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Saturday, January 8, 2011

The Fed Synonymous With Stimulus Policy

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If you look back into the mid-1960s you will see the beginnings of today’s financial and economic problems. Inflation was beginning to raise its ugly head as clad coins came into being. We were collecting all the pre-1964 90% dimes, quarters and halves we could find. As we moved into 1968 few were to be found in circulation. War in Vietnam was draining the country and the buffoon Lyndon Johnson, another socialist, was leading America into the Great Society. What he was really doing was taking the US into socialism and debt. It got so bad that countries were demanding gold for dollars, particularly, aggressive was President Charles DeGaulle of France. Then the beginning of the end came. On August 15, 1971 the dollar was moved off the gold standard and the dollar became just another fiat currency. Here we are almost 40 years later and the dollar has lost 95% of its purchasing power and two breadwinners are needed in every family, as apposed to one in 1971. That is when soc ial engineering began, as we know it today. We’ve seen many losers walk across the stage over the years â€" all with either their hands in the till or exuding incompetence. Most of the bright still excelled but 55% of Americans slipped into stupidity. What is sadder is they think they know it all, but they do not. From 1976 to 1981 gold and silver warned us of what was coming. We have had cycles of inflation, buildup of debt and a general degeneration of society.

We had a purging of the system in the early 1980s but it certainly did not last long. Real estate collapsed starting in 1988 and the affects carried over into the early 1990s. During that period those in control had a great opportunity to again purge the system, but they refused to use that option and went right back to doing what they had done in the past. Gold and silver fell out of favor and we were subjected to the dotcom boom, which ended in tears for so many. Inflation was about but worse a great deal of wealth had been lost. We were fortunate enough to call the top of the market in the first week of April 2000, just two weeks after the actual top. Only 2% of economists, analysts and newsletter writers called the top. Being mostly outnumbered by the losers has its benefits. Presently 95% believe gold and silver are headed lower. Considering their track records we’ll stay long as we have been since the second quarter of 2000 when gold was $262.00 and silver was $3.5 0.

Many professionals are looking for answers as to why the US economy and finances are in the state they are in. We have been pointing out for ten years that the Fed is the problem, but those who realize this are afraid to speak the truth. They won’t have their jobs long if they do speak out. Low or zero interest rates may have helped government and big business, but it has not helped small business and the unemployed. Are we to believe that the Fed had nothing to do with the real estate collapse? Of course they did â€" they planned and executed it. The zero interest rate policy still in place has created more grievous damage than any other aspect of economic causes.

Framing failed policy in the context of the system and calling it mistakes and incompetence doesn’t cut it. The problems we have seen since 2000 were planned that way. Investors and professionals do not want to hear that. They do not want to look behind the facts because it’s not popular and they may have to tell the truth and that is very inconvenient for an employee’s financial health. Why do you suppose the Fed didn’t want anyone to know to whom the $13.8 trillion was lent to and why and what collateral was presented? A great part of the loan packages went to banks and others, which had been buyers of MBS from US syndicators. We would say the next logical step in this charade would be to clean up the rest of the toxic waste in the US and Europe and then come up with the $8 trillion to bail out Fannie, Freddie, Ginnie and FHA. We believe that either legislation or fiat order has to be set in motion at 5-1/4% to bring home the $1.9 trillion America’s transnation al corporations have stashed in the Cayman Islands and in other tax havens. You notice you cannot do that, but these anointed corporations can. They can use the funds to again prop up the stock market, perhaps make the market go higher, make their company’s stocks go higher, so they can again cash out their options making billions and to help fund the Treasury, Agency and perhaps buy MBS-CDOs at $0.15 on the dollar. Don’t forget elitists control all these corporations or those who manage these firms are under elitist thumbs. We see this move as inevitable with the Fed already offside some $1.2 trillion. Eventual assistance to the housing agencies would fit perfectly with our prediction seven years ago that these agencies were broke, they would be nationalized, which they were, and funding by the Fed would lead to eventual 55% control of the US housing market. Over the next two generations almost all real estate half will belong to the Fed and government. This way they wi ll be able to tell people where they will live and work and a myriad of other controls will be in place.

Transnational conglomerates contend they need the ability to avoid taxation of the US, which runs from 35% to 40%. In Europe the range is 24% to 30%. Individual US taxes, after state and local taxes, run about 35%, but in Europe if you add in VAT the average is 70%. Therein lies the difference. The only way to deal with the problem is to set up tariffs to protect US jobs and industry from predators such as transnational conglomerates. The tariffs would fund government and debt and there would no longer be any reason to move jobs and industries offshore. That means the majority of jobs and industry would return to the US. Under current law there is no reason for US corporations to invest in the US because it is uncompetitive. We wrote about this in 1967, but no one was listening.

If all this wasn’t damaging enough, most American municipalities are facing bankruptcy. Police, fire and social workers are already being eliminated, some with 15 to 25 years on the job. This dislocation is going to be devastating in communities. This is the result of pure incompetence and we predicted this result three years ago and recommended the sale of municipals. We must say that salaries and benefits at these government levels got totally out of hand. After 30 years on the job some retirements are $150,000 to $200,000 a year, which is totally absurd. This new wave of ongoing layoffs will add to core unemployment. Those lucky enough to find jobs will do so at a rate of 1/3 to 1/2 of previous salaries. This is why America desperately needs tariffs on goods and services. Unfortunately tariffs are a long shot as the elitists behind the scenes have purchased 95% of the members of our House and Senate and no such legislation could be passed. Then there still is the revo lving door between Wall Street and the Fed and the Treasury. The latest in your face appointment to fill the shoes of Rahm Emanuel, as White House Chief of Staff, is Mr. Daley from JPMorgan Chase’s Midwest branch. Doesn’t the public see what is going on? Or do they care at all? We see 55% of know it all Americans not caring or being too dumb to understand.

As the destruction continues in an insolvent banking system banks continue to speculate in world markets again increasing leverage at the cost to the economy of not lending to most small and medium sized businesses. The Treasury carry trade is far more profitable. All this in an environment of flash trading, which is front running and is illegal, as is naked shorting, which the SEC refuses to do anything about. In addition, of course, is a rigged manipulated stock market whose license to steal was granted under Executive Order. These mechanisms are used to take markets in whatever direction government and the people who control government want them to go. Is it any wonder the public investor is leaving the markets in droves?

The US economy is still reaping the world wind of malinvestment that is yet to be unwound, which continues to destroy capital. The intercession by the Fed and the agencies delayed the residential housing collapse, but didn’t stop it, and it has not been a solution. Very low interest rates have been in place, but most buyers cannot even afford 3-1/2% cash down. In addition, the available housing inventory for sale monthly grows. Slow growth and lower rates have not been a solution. In fact, without the Fed and its loan programs and returning to the subprime-ALT-A loans, all the major lenders would have gone under and their financial situation is no better now than it was four years ago. The pyramid scheme that was housing was a giant financing device, as homeowners pulled out equity once a year and used that cash to buy second and third homes. The lenders knew they shouldn’t have been doing what they were doing, but they did it anyway. The result is today some 25% of ho mes have negative equity, which we believe will become 25% worse over the next two years. That means more walk-a-ways and more over-hanging inventory. This is nothing less than systemic failure. In the housing collapse most Americans had a major loss of wealth occur. Half of Americans were using their homes as a hedge for retirement. In most cases their only real saving’s vehicle, only to have that vehicle smashed by the Fed, government and imprudent banks. This was the destruction of the dreams of millions of Americans.

Capital was drained into the real estate cauldron and today we have millions of empty homes, malls and stores. This capital should have been used to build plant and equipment and in research and development. That was difficult under the circumstances, because of the lack of need of such job creating facilities. This was caused by free trade, globalization and outsourcing. Over the last 11 years America lost 8.5 million jobs and 42,400 businesses to foreign countries. Without tariffs to level the playing field there was no need for investment, so the outlet to keep the economy from collapsing was real estate construction. That was and still is consumption, that is keeping the economy afloat, along with endless amounts of funds for the financial sector and little or nothing for the average American. This consumption, which is 70% of GDP, is still in force in the US debt borne economy. Still no solutions, but can there be a solution as we lose millions of jobs a year to trans national conglomerates, which ship these good paying jobs overseas in a relentless effort to totally destroy the American economy? This is the same group of elitists who want to bring $1.9 trillion in profits again back into the US at 5-1/4% taxation, which will cost the taxpayer $650 billion in lost taxation - money that instead flows to corporate shareholders and into the pockets of the managements of these corporations, as the funds are used to jack up the market and buy Treasury and Agency bonds. This is all at your expense. All these elements have been employed to take down the US economy and pauperize the American people in an attempt to make them accept world government. You now are experiencing the legacy of Keynesian corporatist fascism and the destructive forces unleashed by Sir Alan Greenspan. All we see from the trillions of dollars pumped into the economy by the Fed is the bailout of the financial sector and over the top speculation and unbelievable fraud from t he criminal cabal running NYC, Washington and the nation. Only in America can a Defense Department announce it cannot find trillions of dollars or where in the administration of Iraq $50 billion disappears, as American citizens starve on the streets. Everywhere you look there is fraud and criminal acts, yet mysteriously no one ever goes to jail.

The residential home mortgage market has been destroyed and probably won’t recover for many years to come. The Fed will probably have to create money and credit for years to come to stave off the failure of the financial system and the persistent undertow of deflation. As you have been taught the giant banks, brokerage houses and insurance companies are too big-to-fail. That means they will continue to have a license to steal. Front running and naked shorting will rise to even greater heights with the complicity of the criminal SEC and CFTC. The corruption that is overwhelming will worsen each and every day. Then again for the past 15 years Goldman Sachs has controlled the revolving door at the Treasury Department and JPMorgan has controlled the Fed since its inception. These are the gang leaders who control America. These are the same people who control the American media, so that you won’t know what is really going on. The brainwashing and psychological warfare, agai nst the American people, is relentless.

The supposed current recovery is being underpinned by zero interest rates with real inflation hovering around 6-3/4%. We are told by Bloomberg that current high gold and silver prices, a result in part of these zero rates, is a craze and CNBC calls it a bubble. They don’t call the bond market a bubble, which it is. Evidentially they attach no significance to the fact that the 10-year Treasury note just catapulted from a yield of 2.40% to 3.50%. In the world of CNBC, CNN and Bloomberg up is down and down is up. It is also evident that governmental deficits will never be liquidated, unless, of course, Washington steals Americans’ $6 trillion in 401Ks and IRAs, which they have every intention of doing. The bill has been prepared and our politicians and Wall Street are waiting for the right moment to jam it through. Just think of it, a lifetime of work wiped out in the blink of an eye. If you have these plans you had better think about liquidating them before it is too lat e.

Gold has become again the world reserve currency. It is just that few realize the transition has already taken place. For the past 11 years every major currency has fallen in value versus gold from 13 to 20 percent annually. Versus silver, the figures range from 17 to 25 percent. This is a clear-cut ominous trend of a flight away from all currencies to gold and silver and quite a flight to safety. This movement by worldwide investors cannot be ignored. There obviously are many people that see what we see and in that process are dumping currencies for gold and silver related assets. Unfortunately, Americans are far behind in these changes with only 2% of the population participating. Ladies and gentlemen the second stage of the gold and silver bull market has just begun. Prices have fallen from their highs, what a great time to buy.

 

Federal Reserve officials signaled they’ll probably push ahead with unprecedented stimulus until the recovery strengthens and many of the 15 million unemployed Americans find work.

The jobless rate hasn’t fallen below 9.4 percent since May 2009 and will probably average that figure this year, according to a Bloomberg News survey of economists. Unemployment probably declined to 9.7 percent last month from 9.8 percent in November, according to the average estimate of a Bloomberg poll prior to a Labor Department employment report on Jan. 7.

While growth has picked up since the Fed announced plans on Nov. 3 to buy $600 billion of bonds, policy makers remain focused on their failure to achieve their goals of full employment and an inflation rate of about 2 percent, according to the minutes of their Dec. 14 meeting released yesterday. The recovery’s pace is likely to “remain modest, with unemployment and inflation deviating from the committee’s objectives for some time,” the minutes said.

“Right now it looks like the unemployment rate is the whole ball of wax,” said Ward McCarthy, chief financial economist at Jefferies & Co. in New York. “The majority just wants to keep going full throttle, and keep policy as accommodative as possible.”

 

Employers in 2010 announced the fewest job cuts since 1997 as the U.S. economy recovered from the worst recession since the 1930s, a private survey showed.

There were 529,973 planned firings last year, down 59 percent from 2009 when job cuts reached a seven-year high, according to Challenger, Gray & Christmas Inc. The Chicago-based outplacement firm said December firings dropped 29 percent from the same month a year earlier.

Employers announced 32,004 job cuts last month, the fewest since June 2000. While firings are slowing, job growth has been restrained, highlighting why Federal Reserve officials said they’ll move forward with a plan to purchase $600 billion in bonds to bolster the economy.

It was “still a lackluster year for the overall job market,” John A. Challenger, chief executive officer of Challenger, Gray & Christmas, said in a statement. “Hiring in the private sector is expected to once again be slow and steady” in 2011, he said.

Compared with November, job cut announcements declined by 34 percent.

Employers announced plans to hire 10,575 workers in December, down from 26,012 in November and 35,592 a year earlier. Companies last year announced plans to hire 403,038 workers, according to today’s report. Automotive and retail companies led the December job addition announcements, with 4,475 and 2,000, respectively.

 

Darrell Fasching planned to keep teaching religious studies at the University of South Florida until he was offered a year’s salary of about $90,000 to retire and give up tenure rights earned over almost three decades at the school.

Fasching, 66, took the cash and left the Tampa campus Dec. 21, joining hundreds of professors at flagship universities from Illinois to Nebraska and Texas who have been coaxed into retirement with offers of as much as two years of pay to reduce operating costs.

Tenured teacher pay averages $117,000 a year at the top 200 U.S. public universities, according to figures from the Washington-based American Association of University Professors. Annual contracts for replacement instructors cost an average of $52,500, the group said an April report.

With the Center for Budget & Policy Priorities in Washington forecasting U.S. states will face fiscal 2012 deficits totaling $140 billion, “these buyouts will become more common,” said Roger Meiners, who teaches economics at the University of Texas at Arlington.

“Most states have horrific budget problems and they haven’t dealt with the kinds of cuts in higher education that are going to be necessary,” he said in a telephone interview.

State support for colleges and universities fell 3.5 percent to $75.2 billion in fiscal 2010, following a similar drop in 2009, according to figures from the Center for the Study of Education Policy at Illinois State University in Normal.

 

Currency traders that seek profits by borrowing in nations with low interest rates to fund purchases in countries with higher yields are losing more money than at any time in at least a decade.

The strategy lost 2.5 percent in 2010 as the dollar a favorite for financing the trades because of record low U.S. rates appreciated, according to an index compiled by UBS AG, the world’s second-largest foreign-exchange trader. That’s more than the 0.98 percent drop in 2008 when the collapse of Lehman Brothers Holdings Inc. caused credit markets to freeze and the worst performance for so-called carry trades since at least 1999 when UBS began releasing yearly figures.

Falling demand for carry trades may help the greenback extend a rally that drove IntercontinentalExchange Inc.’s U.S. Dollar Index up 4.5 percent from its 12-month low on Nov. 4. Gains in manufacturing and retail sales are leading investors to buy the dollar, rather than sell it to fund other investments.

“The U.S. will look reasonably better compared to other economies,” said Mitul Kotecha, Hong Kong-based head of global foreign-exchange strategy at Credit Agricole CIB, a unit of France’s second-biggest bank. “Bond yields will move higher, and that will certainly reduce substantially the attraction of the dollar as a funding currency.”

 

World food prices rose to a record in December on higher sugar, grain and oilseed costs, the United Nations said, exceeding levels reached in 2008 that sparked deadly riots from Haiti to Egypt.

An index of 55 food commodities tracked by the Food and Agriculture Organization gained for a sixth month to 214.7 points, above the previous all-time high of 213.5 in June 2008, the Rome-based UN agency said in a monthly report. The gauges for sugar and meat prices advanced to records.

Sugar climbed for a third year in a row in 2010, and corn jumped the most in four years in Chicago. Food prices may rise more unless the world grain crop increases “significantly” in 2011, the FAO said Nov. 17. At least 13 people died last year in Mozambique in protests against plans to lift bread prices.

“There is still, unfortunately, the potential for grain prices to strengthen on the back of a lot of uncertainty,” Abdolreza Abbassian, senior economist at the FAO, said by phone from Rome today. “If anything goes wrong with the South American crop, there is plenty of room for them to increase.”

White, or refined, sugar traded at $752.70 a metric ton at 11:53 a.m. on NYSE Liffe in London, compared with $383.70 at the end of June 2008. Corn, which added 52 percent last year on the Chicago Board of Trade, was at $6.01 a bushel, down from $7.57 in June 2008. Soybeans were at $13.6325 a bushel, against $15.74 at the close of June 2008.

Companies in the U.S. boosted payrolls in December by the most since records began in 2001, showing a stronger labor-market recovery at the end of last year, data from a private report showed today.

Employment increased by 297,000, exceeding the highest projection in a Bloomberg News survey, after a revised 92,000 rise in November, according to figures from ADP Employer Services. The median estimate in the Bloomberg survey called for a 100,000 gain last month.

 

A flurry of Health Care Freedom Acts both as bills and resolutions for state constitutional amendments have been prefiled for the 2011 legislative session in South Carolina. As of this writing, there are currently 4 that have been introduced. The following are the bill numbers, links to the full text, and a brief overview of the direction of the legislation:

House Bill 3011 (H3011)

A resident of this State, regardless of whether he has or is eligible for health insurance coverage under any policy or program provided by or through his employer, or a plan sponsored by the State or the federal government, must not be required to obtain or maintain a policy of individual insurance coverage. No provision of this title renders a resident of this State liable for any penalty, assessment, fee, or fine as a result of the resident’s failure to procure or obtain health insurance coverage.”Senate Bill 5 (S0005)

A citizen of this State has the right to purchase health insurance or refuse to purchase health insurance. The government may not interfere with a citizen’s right to purchase health insurance or with a citizen’s right to refuse to purchase health insurance. The government may not enact a law that would restrict these rights or that would impose a form of punishment for exercising either of these rights. Any law to the contrary shall be void ab initio.”

House Bill 3269 (H3269)

It is proposed that Article I of the Constitution of this State be amended by adding: Section 26. (A) To preserve the freedom of South Carolinians to provide for their health care:

(1) A law, regulation, or rule may not compel, directly or indirectly, any individual, employer, or health care provider to participate in any health care system.Senate Bill 244 (S0244)

Must Article I of the Constitution of this State, relating to the Declaration of Rights, be amended to preempt any federal law or rule that restricts a person’s choice of private health care providers or the right to pay for medical services? That’s it â€" so far. You’ll notice that while a step in the right direction, they all address just the mandated coverage of health care, and none go to the core issue â€" that the federal government is not authorized by the constitution to be in the health care business. period. A good start for South Carolina, nonetheless. We hope to see a courageous legislator in S.C. take up the banner of the Federal Health Care Nullification Act, as has already been done in Texas.

Virtually all day Tuesday, the usual suspects and The Street Shill Machine was in overdrive trumpeting the great November Factory Orders report.

 But as usual, upon inspection, the ‘great’ Factory Orders report isn’t so jiggy because the gain is due to food, petroleum and pharmaceutical inflation…Plus inventories increased again.

Durable Goods are 53% of Factory Orders. They declined 0.3%. Nondurable Goods, mostly the necessities of life, are 47% of Factory Orders. They soared 1.7%!!!

Food increased 0.9%; Petroleum & Coal soared 4.2% and Pharmaceuticals jumped 5.0% in November. Good thing inflation is too low! PS â€" Does anyone carefully read economic reports anymore?!?!?

The US Commerce Department: New orders for manufactured durable goods in November, down three of the last four months, decreased $0.6 billion or 0.3 percent to $195.7 billion…New orders for manufactured nondurable goods increased $3.7 billion or 1.7 percent to $228.2 billion. Inventories of manufactured durable goods in November, up eleven consecutive months, increased $2.0 billion or 0.6 percent to $319.2 billion.

Gasoline demand down 12.5 post holiday: MasterCard

Average gasoline demand fell by 1.2 million barrels per day (bpd) to 8.4 million bpd in the week to December 31. Over the latest four weeks, U.S. gasoline consumption was 0.5 percent lower year-over-year.

The above Reuters validates our view that retail sales are being boosted by inflation.

 

The number of poor people in the United States in 2009 was millions higher than previously known, with 1 in 6 Americans many of them 65 and older struggling in poverty due to rising medical care and other costs, according to preliminary census figures released yesterday.

Under a new revised census formula, overall poverty in 2009 stood at 15.7 percent, or 47.8 million people. That’s compared to the official 2009 rate of 14.3 percent, or 43.6 million, that was reported by the Census Bureau in September.

Across all demographic groups, Americans 65 and older sustained the largest increases in poverty under the revised formula nearly doubling to 16.1 percent. As a whole, working-age adults 18 to 64 also saw increases in poverty, as well as whites and Hispanics. Children, blacks, and unmarried couples were less likely to be considered poor under the new measure.

Due to new adjustments for geographical variations in costs of living, people residing in the suburbs, the Northeast, and West were the regions mostly likely to have poor people nearly 1 in 5 in the West.

At the same time, government aid programs such as tax credits and food stamps kept many people out of poverty, helping to ensure the poverty rate did not balloon even higher during the recession in 2009, President Obama’s first year in office.

The new numbers will not replace the official poverty rate but will be published alongside the traditional figure this fall as a “supplement’’ for federal agencies and state governments to determine antipoverty policies. Economists have long criticized the official poverty measure as inadequate because it only includes pretax cash income and does not account for medical, transportation, and work expenses.

“Under the new measure, we can clearly see the effects of our government policies,’’ said Kathleen Short, a Census Bureau research economist who calculated the revised poverty numbers.

The official measure is based on a 1955 cost of an emergency food diet and does not factor in other living costs. Nor does it consider noncash government aid when calculating income, which surged higher in 2009 during the recession.

Short’s analysis, published yesterday as part of a series of census working papers on poverty, shows that out-of-pocket medical expenses had a significant impact in affecting the number of poor without those costs, poverty would have dropped from 15.7 percent to 12.4 percent.

The effect was seen most notably among older Americans. Under the official poverty rate, about 8.9 percent lived in poverty, mostly because they benefit from Social Security cash payments. But when taking into account out-of-pocket medical expenses and other factors, that number rises to 16.1 percent.

The numbers cited for 2009 are preliminary, but census officials say they offer a good representative look at the state of US poverty and where the numbers are headed when 2010 figures are released this fall.

Among the findings:

â–  Transportation, commuting, and child-care costs weigh on working-age Americans. The official poverty rate for those aged 18 to 64 is 12.9 percent, the highest since 1960s levels that launched the war on poverty. Under the revised formula, working-age poverty increases even higher, to 14.8 percent.

â–  Without the earned-income tax credit, the poverty rate under the revised formula would jump from 15.7 percent to 17.7 percent. The absence of food stamps separately would increase the poverty rate to 17.2 percent.

â–  Under the revised formula, the West had the most people in poverty at 19.2 percent. It was followed by the South at 16.1 percent, the Northeast at 14.3 percent, and the Midwest at 12.5 percent.

The supplemental figures could take on added significance at a time when many in the government point to an overhaul of Medicare and Social Security as the best hope for reducing the ballooning federal debt.

With the potential to add more senior Americans to the ranks of the poor, the numbers may underscore a need for continued if not expanded senior benefits as a government safety net.

U.S. apartment vacancies fell to a two-year low in the fourth quarter and rents rose, extending a market recovery that began in early 2010, property research firm Reis Inc. said.

The national apartment vacancy rate dropped to 6.6 percent from 8 percent a year earlier and from 7.1 percent in the third quarter, the New York-based company said in a report today. It was the lowest since 2008’s third quarter, when the rate was 6.2 percent, according to Reis.

Apartment occupancies have risen as a surge in home foreclosures forced many people to lease apartments. While the 951,000 jobs added to U.S. payrolls from January to November is a fraction of the 8.4 million lost during the recession, “it is far better than the situation in early to mid-2009, when the nation was terminating hundreds of thousands of jobs per month,” Reis said.

Effective rents, or what tenants actually pay, rose to an average $986 a month from $964 a year earlier and $981 in the prior quarter, Reis said. Landlords’ asking rents also climbed, to $1,042 from $1,026 a year earlier and $1,037 in the third quarter, according to the report.

“Despite tepid economic growth and an anemic recovery in the labor market, households appear to be returning in droves to the rental market,” Ryan Severino, a Reis economist, said in the report. “The fact that effective rent increases kept pace with asking rents implies that concession packages are likely no longer increasing.”

Concessions include such perks as a month of free rent.

 

Insurer ACA Financial Guaranty Corp. is suing Goldman Sachs over an investment that later went bad.

ACA is seeking $30 million in compensatory and $90 million in punitive damages. The lawsuit was filed yesterday in New York.

Goldman has already paid $550 million to the Securities and Exchange Commission in connection with the same investment, which was called Abacus.

The SEC sued Goldman last April, claiming that the bank created and sold a mortgage investment that was devised to fail.

R. Allen Stanford’s criminal trial on charges he led a $7 billion investment fraud was postponed indefinitely by a US judge while the Texas financier receives care for a prescription-drug addiction.

Three psychiatrists, one working for the government and two working for the defense, testified today that Stanford’s dependency on anti-anxiety medication and the after-effects of a head injury he sustained in a jailhouse beating left him unfit for the trial scheduled to start Jan. 24.

Stanford, 60, is accused of leading a scheme centered on the sale of certificates of deposit by Antigua-based Stanford International Bank Ltd. Stanford, indicted on 21 criminal counts in June 2009, has denied wrongdoing.

Because of a court-imposed gag order, Stanford’s lawyers and prosecutors didn’t comment after the hearing. [This scam was a CIA money laundering operation and the idea was to either get him killed or badly hurt in prison so there would never be a trial.]

Illinois, whose lawmakers are tackling a $13 billion budget gap, faces rising borrowing costs for a proposed $3.7 billion pension bond as yields on comparably rated taxable debt reach at least an 11-month high.

Since touching a low of 5.38 percent Oct. 6, interest rates for taxable A rated bonds have risen 87 basis points to 6.25 percent, according to Standard & Poor’s, which gives the state its fifth-highest grade, A+. A basis point is 0.01 percentage point.

At the same time, the premium the state pays on 30-year tax-exempt securities widened to 91 basis points yesterday, the most in a month, as lawmakers prepared to meet to resolve the financial challenges, said Gary Pollack, who helps oversee $12 billion as head of bond trading at Deutsche Bank AG’s private wealth management unit in New York.

“The market is punishing the state of Illinois for its lack of fiscal solutions,” said Pollack.

Illinois lawmakers began meeting this week in Springfield to resolve the state’s worst financial crisis. The state has been without a plan to fund its pension contributions since lawmakers adjourned in May without approving Governor Pat Quinn’s proposal to borrow $3.7 billion with municipal bonds to make the pension payment.

A year ago the state sold $3.47 billion of taxable pension bonds, paying more than some comparably ranked U.S. companies, according to data compiled by Bloomberg. Illinois borrowed at as much as 4.421 percent on notes maturing in one to five years. That was 1.82 percentage points higher than five-year U.S. Treasuries.

Congressman Paul Ryan, the Budget Committee chairman in the U.S. House of Representatives, said Republicans don’t intend to save states from debt defaults.

“We are not interested in a bailout,” the Republican from Wisconsin said yesterday in Washington. Ryan said some states are “already telling us” that, when asked how he would respond if he was told one was in danger of defaulting.

U.S. states face a combined $140 billion in deficits in the next fiscal year, the Washington-based Center on Budget and Policy Priorities said Dec. 16. State tax collections remain below pre-recession levels, according to the Nelson A. Rockefeller Institute of Government in Albany, New York. No state has defaulted on its debt since Arkansas did in 1933.

“Should taxpayers in frugal states be bailing out taxpayers in profligate states?” Ryan asked during a forum near the Capitol. “Should taxpayers in Indiana, who have paid their bills on time, who have done their job fiscally, be bailing out Californians, who haven’t? No, that’s a moral hazard we are not interested in creating.”

While negative budget news likely will mount as most states near the July 1 start of a new fiscal year, Wells Fargo & Co. said yesterday that “the potential for credit default is low overall and varies widely.”

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