Monday, September 15, 2008

The Denouement (Updated)

Hail comrades well met: In this famous 1911 editorial cartoon, Karl Marx is rapturously greeted on Wall Street and taken to the bosom of Carnegie and Rockefeller. This tidily sums up the relationship between Wall Street corporate socialists and the non-housebroken Marxist revolutionaries who are their distant kin.

Denouement (n) -- The unraveling of a plot; a catastrophe....

From Webster's Unabridged Dictionary (1913)

There is something supernally appropriate to the fact that, in order to find the most suitable definition for just right word to describe the ongoing crisis of the financial system, we have to refer to a dictionary published in 1913.

We are now into the second year of the unraveling of the world financial system. It could be described as the Great Denouement (or final act) of a plot that began in 1913, when Congress created the Federal Reserve System, aka the Focus of Evil in the Modern World. So far the effects of the unraveling have had minimal impact on the larger economy.

This is about to change.

Last Friday, there were five globe-bestriding Wall Street investment banks. Today there are three. Lehman Brothers, a 158-year-old financial colossus, is headed for bankruptcy and oblivion. Merrill Lynch, which was following the same trajectory, was bought by Bank of America.

Tellingly, the markets greeted that acquisition by selling off Bank of America shares, despite CEO Ken Lewis's happy prattle about the "synergies" supposedly catalyzed by this buy-out. Likwise, the bank's credit rating took a hit following the transaction. This is exactly the opposite of what we would expect to see when one business demonstrates its vitality by purchasing another. In this case, however, it is well understood that BofA wasn't gaining assets, but rather taking on an infection.

Over the same cluttered weekend, American International Group, which insures (among other things) corporate bonds, played the mendicant at the Fed's discount window, pleading for $40 billion in tide-us-over money while it tries to liquidate assets in order to raise cash. [For more about AIG, see the update below.]

While we're accustomed to weekly bank failures and periodic federal bailouts, the converging meltdowns of three pillars of Wall Street in a single weekend indicates that the crisis is accelerating and deepening in ways that our financial overlords hadn't anticipated. The fact that Lehman was permitted to fail demonstrates that the overlords are now beginning to conduct triage among themselves -- a spectacle that might offer the some brief amusement for the hoi polloi until the survivors within the Power Elite turn their undivided attention on the rest of us.

It's likely that some distant day, when the history of the Greater Depression is written, the collapse of Lehman Brothers will be seen as a climacteric for the Fed-centric financial system -- indeed, for Washington's entire apparatus of imperial power, in which that investment house played a conspicuous role.

Mapping the catastrophe (click to enlarge).

During the mid-1800s, Lehman provided much of the initial financing for the railroad combine, one of the first serious ventures in American corporatism. That combine, a public-private partnership -- a prototype for what Mussolini later called Fascism -- thrust Abraham the Abhorrent into the White House, where he presided over a war of national consolidation and pioneered the concept of a dictatorial war presidency.

Following the destruction of the pre-1861 Union of free states and creating a unitary Corporate State, the combine engaged the services of the United States military to drive the Plains Indians from lands pledged to them by treaty, but also coveted by the combine to build its federally subsidized transcontinental railroad. This relationship was a distant but recognizable ancestor of the modern military-industrial complex.

Lehman was part of the cartel that pushed for creation of the Fed. Its roster of corporate leaders bristles with insider credentials; senior management officials held prestigious posts on the Federal Reserve Board, in the World Economic Forum, and in the Council on Foreign Relations. And yet the firm is now bound for bankruptcy, a casualty of the Fed's housing/mortgage/refinancing bubble. Pulling the plug on Lehman Brothers may be equivalent to the sharp tug on a dangling thread that causes the entire tapestry to unwind.

Unlike the bailout of Bear Stearns earlier this year, no takers could be found when Henry Paulson and Ben Bernanke tried to find a buyer for Lehman Brothers. Would-be buyers were repelled by the aroma of Lehman's assets, which was quite similar to that emitted by an artificial butte constructed out of not-so-gently-used disposable diapers.

When it became clear that no rescue could be arranged for Lehman, the bankster mafia did the next best thing: It opened the markets -- just a crack -- to let a handful of favored investors minimize their losses. The manipulation was as undisguised as the contempt the banksters feel for the torpid and indifferent public that is being plundered on behalf of the financial elite.

Lehman CEO Richard Fuld, known as "The Gorrilla" because of his penchant for alpha male-style posturing, was able to keep the firm intact during the last big scare, the Asian debt crisis of a decade ago.

Learning exactly the wrong lessons as a result of that corporate near-death-through-debt experience, Fuld threw his company into issuing and securitizing mortgage loans. During the last two years, long after rational people had sought protection from the bursting of the housing/mortgage bubble, Lehman was the nation's largest underwriter of mortgage bonds.

Last March, by which time Fuld must have been fully aware of his bank's afflictions, he accepted a $22 million performance bonus, based on a supposed net profit of 5 percent in 2007. Surely there are people just as qualified as Fuld to lead a company to immediate ruin who would have done so for less than one percent of what Lehman paid Fuld. The bank's Chapter 11 filing lists $613 billion in debts. This is not only the largest private bankruptcy in history, it must also rank as the largest act of non-governmental accounting fraud on record.

A few weeks later -- April 15, to be exact -- Fuld inscribed his name indelibly in the Big Book of Hubristic Quotations when he told shareholders that "the worst is behind us."

As recently as August, Fuld could have taken advantage of buy-out or buy-in offers that would have rescued his firm. But the CEO, looking at his company's worth through the distorting lens of bubble-vision, insisted that the offers "didn't reflect the value he saw in the bank," according to the New York Times. So he dithered and dissimulated until it was much too late, perhaps in the misplaced confidence that his comrades in the financial elite would seal a deal with a taxpayer guarantee. Rather than giving him that cushion, however, his fellow elitists pulled the chair out from beneath him.

Given the Fed's new role as "lender of last resort," why did it permit Lehman to fail? It may be simply a matter of bad timing: Had Lehman's terminal crisis occurred two months ago, the Fed and Treasury might have been willing to arrange another taxpayer-insured bailout. But right now the overlords have their hands full managing the nationalization of Fannie and Freddie, which may require trillions of dollars yet to be created.

Even Helicopter Ben must appreciate the point that the foreign creditors who continue to fund this racket are eventually going to stop taking dollar-shaped IOUs. That's when the real fun will begin.

The Bailout Resumes....

AIG, valued at $1 trillion at the beginning of the trading day, "lost 70% of its value in just three hours," reports the New York Daily News. Its stock recovered about half its losses by mid-afternoon. Meanwhile, the Governor of New York announced that he was altering state regulations -- apparently by executive decree -- to permit AIG "to borrow against its subsidiary assets."

Ten of the largest American banks have announced a plan to pool $70 billion "in a collaborative effort to prevent any of them [from] running out of funds in an emergency." Each has thrown in $7 billion, and any can borrow up to $23 billion.

That's not a "pool"; it hardly qualifies as a puddle. And it will be gone before the end of the week.

So, in all probably, will Washington Mutual, which was dangling from a cliff, clinging to an exposed tree root at the end of last week. Lehman's demise will almost certainly send WaMu careening into the abyss.

And there are at least 1,000 more banks headed over the edge, as well....

Gratuitous extra update --

Headline: "Doctors Remove Benign Lesion from Bush's Forehead."

Oh, swell -- they removed the only part of him that wasn't malignant.

On sale now!

Dum spiro, pugno!


iron stinkface said...

I can't say I feel bad for some golden parachute, untouchable fat cats tha are going down but I do hope the little people will get through this ok. It is a has to happen event for the globalists so get ready for the Amero in a couple years learn to Habla you'll need it.

scott clark said...

Please be right that this is the denouement, which implies that a resolution is forthcoming. I fear it is only the begining of Act III, in which greater and more insulting tyrannies are heaped upon a public ever more eager to be insulted and debased.

William N. Grigg said...

scott clark, the nature of the present denouement depends on whether this is going to be a "bent" or a "broken" story. In the former, the resolution leaves evil triumphant (see, for instance, the recent films "The Fallen" and "Hannibal" -- if you can stand to). In the latter, good prevails after much difficulty.

In either case, my view is that we're seeing the first phase of what will be a long and tumultuous unraveling, with plenty of pain, privation, and tyranny ahead of us before the ultimate resolution.

Puck T. Smith said...

How many times do the Austrians have to be right before people start listening?

God bless Ron Paul, though. If that gentle old man had not been such a patient teacher for the past couple of years I'd still be running around enraged about "market failure" and demanding that the government do something about "unfettered capitalism."

Anonymous said...

I love watching Peter Schiff go off on FOX Business News segments, castigating the other guests as well as the host.

Throughout 2008, it's been a constantly pitched mantra on neocon talk radio that the economy is doing swell, that there's really no recession at all and that the US economy of the recent past has experienced worse conditions that what were facing now. I happened to catch a whiff of this group think insight from Seattle's local talk radio personality Kirby Wilbur, GOP party hack, neocon pied piper and chair moistener of the statist Republican KVI radio station.

Hmmm. Really? So tell me how many times before has Fannie Mae and Freddie Mac been nationalized? When did we ever hear of so many banking and investment giants like Bear Stearns, Lehman Brothers, Wachovia, IndyMac Bancorp and Washington Mutual experience insolvency? There are even rumblings that Citigroup and Bank of America are also in trouble. How can anyone deny these tumultuous circumstances? What's happening now is unprecedented.

Yes, when will people start listening to the Austrian School's philosophy of free market economics as opposed to the monopoly capitalism, fascism and socialism we have endured since at least 1861?

Anonymous said...

How is it the saying goes? May you live in interesting times?

Well, these certainly qualify but few will stop to look at the causal conditions. Hubristic arrogance, economic ignorance, political ignorance and a disregard for history. This is not new rather it is the very history of all empires - for anyone who has made even a cursory study of them. Which is probably why they get little air time at the local gov't schools.

It is truly a shame that the only politician that I dan recall in my lifetime, Congressman Ron Paul was mocked and laughed at during the debates for pointing these very things out - as he has been doing for so many years.

It would be humorous if it weren't so tragic as I look out on the political landscape. The socialist Obama/Biden or the fascist McCain/Palin. Which will more more painlessly crash us into our demise quickly and with the least pain - for neither will save us.

While I believe that the people of this country are generally good people and after 30 years of voting, I remove my consent to be ruled by the whims of the imbeciles who will dutifully trot to the polls and pant like Pavlovian dogs on election night.

Death to tyrants . . . The only good bureaucrat is stretching a rope.

Sic Semper Tyrannis

Anonymous said...


this ain't the denouement. we're still in the opening credits. when the dollars come home, that's the denouement. the climax...that's gonna be ugly.

buy ammo! it'll be worth its weight in gold when the time comes.

i hear REM in the background...hmmm

rick said...

I suggest a Grigg-McKinney ticket as long as you can persuade her to oppose abortion and the Brady Bill.

Anonymous said...

Kenneth Lewis at Bank of America is "MORAL HAZARD" writ large. Acting as the government's errand boy, he piles on risks, obviously believing that he's "too big to fail." (And what do we know -- maybe Hank gave him a secret handshake or something.)

Two eras in history stand out for large-scale financial lunacy: the John Law Bubble of 1720, and the Greenspan Bubbles of 1995-2007.

John Law was run out of France, as the scoundrel he was. Greenspan is on a book tour, and makes cameo appearances on TV as (get this) some kind of financial expert.

Who was smarter -- 18th century French peasants who kept their gold coins in a sock? Or 21st century Americans who idolized Greenspan as the Maestro, and STILL get paid in his worthless peachback scrip, even as the burning mountain of derivatives which "backs" it slides into the sea?

Anonymous said...

Just a question. Sent you a package about Sanilac county some time ago. Did you receive it?

Conan the Cimmerian said...

I fear it is only the begining of Act III, in which greater and more insulting tyrannies are heaped upon a public ever more eager to be insulted and debased.

Correct, this is just the beginning

Conan the Cimmerian said...

I fear it is only the begining of Act III, in which greater and more insulting tyrannies are heaped upon a public ever more eager to be insulted and debased.

Correct, this is just the beginning

Anonymous said...

We would be absolute idiots to believe this is the denouement...

There are even bigger and better plans in store for the human race. The problem is, we don't have anyone willing to stand up and get the herd moving to prevent our nightmare future. Everyone's looking for someone else to make the first sacrifice.

William N. Grigg said...

I need to emphasize that my use of the term "denouement" wasn't intended to convey the sense that we're at the end, or grand climax, of our problems. Rather, the point is that the "unraveling" has started, and it will continue and accelerate from here.

Just FYI. :-)

Anonymous said...

Imagine if Bank Of America, the CIA-cozy bank that recurs in so many drug money stories, would get flattened in the Lehman rescue... "You mean, the CIA smuggled dope for 50 years for nothing?" :-))

Robert_Willumstad said...

Hey guys, thanks for bailing me is great that really big corporations like the one I run can cook and fry the books, pay top guys like me millions, and then you are left holding the bag.

It is also great that a private bank bails me out and then sends you, even though you had no say in the matter, the bill. Hopefully it won't take a gun to collect...

David said...

I think I've finally figured out why the GOP has fielded such ridiculous candidates; they sincerely want to hand this mess to an unsuspecting sucker. There is no way they want to put a confused old man and a soccer mom into office ...the funny thing is, the culture wars have been reignited and they might win anyway. hahahahahahahaha!

depression ver 2.0 said...

A nice 4 (Iran, Iraq, Pakistan, Afghanistan)front war will distract us from the wipeout of the shell game service (you want to supersize that tub of MSG?)economy. I've always wondered if those scary passages of Jeremiah in the bible about "10 nations of the north" is talking about USA. Oh well as long as I can have comfort and convenience.

Lemuel Gulliver said...

Dear Will,

There are two schools of thought on this matter.

First is the school of Adam Smith, Paul Warburg and Gordon Gekko: Greed Is Good. Second, and the one to which I subscribe, is the school of Aesop and his fable of the farmer who killed the goose that laid the golden eggs: Greed Is Stupid.

Personally, I think we cannot say it any better than the Good Book: "MENE, MENE, TEKEL U PHARSIN."

The words of the Prophet Daniel to King Belshazzar as he feasted, interpreting the meaning of that mysterious writing appearing on the wall of Belshazzar's palace:

"God has numbered the days of your kingdom and brought it to an end; you have been weighed on the scales and found wanting; your kingdom shall be divided and given to the Medes and Persians."

In the case of Wall Street, their kingdom shall be divided and given to the Chinese and the Arabs.

Ah, yes, history is a wonderful study. It is so comforting for us inconsequential people to know that the stupid are doomed to repeat it.

Yours sincerely,
Lemuel Gulliver.

Greg said...

Most excellent, Mr. Grigg.

What bugs me is that people think of these antics as "capitalism", and when it fails - well obviously "the market" failed, and we need more regulations ... and freedom doesn't have a chance.


Mike Cane said...

Having just come upon your blog, I don't know how much I agree with your position, but I do think we agree that the financial crisis is Terminal. I've been screaming since January about this. This is what it looks like today. Much more to come.

Joshua Caleb said...


The US financial crisis was initiated by the commercial bank cartel who are members of the US Federal Reserve System since 1913. Although they've been successful in the past,in authorising the printing of US dollars; their note printing band-aid approach to delay the investors' stock Exchange run from Stock Exchanges throughout the world isn't going to work this time.

Sack all the commercial bank members of the Federal Reserve System and amend the Federal Reserve Acts to return the control of US monetary policy and administration back to the US government.

Wake up America and stop analysing; do it quickly before the US dollar devalues into a Mickey Mouse currency. Remove the ever hungry wolves that feasts on the public treasury. Thier love for money is the root of all the evils being experienced today.

God will not bless America who serves two masters. "Mene, Mene, tekel u pharsin" You've been measured and weighed and found lacking.

Joshua Caleb said...

If America has been serving two masters (i.e God and money) do you think God will bless America?

The Federal Reserve System which is run and controlled by 12 commercial banks since 1913 is the culprit of the US financial crisis. These banks' greed is never satisfied.

Greed and God are incompatible.

funny fiat currency said...

Martin Sullivan, Minute by Minute

American International Group is bestowing some lovely parting gifts on former chief executive Martin Sullivan. It laid out the details in an 8-K report filed Tuesday with the Securities and Exchange Commission.

And what details! A cool $15 million just for walking out the door, along with $4 million in prorated bonus and, for good measure, long-term stock and cash incentives worth roughly $28 million. Total: $47 million.

(This, by the way, doesn't count an additional $17 million in pension payments and deferred-compensation. Paul Hodgson of the corporate governance firm Corporate Library estimated the value of those additional assets in a Financial Times article.)

Granted, Sullivan joined AIG when he was 17 and has worked at the firm for 37 years. But he was C.E.O. for only three years and three months. A total of 1,190 days.

So, even if we leave out his pension and deferred compensation -- not to mention his regular salary ($1 million in 2007) and annual bonuses ($3.6 million in 2007; $10.1 million in 2006) -- AIG was very generous to someone who was roundly considered a not-very-successful C.E.O.

That $47 million severance package works out to $276,470.59 per week every week during his disappointing tenure. That's nearly $39,500 per day -- $1,645 per hour, 24 hours a day, seven days a week. And, remember, this is just the severance pay.

What did the shareholders get out the deal? AIG stock closed at $61.92 a share on the day Sullivan was promoted to the corner office in March 2005. It closed at $34.01 on the day he left last month.

That's a 45 percent decline, about three times the decline of the NYSE Financial Index over the same period. Does that justify a platinum parachute?

For the time that Sullivan will be rewarded with his $40,000-a-day severance package, shareholders suffered an aggregate decline in the value of their stock of about $58.4 million per day.

That, by the way, works out to more than $2.4 million per hour, $40,555 per minute, $676 per second.

by Mark Stein

adam said...

The sick thing about about all this is that there are literally thousands of small and large solutions to the entire Humanity challenge. The embedded system breeds ego which breeds stupidity which breeds suffering.

Just to mention ONE solution. For the 85 billion to AIG we could create an entire algae oil production infrastructure for North America supplying all the oil that is needed indefinitely for maybe $25 a barrel net cost.

Lemuel Gulliver said...

Dear Funny Fiat Currency @ 9:05am,

You said: "Granted, Sullivan joined AIG when he was 17 and has worked at the firm for 37 years. But he was C.E.O. for only three years and three months. A total of 1,190 days."

Funny, isn't it? Anne Boleyn was Queen of England for 1,100 days, and because she failed at her job of producing a son, her head was detached from the rest of her.

Instead of receiving such a suitable and lasting reward, Sullivan is having $47 million attached to him by the grateful Board of Directors.

Alas. When will we peasants ever learn that putting the foxes in charge of our henhouses is not a good idea?

Politicians and CEOs loudly proclaim their wish to "serve." There are plenty of toilets in need of cleaning, but somehow that does not count as "service." Unless it comes with a limousine and pays a salary that would make King Croesus blush, somehow it cannot be considered "service."

A curious thing, the English language. George Orwell said it beautifully:

"Political language... is designed to make lies sound truthful and murder respectable, and to give an appearance of solidity to pure wind."

(Sarah Palin, are you listening?)

Personally, I like the French solution. A guillotine on the Mall in Washington, and tumbrils carrying the former Beautiful People to have their heads detached from the rest of them. I shall sit in the front row knitting red berets, and watching the faces of the American Aristocracy as they mount the stairs and see the heads of those in line before them being stuck on pikes to decorate the street corners of the city.

As for the rest of the remains, I favor them being ground up and trucked down to North Carolina to feed the hogs in that fine state. Eventualy, the byproducts would end up being spread on the fields to improve the crops.

Finally - finally - the Beautiful People will actually be of some real "service" to humanity.

Yours in happy imagination,
Lemuel Gulliver.

Anonymous said...

Sorry to repeat but it's that good, and from where I'm standing in the all-too Amerikanised UK, highly apt:

I like your imagination Lemuel; but would happily settle for a velvet version of your blood-soaked vision.

Are the red berets for us to wear, or them (please forgive my historic naivety)?

11th October


Lemuel Gulliver said...

Dear Anonymous from the UK,

The red berets are for us. They will not have any use for them - not having a head on which to wear them.

The reference is to Charles Dickens' story "A Tale of Two Cities," set in Paris and London during the French Revolution. Madame Defarge, a peasant after my own heart, sits at the foot of the guillotine day after day, knitting red caps for the citoyens, and counting the rolling aristocratic heads. (Red being the color of revolution.)

As for my imagination being too bloody, when you understand as I do that the gentlemen to whom I refer, the future hog feed and pig manure, have engineered the Great Depression, the First and Second World Wars, the Cold War, the War on Terror, the Vietnam War, and on and on, you will no longer feel that my judgment is too harsh. They have been coldly and emotionlessly responsible for perhaps 150-200 million human deaths in the 20th Century, all in the pursuit of trillions of dollars for themselves. And they are continuing with great gusto in the 21st Century.

You should read General Smedley Butler's short book, "War is a Racket," which you can Google and read on the Web. He wrote of the First World War, but nothing has changed since then.

You should also read the book, "The Secrets of the Federal Reserve" by Eustace Mullins, which you can also find on the Web. You will then understand the present economic meltdown, and also that the Government is not the only center of power in any country. In America, equally powerful is the Pentagon, the CIA, the Federal Reserve, the CFR, and so on.

John F. Kennedy was assassinated primarily by the CIA with the collusion of several other agencies and business interests, because he challenged their power too much, and chose to obstruct their plans. It was NOT the Mafia. They could never have gotten away with it. And Lee Harvey Oswald never fired a single shot at the President.

The President is far, far from being a free agent. So too the Congress. The Election Circus we see these days is just that - a bunch of clowns and performing seals going through their prescribed routines for the entertainment of the hoi polloi.

The fate I prescribed is in fact much too kind for the power elite. No amount of suffering, pain or terror would be adequate to exact from them due process for their crimes. Satan himself would cringe at the catalog of their abominations.

I take nothing back. I only wish those people had seven heads like the mythical Hydra, so that they could each one be guillotined seven times. Perhaps then I might begin to feel somewhat content.

Yours in hope,
Lemuel Gulliver.

Anonymous said...

This seems like an appropriate time to ask my question. I have read THE BELMONT BROTHERHOOD. It purports to have been written by John Birch Society insiders and accuses Welch of founding his society with men who were Federal Reserve Bankers and associates of the very groups that the JBS claims/claimed to be opposing.
I have also read THE BLUE BOOK and it has a whiff of Freemasonry about it.
If the JBS was actually founded by the same type of men who are now bringing about this collapse of our financial system then another layer of the onion needs to be peeled away.

Roberto de Sonora said...


Your blog really shines this week.

The fact is, Germany in Ruins in 1945 rebuilt from nothing using a fractional reserve system.

They didn't rape themselves, but dedicated themselves to monetary transparency, honesty, and honor.

They focused on producing products of superior quality.

If Americans wanted to do the Right thing:

1. we would repudiate our use of economic hitmen.

2. We would shut down our unnecessary Military Industrial Complex and reintroduce a swiss style militia to accommodate Man's need for adventure and risk

3. We would dedicate ourselves to doing an honest day's work.

4. We would end all subsidies. Big Oil gets Eq.$5.60 a gallon and Ethanol and NG would be king, for just one example, and there would be no need to be in the middle east.

The answer? Across the board debt forgiveness from top to bottom.

Start clean. Tomorrow. Things are too wildly screwed up to continue on the impossible path that is charted for us all, by others.

Would it be tough? Sure, but We would regain our Dignity.

Doing so would dampen enthusiasm for so called "free trade" that isn't.

It ain't Free trade when farmers can't ship grain on their own to whoever they want.