Henry Blodget:

On the day it was announced he is to be awarded the Medal of Freedom, Warren Buffett wrote, in the New York Times, a “thank-you letter” to “Uncle Sam” for giving Wall Street billions of dollars and making sure that institutions like Goldman Sachs and AIG did not perish from the earth.

Though peppered with Buffett’s long-cultivated hokiness, the letter is equivalent to a man sending his prostitute a Christmas card.

Well, Uncle Sam, you delivered.

Buffett certainly took a hit in 2008, though I seriously doubt Berkshire Hathaway would have gone under, as he implies. No matter, Buffett benefited mightily from the bailout era. And “Uncle Sam”’s backstopping of price declines and flooding of the banks with capital was only the beginning. Buffett bought some 5 billion in preferred stock in Goldman Sachs at the height of the crisis in late September 2008, confident that “Uncle Sam” would do whatever it took not just to keep the “Bigs” from failing but make them wildly profitable again.

Only one counterforce was available, and that was you, Uncle Sam. Yes, you are often clumsy, even inept. But when businesses and people worldwide race to get liquid, you are the only party with the resources to take the other side of the transaction. And when our citizens are losing trust by the hour in institutions they once revered, only you can restore calm.

“Uncle Sam” was the only one willing to “take the other side of the transaction” because the assets “he” was buying were worthless.  The “price discovery” that Bernanke referred to in 2008 amounted to letting Wall Street price garbage and sell it to their caring “Uncle.”

And Buffett’s thank-you note is representative of something larger as well. As “Credit Bubble Stocks” writes,

Buffett is an excellent (though overrated) investor, but behind the aw-shucks Omaha façade is a much more "complex" character. He has a lot to answer for.

He is also in the complacent, "rah-rah America" class of investors who think that because the baby boomers lived such pampered lives, misfortune has been permanently banished from history.

I, too, respect Buffett’s “value investing” philosophy and methods. Who wouldn’t? But he is also an example of an entire class of American Baby Boomers (and those who just preceded them) who lived through the greatest credit bubble—and debt-financed consumption binge—in world history and think that they did something special. And the moment this 25-year cycle came to its inevitable end, and their portfolios of mutual funds and real-estate were put in jeopardy, they pleaded to the government to save them. Preserving their current nominal net-worth was so important that they had little compunction impoverishing their grandchildren and enshrining financiers as government-sponsored Masters of the Universe.

Thanks a lot.

Cato Institute scholar and author of Financial Fiasco, Johan Norberg, has created an informative and stylish documentary about "the next financial crisis" that deserves a wide audience. Much of what is discussed in the film won't be news to AltRight readers, but I was impressed by Norberg's unflinching look at the extent of the crisis: "The governments could save the banks, but who could save the governments."

Barack Obama is caught in a financial Catch 22.

On the one hand, his party’s fall re-election prospects rest on the stock market consolidating its gains since March 2009 (Dow 10,000), if not rising. Since his first day in office, the president has announced that the country is experiencing a great economic “recovery,” and any serious downturn in the major indices would give middle- and upper-class Americans whiplash and be politically devastating .

On the other hand, in order to remain viable, the Treasury Department needs an equities collapse -- and probably not just a slow bleed but a dramatic crash -- in order to herd millions of investors into the U.S. dollar and government debt.

The will of the Treasury will prevail, and the president and his party will be left high and dry. Furthermore, the crash will greatly empower the Treasury and federal government … for a time.

I’m certainly not the first to claim that the governments can benefit from an economic downturn, though this notion isn’t always theorized properly. Recently, I’ve encountered a number of people, types who listen to talk radio and root on the Tea Parties, who are convinced that Obama isn’t just incompetent and misguided but diabolical. According to this view, Obama is deliberately pursuing bad economic policies in order to crash the markets and bankrupt citizens; in the wake of the devastation, with Americans reeling, he’ll install full-out socialism. Rahm Emmanuel’s famous line about “never letting a good crisis go to waste” is cited as the moment when the wicked Democrats’ mask began to slip…

An epic clash between the Marxist intellectual (Slavoj Žižek) and the forces of capitalist reaction (Jim Rogers).

Žižek finds Rogers’s statements “obscene and ridiculous,” but not, he tells us, because he “counts himself as a communist,” even though he does. For this luminary of the Pomo lecture circuit, the word “socialism” means a system that uplifts and empowers the poor and non-White, and which evil capitalists would thus fight tooth and nail to prevent from ever coming into being. Period. Talk of bailouts being “socialism for the rich” will quickly get the kibosh put to them.

On a deeper level, Žižek is a post-Marxist who’s grown spoiled and blind by his success. The American welfare state has enacted, in whole or in part, every one of the 10 planks of Marx’s 1848 Communist Manifesto, the most important being the progressive income tax and the central control of credit through the Federal Reserve System. In a Western world in which governments consumes between 40-60 percent of national incomes, the notion that we’re suffering from excessive laissez-faire is obscene and ridiculous.

I refrained from commenting on the passing of the recent financial reform bill for the simple reason that my reaction was much like that of other undeceived libertarians and conservatives: the people who laid the foundation for the crisis, Geithner and the Fed, are the ones empowered by the bill.

But over the past few days, some lesser known provisions in the bill have come to light that deserve analysis.  As reported by Investor’s Business Daily (and picked up by American Renaissance), the “Restoring American Financial Stability Act of 2010” will require that Washington institute all sorts of new affirmative-action and racial-preference programs in the industry it recently bailed out.

Yes, the bill gives Treasury the power to liquidate banks that pose a threat to financial stability. But it essentially exempts minority-owned banks and those approved by Acorn-style urban organizers.

“The orderly liquidation plan shall take into account actions to avoid or mitigate potential adverse effects on low-income, minority or underserved communities affected by the failure of the covered financial company,” it says.

{snip}

Sen. Richard Shelby and other GOP conferees moved to strike the language, arguing that making an exception for minority neighborhoods defeats the whole purpose of reform, which is to protect all consumers against systemic risk.

But Sen. Chris Dodd, who’s running the conference committee with his fellow Democrat, Rep. Barney Frank, shot them down by suggesting that they wanted to deny minorities access to credit.

{snip}

Studies show that CRA home loans have much higher failure rates. {snip}

Another section of the bill requires the proposed Financial Stability Oversight Council (headed by the Treasury secretary) to consider a zombie institution’s “importance as a source of credit for low-income, minority or underserved communities” before winding it down. {snip}

{snip}

The bill mandates placement of a diversity czar in each federal financial agency—including the Fed and its 12 regional banks.

Establishing a so-called Office of Minority and Women Inclusion within each agency is the idea of Democratic Rep. Maxine Waters, a Congressional Black Caucus leader and conferee.

According to her amendment to the bill, “Each agency shall take affirmative steps to seek diversity in the workplace of the agency, at all levels of the agency,” including:

* Recruiting at “historically black colleges and Hispanic-serving institutions.”

* Recruiting in urban communities.

* Placing ads in African-American and Spanish newspapers.

* “Partnering with organizations that are focused on developing opportunities for minorities.”

{snip}

Each agency, in turn, is required to report to Congress detailed information describing the actions it took to diversify its staff and contract with minority-owned firms. Which means they’ll do what their diversity officers advise. No official—particularly no regional Fed bank president—wants to be dragged before Barney Frank’s panel and accused of racism.

Still, as insurance, the bill also calls for an audit of Fed “governance” to examine, among other things, “the extent to which the current system of appointing Federal Reserve bank directors effectively represents the public without discrimination on the basis of race, creed, color, sex or national origin.”

Paul Craig Roberts discusses the bear market in financing the American Empire. 

Bill Murphy of the Gold Anti-Trust Action Committee (GATA) joins Richard to discuss the manipulation of the gold and silver markets by the Federal Reserve and other big banks like JP Morgan and Goldman Sachs.

Geithner, Summers, Bernanke, and Co. should be careful what they wish for.

Global markets fear US Treasuries sell-off as China ends currency freeze

By Ambrose Evans-Pritchard
The Telegraph, 20 Jun 2010

Global markets are braced for a possible sell-off in US Treasury bonds after China said over the weekend that it will allow the yuan exchange rate to adjust against the dollar, ending a two-year currency freeze that has led to trade clashes with Washington and Brussels.

China's Central Bank said the economic recovery had opened the way for a return to "flexibility" but ruled out an immediate one-off rise in the yuan. The currency will be allowed to fluctuate within a widened band of 0.5pc each day against a basket of currencies.

The yuan is now expected to rise slowly against the dollar, although it may fall if the euro weakens further. "There is at present no basis for major fluctuation or change in the exchange rate," said the bank.

The policy shift is a goodwill gesture towards the US and Europe before next week's G20 meeting in Canada as a rising yuan helps Western industries compete against Chinese imports. US Treasury Secretary Tim Geithner welcomed the step but said "the test will be how far and how fast they let the currency appreciate."

For a long time now, Washington has been labeling China a wicked “currency manipulator,” and forecasters have followed with regular predictions that this will be the year that Beijing finally ends its peg and allows the yuan to float upwards. It's apparently now happening, and Washington is excited about the prospect of getting its turn at having a relatively weak currency and expects that such a move will rescue American manufacturers and exporters.

As the theory goes, if a country’s currency is just weak enough, then its products will be relatively cheap, and the country will gain a comparative advantage. (Rarely mentioned is the implication that prudent savers will be destroyed.)