Besides, how does 10% of the population get away without paying taxes?

http://www.swans.com/library/art14/mdolin31.html

by Michael Doliner

(Swans - March 10, 2008) By now most people know that the "subprime" crisis is no such thing. What has happened is the final result of the long decay of the rate of profit (1) in the American economy. As productive activity no longer paid, investors turned to interest on credit to provide sufficient rates of return. During the first part of the twenty-first century they devised new ways to lend. Bankers and mortgage brokers offered credit to just about anybody who breathed, and credit built upon credit. Mortgages were only one area in which they did this, but looking at them gives a good illustration of what is happening.

The note guaranteed by a mortgage is a promise to pay a debt, usually in monthly installments. The note provides its owner with a stream of income and he can sell the note for a lump sum. Mortgage brokers have sold the notes for a long time, but recently they have done so in new ways. Wall Street got into this game by creating new debt instruments (bonds) called Collateralized Debt Obligations (CDOs) and Structured Investment Vehicles (SIVs). They are nothing more than collections or bundles of notes (backed by mortgages) that can be sold to investors. If someone can borrow money for a lower interest rate than is on the note then he can use the borrowed money to buy many notes. Thus they built a pyramid of debt. Since Japan has been lending money at practically zero interest, this pyramid grew huge.

These Wall Street bundles looked like practically foolproof sources of income. Actuaries judged the likelihood of homeowners defaulting on their mortgages from past performance and assured everybody they were safe. Given that investors were buying large bundles of loans the likelihood of default could easily be factored into the price. The likelihood of default on riskier loans could be offset with lower prices. Wall Street divided the bundles of loans up into "tranches" with the riskiest giving the largest rewards.

But to make all this even safer Wall Street brokers bought insurance through "monoline" insurance companies whose business is to insure bonds. They insured buyers of bonds against default. These monoline insurance companies had, before this, insured primarily municipal bonds. These rarely default and the monolines had a sweet deal. But this new source of business seemed even sweeter. Because their business had been so solid up until this time these monoline companies all had Aaa ratings with Moody's, Standard & Poor's, and Fitch, the world's three ratings agencies. Their ratings transferred to the bonds they insured, making the mortgage-backed bonds AAA investments even though many of the borrowers were "subprime." With all this insurance, investors, including staid conservative banks, gobbled up these investment vehicles.

The game seemed so good that the most sophisticated investors, including banks such as Citibank and J.P. Morgan, and brokerage firms such as Bear Sterns, invested in these vehicles and encouraged their clients to do likewise. Many Hedge Funds joined them. Foreign countries jumped in. The final owners of the notes were very far away from those who originated them. Local mortgage brokers wrote the mortgages but then quickly sold them. These "account executives," who were supposed to check on the borrowers' ability and inclination to pay, had no incentive to be too careful, and were soon fired if they were. Mortgage brokers made money on the number of mortgages written, not on their quality. They were not hurt when the borrower defaulted.

All this led to an enormous increase in the amount of mortgage money available and a loosening of the standards for loans. Since mortgage brokers didn't care, people were given mortgages they couldn't possibly pay. People out of work refinanced their houses, increasing their debt but remaining afloat on the proceeds. Thus there were more buyers with more money looking to buy houses, and the prices of houses skyrocketed.

With all these questionable loans on ever inflating property values, eventually the defaults began to dribble in. And soon there were enough of them to make the owners of the CDOs and SIVs nervous. People who had money in hedge funds heavily invested in these vehicles wanted to take their money out. But when the hedge funds tried to sell the CDOs and SIVs to pay off the investors they found there was a very weak market for them. Word of the defaults had gotten around. Since these hedge funds had borrowed most of the money to buy these securities, they had to sell a lot of them to get much capital back. In July 2007, two Bear Sterns hedge funds collapsed. (2) Share prices for other funds fell off a cliff. The market for CDOs and SIVs suddenly ended. Nobody wanted to buy them, period.

The sudden end of the market for mortgage-backed bonds turned off the gusher of money that Wall Street had been pouring into mortgages. Banks now had to look at mortgages as if they were taking the risks themselves, and they became a lot more careful. In the heyday they had offered no money down mortgages and even lent more than the value of the property, allowing the new owner to emerge from the deal with money in his pocket. They had given money to people with dubious credit histories and insufficient income. No more. With more stringent guidelines and demands for larger down payments the buyer pool shrank and buyers could buy less house. A housing market geared to a large demand suddenly found it had a smaller one. Mega-builders in Florida, California, and elsewhere found that houses in their giant projects were not selling, and they stopped building. The booming real estate market ended, and prices began to fall.

With falling prices mortgage defaults increased. Those who had been refinancing their houses to pay the mortgages were stuck. Speculators who had bought houses expecting to flip them at higher prices were also stuck and wanted out fast. Adjustable rate mortgages that had been sold with ridiculously low "teaser rates" began to reset to much higher rates that the borrowers couldn't pay. They defaulted. The snowball of real estate decline began to roll.

As defaults increased, the CDOs and SIVs that banks, brokerage houses, and other clever investors still owned became less and less attractive. But these securities retained their AAA ratings because the monoline insurance companies backed them, and the monolines had Aaa ratings. When people began looking at the monolines it became obvious that they were woefully undercapitalized. Their exposure to the mortgage backed securities was something like one trillion dollars, of which about $130 billion had gone bad, (3) and their capital amounted to about $15 billion. Clearly, they should already be out of business. At least they should lose their AAA rating. But if they lost their AAA rating then the bonds they insure would also lose their AAA rating. If that happened those bonds would no longer be investment grade and the banks, because of banking regulations, would have to sell them. But there is no market for these things now. The banks would have to take huge losses, probably going bankrupt. These liabilities seem to be as large as the entire American banking system. So even though the monolines were insurance companies nobody wanted them to actually pay off on their policies, for that would put them out of business. Their AAA ratings were worth more than their cash.

But it didn't take an Einstein to see that the monolines were essentially insolvent. The ratings agencies, Moody's, Standard & Poor's, and Fitch, threatened to downgrade their ratings as a result. To avoid this, a number of "bailout plans" were floated, consisting, essentially, of banks lending money to the monolines. The ratings agencies, aware that a downgrade of the monoline ratings might bring down the whole system, reaffirmed the AAA ratings of the monolines, even though none of these bailouts could possibly cover the real liabilities, and none of them has materialized in any case. For anyone who would lend money to the monolines, essentially bankrupt businesses, would have to be crazy.

When the ratings agencies reaffirmed the monolines' bogus AAA ratings they completely discredited themselves, essentially putting themselves out of business. The ratings were so obviously fraudulent that nobody will believe them again. However, a whole new paradigm developed in which fraudulent ratings may not matter. Even though nobody believes in the monolines' AAA ratings they serve their purpose anyway. For the banking regulations specify AAA ratings for investment backed securities and say nothing about the plausibility of these ratings. The mortgage backed securities will retain their "investment grade" rating as long as the monolines retain their AAA ratings, no matter how obviously bogus. The stock market has caught onto the game. When news of a bailout appeared the market rallied, even though these clever traders could not have helped knowing that the bailout would never happen and was, in any case, insufficient. They knew the drama was a farce. They simply agreed en mass to play along. The alternative was a collapse of the whole system.

The American economy now depends upon all the players going along with good news they all know is bogus. Nobody wants the entire system to fail, so they play along with the game. Although the mortgage backed securities are nearly worthless, nobody wants to find out just how worthless they are. So nobody puts them on the market and nobody tries to collect on the monoline insurance. To shore up the monolines' bogus AAA rating the banks float news of bogus bailout plans no one is likely to put into practice unless he is a complete idiot. The ratings agencies take these obviously bogus bailout plans at face value, ignore the fact that even if they were to be implemented they would be woefully inadequate, and reaffirm the monolines' bogus Aaa ratings. So everyone pretends that these mortgage-backed securities, sometimes inadvertently called toxic sludge, are still valuable. Stockbrokers go along with the game by pretending these bailout plans are really good news even though they know they are bogus, and they bid up stocks. As long as this continues the banks and brokerage houses can keep these securities off their balance sheets and in hedge funds. Since everyone's exposure is hidden nobody knows who is holding these worthless securities and is thus essentially broke, so nobody wants to lend any money to anybody.

So much for credit as a source of profit. The whole credit system is frozen up. It is like someone holding his breath. How long can he go on? Who knows, but not long. At the bottom of the whole pile the lowly mortgage payer is still having his problems. Defaults and foreclosures are increasing dramatically, and housing prices are declining. The credit freeze is accelerating the decline. This has produced something new. Many homeowners are discovering that their houses are worth far less than they owe on them. "Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater. That is more than double the percentage just a year ago, according to a new estimate of the damage by Moody's Economy.com." (4) Thus even though they might be able to pay the mortgage, they find no real inclination to do so. Whereas people used to feel morally obligated to pay debts they had contracted for, they no longer do. A new Web site shows them how to walk away without any liability. (5) As these people walk away, prices will fall still further. The idea that paying one's debts is essential to an upright and honorable life seems no longer current. The old threat of damage to one's credit rating no longer seems so scary. Homeownership, now that prices are falling, no longer seems so attractive. Renting is looking good. The whole idea of homeownership as a source of security seems to have vanished. Credit card defaults and car loan defaults are rising almost as fast as mortgage defaults. To repay or not to repay is now seen as a purely business, rather than a moral, decision. This pulls out the supports from all the mathematical models upon which the system is based.

The really fun news is that this is only the tip of the iceberg. "Credit default swaps" can be thought of as freelance monoline insurance on any kind of debt obligation. But unlike with monoline insurance, nobody knows who is obligated to pay or whether he is able to do so. It is estimated that there are about $43 trillion in credit default swaps. (6)

With frozen credit markets, capitalism has come to an end. Making things doesn't pay, and now you can't lend money to make money. What is a capitalist -- excuse me, entrepreneur, going to do? Naturally he will look to the Fed for a rescue. Free markets are fine and dandy unless I need a bailout. The Fed has the right to print money and lend it to banks. Great business if you can get it. The Fed, to unclog the arteries of the credit system, lowers its interest rate. But to whom are you going to lend money? Nobody knows which banks are already bankrupt, and now even the little guy is no longer finding his obligation to pay all that much of an obligation. In the end the whole credit system depends upon the social convention that debts ought to be repaid, and this social convention seems to be dissolving. When people begin walking away, lower interest rates are not going to help.

Meanwhile everybody is edging towards the exits. Every investor would like to get out without anyone else noticing that he has left. Once it becomes obvious that everyone wants out the rush to the exits will keep everyone from leaving.

2:05 ET Dow -125.70 at 11824.66, Nasdaq -42.36 at 2170.13, S&P -31.21 at 1264.22:

[BRIEFING.COM] The major indices are trading sharply lower at midday on news that a major Wall Street collapsed and is being bought at a firesale price.

Market participants was shocked to find out that JP Morgan Chase (JPM 39.44, +2.90) was buying Bear Stearns (BSC 3.94, -26.06) for what is equivalent to $2 per share, or $240 million. This equates to a 93% discount from Friday's closing price. The Fed will providing up to $30 billion dollars in funding to back Bear's less liquid assets. Although the $2 offer seems low, the other option for Bear is bankruptcy.

Last week there were rumors that Bear was facing liquidity issues. In turn, this caused a large amount of withdrawals at Bear, which spurred the firm's collapse. Bear's stock has plummeted 87% and is down 98% from its all-time high.

Meanwhile, in an emergency meeting, the Fed cut the discount by 25 basis points to 3.25% on Sunday. The discount rate is the interest rate at which eligible banks can borrow money directly from the Fed.

In an additional move to increase liquidity, effective today, the Fed created a new lending facility that will provide financing to participants in the securitization markets, such as investment banks.

These developments have created new fears of what may be in store for other financial institutions. National City Corp. (NCC 8.80, -4.35) is down 33%, Cit Group (CIT 11.50, -3.73) has lost 24%, Lehman Brothers (LEH 28.90, -10.36) has slipped 26% and Washington Mutual (WM 9.06, -1.53) has given up 14%.

Al of the ten sectors are trending lower. Not surprisingly, financials are the main laggards with a 3.8% loss. The energy sector (-3.4%) is also showing weakness as oil slips 3.0%.

Fed Cuts Key Interest Rate by 3/4 of a Point
By EDMUND L. ANDREWS
Published: March 18, 2008

WASHINGTON — The Federal Reserve reduced its benchmark interest rate by three-quarters of a percentage point on Tuesday, to 2.25 percent, a cut that was less than investors had been hoping for even though it was one of the deepest in Fed history.

While leaving the door open for additional rate cuts, policy makers also expressed growing concern about inflation. “Uncertainty about the inflation outlook has increased,” the central bank said. “It will be necessary to continue to monitor inflation developments carefully.”

The statement highlighted the growing problem that the Fed faces, between fighting an economic downturn and heading off new inflationary pressures that have become apparent in everything from energy and food prices to the falling value of the dollar.

In a sign of the difficult choices the Fed faces, 2 of the 10 members of the policy-making Federal Open Market Committee dissented from the decision, favoring a smaller rate cut.

The two dissenters in Tuesday’s decision were Richard W. Fisher, president of the Dallas Fed, and Charles I. Plosser, president of the Philadelphia Fed, both of whom have been outspokenly hawkish about inflation issues in recent months.

The Fed’s announcement was the culmination of an extraordinary series of actions over the last two weeks to prop up financial markets and the economy with a flood of cheaper money.

The Federal Reserve has reduced its overnight lending rate, the federal funds rate, six times since September, and did so twice in January alone.

With the latest reduction, the federal funds rate is far below the rate of inflation, meaning that the “real,” or inflation-adjusted, rate is below zero. It is also well below the European Central Bank’s benchmark interest rate of 4 percent or the Bank of England’s rate of 5.25 percent.

Investors had already assumed that the central bank would reduce the cost of borrowing by at least another three-quarters of a percent on Tuesday, but mounting worries about a meltdown in financial markets and the Fed’s emergence as lender of last resort had elevated expectations even higher.

Indeed, expectations about another deep cut in interest rates were so high that the central bank was at risk of setting off a new wave of panicky selling if it had announced a reduction of less than three-quarters of a percentage point.

A lower federal funds usually leads to lower interest rates for mortgages, consumer loans and commercial borrowing.

But Fed officials had been startled and frustrated that their previous rate reductions were doing nothing to lower the long-term interest rates that are most relevant for expanding a business or buying homes or cars.

Part of the reason, analysts said, is that lower overnight interest rates have only limited relevance to the fundamental problem that is roiling the credit markets and the economy: the huge losses caused by the collapse of the housing bubble and the home loan environment that fed it.

Most analysts predict that housing prices, which have already fallen in most parts of the country, will drop much further before they hit bottom.

About eight million homeowners already owe more on their mortgage than their houses are currently worth, and foreclosure rates have soared over the last year.

The Fed’s problem is that its primary tools for stimulating growth — reductions in the cost of borrowing — do little to address the fears about bad loans. Many if not most private forecasters have concluded that the United States has probably entered a recession. The Labor Department has reported back-to-back declines in payroll employment in January and February.

And while the unemployment rate is still low at 4.8 percent, the number of private-sector jobs has declined for three months in a row — a pattern that has almost always been accompanied by a recession in recent decades.

With financial markets becoming dysfunctional, Fed officials have announced a series of steadily bigger lending programs for banks and cash-strapped Wall Street investment firms.

On Sunday, Fed officials agreed to lend up to $30 billion to JPMorgan Chase to engineer its takeover of Bear Stearns, a major Wall Street firm that was near collapse.

But Fed officials face increasingly contradictory pressures: inflation is rising even though growth has stalled.

The federal funds rate is once again edging close to zero, at which point the central bank would have to resort to entirely new strategies if it wants to keep opening its monetary spigots.

But a growing number of economists, including some Fed officials, contend that the housing bubble and bust stemmed at least in part from the central bank’s own decision to keep interest rates at rock-bottom lows from 2001 to the middle of 2004.

Meanwhile, consumer prices, even after excluding the volatile prices of food and energy, are climbing faster than the central bank’s unofficial target of less than 2 percent a year. On Tuesday, the Labor Department said the core measure of the producer price index, which excludes volatile energy and food products, jumped 0.5 percent in February, the biggest gain since November 2006.

The value of the dollar has plunged against most major currencies, a trend that pushes up the prices of imported goods and has contributed to the surging price of oil.

July 4 (Bloomberg) -- Mattel Inc., helped by rising sales of Matchbox and Hot Wheels toy cars, has a larger market value than General Motors Corp. for the first time as record U.S. gasoline prices crimp sales of real cars and trucks.

GM shares fell to the lowest since 1954 this week after an analyst said bankruptcy was ``not impossible'' if the auto market continues to deteriorate. GM's U.S. unit sales fell 18 percent in June. The chart of the day shows a comparison of the change in market value for Mattel and GM.

Mattel is surpassing GM even after the toymaker reported its first quarterly loss in almost three years in April, a reflection of the diverging outlook for the two companies. Mattel may return to profitability after the first quarter, while GM will probably report losses through 2009 as buyers spurn pickup trucks and sport-utility vehicles, analysts said.

``Hot Wheels and Matchbox are basic, low-priced toys, so they appeal to consumers, in the U.S. and especially in less affluent countries, who may not be able to afford more expensive toys,'' Sean McGowan, a toy analyst at Needham & Co. in New York, said yesterday in an e-mail. He recommends buying Mattel shares.

GM, the world's largest automaker, rose 14 cents, or 1.4 percent, to $10.12 in New York Stock Exchange composite trading yesterday after a JP Morgan & Chase Co. analyst said GM has ``tough but manageable'' liquidity options. Mattel rose 8 cents to $17.22.

Mattel briefly passed Detroit-based GM in market value for the first time June 26 and regained its lead July 2. El Segundo, California-based Mattel is the world's biggest toymaker.

I hate you all...except wes' mom.

Half price wednesday?!

We're All Madoff - This is an uncomfortable reality, but it is reality"
By Karl Denninger

"Mr. Madoff stands accused of (in his own words) running "a Ponzi Scheme."

In fact, our entire economy over the last ten years, and really back to at least 1987, has been roughly equivalent to what Mr. Madoff was doing.

So has our government.

Let's go down the list of things that have been inflated beyond their natural boundaries, and look at how each and every one of them was destined to collapse--and why they're all collapsing at once:

The Internet Bubble

While there were companies that made a real pre-tax operating profit (and a real net profit), mine included, the vast majority of the firms in the Internet space did no such thing. They reported "pro-forma" earnings, used EBIDTA (that's earnings before interest, depreciation, taxation and amortization, as if none of those things count) while levering up (meaning: interest was going to continue to rise!) as their primary profit gauge, and in fact operated with leverage ratios (total assets deployed to tangible equity - that is, value) that were in the stratosphere.

In short they borrowed to pay back their previous loans and make payroll, and when the lenders (which were in some cases equipment manufacturers) realized that they'd been had, the entire house of cards came tumbling down.

The Housing Bubble

Homes, as a place to live, must be able to be purchased for a reasonable percentage of one's income. What's "reasonable"? History says that this is 28% of your pretax income for all your direct household expenses (principal, interest, taxes and insurance plus mandatory spending such as utilities and a maintenance reserve) and 36% of your pretax income for all debt service including household and other. Note that at the "maximum leverage" that is sustainable you have only 8% of your pretax income available for "other debt service"; how many people can meet that? Think folks - if you have a $100,000 income, this means you have only eight thousand dollars for all payments on other debt. Two modest car loans and their insurance will exceed this limit for someone who makes $100,000 - and we're talking Ford's here (small sedans too, not SUVs), not Benz's or Lexii.

As these ratios were exceeded in order to remain "affordable" increasingly exotic terms were required, starting back in 2001 when the car makers were cajoled by the Bush Administration to put forward their "Drive America" program with zero-percent interest for three years. As this crept further and further into our economy mortgage programs that were in fact not mortgages (as there was absolutely no possibility of the borrower paying them off on the original terms) were pushed in order to keep property values climbing. In 2007 the limit of this insanity was reached, the "last sucker" was found, and the pyramid collapsed as these so-called "mortgages" were exposed for what they really were - a serial-refinancing scheme designed to strip equity and transfer it to the bankers. The entire scheme collapsed and along with it our markets and economy.

The Stock and Credit Markets Generally

The Internet Bubble and Housing Bubble were the externally-visible symptoms of what was going on behind the scenes. The S&P 500 was posting "earnings" of more than $100 a share, but those "earnings" were a phantom. "Private Equity" and "Hedge Funds" were buying companies and essentially flipping them using debt backed by bank credit that was, like in the housing and Internet markets, backed by nothing other than vapor.

Commercial Real Estate deals were being done at "cap rates" that were unbelievably optimistic, essentially not even paying the interest due, banking on the ability to roll the debt as "property values never go down." Anyone remember "M&A Monday" on CNBC through all of 2006 and the spring and summer of 2007? What was that all about, if not flipping companies like speculators flipped houses?

Our Government's Finances

We put into place Social Security and Medicare, two schemes that have accumulated fifty three trillion dollars in forward liabilities with zero in assets behind them. These liabilities are growing at a rate several times that of GDP. Then, as if this wasn't enough, we passed "Medicare Part D" which has now added even more to the liability side of the balance sheet but which was and is totally unfunded by assets. This both can and will collapse just as did the Housing and Internet bubbles. Our government has been spending money it doesn't (and never will) have for a very long time, but we have now entered the phase (just like the Internet and Housing Bubbles) where debt is increasing at an exponential rate compared to assets.

We have, in the last year, nearly doubled the outstanding public debt commitments on the United States ($8 trillion added against a $10 trillion base), with the previous $10 trillion itself having doubled from $5 trillion in the space of just a bit more than a decade.

There are many who say that our government debt-bubble will not collapse, and they list a whole host of reasons.

Why would you believe that?

Can you show, through history, one speculative bubble that has not popped?

Can you find one time - just once - that such a bubble was able to be grown without limit?

Simply put: No.

b0b wrote on Dec 22^nd, 2008 at 2:27pm:


Oh please, money comes from the Sun?  What kind of hippie ass religious nonsense is that article even about.

The ignorance of people is fucking mind boggling sometimes.  I weep for this world and its population of sheep.

The high-flying execs at Citigroup caved under pressure from President Obama and decided today to abandon plans for a luxurious new $50 million corporate jet from France.

But they wanted to "look good" to the people because in the end we are the consumer or depositor of their products.

As the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.

"Truthfully," Williams pointed out, "there is no Social Security 'lock-box.' There are no funds held in reserve today for Social Security and Medicare obligations that are earned each year. It's only a matter of time until the public realizes that the government is truly bankrupt and no taxes are being held in reserve to pay in the future the Social Security and Medicare benefits taxpayers are earning today."

The Federal Reserve sharply stepped up its efforts to bolster the economy on Wednesday, announcing that it would pump an extra $1 trillion into the financial system by purchasing Treasury bonds and mortgage securities.

"You cannot legislate the poor into freedom by legislating the wealthy
out of freedom.  What one person receives without working for, another
person must work for without receiving. The government cannot give to
anybody anything that the government does not first take from somebody
else.  When half of the people get the idea that they do not have to work
because the other half is going to take care of them, and when the other
half gets the idea that it does no good to work because somebody else is
going to get what they work for, that my dear friend, is about the end of
any nation. You cannot multiply wealth by dividing it."

Dr. Adrian Rogers, 1931 - 2005

China has 'canceled US credit card': lawmaker

WASHINGTON (AFP) — China, wary of the troubled US economy, has already "canceled America's credit card" by cutting down purchases of debt, a US congressman said Thursday.

China has the world's largest foreign reserves, believed to be mostly in dollars, along with around 800 billion dollars in US Treasury bonds, more than any other country.

But Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.

Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had "very legitimate" concerns about its investments.

"It would appear, quietly and with deference and politeness, that China has canceled America's credit card," Kirk told the Committee of 100, a Chinese-American group.

"I'm not sure too many people on Capitol Hill realize that this is now happening," he said.

The Republican lawmaker said that China was justified in concerns about returns from finance giants Fannie Mae and Freddie Mac, which were bailed out by the US government due to the financial crisis.

Kirk said he was the first member of Congress to tour the Bureau of Public Debt, which trades bonds, and was alarmed at how much debt was being bought by the US Federal Reserve due to absence of foreign investors.

"There will come a time where the lack of Chinese participation may have a significant impact," Kirk said.

"We should track that, because up until last month they were the number one provider of currency to the United States and now they're gone."

With China's economy also hit by the global economic crisis, Premier Wen Jiabao has openly voiced concern about the status of his country's investments in the United States.

China has also floated replacing the dollar as the key international currency with a basket of units bringing in the euro, sterling and yen.

Yea this is not going well for bonds, tnx is already above 3.

In a filing today with the SEC, GM announced that it would issue 60 billion new shares, in order to "pay off" debts to the government, its bondholders and the UAW. And since the government would end up being the majority owner, only the approval of the US Treasury would be needed.

As a result of the flood of new shares, existing shareholders, much as previously expected, would end up owning 1% of the pro forma equity, and assuming straight mathematic dilution, the shares which closed at $1.85 would be worth a little over 1 cent.

Specifically, the actions contemplated by the filing are as follows:

   * Increase the number of authorized shares of GM common stock to 62 billion shares;
   * Reduce the par value of GM common stock from $1 2/3 per share to $0.01 per share; and
   * Effect a 1-for-100 reverse stock split of GM common stock, whereby each 100 shares of GM common stock registered in the name of a stockholder at the effective time of the reverse stock split will be converted into one share of GM common stock.