1.Hey U.S., welcome to the Third World!
It's been a quick slide from economic superpower to economic basket case.
Rosa Brooks
September 18, 2008
Dear United States, Welcome to the Third World!
It's not every day that a superpower makes a bid to transform itself into a Third World nation, and we here at the World Bank and the International Monetary Fund want to be among the first to welcome you to the community of states in desperate need of international economic assistance. As you spiral into a catastrophic financial meltdown, we are delighted to respond to your Treasury Department's request that we undertake a joint stability assessment of your financial sector. In these turbulent times, we can provide services ranging from subsidized loans to expert advisors willing to perform an emergency overhaul of your entire government.
As you know, some outside intervention in your economy is overdue. Last week -- even before Wall Street's latest collapse -- 13 former finance ministers convened at the University of Virginia and agreed that you must fix your "broken financial system." Australia's Peter Costello noted that lately you've been "exporting instability" in world markets, and Yashwant Sinha, former finance minister of India, concluded, "The time has come. The U.S. should accept some monitoring by the IMF."
We hope you won't feel embarrassed as we assess the stability of your economy and suggest needed changes. Remember, many other countries have been in your shoes. We've bailed out the economies of Argentina, Brazil, Indonesia and South Korea. But whether our work is in Sudan, Bangladesh or now the United States, our experts are committed to intervening in national economies with care and sensitivity.
We thus want to acknowledge the progress you have made in your evolution from economic superpower to economic basket case. Normally, such a process might take 100 years or more. With your oscillation between free-market extremism and nationalization of private companies, however, you have successfully achieved, in a few short years, many of the key hallmarks of Third World economies.
Your policies of irresponsible government deregulation in critical sectors allowed you to rapidly develop an energy crisis, a housing crisis, a credit crisis and a financial market crisis, all at once, and accompanied (and partly caused) by impressive levels of corruption and speculation. Meanwhile, those of your political leaders charged with oversight were either napping or in bed with corporate lobbyists.
Take John McCain, your Republican presidential nominee, whose senior staff includes half a dozen prominent former lobbyists. As he recently put it, "I was chairman of the [Senate] Commerce Committee that oversights every part of the economy." No question about it: Your leaders' failure to notice the damage done by irresponsible deregulation was indeed an oversight of epic proportions.
Now you are facing the consequences. Income inequality has increased, as the rich have gotten windfalls while the middle class has seen incomes stagnate. Fewer and fewer of your citizens have access to affordable housing, healthcare or security in retirement. Even life expectancy has dropped. And when your economic woes went from chronic to acute, you responded -- like so many Third World states have -- with an extensive program of nationalizing private companies and assets. Your mortgage giants Fannie Mae and Freddie Mac are now state owned and controlled, and this week your reinsurance giant AIG was effectively nationalized, with the Federal Reserve Board seizing an 80% equity stake in the flailing company.
Some might deride this as socialism. But desperate times call for desperate measures.
Admittedly, your transition to Third World status is far from over, and it won't be painless. At first, for instance, you may find it hard to get used to the shantytowns that will replace the exurban sprawl of McMansions that helped fuel the real estate speculation bubble. But in time, such shantytowns will simply become part of the landscape. Similarly, as unemployment rates continue to rise, you will initially struggle to find a use for the expanding pool of angry, jobless young men. But you will gradually realize that you can recruit them to fight in a ceaseless round of armed conflicts, a solution that has been utilized by many other Third World states before you. Indeed, with your wars in Iraq and Afghanistan, you are off to an excellent start.
Perhaps this letter comes as a surprise to you, and you feel you're not fully ready to join the Third World. Don't let this feeling concern you. Though you may never have realized it, you've been preparing for this moment for years.
2.Here's why Washington's $1 trillion bailout is little more than a band-aid on a massive wound ...
Why more than 1,000 banks are still in danger of collapsing no matter what Washington does ...
Why scores of household-name companies are still at risk for huge stock losses or even bankruptcy ...
And what you must do now to protect and grow your wealth.
IMPORTANT: Plague to Pandemic — the crisis briefing we created to help you insulate your money and profit — MUST go offline TOMORROW. Click here to watch it now or you could miss it forever!
Dear DS,
It was a surreal moment: Senator Christopher Dodd told ABC's "Good Morning America" that Treasury Secretary Paulson and Fed Chief Bernanke had just informed Congressional leaders "We're literally days away from a complete meltdown of our financial system."
Things got even scarier when he told CNN, "There was dead silence in the room for five to 10 seconds. The oxygen went out of the room."
No wonder Congress is falling all over itself to pass the $700-billion bailout bill to buy toxic mortgages!
Combined with the $25 billion spent to bail out Bear Sterns, $100 billion each for Fannie and Freddie and $85 billion for AIG, Washington has now pledged more than $1 TRILLION to fight this crisis so far — and still, it's only the beginning:
- Yesterday, Paulson announced he's adding another $50 billion to ensure the money market funds ...
- He's also expanding the bail-out to include car loans, credit card debt and more ...
- And Democrats in Congress are clamoring for hundreds of billions more for a second economic stimulus package, for a bailout of homeowners at risk for losing their homes and more!
And still — even if Congress gives Paulson everything he asks for and more — there's still one, glaring, "inconvenient truth" nobody's talking about ...
None of these unprecedented actions
are enough to end this massive debt crisis!
1. They do little to guarantee that more financial institutions won't fail: Sure — Washington is going to buy toxic loans from the institutions that invested in them. But don't think for a moment banks and other companies are going to get top dollar for the poison in their portfolios.
Although the details of the bailout are still sketchy, it's clear that Washington will pay a deeply discounted price for that bad paper. That means the financial institutions that own those lousy investments are still going to take huge losses.
And in many cases, those losses are likely to be large enough to push many of these teetering firms over the brink.
Our forecast: Despite this massive, historic, unprecedented bailout, you will still continue to see a chain reaction of bank failures and corporate bankruptcies.
2. They do little to slow the explosion in mortgage defaults that caused this mess in the first place: With the economy slowing, unemployment surging, home values still plunging and monthly payments on six million adjustable rate mortgages set to rise, the tidal wave of mortgage delinquencies and defaults we've seen so far is almost certain to grow larger, not smaller.
As Senator Chuck Schumer (D-NY), chairman of the Joint Economic Committee, told FOX News Sunday, "If you don't solve the mortgage crisis, you're not going to solve the financial crisis."
3. They do nothing to address the $180-trillion derivatives time bomb at U.S. commercial banks: Thirty years of deregulation have allowed a parallel financial system to arise in America in which more than $180 trillion dollars in derivatives are held and traded by U.S. banks with scant government supervision or accounting.
The truth is, no one has any idea of the magnitude of the deleveraging ahead or the size of the debts that will ultimately have to be written down!
4. They do virtually nothing to cause lenders to end the credit drought that's spreading the contagion to other sectors: To survive, banks are desperately raising credit requirements ... slashing lines of credit for corporations and spending limits on credit cards ... turning down all but the most highly qualified borrowers.
And that's what's causing so much pain at companies making products that consumers buy on credit: Autos, home improvement products, electronics and other high-end merchandise.
BOTTOM LINE: As massive as it is, the Paulson-Bernanke plan can't even begin to resolve this crisis. In fact ...
This $1 trillion bailout virtually guarantees
this crisis will spin wildly out of control!
Look: Until last week, the White House projected that the 2009 federal deficit would be $482 billion. Now, just with the bailouts announced and proposes so far, Congress is tacking on 1 trillion to that number, or even more.
That means plunging prices for Treasury notes and bonds plus soaring interest rates. And that, in turn, means rapidly rising payments on ARMs — a coup de grâce for millions of homeowners who are barely clinging to their homes as it is.
It also means the recession will be deeper and longer than it otherwise might have been. And it means scores of U.S. companies that manufacture and sell products requiring consumer credit will be hit even harder.
Our recommendation is unchanged: As we've told you from the outset of this crisis, every time the government attempts to fight this, it spurs a temporary rally, giving you a golden opportunity to sell any stocks you still have.
And it's also the very best possible opportunity to position yourself for huge gains as the crisis continues to spread — with contrarian investments like inverse ETFs and put options.
Watch our Crisis Briefing —Plague to Pandemic— for critical guidance to help protect your wealth and how to USE this crisis to go for huge profits right now.
But I must warn you ...
Events are unfolding so fast,
we MUST take this critical briefing offline TOMORROW:
Watch it now, or you could miss it forever!
Tens of thousands of investors are already using the startling revelations and recommendations we delivered in this timely Crisis Briefing to help insulate their wealth and profit in the next phase of this great credit crisis.
We answered the most pressing questions you have now about how the disaster at Lehman Brothers — in the wake of the great Fannie-Freddie bailout — will impact the stocks, bonds, mutual funds and ETFs you own:
- Will this set off a chain reaction of failures on Wall Street? Or can it be contained?
- What about the Fannie-Freddie bailout? Will it really save the housing market? Is it time to pick up historic bargains in real estate and real estate stocks? Or should you continue avoiding them like the plague?
- What about companies whose survival depends on the souring commercial real estate, sinking credit cards and other defaulting loans that are not getting a penny out of this bailout?
- U.S. retailers and manufacturers are ALSO not getting bailed out. What will happen to them?
Plus, we gave you clear, unhedged ACTIONABLE recommendations to help protect your wealth and profit as this credit crisis continues to spread — including ...
- Our list of the widely held stocks you shouldn't touch with a ten-foot pole now; shares that are sitting ducks for massive declines.
- Hard evidence that diseased lenders are now dooming the sales and earnings of many of America's most widely held companies.
- The sectors that are already feeling the pain and that are most likely to be crushed first.
- Investment vehicles and strategies that fit this new environment hand-in-glove and that offer you huge profit potential as the weakest stocks crater.
The information and recommendations we delivered are crucial to help protect your wealth and grow it in this treacherous environment. So, in case you missed part of this all-important event or want to watch it again, we're leaving it online for a very short time.
But events are developing so quickly we CAN NOT leave the recording of this historic event online much longer. So be sure to click this link and watch this all-important briefing while you still can!
Sincerely,
Martin D. Weiss, Ph.D.
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