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This Is What Democracy Looks Like

Today's Note From a Madman

Monday, August 20, 2007


Killing Iraq

The new Iraqi conflicts aren't escalations in the violence between Sunni and Shiite; nor is it the existing Bush-imported al-Qaeda against everybody; and it certainly isn't the ongoing violence of everybody against the US - after all, that's ongoing. No, the new violence is now occurring between different Shiite factions.

That's right Mr. and Mrs. American taxpayer, Shiites killing Shiites in Iraq is now all the rage. And guess what they're killing each other over. If you said "oil", you'd be correct!

In the latest bit of news needed to be spun, the governor of the Muthanna Province, in the "peaceful" southern part of Iraq has been killed. Governor Mohammed Ali al-Hassani, his driver and others who worked for him were killed by a roadside bomb as they left home and began traveling to Samawah, the Capital of the province. It was just last week that another top leader of the province was similarly killed. And they're pointing fingers at each other.

Both men who were killed were members of Abdul-Aziz al-Hakim's Supreme Islamic Iraqi Council. That political group owns about half of the seats in the provincial government and wields great power there.

The blame for the blast was put squarely on the shoulders of Muqtadr al-Sadr's Mahdi Army. Yes, that's the same Mahdi Army of the Sadr City slum who have killed dozens of American soldiers and whose leader has met with Iran's Mahmoud Ahmadinejad. Somehow. this illegal militia is still allowed free reign on the streets of Iraq without even a peep out of our American leaders.

Funny that.

And one wonders if Iran, a Shiite Muslim nation, is providing weapons and tactics, as the Bushies say they are, to both sides in this Shiite on Shiite fight.

How bad is it? This statement and who made it says it all:

"There was nothing against the governor inside the province except the confrontations between Mahdi Army and SIIC, which have claimed the lives of dozens of people,"
-a provincial officer

The officer - a member of the provincial police spoke only on condition of anonymity because he feared "retribution."

Iraqi Prime Minister Nouri Al-Maliki is ordering an investigation of the assassinations - just as soon as he gets back from Syria, no doubt, where he is attempting to stop the Syrians from allowing terrorists into his country. I hope he hadn't had to cut his vacation short for this.

"No, no to America," and American flag burning are seen on the streets of Sadr City, and there can be no doubt that much of the nation's violence emanates from there and through the encouragement of their leader, Muqtada al-Sadr.

If there was ever a reason to allow the chips fall where they may in a nation which doesn't appear to want us there, we now have that sign.

We need to get our troops out to a safer place, preferably inside of the Kurdish territory. We need to build our base (if we build a base) inside of that territory where we can be close, but allow the problem areas in Iraq to begin to fix themselves. As the Bushies like to tell us, the Sunnis in the Anbar Province have taken it upon themselves to fight al-Qaeda's terror tactics and influence there. we should allow the rest of the nation to do the same.

-Noah Greenberg

Mexican Oil and Hurricane Dean

"Shutting the 407 oil wells in the Campeche Sound will result in a production loss of 2.7 million barrels of oil and 2.6 billion cubic feet of natural gas a day, Pemex (Mexico's state oil company, Petroleos de Mexico) said. Of that, about 1.7 million barrels of oil a day is exported from three Gulf ports, where Pemex was loading the final tankers before shutting them as well."
-The Associate Press

Mexico is the third largest exporter of crude oil to the US, behind Canada (1) and Saudi Arabia (2).

Hurricane Dean, which is pounding the Gulf of Mexico and its oil rigs, is going to do for oil prices in the US what Katrina did for us in 2005. Just as a reminder, oil prices soared immediately after "The Big One" hit New Orleans (and the other Gulf Coast areas). The excuse they used was that they had to close the refineries. Of course, all of that black, slippery stuff tucked away in all of those giant storage bins should have kept prices down, but Big Oil (a.k.a. part of Bush and Cheney's "Base" of "Haves and Have Mores") saw an opportunity to cause a mini-shortage and rake in the American taxpayer dollars. Prices rose over one dollar per gallon in just one day and lines were around the block. With Mexico abandoning their Gulf oil rigs and evacuating (appropriately so) their 14,000 workers, you can bet your bottom dollar that there will be some substantial increase in gas prices.

And right before the big Labor Day drive-weekend to boot! How fortunate for Big Oil! And if the rigs actually get badly damaged, it will be like an early Christmas for Cheney and his energy buddies.

-Noah Greenberg

by Victoria A. Brownworth
copyright c 2007 Journal-Register Newspapers, Inc.

The majority of Americans live paycheck to paycheck, which means the recent flux in the stock market due to problems in both housing and credit is bad news for everyone because few can afford to lose a dime. The bloodletting on Wall Street is causing serious pain on Main Street.

After hitting an all-time high of just over 14,000 in July, the Dow Jones has been in free fall for the past two weeks, dropping nearly 1,200 points in that time, with a series of double-digit loss days. The mini-crash has impacted the worldwide financial markets, and by last week, Wall Street was sweating like it hasn’t since the big crash of 1989.

Then on August 17th , the Federal Reserve Bank cut its key discount rate by a half percentage point, which finally stopped the hemorrhaging. The dramatic move by the Fed–dropping its discount rate on loans to banks to 5.75 percent–was the most major effort yet by the nation’s central bank to calm the turbulent waters of Wall Street. The Fed had already tried other avenues. In the previous two weeks that the Dow was falling, the Fed had siphoned $87.5 billion in liquidity into the banking system. The Fed added another $32 billion on August 13th, but stocks continue to plummet as the housing market virtually collapsed and lenders refused to make loans, making it nearly impossible to either buy or sell a house.

The rate cut was the most intense and effective move toward stanching the flow of dollars out of the market. Fears about tightening credit have roiled global financial markets. The Asian market has lost more than seven percent in the past two weeks and the London market has had an equally rough time. The U.S. stock market–which lost a full ten percent as of August 16th–has spread its problems across the globe.

This financial crisis combined with an ever-weakening dollar have brought the R word into play among financial analysts.

Recession is bad for everyone, and it has been hovering ever-closer to Americans in recent weeks. The Fed hopes to stave it off, but only time will tell. Stock market analysts are already predicting the rise of a bear market–a loss of 20 percent in stock values and a continued decline. Analysts say the decline will continue well into 2009.

People who are not big players in the stock market tend to do what I have done most of my life–ignore the business news. I finally realized, albeit late, that the stock market impacts everyone, whether they have active investments in the stock market or not.

The current trauma on Wall Street has left no one in America untouched. Pension plans, 401k’s, IRAs, Fannie Maes–more than two-thirds of Americans have one of these and they have all taken a hit from Wall Street’s wild ride. More than 50 percent of Americans own stock, over and above any 401k’s or other pension plans. What’s more, prices are going up, but wages aren’t. Which means the dollar is worth even less than it has been in previous declines.

But the biggest hit has come with the bursting of the housing market bubble, which means that Americans who have long been told the best investment they can make is real estate, have been given a harsh reality check. Mortgage companies are going bankrupt and mortgage foreclosures are at their highest rate since the Great Depression.

More Americans own homes than ever before, and that is where their primary financial equity lies. Among people 25 and under, close to 30 percent own their own homes–an almost fifteen percent increase in the past 25 years. Nearly three in five African Americans own their own homes–the highest number in U.S. history. More than 120 million Americans own homes, which means nearly half of all Americans are in big financial trouble now. It’s the housing market bubble bursting that precipitated the current crisis on Wall Street.

Here’s what went wrong. A decade ago the housing market began an almost meteoric rise. There was a lot to buy and more to sell. People who were not real estate entrepreneurs were buying cheap in the hopes of selling big.

In addition, people who really couldn’t afford to buy their own homes, did. Mortgage companies began giving so-called subprime mortgages to anyone who wanted them. This is where Wall Street’s troubles began.

Subprime lending is risky at best. It means making loans to people who can’t qualify for the best market interest rates because of bad credit history. Subprime lending puts everyone involved at risk due to the combination of high interest rates, poor credit history and murky financial situations often associated with the people who apply for subprime mortgages. For the first time in American mortgage history, people could buy homes with zero percent down or with an interest-only payment, with nothing toward the principle. Previously people had to get either a variable rate of interest or a fixed rate mortgage. This meant the mortgage payments were artificially low, because the borrower was only paying on the interest at first, for the introductory grace period of these loans. Then the payments ballooned, doubling or tripling. People who could barely afford the low payment could no longer make their mortgage payments at all. This process also meant that for subprime borrowers there was no money applied to the principle of the loan and thus borrowers had no equity, just debt. Banks foreclosed on the properties, but because the value of the property was artificially inflated, the banks who made the loans also lost big. Subprime loans accounted for more than 27 percent of all mortgages, which means the losses to the real estate and banking industries were phenomenal. It also meant that any gains that had been made in the stock market due to subprime loans–between 15 and 30 percent–were lost.

A subprime loan also has a much higher percentage rate than a regular loan–as much as five percent more, which puts the risk of default higher as well. So when people began defaulting on these loans *en masse,* things began to get dicey on Wall Street a few months ago. Real estate stocks bundled into mutual funds and other financial plans began to tank, dragging everything down with them. More than two dozen subprime lenders filed for bankruptcy and several major mortgage companies reported low returns or filed for bankruptcy, as well. On August 13th, Countrywide Financial Corporation, the nation’s largest mortgage company, borrowed more than $11 billion in order to continue to grant mortgages. The stock market shuddered mightily in response. Hedge funds in real estate have taken a huge beating and the Dow Jones has responded, taking a nosedive.

But then the problem spread, because subprime wasn’t separated from *all* mortgage lending. The credit fears made everyone take a giant step back, which suddenly meant a virtual freeze on the housing market.

Sales of non-new homes have been stagnant for almost a year. Now they are at a standstill. People trying to sell their homes are taking losses of as much as 30 percent while even buyers who have A+ credit are finding it difficult to get mortgages for over $150,000, which is the lowest end of the housing scale for borrowing.

What does this all mean?

It means that people with iffy credit who currently have a mortgage could lose their homes at any time, through foreclosure or just because a failing mortgage company calls in its loans. More than 65 percent of American households have 20 percent credit debt over and above their mortgage debt. That’s a lot of debt. And a lot of debt will make it all the more difficult to get a new mortgage with another lender if the old mortgage company goes bankrupt.

The subprime lending scandal that started the current financial crisis was always controversial and many considered it predatory lending, inveigling borrowers who really didn’t understand the ramifications of what their mortgages entailed. But subprime mortgages helped build the housing bubble. Real estate stocks were giving a return of between 15 and 30 percent for several years. Now many of those same stocks are utterly worthless, causing many stockholders to have lost significant amounts of money and everyone with a 401k or other mutual fund to lose money, as well.

The controversy surrounding subprime lending expanded. Now the lending and credit crisis both in the subprime industry and in the greater financial markets, which began in the United States, is spreading. This is now perceived as a financial contagion which has led to a restriction on the availability of credit in world financial markets. Hundreds of thousands of borrowers have been forced to default and several major subprime lenders have filed for bankruptcy.

The news is grimmest for those who have the least investment in the stock market, however.

What has held the economy together in the past six years has been consumer spending. Much of that spending–which fuels a burgeoning stock market–has been predicated on people being able to borrow. This isn’t just borrowing on credit cards, but borrowing on their homes.

Mortgage refinancing hit an all-time high in 2001 and 2002. The money people received from those re-fis, they spent. Rather than turning it over to pay down consumer debt, borrowers spent the money on more consumable goods. This was great for the economy, but bad for individuals who just dug themselves further into debt–debt which their houses cannot possibly provide equity against in the current market.

People have been using their houses like ATM machines, refinancing and getting home equity loans. This has spread lots of cash around the economy, accounting for what President Bush has continually referred to as a “booming market.” But now that money is gone. The roulette table of the housing industry has taken with it the earnings home owners were banking on with their houses. But in this instance, no one has won–borrowers lost, the real estate market lost, banking lost and the stock market and investors lost. The country’s largest investment firms have nervously predicted that things will get worse before they get better. Democratic Senators Charles

Schumer (D-NY), Robert Menendez (D-NJ), and Sherrod Brown (D-OH) have suggested that the federal government offer funding to help borrowers in trouble avoid losing their homes. But economists are critical of this kind of consumer bailout, predicting that more loan defaults could be the result through more risky lending.

The biggest problem now–other than the threat of more losses–is an economic recession.

Recession is generally defined as a significant decline in economic activity throughout the economy, lasting more than a few months. Any recession can involve simultaneous declines in a range of overall economic activity: employment, investment, corporate profits. All of these have been impacted by the current housing and credit crises. Recessions are usually associated with falling prices (deflation), or, sharply rising prices (inflation). The housing mess has created both (stagflation)–falling prices for the real estate market, but rising costs due to credit losses.

The bottom line to the current crisis is this: each of us is responsible for our own fiscal management. A greedy real estate market or greedy individuals result in peril for everyone, whether they were involved in the greed grab or not.

Americans spend and spend. When 9/11 happened, President Bush told people to go to Disneyland, not to tighten their belts. When a nation is at war, rationing–not spending–should be the norm. But Americans are following the Bush Administration into the poorhouse–spending, spending, spending on things they cannot afford. Whether it’s $700 billion for an ill-conceived war on Iraq or taking out a mortgage that you cannot afford, it’s the same basic theorem: we want what we want when we want it, whether we can afford it or not.

The American Dream has always been predicated on a buy now, pay later schematic. Well, the chit has come in on the housing bubble. Americans seem unable to recognize–whether as a government or as individuals–that actions have consequences. The current crisis is a result of wholesale greed. Unfortunately, whether we were participants or not, now we all have to pay.

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-Noah Greenberg