Venezuela's new steps toward socialism

The question of who owns and controls the means of production is a key question for socialists. The public ownership of the banks and means of production is a cornerstone of a socialist economy, because it deprives the exploiting capitalist class of its single greatest source of power—its ownership of wealth. It opens the possibility for the immense value created by the labor of the working class to be organized and distributed according to people’s needs.


By Ben Becker

'Nothing stops the revolution'

On Jan. 8, Venezuelan president Hugo Chávez sent tremors through the international capitalist market when he announced a new wave of nationalizations. These nationalizations would eliminate foreign control over the country’s largest telecommunications and electricity companies.

Venezuelan lawmakers, shouting ‘Long live socialism,’ gave President Chávez the go-ahead Jan. 31 to carry out revolutionary measures by decree.

The state would also take majority control over the Orinoco oil fields, which are responsible for 18 percent of Venezuela’s total crude oil production. Those fields are currently being exploited by oil companies like ConocoPhillips, Chevron, Exxon Mobil, BP, Norway’s Statoil and France’s Total.

The day of the announcement, the Caracas Stock Exchange dropped 19 percent, as stockholders rapidly sold their shares in the soon-to-be nationalized industries. This widespread alarm reduced to mere caution when Chávez announced that owners of the nationalized companies would be compensated for their loss.

The market accordingly rebounded, but the fear of widespread state expropriations—reminiscent of the Cuban Revolution—is now imprinted on the collective psyche of foreign investors who still hold out hope for sucking profits from Venezuela’s natural wealth.

They have quite a bit to be worried about. Chávez already proclaimed the trajectory of the revolution when he said, "Dec. 3, 2006"—the day of his landslide re-election—"will remain in history painted red." He proclaimed the next phase of the revolution to be the "National Simon Bolivar Project of 2007-2021," in which "Bolivarian socialism" will decisively be built.

The nationalizations will not stop with the electricity and telecommunications. On Jan. 8, Chávez stated, "All of that which was privatized, let it be nationalized." He specifically identified for state control strategic sectors such as hydrocarbons.

In another important move, Chávez announced that the state would increase its control over the country’s central bank. While the world’s largest financial firms whined that the bank must remain "independent"—actually, dependent only on the biggest imperialist banks—Chávez countered that it would remain "autonomous within the purview of the state."

The question of who owns and controls the means of production is a key question for socialists. The public ownership of the banks and means of production is a cornerstone of a socialist economy, because it deprives the exploiting capitalist class of its single greatest source of power—its ownership of wealth. It opens the possibility for the immense value created by the labor of the working class to be organized and distributed according to people’s needs.

When the major Venezuelan corporations coordinated a nationwide oil lockout in 2002-2003, in order to break the back of the Bolivarian movement, the economy reeled and spent much of the rest of the year in recovery. The movement regrouped stronger than ever, but the damage reflected an unmistakable truth: Key industries and sectors of the Venezuelan economy are still in private hands. They are an umbilical cord linked directly to U.S. imperialism, the main enemy of the Bolivarian revolution.

Of course, capitalist governments also nationalize private industries on occasion. In fact, the Venezuelan government nationalized the oil industry in 1975-76. However, the nationalization was on a capitalist basis, with the profits still flowing to national and foreign investors—at a time when 80 percent of the people lived in poverty. Throughout the 1980s and 1990s, the royalty payments were highly favorable to foreign and national corporations, and the industry was on the verge of being totally privatized.

With Chávez’s first presidential term in 1999, the new Bolivarian Constitution mandated that Venezuela’s oil is permanently prohibited from being privatized. In recent years, the Chávez government has obligated oil investors to pay higher rates of royalties to the state.

The real question is not whether the economy is in state hands or private hands, but what class interests the state represents. That question is being posed more sharply with every passing day in Venezuela.

Chávez and his allies in government are revolutionaries who have created a dual-power situation with parallel institutions like health care, education and energy to challenge and replace the still-existing capitalist superstructure, and directly meet the needs of the people.

The question of state power still remains. Chávez’s Jan. 8 declaration of accelerated moves towards socialist transformation is encouraging news.

The enabling law

The bold declarations on the economic front need to be put in the context of decisive action in the political arena. The

National Assembly announced it was granting Chávez new "enabling" legislation to allow him to pass by decree new laws for 18 months in strategic areas of government, including oil affairs and the transformation of state institutions.

Such enabling laws are nothing new. They are a holdover from the pre-Bolivarian Constitution. Chávez’s predecessors exercised the same authority. Every law Chávez issues is still subject to reversal by popular referendum.

Yet these laws have unleashed howls of criticism from the imperialists and their Venezuelan supporters. They portray them as signs of authoritarianism—a hollow charge by the same forces that cheered on the coup attempt against Chávez in 2002 and welcome the increasingly centralized powers of the Bush administration’s executive branch.

What these pro-imperialist critics fear is what Chávez will do with these new powers. They fear that he will accelerate the process of nationalization, that he will begin to undermine the rights of private property altogether, and, above all, that he will call the masses into a decisive battle against the oil moguls, rich landowners and government careerists and bureaucrats that have at every step tried to blunt and block the anti-capitalist initiatives of the Bolivarian movement.

The United Socialist Party

These measures from above will be strengthened by a new socialist party—the United Socialist Party of Venezuela—which is to be built "from below," drawing on the people’s already existing community councils and social "missions."

The mobilization of the Venezuelan masses has been an indispensable feature of the Bolivarian revolution. It was the great force of the people in the streets that won Chávez two presidential elections, and defended their gains in the streets by defeating the 2002 coup attempt and the well-financed 2004 anti-Chávez referendum. The mass demonstrations in support of the Bolivarian movement—in which red clothing, flags and banners fill the streets of Caracas—have punctuated each one of these victories.

The challenge has been to consolidate these explosive political activities into a united fighting organization, a political party, with a clearly defined plan of action. The Venezuelan movement has been gripped with the same problems facing revolutionaries everywhere: how to turn an activist force into a sustaining force capable of remaking society in the interests of the working class.

To answer this key question, Chávez announced the disbandment of his existing electoral coalition, the Movement for a Fifth Republic (MVR), and the creation of the United Socialist Party of Venezuela.

In his Dec. 15 speech explaining the need for a new party, Chávez noted the example of the Units for the Electoral Battle (UBEs). The UBEs were community-based units organized in 2004 to ensure a pro-Chávez vote in the referendum.

"Afterwards, I asked everyone to maintain the UBEs … but almost everywhere they were lost," Chávez explained. "Let us be sure this does not happen after our great victory of Dec. 3."

Now is the time, Chávez explained, to strive to keep all popular councils and Bolivarian battalions intact. "Let not a single squad dissolve," he declared.

The new party will be "a political instrument at the service not of blocs or groupings but of the people and the Revolution, at the service of socialism."

The party will be built on new foundations. Leaders will be drawn from the existing community organizations and elected on account of their self-sacrifice and commitment. Pointing to the collapse of the Soviet Union—when the powerful Soviet working class remained passive at the decisive political moments—Chávez called on the new party to deeply connect with Venezuela’s oppressed.

Although the specific program of the new party has not been publicized yet, revolutionaries and progressives of the world should greet the United Socialist Party of Venezuela with enthusiasm. It is the most significant attempt to handle the question of political organization—real political independence from the corrupt political parties of the old ruling class—for Venezuela’s toilers.

Accelerating towards socialism

In the seven years since Chávez was first elected, the Bolivarian movement broke the monopoly of political control maintained by the Venezuelan lackeys of Washington. A new constitution created the legal framework for genuine democracy. The Bolivarian Circles represented the seedlings of a new people’s power. The Bolivarian government redistributed the country’s vast natural wealth toward social programs, substantially improving the living standards of Venezuela’s poor.

In this first phase, Chávez’s coalition engaged millions of people just coming into political life and thousands of dedicated community activists. It attracted the country’s best socialists and revolutionaries.

But it also included capitalists and reformists—people with no vision of socialism, who opposed imperialism only from the perspective of improving Venezuelan capitalism. Bureaucrats and careerists also affixed themselves to the Chávez coalition after its 1998 victory as a means for personal gain.

The Bolivarian revolution still faces the threat of imperialist invasion and U.S.-backed coups. But Chávez has already made clear—even if in not so many words—that the next stage of the Bolivarian movement will be marked by struggle within the Chávez camp. It will be a period of political and class differentiation between those who are prepared to lead the way towards "socialism of the 21st century" and those who see the revolution as a glorified capitalist welfare state.

Battles are looming. As in all battles, timing is of decisive importance. The opposition is reeling from its electoral failures, and the Venezuelan workers are more emboldened than ever. Chávez has judged that the timing is right to launch an offensive.

This offensive can take several forms. On one hand, there may be explicit pro- Chávez, anti-bureaucracy protests, such as the October 2006 demonstration that drew 12,000 people into the streets of Mérida, Venezuela. On the other hand, the government has provided $1.8 billion and an infrastructure for 12,000 community councils, which Chávez openly compares to the Soviets—the councils of workers, peasants and soldiers—of the Russian Revolution. These institutions, if they continue to thrive, serve as a direct counterweight to the remnants of the old capitalist state apparatus.

Chávez’s principal slogan, now adorning billboards and newspaper spreads across the country, is: "Nothing stops the revolution." With a new party under construction, greater executive authority and a powerful working class marching alongside him—now with important, living experience in political struggle—the slogan seems to capture the reality of the Venezuelan revolutionary process.

Covert shenanigans in Africa

Covert shenanigans in Africa. The "usual suspects" are involved.

Our intelligence sources in Africa report that the recent rebellion in the Democratic Republic of Congo (DRC) by forces loyal to Jean-Pierre Bemba, the warlord who was defeated in the recent presidential election by current President Joseph Kabila, was supported by U.S. and other Western intelligence services. At least 600 people died in the violence in Congo, which was mainly centered in the capital of Kinshasa. Bemba, the leader of the Movement for the Liberation of Congo (MLC), took refuse in the embassy of South Africa after his rebellion was put down by the national army. Congo's prosecutor general has indicted Bemba for treason and inciting rebellion. A search of MLC storage facilities revealed that Bemba's supporters had been wearing new uniforms of the Congolese National Army to commit atrocities in Kinshasa that would later be blamed on Kabila.

Bemba's asylum in the South African embassy is interesting considering what out sources have told us about South Africa's role in the Bemba rebellion. On March 23, 2007, a massive explosion destroyed a Soviet-built warehouse in the Mozambican capital of Maputo. Over 150 people were killed in the explosion and hundreds were wounded. Debris from the explosion was found up to 1 kilometer away from the scene. The explosion was officially blamed on high temperatures in Maputo (93 Fahrenheit -- not unusually hot for the Mozambican capital). However, our sources report that the explosion was set off deliberately by South African mercenaries who had been stealing weapons from the warehouse, including armored-piercing shells, for use in the Bemba coup attempt in Congo and a planned Improvised Explosion Device (IED) assassination attempt against Zimbabwe's embattled President Robert Mugabe. The arms had been warehoused after truce between warring factions in the long Mozambican civil war.

Our intelligence sources report that before the explosion, four ex-members of the South African Defense Force, including two pilots, infiltrated Maputo and blew up the arms warehouse after they removed weapons for transport to Zimbabwe and Congo via Zambia. Two of the South Africans have allegedly been linked to the South African mercenary firm Erinys, Ltd. The firm has been contracted to the U.S. occupation forces in Iraq through SASI, a US subcontractor of Erinys Iraq, which, itself, is linked to Ahmad Chalabi and Nour USA Ltd., a firm based in northern Virginia.

The theft of weapons from arms warehouses in countries that collect such arms in post-civil war buy back programs and then blowing up the warehouses to cover up the thefts is not limited to Mozambique. WMR discovered in Cambodia a similar incident. On March 2, WMR reported on a series of warehouses in Cambodia collecting bought-back weapons from ex-members of the Khmer Rouge that have also been targeted by international arms smugglers: "Storage facilities with so-called 'enhanced security' were constructed in Phnom Penh (several facilities), Battambang, Pailin, Banteay Meanchey, Siem Reap, Banteay Srei, Preah Vihear, and Kampong Thom. The suspicions about Israeli involvement in smuggling stored Khmer Rouge and other weapons were heightened in 1999 after a mysterious fire destroyed the Cambodian military weapons storage facility at the Ream Naval Base near Sihanoukville. According to a New Zealand intelligence officer in Cambodia, the depot was destroyed by an Israeli squad after it was revealed they were smuggling weapons from the facility to guerrilla groups throughout Southeast Asia, including the small "Free Vietnam Movement" battling Vietnam's central government and Hmong guerrillas battling Laotian government forces. The Vietnamese became even more suspicious about the role of the depot after weapons from the Ream warehouse were seized by Cambodian and Vietnamese police at the Bavet border checkpoint. The weapons were destined for guerrillas of the Free Vietnam Movement. WMR visited Phnom Penh, Cambodia and discovered that the Mossad and Cambodian criminal syndicate allies continue to obtain bought-back Cambodian weapons from Cambodian government warehouses and are selling them to guerrilla groups throughout Asia, including Sri Lanka's Tamil Tigers, anti-Laotian Hmongs, the small anti-communist Free Vietnam Movement, and Burmese tribal guerrilla groups."

WMR has learned from African intelligence sources that Israeli intelligence assets were also involved in the transfer of weapons from the Maputo arms warehouse to Zimbabwe and the DRC.

Note: A US State Department source has informed us that an Indian general recently confirmed our earlier report about the smuggling of arms by Israeli intelligence assets from Cambodia to the Tamil Tigers in Sri Lanka.

~ Wayne Madsen

The "National ID Card" Myth

As usual, the “civil libertarians” are mistaken. There’s no “national ID card,” let alone one that will destroy our “civil liberties.”

A 2005 federal statute provided that in 2008 “a Federal agency may not accept, for any official purpose, a driver’s license or identification card issued by a State to any person unless the State is meeting the requirements of this section.” “‘Official purpose’ includes but is not limited to accessing Federal facilities, boarding federally regulated commercial aircraft, entering nuclear power plants, and any other purpose that the Secretary [of Homeland Security] may determine.”

Applicants for state-issued ID must provide certain kinds of proof (e.g., citizenship or legal residency), and the state-issued ID must contain certain kinds of information (e.g., name, photograph, date of birth).

Unarguably, Congress has the textual power, augmented by over 200 years of Supreme Court decisions, to legislate on a broad range of ID-related subjects—e.g., the use of passports, production of veteran documents to obtain benefits, the possession of draft and social security cards, the public display of licenses for all manner of personal and business activity.

Moreover, for federal purposes, the federal government is not obligated to accept any state identification documents. One can’t reenter the United States, obtain VA benefits, or possess DEA privileges on the strength of a driver’s license.

Reciprocally, no state need comply with the ID statute.

Although the Secretary of Homeland Security has the power to make administrative regulations enlarging the category of “other [federal] purposes,” he hasn’t done so. When he does, they will be subject to judicial review.

What, then, upsets the “civil libertarians”?

Some say state compliance will be “too expensive.” Typically, not only do they offer no proof, but, ironically, for many of them few state spending programs have ever been “too expensive”—especially if they were for some boondoggle like welfare.

Others spout empty slogans like “if we lose our identification card, we lose our identity, we lose our ability to access the services and infrastructure that society offers.” A Texas Congressman, speaking of the statute, loftily complained that in Washington “[t]here is no rule of law. There is no respect for the Constitution.”

One searches in vain for any serious commentary plausibly arguing that under the Constitution and Supreme Court opinions Congress lacks the power to have enacted the statute. Nor have any serious attempts been made to show any provision in the statute that requires states to comply—indeed, some states are considering opting out.

And perhaps most important of all, there have been no serious examples proffered of how the statute violates Americans’ civil liberties—especially today, when the United States is in at least a de facto war with radical Islam.

On the other hand, there are manifest benefits to be had from full implementation of the statute. Foremost is greatly reducing the incalculable amount of forged and stolen identification papers that this country is awash in — from driver’s licenses, to social security cards, to credit cards, and more — all of which facilitate illegal immigration, identity theft, and other criminal activity.

By itself, that’s reason enough for the states to cooperate.

A potentially greater reason is the impact on criminals and terrorists of, again, state-issued ID— which can’t be issued without clear proof of identity and status, and will contain crucial information of no threat to anyone engaged in lawful conduct. It is well known that the September 11, 2001, hijackers relied on phony documents to facilitate their destruction of the World Trade Center and murder some 3,000 innocent souls. Perhaps more stringent ID requirements would have prevented that calamity—perhaps not.

But given the stakes, neither the American government nor we the people can afford to take the chance of guessing wrong.

by Henry Mark Holzer, Professor Emeritus at Brooklyn Law School, is an appellate lawyer who specializes in constitutional law. You can contact him via his website: www.henrymarkholzer.com.

MKULTRA Mind Control

McCain Warns Against Spread of Socialism

McCain Warns Against Spread of Socialism

"They inspire each other. They assist each other. They get ideas from each other," McCain said. "It's very disturbing."

Full Story

Environmentalism is the new Communism

Environmentalism has replaced Communism as threat to freedom...


" ...adopting tough environmental policies to fight climate change would have destructive impact on national economies.

This ideology preaches earth and nature and under the slogans of their protection – similarly to the old Marxists – wants to replace the free and spontaneous evolution of mankind by a sort of central, now global, planning of the whole world."

Full Story

SPP Video

Chaos In The New World Order

Chaos En Novus Ordo Seclorum

"Make me one with everything" - Buddhist in a pizza parlour

Unification of Europe was first - now the North American Union is in full swing - replete with fuzzy, double-speak, feel good names like Harmonization, Deep Integration, Free Trade, Security and Prosperity Partnership Agreement, etc. These measures, based on negating geopolitical boundaries and securing monopolistic markets, will ultimately lead to the clash of cultures, as has already begun. Of course the elite will have a solution for the Hegelian problem they created, namely, a new world order – with themselves as puppet masters pulling our strings.

"For more than a century ideological extremists at either end of the political spectrum have seized upon well-publicized incidents such as my encounter with Castro to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as "internationalists" and of conspiring with others around the world to build a more integrated global political and economic structure - one world, if you will. If that's the charge, I stand guilty, and I am proud of it." - David Rockefeller 2002 autobiography Memoirs

There is a small, but powerful group of individuals who are the architects and instigators behind the formation and implementation of the New World Order. Their plans represent a consciously organized attempt to bring about an end to national sovereignty and western democracy.

"David Rockefeller is the most conspicuous representative today of the ruling class, a multinational fraternity of men who shape the global economy and manage the flow of its capital. Rockefeller was born to it, and he has made the most of it. But what some critics see as a vast international conspiracy, he considers a circumstance of life and just another day's work... In the world of David Rockefeller it's hard to tell where business ends and politics begins" - Bill Moyers

Their motivations are the age old human traits of greed and power – their instruments of control include the monopolization of corporate interests and banking, influence of political power, enforcement of laws utilizing a ruthless and centralized military, the manipulation of opinion engendered through academic circles, and the control of mainstream media which provides the necessary propaganda tool to shape public consciousness.

"We are grateful to the Washington Post, the New York Times, Time magazine and other great publications whose directors have attended our meetings and respected the promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But, the world is now more sophisticated and prepared to march towards a world-government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the National autodetermination practiced in past centuries" - David Rockefeller - address to a Trilateral Commission

North America is being transformed from three distinct countries - Canada, USA and Mexico, into a single economic entity called the North American Union. The creation of this new state is being implemented by stealth, virtually without opposition, and in front of an unwitting population.

"The unaware are unaware that they are unaware" - Bo Britz

The method of enforcement for the North American Union is a police state. Under the guise of keeping us all safe with anti-terrorist laws, citizens will lose their civil liberties preventing any dissent against Big Brother.

"Terrorism is the best political weapon for nothing drives people harder than a fear of sudden death." - Adolf Hitler

"There ought to be limits to freedom" - GW Bush

Learning the truth about 9/11, and its integral part in the formation of the new world order, helps us to understand the concepts and objectives of the globalists. Just as this event has been used to justify such horrific acts of aggression and suppression of freedoms, we can use it to expose those who are truly responsible, and start to heal the deep wounds afflicted by such aberrations of humanity.

The ruling elite do not care about human rights, or true democracy, indeed, these values stand in the way of achieving their goals. For the current cabal, the end justifies the means, as vividly demonstrated by the events of 9/11, Afghanistan and Iraq, just to name the most obvious. Their objectives must be implemented with the use of corruption and deceit, simply because nobody would willingly vote for the kind of world they are trying to build.

"We are on the verge of a global transformation. All we need is the right major crisis and the nations will accept the New World Order." - David Rockefeller

I remember going to the annual exhibition in Toronto as a kid. Inside a tent this magician was waving handkerchiefs over a girl who appeared to be suspended in mid air in front of him. Because I knew that humans could not just float above the ground, I was intrigued and determined to get as close as possible, and really look at what they were doing. Sure enough, the loose drapery hanging off the table at the back concealed, upon closer scrutiny, a protruding steel bar which held up the woman. I couldn't help but think-as I stepped once again to the back of the tent, a throng of people now in front of me-this is actually a really good trick, as long as you don't look too close or think too hard.

That's how I feel about 9-11. Nice try, fellas. You gave us a good dog & pony show-lots of fireworks; a quick and ready story filled with a cast of radical Muslim villains, all prepackaged for us to hate; and this guy with a beard in a cave, who can play evil mind-tricks from across the ocean-but the jig is up. And please don't think I'm being flippant or disrespectful to the many lives that have been so tragically taken through this horrendous act and all its subsequent horrors.

"The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the TRUTH becomes the greatest ENEMY OF THE STATE." - Dr. Joseph M. Goebbels

Once we expose the fraudulence of 9/11, the entire globalist agenda will tumble like a house of cards, or in this case, a "twin tower". Understanding this event within its greater context, we can pull the lynch-pin on the plans for the North American Union, and generate some much needed chaos in the new world order.

"Three things cannot long be hidden-the sun, the moon, and the truth" – Confucius

Look up and down the streets where you live. The vast majority of people in this country, and around the world, are just honest, hard working individuals who want to build a life for themselves, raise their families and enjoy their customs.

"There's no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals, one "makes" them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws. Who wants a nation of law-abiding citizens? What's there in that for anyone? But just pass the kind of laws that can neither be observed nor enforced nor objectively interpreted -- and you create a nation of law-breakers-and then you cash in on the guilt." - Ayn Rand, "Atlas Shrugged"

Although most people are not conscious of the subtle and the not-so-subtle mechanisms of social conditioning we are bombarded with on a daily basis, rest assured the elite in charge have an agenda, a timetable, and the means with which to execute their objectives.

"A nation of sheep will beget a government of wolves" - Edward R. Murrow

Here are just some of the documented features and objectives of the North American Union:

- Development of a common security perimeter by 2010

- Implementation of a North American Border Pass with biometric identifiers

- Unification of the border and expanded US controlled customs facilities

- A single economic space that shares a common external tariff

- A North American currency replacing the dollar and the peso that will be called the amero

- Seamless movement of goods within North America

- Labour mobility between Canada and the U.S.

- A North American energy strategy as a regional alternative to Kyoto

- A North American regulatory plan that includes "open skies and open roads"

- A unified approach on food, health, and the environment

- A permanent tribunal for trade and investment disputes

- An annual North American summit meeting

- Scholarships to Centers for North American Studies

- The NAFTA superhighway, a north-south interstate trade corridor linking Mexico, Canada and the U.S. The NAFTA superhighway will bypass U.S. entryways and allow global conglomerates to capitalize by exploiting cheap labour, bypassing local union considerations, and exposing the entire continent to potential security risks.

NAFTA , SPP, GATT, WTO and other trade agreements are the means by which the globalist political regime have expanded into North America. Different from the IMF, which can wield its power through financial dispensations to third world countries, these trade agreements supersede local regulatory powers, and through the force of national law, ensure that transnational interests are in a sense codified into each constitutional framework.

Opponents to the NAU include progressives in all three countries who believe the union would be detrimental to the average citizen. Chief among their many concerns is the loss of sovereignty and democracy, the relinquishment of authority to unelected corporations with privately contracted law enforcement, and the displacement of a workforce due to an influx of immigrants.

So what can we do? Many things. We have incredible power in our numbers and in our potential economic influence. The system would collapse without our cooperation. What we lack is the solidarity of purpose, and organization of our huge numbers.

"A nation of well-informed men, who have been taught to know and prize the rights that God has given them cannot be enslaved. It is in the region of ignorance that tyranny begins!" - Benjamin Franklin

We are living in a critical time of change, our number one weapon in this new age is our understanding of the forces set to control us, and an effective response in great numbers from people willing to assert their independence and freedom - there was once a great country built on such ideals.

"Suddenly the whole world is not enough punishment for the wicked, nor reward for the good" - Taoist saying

We live within a duality of perception every moment. Within rages the battle of desire and reality, while on the outside, the ancient struggle between those who would work for the benefit of society, through peace, and those forces set upon exploiting others for profit and control, through destruction. Alone, we have the responsibility to assert our complete sovereignty first as individuals, and by extension of ourselves, to the greater group of which we are all a part.

Unification does not have to mean deceit and tyranny. National identities and human rights can be maintained while we come together on many things that might benefit us all. Just as we must accept the inner conflicts that cause us to adjust our desires, and with the right choices lead to a reinvention of ourselves in order to adapt, we also must recognize and challenge those external forces that would promote marginalization and exclusion of others, and create struggles that would constrain us in our inevitable choice between good and evil, and ultimately our ability to survive.

A native American grandfather was talking to his grandson about how he felt. He said 'I feel as if I have two wolves fighting in my heart. One wolf is the vengeful, angry, violent one. The other wolf is the loving, compassionate one.' The grandson asked him, 'Which wolf will win the fight in your heart?' The grandfather answered: 'The one I feed.' - Native American Story

On the grand chessboard of the power elite in this world, we may only represent insignificant entities, insofar as we are concerned as individuals. However, when considered as a group, we can have considerable influence. Our strength in numbers only serves our cause to the detriment when we blindly live our lives as revenue generating hunks of flesh that serve as an economic engine for the ruling class - it is our ignorance that works against us. When we are illuminated with the light of truth and understanding, we can then use that power to influence the course of events and make the big machine grind to a halt, or at least cause a few gold hubcaps to fly off. All this can be accomplished through non-violent means, lest we sink to the level of our enemies, in which case we risk becoming that which we oppose.

"Because we are part of one existence, whomsoever you are hurting, you are hurting yourself in the long run. Today you may not realize it, but one day when you become more aware; then you will say, 'My God! This wound was inflicted by me -- upon myself.' You had hurt somebody else thinking that people are different. Nobody is different. This whole existence is one, cosmic unity. Out of this understanding comes non-violence." - Osho

There is room for everyone in this world. My beliefs tell me that every human dynamic resolves from its highest intellectual level down to understanding and compassion. I know in my heart that we could be caring enough to engender a consciousness where there is consideration for all people on this earth. And I know if we use our heads, we could be creative and resourceful enough to find a way to do it while abolishing the act of war itself.

That would be my New World Order.

"If one has a self - it is impossible to achieve the great oneness" - Taoist saying

The U.S. property crash

"You can't believe how bad it's going to get..."

By Elif Kaban

Commodities investment guru Jim Rogers stepped into the U.S. subprime fray on Wednesday, predicting a real estate crash that would trigger defaults and spread contagion to emerging markets.

"You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York.

"It's going to be a disaster for many people who don't have a clue about what happens when a real estate bubble pops.

"It is going to be a huge mess," said Rogers, who has put his $15 million belle epoque mansion on Manhattan's Upper West Side on the market and is planning to move to Asia.

Worries about losses in the U.S. mortgage market have sent stock prices falling in Asia and Europe, with shares in financial services companies falling the most.

Some investors fear the problems of lenders who make subprime loans to people with weak credit histories are spreading to mainstream financial firms and will worsen the U.S. housing slowdown.

"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said.

"When markets turn from bubble to reality, a lot of people get burned."

The fund manager, who co-founded the Quantum Fund with billionaire investor George Soros in the 1970s and has focused on commodities since 1998, said the crisis would spread to emerging markets which he said now faced a prolonged bear run.

"When you have a financial crisis, it reverberates in other financial markets, especially in those with speculative excess," he said.

"Right now, there is huge speculative excess in emerging markets around the world. There will be a lot of money coming out of emerging markets.

"I've sold out of emerging markets except for China," said Rogers, long a prominent China bull.

Even in China, the world's fastest expanding economy, Rogers said stocks were overvalued and could go down 30-40 percent.

But he added: "China is one of the few countries in the world where I'm willing to sit out a 30-40 percent decline."

The last stock market bubble to burst was the dot-com craze which sparked a crash from March 2000 to October 2002.

When the last bubble burst in Japan, said Rogers, stock prices went down 85 percent despite the country's high savings rate and huge balance of payment surplus.

"This is the end of the liquidity party," said Rogers. "Some emerging markets will go down 80 percent, some will go down 50 percent. Some will most probably collapse."

Venezuelan Fighter Shoots Down US F-16 over Cuba

Venezuelan Fighter Shoots Down US F-16 over Cuba

By: Sorcha Faal, and as reported to her Western Subscribers

Conflicting reports are emerging from Cuba today that allege the shooting down of an American F-16 Fighter Jet by a Venezuelan Sukhoi-30MK2 Russian Fighter Jet participating in large scale Cuban Revolutionary Armed Forces wargames in Pinar del Rio province.

The United States has denied these reports and state that their F-16 Fighter Jet crashed off the coast of Cuba due to an ‘unknown’ mechanical malfunction with its pilot safely rescued after ejecting.

More curiously, however, and almost immediately after Russian Military Analysts reporting on this shoot down to the Kremlin, Cuban Defense Minister Raul Castro, the brother of the ailing Cuban Leader Fidel Castro and present leader of Cuba, issued this statement:

"If anyone attacks us, we're ready to pay any price necessary, but the price paid by the invaders of our country would be much higher."

Tensions in Latin America remain high after this latest incident, and the United States War Leaders admitting that their War on Terror has now expanded to South America with the introduction of American Military Forces into the conflict between Colombia and its rebel faction FARC.

Venezuelan President, Hugo Chavez, was also quick to denounce the United States by stating that it was the "most cynical, most murderous empire in all of history".

Chavez further stated that the American President, Bush, was plotting to assassinate him and vowed "100 years of war'' should the United States attack either Venezuela or Bolivia.

Concerns within the American intelligence communities are centered upon the growing power of Latin American Nations to throw off the yokes of oppression set upon them by their North American neighbors, and who have reaped incalculable wealth from their southern cousins while leaving mass poverty and environmental degradation as their most lasting legacy.

The growing power of Chavez’s Venezuela, throughout the entire Latin American World, shows no signs of abating as it spreads its vast oil wealth throughout the region in a direct threat to American and European banking and corporate interests.

Coupled with the closeness of Hugo Chavez with the Cuban regime, including Fidel Castro, an emerging, and to the United States dangerous, South American unity block is forming which will see the expulsion of American corporations from the vast wealth of Latin America.

What remains unknown to Russian Military Analysts is the United States militaries ability to counter their growing Latin American threat as their current military forces are said stretched to the ‘breaking point’.

Inflation Wants to Eat Your Children

This week's entry into the Most Pithy Investing Advice Contained In A Headline Or Title contest is "Profiting From Companies That Sell What China Wants" by Michael Dawson of TheTimeAndMoneyGroup.com. The title says it all!

There used to be a song that went "Whatever Lola wants, Lola gets", which implied that this Lola chick was so enchanting that men gave her presents, which she greedily took, and kept demanding more, which I gave her, too, always more and more, until all my money was gone and I was forced to loot the employee retirement fund, steal money out of my wife's purse and invent reasons why the kids wouldn't be getting an allowance this week ("Sunspots made the money radioactive!") so that I could give it all to her. Only her name wasn't Lola, and in fact as I remember it, they went by various names, none of them Lola, but the point is that 1.) This title says it all, and 2.) The case is made when I point out that both Lola and China have two syllables.

And, I expect, they will both end up with all my, and our, money, and then it's, "So long, sucker!" just like always.

If you are tired of my constant, irritating harangue to buy oil stocks, in one way or another, based solely on my Stupid Mogambo Say So (SMSS), then I proudly present John Loeffler, appearing with James J. Puplava on the Financial Sense Newshour, who buttresses the "Peak Oil" case by saying that, when looking at oil production, "If we look at the number of countries that have peaked versus remaining, so far 64 countries have peaked in oil production; 36 remain."

I know what you are thinking: You are scratching your chin and thinking "Down by two-thirds? Hmmm! Maybe that Stupid Mogambo Idiot (SMI) is onto something significant here with his recommendation to buy oil!" And you would be right!

But if you went on to think to yourself, "Maybe that SMI is not as dumb as I thought!" then you would be, I am sorry to say, wrong.

I'm sure you've already heard that the Bureau of Labor Standards reported that the Consumer Price Index for all urban consumers, also known as the CPI-U, increased by 0.3% in January. Or perhaps you heard my loud scream of anguish and subsequent Hysterical Mogambo Violent Outburst (HMVO) at the report; in a lot of places it made the front page!

Either way, the latest report shows that, on an annual level, the January reading of that index, 202.4, was 2.1% higher than in January 2006.

Actually, nobody believes that inflation is really that low, and the government has already repeatedly admitted that they hedonically-adjust inflation statistics in a lot of different, although equally slimy, ways. This means that inflation is well over 3%, which is a number I choose because it is, historically, the point where smart people are panicking in the street; where shameful government and banking officials are being sacked, and there is turmoil everywhere - most of it being instigated by The Mogambo, who incessantly screams, "I am your king! Bring them to me and I shall deal with them harshly!"

But, oddly enough, everything is still calm, even though overall consumer prices rose 0.2% for the month. This mainly reflects that the prices of food, air travel and medical care went up a lot. And even core inflation (which excludes food and energy prices, so it is supposed to have a calming effect on our nerves) was up 0.3% for the month, which was NOT calming in the least.

And stepping away from sterile statistics, we get the same thing from Sprott Asset Management when they say, "In the real world, by all indications, the Malthusian shortages that began a few years ago with the most recent synchronized global economic expansion are continuing in earnest as we head into 2007. Nowhere is this more evident than in the rampant cost increases (a.k.a. inflation) that the companies we analyze are experiencing."

George Ure, of the famous UrbanSurvival.com site, hears us talking about shortages, especially of the Malthusian kind, and reports that his web bots (which are looking for Internet references to "shortage" and "scarcity") have, "for the first time since I started tracking, passed the 20-thousand hits level." So, two guys have noticed shortages appearing! Shortages are up!

If you are wearing your Expensive Junior Mogambo Ranger Watch (EJMRW), the on-board Supply/Demand Ratio Alert is beeping right now. If it is not, it is probably broken, and there is nothing you can do, because while the certificate of authenticity is certainly valid, the lifetime guarantee (like the guarantees on all Mogambo Inter-Stellar Enterprises (MISE) products and services) is not worth the paper it is printed on.

Hopefully, you will be consoled to learn that the value you received is not in the watch itself (for which you obviously overpaid) but in the lesson you just learned.

But as an astute Junior Mogambo Ranger (JMR), "you don't need no stinking watch." This, of course, may explain why sales are down (and why repeat sales are zero), and has already conjured up a mental image of the graph of the supply/demand dynamic, which has been adjusted to reflect the change in the supply curve to reflect these reported shortages, and says, "Eek! Higher prices are coming!"

Mr. Sprott sends a nervous glance over at me to see how I am taking this news about inflation. My breath is shallow and rapid, but I am not actually screaming in fear or even twitching visibly. Thus emboldened, he goes on to say, "The largest companies in the world in the mining and energy industries are all stating, with nary an exception, that the cost estimates they made a few years back for some of their biggest projects are now grossly understated."

Reader George P read these same remarks from Sprott, and he thought that this line was most remarkable; "We've heard estimates by knowledgeable sources that global money supply grew 18% last year - so shocking as to be almost unbelievable."

And if you are the least bit conversant with the bountiful plethora of examples in the historical record of what happens from such cancerous growth in a money supply, then your heart is undoubtedly beating like a trip-hammer, although you are unsure exactly why.

If you are more educated than most, and are completely familiar with what happens, then you are naturally thinking that although you have an Uzi in each hand, a Bowie knife between your teeth, are sitting on your weight in gold and silver, wearing a tinfoil hat and some cool shades, you still feel exposed and defenseless! And you need more of each!

The Mogambo reassuringly says, "That's right! It's that damned terrifying!"

Until next week,

The Mogambo Guru

Major Mortgage Lender On Bankruptcy's Doorstep

by Bradley Keoun and Yalman Onaran

New Century Financial Corp., the nation's second-biggest subprime mortgage lender, said it doesn't have the cash to pay creditors who are demanding their money, increasing speculation that the company will go bankrupt.

The New York Stock Exchange, citing the credit crisis, halted trading of New Century this morning until it decides whether to keep listing the company's securities. Shares of the Irvine, California-based company, already down 90 percent in 2007, lost half their remaining value in pre-market trading, and rivals fell as much as 25 percent today.

``They're one step closer to bankruptcy,'' said Bose George, an analyst at Keefe Bruyette & Woods in New York who rates the shares ``market perform.'' ``The only possibility for survival now is for someone, potentially an investment bank, to step in.''

New Century may be insolvent because too many of its own customers -- most of whom have poor credit histories or heavy debt burdens -- aren't repaying their loans. Bad U.S. subprime mortgages are at a seven-year high, forcing more than two dozen lenders to close or sell operations. Their woes may contribute to more than 1.5 million Americans losing their homes and 100,000 people losing their jobs, according to real estate executives, economists, analysts and a Federal Reserve governor.

New Century said in a federal filing it doesn't have funds to repay lenders including Morgan Stanley, Citigroup Inc. and Goldman Sachs Group Inc. The creditors want New Century to repurchase all outstanding mortgage loans they financed.

Shares Plunge

The company's shares traded for as little as $1.36 in pre- market trading, compared with $3.21 on Friday, a day when the stock hit an eight-year low. The company said March 2 that U.S. prosecutors in Los Angeles are investigating trading in New Century's securities before a Feb. 7 announcement that it planned to restate earnings. Investigators also are examining New Century's failure to properly account for the cost of bad loans.

``It's kind of the perfect storm,'' said Vince Arscott, an analyst in the financial institutions group at Fitch Ratings. ``You throw in accounting issues and delayed filings, you throw in a criminal inquiry, and then the whole secondary market is really sour on subprime.''

Rival lenders including Fremont General Corp., Accredited Home Lenders Holding Co., and NovaStar Financial Inc. have shed more than half their value this year, and Countrywide Financial Corp., the nation's biggest mortgage company, has tumbled 17 percent.

Ripple Effects

Accredited, which fell 28 percent today, was ``considered a better player in the space,'' said Matt Howlett, an analyst at Fox-Pitt Kelton in New York. ``But they're not immune to the deplorable conditions in the subprime space. You can't create any value in this market, and the likelihood of a sale, which we thought was really the only exit, just seems more unlikely every day.''

Fremont, which shut its subprime lending operations last week under pressure from U.S. regulators, lost 16 percent today. NovaStar shed 19 percent and Countrywide declined 2.7 percent.

Analysts including Merrill Lynch & Co.'s Kenneth Bruce predicted last week New Century will go bankrupt. New Century has used up cash as rising default rates forced it to buy back loans it sold to investors when borrowers didn't make their payments. The company said last week it's in talks with lenders and potential partners about refinancing or ``other alternatives.''

`No Assurance'

New Century's financing agreements have so-called cross- default provisions that trigger accelerated payments. Should all of its creditors force it to repurchase their loans, the total obligation would be about $8.4 billion, New Century said today.

``Medium, small-size players who were addicted to Wall Street financing are at most risk,'' said David Hendler, an analyst at CreditSights Inc. in New York.

Talks with lenders are continuing, and New Century can give ``no assurance'' that efforts to refinance the debt will succeed, the company said.

Standard & Poor's cut New Century's counterparty credit rating today to D, for companies that are in payment default, from CC.

New Century has received about $975 million of financing from Morgan Stanley. Part of the money from the New York-based securities firm was used to pay Citigroup Inc. about $717 million on March 8, after Citigroup demanded repurchase of its loans, New Century said in today's filing.

Subprime Loans

Subprime loans, a term applied to some of the riskiest home mortgages, are made to borrowers unable to qualify under traditional, more stringent criteria. The loans often carry interest rates 2 to 3 percentage points higher than regular mortgages and sometimes have low initial ``teaser'' rates that adjust higher in later years. Some lenders also lowered their standards last year to bolster revenue because slumping home sales had hurt demand.

The combination made the loans more prone to default, with delinquencies at more than 12 percent in the third quarter, according to the Mortgage Bankers Association. The Washington- based trade group is scheduled to release updated numbers for the fourth quarter tomorrow. Investors are increasingly shunning bonds backed by subprime loans.

``It's like a hot potato with these loans, no one wants them,'' Fitch's Arscott said.

OceanFirst Financial Corp., the holding company for OceanFirst Bank, said today it will revise 2006 earnings because buyers of some of its subprime loans are forcing the company to take them back. Borrowers of the loans -- which the bank offered starting last year through the Columbia Home Loans unit -- are already defaulting, the Toms River, New Jersey-based lender said. The loans offered to cover 100 percent of a home's value.

Countrywide's Report

Countrywide said late payments on home loans that it manages for others held steady last month. Loans at least 30 days past due remained at 4.71 percent of total loans serviced, the same as in January, the Calabasas, California-based company disclosed in monthly data released on its Web site. A year earlier, 4.29 percent of those loans were late.

Jim Shanahan, a senior analyst at Wachovia Capital Markets, cut his rating today on Countrywide to ``underperform'' from ``market perform.''

``While the origination and sale of subprime mortgages represents only a small part of the Countrywide story, we are more concerned that the weakness has spread to other sectors of the residential mortgage market,'' Shanahan wrote.

Joe Banister on IRS enforcement of nonexistent laws

Parts 1,2, & 3

Crisis Looms in Mortgages

By GRETCHEN MORGENSON

On March 1, a Wall Street analyst at Bear Stearns wrote an upbeat report on a company that specializes in making mortgages to cash-poor homebuyers. The company, New Century Financial, had already disclosed that a growing number of borrowers were defaulting, and its stock, at around $15, had lost half its value in three weeks.

What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts. Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21.

The analyst’s untimely call, coupled with a failure among other Wall Street institutions to identify problems in the home mortgage market, isn’t the only familiar ring to investors who watched the technology stock bubble burst precisely seven years ago.

Now, as then, Wall Street firms and entrepreneurs made fortunes issuing questionable securities, in this case pools of home loans taken out by risky borrowers. Now, as then, bullish stock and credit analysts for some of those same Wall Street firms, which profited in the underwriting and rating of those investments, lulled investors with upbeat pronouncements even as loan defaults ballooned. Now, as then, regulators stood by as the mania churned, fed by lax standards and anything-goes lending.

Investment manias are nothing new, of course. But the demise of this one has been broadly viewed as troubling, as it involves the nation’s $6.5 trillion mortgage securities market, which is larger even than the United States treasury market.

Hanging in the balance is the nation’s housing market, which has been a big driver of the economy. Fewer lenders means many potential homebuyers will find it more difficult to get credit, while hundreds of thousands of homes will go up for sale as borrowers default, further swamping a stalled market.

“The regulators are trying to figure out how to work around it, but the Hill is going to be in for one big surprise,” said Josh Rosner, a managing director at Graham-Fisher & Company, an independent investment research firm in New York, and an expert on mortgage securities. “This is far more dramatic than what led to Sarbanes-Oxley,” he added, referring to the legislation that followed the WorldCom and Enron scandals, “both in conflicts and in terms of absolute economic impact.”

While real estate prices were rising, the market for home loans operated like a well-oiled machine, providing ready money to borrowers and high returns to investors like pension funds, insurance companies, hedge funds and other institutions. Now this enormous and important machine is sputtering, and the effects are reverberating throughout Main Street, Wall Street and Washington.

Already, more than two dozen mortgage lenders have failed or closed their doors, and shares of big companies in the mortgage industry have declined significantly. Delinquencies on loans made to less creditworthy borrowers — known as subprime mortgages —recently reached 12.6 percent. Some banks have reported rising problems among borrowers that were deemed more creditworthy as well.

Traders and investors who watch this world say the major participants — Wall Street firms, credit rating agencies, lenders and investors — are holding their collective breath and hoping that the spring season for home sales will reinstate what had been a go-go market for mortgage securities. Many Wall Street firms saw their own stock prices decline over their exposure to the turmoil.

“I guess we are a bit surprised at how fast this has unraveled,” said Tom Zimmerman, head of asset-backed securities research at UBS, in a recent conference call with investors.

Even now the tone accentuates the positive. In a recent presentation to investors, UBS Securities discussed the potential for losses among some mortgage securities in a variety of housing markets. None of the models showed flat or falling home prices, however.

The Bear Stearns analyst who upgraded New Century, Scott R. Coren, wrote in a research note that the company’s stock price reflected the risks in its industry, and that the downside risk was about $10 in a “rescue-sale scenario.” According to New Century, Bear Stearns is among the firms with a “longstanding” relationship financing its mortgage operation. Mr. Coren, through a spokeswoman, declined to comment.

Others who follow the industry have voiced more caution. Thomas A. Lawler, founder of Lawler Economic and Housing Consulting, said: “It’s not that the mortgage industry is collapsing, it’s just that the mortgage industry went wild and there are consequences of going wild.

“I think there is no doubt that home sales are going to be weaker than most anybody who was forecasting the market just two months ago thought. For those areas where the housing market was already not too great, where inventories were at historically high levels and it finally looked like things were stabilizing, this is going to be unpleasant.”

Like worms that surface after a torrential rain, revelations that emerge when an asset bubble bursts are often unattractive, involving dubious industry practices and even fraud. In the coming weeks, some mortgage market participants predict, investors will learn not only how lax real estate lending standards became, but also how hard to value these opaque securities are and how easy their values are to prop up.

Owners of mortgage securities that have been pooled, for example, do not have to reflect the prevailing market prices of those securities each day, as stockholders do. Only when a security is downgraded by a rating agency do investors have to mark their holdings to the market value. As a result, traders say, many investors are reporting the values of their holdings at inflated prices.

“How these things are valued for portfolio purposes is exposed to management judgment, which is potentially arbitrary,” Mr. Rosner said.

At the heart of the turmoil is the subprime mortgage market, which developed to give loans to shaky borrowers or to those with little cash to put down as collateral. Some 35 percent of all mortgage securities issued last year were in that category, up from 13 percent in 2003.

Looking to expand their reach and their profits, lenders were far too willing to lend, as evidenced by the creation of new types of mortgages — known as “affordability products” — that required little or no down payment and little or no documentation of a borrower’s income. Loans with 40-year or even 50-year terms were also popular among cash-strapped borrowers seeking low monthly payments. Exceedingly low “teaser” rates that move up rapidly in later years were another feature of the new loans.

The rapid rise in the amount borrowed against a property’s value shows how willing lenders were to stretch. In 2000, according to Banc of America Securities, the average loan to a subprime lender was 48 percent of the value of the underlying property. By 2006, that figure reached 82 percent.

Mortgages requiring little or no documentation became known colloquially as “liar loans.” An April 2006 report by the Mortgage Asset Research Institute, a consulting concern in Reston, Va., analyzed 100 loans in which the borrowers merely stated their incomes, and then looked at documents those borrowers had filed with the I.R.S. The resulting differences were significant: in 90 percent of loans, borrowers overstated their incomes 5 percent or more. But in almost 60 percent of cases, borrowers inflated their incomes by more than half.

A Deutsche Bank report said liar loans accounted for 40 percent of the subprime mortgage issuance last year, up from 25 percent in 2001.

Securities backed by home mortgages have been traded since the 1970s, but it has been only since 2002 or so that investors, including pension funds, insurance companies, hedge funds and other institutions, have shown such an appetite for them.

Wall Street, of course, was happy to help refashion mortgages from arcane and illiquid securities into ubiquitous and frequently traded ones. Its reward is that it now dominates the market. While commercial banks and savings banks had long been the biggest lenders to home buyers, by 2006, Wall Street had a commanding share — 60 percent — of the mortgage financing market, Federal Reserve data show.

The big firms in the business are Lehman Brothers, Bear Stearns, Merrill Lynch, Morgan Stanley, Deutsche Bank and UBS. They buy mortgages from issuers, put thousands of them into pools to spread out the risks and then divide them into slices, known as tranches, based on quality. Then they sell them.

The profits from packaging these securities and trading them for customers and their own accounts have been phenomenal. At Lehman Brothers, for example, mortgage-related businesses contributed directly to record revenue and income over the last three years.

The issuance of mortgage-related securities, which include those backed by home-equity loans, peaked in 2003 at more than $3 trillion, according to data from the Bond Market Association. Last year’s issuance, reflecting a slowdown in home price appreciation, was $1.93 trillion, a slight decline from 2005.

In addition to enviable growth, the mortgage securities market has undergone other changes in recent years. In the 1990s, buyers of mortgage securities spread out their risk by combining those securities with loans backed by other assets, like credit card receivables and automobile loans. But in 2001, investor preferences changed, focusing on specific types of loans. Mortgages quickly became the favorite.

Another change in the market involves its trading characteristics. Years ago, mortgage-backed securities appealed to a buy-and-hold crowd, who kept the securities on their books until the loans were paid off. “You used to think of mortgages as slow moving,” said Glenn T. Costello, managing director of structured finance residential mortgage at Fitch Ratings. “Now it has become much more of a trading market, with a mark-to-market bent.”

The average daily trading volume of mortgage securities issued by government agencies like Fannie Mae and Freddie Mac, for example, exceeded $250 billion last year. That’s up from about $60 billion in 2000.

Wall Street became so enamored of the profits in mortgages that it began to expand its reach, buying companies that make loans to consumers to supplement its packaging and sales operations. In August 2006, Morgan Stanley bought Saxon, a $6.5 billion subprime mortgage underwriter, for $706 million.

And last September, Merrill Lynch paid $1.3 billion to buy First Franklin Financial, a home lender in San Jose, Calif. At the time, Merrill said it expected First Franklin to add to its earnings in 2007. Now analysts expect Merrill to take a large loss on the purchase.

Indeed, on Feb. 28, as the first fiscal quarter ended for many big investment banks, Wall Street buzzed with speculation that the firms had slashed the value of their numerous mortgage holdings, recording significant losses.

As prevailing interest rates remained low over the last several years, the appetite for these securities only rose. In the ever-present search for high yields, buyers clamored for securities that contained subprime mortgages, which carry interest rates that are typically one to two percentage points higher than traditional loans. Mortgage securities participants say increasingly lax lending standards in these loans became almost an invitation to commit mortgage fraud. It is too early to tell how significant a role mortgage fraud played in the rocketing delinquency rates — 12.6 percent among subprime borrowers. Delinquency rates among all mortgages stood at 4.7 percent in the third quarter of 2006.

For years, investors cared little about risks in mortgage holdings. That is changing.

“I would not be surprised if between now and the end of the year at least 20 percent of BBB and BBB- bonds that are backed by subprime loans originated in 2006 will be downgraded,” Mr. Lawler said.

Still, the rating agencies have yet to downgrade large numbers of mortgage securities to reflect the market turmoil. Standard & Poor’s has put 2 percent of the subprime loans it rates on watch for a downgrade, and Moody’s said it has downgraded 1 percent to 2 percent of such mortgages that were issued in 2005 and 2006.

Fitch appears to be the most proactive, having downgraded 3.7 percent of subprime mortgages in the period.

The agencies say that they are confident that their ratings reflect reality in the mortgages they have analyzed and that they have required managers of mortgage pools with risky loans in them to increase the collateral. A spokesman for S.& P. said the firm made its ratings requirements more stringent for subprime issuers last summer and that they shored up the loans as a result.

Meeting with Wall Street analysts last week, Terry McGraw, chief executive of McGraw-Hill, the parent of S.& P., said the firm does not believe that loans made in 2006 will perform “as badly as some have suggested.”

Nevertheless, some investors wonder whether the rating agencies have the stomach to downgrade these securities because of the selling stampede that would follow. Many mortgage buyers cannot hold securities that are rated below investment grade — insurance companies are an example. So if the securities were downgraded, forced selling would ensue, further pressuring an already beleaguered market.

Another consideration is the profits in mortgage ratings. Some 6.5 percent of Moody’s 2006 revenue was related to the subprime market.

Brian Clarkson, Moody’s co-chief operating officer, denied that the company hesitates to cut ratings. “We made assumptions early on that we were going to have worse performance in subprime mortgages, which is the reason we haven’t seen that many downgrades,” he said. “If we have something that is investment grade that we need to take below investment grade, we will do it.”

Interestingly, accounting conventions in mortgage securities require an investor to mark his holdings to market only when they get downgraded. So investors may be assigning higher values to their positions than they would receive if they had to go into the market and find a buyer. That delays the reckoning, some analysts say.

“There are delayed triggers in many of these investment vehicles and that is delaying the recognition of losses,” Charles Peabody, founder of Portales Partners, an independent research boutique in New York, said. “I do think the unwind is just starting. The moment of truth is not yet here.”

On March 2, reacting to the distress in the mortgage market, a throng of regulators, including the Federal Reserve Board, asked lenders to tighten their policies on lending to those with questionable credit. Late last week, WMC Mortgage, General Electric’s subprime mortgage arm, said it would no longer make loans with no down payments.

Meanwhile, investors wait to see whether the spring home selling season will shore up the mortgage market. If home prices do not appreciate or if they fall, defaults will rise, and pension funds and others that embraced the mortgage securities market will have to record losses. And they will likely retreat from the market, analysts said, affecting consumers and the overall economy.

A paper published last month by Mr. Rosner and Joseph R. Mason, an associate professor of finance at Drexel University’s LeBow College of Business, assessed the potential problems associated with disruptions in the mortgage securities market. They wrote: “Decreased funding for residential mortgage-backed securities could set off a downward spiral in credit availability that can deprive individuals of home ownership and substantially hurt the U.S. economy.”