Daily Digest - Feb 11

Tuesday, February 10, 2009, 6:45 PM
  • Pink Slips At Wal-Mart HQ
  • UBS to Cut 2,000 Jobs After a Huge Loss
  • SIRIUS Bankruptcy
  • Boomers - your crisis has arrived
  • China Needs U.S. Guarantees for Treasury Bond Holdings, Yu Says (Hat Tip Homosapiens)
  • Russia Companies Asked by Banks to Hold Debt Talks
  • Four Bad Bear Markets, Down 1929-1932; S&P 500 1973-1974; 2000-2002; 2007-2009 (Update)
  • Wholesale Sales (Durable vs. Non-Durable Goods
  • Revolving Credit Free Fall
  • More...
  • Revolving Credit Free Fall (Article)
  • Fannie, Freddie Funding Needs May Pass $200 Billion, FHFA Says
  • FT's Wolf: U.S. Too "Politically Frightened" to Admit Truth About Banks, Part I (Hat Tip GThomson)
  • Embrace Your Inner Fear! (Video, Hat Tip GThomson)
  • Why Obama's new Tarp will fail to rescue the banks
  • 21 days to failure
  • Can We Fix the Banks, Help Homeowners, and Rebuild the Mortgage Markets? Can Do. (Hat Tip GThomson)
  • The Rorschach plan
  • Secretary Geithner Introduces Financial Stability Plan
  • "Fact" Sheet
  • The Financial Crisis Is Driving Hordes of Americans to Suicide (Hat Tip Yoshhash)
  • Cluster*** to the Poor House - The Death of Hope (Humor, little vulgar, skip if nesc.)
  • Solving the Economic Crisis (Humor)
  • Gun dealers experiencing shortages of bullets (Hat Tip Mike Pilat)
  • Recession? No, It's a D-process, and It Will Be Long (Hat Tip Heather)


Pink Slips At Wal-Mart HQ? (WMT) 

Wal-Mart Stores Inc. (NYSE: WMT) was supposed to be a winner in the economic slide as the "trade down" shopping destination. It goes without saying that Wal-Mart has more than a few critics. Now it looks like it will get a few more employee relations problems. The reason: LAYOFFS. 

The Arkansas Democrat Gazette has reported that Wal-Mart has started layoffs to to the tune of 700 to 800 jobs in the Bentonville, Arkansas headquarters. The paper reports that the cuts are coming in merchandising, real estate, marketing, support, and some corporate functions. It also notes that it plans to move more employees to New York for its apparel operations.

700 or 800 may not sound like much for the size of the company. But this is out of 14,000 that work at the HQ. Out of some 2 million workers, any additional pressure on spending may only bring more cuts. That might only bring on more labor problems. That would be our guess any how as the company is under new management and has been cutting its new store openings.

This truly is worse for the economy than a zero-sum game if Wal-Mart has to start laying people off. That new "Save Money. Live Better." slogan may have to change to "Make Less. Spend Less." 

UBS to Cut 2,000 Jobs After a Huge Loss 

ZURICH -- Swiss banking giant UBS AG announced more staffing cuts at its investment-banking operation, saying it would cull more than 2,000 jobs as it reported the largest annual loss ever by a Swiss company. 

Only four months after turning to the Swiss government for a financial-aid package, the bank on Tuesday reported a larger-than-expected net loss of 8.1 billion Swiss francs ($6.96 billion) for the fourth quarter of 2008, bringing its loss for the entire year to 19.7 billion francs. UBS also said it would sharply reduce bonus payments as part of an agreement with Swiss regulators, paying out ... 

SIRIUS Bankruptcy (SIRI, SATS) 

Sirius XM Radio Inc. (NASDAQ: SIRI) is being quoted on, New York Times, the WSJ, and elsewhere as either "filing for bankruptcy protection" or that it was "near to filing for bankruptcy protection." 

I had just returned a call to Michael Hartleib of, a group he is leading against the company and its current path, as this news was coming across the news tape. Needless to say, Mr. Hartleib did not exactly sound too happy. That was why he was calling.

Sirius is part of our "companies that won't make it" for 2009, which is a list of 10 stocks that have operating business but may file for bankruptcy protection or worse. Bankruptcies are almost never any good for shareholders of common stock. Not unless they need a big tax write-off against capital gains.

Hartleib has also noted some issues about conflicts of interest over the SIRIUS debt purchases by EchoStar Corp. (NASDAQ: SATS). 


"There is a mysterious cycle in human events. To some generations, much is given. Of other generations, much is expected. This Generation has a rendezvous with destiny." Franklin Roosevelt - 1936 

China Needs U.S. Guarantees for Treasury Bond Holdings, Yu Says (Hat Tip Homosapiens) 

Feb. 11 (Bloomberg) -- China should seek guarantees that its $682 billion holdings of U.S. government debt won't be eroded by "reckless policies," said Yu Yongding, a former adviser to the central bank. 

The U.S. "should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way," Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt.

Benchmark 10-year Treasury yields climbed above 3 percent this week on speculation the government will increase borrowing as President Barack Obama pushes his $838 billion stimulus package through Congress. Premier Wen Jiabao said last month his government's strategy for investing would focus on safeguarding the value of China's $1.95 trillion foreign reserves. 

Russia Companies Asked by Banks to Hold Debt Talks 

Russia's government and most companies and banks have accumulated sufficient foreign currency to cover about $135 billion of foreign corporate debt due this year, Aksakov said.

"The banking association isn't empowered to hold talks, it can make suggestions, but the creditors themselves would be responsible for restructuring," he said in an interview with Bloomberg Television today.

HSBC fell 2.9 percent and Deutsche Bank added 0.2 percent in European trading.

"People expect that part of these debts were from the European banking system," said Sebastien Barbe, a strategist at Calyon in Hong Kong, the investment banking unit of France's Credit Agricole SA. "You already have a very weak banking system in Europe. If you have these Russian issues, the next step would be questions about whether similar problems will come out of other eastern European countries."

Russia will enter a recession and run a federal budget deficit this year for the first time in a decade, according to the government. The ruble tumbled 35 percent against the dollar since August, as the central bank drained more than a third of the country's foreign-currency reserves to stem the decline.


Four Bad Bear Markets, Down 1929-1932; S&P 500 1973-1974; 2000-2002; 2007-2009 (Update)

Wholesale Sales (Durable vs. Non-Durable Goods

Revolving Credit Free Fall

Revolving Credit Free Fall (Article) 

Inside ARM reports (bold mine): 

With banks freezing credit lines and the economy tanking, consumer credit in the U.S. declined in December 3.1 percent for the third straight month. It's the longest slide in consumer since 1991.

The Federal Reserve reported late Friday that overall consumer credit outstanding in the U.S. dropped by $6.6 billion in December, or at an annualized rate of 3.1 percent. The Fed's consumer credit report, called the G.19, does not include debt backed by real estate.

Most of the decline was in revolving credit, most commonly comprised of credit card debt. Revolving credit fell $6.32 billion, or 7.8 percent annualized (5.3% annualized over the quarter), to a total of $963.55 billion outstanding in December. In November, revolving credit declined 8.5 percent. 

Fannie, Freddie Funding Needs May Pass $200 Billion, FHFA Says 

Feb. 10 (Bloomberg) -- Fannie Mae and Freddie Mac, the mortgage-finance companies seized by regulators, may need more than the $200 billion in funding pledged by the U.S. government if the housing market continues to deteriorate, Federal Housing Finance Agency Director James Lockhart said. 

The companies' needs will depend largely on the direction of home prices, Lockhart said in an interview in Las Vegas yesterday. His comments followed statements from Fannie Mae in November and Freddie Mac Chairman John Koskinen last week that the government's funding commitment through 2009 may fall short of what the companies need to make good on their obligations.

"When we sized the amount in September, we obviously looked at stress tests and what was happening in the marketplace," Lockhart said. "There's been some significant events since then that weren't in our forecast."

The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth, according to a Feb. 3 report from Following a record boom, home prices are down 25 percent on average since mid-2006 amid a tightening of lending standards and an economic recession, the S&P/Case-Shiller Composite 20-city price index shows.

FT's Wolf: U.S. Too "Politically Frightened" to Admit Truth About Banks, Part I (Hat Tip GThomson)

Embrace Your Inner Fear! (Video, Hat Tip GThomson)

Cluster*** to te Poor House - The Death of Hope (Humor, little vulgar, skip if nesc.)

Solving the Economic Crisis (Humor)

Why Obama's new Tarp will fail to rescue the banks 

Under the second view, a sizeable proportion of financial institutions are insolvent: their assets are, under plausible assumptions, worth less than their liabilities. The International Monetary Fund argues that potential losses on US-originated credit assets alone are now $2,200bn (€1,700bn, £1,500bn), up from $1,400bn just last October. This is almost identical to the latest estimates from Goldman Sachs. In recent comments to the Financial Times, Nouriel Roubini of RGE Monitor and the Stern School of New York University estimates peak losses on US-generated assets at $3,600bn. Fortunately for the US, half of these losses will fall abroad. But, the rest of the world will strike back: as the world economy implodes, huge losses abroad - on sovereign, housing and corporate debt - will surely fall on US institutions, with dire effects. 

Personally, I have little doubt that the second view is correct and, as the world economy deteriorates, will become ever more so. But this is not the heart of the matter. That is whether, in the presence of such uncertainty, it can be right to base policy on hoping for the best. The answer is clear: rational policymakers must assume the worst. If this proved pessimistic, they would end up with an over-capitalised financial system. If the optimistic choice turned out to be wrong, they would have zombie banks and a discredited government. This choice is surely a "no brainer".

The new plan seems to make sense if and only if the principal problem is illiquidity. Offering guarantees and buying some portion of the toxic assets, while limiting new capital injections to less than the $350bn left in the Tarp, cannot deal with the insolvency problem identified by informed observers. Indeed, any toxic asset purchase or guarantee programme must be an ineffective, inefficient and inequitable way to rescue inadequately capitalised financial institutions: ineffective, because the government must buy vast amounts of doubtful assets at excessive prices or provide over-generous guarantees, to render insolvent banks solvent; inefficient, because big capital injections or conversion of debt into equity are better ways to recapitalise banks; and inequitable, because big subsidies would go to failed institutions and private buyers of bad assets.

Why then is the administration making what appears to be a blunder? It may be that it is hoping for the best. But it also seems it has set itself the wrong question. It has not asked what needs to be done to be sure of a solution. It has asked itself, instead, what is the best it can do given three arbitrary, self-imposed constraints: no nationalisation; no losses for bondholders; and no more money from Congress. Yet why does a new administration, confronting a huge crisis, not try to change the terms of debate? This timidity is depressing. Trying to make up for this mistake by imposing pettifogging conditions on assisted institutions is more likely to compound the error than to reduce it. 

21 days to failure

Per Paul Kedrosky, Obama is out in the media trying hard to make nationalization of the money-center banks look impossible. so far from being impossible, it is necessary -- but it is becoming clearer now that the democrats will have to be dragged to a meaningful solution of this nation's financial and economic problems kicking and screaming like little children, while the financial system remains paralyzed and the economy falls into a deep depression for a lack of real leadership.


Can We Fix the Banks, Help Homeowners, and Rebuild the Mortgage Markets? Can Do. (Hat Tip GThomson) 

"The economic spiral starts and ends with housing. If we do not slow and stop the erosion of the ad valorem tax base in this country, we are going to have really serious problems. If you put the mortgage credit relationship and the servicing back into the hands of the local bankers who know the market and the people, we can save millions of home owners from foreclosure and dozens of banks from failure. We may never be able to resurrect the asset securitization market as it was, but we can stabilize the housing market and the local tax base by getting these assets back into the hands of bankers who understand how to manage credit. I've had transient customers along the Mexican border who would disappear for months at a time and then reappear at my office with six months of mortgage payments in cash. Only local bankers have these kind of relationships. You cannot manage a credit or really service a loan over the telephone. Give America's community bankers these toxic assets and we'll make the most of these credits."

The Rorschach plan 

An old joke from my younger days: What do you get when you cross a Godfather with a deconstructionist? Someone who makes you an offer you can't understand. 

I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan. It's really not clear what the plan means; there's an interpretation that makes it not too bad, but it's not clear if that's the right interpretation. 

Secretary Geithner "Introduces" Financial Stability Plan

"Fact" Sheet

The Financial Crisis Is Driving Hordes of Americans to Suicide (Hat Tip Yoshhash) 

The body count is still rising. For months on end, marked by bankruptcies, foreclosures, evictions, and layoffs, the economic meltdown has taken a heavy toll on Americans. In response, a range of extreme acts including suicide, self-inflicted injury, murder, and arson have hit the local news. By October 2008, an analysis of press reports nationwide indicated that an epidemic of tragedies spurred by the financial crisis had already spread from Pasadena, California, to Taunton, Massachusetts, from Roseville, Minnesota, to Ocala, Florida. 

Gun dealers experiencing shortages of bullets (Hat Tip Mike Pilat)

Selling bullets may be the most secure job in Florida as long as supplies last.

After months of heavy buying, gun dealers across the state are experiencing shortages.

Some say it began with the election of President Barack Obama. Others say it's about the economic downturn or fear of crime. Whatever the reasons, ammunition has been selling like plywood and bottled water in the days before a hurricane.

"The survivalist in all of us comes out," said John Ritz, manager of East Orange Shooting Sports in Winter Park. "It's more about protecting what you have."

Demand for bullets is so strong that suppliers are restricting deliveries.

"Where we used to get 20 to 30 cases [in a shipment], we may get two to three cases now," said Vic Grechniw of Florida Ammo Traders in Tampa. "The supply just isn't there. . . . Everybody is pretty much rushing out to get their hands on whatever they can."

Most in demand is handgun ammunition, including 9 mm and .45-caliber for semiautomatic pistols and .38-caliber for revolvers. Clerks at local Walmart stores, including Apopka and Kissimmee, say those sizes, along with .22-caliber, are on back order at the chain's warehouses.

American gun owners buy about 7 billion rounds of ammunition yearly, according to the National Rifle Association. It has been warning its several million members that Obama favors raising taxes on bullets to make them prohibitively expensive.

"Anecdotal evidence certainly suggests that the demand for ammunition is continuing to increase, and that is certainly attributable to gun owners' concerns with the current administration," said Ted Novin, a spokesman for the National Shooting Sports Foundation, a trade association representing 4,700 members.

Recession? No, It's a D-process, and It Will Be Long (Hat Tip Heather) 

Where is the U.S. and the rest of the world going to keep getting money to pay for these stimulus packages? 

The Federal Reserve is going to have to print money. The deficits will be greater than the savings. So you will see the Federal Reserve buy long-term Treasury bonds, as it did in the Great Depression. We are in a position where that will eventually create a problem for currencies and drive assets to gold.

Are you a fan of gold?


Have you always been?

No. Gold is horrible sometimes and great other times. But like any other asset class, everybody always should have a piece of it in their portfolio. 

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nickbert's picture
Status: Diamond Member (Offline)
Joined: Jan 14 2009
Posts: 1206
Re: Daily Digest - Feb 11
Dogs_In_A_Pile wrote:
nickbert wrote:

That's my primary worry, that they are gearing up for a resource grab. Not necessarily looking to tangle with the US, but their smaller neighbors or unstable resource-rich nations elsewhere might be too tempting to pass on.  Their level of civil unrest is already getting worrisome, but it would pale in comparison to what they'd see if energy supplies and raw materials become scarce and their economy completely tanked.  So they may see it as their only option.  And even if they don't WANT to confront the US or other larger nations, war has a funny way of getting everyone involved.  Sigh...

That is an interesting scenario - assuming SHTF and they do start spilling out of their borders in a land and resource grab.  However, societal disintegration continues on and erupts into full blown and violent civil disobedience.  At what point would they have to abandon their external pursuits to come back and quell the uprising?  And wouldn't that likely cause the collapse of everything Sino?


Very likely.  I think the odds are fair that China will go that route in the attempt to keep their economy going and the people from outright revolution, but that doesn't necessarily mean I think they will succeed at it...

My view is that it would be a move of desperation, essentially.  If the global situation gets truly chaotic and the US and other major powers are too busy with their own troubles, then the Chinese gov't might conclude that a land/resource grab (and holding onto that territory) would be a manageable risk and their best, last chance to stay in power over the long term.  It's likely the Chinese gov't will do anything that maintains the status quo and their hold on the country.  If it's a choice between a dangerous plan that just MIGHT keep them in power and a good stable plan that moves them out of power, I expect them to choose the first (not that China would be alone in that respect...).  Perhaps their hope would be that they could keep the unrest in check until they've secured their new acquisitions, or maybe they'd implement a sweeping and brutal crackdown on protests at home to keep things quiet.  As I said it would be a desperate move.... but we're already seeing some truly desperate moves over the past several months by many nations in the hope of salvaging their economies.

Again, I truly hope that doesn't come to pass, and in the absence of any war I expect things to be awful for quite a while but not SHTF, and things will eventually get better as people adjust.  I will be paying attention to the news though, and if war breaks out then I expect the international scene will turn into an "everyone for themselves" global slap-fight, militarily and financially.

I know, I'm just a big ray of sunshine, aren't I?  :^)

- Nickbert


nickbert's picture
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Posts: 1206
Re: Daily Digest - Feb 11
Mike Pilat wrote:

Question for all: Does anyone think we are going to get in another space race of sorts with China this time?

China is showing a lot of interest and advancement in this area, though there are mixed signals coming from the US as to how much money we are willing to spend on this. Last I heard, our Orion project has been cycling between various states of commitment and partial retreat.

That would seem to be the direction we're heading.  China is still significantly behind the US in this area, but with their hard work (and stolen technology ;^) their progress over recent years has been pretty impressive and the gap is narrowing.  I would actually call this a good thing for the world overall, IF China keeps their space ambitions peaceful.  That's a real big "if" though, huh? 

I don't think there's a lack of political will (not yet anyway) in funding the space program in the US.  Rather, what I've gathered so far is that most of the problems with the Orion project are technical in nature, or involve politics getting in the way of design.  You know, "we want it done this way so my state gets more jobs!", and so on.  Never mind what design is best from a technical and cost standpoint, as long as some chowderhead in Congress thinks the most important thing is that his state/district gets the money and jobs...

(okay I'll end that rant there; that just happens to be a particular pet peeve of mine)

- Nickbert

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Posts: 365
Re: Daily Digest - Feb 11

Russia and China have considerable trade:

This compares with a Russian GDP of 1.3T (2007) and Chinese 3.2T

The Russians have not forgotten what happened after 1990 when the West participated in grand theft of Russian assets and attempted to gain control of Russian energy resources. The Russian middle class lost most of its savings at that time and experienced hard times like those that are currently forecast for many economies. I believe many in the West hoped that the breakup would continue further than it did. Putin, his faults aside, stopped much of the the export of capital and profit to the west - and is very popular for it.

Energy prices and the fate of the USD are topics of considerable interest in both Beijing and Moscow. They are competitors but I don't believe they see armed conflict as serving their interests.

...I fear some in the US may - as a way to try and "reset" a financial system that is hollowed out and broken, but still standing at the moment. A way to change the rules of the game and seize advantage. No other player has the power and capability to do this - and the ability to do this may diminish as the financial crisis proceeds, particularly if domestic conditions continue to deteriorate and civil unrest starts to occur. If people wholesale begin to blame the government for their problems there will be temptation to attempt to redirect anger elsewhere.

I really see the "recovery" plan as an attempt to buy time to try and work out a new international financial framework that doesn't drastically alter the current power structure. Whether or not this is a good idea I am not convinced an "acceptable" and workable solution is available.

There is no way that an established and entrenched financial/corporate/government will or can effect radical reorginization of the type required to fix the fundamental financial crisis facing us - there would necessarily be too many losers - too much pain, and no concensus on who should bear it. Obama is not a dictator - only president, and one who had to compromise some important principles to even be let in the door. He certainly cannot dictate to the financial interests that let him in - unless they become considerably weaker as the crisis progresses. 



Denny Johnson's picture
Denny Johnson
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Posts: 348
Re: Daily Digest - Feb 11

This is from another site to which I subscribe:

...............Disclaimer: This is intended as commentary on nauseating Congressional grandstanding and ignorance, not as a defense of those running the banks.

With that said, a perfect question offered by Doug Kass today:

"Why don't the bank CEOs redirect and ask the committee how many of them would be willing to work for $1 until the government returns to a budget surplus?"................


CB's picture
Status: Gold Member (Offline)
Joined: Mar 18 2008
Posts: 365
Re: Daily Digest - Feb 11

There is a suggestion that Geithner was deliberately vague in his presentation because he is holding the threat of nationalization over the banks in order to convince them to play ball with the administration (if so, what is the game exactly?). Coercion without taking direct responsibility that nationalization would entail.


What does the administration want from the banks? Power without accountability

February 11th, 2009
David Goldman

If the government actually nationalizes the banks, then the government has to take responsibility for what they do, and for the economic outcome. Why should the Obama administration want to do something that stupid? The puzzle in Geithner’s approach is the presumption that the administration actually believes that the banking system is NOT lending, and that the economy would recover if it were to lend. That is perfectly ridiculous, of course. The banking system has been lending plenty, and as I observed in a post earlier this week, during December it added non-Treasury securities (corporates and mortgages) at an annual rate in excess of 40%. This is obvious, and Geithner is not stupid.

The administration is not optimizing economic results so much as it is optimizing its own power. The pathetic spectacle of a parade of bank CEO’s humbling themselves before the Barney [Frank] Show in Washington is a sign of the times. By dribbling in capital through the preferred part of the capital structure, along with equity warrants, the White House avoids formal control of the banks. But it runs them just the same. It has maximum power and minimum accountability.

In Europe, where civil servants and commercial bankers go to the same schools, have the same income expectations, and work the same hours, it really doesn’t matter whether you nationalize the banks or not. The same sorts of people will run them with the same sorts of results.

America is different; as the President rightly said in his Nightline interview last night, the culture is different. America has a bare-knuckles political market in public goods. The moment you nationalize a Citicorp or a Bank of America, every Congressman will have an opinion as to where it should lend, preferably in his/her home district. And why did it close branches, and fire tellers? And why isn’t it sponsoring the local sports team? Trying to run nationalized banks on the American political model would be the stuff of a Preston Sturges comedy.

Why does Geithner refuse to give details of what he will do? The classic, universal Wall Street answer applies: Because he can. He can use stress tests to prove that every bank would insolvent just one standard deviation away from where we are now (at 45% on the VIX, a standard dev is sickeningly large), and force them all to swallow Federal capital along with Federal controls. Or he can ease up on mark to market rules, and make them all show tidy profits during the first quarter. Given that bank executives are working for restricted stock, Geithner has a great deal to say about whether they eventually will get paid. He is making it up as he goes along because he can get away with doing so. As long as the credit market continues to fund the banks (and the Fed does so) it is immaterial where their equity trades during the next several months.

Keeping the banks afloat under nominally private ownership also avoids vaporizing the $800 billion universe of bank capital hybrid securities, perhaps 40% of which are owned by insurers who look much tippier than the banks.


As I mentioned above, TPTB are  meeting in an attempt to work out an acceptable international solution:


Feb 13th, 2009 | NEW YORK -- Stocks dipped in early trading Friday, with investors anxious about the economy but hopeful more details will emerge about government efforts to revive it.

Wall Street is waiting to see if finance leaders from the United States, Canada, Japan and other major industrialized nations will come up with some clear, specific ways to repair the global financial system. Officials from the Group of Seven are gathering in Rome Friday to discuss new rules for financial markets, as well as concerns about protectionist measures in stimulus plans.

Earlier this week, Wall Street took a tumble after U.S. Treasury Secretary Timothy Geithner revealed plans to assess financial institutions' health and remove their toxic assets with the help of private investors -- but gave few details about how the process would work.

"Hopefully, we might have a little more insight into Geithner's plan, which will probably be discussed in great length at the meeting," said Peter Cardillo, chief market economist at Avalon Partners Inc.


and Clinton will visit Asia to work with that side of the equation. I believe that one of the important elements in the whole mess is the way Wallstreet so heavily sold CDOs and other such "investments" into overseas markets, thus destabilizing them - and the secrecy surrounding the bailout funds is in part related to the international web of weakness created by this foolishness. The US is held responsible by many in Europe and Asia, but as BAU cannot resume unless the US is allowed to "borrow" everyone is on the hook - cooperation or chaos.

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