Currency Strategists Warn of Intervention to Salvage U.S. Dollar

CEP News
Monday, March 17, 2008

Major central banks may have to co-operate to prop up the U.S. dollar as the currency continues its fall on Monday, strategists say.

The U.S. Dollar Index fell to a record low of 70.698 following the fire sale of Bear Stearns and 25 basis point cut in the Federal Reserve’s discount rate. The dollar fell to a 12-year low of 95.78 against the yen and the euro rose to an all-time high of 1.5904.

“The threat of a USD crisis is becoming increasingly real, which increases the potential for a co-ordinated central bank USD intervention,” wrote Camilla Sutton, senior currency strategist at Scotia Capital.

The dollar regained some of its losses after hitting these new lows, but strategists note the need to cover margin calls, as well as a desire to bring money back to the U.S. from foreign markets as factors prompting a short-term bounce.

On Monday, several Japanese officials expressed concern about the sharp moves in the foreign exchange market. Finance Minister Fukushiro Nukaga said, “as for the recent currency moves, I (feel) they are excessive and I’m concerned about it.”

Later in the day, following briefings on the matter, Nukaga said, “we will cooperate with European and U.S. currency authorities and will monitor markets very carefully.”

Other strong words came from Sadakazu Tanigake, policy chief of the ruling Liberal Democatic Party and former finance minister.

Full article here.

IMF, OECD hit alarm buttons for crisis-hit global financial system

AFP
Monday, March 17, 2008

The IMF and OECD, two top world economy forecasters, struck alarmist notes Monday about crisis and threatening stagflation in the financial system and the need for measures to shore it up as markets sent distress signals.

Only hours after the US Federal Reserve took emergency weekend action to keep the US financial system afloat with cash, the head of the IMF warned that the world economy was being hit by an "important slowdown."

Consequently, IMF growth forecasts would be cut further because of the crisis. "The downside risks have materialised."

"Obviously the financial market crisis is now more serious and more global than a week ago," Dominique Strauss-Kahn said, warning that there was a "risk of (it) worsening."

The crisis would be long, would hit hard and spread to emerging economies, he predicted.

So far, central banks had managed problems of liquidity in the financial system well and he said he had "no reason to believe they won't be able to" in coming weeks.

"At this time, the priority for European governments should be containing the economic damage from the financial market crisis," he told a joint conference with the OECD.

"This is difficult because we are in an economic environment where inflation and recession are both potential problems."

And the head of the Organisation for Economic Cooperation and Development said that financial authorities had to send signals that they were ready to do everything needed to shore up the financial system and avoid systemic risks.

Full article here.

Gulf States Creep Away From Plunging Dollar

Surging inflation likely to lead decision to drop greenback peg after Greenspan's encouragement

Paul Joseph Watson
Prison Planet
Monday, March 17, 2008

Gulf States are set to follow former Fed chairman Alan Greenspan's advice and dump their dollar peg following a benchmark meeting tomorrow, with analysts predicting a slow but deliberate creep away from the greenback rather than an imminent decoupling, a move that could have devastating consequences for the American economy.

Pricing assets in accordance with the plunging dollar has caused crippling inflation in Qatar and the United Arab Emirates, who are laboring under rates of 14 percent and 10 percent respectively, leading Merrill Lynch to predict that Gulf states would revalue their currencies relative to the dollar or de-peg.

"Pressure is mounting on central banks in the Gulf to fight surging inflation when they meet on Wednesday by severing the link between their currencies and the tumbling US dollar," reports the London Times today.

Deutsche Bank also predicts that Qatar and the UAE will follow Kuwait's example and ditch the dollar peg at some point this year.

“The currency peg with the dollar worked well while both economies were moving in the same direction. Now, these two economic blocks are moving in completely opposite directions and it no longer makes sense,” Zahed Chowdhury, head of Middle East research in Dubai for Deutsche Bank, said.

HSBC also speculated in an October report that the UAE and Qatar would abandon the dollar sooner rather than later.

"Human resources are becoming scarce. Supplies are becoming scarce. De-pegging would help a great deal," Khalil Sholy, the president of Qatar's United Development Company told the London Times.

Investors are already abandoning the ailing greenback in droves and instead buying local currencies, according to the Times report.

Despite Saudi Arabia's best efforts to discourage the de-peg, a gradual creep away now seems inevitable.

Reyadh Faras, an economics professor at Kuwait University, told Business Week that Kuwait's decision last May to abandon the dollar was significant and similar decisions by even larger countries could seriously erode the dollar's value.

"If large countries like Saudi (Arabia) take the same step, its psychological effect will precede its actual one and it could lead to losses for the dollar," he said.

Greenspan encouraged Gulf states to abandon the dollar during the Abu Dhabi Corporate Leadership Forum last month.

The former Fed chairman's zeal to destroy the dollar is evident in numerous public statements he has made predicting the replacement of the greenback with the Euro as the world reserve currency.

Greenspan has repeatedly badmouthed the dollar and hyped the inevitability of economic chaos at a time when market confidence is in the toilet. Greenspan's rhetoric matches that of the IMF, who in October of last year bizarrely slammed the dollar as "overvalued" at the same time the greenback hit its all time low against the Euro.

A decision on behalf of the Gulf states to abandon the dollar peg would have disastrous consequences for the greenback and the American economy.

Such a move could lead the likes of the United Arab Emirates and Saudi Arabia to diversify their foreign exchange holdings out of dollars. This would amount to a vote of "no confidence" in the dollar and may cause other countries with large dollar reserves, such as China and Japan, to follow suit and begin dumping the greenback en masse.

China has threatened repeatedly to use the "nuclear option" and liquidate its vast holding of US treasuries in response to continued pressure on the Communist state to force a yuan revaluation. According to a widely-read London Telegraph report, such an event "could trigger a dollar crash" and also "cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession."

Runaway inflation would also ensue, making the cost of living unaffordable to even middle class Americans as food prices skyrocket and international aid organizations like the World Food Programme predict rationing and food riots.

Tent cities in California

Youtube

Tent cities have sprung up outside Los Angeles as people lose their homes in the mortgage crisis.

Red Cross reports alarming humanitarian situation in Iraq

Mathaba
March 17, 2008

The Red Cross said Iraq’s humanitarian situation is "among the most critical in the world".

It warned that despite better security in some areas, millions had been left essentially to fend for themselves.

Some families spend a third of their average monthly wage of $150 just buying clean water, the report said.

An even worse humanitarian crisis in Iraq will only be averted if much more attention is paid to the everyday needs of Iraqi citizens, the agency said.

Healthcare in Iraq was "now in worse shape than ever" and the services that are available are too expensive for many people, the report said.

Iraqi hospitals lack qualified staff and basic drugs, facilities are not properly maintained and public hospitals provide only 30,000 beds, less than half of the 80,000 needed, the Red Cross reported.

The agency said the current situation had been exacerbated for the 27 million population by decades of previous conflict and economic sanctions.

The report also says that tens of thousands of Iraqis had effectively disappeared since the start of the war.

"Many of those killed in the current violence have never been properly identified, because only a small percentage of the bodies have been turned over to Iraqi government institutions," it said.

Despite security gains, many Iraqis still suffer bloodshed.

Violence rates in the country have fallen 60% since last June, although the US military commander there, Gen David Petraeus, says the security gains are fragile and could be easily reversed.

Beatrice Megevand Roggo of the Red Cross said: "Better security in some parts of Iraq must not distract attention from the continuing plight of millions of people who have essentially been left to their own devices."

Tens of thousands of Iraqis - nearly all men - are in detention, according to the agency, including 20,000 inmates at Camp Bucca near Basra, which is run by US-led multinational forces.

IRNA reporter in Baghdad said that Iraq is the Red Cross’s largest operation worldwide with an annual budget of $106m and 600 staff. –IRNA

Top New York Cop Thought Towers Were Bombed On 9/11

Paul Joseph Watson
Prison Planet
Monday, March 17, 2008

Editor’s Note: In the video, Dietl admits he has problems with the official version of events and tells WeAreChange his daughter came to him with evidence of a conspiracy.

Highly decorated former New York City detective Bo Dietl admits that his first instinct on 9/11 was that the twin towers were downed with explosives, as he conceded that he shared many questions about the official story with 9/11 truth activists he had formerly debunked on national television.

What started out as a adversarial confrontation with members of We Are Change turned into a cordial discussion as Dietl contradicted some of his previous public statements on 9/11 and appeared to agree with the group on several issues, presumably prompted by the fact that his daughter was doing a research paper on 9/11 which lent credence to the suspect nature of the official story behind the attacks.

"I had a perfect view….next thing is I hear screaming, I looked up and when these are coming down you know what the first thing I said is? They had fucking bombs in those buildings - I’m telling you what was in my mind, I said there had to be bombs in the buildings," said Dietl.

"You’re talking about two 110 story buildings that fucking evaporated," said Dietl, adding, "Where are the people….I ask the same questions it’s such a devastating thing."

"Where the fuck did all these bodies go - it was pulverized - no bones, no DNA was found, I didn’t see no body parts" added Dietl, who was on the scene to help rescue workers and firefighters shortly after the towers’ collapse.

Dietl confirmed that the collapse of WTC 7 was known ahead of time and that he was told to stay away from the building.

Dietl also described it as a "fucking crime" that members of the Bin Laden family were flown out of the country under FBI supervision in the days following 9/11 when all other air traffic was grounded.

The former detective also mentioned how his former friend FBI agent John O’Neill, who died in the towers, was prevented by the FBI from prosecuting Bin Laden and other Al-Qaeda members.

However, Dietl’s claim that "they never dreamt in a million years the tragedy that happened would happen" in the context of his assertion that the faulty construction of the towers contributed to their sudden collapse is demonstrably false.

Numerous different World Trade Center designers and construction specialists are on record as having ruled out the possibility that multiple commercial jetliner impacts could bring the towers down.

A February 3, 1964 white paper which was written during the design phase of the towers stated, "The buildings have been investigated and found to be safe in an assumed collision with a large jet airliner (Boeing 707 DC traveling at 600 miles per hour. Analysis indicates that such collision would result in only local damage which could not cause collapse or substantial damage to the building and would not endanger the lives and safety of occupants not in the immediate area of impact."

In 2001, Leslie Robertson, one of the two original structural engineers for the World Trade Center, stated, "The twin towers were in fact the first structures outside the military and nuclear industries designed to resist the impact of a jet airplane."

Also in early 2001, Frank A. Demartini, on-site construction manager for the World Trade Center, said on camera, "The building was designed to have a fully loaded 707 crash into it. That was the largest plane at the time. I believe that the building probably could sustain multiple impacts of jetliners because this structure is like the mosquito netting on your screen door — this intense grid — and the jet plane is just a pencil puncturing that screen netting. It really does nothing to the screen netting."

Since Dietl still serves as Chairman of the New York State Security Guard Advisory Council, his comments are of great significance in the quest for a new investigation.

Bear felled, in part, by reputation

Mar. 17, 2008 (Thomson Financial delivered by Newstex) --

NEW YORK (AP) - Wall Street is unlikely to shed many tears over the swift downfall of Bear Stearns Cos. (NYSE:BSC) , a hard-nosed firm that made few friends since its founding in 1923.

Forced to seek help from the Federal Reserve and JPMorgan Chase (NYSE:JPM PRH) (NYSE:JPM PRX) (NYSE:JPM PRK) (NYSE:JPM PRJ) (NYSE:JPT) (NYSE:JPM) & Co. last week, the 'sharp-elbowed' firm did not come away with much: about $260 million in JPMorgan's stock, a small fraction of Bear's market value just a week ago.

Some on Wall Street regard this as just comeuppance for a firm notorious for arrogance and a penchant for making enemies.

'The feeling was this is a bit of payback coming back to a firm that seemed to be overly selfish and overly interested in their own gains,' said Michael J. Panzner, the author of 'Financial Armageddon' who has worked at HSBC and JPMorgan. 'They think nothing of knocking people out of the way to get their share of the pie.'
But just as some celebrate the virtual demise of the firm itself, many are also sparing a thought for friends who work at Bear and have just seen their investments in the company all but wiped out.

Employees own about a third of Bear Stearns, which means the company's plight has bled its roughly 14,000 workers' portfolios by $3 billion this month alone and more than $5 billion this year.

'People are pretty stunned,' said Ki Byung, who works for a division of Bear Stearns, though he has not worked there long enough to earn a stock bonus. 'People are just trying to get through the day. ... It's my first job out of school. I thought it was a big company -- it would be good experience. Now after a couple of months something like this happens.'
An employee who acquired Bear's stock anytime from the beginning of 2004 through the end of 2007 stands to lose at least 97 percent of his investment if this deal closes.

Panzner said Bear Stearns' management is likely to be fired once JPMorgan assumes control of the company next quarter. Bear Stearns' other workers will probably be treated the same as any other applicant, he said.

This bodes less favorably for some workers than others. Mike Torrens, a managing director, said his experience should benefit him should he have to seek another job.

'I've been around for 30 years,' he said outside Bear's headquarters. 'I can walk to a hedge fund.'
But the rank-and-file was not expected to be nearly so lucky.

'As for the regular Joes and Janes -- staff, secretaries, the janitor -- this deal stinks,' said Anthony Sabino, a lawyer with Sabino & Sabino and a professor at St. John's University. 'The blue-collar folks have a right to be hopping mad at the big boys for putting them in this predicament.'
The company's top people 'were cowboys who took huge risks, gambled and lost,' he said. Now, it is the shareholders who are footing the bill. Sabino said this deal is likely to end up in court.

Though Bear management has long had that maverick image, the defining blemish shaping Bear Stearns' reputation came in the late 1990s, when Wall Street's banks teamed up to bail out Long-Term Capital Management, a struggling hedge fund deemed 'too big to fail.'
About 15 banks chipped in to the bailout, including banks based in Germany, France and Switzerland. James Cayne, who stepped down as Bear Stearns' chief executive earlier this year, pledged that he would not invest a nickel in LTCM.

Peter Schiff, president of Euro Pacific Capital, said Bear Stearns clearly did not have too many friends at the Fed either. The Fed waited until after the acquisition was announced to approve new loans to banks at lower interest rates, moves he said could have forestalled Bear Stearns' bankruptcy.

Bear Stearns' sale at $2 per share is an enormous discount by any measure: The New York-based bank boasts 'book value,' or assets minus liabilities, of $84 per share, meaning JPMorgan is offering less than 3 percent of Bear Stearns' book value. The company's 47-story Madison Avenue headquarters alone may be worth many times the buyout price.

'We're really shocked,' said Ashwin Mahajam, a database manager at Bear, who has been with the company for three years.


Copyright 2008 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

Brazil's Real Weakens After Fed Rate Cut, Bear Stearns Collapse

By Adriana Brasileiro

March 17 (Bloomberg) -- Brazil's real fell as investors shunned higher-yielding securities after the Federal Reserve cut its discount interest rate in an emergency move and JPMorgan Chase & Co. agreed to purchase Bear Stearns Cos. for less than a tenth of its March 14 value.

``The crisis in the U.S. fell into a deeper, much scarier level over the weekend,'' said Francisco Carvalho, head of currency trading in Sao Paulo at Liquidez Corretora, the biggest currency derivatives brokerage in Brazil. ``Now we'll start to see more contagion in emerging markets.''

The real weakened 0.6 percent to 1.7226 per dollar at 3:55 p.m. New York time, after most trading in Brazil had ended. Global markets fell after the Fed made its first weekend change in borrowing costs since 1979 and Bear Stearns, the fifth largest securities firm in the U.S., was acquired for $2 a share. The real's losses today extend its decline over the past three days to 2.9 percent.

The real fell as much as 1.7 percent earlier today. Losses eased as traders stepped up bets the Fed will cut its target rate for overnight loans tomorrow to at least 2 percent from 3 percent. The move improves the yield advantage offered by local bonds and helps makes Brazil ``one of best risk-return options'' amid market turmoil, said Jose Guimaraes Monforte, chief executive at Pragma Gestao de Patrimonio, a Sao Paulo-based asset management firm.

``There's still ample liquidity in world markets and it needs to be invested somewhere,'' Monforte said. ``Brazil offers a strengthening currency, high interest rates, huge international reserves and assets that are still quite attractive.''

Brazil's economy hasn't been hurt by the deepening international credit squeeze, Finance Minister Guido Mantega said today.

``Brazil is a safe harbor,'' Mantega told reporters in Brasilia today. He expects the Fed to cut the benchmark interest rate by as much as 1 percentage point tomorrow to ``calm down'' markets.

Brazil-U.S. Spread

Brazil's 11.25 percent benchmark lending rate, while at a record low, is still 8.25 percentage points higher than the Fed's overnight target rate. The Fed this weekend cut its discount rate to banks by a quarter of a percentage point to 3.25 percent.

The real has gained 21.6 percent against the dollar over the past 12 months as rising commodity exports and purchases of local financial assets swelled dollar inflows. Exports rose to $3.5 billion in the week ended March 16 from $3.3 billion in the previous week, the government said today. The trade surplus in the week reached $527 million.

Economists in a weekly central bank survey revised up their year-end forecast for the real. The median forecast in the March 14 survey of about 100 economists was 1.75 per dollar at year- end, compared with a 1.78-per-dollar forecast the prior week.

Economists also raised their year-end inflation forecast to 4.44 percent from 4.42 percent, according to the survey.

The rising inflation forecast adds to speculation that the central bank will increase interest rates this year to rein in consumer demand, said Tony Volpon, chief economist at CM Capital Markets in Sao Paulo.

Rising Yields

The yield on the overnight interest-rate futures contract for January delivery held today 12.26 percent, more than 1 percentage point above the central bank's target rate. The yield has jumped 50 basis points, or 0.5 percentage point, this month.

Central bankers, in minutes of their March 4-5 policy meeting released on March 13, said rising food prices and the fastest economic expansion in more than three years boosted concern that inflation might overshoot their 4.5 percent target this year. The bank left the benchmark rate at 11.25 percent at the meeting for a fourth consecutive time.

The yield on Brazil's zero-coupon bond due in January 2009 rose 6 basis points, or 0.06 percentage point, today to 12.33 percent, according to Banco Votorantim SA.

Dollars tough to sell on streets of Amsterdam

AMSTERDAM (Reuters) - The U.S. dollar's value is dropping so fast against the euro that small currency outlets in Amsterdam are turning away tourists seeking to sell their dollars for local money while on vacation in the Netherlands.

"Our dollar is worth maybe zero over here," said Mary Kelly, an American tourist from Indianapolis, Indiana, in front of the Anne Frank house. "It's hard to find a place to exchange. We have to go downtown, to the central station or post office."

That's because the smaller currency exchanges -- despite buy/sell spreads that make it easier for them to make money by exchanging small amounts of currency -- don't want to be caught holding dollars that could be worth less by the time they can sell them.

The dollar hovered near record lows on Monday, with one euro worth around $1.58 versus $1.47 a month ago.

Argentina, Brazil to drop U.S. dollar in bilateral commercial transactions

BUENOS AIRES, March 15 (Xinhua) -- Argentina and Brazil are to scrap bilateral commercial transactions in U.S. dollars and start using their own currencies from August, an official in charge of currency settlement at the Argentine Central Bank said here Saturday.

The new payment system is aimed at reducing costs in commercial transactions and would benefit small and medium-sized enterprises, the official said.

Under the new system, there will be a unified exchange rate between the real and peso, the so-called reference rate, which will be applied by Brazilian and Argentine central banks at the end of each day.

Brazilian President Luiz Inacio Lula da Silva reached an agreement to establish a new payment system with his Argentine counterpart Cristina Fernandez de Kirchner during his visit to Argentina in February.

Technical preparations are underway for the new system, which the two countries will adopt in several steps due to the large amount of bilateral trade.

Brazil is Argentina's largest trading partner, while Argentina is Brazil's second-biggest trading partner after the United States.

Bilateral trade stood at around 23.6 billion U.S. dollars last year.

Banks to Be Part of “New World Order” in Wake of Bear Stearns

By Walden Siew

NEW YORK (Reuters) - Financial firms face a "NEW WORLD ORDER" after a weekend fire sale of Bear Stearns and the Federal Reserve's first emergency weekend meeting since 1979, research firm CreditSights said in a report on Monday.

More industry consolidation and acquisitions may follow after JPMorgan Chase & Co (JPM.N: Quote, Profile, Research) on Sunday said it was buying Bear Stearns (BSC.N: Quote, Profile, Research) for $236 million, or $2 a share, a deep discount from the $30 price on Friday and record share price of about $172 last year.

"Last evening the Bear Stearns situation reached a crescendo, as JPMorgan agreed to acquire the wounded broker for a token amount of $2 per share," CreditSights said. "The reality check is that there are many challenged major banks, brokers, thrifts, finance/mortgage companies, and only a handful of bona fide strong U.S. banks."

CreditSights said it lowered its broker, bank and finance company recommendations to "market weight" due to the credit crisis and stresses in the market.

In the event of future consolidation, potential acquirers identified by CreditSights include JPMorganChase, Wells Fargo, US Bancorp, Goldman Sachs and Bank of America (BAC.N: Quote, Profile, Research), once it works through its recent agreement to acquire Countrywide Financial Corp, (CFC.N: Quote, Profile, Research) the largest U.S. mortgage lender.

Possible foreign bank acquirers include HSBC, Barclays and Canadian firms, said CreditSights, which said the Bear Stearns deal should be good for bondholders.

"The debt side whether at the parent level or on the broker/dealer levels seems to be in rather good shape with the capital structure to be assumed by JPMorgan at deal close," which is expected in about 90 days, CreditSights said.

Financial stocks are likely to trade lower but the overall market may begin to stabilize, according to Morgan Stanley's chief U.S. credit analyst.

"I view the stabilization of Bear Stearns coupled with the liquidity action by the Fed as constructive for the proper functioning of the lending system," said Gregory Peters, chief U.S. credit analyst at Morgan Stanley. "Financial stocks will trade lower, but these are important steps in the path of trying to stabilize the credit markets."

Global stocks fell sharply on Monday, and U.S financial stocks tumbled in early trading, led by a 86 percent slump in Bear Stearns. Lehman Brothers (LEH.N: Quote, Profile, Research) shares sank more than 35 percent.

Financial share prices could fall further by as much as 50 percent, Oppenheimer & Co. analyst Meredith Whitney said.

"As we believe we will begin to see goodwill write downs during the first half of this year, we believe investors will focus more on tangible book value and stocks will quickly revalue to far lower levels," Whitney wrote in a note to clients.

National EXP
One Fine Week

Sutton Financial - It doesn’t matter what newspaper you picked up. It doesn’t matter what TV show you watched. Records fell like no time in recent history with perhaps the exception of Carl Lewis running loose at the Olympics in his heyday. I wonder how much his Gold medals are worth now?

$1.55 on the Euro, $100 on the Yen, $1000 Gold, $110 oil. The three pillars of what we have been writing about for almost 2 years in this column are falling into place exactly as we said they would. Gold and oil up, the Dollar down. This was no stroke of genius mind you, but rather a dead-wringer given the circumstances surrounding the financial system. Things are starting to get interesting, but AGAIN, rather than stand up and admit how bad this problem is, the powers that be continue to offer fairytale assertions of how things are fine and that the bottom is in. Crying bottom has already cost a number of forecasters their reputations and in some cases, their jobs.

Yesterday, Standard & Poor’s took their turn on the stump saying that the writedowns from subprime mortgages are basically over. A few weeks ago, CNBC trotted out T. Boone Pickens in an attempt to talk down the price of oil. The effort fell flat on its face and Mr. Pickens ended up looking rather badly. He also lost quite a bit of money if he was actually short oil, which I seriously doubt. This has been the way of things. Every time I watch one of these interviews, I feel the need to dig through cereal boxes looking for the special glasses they used to include to help you see the magic patterns on the back of the box. So the latest is that the subprime writedowns are over; blue skies are here again.

What? We are only about halfway through the mortgage reset process, and even though there has been a lot of talk about freezing rates, nothing is in stone yet. Unlike the easy ‘economic stimulus’ package, it is a harder sell when asking bankers to part with profits. Given the cloak and dagger nature with which this problem first emerged and has stealthily worked its way through the financial system, gobbling balance sheets along the way, I am surprised anyone would risk their reputation at this point. Maybe I shouldn’t be. The stock market rallied heavily after the comments, and after all, that is what is needed right now. Minus intervention, the markets are looking downright ugly and Wall Street needs your money. Pure and simple. It just isn’t fun shuffling around billions of dollars between big banks. Without your 401’s, they are done. I think that deep down there is an understanding of the difference between real capital (foregoing of consumption in favor of investment) and the stuff rolling off the printing presses. The Fed can print dollars, but it cannot print capital. Capital formation encourages real growth, whereas the additional fiat created while in crisis mode only destroys the value of the existing capital. Retirement plans are essentially the last bastion of genuine savings in our economy.

Speaking of 401’s, the problem is that people are cashing in 401’s in record numbers right now so they can avoid foreclosure. Just when the markets need buyers, the little guy is selling. This will be a short term Band-Aid at best. The penalties and taxes alone on an early withdrawals will take over 1/3 of the money. Most people with any kind of retirement plan from the bull market of the 1990’s got cleaned out in the tech wreck. Only in 2006 did they finally ‘break even’ again (see article here). They had a short window of about a year to get out of the market before the barber showed up and gave the major indices a 15% haircut. So in reality, how much money do these people have left? Not much. Robbing Peter to pay WaMu will last a little while, but the long-term effect of having no retirement funds coupled with failing Social Security will be much worse than a foreclosure.

Against this backdrop, the Bernanke Fed continues to make history before our very eyes. Day after day, move after move they place another nail in the coffin and further cement their role as the facilitator of the next US Depression. So perfectly wrong has Fed policy been over the past 18 months that it will likely become the test case for what not to do in the future. This should not be a surprise to anyone. This is all they know how to do. The irony here is that Ben Bernanke has always thought that the reason we had the Great Depression was because the Fed didn’t print enough money. So now he will take us back there again, this time by printing too much. The Planners are limited by their understanding of economics, and more importantly, their lack of desire to do anything politically unpopular. The fact that we are in an election year will only exacerbate the situation. There has been much talk, but precious little meaningful action and even that has been dead wrong.

At this point their best bet would be to stop their acronym-denoted inflation creating devices (TAF, TSLF) and let the bad apples rot to nothing, particularly Bear Stearns which is now officially on life support. This would cause economic pain. But once the system cleanses, normal economic growth could resume. By not allowing the system to cleanse, they are guaranteeing that the pain will be worse and last much longer than necessary. It appears that they are willing to accept that in exchange for a few more months of status quo. They have a serious problem in that inflation is running out of control, and at the same time, the economy is sinking. Stagflation is upon us. The more money the Fed prints to solve the liquidity and banking problems, the higher prices will climb at the consumer level. This is great if you’re an investor in anything tangible, but a downright disaster if you’re a consumer.

This week has been unlike any other week in recent memory. Things are moving quickly, and it is important to stay tuned and keep your eye on the ball. The protective measures discussed in My Two Cents over the past two years are still in play, granted at much higher costs now, but as the saying goes, the best time to plant an oak tree was fifty years ago; the second best time is right now. Make sure yours is planted while there is still some growing time left.

Fed acts Sunday to prevent global bank run Monday

By Rex Nutting & Greg Robb, MarketWatch

Last update: 10:38 p.m. EDT March 16, 2008

WASHINGTON (MarketWatch) -- Acting quickly to prevent a run on major global financial firms, the Federal Reserve cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to a longer list of firms than ever before.

The extraordinary weekend moves came as J.P. Morgan Chase sealed a deal to buy Bear Stearns Cos. for just $2 a share backed by up to $30 billion borrowed from the Fed. The Fed board gave its approval to that unique funding arrangement, which guarantees JP Morgan against losses from buying Bear. See full story.

The Fed board also approved the creation of a special lending facility through the New York Fed that would be available to members of its primary dealers list, which includes both commercial banks and investment banks. Investment banks, such as Bear Stearns, have not been allowed to borrow directly from the Fed.

JP Morgan has access to the discount window through its Chase Bank subsidiary, but Bear Stearns does not have direct access.

Events have unfolded at warp speed over the past week. On Tuesday, the Fed announced a new lending program for primary dealers in the bond markets, but that program won't go into effect for two more weeks. On Friday, the Fed allowed Bear Stearns to borrow money via JP Morgan in a desperate bid to save the firm, which has been pummeled by losses on exotic securities backed by subprime mortgages.

The Federal Open Market Committee meets on Tuesday. Analysts expect the FOMC to cut the target for the federal funds rate by as much as a full percentage point to 2%. Another cut in the discount rate is also likely.

The new lending program would operate for at least six months, and would offer loans for as long as 90 days, rather than 30 days under the regular discount window. Loans from the new program would be backed by a "broad range of investment-grade debt securities," the Fed said. The interest rate would be the same as the discount rate.

"The Federal Reserve, in close consultation with the Treasury, is working to promote liquid, well-functioning financial markets, which are essential for economic growth," said Fed Chairman Ben Bernanke, in a statement. "These steps will provide financial institutions with greater assurance of access to funds."

Robert Brusca, chief economist at FAO Economics, said the new lending facility created a general way to help other dealers.

"The Fed has more information now that it has seen what Bear Stearns had on its books," Brusca said in an interview.

President Bush will meet with Bernanke, Treasury Secretary Henry Paulson and Securities and Exchange Commission Chairman Chris Cox on Monday at 2 p.m. Eastenr.

Earlier on Sunday, Paulson went on television to project an image of confidence in the U.S. financial market. He said Washington would do what it takes to foster stability on Wall Street. See full story.

Dean Baker, the co-director of the Center for Economic and Policy Research, criticized the Fed's "real turn to secrecy" in the new auction facilities.

The Fed does not reveal the names of firms that borrow funds in the auctions. The purpose was to get around the "stigma" of banks that didn't want to borrow at the discount window because of the questions it would raise about its balance sheet.

But, in an interview, Baker said "now is not the time to shut the doors and keep everything in the dark."

Baker said he sensed a whiff of panic at the Fed and in the Treasury Department.

"The main thing is that they [Fed and Treasury] are really really scared. Telling us that everything is great is an insult to intelligence. They should own up to it and talk seriously to people," Baker said.

Peter Morici, a professor of economics at University of Maryland, criticized the Fed for not imposing meaningful conditions on the financial institutions that it is providing cash.

As a result, banks continue to impose onerous conditions on their innocent customers, he said.

"Today's moves by the Federal Reserve are the desperate acts of failing men," he said.

Below is a list of primary dealers who will be able to borrow directly from the Fed's new program announced Sunday:

BNP Paribas Securities Corp.
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co., Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Countrywide Securities Corporation
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Dresdner Kleinwort Wasserstein Securities LLC.
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
HSBC Securities (USA) Inc.
J. P. Morgan Securities Inc.
Lehman Brothers Inc.
Merrill Lynch Government Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
UBS Securities LLC.

Rex Nutting is Washington bureau chief of MarketWatch.
Greg Robb is a senior reporter for MarketWatch in Washington.

China blocks YouTube, Yahoo! over Tibet

Jonathan Richards
March 17, 2008

China has closed down access to several of the world's most popular websites in an apparent attempt to censor international coverage of the violence that is unfolding in Lhasa, the Tibetan capital.

YouTube, the video-sharing website which has become a home to amateur footage of news events, has been blocked to Chinese users since Saturday, and there are also reports that the news pages of Yahoo!, the internet portal, have been made inaccessible.

In addition, the entire Guardian website has been closed down as of today, and other sites - including Times Online - have had access to their coverage of recent events in Tibet severely restricted.

Popular sites which assimilate news from different sources - such as Google News - have been subject to what is known as 'keyword filtering', where a Chinese internet user attempting to load a page which contains words such as 'Tibet' or 'Dalai Lama' will see the site stall.

Times Online has also learned that the editors of some of the most popular 'forum' - or bulletin board - sites in China have been directly contacted by government officials and told not to publish any content relating to the recent protests.

Flickr, the photo-sharing website, Wikipedia, and the LA Times, the US newspaper, are among the other sites to which access has been cut off.

"There's definitely been a ramping up of keyword filtering in recent days, particularly for words like Tibet and protest," said Jeremy Goldkorn, the editor of danwei.org, a site which translates news from various Chinese sources into English. "The whole internet has also slowed down, which is almost certainly connected with authorities' attempts to censor content."

The websites of most British newspapers are for the most part accessible, but since Friday, for instance, all articles by the Times Beijing correspondent, Jane Macartney, have been blocked to readers in China.

One comment on danwei.org today read: "I'm in the south of China, and many news sites containing Tibet-related articles are blocked with connection reset errors. This includes the entire Guardian website, as well as all news links from Yahoo."

Another read: "It's about midnight of the 16/17th, and Yahoo's homepage is blocked. They have headlines on the protests/riots up, so I'm not surprised."

China now has more than 210 million internet users - more than in the US, according to the government-backed China Network Information Centre - and authorities are notoriously strict about the sites which they are able to access.

YouTube has been blocked in the past, and the so-called Great Firewall of China prevents discussion of and searches for many sensitive topics, such as the Tiananmen Square protests.

Censorship is made easier by the fact that the country has relatively few internet service providers (ISPs) - the gateways through which all Western content must pass before it is seen from within China - meaning that software which runs 'keyword' checks on sites can readily be installed.

"In many ways, the technical solution - filtering software etc - is enough for the authorities here," Mr Goldkorn said. "You have to remember that the Chinese education system paints a very different picture of Tibet to that which is understood in the West, and it's likely many Chinese are simply not curious enough to try to make the effort to search out an alternative view of events."

A spokesman for the Chinese Embassy in London was not available for comment.

http://technology.timesonline.co.uk/tol/news/tech_and_web/article3568040.ece

Dollar hammered on financial fears

By William L. Watts, MarketWatch

Last update: 4:47 a.m. EDT March 17, 2008

LONDON (MarketWatch) - The Bear Stearns fire sale and the Federal Reserve's emergency decision to cut its discount rate sent the dollar to plunging to historic lows against major counterparts on Monday.

In an extraordinary move, the Federal Reserve Sunday night announced it had cut its discount rate by a quarter percentage point to 3.25% and offered to lend money to an unprecedented list of firms. See full story.

The dollar hit a new 12-year low against the Japanese yen at 95.75 yen overnight and remained 1.7% lower at 97.25 yen.

The euro soared to yet another all-time high of $1.5903, against the dollar and remains 0.7% higher on the day at $1.5776. The dollar tumbled below parity with the Swiss franc, changing hands at 0.9827 francs after hitting a low 0.9631.

The Fed acted as J.P. Morgan Chase wrapped up a deal to buy Bear Stearns Cos. for $2 a share, or around $236 million, with the Fed agreeing to provide as much as $30 billion in financing to back up illiquid Bear assets, including mortgage securities the company hasn't been able to offload. See full story.

The Fed's rate-setting Federal Open Market Committee is set to meet Tuesday, where it's widely expected to announce a cut in its key lending rate, the Fed funds rate, by as much as a full percentage point to 2%. Another cut in the discount rate is also seen as a possibility.

The scope and speed of the Fed action provided little support for the dollar, which ticked higher in the immediate aftermath of the decision before plunging to new lows.

European shares plunged on the open, with banks leading major indexes lower. Major benchmarks tumbled across Asia overnight, with the Nikkei 225 Average ending 3.7% lower at 11,787.51 to finish below the 12,000-point level for the first time since August 2005. See Asia Markets. See Europe markets.

Treasury prices surged and bond yields tumbled as investors fled other assets, pushing down the yield on the benchmark two-year Treasury note by around 18 basis points to 1.31%. Bond yields move inversely to prices.

"It is highly probable that the market is assuming that something is very wrong when the Fed feels that it is necessary to cut the discount rate just one day ahead of a scheduled FOMC meeting," wrote economists at Jyske Bank.

Analysts at Danske Bank said the measures are a "cause for concern as the probability of a full credit crunch with severe damage on the economy is rising rapidly, in our view."

The British pound, meanwhile, failed to match gains versus the dollar, instead losing 0.2% against the greenback to $2.0149. The euro was up 0.9% against sterling at 0.7834 pounds.

Analysts said renewed ideas the Bank of England will be forced to follow through with rate cuts have left the pound under pressure.

"Consensus here is pointing towards the fact that the Bank of England will also be obliged to cut its rates in the coming months to stimulate demand, so expect tomorrow's U.K, CPI data to be closely watched as well for any indication as to where the yield curve may lie for sterling in the months ahead," said James Hughes, foreign-exchange analyst at CMC Markets.