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December 7, 2008

Issue 23  -  Depression Now a Better than 50% Possibility

But I thought we were going to make money?:

"AP IMPACT: Some bailout holdings down $9 billion

By FRANK BASS and CHRISTOPHER S. RUGABER, Associated Press Writers Frank Bass And Christopher S. Rugaber, Associated Press Writers 49 mins ago
WASHINGTON – Stock intended to eventually earn taxpayers a profit as part of the Bush administration's massive bank bailout has lost a third of its value — about $9 billion — in barely one month, according to an Associated Press analysis. Shares in virtually every bank that received federal money have remained below the prices the government negotiated.

Even as stocks dropped steadily at the opening bell on Friday in reaction to a larger-than-expected number of job losses, a top Treasury Department official told the Mortgage Bankers Association that the tax dollars are being invested in "very high-quality institutions of all sizes."

"We're not day traders, and we're not looking for a return tomorrow" said Neel Kashkari, the director of Treasury's Office of Financial Stability, which oversees the $700 billion financial rescue fund. "Over time, we believe the taxpayers will be protected and have a return on their investment."

Now, however, the value of that common stock is worth less than $18 billion. If the government exercised all its warrants to purchase the stock today, it would lose money on 51 of its 53 agreements. Taxpayers would be out $9.3 billion.

The government can exercise its options to buy the common stock anytime over the next decade, but the options were "immediately exercisable," according to banks' securities filings.

The deal also included warrants to pick up 254 million shares, with the price set at $10.61.

Citigroup stock has since fallen below $8.

The government would only earn a profit if the share price eventually exceeds the negotiated warrant price. Under the bailout plan, the common stock warrants — effectively treated as stock options for non-employees — would allow taxpayers to share the wealth as banks recover.

"We're not exercising the warrants today," Treasury spokeswoman Brookly McLaughlin said. "We have 10 years to exercise the warrants, so it's more accurate to look at what the market believes are the 10-year prospects for these banks."

Treasury Secretary Henry M. Paulson Jr. describes the cash infusion as "an investment, not an expenditure."

So our "investment" is down over 9 billion dollars. Oh well, it's only electronic blips on a screen in D.C. We, the American public, have been duped in the con of the century. This surpasses Mr. Ponzi, for boldfaced lying. Most of these banks are going to go bankrupt and this "investment" was, as I've written before, just an escape hatch for the fat cats behind the scenes. Our warrants which are most often issued in a stock like a mining stock, are destined for worthlessness.


Now California is trying to play the same game:


"California May Pay With IOUs for Second Time Since Depression

Dec. 5 (Bloomberg) -- California, the world's eighth largest economy, may pay vendors with IOUs for only the second time since the Great Depression, State Finance Director Mike Genest said.

In a letter to legislative leaders Dec. 2, Genest said the state "will begin delaying payments or paying in registered warrants in March" unless an $11.2 billion deficit is closed or reduced. California, which approved its budget less than three months ago, may run out of cash by March, state officials say.

Governor Arnold Schwarzenegger warned that he may issue the warrants, which are a promise to pay with interest, to suppliers and contractors as the seizure in credit markets may make it too costly to borrow.

"It's getting worse very quickly," Schwarzenegger, a 61- year-old Republican, told reporters Dec. 1 after declaring a fiscal emergency and ordering the Legislature into a special session to find ways to close the deficit. "It's like an avalanche in that it gains momentum. And that's what we're in right now, so it's a real crisis."

The warrants would be given to landscapers, carpet cleaners, construction firms, food services companies and other state vendors. They would pay an interest rate of as much as 5 percent, based on state law. California last issued the IOUs in 1992 when lawmakers and then-Governor Pete Wilson deadlocked on a budget for 61 days past the start of the fiscal year….

Let me see if I get this straight. You, California, can't pay your bills, so I, the vendor, is supposed to accept these little pieces of paper? I'm not really "down" with that Mr. Terminator, how about some cold hard cash? Oh, you don't have any cold hard cash? Then I guess we aren't in business together anymore because I doubt you'll ever pay me.

This is just the beginning for states as they collapse, one by one. A depression is now a large probability in my estimation. There are very few Americans who have ANY idea how difficult a depression can be. We will truly learn the meaning of tightening your belt. Combined with the fact that we have 6% of the world's population, but use over 25% of the resources, and a normalization there, which WILL happen, can only lead to more pain.

All this while CONgress grills auto makers CEOs. I was listening to a portion of this testimony and was sickened by the nonsense be discussed. At one point the three pinatas were asked if they intended to drive home. Are they driving home? Does that matter at all? To anything? These guys wouldn't even tell CONgress what the truth was. That CONgress and their meddling legislature was a large part of the reason they were in trouble.

Still think the stock market isn't manipulated? This from GATA:

"Geez, what a surprise that 199,000 more jobs were lost than reported BEFORE our elections and that is part of this rant. Our government lies, manipulates and distorts everything. It is so egregious now, they don't know any other way to operate. What is even worse is that our Mickey Mouse financial market press lets them get away with it.

The other day the widely followed Glenn Beck radio show featured gold, which numerous Café members made me aware of. So I followed up with his producer about getting the real gold story out there. The response: NADA, the same response I have received for a decade. Not a week, month, or year … TEN YEARS. Not one of these mainstream media clowns are even willing to do a HE SAID, SHE SAID story. They will not even allow the manipulation and government intervention subject to be discussed, not in this new America. Our forefathers, who made America what it was, would now be quietly discussing a way to overthrow the tyrants who are running things the way they are. It is that bad.

Gold was up a bit as soon as the jobs report number was released and then the dollar went bonkers and gold was slammed. THE DOLLAR SOARS on this news?

09:28
It has been Nonfarm payrolls, historical perspective noted that the 533K decline in November nonfarm payrolls is the largest one-month drop since a 602K decline in Dec 1974, and the fourth largest decline in the post-WWII era….
* * * * *

The dollar takes off on THAT!

You have to be kidding me … no, the joke is on the American public and our financial system … the dollar takes off on the worst US financial market news imaginable. RIGHT!"

You see the powers that be have now gone into panic mode. They are furiously pushing all their buttons in the hope that ONE of the them will work. They won't. The collapse is started and they are just delaying as long as possible while their pals get into the life rafts.

More from GATA:

"Season's Greetings, Bill !!!
The good ol' Birth/Death model did it again, by ADDING 30,000 phantom jobs. If you can believe it, they actually added MORE jobs than this time in 2007, when the economy was "strong" and the U.S. "was skirting a recession".

Look at the ridiculous sectors in which the jobs were ADDED (first figure is 2007 and second is 2008)

>Manufacturing:

2,000/3,000

>Trade, Transportation & Utilities:

13,000/17,000

>Information:

2,000/3,000

>Financial Activities:

3,000/5,000

>Professional & Business Services:

7,000/11,000

>Education & Health Services:

7,000/10,000 "

These guys are not even worried about hiding things anymore as they know the main stream media won't say boo. We added jobs in finance? What bankruptcy lawyers? We add more make believe jobs than last year? This is beyond ludicrous and CNBC says nothing.

Our "investment" in AIG is another winner:

 
"AIG May Double Some Salaries With Retention Payments (Update2)

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By Hugh Son

Dec. 4 (Bloomberg) --

American International Group Inc., whose bonuses and perks drew fire from lawmakers after the insurer accepted a federal bailout, will make special retention payments that more than double the salaries of some senior managers, according to a person familiar with the matter.

Some executives among 130 recipients will get more than $500,000, about 200 percent of their salaries, to stay through 2009, said the person, who declined to be named because the information hasn't been publicly disclosed. An undetermined number of lower-paid employees will also get cash awards to dissuade them from quitting, the person said.

"It seems like more than what you'd need to pay to get people to stick around," said David Schmidt, a senior consultant at executive pay firm James F. Reda & Associates. "Nobody's hiring, so where are you going to go?"

Exactly, where are these fleeing employees going to go? China? We, the sheeple of the United States, deserve everything we are getting as we sit by and do nothing, while being robbed blind. Watching the television to see who will get kicked out of the house instead of researching and studying what is actually going on in the world.

One last thing from GATA:

"U.S. TREASURY 5-YEAR CREDIT DEFAULT SWAP SPREAD WIDENS TO 52.5 BPS - CMA DATAVISION

U.S. TREASURY 10-YEAR CREDIT DEFAULT SWAP SPREAD BLOWS OUT TO RECORD 68.4 BPS - CMA DATAVISION

LONDON, Dec 1 (Reuters) - The spread or risk premium on 10-year U.S. Treasury credit default swaps hit a record high on Monday, extending a recent trend as market participants continued to fret about the scale of the government's financial rescue programmes.

Ten-year U.S. Treasury CDS widened to 68.4 basis points from Friday's close of 60 basis points, according to credit data company CMA DataVision.

Five-year Treasury CDS widened to 52.5 basis points from 46 basis points at Friday's close, it said.

-END-

The widening of this credit instrument means more and more investors are concerned the US will DEFAULT on its sovereign debt. When that occurs in other countries, interest rates rise in order to compensate from the increased risk. Yet, ours continue to sink. Such an unthinkable event as the increasing concerns over the US government defaulting ought to have the dollar under severe pressure, especially with our sinking rates … and have gold flying … but the opposite is the case."

That's right, the odds are growing that the United States will default on their debt. File for bankruptcy. Not pay our bills. This is, unfortunately, the path of the future. Get ready. Pay off debt and above all get some gold and silver into your hot red palms because hard times are ahead.