Why The Paulson Plan Will Fail

[Methodius]

The entire banking system of the United States is insolvent - ignore the lies of the financial quislings, this is a crisis of solvency and not, primarily, one of liquidity. Paulson, incorrectly, assumes that he can fix it by placing a tiny – and temporary - prop under one small part of it. But he is no Atlas, he is not even the boy with his finger in the dyke, for no adults will come to rebuild the walls whilst he, bravely, holds back the cataclysm.

Ask yourself, for a moment, how does the western banking system work? How is money created? As I’m sure you know, it’s created by debt. As you must also know, most debt is taken on to buy, and then, in theory, backed by, the value of housing. At the end of just about every usurious chain of debt based financial deceit, at the root of every CDO, every CDO squared, every bond, every asset backed security – including fiat currency itself – is some John or Jane Doe who borrowed someone else’s money to by a house and have their own go at the American dream. Twelve trillion dollars, all told, have been magicked into existence this way. That twelve trillion has then been, in turn, spent, deposited in banks, borrowed again, re-spent and so on. The resulting quadrillions of dollars are, thus, balanced on top of a few tall buildings, a few fragile wooden houses and some trailer parks. What is happening now is that some, and just a small part so far, of those initial twelve trillion dollars are being removed from the system. As the dollar value – note I say nothing of the intrinsic worth - of property falls, these prospectors of a new age realize that they found iron pyrites, not gold, and are walking away from their liabilities. Thus the illusion of money backed by assets falls away. It was always, and always will be in such a system, money backed by people and the productive work they are capable of. Two hundred and twenty years ago, Adam Smith concluded that the true worth of something can only be measured by the work required to create it, nothing has changed to invalidate that conclusion and nothing, in our lifetime at least, ever will.

Paulson’s plan is, when all its implications are considered, a plan to stop the financially enslaved citizens of his country walking away from their bonds. If they won’t pay their mortgages directly any more – that is, commit the fruits of their labor to re-paying their debts directly – the government will simply take the money from them, in aggregate, by force and give it directly to the usurers. If the banks can’t collect from their borrowers, the IRS, backed by the full force of the law enforcement agencies, will do it for them. Paulson is no fool, he has always known that assets do not back debts, people do and his plan his targeted accordingly.

What then if the plan goes ahead? Seven hundred and fifty billion dollars is a large number for sure but what effect will it have? It may prolong the death throws of the system for a few months but, with trillions more in write downs to come now that the ball has started to roll, that will surely be all it can do.

What if democracy prevails and, for the first time in many years, the government of the United States holds up those principles by which it was created and blocks the plan? The implosion will come quickly for sure – now that it has been announced, the markets, like the rabble beside the guillotine in revolutionary France, will explode with anger if denied their spectacle.

Either way, the final result will be, just as surely, a financial singularity. The entire corrupt, stinking usurious, edifice will come crashing back to earth destroying not only those that created it but, also, all those who lived in its shadow. A tower of debt and misery one thousand years in the building is close to catastrophic failure. No-one can prop it up now, the financial engineers will surely fail just as the real engineers failed with the tower of Babel.

But, yet, the situation is not entirely bad. I believe that the American people have finally had their moment of anamnesis. Finally, they have remembered what they always knew, what was in their DNA almost, there really is no free lunch, the laws of thermodynamics have not been repealed and the money lenders, whilst unwatched, have returned to the temple to work their ancient evil. So, just maybe, some good will come of all of this. After the usurers have finally been cast into the pit, maybe, following what I believe will be some long hard years of austerity and considerable suffering for all of us in the West, we will devise a new system of money not based on debt and, most importantly, not based on a central system of control that can be subverted and poisoned by a small group of individuals for their own ends. I hope so for all our sakes.

[Minderbinder]

You call that light?

[waitingscot]

You do realise the tower of Babel is a myth.

[Methinkshe]

Yep! That's the light at the end of the tunnel, for sure.

[Injin]

You call that light?

I would!

[interestrateripoff]

I don't think total collapse will happen.

The political elite will look for self preservation first and throwing the bankers to the wolves will the survival strategy.

[Minderbinder]

Yep! That's the light at the end of the tunnel, for sure.

It's the light of an oncoming train.

[Sinking Feeling]

You do realise the tower of Babel is a myth.

It's in London, I've seen it. Compare these two pics:

[Roman Roady]

Methodius, just about the most apocalyptic post I read here and that is saying something. I hope you are wrong! A few months back you would have been laughed off of here and subjected to a tirade rants from the once resident bulls. But now...????

[Guest mattsta1964]

The ...............sakes.

Interesting post and we are indeed at a rubicon in human history because if America slides into tyranny as a consequence, everywhere else will follow.

If the bill is passed, I suspect there is going to be civil unrest and insurrection by some people and groups. The response will surely be martial law and detention without representation.

Very scary times indeed.

The thing in favour of a better solution is the sheer insolvency of the US financial system. The whole edifice could come crashing down.

[Sourman]

Well put. Can't say I disagree with any of it.

Thank god there are so many guns in America today.

It will be war on Wall St.

[Roman Roady]

Where have all of the Bulls gone by the way?

[Panda]

The entire banking system of the United States is insolvent - ignore the lies of the financial quislings, this is a crisis of solvency and not, primarily, one of liquidity. Paulson, incorrectly, assumes that he can fix it by placing a tiny – and temporary - prop under one small part of it. But he is no Atlas, he is not even the boy with his finger in the dyke, for no adults will come to rebuild the walls whilst he, bravely, holds back the cataclysm.

Ask

Sort of sums it all up for me, fantastic post and goodnight!

[Thread Killer]

Either way, the final result will be, just as surely, a financial singularity. The entire corrupt, stinking usurious, edifice will come crashing back to earth destroying not only those that created it but, also, all those who lived in its shadow. A tower of debt and misery one thousand years in the building is close to catastrophic failure. No-one can prop it up now, the financial engineers will surely fail just as the real engineers failed with the tower of Babel.

It won't be that bad.

There are plenty of good banks that have not been lending badly, not to mention plenty of people (such as us on HPC) who have not been getting up to our eyeballs in debt. These will survive and proper in the crash. Its just a huge transfer of wealth, not a singularity.

Well not unless they move the CERN LHC to New York

[lowrentyieldmakessense(honest!)]

The entire banking system of the United States is insolvent - ignore the lies of the financial quislings, this is a crisis of solvency and not, primarily, one of liquidity. Paulson, incorrectly, assumes that he can fix it by placing a tiny – and temporary - prop under one small part of it. But he is no Atlas, he is not even the boy with his finger in the dyke, for no adults will come to rebuild the walls whilst he, bravely, holds back the cataclysm.

Ask yourself, for a moment, how does the western banking system work? How is money created? As I’m sure you know, it’s created by debt. As you must also know, most debt is taken on to buy, and then, in theory, backed by, the value of housing. At the end of just about every usurious chain of debt based financial deceit, at the root of every CDO, every CDO squared, every bond, every asset backed security – including fiat currency itself – is some John or Jane Doe who borrowed someone else’s money to by a house and have their own go at the American dream. Twelve trillion dollars, all told, have been magicked into existence this way. That twelve trillion has then been, in turn, spent, deposited in banks, borrowed again, re-spent and so on. The resulting quadrillions of dollars are, thus, balanced on top of a few tall buildings, a few fragile wooden houses and some trailer parks. What is happening now is that some, and just a small part so far, of those initial twelve trillion dollars are being removed from the system. As the dollar value – note I say nothing of the intrinsic worth - of property falls, these prospectors of a new age realize that they found iron pyrites, not gold, and are walking away from their liabilities. Thus the illusion of money backed by assets falls away. It was always, and always will be in such a system, money backed by people and the productive work they are capable of. Two hundred and twenty years ago, Adam Smith concluded that the true worth of something can only be measured by the work required to create it, nothing has changed to invalidate that conclusion and nothing, in our lifetime at least, ever will.

Paulson’s plan is, when all its implications are considered, a plan to stop the financially enslaved citizens of his country walking away from their bonds. If they won’t pay their mortgages directly any more – that is, commit the fruits of their labor to re-paying their debts directly – the government will simply take the money from them, in aggregate, by force and give it directly to the usurers. If the banks can’t collect from their borrowers, the IRS, backed by the full force of the law enforcement agencies, will do it for them. Paulson is no fool, he has always known that assets do not back debts, people do and his plan his targeted accordingly.

What then if the plan goes ahead? Seven hundred and fifty billion dollars is a large number for sure but what effect will it have? It may prolong the death throws of the system for a few months but, with trillions more in write downs to come now that the ball has started to roll, that will surely be all it can do.

What if democracy prevails and, for the first time in many years, the government of the United States holds up those principles by which it was created and blocks the plan? The implosion will come quickly for sure – now that it has been announced, the markets, like the rabble beside the guillotine in revolutionary France, will explode with anger if denied their spectacle.

Either way, the final result will be, just as surely, a financial singularity. The entire corrupt, stinking usurious, edifice will come crashing back to earth destroying not only those that created it but, also, all those who lived in its shadow. A tower of debt and misery one thousand years in the building is close to catastrophic failure. No-one can prop it up now, the financial engineers will surely fail just as the real engineers failed with the tower of Babel.

But, yet, the situation is not entirely bad. I believe that the American people have finally had their moment of anamnesis. Finally, they have remembered what they always knew, what was in their DNA almost, there really is no free lunch, the laws of thermodynamics have not been repealed and the money lenders, whilst unwatched, have returned to the temple to work their ancient evil. So, just maybe, some good will come of all of this. After the usurers have finally been cast into the pit, maybe, following what I believe will be some long hard years of austerity and considerable suffering for all of us in the West, we will devise a new system of money not based on debt and, most importantly, not based on a central system of control that can be subverted and poisoned by a small group of individuals for their own ends. I hope so for all our sakes.

spot on

and Good Luck

[HovelinHove]

I think the point about everything boiling down to fruits of labour is the essence of the whole issue of money. We need money, we need debt, we need a system like we have because we are basically a bunch of lazy buglers without it. It's the carrot and stick, for some the prospect of financial reward gets them out of bed in the morning, for others it is the fear of repossession...for a very small minority it is because they care passionately about what they do. We need slavery, we need the drones to go about their business so that the marvels of our modern age continue to get discovered.

Before coming to this site I pondered the whole boom bust thing for years without really understanding the mechanics behind it. All I could see was that there are the same amount of resources in the world one day to the next and the same amount of hands to manipulate those resources, so why did we have years of boom and years of bust? I know now, and it is because of our monetary system, but the bottom line is, for all its flaws, it has made the (developed ) wold a better place to live. It has driven innovation and creation to heights unimaginable two hundred years ago.

The other choice is to return to the dark ages with a population a fraction of what we have now, and be riddled with diseases and starvation.

I have also been thinking about all the Americans are whining about the bail out, in reality they only bailing themselves out They Mewed, they bought their second condos, their 4X4s, they happily danced to Wall Street's tunes while the times were good...just like with Iraq, this crisis shows the nation itself is jammed full of the biggest bunch of fu(king hypocrites on the planet.

[Methodius]

Methodius, just about the most apocalyptic post I read here and that is saying something.

You might also be interested in two of my posts earlier this year - here and here.

[Laura]

After you Methodius all else written seems like noise.

Respect; esp. for the second 'here'

[Tonkers]

Thank you Methodius, much needed clarity today for me!

Edited October 2, 2008 by Tonkers

[bear_with_me]

This post is absolutely spot on and if anything understates the probelm, particulalrly for the UK. This 700bn bailout is being thrown at a $14trn CDO problem, so is hitting about 5% of the toxic crap. Of this $14trn, only $3trn is actually help by US banks with the rest scattered around the globe, with a huge chunk of it in the UK. The bailout will do next to nothing for other countries holding this debt. Also remember this bailout is only targetting mortgage backed CDOs and will do nothing for the mountain of unsecured debt in the form of credit cards and car loans which is about to implode as the recession really kicks in. BUT, thatt is not even the real problem. The real problem is Credit Default Swaps which is a $62trn pile of crap derivatives that did for the likes of AIG and is going to make the CDO problem look like small change.

The positive aspect from a US perspective is that they have a diversified economy and will recover eventually. The UK is the opposite and totally reliant on Financial Services and a booming property market. We are totally screwed.

Unemployment and bankruptcies are going to rocket in the UK. House prices will fall 20% this year (only another 7% to go) and 30% next year without any shadow of a doubt.

[SurgeonGeneral]

I don't think total collapse will happen.

The political elite will look for self preservation first and throwing the bankers to the wolves will the survival strategy.

http://www.tickerforum.org/cgi-ticker/akcs-www?post=64606

I saw this too, and feel it is probably the true explanation of what is going on behind the scenes.

The Chinese will not have silently gone along with the demise of the dollar, therefore they will have spoken to the Americans at the highest level.

(from Karl Denniger's Ticker Forum, in breaking news......)

"This is in breaking because it is URGENT that we get the word out to every citizen in this country about not only what is happening but why it is happening. Karl, your latest video (and tireless work on this) is awesome, but you left out the most important part: WHY is this administration absolutely desperate to buy $700 billion in toxic foreign debt *right now* before any more time passes? Understanding this is the key that unlocks the truth for everyone. I'm beseeching all of you here, please use this thread to explore, explain and enunciate clearly the REASONS this atrocity is being forced upon us. Substantiating hyperlinks are VERY helpful, please. We need to understand WHY this is happening.

The short version seems to be not only are all the banks insolvent, the country itself is insolvent. The fiat money system is about to fail. This could well result in not only GDII, but total World War as well.

Here is, from what I can tell, what is really behind the Paulson Plan:

1) The government's fiscal year ended yesterday

2) The interest on the national debt this year is going to be about $1 trillion dollars

3) The Treasury is about $700 billion short of being able to pay the interest

4) The Paulson Plan purchases about $700 billion in toxic foreign assets

5) The foreign banks and investors then will take that money and purchase US Treasuries

6) The USA does not default on its debt immediately, as is about to happen (financial Armageddon)

7) Foreign countries are threatening "panic selling of US debt": http://www.bloomberg.com/apps/news?pid=n....

8) Paulson/Bush will veto any Bill that does not have this provision

As others here have put it, this is the mother of all margin calls on US debt.

Quoting directly from a poster on another forum who has been referenced here in at least two threads:

"The whole point of this $700 billion 'gift' to the primary dealers is to keep the US Treasury bubble from bursting. Even at today's ridiculous artificially low Treasury yields, the interest on the Federal Debt is over $400 billion per year. This year's budget deficit was around $400 Billion. With next year's budget deficit expected to approach or maybe exceed $1 TRILLION, they will need to have the primary dealers be able to absorb an ADDITIONAL $600-$700 Billion. Do you think they plucked that $700 Billion figure out of thin air? Paulson's plan is to give the primary dealers $700 billion of balance sheet relief with the understanding that they replace DOLLAR FOR DOLLAR the toxic mortgage securities they offload to the Taxpayer with newly issued US Treasuries. This whole thing is about lining up financing for next year's HUMUNGOUS Federal Budget Deficit in advance. The $700 Billion "gift" allows the primary dealers to handle $600-$700 Billlion more in expected 2009 Treasury issuance than they were able to do this year. They were able to handle $400+ Billion this year, so with $700 Billion of "help", they should be able to absorb the $1 Trillion next year. This how you go about financing (or at least try to) a $1 trillion budget deficit without printing. The real reason for this "bailout" is not that complicated and does not require any Tin Foil at all. Can you imagine Paulson and Bernanke telling a Congressional Committee that they expect the economy to completely tank next year and that the budget deficit is going to approach or exceed $1 Trillion? And by the way we need you to help the Primary Dealers out with $700 Billion in balance sheet relief at taxpayer expense so that they can help us finance it. No. They can't do that. So this is what we get. Vague references to "financial meltdown". It's not like they are out-and-out lying. Failed Treasury auctions will not produce pleasant consequences for anyone in the US. My point is that this "bailout" is not part of some Wall Street conspiracy to loot the US Treasury and taxpayer. Sorry to spoil everybody's fun. Rather, it is how the Treasury gets prepared to finance next year's gigantic budget deficit without printing money. I have said before that I am sure that the Chinese have already made "the phone call". The one where they say "You start printing and we start selling.""

Here are the primary dealers: BNP Paribas Securities Corp., Bank of America Securities LLC, Barclays Capital Inc., Cantor Fitzgerald & Co., Citigroup Global Markets Inc., Credit Suisse Securities LLC, Daiwa Securities, America Inc., Deutsche Bank Securities Inc., Goldman, Sachs & Co., RBS Greenwich Capital, HSBC Securities Inc., J. P. Morgan Securities Inc., Merrill Lynch Government Securities Inc., Mizuho Securities USA Inc., Morgan Stanley & Co. Incorporated, UBS Securities LLC

These primary dealers (PDs) all have hopelessly impaired balance sheets (they are insolvent) and as a result Treasury auctions are on the brink of total failure. And if Treasury auctions fail...

Financial Armageddon.

Put in it's simplest form, the Emperor has no clothes.

Please, fellow Market Ticker members, and especially please Karl, comment on this and help shape it into something powerful that can be used to help get the word out TODAY.

We cannot let our country fall into the abyss, and we cannot let our Constitution be destroyed by the abrogation of the separation of powers. WE MUST STEER THIS AS CITIZENS IN EVERY WAY POSSIBLE TO ENABLE AND ENACT A SUSTAINABLE OUTCOME!

Any clarifications, corrections and amplifications in this presentation of the crisis would be very helpful. Thanks."

End quote.

Nick

[JustYield]

Shit the bed this guy makes me look like a raging bull.

Paulson was given the ultimatum: do our laundry or the dollar gets it.

(I got out of dollars today on a macro gut feel. What's holding it up?)

[General Melchett]

If this is even remotely true, then even if it works this time around, what happens in 12 months time? Or 24? Or......

Hmmm.

JustYeild, I'm tempted to follow you out of Dollars, but if the greenback does go down, I think we would need to move into Things That Were In Short Supply During GD1 rather than any currencies....

[Injin]

If this is even remotely true, then even if it works this time around, what happens in 12 months time? Or 24? Or......

Hmmm.

JustYeild, I'm tempted to follow you out of Dollars, but if the greenback does go down, I think we would need to move into Things That Were In Short Supply During GD1 rather than any currencies....

It doesn't work.

They'll get the pay off then scarper with it.

Think about it. It's just like a bank run, only you know the bank will fall in 6 months time. You might not run down there today, but you are going to go in the near future. Then you realise that other people will be doing the same and so you have to go right now, today. First to panic wins.