Foreclosure-Gate Could Be The Fuse That Finally Explodes What's Left Of The Housing Bubble

From The Business Insider:

The system for financing mortgages and regulating that financing has failed, completely and utterly. The mortgage and real estate markets are now in collapse.
Yesterday I wrote about how positive feedback loops lead to collapse. Welcome to the U.S. housing and mortgage markets. As I have documented here numerous times, the entire U.S. mortgage market has already been socialized: 99% of all mortgages are backed by the three FFFs--Fannie, Freddie and FHA--and the Federal Reserve has purchased a staggering $1.2 trillion in mortgage-backed assets in the past year or so to maintain the illusion that there is a market for mortgage-backed securities.
There is, but only because the mortgages are backed by the Federal Government and propped up by the Federal Reserve.
The mortgage market is completely dependent on government guarantees and quasi-Government purchases of securitized mortgages. If the mortgage market were truly socialized, then the Central State would own the banks which originate, service and own the mortgages.
But then the private owners and managers of the "too big to fail" banks would not be reaping hundreds of billions in profits and bonuses. And since the banking industry has effectively captured the processes of governance (that is, Congress and the various regulatory agencies), then what we have is a system of private ownership of the revenue and profits generated by the mortgage industry and public absorption of the risks and losses.
Could anything be sweeter for the big banks? No.
The incestuous nature of the system is breathtaking. The Fed creates the credit which enables the mortgages, the Treasury guarantees the mortgages via Fannie, Freddie and FHA, the Fed buys the mortgages ($1.3 trillion in mortgages are on their balance sheet) and the private banks collect the fees and profits.
One of the core tenets of the Survival+ critique is the State/Financial Plutocracy partnership. There are many examples of this partnership (crony capitalism in which the State is the "enforcer" which collects the national income and distributes it to its private-sector cronies), but perhaps none so blatant and pure as the mortgage/banking sector.
But now the entire legal basis for that privatized-profits, socialized losses system has dissolved. The foreclosure scandal is not just a "scandal" in which various frauds were brought to light; it is the failure of the entire system of originating mortgages that props up the entire real estate market.
I recently reported on the depth of the crisis for AOL's Daily Finance: The Foreclosure Crisis: Eroding Trust -- and Ending the Recovery?
The Mainstream Financial Media has been forced to gingerly poke around the delicate topic, and surprise, it is difficult to put a positive spin on the crisis:
Document Questions Cloud Recovery: Agents Fear Housing Could Stall as Uncertainty on Foreclosures Unnerves Buyers, Especially Investors.

"Title companies would be crazy to ensure title on anything remotely associated with a foreclosed property because we don't know how this is going to resolve itself," said Mark Hanson, an independent housing analyst in Menlo Park, Calif.

The result: Not only could sales slow on foreclosures now listed for sale, but it could also become harder to sell or refinance properties that have been foreclosed upon at some point in the past few years.

Real-estate agents are particularly worried about the situation's impact on investors, the buyers who fix up foreclosed homes for resale. Investors accounted for 21% of all home sales in August, according to the National Association of Realtors.

Little-Known MERS Faces Big Challenges in Foreclosure Battle:

Success in challenging MERS’ role in a foreclosure could mean the owner of a mortgage holds a loan without claim to the house as collateral, Mr. Weissman said. That result could set off a chain reaction reducing the value of mortgage servicing rights, an asset many banks keep as an investment.

Here is another MSM story: Are We Headed for Housing Armageddon?
So to summarize:
1. The banks which depend on revenues collected from mortgage servicing are facing the possibility that millions of distressed mortgages will enter legal limbo and not be paid; additionally, millions of underwater homeowners realize they can stop paying their mortgages with no near-term consequence because the foreclosure system is frozen.
If you doubt this, please read Gonzalo Lira On The Coming Middle-Class Anarchy.
2. The mortgages which the banks are holding on their books as income-producing assets at full face value are in effect either worthless or depreciated to some significant but unknown degree. If this fact were reflected in their balance sheets, all the big banks would all be insolvent.
3. Evictions based on foreclosures can be halted, delayed or even cancelled. Consider this alternative response to wrongful eviction: Evicted Family Breaks Into Their Former House(WSJ.com)
4. Pending sales of properties that were foreclosed are now of dubious legality.
5. Anyone buying a house in foreclosure, or a house that was foreclosed, cannot get title insurance.
6. Investors who have been propping up the housing market by snapping up properties in foreclosure (REOs or "distressed properties") face high risks and uncertainties in buying any real estate that was in or is in the foreclosure pipeline. That means markets will lose 30% to 50% of their buyers.

7. Buyers who closed on foreclosed homes now face legal challenges to their ownership and potentially even "clawback" of the property as the previous owner can claim he/she was defrauded by a flawed/defective foreclosure process.
8. Real estate attorneys can rejoice: everyone will get sued, in every court in the land. Banks will get sued, title insurance companies will get sued, realtors will get sued, foreclosure mills will get sued, MERS will get sued, and so on. The attorneys general of the states will all sue the banks and mortgage mills, claiming billions in damages.
Anyone who thinks this is all trivial technicalities is wrong.
9. The real estate market will collapse as the imbalance of buyers and sellers swings to extremes. Buyers vanish as trust in the institutions of real estate finance and property rights has collapsed, and millions of distressed/defaulted mortgages don't get paid. Underwater sellers have a stark choice: either dump the house for cash (assuming the bank allows a short-sale and eats a massive loss) or stop paying the mortgage and see what happens.

That sets up a new positive feedback loop in a very tenuous market: millions of underwater homeowners will realize their homes are plummeting in value and "recovery" is hopeless. Millions more who were on the edge will be pushed underwater as prices fall. The incentives for the newly underwater are clear: stop paying the mortgage, since price "recovery" is hopeless and the foreclosure process is frozen.
The imbalance between few buyers and millions of properties on the market or in the shadow inventory has only one "capitalist" resolution: the destruction of price down to levels that clears the inventory.
Las Vegas offers a example of this clearing: condos are selling for 15% or 20% of their bubble-era valuations--and this is with massive Federal subsidies of the mortgage market.
10. There is a fundamental legal battle playing out between the property rights and rules of law embodied in state laws, and the Central State/Federal laws which enable MERS to transfer ownership of mortgages as securities. You can't have both systems at the same time; either transfers of mortgages and ownership and the procedure of taking real property (foreclosures) meet state laws or these laws have been rendered moot.
Either there is due process of law or you have a kleptocracy/"banana republic" oligarchy. At present, that is the decision we face as a nation. If the banking Elites and their partners in the Central State (Fed and Treasury) are allowed to "win" and gut the property laws of the states, then the U.S.A. will be revealed as a kleptocracy/"banana republic" oligarchy.
If state laws are upheld, then the "too big to fail" banks are insolvent and they will fail.Then the question of kleptocracy arises once again: will the banks be allowed to fail as per Classic Capitalism, that is, their owners and managers will have to absorb the losses of that bankruptcy/failure, or will the Central State use its powers to collect taxes and cover the private losses of the Bank/Financial Power Elites? Privatizing profits and socializing losses has been the entire game plan since the global house of cards collapsed in 2008.
It's decision time, citizens. Either the banks/Central State "win" and we are a kleptocracy/ "banana republic," or they lose and the U.S. mortgage/ banking sector implodes and is either formally socialized (i.e. owned lock, stock and barrel by the Central State) or rebuilt from scratch without big banks, Federal guarantees and the Fed's incestuous interventions. ("We create the credit that enables the mortgage, you issue the mortgage, and then we buy the mortgage.")
There is no "fix" or half-measure that can patch this over now.
The non-mainstream media can speak the truth directly. For example, here is the excellent Acting Man blog:
Total Chaos:

The biggest question of all, is there anyone working on a solution? I know the answer to that: No.
We now have socialized housing. If you disagree, just imagine the consequences if government intervention were withdrawn. Real estate markets would collapse immediately. The government is the market. There is no exit strategy.

The feedback loops are in full runaway mode, and the end-state will be a collapse of one system or the other: either the incestuous banking cartel/Fed/Treasury system of "private profits, socialized losses" implodes, or property rights and the real estate market implode.
Right now, both are imploding, and each system's implosion reinforces the other's collapse.


Join the conversation about this story »
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Related: 

Foreclosure Fraud: 6 Things You Need To Know About The Crisis That Could Potentially Rip The U.S. Economy To Shreds

Winning The Currency War - How To Counter-Attack The Reckless Financial Nuclear Weapon of Wall Street by the BRIC And Other Emerging Countries - By Matthias Chang

By Matthias Chang

Futurefastforward, Thursday, 14 October 2010

Click here to download Matthias Chang's article in PDF format.


Let us be very clear about the impact of the coming massive Quantitative Easing (QEII) by the FED, the financial bully of Wall Street. It is the unleashing of a financial nuclear weapon!


The financial media is portraying to the American people that this is a war of survival between America and the rest of the world as opposed to the war of survival for Wall Street and its Global Ponzi Scheme.


If the American people are hoodwinked into believing that it is the former, and support the use of financial WMD against the world, the consequences will be catastrophic and the American economy and people will be devastated beyond recognition. For the 1% of the financial elites, about half will survive, consolidate their control and form new global alliances. This is already taking place, as highlighted in my recent article. [1]


I am not optimistic that the American people will rise to the occasion and hunt down the fraudsters in Wall Street, Congress and the puppet masters behind the shadow money-lending system. The present mass movement - the Tea Party is a joke and as far as I am concerned is a huge diversion from the main issues that need to be addressed by the American people.


It is remarkable that the American people still cannot see that they have been financial raped, buggered and plundered by their very own political leaders acting in concert with the global financial elites in Wall Street.


In the same way that the American people were dragged into invading Afghanistan and Iraq on the promise of victory (Bush’s Mission Accomplished), Wall Street will do likewise in launching the unprecedented financial war on the promise that they will come out the victors!


The propaganda has already commenced. Financial Times, one of the leading mouth-piece of the financial elites have declared victory even before the launch of the first WMD. To quote Martin Wolf:


“To put it bluntly, the US wants to inflate the rest of the world, while the latter is trying to deflate the US. The US must win, since it has infinite ammunition: there is no limit to the dollars the Federal Reserve can create. What need to be discussed are the terms of the world’s surrender”.


Such misplaced arrogance!


Wall Street is a paper tiger, more precisely a Toilet Paper Tiger!
Why do I have such contempt for Wall Street’s hubris?


Simple!


The US has “unlimited nuclear weapons” enough to destroy the entire earth, if not the universe several times. When Russia and China did not have nuclear weapons, the US dared unleash two nuclear bombs on Nagasaki and Hiroshima to blackmail the rest of the world to toe its line.


But, China declared that “nuclear weapons are paper tigers” and “America is a paper tiger”. However, during the Korean and Vietnam Wars, when the US and its allies had so much military superiority, they did not have the guts to unleash a regional nuclear war, what more a global nuclear war!


And as they say, the rest is history.


As a declining military power, the US is left with nothing but bully tactics – the constant threat that “all options are on the table”. And this is echoed by its regional bullies – UK, Japan and Israel against Iran, North Korea, Syria and Lebanon.


It is in the same way that I view the threat of Quantitative Easing (QEII) by the FED and Wall Street – their so-called unlimited financial WMDs.


I dare say, to borrow Bush’s words, “Bring Them On!”


This is so typical of a bully who has run out of ammunitions and is using sheer arrogance to intimidate. This is typical of the US Military-Industrial Complex. The US goes to war and on suffering over 4,000 dead and tens of thousands wounded and disabled, despair quickly sets in and soon after, they want to get out of the quagmire!


What makes this stupid Martin Wolf, a paid mouth-piece for Wall Street so confident that in the coming financial nuclear war, the Americans are willing to put up with hundreds of thousands dead and millions barely surviving inside the Homeland and armed insurrections by militias?




The Flaw In the QEII Grand Strategy


The first fundamental flaw in this grand strategy is the false assumption that because the dollar is the global reserve currency, the FED has the capacity to increase unlimited dollars.


The second fundamental flaw is that (and notwithstanding the fact since 2007, the rest of the world has started to take measures to decouple from the US) the rest of the world would still look towards the USA as the ultimate market for their exports.


The third fundamental flaw is that the rest of the world would still be willing to accept toilet paper Federal Reserve Notes (print or digital) as payment for their blood and sweat!


The financial generals planning this war must be in some wonderland to base their entire war plans on the above three fundamental assumptions. How stupid and out of touch can they get?


For starters, the USA is no longer a BUYERS’ MARKET i.e. the American consumers are in a position to dictate the terms in the purchase of imports (what more the terms of surrender so foolishly propounded by Martin Wolf).


The consumers are all zombies, drowning in debt. The financial institutions that were supporting their insatiable appetite for loans are all insolvent and cannot continue giving easy money to the consumers to indulge in their fantasies. And adding insult to injury, expect the sellers in these depressed conditions to be paid in toilet paper Federal Reserve Notes. We are not watching Comedy Hour. This is the reality show. Period!


In the near and short term, the sellers (exporting nations) will suffer acute pain but, in the last two years regional trade has already begun to offset the drag from the exports to USA.


But, the near term pain of exporting nations pale in comparison to the trauma and mental anguish by Americans going to Wal-Mart and other Hypermarket retailers and not even finding the cheap goods that they were so used to having and have been taken for granted. There will be empty shelves in every store in every main street across the entire USA. There are over 40 million Americans on food stamps. Attached to this time bomb, will be another fuse leading to an incendiary device, equally explosive – the disgruntled and disillusioned middle class. There will be blood on the streets.


And be assured that before gold resumes its pride of place again, there will be growing barter trade, especially in commodities and one of the first commodities to be de-dollarised will be crude oil! Yes, the mighty crude which since 1973, was the main pillar propping up the dollar.


If the corrupt Saudis had not succumbed to Kissinger’s blackmail, the dollar would have collapsed as a reserve currency a long time ago. It is a given that crude producing countries will enter bilateral trade agreements to sell crude in any currency other than the dollar or barter, except the flunkey Saudi Arabia. It is also a given that ultimately, even the Saudis will turn tail and run for cover as its US dollar toilet papers will create havoc in its domestic economy.




Exposé On Zionist-Controlled Global Banks


Zionists and Israel are hereby forewarned. When the shits hit the ceiling fans and the impoverished middle class uncover the money trails leading to the Zionist-controlled banks, anti-semitism will rear its ugly head. The consequences will be very, very ugly.


The Zionists and Israelis will be in total panic when the 1% factor or even less [2] realises that Israel does not have any nuclear weapons (this is one of the biggest con ever perpetrated in Psychological-Warfare) and that even though they have the know-how etc., it would not been sufficient to stem the tide of anger and frustration from exploding after 60 years of oppression and occupation. Dollar bills will be burned in bonfires in city squares throughout the Muslim world.


When hundreds of thousands are willing to burn dollar bills in city squares in contempt of US-Israel connivance in oppressing the Palestinians, the effect WILL BE WORSE THAN A RUN ON BANKS. This is because runs on banks can be rescued by the central bank pumping cash to cash-strapped banks.


BUT THIS WILL NOT BE THE CASE WHEN PEOPLE ARE BURNING TOILET PAPER CURRENCIES, SPECIFICALLY THE TOILET PAPER FEDERAL RESERVE NOTES. THEY DON’T EVEN HAVE TO BURN $ BILLIONS BUT MERELY $ MILLIONS TO HAVE A MIND-SHATTERING EFFECT.


WHEN A PERSON HAS LOST EVERYTHING AND THERE IS NOTHING MORE TO LOSE, THE ZIONISTS BETTER NOT STAND IN HIS WAY!


If the FED and Wall Street dare launch such a financial nuclear war, the 1% factor or even less will see to it that dollar bills will be burned in city squares throughout the Muslim world. THIS IS THE ULTIMATE FINANCIAL NUCLEAR WEAPON OF THE 1% FACTOR, STUPID!


NOT THE FED’S FOOLISH and INEFFECTIVE QEII


I challenge any Wall Street financial warfare strategist to an Open Debate on this issue.


I am sure even as I write, the 1% factor are already making plans to use this weapon in the event the FED and Wall Street use their foolish and ineffective QEII. Count on it.


So the FED and Wall Street better stop making threats. Yes, all options are on the table, but it is more of the options available to the 1% factor than The FED’s so-called “unlimited options”.


WAR GAME THIS SCENARIO before you even dare contemplate unleashing a global QEII.


Martin Wolf, you are wrong. America is not going to win the global currency war. The 1% factor will destroy you first with their version of QEII. The more QEII, the bigger the bonfire in every city square in the Muslim world, followed by the rest of the world.




Warning To China & Japan


For too long China’s and Japan’s economic policies have fueled the Zionist Anglo-US war machine’s lust for blood, the blood of the innocents.


Their recycled dollars enabled the war machine to launch perpetual wars, killing millions and devastating entire countries.


If they are not willing to stand up to the FED and Wall Street and stop buying dollar assets and start liquidating US treasuries, then when the real war starts, and the 1% factor is burning dollar bills, they will be decimated together with the FED and Wall Street.


For China, there is time yet to protect its people. Wen Jiabao, stop your whining that any appreciation of the Yuan will destroy China’s economy. This is a stupid statement and a non-issue.


The USA is no longer a Buyers’ market. It is a bankrupt market, stupid!


CHINA IS THE ULTIMATE BUYERS’ MARKET, THE BIGGEST IN THE WORLD, STUPID. GET RID OF GOLDMAN SACHS’ BRAINWASHED FINANCIAL ELITES IN YOUR STATE BANKS AND THINK TANKS.


UNLEASH THE PURCHASING POWER OF THE CHINESE PEOPLE AND NOT RELY ON THE CRUTCH OF THE US DEBT-RIDDEN AND ROTTEN CONSUMPTION SOCIETY.


Step up to the plate and for global peace sake, have the guts and responsibility to assume some modicum of leadership and lead the world to stand up against financial blackmail.






Click here to download Matthias Chang's article in PDF format.






End Notes


[1] The Barclays Octopus, posted to my website, www.futurefastforward.com


[2] Cheney’s fear of the 1% of Muslims in the world taking arms against Israel and its vested interests in the USA
________________


Related: 

The Emerging Beijing Consensus

The Only Win-Win Resolution: China Has To Pay For An American New Deal (talking 'bout desperation)

US Dollar Nosedives Through .7700 USDX

Gallup Poll Shows Discretionary Spending at All Time Low; Trends Support Double-Dip Theory

Economic Hallucinations

Trifecta Of Economic Horror: Trade Deficit Explodes To $46.3 Billion, PPI Rises Above Expectations As New Jobless Claims Surge

A massive tsunami of cash could be headed into stocks

The foreclosure fraud crisis could rip the economy to shreds

Banks Caught Hiring Hair Stylists, Factory Workers, And Burger King Kids To Sign Foreclosure Documents (GS, JPM)

Pipeline Geopolitics. Betting and Bluffing in the New Great Game

Must read of the day: By Pepe Escobar Global Research, October 13, 2010 TomDispatch - 2010-10-12 Future historians may well agree that the 21st century Silk Road first opened for business on December 14, 2009. That was the day a crucial stretch of pipeline officially went into operation, linking the fabulously energy-rich state of Turkmenistan (via Kazakhstan and Uzbekistan) to Xinjiang province in China's far west. Hyperbole did not deter the spectacularly named Gurbanguly Berdymukhamedov, Turkmenistan's president, from bragging: "Thisproject has not only commercial or economic value. It is also political. China, through its wise and farsighted policy, has become one of the key guarantors of global security." The bottom line is that, by 2013, Shanghai, Guangzhou and Hong Kong will be cruising to ever more dizzying economic heights courtesy of natural gassupplied by the 1,833-kilometer Central Asian pipeline, then projected to be operating at full capacity. And to think that, in a few more years, China's big cities will undoubtedly also be getting a taste of Iraq's fabulous, barely tapped oil reserves: conservatively estimated at 115 billion barrels, but possibly closer to 143 billion barrels – which would put it ahead of Iran. When the George W Bush administration's armchair generals launched their "war on terror", this was not exactly what they had in mind. China's economy is thirsty, and so it's drinking deeply and planning more deeply yet. It craves Iraq's oil and Turkmenistan's natural gas, as well as oil from Kazakhstan. Yet instead of spending more than a trillion dollars on an illegal war in Iraq or setting up military bases all over the greater Middle East and Central Asia, China used its state oil companies to get some of the energy it needed simply by bidding for it in a perfectly legal Iraqi oil auction. Meanwhile, in the new Great Game in Eurasia, China had the good sense not to send a soldier anywhere or get bogged down in an infinite quagmire in Afghanistan. Instead, the Chinese simply made a direct commercial deal with Turkmenistan and, profiting from that country's disagreements with Moscow, built itself a pipeline that will provide much of the natural gas it needs. No wonder the Barack Obama administration's Eurasian energy czar, Richard Morningstar, was forced to admit at a congressional hearing that the US simply cannot compete with China when it comes to Central Asia's energy wealth. If only he had delivered the same message to the Pentagon. That Iranian equation  In Beijing, they take the matter of diversifying oil supplies very, very seriously. When oil reached US$150 a barrel in 2008 - before the US-unleashed global financial meltdown hit - Chinese state media had taken to calling foreign Big Oil "international petroleum crocodiles", with the implication that the West's hidden agenda was ultimately to stop China's relentless development dead in its tracks. More than a quarter of what's left of the world's proven oil reserves are in the Arab world. China could easily gobble it all up. Few may know that China itself is actually the world's fifth-largest oil producer, at 3.7 million barrels per day (bpd), just below Iran and slightly above Mexico. In 1980, China consumed only 3% of the world's oil. Now, its take is around 10%, making it the planet's second largest consumer. It has already surpassed Japan in that category, even if it's still way behind the US, which eats up 27% of global oil each year. According to the International Energy Agency, China will account for over 40% of the increase in global oil demand until 2030. And that's assuming China will grow at "only" a 6% annual rate which, based on present growth, seems unlikely. Saudi Arabia controls 13% of world oil production. At the moment, it is the only swing producer - one, that is, that can move the amount of oil being pumped up or down at will - capable of substantially increasing output. It's no accident, then, that, pumping 10.9 million barrels per day (bpd), it has become one of Beijing's major oil suppliers. The top three, according to China's Ministry of Commerce, are Saudi Arabia, Iran and Angola. By 2013-2014, if all goes well, the Chinese expect to add Iraq to that list in a big way, but first that troubled country's oil production needs to start cranking up. In the meantime, it's the Iranian part of the Eurasian energy equation that's really nerve-racking for China's leaders. Chinese companies have invested a staggering $120 billion in Iran's energy sector over the past five years. Already, Iran is China's number two oil supplier, accounting for up to 14% of its imports, and the Chinese energy giant Sinopec has committed an additional $6.5 billion to building oil refineries there. Due to harsh United Nations-imposed American sanctions and years of economic mismanagement, however, the country lacks the high-tech know-how to provide for itself, and its industrial structure is in a shambles. The head of the National Iranian Oil Company, Ahmad Ghalebani, has publicly admitted that machinery and parts used in Iran's oil production still have to be imported from China. Sanctions can be a killer, slowing investment, increasing the cost of trade by over 20%, and severely constricting Tehran's ability to borrow in global markets. Nonetheless, trade between China and Iran grew by 35% in 2009 to $27 billion. So while the West has been slamming Iran with sanctions, embargoes, and blockades, Iran has been slowly evolving as a crucial trade corridor for China - as well as Russia and energy-poor India. Unlike the West, they are all investing like crazy there because it's easy to get concessions from the government; it's easy and relatively cheap to build infrastructure; and being on the inside when it comes to Iranian energy reserves is a necessity for any country that wants to be a crucial player in Pipelineistan, that contested chessboard of crucial energy pipelines over which much of the new great game in Eurasia takes place. Undoubtedly, the leaders of all three countries are offering thanks to whatever gods they care to worship that Washington continues to make it so easy (and lucrative) for them. Few in the US may know that last year Saudi Arabia - now (re)arming to the teeth, courtesy of Washington, and little short of paranoid about the Iranian nuclear program - offered to supply the Chinese with the same amount of oil the country currently imports from Iran at a much cheaper price. But Beijing, for whom Iran is a key, long-term strategic ally, scotched the deal. As if Iran's structural problems weren't enough, the country has done little to diversify its economy beyond oil and natural-gas exports in the past 30 years: inflation's running at more than 20%; unemployment at more than 20%; and young, well-educated people are fleeing abroad, a major brain drain for that embattled land. And don't think that's the end of its litany of problems. It would like to be a full member of the Shanghai Cooperation Organization (SCO) - the multi-layered economic/military cooperation union that is a sort of Asian response to the North Atlantic Treaty Organization - but is only an official SCO observer because the group does not admit any country under UN sanctions. Tehran, in other words, would like some great-power protection against the possibility of an attack from the US or Israel. As much as Iran may be on the verge of becoming a far more influential player in the Central Asian energy game thanks to Russian and Chinese investment, it's extremely unlikely that either of those countries would actually risk war against the US to "save" the Iranian regime. The great escape  From Beijing's point of view, the title of the movie version of the intractable US v Iran conflict and a simmering US v China strategic competition in Pipelineistan could be: "Escape from Hormuz and Malacca." The Strait of Hormuz is the definition of a potential strategic bottleneck. It is, after all, the only entryway to the Persian Gulf and through it now flow roughly 20% of China's oil imports. At its narrowest, it is only 36 kilometers wide, with Iran to the north and Oman to the south. China's leaders fret about the constant presence of US aircraft-carrier battle groups on station and patrolling nearby. With Singapore to the north and Indonesia to the south, the Strait of Malacca is another potential bottleneck if ever there was one - and through it flow as much as 80% of China's oil imports. At its narrowest, it is only 54 kilometers wide and like the Strait of Hormuz, its security is also of the made-in-USA variety. In a future face-off with Washington, both straits could quickly be closed or controlled by the US Navy.  Hence, China's increasing emphasis on developing a land-based Central Asian energy strategy could be summed up as: Bye-bye, Hormuz! Bye-bye, Malacca! And a hearty welcome to a pipeline-driven new Silk Road from the Caspian Sea to China's far west in Xinjiang. Kazakhstan has 3% of the world's proven oil reserves, but its largest oil fields are not far from the Chinese border. China sees that country as a key alternative oil supplier via future pipelines that would link the Kazakh oil fields to Chinese oil refineries in its far west. In fact, China's first transnational Pipelineistan adventure is already in place: the 2005 China-Kazakhstan oil project, financed by Chinese energy giant CNPC. Much more is to come, and Chinese leaders expect energy-rich Russia to play a significant part in China's escape-hatch planning as well. Strategically, this represents a crucial step in regional energy integration, tightening the Russia/China partnership inside the SCO as well as at the UN Security Council. When it comes to oil, the name of the game is the immense Eastern Siberia-Pacific Ocean (ESPO) pipeline. Last August, a 4,000-kilometer-long Russian section from Taishet in eastern Siberia to Nakhodka, still inside Russian territory, was begun. Russian Premier Vladimir Putin hailed ESPO as "a really comprehensive project that has strengthened our energy cooperation." And in late September, the Russians and the Chinese inaugurated a 999-kilometer pipeline from Skovorodino in Russia's Amur region to the petrochemical hub Daqing in northeast China. Russia is currently delivering up to 130 million tons of Russian oil a year to Europe. Soon, no less than 50 million tons may be heading to China and the Pacific region as well. There are, however, hidden tensions between the Russians and the Chinese when it comes to energy matters. The Russian leadership is understandably wary of China's startling strides in Central Asia, the former Soviet Union's former "near abroad." After all – as the Chinese have been doing in Africa in their search for energy – in Central Asia the Chinese are building railways and introducing high-tech trains, among other modern wonders, in exchange for oil and gas concessions. Despite the simmering tensions between China, Russia, and the US, it's too early to be sure just who is likely to emerge as the victor in the new Great Game in Central Asia, but one thing is clear enough. The Central Asian "stans" are becoming ever more powerful poker players in their own right as Russia tries not to lose its hegemony there, Washington places all its chips on pipelines meant to bypass Russia (including the Baku-Tbilisi-Ceyhan (BTC) pipeline that pumps oil from Azerbaijan to Turkey via Georgia) and China antes up big time for its Central Asian future. Whoever loses, this is a game that the "stans" cannot but profit from. Recently, our man Gurbanguly, the Turkmen leader, chose China as his go-to country for an extra $4.18 billion loan for the development of South Yolotan, his country's largest gas field. (The Chinese had already shelled out $3 billion to help develop it.) Energy bureaucrats in Brussels were devastated. With estimated reserves of up to 14 trillion cubic meters of natural gas, the field has the potential to flood the energy-starved European Union with gas for more than 20 years. Goodbye to all that? In 2009, Turkmenistan's proven gas reserves were estimated at a staggering 8.1 trillion cubic meters, fourth largest in the world after Russia, Iran, and Qatar. Not surprisingly, from the point of view of Ashgabat, the country's capital, it invariably seems to be raining gas. Nonetheless, experts doubt that the landlocked, idiosyncratic Central Asian republic actually has enough blue gold to supply Russia (which absorbed 70% of Turkmenistan's supply before the pipeline to China opened), China, Western Europe and Iran, all at the same time. Currently, Turkmenistan sells its gas to: China via the world's largest gas pipeline, 7,000 kilometers long and designed for a capacity of 40 billion cubic meters per year; Russia (10 billion cubic meters per year, down from 30 billion per year until 2008); and Iran (14 billion cubic meters per year). Iranian President Mahmud Ahmadinejad always gets a red-carpet welcome from Gurbanguly, and the Russian energy giant Gazprom, thanks to an improved pricing policy, is treated as a preferred customer. At present, however, the Chinese are atop the heap, and more generally, whatever happens, there can be little question that Central Asia will be China's major foreign supplier of natural gas. On the other hand, the fact that Turkmenistan has, in practice, committed all of its future gas exports to China, Russia, and Iran means the virtual death of various trans-Caspian Sea pipeline plans long favored by Washington and the European Union. IPI vs TAPI all over again  On the oil front, even if all the "stans" sold China every barrel of oil they currently pump, less than half of China's daily import needs would be met. Ultimately, only the Middle East can quench China's thirst for oil. According to the International Energy Agency, China's overall oil needs will rise to 11.3 million barrels per day by 2015, even with domestic production peaking at 4 million bpd. Compare that to what some of China's alternative suppliers are now producing: Angola, 1.4 million bpd; Kazakhstan, 1.4 million as well; and Sudan, 400,000. On the other hand, Saudi Arabia produces 10.9 million bpd, Iran around 4 million, the United Arab Emirates (UAE) 3 million, Kuwait 2.7 million - and then there's Iraq, presently at 2.5 million and likely to reach at least 4 million by 2015. Still, Beijing has yet to be fully convinced that this is a safe supply, especially given all those US "forward operating sites" in the UAE, Bahrain, Kuwait, Qatar and Oman, plus those roaming naval battle groups in the Persian Gulf. On the gas front, China definitely counts on a South Asian game changer. Beijing has already spent $200 million on the first phase in the construction of a deepwater port at Gwadar in Pakistan's Balochistan province. It wanted, and got from Islamabad, "sovereign guarantees to the port's facilities." Gwadar is only 400 kilometers from Hormuz. With Gwadar, the Chinese Navy would have a homeport that would easily allow it to monitor traffic in the strait and someday perhaps even thwart the US Navy's expansionist designs in the Indian Ocean. But Gwadar has another infinitely juicier future role. It could prove the pivot in a competition between two long-discussed pipelines: TAPI and IPI. TAPI stands for the Turkmenistan-Afghanistan-Pakistan-India pipeline, which can never be built as long as US and NATO occupation forces are fighting the resistance umbrella conveniently labeled "Taliban" in Afghanistan. IPI, however, is the Iran-Pakistan-India pipeline, also known as the "peace pipeline" (which would make TAPI the "war pipeline"). To Washington's immeasurable distress, last June, Iran and Pakistan finally closed the deal to build the "IP" part of IPI, with Pakistan assuring Iran that either India or China could later be brought into the project. Whether it's IP, IPI or IPC, Gwadar will be a key node. If, under pressure from Washington, which treats Tehran like the plague, India is forced to pull out of the project, China already has made it clear that it wants in. The Chinese would then build a Pipelineistan link from Gwadar along the Karakorum highway in Pakistan to China via the Khunjerab Pass - another overland corridor that would prove immune to US interference. It would have the added benefit of radically cutting down the 20,000-kilometer tanker route around the southern rim of Asia. Arguably, for the Indians it would be a strategically sound move to align with IPI, trumping a deep suspicion that the Chinese will move to outflank them in the search for foreign energy with a "string of pearls" strategy: the setting up of a series of "home ports" along its key oil supply routes from Pakistan to Myanmar. In that case, Gwadar would no longer simply be a "Chinese" port. As for Washington, it still believes that if TAPI is built, it will help keep India from fully breaking the US-enforced embargo on Iran. Energy-starved Pakistan obviously prefers its "all-weather" ally China, which might commit itself to building all sorts of energy infrastructure within that flood-devastated country. In a nutshell, if the unprecedented energy cooperation between Iran, Pakistan, and China goes forward, it will signal a major defeat for Washington in the new Great Game in Eurasia, with enormous geopolitical and geo-economic repercussions. For the moment, Beijing's strategic priority has been to carefully develop a remarkably diverse set of energy suppliers - a flow of energy that covers Russia, the South China Sea, Central Asia, the East China Sea, the Middle East, Africa, and South America. (China's forays into Africa and South America will be dealt with in a future installment of our tour of the globe's energy hotspots.) If China has so far proven masterly in the way it has played its cards in its Pipelineistan "war," the US hand - bypass Russia, elbow out China, isolate Iran - may soon be called for what it is: a bluff. Pepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007) and Red Zone Blues: a snapshot of Baghdad during the surge. His new book, just out, is Obama does Globalistan (Nimble Books, 2009). He may be reached at pepeasia@yahoo.com.

Pepe Escobar is a frequent contributor to Global Research.  Global Research Articles by Pepe Escobar

Why 30% Gains in Western Stock Markets Will Become Meaningless in the Future

From TheUndergroundInvestor, October 14th, 2010:


With deception in the mainstream financial media reaching new heights regarding the recent rallies in Western stock markets, it’s time to shed some light on this matter. The first rule of building wealth is that your gains have to outpace the rate at which Central Bankers depreciate the currency in which your asset is denominated. Otherwise you end up with more money in you account but no better standard of living. For example, if your investment adviser tells you that his or her goal for you this year is 8% returns, if Central Bankers have depreciated your currency by 15% this year, then fulfilling his/her goal actually results in a 7% destruction of your wealth, exclusive of tax consequences (8% – 15% = -7%).
Even though every investment veteran, sans the most naïve of the naïve, understands that the US stock market has been rigged higher for the past two years solely through free market interference by politicians and Wall Street elements, what if these rigging games continue and the Central Banking/government cartel successfully rigs the DJIA and the S&P 500 higher by another 30%? Those still naively invested in the broad US stock markets should be ecstatic because of the fact that their accounts now hold 30% more paper money, right? Wrong. In 2007, the Zimbabwe Industrial Index soared 545% and at one point, on a 12-month rolling period, was up more than 12,000%! However, Central Bankers in Zimbabwe would probably not care to reveal that the unemployment rate during this stock market “boom” was also an astounding 80%.
But this is the trick that Central Bankers use to fool those that don’t understand how the monetary system works. Central Bankers can actually rig the stock markets to return a greater absolute amount of dollars (or Euros, or Yen, or Pound Sterling or Yuan) and a significant positive return in nominal terms, that in actuality, may contribute nothing to or may even decrease your REAL net worth.
So let’s put this into pictures. Below I’ve reproduced three charts for you. The returns of the S&P 500 priced in the fake monopoly money of US dollars since its bottom on March 6, 2009 and the returns of the S&P 500 priced in what I consider to be the only two REAL forms of money today, gold and silver. When priced in US dollars, the gains of the S&P 500 are an enormous 76.68% since March 6, 2009. Not so fast though. Price the gains of the S&P 500 in gold and more than 55% of those gains disappear. Against gold, the S&P500, despite the daily rigging games of the government/banker cartel, has only managed to rise 21.64% since March 6, 2009. Price the gains of the S&P 500 against silver, and not only does every single percent of the 76.68% gains disappears, but it actually astonishingly loses 1.8%.

The moral of the story? Beware of Central Bankers bearing big bags of paper money as gifts. It’s not the amount of money you own that counts or your nominal returns that matter. Every investor should be fixated upon only REAL returns (adjusted for REAL inflation, not official government inflation rates which are never correct) and the purchasing power of their money, not how much of it they have.

Who throws a grenade into a place where a hostage is being held? This is simply too moronic

From Xymphora, TUESDAY, OCTOBER 12, 2010

The murder of Linda Norgrove

"British aid worker murdered by Taliban during rescue operation"  I knew this story was bullshit when I first read it.  Initial debriefings of the 'crack US troops' involved somehow missed the little incident of throwing a grenade into the area where they thought Norgrove was being held.  The story of how the evil Taliban killed her with a suicide vest started to sprout more and more details with the retelling.  Suddenly, somebody looked at a tape of the incident (the fact it is a NATO operation probably meant the Americans couldn't hide the tape from the British), saw the grenade being thrown, and the world turned upside down.

This was supposedly a rescue mission.  Who throws a grenade into a place where a hostage is being held?  This is simply too moronic to blame on the baseline stupidity of the American soldier.  They wanted her dead.  Why?  Probably the usual reason:  she knew too much, or at least might have known too much.  The most likely explanation by far was that she was in the hands of the drug warlords who operate with the CIA, and thus might have had stories to tell which the CIA didn't want told.

Note the peculiar - and I must say I detect some of the fraying of the 'special relationship' of Britain and the U. S. in this incident -Telegraph story which starts with the official lie and then contains all the details needed to construct what really happened, including the fact that the 'rescue' was rushed to avoid the fact that negotiations quite likely - '100% sure' according to local officials - would have freed her (note that Hague told a barefaced lie about this), the fact that the Taliban denied being involved (and in fact the Taliban was being paid protection money by her office!), and the fact that the local power is the infamous warlord Gulbuddin Hekmatyar (whose special friend in the American government is Zionist asset Richard Holbrooke).  His story is now supposed to be that he is a 'terrorist' allied with the Taliban, but his drug-smuggling activities mean that it is much more likely that he is working with the CIA (the CIA's innocence is 'proved' by the fact they allegedly fired a missile in 2002 in his general direction!).  Of course, the Americans couldn't take the risk that Norgrove heard things from her captors that no American should ever hear.  So she's dead, another victim of the 'war on drugs'.

I'm sure many may say this is just a 'conspiracy theory', and at best we can never know what happened.  I seriously beg to differ.  Consider:

1. local negotiators were certain they could gain her release through negotiations and the payment of ransom (as they had done in other situations), but the Americans rushed the 'rescue' on the bogus excuse, with no evidence whatsoever and in the face of established local practice, that she was about to be smuggled to Pakistan where she would be killed by 'al Qaeda';
2. the grenade thrown in a hostage 'rescue' by 'crack' American special forces;
3. the elaborate lies piled on to describe the evil Taliban and how they slaughtered this poor defenseless aid worker;
4. the fact that the Taliban denied being involved, and were even being paid protection money to lay off the aid workers;
5. the control of the area by warlord Gulbuddin Hekmatyar, associated with drug smuggling and the CIA, whose people would be by far the most likely to be in a position to grab anyone in the area.

I know this was murder. By Americans. Probably to protect CIA drug smuggling operations.