Defaulting banks - where will it stop?

[Magda Hassan]

Not sure if this is relevant yet or not but may be very interesting to follow.


Also lots of very interesting information here about the Julius Baer Bank's Cayman Island black cash stash away and stolen account details here:
http://wikileaks.org/wiki/Bank_Julius_Baer
http://wikileaks.org/wiki/Category:Bank_Julius_Baer


Baer's Widmer Passes Away

Vidya Ram , 12.06.08, 06:00 AM EST Popular private bank head dies at 52, possibly a suicide.


Swiss wealth manager Julius Baer said that Alex Widmer, the popular 52-year-old chief executive of its private banking unit, died unexpectedly on Wednesday amid an expansion campaign that took advantage of the weakness of larger rivals.
Market reaction signaled just how important Widmer was to the recent growth of Baer's business. Shares of Julius Baer (other-otc: JBHGY - news - people ) fell 9.5% in Zurich on Friday, well below the sector average, after the bank released the news of his sudden death.


"We have lost a dear friend, a good colleague and a charismatic leader," said Raymond Baer, chairman of the bank.
The bank refused to comment on the cause of Widmer's passing -- leaving open the possibility of suicide -- but it did tell Forbes.com there was "no link between his death and the business of the bank." Swiss police also refused to specify the cause of death.
Widmer was well-regarded. One analyst described him as "charming" and a "workaholic," while another described him as the "architect" of the bank's strategy.
He joined Julius Baer from Credit Suisse (nyse: CS - news - people ) three years ago and brought with him experience in the private banking sector and a number successful client managers, especially in Asia, who had helped the bank grow its business. Widmer has spoken this year of hiring staff away from Credit Suisse and UBS, who are suffering from the global market turmoil.
Baer has also benefited from clients leaving UBS' wealth and asset management businesses, following its multibillion-dollar losses. (See "Swiss Banks Gain From UBS Pain.")
[URL="http://www.forbes.com/facesinthenews/2008/12/06/widner-julius-baer-markets-face-cx_vr_1203autofacescan01.html#comment"]
[/URL]


The most recent business update from Julius Baer, released on Nov. 11, suggested it was coping as well as could be expected amid the current global downturn. The bank said that in the year to that date, net inflows in private banking were "significantly above last year's level," as it brought in up to 60 new private bankers to build its business.




Widmer, who favored expansion beyond Europe, had opened offices in Jakarta and Cairo.
For now at least, his position is being assumed by Hans de Gier, the chief executive of the parent Julius Baer group.
Reuters contributed to this article.
http://www.forbes.com/facesinthenews/200...can01.html

[Dawn Meredith]

I wonder if the intent behind the new rule hat banks no longer have to have cash on hand is a sudden albeit somewhat covert transition to a cashless society -- something that has been on the back plate for a long time I understand?

Yes David, this was long ago predicted in a rather famous book.

Dawn

[Myra Bronstein]

http://www.dailykos.com/story/2008/12/7/...936/670294

Day of Infamy: The Economic China Syndrome

by M Komoroski

Sun Dec 07, 2008 at 05:43:08 AM PST

It's before 8:00 am on December 7, 67 years after the Japanese bombed Pearl Harbor. It has taken almost that long for Japan's vision of an 'Asian Co-Prosperity Sphere' to take form and beat the Americans at their own game, economic imperialism.
These days Americans are counting on the government to take over and run major businesses, a scheme that is necessary to keep public confidence in the government, but resting on deeply unsound assumptions about economics. And while the Americans are looking to the US government, the US government is looking to Red China as a lender of last resort, surpassing even Japan in buying US government paper with the dollars we have given them.

The 'American Way of Life' hangs by the thread of Red China continuing to throw dollars at the US government. Why should China do this? First, if the US collapses any further, the Chinese lose a major buyer for their 'goods,' produced by slave labor and environmental rape. "Business as Usual" requires the US be kept afloat as long as China does not recognize the need to produce stuff for itself or other emerging markets (like Africa). Secondly, there are the dollars themselves. If the US collapses further, the dollars China holds will be as worthless. So they may as well help hold up the collapsing Imperial giant of the past century, rather than take a bath on all that worthless paper.

We in the US are remiss if we do not recognize that we are no longer running the show. We are just like any other country now. We are at the mercy of a global system where few have sentimental attachments to the US and many would like to see the US brought low, after behaving the way it has since WWII. They say one should be careful of the toes one steps on while on the way up, since many of them may be connected to the asses one will have to kiss on the way back down. The US had better be prepared to kiss ass like an Army whore.

I see no sign the US is ready at any level to deal with these realities. The US has its head jammed into its rectum and keeps blabbering about the breath-taking view. For starters, USers are convinced the Wall Street Investment Community actually makes investments. Economists define investments as money made available to firms to buy machinery or other things they need to produce their product. This only happens when a company issues stocks or bonds, or sells its own stocks or bonds. That is not what most of the 'Investment Community' does. What they actually do is bet on things, like whether a company or a sector or an entire nation is going to 'go up or down' in the next minute, hour, day, week or two. More than two weeks is considered 'long term' to these people, and so their constant focus is making the most from gambling in the next few days. The state of American companies reflects this. When news heads speak of 'investing,' what they really mean is 'gambling.'

On a side note, everyone knows 'derivitives' and other 'financial instruments' are way too complicated for any normal person to understand. They are complicated, like a shell game. The actual ins and outs of just how they take the mark for his money are quite byzantine indeed. But take a step away from the table and it's clear: greedy people are convinced they are going to gamble and win because they are so smart and they have a 'system,' but in truth the games are all rigged so the 'house' gets its margin before the game even starts. The 'winners' take the 'suckers' for what's left. And if you are an ordinary person with a 401k, you are the prey in this food chain, and anything they offer you is bait.

The 'solutions' that get rolled out over the next year or two will be complicated as well, and pundits will have their usual inane fake arguments about minutiae. But these 'solutions' will all be efforts to 'restore investor confidence,' which translates into plain language as 'get more suckers on the line.' The goal, NO MATTER WHAT THEY SAY, is to bring back Business as Usual, and restore the House's cut. When they say 'we've reformed the rules, so now you can trust your banker or your broker again,' don't believe it. When they say, 'it was just a few bad apples but the system is basicly sound,' don't believe it. The system is basicly Unsound. And it's not a few bad apples, it's the whole culture of bankers skimming the cream off of our lives in exchange for nothing, nothing but being gate-keepers of our wealth, and periodically squeezing us for even more, like they are doing right now.

Things are not going to get better until after they have gotten a lot worse. Not just one but several schemes to restore business as usual will be tried, and will fail, with the well connected high rollers somehow making off with the money. It may be less obvious than it is in the current 'bailout' atmosphere. (A Pinata party where blindfolded bigwigs wack away at our future in the hopes that when it breaks, they can grab more than the next one.) But really, it will be more like a person squeezing a grapefruit this way and that in the hopes of getting that last drop.

[Mark Stapleton]

http://www.dailykos.com/story/2008/12/7/...936/670294

Day of Infamy: The Economic China Syndrome

by M Komoroski

Sun Dec 07, 2008 at 05:43:08 AM PST

It's before 8:00 am on December 7, 67 years after the Japanese bombed Pearl Harbor. It has taken almost that long for Japan's vision of an 'Asian Co-Prosperity Sphere' to take form and beat the Americans at their own game, economic imperialism.
These days Americans are counting on the government to take over and run major businesses, a scheme that is necessary to keep public confidence in the government, but resting on deeply unsound assumptions about economics. And while the Americans are looking to the US government, the US government is looking to Red China as a lender of last resort, surpassing even Japan in buying US government paper with the dollars we have given them.

The 'American Way of Life' hangs by the thread of Red China continuing to throw dollars at the US government. Why should China do this? First, if the US collapses any further, the Chinese lose a major buyer for their 'goods,' produced by slave labor and environmental rape. "Business as Usual" requires the US be kept afloat as long as China does not recognize the need to produce stuff for itself or other emerging markets (like Africa). Secondly, there are the dollars themselves. If the US collapses further, the dollars China holds will be as worthless. So they may as well help hold up the collapsing Imperial giant of the past century, rather than take a bath on all that worthless paper.

We in the US are remiss if we do not recognize that we are no longer running the show. We are just like any other country now. We are at the mercy of a global system where few have sentimental attachments to the US and many would like to see the US brought low, after behaving the way it has since WWII. They say one should be careful of the toes one steps on while on the way up, since many of them may be connected to the asses one will have to kiss on the way back down. The US had better be prepared to kiss ass like an Army whore.

I see no sign the US is ready at any level to deal with these realities. The US has its head jammed into its rectum and keeps blabbering about the breath-taking view. For starters, USers are convinced the Wall Street Investment Community actually makes investments. Economists define investments as money made available to firms to buy machinery or other things they need to produce their product. This only happens when a company issues stocks or bonds, or sells its own stocks or bonds. That is not what most of the 'Investment Community' does. What they actually do is bet on things, like whether a company or a sector or an entire nation is going to 'go up or down' in the next minute, hour, day, week or two. More than two weeks is considered 'long term' to these people, and so their constant focus is making the most from gambling in the next few days. The state of American companies reflects this. When news heads speak of 'investing,' what they really mean is 'gambling.'

On a side note, everyone knows 'derivitives' and other 'financial instruments' are way too complicated for any normal person to understand. They are complicated, like a shell game. The actual ins and outs of just how they take the mark for his money are quite byzantine indeed. But take a step away from the table and it's clear: greedy people are convinced they are going to gamble and win because they are so smart and they have a 'system,' but in truth the games are all rigged so the 'house' gets its margin before the game even starts. The 'winners' take the 'suckers' for what's left. And if you are an ordinary person with a 401k, you are the prey in this food chain, and anything they offer you is bait.

The 'solutions' that get rolled out over the next year or two will be complicated as well, and pundits will have their usual inane fake arguments about minutiae. But these 'solutions' will all be efforts to 'restore investor confidence,' which translates into plain language as 'get more suckers on the line.' The goal, NO MATTER WHAT THEY SAY, is to bring back Business as Usual, and restore the House's cut. When they say 'we've reformed the rules, so now you can trust your banker or your broker again,' don't believe it. When they say, 'it was just a few bad apples but the system is basicly sound,' don't believe it. The system is basicly Unsound. And it's not a few bad apples, it's the whole culture of bankers skimming the cream off of our lives in exchange for nothing, nothing but being gate-keepers of our wealth, and periodically squeezing us for even more, like they are doing right now.

Things are not going to get better until after they have gotten a lot worse. Not just one but several schemes to restore business as usual will be tried, and will fail, with the well connected high rollers somehow making off with the money. It may be less obvious than it is in the current 'bailout' atmosphere. (A Pinata party where blindfolded bigwigs wack away at our future in the hopes that when it breaks, they can grab more than the next one.) But really, it will be more like a person squeezing a grapefruit this way and that in the hopes of getting that last drop.

Wonderful. Two failed economic systems on mutually dependent life support.

The Governments of both China and the US must also be worried about the fate of their political systems at this stage. Fully justified worry, imo.

[Peter Lemkin]

VERY interesting French Economist speaks about the coming Very Great Depression in the USA [he predicts it will be evident in four months and MUCH worse than the Great Depression - complete with 'involvement' of the Military domestically, US defaulting on its debts, and more....] http://www.kpfa.org/archives/index.php?arch=29853

He believes it is the first wave of a systemic World Crisis. Even tinfoil hats won't save us now....nor Obama. He has a great line in the talk - that Obama has a fantastic economic recovery plan for an America that no longer exists. Do listen to this....makes those I posted of Tarpley look optimistic [sic]! Gulp!!! Bye Bye America, Bye Bye!....

[David Guyatt]

VERY interesting French Economist speaks about the coming Very Great Depression in the USA [he predicts it will be evident in four months and MUCH worse than the Great Depression - complete with 'involvement' of the Military domestically, US defaulting on its debts, and more....] http://www.kpfa.org/archives/index.php?arch=29853

He believes it is the first wave of a systemic World Crisis. Even tinfoil hats won't save us now....nor Obama. He has a great line in the talk - that Obama has a fantastic economic recovery plan for an America that no longer exists. Do listen to this....makes those I posted of Tarpley look optimistic [sic]! Gulp!!! Bye Bye America, Bye Bye!....

Peter, that was a very, very intriguing and interesting broadcast. Farewell the dollar. Bye bye Sterling. Hello the Euro...

[Peter Lemkin]

Peter, that was a very, very intriguing and interesting broadcast. Farewell the dollar. Bye bye Sterling. Hello the Euro...

Their website is http://www.leap2020.eu and they seem to have been very successful in past predictions and have a good group of analyists. Depressing stuff! Article to match the talk here: http://www.leap2020.eu/GEAB-N-29-is-avai...9d307ec6b5

Maybe back to barter in English-speaking lands?

[Mark Stapleton]

Great stuff, Peter. I'll be keeping a close eye on that website.

When the pension funds collapse, combined with the predicted 20% plus unemployment, and the certain debt default and collapse of the dollar, you can bet those who profited from rampant capitalism will either leave the country or hole up in walled armed estates. Anarchy, crime and revolution will follow, imo. Interesting that Biancheri said Obama has assembled a good team for an America which no longer exists. There's no new people with new ideas. He'll have to make changes.

Massive expansion of welfare, combined with slashing military expenditure and other wasteful expenses like the WOD will be necessary and if the political system is too slow and cumbersome to adapt, that will have to be changed too.

[Magda Hassan]

NEW YORK (Reuters) - Jim Rogers, one of the world's most prominent international investors, on Thursday called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded.
Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government's $700 billion rescue package for the sector doesn't address how banks manage their balance sheets, and instead rewards weaker lenders with new capital.
Dozens of banks have won infusions from the Troubled Asset Relief Program created in early October, just after the Sept 15 bankruptcy filing by Lehman Brothers Holdings Inc (LEHMQ.PK: Quote, Profile, Research, Stock Buzz). Some of the funds are being used for acquisitions.
"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor.
"What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."
Rogers said he shorted shares of Fannie Mae (FNM.P: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.P: Quote, Profile, Research, Stock Buzz) before the government nationalized the mortgage financiers in September, a week before Lehman failed.
Now a specialist in commodities, Rogers said he has used the recent rally in the U.S. dollar as an opportunity to exit dollar-denominated assets.
While not saying how long the U.S. economic recession will last, he said conditions could ultimately mirror those of Japan in the 1990s. "The way things are going, we're going to have a lost decade too, just like the 1970s," he said.
Goldman Sachs & Co analysts this week estimated that banks worldwide have suffered $850 billion of credit-related losses and writedowns since the global credit crisis began last year.
But Rogers said sound U.S. lenders remain. He said these could include banks that don't make or hold subprime mortgages, or which have high ratios of deposits to equity, "all the classic old ratios that most banks in America forgot or started ignoring because they were too old-fashioned."
Many analysts cite Lehman's Sept 15 bankruptcy as a trigger for the recent cratering in the economy and stock markets.
Rogers called that idea "laughable," noting that banks have been failing for hundreds of years. And yet, he said policymakers aren't doing enough to prevent another Lehman.
"Governments are making mistakes," he said. "They're saying to all the banks, you don't have to tell us your situation. You can continue to use your balance sheet that is phony.... All these guys are bankrupt, they're still worrying about their bonuses, they're still trying to pay their dividends, and the whole system is weakened."
Rogers said is investing in growth areas in China and Taiwan, in such areas as water treatment and agriculture, and recently bought positions in energy and agriculture indexes.
(For summit blog: summitnotebook.reuters.com/)
(Reporting by Jonathan Stempel; Additional reporting by Jennifer Ablan and Herbert Lash)
http://www.reuters.com/article/newsOne/i...CO20081211

[Peter Lemkin]

Federal Reserve sets stage for Weimar-style Hyperinflation

by F. William Engdahl
http://globalresearch.ca/index.php?context=va&aid=11401
Global Research, December 15, 2008
The Federal Reserve has bluntly refused a request by a major US financial news service to disclose the recipients of more than $2 trillion of emergency loans from US taxpayers and to reveal the assets the central bank is accepting as collateral. Their lawyers resorted to the bizarre argument that they did so to protect 'trade secrets.' Is the secret that the US financial system is de facto bankrupt? The latest Fed move is further indication of the degree of panic and lack of clear strategy within the highest ranks of the US financial institutions. Unprecedented Federal Reserve expansion of the Monetary Base in recent weeks sets the stage for a future Weimar-style hyperinflation perhaps before 2010.

On November 7 Bloomberg filed suit under the US Freedom of Information Act (FOIA) requesting details about the terms of eleven new Federal Reserve lending programs created during the deepening financial crisis.

The Fed responded on December 8 claiming it's allowed to withhold internal memos as well as information about 'trade secrets' and 'commercial information.' The central bank did confirm that a records search found 231 pages of documents pertaining to the requests.

The Bernanke Fed in recent weeks has stepped in to take a role that was the original purpose of the Treasury's $700 billion Troubled Asset Relief Program (TARP). The difference between a Fed bailout of troubled financial institutions and a Treasury bailout is that central bank loans do not have the oversight safeguards that Congress imposed upon the TARP. Perhaps those are the 'trade secrets the hapless Fed Chairman,Ben Bernanke, is so jealously guarding from the public.

Coming hyperinflation?

The total of such emergency Fed lending exceeded $2 trillion on Nov. 6. It had risen by an astonishing 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14, when central bank governors relaxed collateral standards to accept securities that weren't rated AAA. They did so knowing that on the following day a dramatic shock to the financial system would occur because they, in concert with the Bush Administration, had decided to let it occur.

On September 15 Bernanke, New York Federal Reserve President, Tim Geithner, the new Obama Treasury Secretary-designate, along with the Bush Administration, agreed to let the fourth largest investment bank, Lehman Brothers, go bankrupt, defaulting on untold billions worth of derivatives and other obligations held by investors around the world. That event, as is now widely accepted, triggered a global systemic financial panic as it was no longer clear to anyone what standards the US Government was using to decide which institutions were 'too big to fail' and which not. Since then the US Treasury Secretary has reversed his policies on bank bailouts repeatedly leading many to believe Henry Paulson and the Washington Administration along with the Fed have lost control.

In response to the deepening crisis, the Bernanke Fed has decided to expand what is technically called the Monetary Base, defined as total bank reserves plus cash in circulation, the basis for potential further high-powered bank lending into the economy. Since the Lehman Bros. default, this money expansion rose dramatically by end October at a year-year rate of growth of 38%, has been without precedent in the 95 year history of the Federal Reserve since its creation in 1913. The previous high growth rate, according to US Federal Reserve data, was 28% in September 1939, as the US was building up industry for the evolving war in Europe.

By the first week of December, that expansion of the monetary base had jumped to a staggering 76% rate in just 3 months. It has gone from $836 billion in December 2007 when the crisis appeared contained, to $1,479 billion in December 2008, an explosion of 76% year-on-year. Moreover, until September 2008, the month of the Lehman Brothers collapse, the Federal Reserve had held the expansion of the Monetary Base virtually flat. The 76% expansion has almost entirely taken place within the past three months, which implies an annualized expansion rate of more than 300%.

Despite this, banks do not lend further, meaning the US economy is in a depression free-fall of a scale not seen since the 1930's. Banks do not lend in large part because under Basle BIS lending rules, they must set aside 8% of their capital against the value of any new commercial loans. Yet the banks have no idea how much of the mortgage and other troubled securities they own are likely to default in the coming months, forcing them to raise huge new sums of capital to remain solvent. It's far 'safer' as they reason to pass on their toxic waste assets to the Fed in return for earning interest on the acquired Treasury paper they now hold. Bank lending is risky in a depression.

Hence the banks exchange $2 trillion of presumed toxic waste securities consisting of Asset-Backed Securities in sub-prime mortgages, stocks and other high-risk credits in exchange for Federal Reserve cash and US Treasury bonds or other Government securities rated (still) AAA, i.e. risk-free. The result is that the Federal Reserve is holding some $2 trillion in largely junk paper from the financial system. Borrowers include Lehman Brothers, Citigroup and JPMorgan Chase, the US's largest bank by assets. Banks oppose any release of information because that might signal 'weakness' and spur short-selling or a run by depositors.

Making the situation even more drastic is the banking model used first by US banks beginning in the late 1970's for raising deposits, namely the acquiring of 'wholesale deposits' by borrowing from other banks on the overnight interbank market. The collapse in confidence since the Lehman Bros. default is so extreme that no bank anywhere, dares trust any other bank enough to borrow. That leaves only traditional retail deposits from private and corporate savings or checking accounts.

To replace wholesale deposits with retail deposits is a process that in the best of times will take years, not weeks. Understandably, the Federal Reserve does not want to discuss this. That is clearly also behind their blunt refusal to reveal the nature of their $2 trillion assets acquired from member banks and other financial institutions. Simply put, were the Fed to reveal to the public precisely what 'collateral' they held from the banks, the public would know the potential losses that the government may take.

Congress is demanding more transparency from the Federal Reserve and US Treasury on its bailout lending. On December 10 in Congressional hearings by the House Financial Services Committee, Representative David Scott, a Georgia Democrat, said Americans had 'been bamboozled,' slang for defrauded.

Hiccups and Hurricanes

Fed Chairman Ben S. Bernanke and Treasury Secretary Henry Paulson said in September they would meet congressional demands for transparency in a $700 billion bailout of the banking system. The Freedom of Information Act obliges federal agencies to make government documents available to the press and public.

In early December the Congress oversight agency, GAO, issued its first mandated review of the lending of the US Treasury's $700 billion TARP program (Troubled Asset Relief Program). The review noted that in 30 days since the program began, Henry Paulson's office had handed out $150 billion of taxpayer money to financial institutions with no effective accountability of how the money is being used. It seems Henry Paulson's Treasury has indeed thrown a giant 'tarp' over the entire taxpayer bailout.

Further adding to the troubles in the world's former financial Mecca, the US Congress, acting on largely ideological grounds, shocked the financial system when it refused to give even a meager $14 billion emergency loan to the Big Three automakers-General Motors, Chrysler and Ford.

While it is likely that the Treasury will extend emergency credit to the companies until January 20 or until the newly elected Congress can consider a new plan, the prospect of a chain-reaction bankruptcy collapse of the three giant companies is very near. What is being left out of the debate is that those three companies account for a combined 25% of all US corporate bonds outstanding. They are held by private pension funds, mutual funds, banks and others. If the auto parts suppliers of the Big Three are included, an estimated $1 trillion of corporate bonds are now at risk of chain-reaction default. Such a bankruptcy failure could trigger a financial catastrophe which would make what has happened since Lehman Bros. appear as a mere hiccup in a hurricane.

As well, the Federal Reserve's panic actions since September, by their explosive expansion of the monetary base, has set the stage for a Zimbabwe-style hyperinflation. The new money is not being 'sterilized' by offsetting actions by the Fed, a highly unusual move indicating their desperation. Prior to September the Fed's infusions of money were sterilized, making the potential inflation effect 'neutral.'

Defining a Very Great Depression

That means once banks begin finally to lend again, perhaps in a year or so, that will flood the US economy with liquidity in the midst of a deflationary depression. At that point or perhaps well before, the dollar will collapse as foreign holders of US Treasury bonds and other assets run. That will not be pleasant as the result would be a sharp appreciation in the Euro and a crippling effect on exports in Germany and elsewhere should the nations of the EU and other non-dollar countries such as Russia, OPEC members and, above all, China not have arranged a new zone of stabilization apart from the dollar.

The world faces the greatest financial and economic challenges in history in coming months. The incoming Obama Administration faces a choice of literally nationalizing the credit system to insure a flow of credit to the real economy over the next 5 to 10 years, or face an economic Armageddon that will make the 1930's appear a mild recession by comparison.

Leaving aside what appears to have been blatant political manipulation by the present US Administration of key economic data prior to the November election in a vain attempt to downplay the scale of the economic crisis in progress, the figures are unprecedented. For the week ended December 6 initial jobless claims rose to the highest level since November 1982. More than four million workers remained on unemployment, also the most since 1982 and in November US companies cut jobs at the fastest rate in 34 years. Some 1,900,000 US jobs have vanished so far in 2008.

As a matter of relevance, 1982, for those with long memories, was the depth of what was then called the Volcker Recession. Paul Volcker, a Chase Manhattan appendage of the Rockefeller family, had been brought down from New York to apply his interest rate 'shock therapy' to the US economy in order as he put it, 'to squeeze inflation out of the economy.' He squeezed far more as the economy went into severe recession, and his high interest rate policy detonated what came to be called the Third World Debt Crisis. The same Paul Volcker has just been named by Barack Obama as chairman-designate of the newly formed President's Economic Recovery Advisory Board, hardly grounds for cheer.

The present economic collapse across the United States is driven by the collapse of the $3 trillion market for high-risk sub-prime and Alt-A home mortgages. Fed Chairman Bernanke is on record stating that the worst should be over by end of December. Nothing could be farther from the truth, as he well knows. The same Bernanke stated in October 2005 that there was 'no housing bubble to go bust.' So much for the predictive quality of that Princeton economist. The widely-used S&P Schiller-Case US National Home Price Index showed a 17% year-year drop in the third Quarter, trend rising. By some estimates it will take another five to seven years to see US home prices reach bottom. In 2009 as interest rate resets on some $1 trillion worth of Alt-A US home mortgages begin to kick in, the rate of home abandonments and foreclosures will explode. Little in any of the so-called mortgage amelioration programs offered to date reach the vast majority affected. That process in turn will accelerate as millions of Americans lose their jobs in the coming months.

John Williams of the widely-respected Shadow Government Statistics report, recently published a definition of Depression, a term that was deliberately dropped after World War II from the economic lexicon as an event not repeatable. Since then all downturns have been termed 'recessions.' Williams explained to me that some years ago he went to great lengths interviewing the respective US economic authorities at the Commerce Department's Bureau of Economic Analysis and at the National Bureau of Economic Research (NBER), as well as numerous private sector economists, to come up with a more precise definition of 'recession,' 'depression' and 'great depression.' His is pretty much the only attempt to give a more precise definition to these terms.

What he came up with was first the official NBER definition of recession: Two or more consecutive quarters of contracting real GDP, or measures of payroll employment and industrial production. A depression is a recession in which the peak-to-bottom growth contraction is greater than 10% of the GDP. A Great Depression is one in which the peak-to-bottom contraction, according to Williams, exceeds 25% of GDP.

In the period from August 1929 until he left office President Herbert Hoover oversaw a 43-month long contraction of the US economy of 33%. Barack Obama looks set to break that record, to preside over what historians could likely call the Very Great Depression of 2008-2014, unless he finds a new cast of financial advisers before Inauguration Day, January 20. Required are not recycled New York Fed presidents, Paul Volckers or Larry Summers types. Needed is a radically new strategy to put virtually the entire United States economy into some form of an emergency 'Chapter 11' bankruptcy reorganization where banks take write-offs of up to 90% on their toxic assets, that, in order to save the real economy for the American population and the rest of the world. Paper money can be shredded easily. Not human lives. In the process it might be time for Congress to consider retaking the Federal Reserve into the Federal Government as the Constitution originally specified, and make the entire process easier for all. If this sounds extreme, perhaps revisit this article in six months again.

F. William Engdahl is author of A Century of War: Anglo-American Oil Politics and the New World Order (Pluto Press) and Seeds of Destruction: The Hidden Agenda of Genetic Manipulation (http://www.globalresearch.ca). His newest book, Full Spectrum Dominance: Totalitarian Democracy in the New World Order (Third Millennium Press) is due out early in 2009.