Ever since the sub-prime crisis came to the fore November- December of 2008, there has been a lot of worries about where this will eventually take the US economy. And this looks like a slow-action horror movie whose climax is coming. So, there was the shock when Bear Stearns went down, and then for some time it looked like the worst was over; the worst that could happen was a recession, but the sub-prime was over. And then happened the next round of corporate disasters that decimated the investment banking community on Wall Street; Lehman Brothers was allowed to die a quick and painful death, Merrill Lynch was bought up whole by a bank, Morgan Stanley and Goldman Sachs turned into normal banks, AIG got a lifeline from the Government that decided it was too big to fail without much impact, and then the banks started toppling – Washington Mutual and Wachovia, both not so small banks were sold for a song.
Current situation in the street ? Panic since there is a lot of holding in these reduced value mortgages, and as a result, banks are not able to decide whether the money they lend to other banks will return since there is no guarantee about the finances of the other banks and other institutions. As a result, lending to other banks and companies, the life-blood of the finance system of the economy is down massively. Lending, and the ability to get money from banks through loans and working capital requirements are what lets an economy work. The solution ? Take on these tainted mortgages till the credit system starts reviving, and then sell these mortgages (they still have value) when the economy has recovered. This will give confidence to the economy and its institutions. However, this runs into multiple problems.

continue reading "US Congress rejects the bailout plan; stocks dive"

Things have been happening in the US finance sector that have not happened before for a long time. The US Federal Government is proposing that it is the essential guarantor of most mega-finance companies; only allowing some of them such as Lehman Brothers to fail. The US Government has so far saved or intervened in the affairs of Bear Stearns, AIG, Fannie and Freddie, Merrill Lynch (no direct financial involvement), and the latest domino, Washington Mutual. It is the case of Washington Mutual that is different from the others since the others are involved either directly in investment banking or exposed to the mortgage industry; WaMu was a clear Main Street bank, and yet it collapsed like a house of cards, following the same script as the others (exposure to mortgage industry, liquidity problems, and then a sudden downgrade to ‘junk’ status by credit rating agencies that decimated its ability to raise more funds). It is also the way of takeover of WaMu that is seemingly setting a precedent. Given its precarious existence and risk of failure, Federal regulators seized the bank without even consulting with the board, and sold it off to JLMorgan Chase & Co for a much lower price than they would have to pay just a few months back. The Federal Deposit Insurance Corp. (FDIC) benefited from this transaction since JPMorgan is now responsible for the bank liabilities, and not the FDIC. However, given the method employed in this case, banks looking to get hold of another ailing bank, Wachovia, may be looking for a similar process (it proves much cheaper to buy through this method rather than an open purchase):

continue reading "Banks in US in serious problem"

For the last several years, there has been an ongoing political discussion about whether the United States is following the correct policies with regard to getting rid of terrorism emanating from the region of Pakistan and Afghanistan, rated by many as the most likely place to generate the next big terrorist attack in the Western World. Part of that discussion is whether the United States has relied too much on Pakistan, and not pushed it hard enough to get rid of the entire support structure for terrorism in the tribal border regions. Implicit in this discussion is that Pakistan is not really doing all it can to get rid of terrorism in the region, to take on the vast support for the Taleban and terrorist elements in the wild ungoverned regions. Now, Pakistan has always claimed that this was a difficult task, that these regions have historically had a reputation for resisting any attempts to enforce a central governance; and that periodic pushes by the Army and border guards have only met fierce resistance and let to further embittering of the population in these regions, thus leading to a further support for the so-called resistance fighters.
At some point it is difficult to blame only Pakistan for this. The US has had a huge amount of analysis that claims that there is a lack of governance, civil reconstruction, and enough boots on the ground in Afghanistan. What was required that there be a push to strengthen the regional paramilitary forces, combined with an active and huge construction program in these regions of Afghanistan and Pakistan. It is when the affected population see only a military push, and the same old bad conditions with no scope for improvement that they tend to move further towards the extremist position. And in Pakistan, the Bush Administration seems to have had a blinkered vision with taking the actions of President Musharraf at face value, not applying the pressure that might have made things much better. For example, there has never been much pressure to improve the condition and training of the regional paramilitary force that might be able to help turn the tide.
All this came to my mind when I read this news report:

continue reading "US says, you can use anti-terrorist aid for improving planes"

Former attorney-general, Alberto Gonzales was under fire for a number of his statement and actions when he was acting as the Chief Legal Officer of the US. He was the one who authorized a specific movement of the Government towards the legality of torture for getting information, much greater ease of wire-tapping and spying on activities inside the United States, and the controversial Guantanamo Bay with its inmates who still have no hope for a trial after 6 plus years of incarceration, and the political firing of attorney-generals who were seen as not conforming to Republican desires.
Now that he has gone, his acts are under investigation by a determined Congress and even by his own former department. The Inspector General of the Justice Department is investigating several actions and policies, and one can be pretty sure that the Bush Administration will not intervene if something further happens as a result of this investigation and the former attorney general is prosecuted; he is after all at the minimum stated to have committed perjury:

continue reading "Formal investigation by the Justice Department into the actions of Gonzales"