The Last Era

" Well, I'd better go now, I'm almost at the wall."

With the passage of the Housing Bailout Bill, HR 3221, the emptying of the US Treasury is most likely guaranteed. The debt may last 50 years or longer, and what is worse, the confidence of investing in America is gone. What do you think the breakdown of the recent WTO talks was about? It is the beginning reluctance of the world to bend to the whims of the US over any matter involving trade or finance.

From the NY Times
"Treasury Secretary Henry Paulson now has the go-ahead for his two-part plan to salvage Fannie Mae and Freddie Mac, the government-sponsored mortgage companies — a blueprint that violates fundamental American principles in two worrisome ways.'

"First, the Treasury will be allowed to advance money to Fannie and Freddie (and even to buy their stocks) in unlimited quantities to keep them afloat — in any fashion Mr. Paulson sees fit. Yet the Constitution requires that “no money shall be drawn from the Treasury, but in consequence of appropriations made by law.” Even in wartime, budgets for the military specify how much is to be spent for what purposes.'

"Second, as an alternative to increasing the national debt, Mr. Paulson wants to let the two mortgage lenders become preferred customers of the Fed’s discount window, with the authority to pawn their own securities for cash. But only Congress has the constitutional power to borrow on the credit of the United States.'

"....foreign-government accounts now hold $985 billion worth of Fannie and Freddie paper. It explains why, in mid-July, Secretary Paulson (as well as Senator Chris Dodd, the Connecticut Democrat who heads the Senate Banking Committee) began giving press conferences about how sound the two firms really were, no need to worry. Behind the scenes, Treasury officials overseas made phone calls to the local central banks and finance ministries, stressing that the two mortgage giants would weather the storm.

"But the truth is that nobody knows. Fannie and Freddie have financed several hundred billion dollars of doubtful mortgage paper that may or may not pay off enough to meet their debts, and they cannot predict whether they will have gains or losses from their gigantic exposures in the derivatives markets."

Not to be left out of the "taxpayer money to cover losses on stupid bets we made" party, the banks have strong-armed the FASB:

"The Financial Accounting Standards Board, which sets U.S. accounting rules, voted on Wednesday to delay accounting changes that would affect trillions in off-balance sheet assets at banks and financial companies."

The FASB had voted in April to change accounting rules for level 3 assets held by banks and large financial institutions. The change would have forced multi-trillions of dollars in losses currently being hidden in "off-balance sheet" accounts onto the ledgers of these banks. Now, the FASB has capitulated to the pressure, and rescinded their decision. There is little doubt they will not re-enact the rule until the banks can get congress to also pay for these losses.

The following is just one of the reasons why the issue of level 3 assets is so important, from Karl Denninger:

"Let me see if I have this right - I may have it wrong, but I don't think so.
Two weeks ago Merrill "valued" some securities on their books in their earnings report and conference call at ~$11 billion.
Yesterday, suddenly, they're worth $6.7 billion, and is cited as the reason to sell a whole bunch of stock and massively dilute the firm's stockholders.
I suppose Merrill expects me (and everyone else) to believe that these "assets" decreased in value by nearly half in less than two weeks?
I mean, c'mon guys.
You are kidding, right?
As I see it, one of two things just might be true:
There is no ability to price these "assets" at any point in time and they lose, spontaneously, 20, 40, 50% of their value over two-week periods without warning. This calls into question the solvency of every firm that has similar assets on its books, worldwide.
They lied, blatantly. They made up a value for these securities and/or made up a number they wanted to report for "earnings", then figured out how to fit what they owned into that number, worrying about the truth of the matter two weeks later.
Now as I said, there may be some other explanation for how this happened, as I'm just a lowly blogger who is certainly not "skilled" in the "art" of high finance, but if there is, I sure can't figure it out and would love to see Merrill explain it to me (and everyone else.)
Oh Chris? Christopher Cox? Where are you? I thought you said you were concerned about market manipulation?
What the hell do you think THIS looks like to people like me and where are your investigators?"

Foreign accountants and economists know what this means. Because they know, so do their respective leaders.

Expect over the coming years decreasing foreign investment in our securities, and increasing foreign purchases of US assets (ie Anheuser Busch).

The debt load of the US is already beyond any ability to pay back. Now, with the passage of HR 3221 and the almost guaranteed future bailout bills, we can expect, at a minimum, a doubling of our country's debt.

Is it right for you, the taxpayer, to allow the financial leaders of this country to keep their profits and bonuses and million dollar houses and yachts and vacation homes....etc., while you are expected to keep working to pay the taxes going to cover their bad business decisions?

This is exactly what is happening right now.

And..., the world is watching.