29.10.09

Madoff Pal Silenced

Even the dour Financial Times admitted the death of Bernard Madoff's partner in defrauding investors of at least $65 Billion is a bit of a 'setback' for investors.

Most newspapers and broadcasters have been utterly silent on the mystery of how Madoff went to prison for 150 years without speaking a word, other than to plead guilty.

He named no names, gave no explanation as to where the money went, or how a few guys in an office could rip off hundreds of the world's richest people, with the help of the world's biggest banks.




Beijing artist Chen Wenling created this dramatic sculpture of the stockmarket bull goring to death Bernard Madoff. 
The first artist to address the mysteries of our Great Crash


At the same time, Bernard Madoff held powerful public positions among Wall Street's finest and the US financial regulator, the Securities and Exchange Commission, repeatedly ignored conclusive evidence of fraud delivered personally to its top officials.

So when Bernie's accountant, who has been revealed as the biggest winner from the Ponzi scheme, netting $7 Billion for himself, simply fell into a swimming pool aged 67, you might think some alarm bells might go off in the tiny minds of the world's press.

Boing! Wrong!

If you are not familiar with Jeff Picower's sudden death, here and here are some background stories.

And if you have any doubt the some very powerful people would quite like Bernard Madoff himself to meet with an accident in prison, here is some background to help connect the dots:

Madoff struck a deal in Feb 2009 with the SEC to neither admit nor deny guilt, and in return pay civil fines and penalties levied by the SEC.
At the same time Linda Thomsen, the agency’s top enforcement official, was resigning to “pursue opportunities in the private sector.”

This was separate from the criminal case, in which he opted for silence, refusing to answer any questions other than to admit his guilt. The 71-year old was sentenced to 150 years in prison.
Only just over $1 billion of between $50 billion up to $65 billion that he raised in his Ponzi scheme has been recovered.

Madoff was responsible for $50 Billion of losses, yet trillions in personal savings went up in smoke during the financial crisis. Where did the rest go?

21.10.09

Won't Retire, Can't Migrate

Western governments are so far in debt they are not going to let you retire and they certainly don't want you to migrate. Forget 65, try 70, or perhaps later. They need you to keep working and, unlike your ancestors, you won't be able to escape by migrating to sunnier climes.

From modest origins in Britain in the 1800s, my relatives became mining engineers in Australia, farmers in Rhodesia and followed in the steps of even earlier emigre relatives to Virginia. Today their descendants include hoteliers in South Africa, interior designers in Canada, while more recently, relatives have spread their wings from Brazil, through California to Switzerland.

HIGH TAXATION, MIGRATION CONTROLS


Just think of the contribution to global wealth from such migration but it's hard to escape the conclusion that governments are set against it. With no need for visas, quotas or proof of banks statements, my ancestors, Welsh miners, English merchants, went in search of opportunities.

Today, they'd be stopped at the border. Points systems and visa lotteries filter applicants. Overseas bank accounts (hard to avoid when you work between or have obligations in two or more countries) are investigated for tax avoidance. Money transfers are challenged for laundering. While the European Union removes obstacles to big business, cross border financial activities by individuals are widely presumed to be fraudulent.

The fact that the European Union has promoted a single constitution while failing to protect the rights of individuals is a key reason to oppose the Lisbon Treaty.

WHY MOVE?


Why would anyone want to migrate? For the same reason that governments would like to stop you.

A quick bit of background: The Times' headline put it like this: Government debt ‘nearly three times higher than official figure’.

The true level of UK government debt is equivalent to 157 per cent of national output and nearly three times as large as the £805 billion figure reported by the Office for National Statistics, according to a new book published by a centre-right think tank.

Well, it's the work of a Conservative MP (Brooks Newmark, the Conservative MP for Braintree) and I'd probably accept about half what he defines as debt. PFI is clearly off balance sheet financing. Unfunded public sector pensions? If that's counted, then what about the state pension? That's pay-as-you-go as well. What about loan guarantees to our insolvent banks?

FRAUD BUSTERS' GAME

Already, governments are talking about raising the retirement age while cutting down on benefits, from unemployment to sick leave. This is written up in the press as fighting scroungers but it's also about reducing entitlements.

Local municipalities, police forces, border patrols are all involved in this clampdown on benefit cheats. They seemed to turn a blind eye to cheating British MPs, though, with one claiming £100,000 in expenses to "pay" his girlfriend. That's because the 'fraud busters' have their own game. But let that be. We have even bigger worries.

YOU WORK, YOU LOSE

People might keep working rather than retire, but only if they feel they are working for themselves not in some serf-like bondage to the state.

And this is the problem with the way the government has structured welfare: You work, you lose.

Former investment bank Goldman Sachs offered to the UK government, back in the nineties, to rework the transition from unemployment to work, in order to remove the disincentive whereby a person loses more in benefits than the gain in income. The government dismissed the offer.

The government only KNOWS how to turn the screw.

It will try to do this by hiking taxes, cutting benefits and hammering gullible workers to subsidise the non workers.

Migration controls will be key to this. If they were as lax as they were in the days of my grandparents' grandparents, governments would not be able to raise taxes.

High taxation is a modern invention. It arrived hand-in-hand with migration controls.

THE BANKER AND THE ASYLUM SEEKER

Most people haven’t a clue that international migration controls are not applied to the great and the good. There are all kinds of exemptions, and not just related to money in the bank. Many governments have 'swap' arrangements for the staff of big banks and corporations, excusing them from the 'proofs' that smaller companies or individuals would have to provide in order to let people work or move abroad.

However, the majority of hard working, tax paying individuals, will find themselves in a queue at some foreign immigration office answering probing questions about how they plan to support themselves - struggling to move between countries.

I know, I have done it. And it took me a while to work out why other people in the queue, with not a penny to their name, were excused all these means tests in the name of “asylum”.

Immigration controls are about governments keeping their taxpayers hemmed in. It suits governments very well to have the tabloid newspapers bang on about illegal migration. The restrictions on legal migration are the real issue.

19.10.09

Economy: Anger Or Apathy?

If there’s a crisis, why do so few people seem worried? Sure, some people may be concerned for their jobs, or whether they’re going to find one. But the overwhelming reaction to this crisis – in relation to what happened - is apathy.
 
Partly because it was only very briefly that the leaders of the rich world faced a moment of truth.
 
For a few days back in October 2008, the voices of politicians and financiers trembled with fear. Even George Bush, the modern high priest of small government, stared earnestly into the television cameras, pleading for Congress to authorize the spending of 700 Billion dollars to save the big banks.
 
We don’t know what terrified the politicians and financiers. They are competent actors. Putting on a show is part of their job, but I don’t think any director could have choreographed such a reaction. So I assume the fear was real.
 
THE WEEK OF VISIBLE FEAR
 
They knew the state the banks were in, approximately, but there was something else which struck terror into their faces.

What is truly important to these powerful, wealthy people? What could keep them awake at night? I think they must genuinely have feared they were about to lose their fortunes. Investment bankers are often rewarded with Louis Vuitton suitcase-sized wads of shares in their bank and they borrow heavily against them to buy prestigious apartments and holiday homes. With that at risk, who would not be terrified?

Many banks were also trading on their own account, in other words, taking bets against their own investments, their own clients. When the market tanked, these trades imploded.

Several banks collapsed and many more were days from failure, including Goldman Sachs. There is no better illustration of the plight of the investment banks than this superstar of banking, bailed out with up to $30 billion of public money. Then, it converted from an aristocratic investment bank into a regular mom and pop bank so that it could start trading again with money borrowed from the government, at even lower rates than if it had remained an investment bank. The tale is well told by others.

SAVING FACE, SAVING FRAUDSTERS

As for the look of terror on bankers’ faces: there would have been many cases of fraud exposed by the falling markets. In the crash of 1929 these “bezzles” as JK Galbraith called them, were revealed when the tide went out. The two most common: unauthorised loans to board members and trading investors’ money without approval. See below*

You know the type:
"I will just take the money for a while, invest it in the market. I’ll make a huge profit, pay it back and no one will be any the wiser."
Until the market tanks, as it did in September and October 2008.

The governments’ quick action to support asset prices and banks with taxpayers money must have saved hundreds if not thousands of frauds from exposure. For politicians, as the regulators in charge of the financial system, saving face meant saving fraudsters.

Whatever it was, the week of visible fear passed and soon bankers and politicians were swaggering once again, confidently appropriating public money and deciding which banks and companies would live or wither.  

Much of the public seem happy with that. The personal finance writer Cliff D’Arcy talks of his verbal bruising on Yahoo, in which ordinary people posting on the Web called him a doom monger and blamed him, along with professional journalists, for creating the crisis: Comments along the lines of: All we want to do is enjoy our property wealth in quiet and people like you are talking down the economy, talking down the stock market, dissing property as an investment.
 
THE GREAT CORRECTION
 
My first reaction when I read such stuff is that they’re the uninformed comments of people who don’t want to question their betters but that explains nothing.
 
In the financial markets, they call a sharp change in values a correction. While our countries may not be facing a depression, they were facing a great correction in asset values. Even that has halted in its tracks. Governments cut interest rates to near zero and flooded the markets with taxpayers’ money. When they ran out of cash they began printing it (actually they create it electronically in the form of bonds).
 
For many, the fact that asset prices have stopped or paused in their fall is evidence the crisis has passed. Newspapers feast eagerly on green shoots whenever a politician spots them – even if they seem to sprout only where politicians walk.
 
While no one disputes it was the acts of financiers and compliant politicians that brought the world to crisis, the cost of which we are only beginning to estimate, in the media they’re off the hook. Angry customers briefly queued outside banks a year ago, but predictions of protests, let alone revolution, proved wildly inaccurate.
 
PSYCHOLOGY AND REACTION
 
So why do we so readily forgive those individuals who were prepared to distort the financial system to earn huge riches, and who were saved from bankruptcy by politicians who are instead bankrupting the public treasury?
 
Perhaps it’s the way we react to events. The Harvard psychology professor Daniel Gilbert writes that we overreact to intentional actions and underreact to those we think are accidents, natural or abstract.
 
Understanding what caused the financial crisis needs great conceptual skills. It is uncertainly abstract.
 
But what about moral indignation? According to Gilbert, we overreact to things that offend our morals. If we ever so slightly suspect politicians and financiers of being a cabal looting the economy we should, by this view, be protesting in our millions. Yet there is little evidence that moral outrage is spurring people to action.

STEAMROLLERS AND TESTOSTERONE

Perhaps that’s because we overreact to immediate threats and underreact to things that threaten our long term interests. We underreact to changes that occur slowly over time like the gradual, rumbling, approach of a steamroller.

Some economists have taken seriously the role of testosterone in the huge bets and reckless gambling that led to the financial crisis. But what about our reaction to it? Do men more easily shrug off the crisis? Is that why our newspapers feed greedily on news of the first banks to announce profits since the crisis - even though those profits are just a fraction of the losses and frauds piled up around us?

My friend Tanya suggests that it is better for our mental health to believe that something grotesquely painful was not a deliberate act of evil but an accident or somehow inevitable.

My friend Maria suggests it’s about the difference between women and men. Women confront their feelings and their fears. It is scary to analyse your thoughts and your actions and men are usually to scared to do it.

BLAME THE MEDIA

As a journalist I’d like to think that newspapers and broadcasters are independent. However we can blame the media and that is whole article to itself. Briefly, two points stand out. Few journalists know enough about business or the economy to formulate a sensible question, let alone write an article. That is especially true of television, where business journalists are the poor relation to political correspondents.

Political coverage is often no more than gossip with a dollop of self importance: who’s up, who’s down the greasy pole of politics, to quote what the nineteenth century British prime minister Benjamin Disraeli. Or as teens on social networking sites put it: hot or not?

It’s perfectly possible to pithily explain what’s going on in the economy but try to do it on television and you’ll get barged out of the way by an overweight political correspondent, fresh from another dinner, who wants to tell the audience who he’s just spoken to and what he thinks it means.

As for newspapers, it’s hard to have a lingering moist handshake with financiers and politicians one minute and print a full and true report the next.

UK MPs asked the top UK financial editor why his newspaper had not revealed it knew HBOS bank to be insolvent in the autumn of 2008. My newspaper, he declared, “is not in the business of putting British companies out of business”.

Well, what about the business of reporting the facts as they affect the interests of shareholders and savers?

The writer’s hypocrisy lies in claiming his pen is his sword, while urging others to pick up the real thing. I know that. I’m a writer, a hypocrite.

But how about a little outrage?



* To the economist, embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or even years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in — or more precisely, not in — the country’s businesses and banks. This inventory — it should perhaps be called the bezzle — amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression this is all reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks.
 John Kenneth Galbraith, The Great Crash.

See also, The Bezzle, 2008 version.

10.10.09

Brand Obama

"I'll take a bottle of the Obama. It's smooth, isn't it?"

At least we can all now be open about the fact that Obama's election was essentially marketing.

"Hope" is promise, not delivery. Offering "change" without specifics is like stamping "new" on  washing powder.

By awarding a prize for essentially expressing hope, the politicians behind the Nobel Peace Prize have aligned themselves with advertisers, who play to our hopes and aspirations, rather than whether the product actually does anything.

Like an advert for Benetton or Coca Cola, the face is neither black nor white. No character, just charm with a flash of smile. Not you, not me, but he doesn't offend anyone. 

When Ford developed the Mondeo, marketing gurus sent the car's design through a series of focus groups, where they monitored consumers' reactions, removing any edge, grit or individual character from the car that could irritate potential buyers.

When marketers have to sell a bulk wine that has nothing identifiable or tasty about it, they call it "smooth". They add a homely story on the back label to provide some heritage.

As you can see, it's a joke. But that is what the Nobel Peace Prize committee has found worthy of its award.

9.10.09

Nobel Winner Obama Shock

A selection of surprises:

Nobel Committee:
Says it made the award to Obama “for his extraordinary efforts to strengthen international diplomacy and cooperation between peoples. The Committee has attached special importance to Obama’s vision of and work for a world without nuclear weapons. He has created a new international climate”.

Enduring America
A Reader: How can Obama get the Nobel Peace Prize hours before the US is supposed to bomb the Moon?!

Daily Telegraph, UK
Nobel prize for President Obama is a shocker. He should turn it down.

President Obama remains the barely man of world politics, barely a senator now barely a president, yet in the land of the Euro-weenies (copyright PJ O’Rourke) the great and the good remain in his thrall. To reward him for a blank results sheet, to inflate him when he has no achievements to his name, makes a mockery of what, let’s face it, is an already fairly discredited process (remember Rigoberta Menchu in 1992? Ha!).

And, amazingly from some air head in South Africa who should have heard of Morgan Tsvangirai this fluffy comment:

The Times, South Africa
Wow. This is a surprise: a fabulous one. And he gives hope to the people of the world that there may be a better future for us and our children. Have a lovely weekend!



Newsbusters
If Al Gore can win the Nobel Peace Prize for just being liberal, why not Barack Obama? This is not a joke, apparently:

Nobel Peace Prize

The jokers in Oslo have given the Nobel Peace Prize to President Obama. Were they bribed or are they patsies?

Noun. Patsy - a person who is gullible and easy to take advantage of
chump, fall guy, gull, soft touch, sucker, mug, fool, mark
dupe, victim - a person who is tricked or swindled

Reuters reports: The first African American to hold the country's highest office, Obama has called for disarmament and worked to restart the stalled Middle East peace process since taking office in January.

So the Peace Prize is awarded for talking? The man has barely been in office long enough to do anything.

UNELECTED LEADER OF THE WORLD

Why would you give someone this award at the start of their tenure, not after? Or are the string-pullers aiming to install Obama as Unelected Leader of the World.

Who were the alternatives for the Nobel Peace Prize?
Morgan Tsvangirai. Zimbabwe’s Prime Minister and long running opponent of the dictator Robert Mugabe.

Tsvangirai has withstood the murder of his wife and his own near death in a suspicious car crash, yet goes on trying to change a regime that has starved and tortured its own people.

That assumes the Nobel Patsies don’t have the balls to confront the Chinese.

It’s the 20th anniversary of Tiannanmen Massacre and the 60th anniversary of the communist revolution . There are dissidents aplenty if you want to recognise brave warriors for peace.

6.10.09

Premature Dance On Dollar's Grave

The media jumped on the dollar-is-dead story, after Britain’s Independent newspaper reported plans by oil producers to stop selling in dollars within nine years.

Robert Fisk’s article in Britain’s Independent newspaper, embracing theories about the origins of the Gulf Wars, unnamed sources and a flawed analysis of how global trade works, was a step too far for the respected Middle East correspondent.

Secret meetings? Transition from the dollar by 2018? Evidence?

There is no secret about the desire of Russia, China and other countries to reduce their dependence on the dollar. Russian President Dmitry Medvedev openly called for an alternative to the dollar at the G20 meeting in London in April. They’ve pushed the topic, along with France and Brazil among others, on the sidelines of every meeting since.

Iran has long been pushing for an international oil bourse that accepts payment in currencies other than dollars since at least 2006. Russia is opening an oil products derivative exchange in St Petersburg with much the same aim.

LIFEBLOOD AND VIRUS

Fisk links the second Gulf War with US desire to keep the oil trade in dollars. That story is a totem of the anti-war, indie media. They may be right. It’s just odd to see their clothes nicked by an old school newspaper.

If a hedge fund had wanted to profit from planting a story, it couldn’t have done better than this: The substance of the story is not new. The global financial crisis was transmitted through the dollar, which is simultaneously lifeblood and virus to the world economy. Spice up the story with geopolitics, the anti war movement and some conspiracy theories, however, and you can move the markets long enough to sell the dollar before the story’s printed, then buy it back cheap.

Sure enough, the dollar moved back up when the Saudi central bank governor refuted the central plank of Fisk’s article, denying any talks involving oil producers and dumping the dollar. He would say that, wouldn’t he? Sure, a central bank governor certainly would not admit to such talks even if they had happened.

Still, it must be a bit frustrating for the grown up financial media when a story they report day in, day out, only grabs world headlines when it gets reported by a non-financial journalist. That’s because the Independent has used the age old newspaper technique. Don’t let the facts stand in the way of a good yarn.

PACT WITH THE DEVIL

Since this crisis began, and the dollar surprised investors and governments by strengthening even as the US economy slowed sharply, the obvious question has been: when will the dollar falter?

Fisk’s territory is the Middle East, however. He envisages the oil producers unilaterally deciding to ditch the dollar, replacing it with a basket of currencies, from gold, the yen, yuan and euro to a new Gulf currency.

He fails to indicate who would manage the basket and assumes the birth of a new currency would be as painless as that of the euro in 2000. And mystically, Fisk predicts “an extraordinary transition from dollar markets in nine years,” with no further information.

Fisk argues the dollar’s future – and that of the US economy – depends on pricing oil in dollars. But there's a much bigger story: the role of China and Japan in supporting the US dollar, its economy and its lifestyle.

Neither of the two biggest holders of dollar reserves are oil exporters, quite the reverse. If the dollar truly is evil, China and Japan are in a pact with the devil, earning dollar profits on their exports to the US, then lending the money back so Americans can buy even more goods.

The dollar is their friend in another way. It is the most liquid and available currency. That’s why it’s used to buy and sell commodities. You can always lay your hands on the green stuff. Trading in other currencies could well push up the price of oil.

The dollar may ultimately decline, along with the status of the US economy but it’s a matter for the long term. Sterling remained the world currency for half a century after the US eclipsed the UK.

For a broader view on the outlook for the dollar, I’ve reposted some of my articles on the topic below.

Financial Reforms Rust By The Roadside

US banks were returning to their old ways within months of their bailout by the US government.

This is a reprint of my article from 25 June, 2009.

So the bankers are back to their old ways. The financial reforms, that three months ago politicians told us were urgent, are rusting by the roadside.

Regulation of derivatives, moral hazard, regulatory reform.. barely a single meaningful step has been taken in the US, UK or Europe.

The US banks claim they are repaying the government bailout money (their accounting is fraudlulent as ever) and bankers are toying with mergers, acquisitions and.. bonuses.

GIVING IN TO THE BANKS

Why did the governments give in to the banks? How did a small group, mostly politicians and bankers, convince their nations that saving the banks was so important that they could ignore the real economy?

Indeed, the real economy didn't just get ignored. It has to pay for the bank bailout. Industries, exporters, small businesses and the people who work for them, now face an even longer recession because of the cost of government borrowing – mostly to bail out the banks.

BUYING A LIFESTYLE

Why is the UK so obsessed with remaining a financial centre? Does it replace manufacturing? No. As we're discovering, a bloated financial sector makes for an unbalanced economy, as well as a distorted society. However it does boost the inflows of foreign capital that pump up the pound, with the result that sterling buys a better lifestyle than it ought to (based on what the UK produces).

The reason UK and US government statistics excluded housing costs to make inflation look low; The reason monetary policy on both sides of the pond encouraged corporate and consumer borrowing; The reason the UK and US pursued a strong pound/dollar policy... was to give their citizens a higher living standard than they deserved based on their work outupt or earnings.

AMERICAN DREAM

The US does this by borrowing from Asia so it can import more than it exports, so that its currency remains overvalued and so that Americans can afford to buy the dream.

Ask yourself, why is the US dollar a "better" currency, one that buys more, than other currencies? Because the US makes more? Nope. Apply the same questions to the UK.

Can you imagine a government having to tell its people that they actually don't have the birthright to be richer than Portuguese or Finns or Canadians. What if Britons had to stop flying around Europe in huge numbers or buying up entire villages on the continent? What if they still could, but they had to work a lot harder to do it?

That's not a message any politician would like to deliver.

A PRICK, POSTPONED

That's why those governments cannot reduce the government-corporate-personal debt binge. Their lifestyle is built on it.

The UK and US governments would have to sanction a fall in the buying power of their currencies and a big adjustment in their citizens' living standards.

No politician would do that. So they'll continue to live beyond their means. The governments will pay off the old debt, allowing the banks to focus on creating new debt. And the prick of the bubble will be postponed.

U.S. Pulls The Plug On The World

In October 2008 the role of the US dollar as, simultaneously, lifeblood and virus to the world economy was illustrated dramatically.

Reprinted from 27 October, 2008, 16:59

The U.S. administration has prompted a huge surge in the U.S. dollar, which may help refinance its financial sector. The cost is a currency whirlwind that threatens the collapse not just of banks and companies but entire countries.

In the past week the financial crisis, which began in banking and spread to stocks, has careered into the currency markets. The U.S. actively decided back in September 2008 to shut down the investment banks that lend to the biggest professional investors. This has caused those investors to sell anything and everything and to settle their trades.

The result was a whirlwind of liquidation. Korean won, Turkish lira, Brazilian real, British pounds and commodities from oil and metals, all were sucked into the downdraft.

FLIGHT TO THE DOLLAR

Like a speeding truck heading home, dollar investors left a vacuum in their wake, a vortex of dust, where there had been steadily growing emerging market economies.
And you thought the U.S. authorities were doing their best to prop up asset prices?

As the economic lights go out and the U.S. administration fumbles in the dark, maybe it's accidentally cut off the hand that feeds it. Or has it deliberately prompted a shakeout of asset values and a flight to the dollar?

On October 3 the $US 700 billion bailout of banks' bad bets was signed into law, after U.S. Treasury Secretary Henry Paulson assured U.S. Congress it was the only way to avoid financial Armageddon. The stated aim was to support asset prices.

But on September 22, with less publicity, Morgan Stanley and Goldman Sachs gave up their investment bank status, which had allowed them to borrow and lend much more than traditional banking companies. That was just seven days after another investment bank, Lehman Brothers, filed for bankruptcy protection.

These prime brokers, or investment banks, provided the loans that allowed America's professional investors to hunt worldwide in search of ever-bigger game. While U.S. investors earned profits, foreign countries benefited from U.S. investment in their bank, retail and property sectors.

All this dates back to September 2004, when the U.S. Securities and Exchange Commission gave in to pleading from the big five investment banks, who wanted to borrow more heavily against reserves that served to cushion against losses. This allowed them to raise their leverage up to 20, 30 or 40 times, in other words, to borrow $US 30 against every dollar of assets – and lend it on.

They certainly lent it! For mortgage-backed securities, collateralised debt obligations, credit default swaps and dangerous stuff with even safer sounding names. As the New York Times writes.

The banks were Merrill Lynch and Bear Stearns along with Morgan Stanley, Lehman Brothers and Goldman Sachs headed at the time by Henry Paulson. Treasury Secretary Paulson knows very well who lends to the hedge funds, how shutting down the prime broker system would force them to liquidate their trading strategies and cause a broad sell-off of all kinds of assets.

But what was he, along with the administration, trying to achieve? As professional investors dump foreign currencies and pile the dollars into that homeward bound truck, they're pushing up the U.S. currency.

CHINA FINANCES BAILOUT

The U.S. needs its currency to be strong. The U.S. is a debtor nation, spending more than it earns, dependent on foreign loans. Foreigners like the Chinese are financing the bailout of U.S. banks.

If the dollar were to crash in this environment the U.S., reliant as it is on borrowing, would struggle to raise the debt funding it needs to buy its way out of this crisis.

You would expect the dollar to fall as one state after another tips into recession and for gold to rise in times of uncertainty. Instead the reverse is happening.

Gold was approaching $US 700 in the last week of October, down from about $US 1200 just months before. It's a big leap to suggest the U.S. may be shorting gold as a way of supporting the dollar, but causing distressed hedge funds to sell gold amounts to the same thing.

DEBTORS NEED DOLLARS

There are other arguments for the rampant dollar. Some people argue that the U.S. entered this financial crisis earlier than other countries, that its housing market has been falling since 2006, and that the U.S. will recover before other countries. Traders may be anticipating interest rate cuts in the UK and Eurozone, while in the U.S. rates have less far to fall.

Companies are certainly buying dollars in order to pay off their debts. However, none of this explains the role of the U.S. administration in driving down asset prices.

I have argued before that governments should focus on supporting the real economy, on saving jobs and less on bailing out the banks. It is certainly not the job of governments to support asset prices at a particular level – and certainly not to spend $US 700 billion buying them off their banking chums.

Maybe Paulson's seen the light but, in that case, may the U.S. taxpayers have their $US 700 billion back please?