Saddled up and not sparing the whip: The Four Horsemen of the Apocalypse.
"If they're hungry, they can eat grass, or their own dung, for all I care." --
Andrew J. Myrick, a trader affiliated with the notorious mid-19th Century "Indian Ring," responding to complaints from Sioux that they were starving on the meager, worm-ridden rations provided by the Indian agency, August 15, 1862.
Andrew Myrick was a trader working at the Lower Sioux Agency in southwest Minnesota when desperate Chiefs representing the Sioux arrived, pleading for food. Thomas Galbraith, the federal Indian Agent, wasn't inclined to help.
The Chiefs had no money, and Galbraith had better business to attend to than helping out a bunch of starving Indians. Galbraith's business, and Myrick's too, was to maximize profits realized through the federal Indian management system. This meant padding expense vouchers, arranging kickbacks, distributing spoiled or otherwise unusable rations to Indians, and generally finding ways of milking the federal subsidies to their advantage and that of their allies.
This institutional corruption would eventually become known, under President U.S. Grant, as the "Indian Ring." In 1862, with Washington's attention focused on the conquest of the Confederacy, an embryonic form of the Ring was already in operation, sowing misery among the Sioux that blossomed into a full-scale uprising that would claim the lives of hundreds of settlers.
It would also lead to the largest mass execution in American history, the hanging -- on Lincoln's orders -- of 38 Sioux Indians convicted by a military commission, a Barrelhead tribunal in which the average "trial" lasted ten minutes. The original orders called for the public execution of 3,000 Sioux; conscious that such a spectacle would alienate world opinion, but eager to placate demands for vengeance from Minnesotans, Lincoln modified his instructions to allow the hanging of 38 and the mass expulsion of the Sioux from the state.
The Sioux Uprising was the predictable result of federal policy. Under Lincoln the federal government reneged on solemn treaty "promises" to pay the Santee Sioux annuities totaling $1.5 million for their lands. Lincoln likewise authorized additional land grabs and incursions by illegal immigrants -- now called "settlers" or "pioneers" on lands supposedly set aside for the Santee. When crop failures reduced the Santee to starvation, they sent emissaries to Galbraith to plead for access to food supposedly stockpiled on their behalf pursuant to treaty. They were met with Galbraith's pretense of punctiliousness (he insisted, incorrectly, that the food could only be bought by the Sioux, rather than given to them to alleviate the famine) and Myrick's triumphant, bigoted sneer.
Roughly a week after Andrew Myrick threw his taunt into the gaunt, stoic faces of desperate Sioux chiefs, he was killed in front of his store. His body was found some time later and some distance away; appropriately, the mouth that had been twisted in a sadistic smirk was stuffed with grass.
Nothing can justify the butchery of innocent people committed by the rampaging Sioux, but the fury that fueled those atrocities reflected the desperation of trapped, starving people, and that fury could have been extinguished had the Feds dealt honestly with the Indians.
"Unlawful enemy combatants" sentenced to death by military commissions: 38 Sioux are executed in December 1862. In a letter to Abraham Lincoln amid the uprising, George A.S. Crooker, a critic of the Indian system, lamented "the cohesive power of public plunder [that] cements rogues together stronger than party or any other ties." By abetting the misery of the Indians, the Feds had "not only cost a large sum of money but ... deluged our western border in blood."
A similar verdict was rendered by Episcopal Bishop Henry Whipple of Minnesota. Disgusted by a system that immiserated the Indians while enriching corrupt federal Indian Affairs officials, likewise warned that public plunder of this kind "'commences in discontent and ends in blood."
I don't know what it says about the way my mind is wired, but I was driven to reflect on the 1862 Sioux Uprising by the news that the Regime plans to bail out Fannie Mae and Freddie Mac. Perhaps that's because few if any institutions so perfectly embody what Crooker, as quoted above, described as "the cohesive power of public plunder."
Then again, perhaps it's because I sense dynamics at work today similar to those that led up to the rampage: Crop failures, an increasingly impoverished population (Americans, burdened with debts much larger than they realize, are actually poorer than 19th Century Indians), a federal government entirely uninhibited by law and utterly brazen in deploying its power on behalf of the politically connected uber-rich, at whatever expense to the rest of us. Or maybe I'm just looking for an excuse to get my Little Crow freak on.
However the connection was made between that 19th century tragedy and the one unfolding today, there is one unambiguous theme binding them together. The Official Message now, as it was then, is this: The Important Persons Who Matter will be taken care of; those of you who are mere people can eat sh*t and die, for all we care.
Right now, Fannie and Freddie are being backstopped by the Feds; eventually, they will be bailed out and then fully nationalized (developments I predicted in detail more than four years ago). Among Those Who Matter to the architects of this new entitlement program for the super-rich are the oligarchs and princelings who run China's banking system.
Financial analyst Mike Shedlock of SitkaPacific Capital Management points out: "There is $376 billion in Chinese agency bond holdings subject to taxpayer bailout proposals...." "If China and Japan were dumb enough to invest in US agencies," continues Shedlock, "then China and Japan should suffer the consequences, not US taxpayers."
From the perspective of our rulers, however, the US taxpayers are the very last link in the Great Chain of Being. Beijing must be placated; after all, they're the ones paying for Washington's imperial errands in Iraq, Afghanistan, and elsewhere.
Fannie, a creation of FDR's corporatist New Deal, and Freddie, its Great Society bastard offspring, supposedly exist to help middle-class Americans and those who aspire to that status buy affordable housing. In fact, they have been indispensable instruments in the perverse alchemy whereby mortgage debt is transmuted into profitable securities and derivatives.
In fact, if I'm not mistaken (given the opacity of the subject, I probably am, along with everybody else), Fannie and Freddie might have pioneered the art of "securitizing" loans of different qualities and risk levels, owing to changes made by Congress in their regulations in 1989.
That's right: Fresh from the S&L catastrophe, Congress loosened the regulatory reins on Fannie and Freddie for the specific purpose of channeling investment into those "government-sponsored entities."
A few years later Alan "Destroyer of Worlds" Greenspan began to pump "liquidity" into what would become the Housing Bubble. Fannie and Freddie bought practically every mortgage it could find. Meanwhile, the upper management of those GSEs -- as was the case with Enron, Tycho, WorldCom, Global Crossing, and other notoriously corrupt corporations -- brazenly and habitually mis-reported earnings in order to enhance their annual bonuses.
In June 2003, Freddie Mac was forced to own up to $5 billion in misrepresented earnings over the previous three years; the result was a plunge in stock value that essayed a course quite similar to the typical waterfall.
More than a year earlier, St. Louis Federal Reserve President William Poole warned that Fannie and Freddie "hold capital far below that required of regulated banking institutions" -- a truly shocking statement, when it's remembered just how little capital "regulated" banks are required to hold -- but Poole's warning was kept from the public for months.
Fannie was forced to remove CEO Franklin D. Raines and CFO J. Timothy Howard. Congressional hearings were called, and a report eventually produced, documenting that "extensive fraud" had taken place at Fannie for the express purpose of lavishing bonuses on top executives; Raines, for instance, collected $52.8 million in bonuses between 1998 and 2003.
The objective of Fannie's fraudulent math was to boost the company's Earnings Per Share (EPS) to a level suitable to justify extravagant executive bonuses. In 2000, for instance, the target was an EPS of $6.46. Just as the Bush Regime "fixed the intelligence around the policy" of war with Iraq, Fannie Mae fixed the accounting around the objective of executive bonuses, and created "earnings" figures accordingly.
"By now every one of you have 6.46 branded in your brains," ranted one Fannie official in a 2000 motivational harangue for employees. "You must be able to say it in your sleep, you must be able to recite it forwards and backwards, you must have a raging fire in your belly that burns away all doubts.... Remember, Frank [CEO Franklin Raines] has given us an opportunity to earn not just our salaries, benefits, raises ... but substantially over and above if we make 6.46. So it is our moral obligation to give well above our 100% and if we do this, we would have made tangible contributions to Frank's goals."
That speech -- something of a cross between the "always be closing" lecture from Glengarry Glen Ross (definitely not family-safe) and, what's much the same thing, a cult indoctrination session -- was delivered by Sam Rajappa, Fannie's Senior Vice President for Operations Risk and Internal Audit. His audience was composed of Fannie's internal auditors. These were the watchdogs who were supposed to preserve the integrity of the company's bookkeeping -- and here they were being told that the unassailable Prime Directive was to reach, by any means necessary, an EPS of 6.46 in order to justify bonuses.
Under Raines, Fannie -- its board larded with political luminaries, many of them former Democratic politicians and White House aides under Bill Clinton -- was guilty of tax-subsidized accounting fraud that dwarfed the crimes committed by Enron's "smartest guys in the room." Rather than going to prison, however, Raines was the beneficiary of a settlement involving the surrender of a small portion of his corrupt earnings and some now-worthless stock options.
Just as some financial institutions are "too big to fail," some crooks are too big to prosecute. After all, why make life needlessly difficult for a political insider like Raines, when the taxpayers take the fall?
Many analysts claim, plausibly, that the failure of Fannie and Freddie -- which have in excess of $5 trillion in debts -- would mean that no one could buy or sell a house in the United States. This underscores just how deeply cartelized the housing market has become thanks to the fascist policies imposed on it under the New Deal.
The failure of the GSEs would likewise ignite a holocaust in the global derivatives market -- a prospect that helped precipitate the Fed's bailout of Bear Stearns a few weeks ago. But the crisis Poole predicts is unavoidable. This is why the Fed is prepared to monetize Fannie and Freddie's debts if investors don't play the role written for them by throwing their money into those insolvent, hopelessly corrupt, incurably debt-ridden GSEs. So far, investors have not warmed to the opportunity. Which means that Ben has his helicopter fleet revving its engines.
It seems likely that the political class will do whatever it can to try to hold the collapse in abeyance until after this fall's election. Owing to the analysis of people much better informed than myself, I suspect that the crisis will erupt in September of this year, although I would be tearfully grateful if my fears fail to materialize.
Bank run: Customers of the Pasadena-based IndyMac Federal Bank -- which was taken over by the FDIC just days ago -- wait to pull their money out of that failing financial institution.Already, Americans are beginning to queue in front of banks and other financial institutions like hungry Santee Sioux lining up in front of federal storehouses in the forlorn hope of receiving food rations.
Even if the inevitable collapse of Fannie and Freddie is deferred for a season, there will be ample opportunities for smaller financial institutions -- and even some very large ones -- to fail.
Is this "It" -- the Big It many of us have anticipated with growing dread since the U.S. effectively declared bankruptcy in August 1971?
I haven't a fraction of the wisdom to say for sure. I will say this: When the Big It happens, It will look an awful lot like this.
While not neglecting the political dimension of our predicament, we would be suicidally foolish not to be making practical provisions to withstand a full-spectrum political and economic meltdown. This would include securing the material means for physical survival, as well as networking with like-minded people to provide mutual support in the event of severe economic dislocations and (God preserve us) social turmoil.
If you don't live near family, and can afford to move closer to them, do so.
This may not be the Big It. If it is, and we're not ready, we'll be left to dine on grass, or worse.
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