and over again until everyone cried:

"The boy is right! The Emperor is naked! It's true!"

The Emperor realized that the people were right but could not admit to that. He though it better to continue the procession under the illusion that anyone who couldn't see his clothes was either stupid or incompetent. And he stood stiffly on his carriage, while behind him a page held his imaginary mantle.

The luxurious fabric, gold thread and gems were sold to keep the insider group, not just two scoundrels but an entire financial sector rich beyond their wildest dreams and their excesses became the focus of the entire national economy. When any community is prancing around naked while pretending they are very fashionable dressed, strange things happen in that mix of knowing wrong doing, fraud and secret licentiousness.

Everything is being done to avoid admitting the truth, exposing the weird misconduct and accepting responsibility, adding the names Morgan Stanley, Goldman Sachs, AIG, etc to the list of Tyco, Enron, etc. However, only full disclosure will allow the credit freeze to unthaw and the meltdown to subside. This puts extraordinary pressure as the Bush Administration and Conservative Republicans are caught between the ongoing election campaign and the constant meltdown of the financial markets worldwide.

Or in the alternative, the homely story of the kids running a lemonade stand in a wealthy suburb allows folks to see what the scam was all about. A group of kids get together with borrowed card table, drink powder, Dixie cups, a garden hose, and computer graphic signs to run a simple lemonade stand in their neighborhood after school and on weekends. They clear $1.00/day net profit and have $30/month free and clear.

Their older siblings who also want to play together with a bit of liquid cash talk the younger ones into letting them open a business for them and negotiate with the local bank. The young adult siblings figure they will manage to take for themselves enough cash to play poker with something more interesting than just chips. They don’t care about the work of the little ones or their business really, they just want to print up securities certificates on their computer and play poker with their peers.

At the bank they learn the magic of capitalization rates. Depositing $30 each month for a month of two creates an income stream from the lemonade stand business. The interest rate in their account is 2% per annum. The certificates for this business income stream become a capitalized security equal in market value to the same lump sum cash that would also produce $30/month income stream. That is they annualize their income and divide it by the interest rate or $30 x50 x12 for a grand total of $18,000.

How does $60 earned from a neighborhood lemonade stand turn into $18,000 bank security? The key is the sleight of hand of dividing by the low interest rate to give a mathematical result that is then interpreted as and amount of capital. The problem is the quality of the earnings, that is, although $18,000 hard cash would also generate $30/month income, there is only a symbolic mathematical connection between the lemonade stand and the cash currency.

However, the banker put the $18,000 on his books as a loan with the business ownership security certificates as collateral. The bank collects interest upon this $18,000 as the older kids take cash out to play with amongst themselves. Everyone is very happy with their success. The younger kids keep working away; though find there are many difficulties to running a business and having to clear $1 each and every day. Some days they are given a dollar from kindly relatives, some days they take a dollar from some friendly adult’s purse to make the payment required by their older siblings who are now indulging in their own excesses.

The local banker hears that the bank auditor will be coming for the regular quarterly audit soon. He needs to get the securities backing up his $18,000 loan to the neighborhood teens out of his vault and replaced with cash. Turns out he has dozens of similar certificates from other local enterprises of the same dubious quality. He buys a fancy mathematical computer program that spews out hundreds of pages of complex math and says it has turned these assets into mathematically guaranteed guilt-edged business securities.

These new securities are then sold to investors by his relative who is with the local branch of a major investment house. As neighborhood securities of a fine community with a median income in the top range of U.S. suburbs they sell well to financial salesmen who want an edge in becoming the family investment advisor to the kids’ wealthy parents. Sales soar, local income and assets soar and everyone is being very successful on paper.

Rumors start to circulate that this lemonade stand is no longer doing so well, the kids aren’t working very hard and a lot of petty crime is happening around their lemonade stand as they steal nickels and dimes to make their dollar a day to avoid bad things from their hard drinking and debauched older siblings playing strip poker with hundred dollar bills and taking each other’s clothing when they need to ‘recapitalize’. The parents have left them in charge and taken off on an extended vacation on the big money they have made in the market investing with the financial firms who are also funding their kids new business.

The local franchise insurance agent of a global insurance giant comes up with the idea to sell special insurance to guarantee the income stream of these neighborhood business securities. They have a special name, fancy cover paper on company letter head, but really they are just a local computer generated scam of the agent who collects an increasing fee as the rumors get worse. The local financial services salesmen strongly recommend them as a rock solid guarantee collects a good commission selling these credit default swaps not “insurance” since that is a regulated term and calling these scam papers insurance would be a serious crime.

Eventually, the younger kids get tired of the lemonade stand business and move on to video games rather than stealing nickels and dimes and just let their deposits to the business account stop. Their older siblings are too engrossed in their young adult excesses and debauchery to bother to come after the little ones. The shortfall begins to ripple through the computerized reporting statistics and major problems are flagged in the home offices of the major financial and insurance companies where everything but cash now resides. The suburban neighborhood finds they have no more cash coming since their special investments are now no longer paying special dividends.

Who could suspect that using division by a small interest rate to generate a capitalized securities multiplier could go so wrong? How do the big boys evade admitting what they have done for the last few years and facing the consequences? That is the root and the reality of the financial meltdown and credit freeze of the fall of 2008!

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