By Greg Hunter’s USAWatchdog.com  

In April of this year former Fed Chief Paul Volcker described the problems facing the economy as the “mother of all crises.”  That was a critical and amazing statement, not just because of the implications of what was said but, more importantly, by who said it.  It almost seemed over the top at the time, but now everyday everyone from Wall Street to Main Street is wondering just how bad the economy will get and when it will bottom.  It seems every week there is a new and even bigger crisis.  This week the GSE’s Fannie and Freddie are being talked about in terms of when not if they will be taken over by the government. This is big folks because these two GSE’s hold half the mortgages in America…a staggering amount of more than 5 trillion dollars. The cost of the bailout according to the Congressional Budget Office is anywhere from 0 to 100 billion dollars.  Wow!!! What a spread in price!   That estimate leads me to believe that the CBO just does not really have a handle on the answer.

In another crisis, last week the Attorney General of New York and others announced the beginning of settlements to force almost all the big financial institutions to buy back hundreds of billions in “Auction Rate” securities.  These “securities” were supposed to be as safe and liquid as a money market account but as NY AG Andrew Cuomo has said they were anything but safe and liquid.  Cuomo has fined the biggest players in the brokerage and banking business hundreds of millions of dollars in penalties.  In some cases State AG Cuomo alleged out right fraud.  These folks are lucky no one is going to jail over this problem.

And let’s not forget the recurring nightmare of the continuous bank and brokerage write offs and losses due to the sub prime crisis, aka the over the counter derivative or securitized debt.  This kind of securitized debt is unprecedented in history.  The total amount ranges from 500 to 1000 trillion dollars.  During the last decade almost every debt was packaged into a bond or security and sold.  The masters on Wall Street “securitized” everything it could get its hands on:  sub prime to prime mortgages, car loans, student loans and credit card debt just to name a few.  This kind of debt was supposed to be a financial innovation and according to Alan Greenspan and others needed no regulation.  This means there are no standards and no guarantees and plenty of other not so nice characteristics of this kind of “security.”    These “securities” in most cases were sold as triple A rated or equal to a U.S. Treasury and that means “riskless.”  So far those “riskless” mortgage backed securities and others have caused an estimated 500 billion in losses for the banks and brokerages.  According to Nouriel Roubini, Professor of Economics at New York University, the tab for this credit crisis will cost the Banks and brokerages at least 1 trillion dollars and as much as 2 trillion dollars before it is over.  Maybe that’s why former Chief of Economics at the International Monetary Fund and Harvard Professor Kenneth Rogoff predicted this week that, “We’re not just going to see mid-sized banks go under in the next few months … “We’re going to see a whopper … one of the big investment banks or big banks.” Given this backdrop, it is no wonder Treasury Secretary Paulson and Fed Chief Bernanke are floating ideas about ways to let even large and systemically important institutions go bankrupt if they are insolvent.

So, my 5 questions to Ben Bernanke are as follows:

1.) If the housing market continues to sink in the next few years, could it cost more than 100 billion dollars to bailout Fannie and Freddie?

2.) What do you think the bailout of Fannie and Freddie mean to the balance sheet and credit rating to the United States of America?

3.) Given the huge loses the banks and brokerages still face, should there be regulation in the securitized debt market?

4.) Should the rating agencies that gave triple A ratings to worthless debt be investigated?

5.) What are the criteria you will use to let a systemically important institution fail?  (In other words, which companies will you let fail and which will you bailout?)

 To Ben Bernankes credit, he did not cause these problems.  He walked into a mess largely caused by his predecessor.  Unfortunately, Bernanke is left to deal with this “mother of all crises.”

By Greg Hunter’s USAWatchdog.com 

Everybody knows the date of the start of the Great Depression, October 29^th 1929.  It was the day of the worst stock market crash in history.  Some people confuse the stock market crash on that fateful day as the Great Depression.  But the Depression was not a single day but an era that dragged on through the thirties and into the forties.  But the picture of what was about to happen to the lives of most Americans in the beginning was opaque at best.  At the time, the general public did not realize a major change was taking place.  After all, they were being told things like the economy is “fundamentally sound” by then President Hoover.  A few other quotes from the beginning of that dark era include:

December 5, 1929
“The Government’s business is in sound condition.”
– Andrew W. Mellon, Secretary of the Treasury

December 28, 1929
“Maintenance of a general high level of business in the United States during December was reviewed today by Robert P. Lamont, Secretary of Commerce, as an indication that American industry had reached a point where a break in New York stock prices does not necessarily mean a national depression.”
– Associated Press dispatch.

January 13, 1930
“Reports to the Department of Commerce indicate that business is in a satisfactory condition, Secretary Lamont said today.”
– News item.

May 1, 1930
“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States – that is, prosperity.”
– President Hoover

June 29, 1930
“The worst is over without a doubt.”
– James J. Davis, Secretary of Labor.

June 9, 1931
“The depression has ended.”
– Dr. Julius Klein, Assistant Secretary of Commerce.

(quotes came from Illuminati News Sept. 2005)

Fast forward to today’s credit crisis.  I can remember vividly in February of 2007 how all the financial experts and administration officials being brought on to CNN (where I worked as an investigative correspondent) all said that the sub prime crisis (securitized debt or OTC derivatives) would be “contained.”   “Contained”?  America is now bailing out GSE’s Fannie and Freddie along with every major bank and brokerage house through the Feds “Lending and Auction” facilities.  There is no telling what the ultimate tab for all the bailouts will add up to, but trillions of dollars is far from a fantasy figure.  After all, this so called credit crisis is not a one day event like the take over of Bear Sterns or the stock market crash of 1929 but the beginning of a new era.   Many financial events and upheavals will serve as mile markers along the road that will undoubtedly shape this new era.  What the country will look like in the end will take years to develop.  I think where we are now is certainly not the end and not the beginning… but the end of the beginning of a new and dark era in world financial history.