The Bond Bubble, U.S. Debt and Federal Pensions

The bond market is the biggest bubble in financial markets worldwide, in our opinion. Investors around the world are worried about the state of financial markets and therefore believe that government bonds represent a safe haven. These investors will receive the most enormous shock on two accounts. Firstly, no government will be able to repay the debts outstanding. So there will either be government defaults, moratoria, or money printing that totally destroys the value of the bonds. Secondly, interest rates are likely to go up significantly to at least 10—15%, totally destroying the value of the bonds. - Egon von Greyerz, Gold Entering a Virtuous Circle, Gold Switzerland - Matterhorn Asset Management, September 6, 2010

It’s often hard to identify a bubble before it bursts. But the herd mentality of buying bonds, the certainty among so many investors that they were safe (remember “home prices have never fallen” or “the Internet will change everything”?), and the sheer volume of the money make me think it was indeed a bubble, albeit one of the quieter ones we’ve seen. Here’s an astonishing statistic for you: According to growth-fund manager Jim Oberweis, “the roughly $650 billion total [in bond inflows in 2009 and 2010] matched the equity fund net inflow during the Internet bubble period of 1998 through 2000.” So, one buying spree was a mirror image of the other, only a decade later. I’m certainly not expecting anywhere near the selloff we’ve seen in stocks or housing, but I also wouldn’t be surprised to see losses beyond the 9% decline bonds experienced in their worst 12 months. Now, I don’t think investors should panic and dump their bond funds with the same alacrity they bought them. But I do think people should gradually shift bond holdings to shorter maturities, which are less vulnerable to sudden price corrections. And here’s the good news: Kinniry said 95% of the cash flows into Vanguard bond funds went into short- and intermediate-term funds with maturities of five to seven years and less. “We don’t see very much at all in the long-term space,” he added. That, of course, is where the biggest losses can occur. - Howard Gold, What to do before the bond bubble bursts, MarketWatch, January 28, 2011

U.S. Debt Default Will Punish Pensions

By Barry Ferguson, President, BMF Investments, Inc.
July 26, 2011

As America debates its debt, its debt ceiling, and the indebtedness of future generations, let’s make sure we all understand what we are talking about. Also, let’s look at an example of how the debt permeates through our society.

Why does the US have debt?

Because the stewards of the country’s Treasury, Congress, spends more than it takes in in tax receipts.

What is the debt?

The US issues bonds, notes, and bills that promise to pay principal and interest at maturity of the issue. The principal is meaningless. A printing machine produces principal to infinity. The interest, on the other hand, is a problem. Almost all of the current debt will have to be rolled over (re-financed) before 2020 at interest rates that prevail at the time of re-issue.

How much is the debt?

Let’s refer to the following website: www.treasurydirect.gov/govt/reports/pd/mspd/2011/opds062011.pdf. As of June, 2011, the official amount of Treasury debt issued is $14,343,088,000,000. In case we have trouble with all those commas, that figure represents ‘trillions’ of dollars in debt.

How much interest expense does the country pay each year on the debt?

In 2011, the US will pay $385.8 billion in interest coupons. That’s down from $413.9 billion paid in 2010 because interest rates have been falling while debt has been rising. In the end, it is not the debt that crushes a nation but rather the interest coupon required to facilitate a growing debt.

We now live in a completely artificial environment whereby the Federal Reserve works to orchestrate a contracting interest coupon so the debt can be perpetuated. Banks make money by lending. The Fed made $90 billion in 2010. That’s more than Exxon and Walmart combined! We can all see who really benefits from massive debt. One can read my article ‘Why US Treasuries Will Eventually Yield Nothing’ to learn more as to why interest coupons will continue to fall.

Who owns the debt?

Here’s where it gets interesting. From the same website as previously referenced, the public owns $9,742,223,000,000 and roughly two-thirds of that is in the form of notes or intermediate term maturities. Another $4,600,864,000,000 in Treasury debt is listed as ‘Intragovernmental Holdings’. Nearly all of that $4.6 trillion is Treasury debt known as ‘Government Account Series’ (GAS) issue.

What’ the difference?

$4,580,584,000,000 of the $4,600,864,000,000 GAS debt is non-marketable. That means there is no market in which to sell this debt. In other words, if Treasuries should begin a bearish trend and sell off, investors that hold marketable Treasuries could sell their holdings to limit their losses. Holders of non-marketable Treasuries cannot.

Who holds non-marketable Treasury debt?

Interestingly enough, US citizens do. The Social Security Trust Fund holds 57% of the non-marketable Treasuries. Federal government employees are tied to the non-marketable debt through their retirement plan with a 17% ownership. Take a look at the following chart.

Source: www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt_ann2010.pdf, pg. 15

Explain how federal employees are affected?

Civilian federal employees hired before 1984 were covered by the Civil Service Retirement System (CSRS) and those hired after 1984 were covered by the Federal Employees Retirement System (FERS). Both plans had investible assets directed to the Civil Service Retirement and Disability Fund (CSRDF). This is a defined benefits retirement fund for retired Federal employees.

This retirement benefit extended by the taxpayer is structured as an annuity. Like everything for our government employees, a defined benefit plan is the ‘Cadillac’ of retirement plans. According to the Office of Personnel Management (OPM), they estimate the cost of the FERS annuity to be 12.5% of employee pay. The federal employee pays .8% and you and I pay the other 11.7% of that contribution.

The federal government makes supplemental payments into the CSRDF on behalf of employees covered by the CSRS because employee and agency contributions and interest earnings do not meet the full cost of the benefits earned by employees covered by that system. But, it is an annuity and it is totally controlled by the government. The government controls the payout. The government controls the allocation of the invested funds. And, the government controls the ownership of the funds. That means the employees have no rights to the money listed in the plan under their name.

What is in the CSRDF?

As the retirement fund of civilian Federal employees, the funds are 100% invested in special-issue Treasury securities that count against the national debt. Contributions to the fund can be, and are suspended when a debt ceiling prohibits further expansion of the national debt. Current investments in the fund are redeemed by the Treasury while contributions are suspended. If and when further governmental borrowing is allowed, by law, the fund is then made whole again.

How much money is in the CSRDF?

According to an article authored by Katelin Isaacs at www2.pennyhill.com/?p=14318, the CSRDF reported a balance of $734 billion at the beginning of 2009. Here’a the part that I like. As with everything in our world today, the CSRDF is unfunded to the tune of $674 billion. It turns out that the CSRS was never funded while the newer and less generous FERS was and is funded. What we have is a dollar figure based on ‘imaginary value’ derived from Treasury note par value.

How is the CSRDF funded?

According to the OMB, the fund will have an income of $98 billion (estimate) in 2010. A full $3 billion will come from employee contributions. The other $95 billion will come from interest ($40 billion) and well, essentially tax payers. Expenses, or payouts, are expected to be around $70 billion for the same year. Again, all investments are required to be in US Treasuries. Still, the fund has a lot of ground to make up.

What if the US Treasury debt is capped or sells off?

We can see that civilian Federal employees and retirees could be hurt severely. If the debt can’t be expanded. the CSRDF will not get funding and retirement obligations will not be met. Should the Treasury notes and bills experience a loss in value due to selling pressure, the CSRDF will likely lose value and find itself more unfunded than originally thought. Even at best, the current Treasury Secretary has borrowed from the existing holdings of the fund to apply to the national debt to make it seem less threatening. Outright default on held Treasuries would surely diminish the value of the fund.

How does the US government get away with this type of accounting?

I really like this part. What you are about to read explains our world and our fiscal predicament perfectly. Please read this next sentence very carefully. Quoting from the source listed below, ‘According to the U.S. Office of Management and Budget (OMB), balances in the trust fund are... available for future benefit payments and other trust fund expenditures, but only in a bookkeeping sense.’ That statement ought to engender confidence in the government.

(Source : http://www.narfepad6.org/media//DIR_11701/c425b8c8d4041659ffff8b7effffe41e.pdf)

But what about the part that is unfunded?

From the same source listed above, the fund is in no danger of insolvency because the unfunded gap will eventually close. Want to know how? This article that I am quoting from is from the Congressional Research Service written by Patrick Purcell in June of 2009. It says,

‘The decline in the ratio of CSRDF outlays to salary expense after 2020 will occur mainly because future retirees will receive smaller pension benefits under FERS than they would have received under CSRS.’

Does that sound like austerity? I suppose too, that actuaries could estimate rising taxes, rising interest rates, rising numbers of contributors (more government hires), and declining benefit recipients due to death. Or maybe, they are just dreaming!

What about Social Security?

Yep, the Social Security Trust Fund is required to own US Treasuries and as previously pointed out, the fund owns 57% of the non-marketable Treasury inventory. As with the CSRDF, if US Treasuries fail (default), so too will the Social Security Trust Fund. Also, as with civilian Federal employees and their retirement funds held by the CSRDF, a 1960 Supreme Court ruling established that contributors to Social Security do not have a right or an entitlement to receive benefits from the Social Security Trust Fund. The government can cut either off whenever it wants. The debt debate should be bringing the phony pension accounting to light in both Social Security and the CSRDF. Sadly, both now depend on ever expanding debt.

Conclusion

Hopefully this little article will help with the understanding of the US debt and some of the ramifications of current, and probably ongoing debt debate.

As we can see, our modern world is tentacled with pervasive debt. Putting a limit on that debt is not as easy as it might sound. Letting the debt continuously expand is clearly an exercise of surrender at the vault of the elite banks.

Yes, Treasuries held in trust funds and pensions are valued at par. But if the Treasury is not allowed to borrow more money to pay the interest on currently issued Treasuries, default will occur rendering the paper worthless. On the other hand, if the Treasury is allowed to expand the debt unimpeded, the increased supply will erode the value of currently issued debt either through inflation or supply/demand dynamics.

The government is now exposed as an irresponsible fiduciary as it requires certain retirement programs to hold only one security - the one that it issues. The US Treasury note might turn out to be one of the most risky securities on the market. To make matters even worse, the reported balances in some retirement programs like the CSRDF are only balances in a ‘bookkeeping sense’.

Maybe we are playing musical chairs only all the chairs are make believe. Maybe what we should really take from the debt debate is the illusion of fiscal soundness. In other words, we are in an ocean of debt that threatens to drown us but fortunately we have a boat. However, the boat only exists in our minds through the power of imagination. The boat is not real. We just can’t afford to open our eyes and see that the boat is not real because the ocean will consume us.

Barry M. Ferguson, RFC
President, BMF Investments, Inc.
Primary Tel: 704.563.2960
Other Tel: 866.264.4980
Industry: Investment Advisory
barry@bmfinvest.com
www.bmfinvest.com
www.bmfinvest.blogspot.com

Barry M. Ferguson, RFC is President and founder of BMF Investments, Inc. - a fee-based Investment Advisor in Charlotte, NC. He manages several different portfolios that are designed to be market driven and actively managed. Barry shares his unique perspective through his irreverent and very popular newsletter, Barry’s Bulls, authored the book, Navigating the Mind Fields of Investing Money, lectures on investing, and contributes investment articles to various professional publications. He is a member of the International Association of Registered Financial Consultants, the International Speakers Network, and was presented with the prestigious Cato Award for Distinguished Journalism in the Field of Financial Services in 2009.

© 2011 Copyright BMF Investments, Inc. - All Rights Reserved

Disclaimer: The views discussed in this article are solely the opinion of the writer and have been presented for educational purposes. They are not meant to serve as individual investment advice and should not be taken as such. This is not a solicitation to buy or sell anything. Readers should consult their registered financial representative to determine the suitability of any investment strategies undertaken or implemented.

The Next Big Short: U.S. Treasury Bonds

By Eric Englund, LewRockwell.com
Originally Published on October 18, 2010

After reading Michael Lewis' wonderful book The Big Short: Inside the Doomsday Machine, I recommended it to a friend. As my friend is a financial professional, I knew he would enjoy a book about how a few obscure hedge fund managers, and their clients, handsomely profited from the collapse of America's subprime-mortgage market. This friend knew that, starting in June of 2005, I had written extensively about the United States' housing bubble (see articles, here, here, here, here, here, here, and here).

So the meltdown in the subprime-mortgage market came as no surprise to either of us; but it definitely caught Wall Street by surprise. Upon finishing the aforementioned book, my friend called me and asked a thought-provoking, two-part question: "What is the next big short and how do we profit from it?"

Sovereign debt certainly has been in the financial headlines in 2010; with Greece getting the lion's share of attention. In the midst of Greece's debt crisis, Standard & Poor's downgraded Greece's credit rating to "junk" status. S&P's rationale for this rating reduction was straight forward:

"The downgrade results from our updated assessment of the political, economic and budgetary conditions that the Greek government faces in its efforts to put the public debt burden onto a sustained downward trajectory."

What is not stated by S&P is that by joining the European Union, Greece no longer has its own central bank so it can't paper over its debt crisis by printing more money.

Conversely, the United States' central bank loves to use its printing press and is actively purchasing U.S. Treasury bonds with the objectives of keeping interest rates low and spurring economic growth in the U.S.; which will not work. As of October 15, 2010, a 30-year Treasury bond was yielding 3.98%. In addition to the Federal Reserve's monetizing of Uncle Sam's debt, such a low yield has also come about as individuals and large institutions, including banks, perceive U.S. Treasuries to be a safe haven; hence they are lending to this "AAA" rated borrower in droves. As George Goncalves stated:

"Treasury bonds are gaining ‘rock star' status…"

Considering the heady levels the bond market has attained, is it possible that a bond bubble has emerged in the United States?

Egon von Greyerz, of Matterhorn Asset Management, certainly thinks so. He believes, indeed, there is a bond bubble of global proportions. Here is what he stated in a recent article:

The bond market is the biggest bubble in financial markets worldwide, in our opinion. Investors around the world are worried about the state of financial markets and therefore believe that government bonds represent a safe haven. These investors will receive the most enormous shock on two accounts. Firstly, no government will be able to repay the debts outstanding. So there will either be government defaults, moratoria, or money printing that totally destroys the value of the bonds. Secondly, interest rates are likely to go up significantly to at least 10—15%, totally destroying the value of the bonds.

Financial-market luminaries, such as Marc Faber, Jim Rogers, and Peter Schiff do believe U.S. Treasury bonds are in a bubble. In fact, in this interview, Jim Rogers states he is considering shorting U.S. Treasury bonds. If Rogers is thinking about shorting bonds, you should too.

Presently, I do hold a short position pertaining to U.S. Treasury bonds. I have taken this position via an inverse bond fund. Here is a description of this mutual fund:

The investment seeks total return, before expenses and costs, that inversely correlates to the price movements of Long Treasury bonds. The fund employs, as its investment strategy, a program of engaging in short sales and investing to a significant extent in derivative instruments, which primarily consist of futures contracts, interest rate swaps, and options on securities and futures contracts. It invests at least 80% of net assets in financial instruments with economic characteristics that should perform opposite to fixed-income securities issued by the U.S. government.

I did not take this short position without undertaking appropriate research. In January of 2005, LRC published my essay titled Should the US Government's Sovereign Credit Rating be Downgraded to Junk? Here we are, over five years later, and Uncle Sam's financial condition is much "junkier."

When I wrote the above-mentioned essay, the U.S. Government's balance sheet revealed a deficit net worth of over $7.7 trillion. As of fiscal year-end September 30, 2009, the U.S. Treasury is reporting that Uncle Sam's net worth is a mind-numbing deficit $11.5 trillion — I have included the 2009 balance sheet, below, for your viewing displeasure.

(In billions of dollars) 2009
Assets:	`
Cash and other monetary assets (Note 2)	393.2
Accounts and taxes receivable, net (Note 3)	90.2
Loans receivable and mortgage backed securities, net (Note 4)	538.9
TARP direct loans and equity investments, net (Note 5)	239.7
Beneficial interest in trust (Note 6)	23.5
Inventories and related property, net (Note 7)	284.6
Property, plant, and equipment, net (Note 8)	784.1
Securities and investments (Note 9)	93.1
Investments in Government sponsored enterprises (Note 11)	64.7
Other assets (Note 12)	155.9
Total assets	2,667.9
Stewardship land and heritage assets (Note 27)	`
Liabilities:	`
Accounts payable (Note 13)	73.2
Federal debt securities held by the public and accrued interest (Note 14)	7,582.7
Federal employee and veteran benefits payable (Note 15)	5,283.7
Environmental and disposal liabilities (Note 16)	341.8
Benefits due and payable (Note 17)	160.8
Insurance and guarantee program liabilities (Note 18)	166.2
Loan guarantee liabilities (Note 4)	69.4
Liquidity guarantee (Note 11)	91.9
Other liabilities (Note 19)	354.1
Total liabilities	14,123.8
Contingencies (Note 22) and Commitments (Note 23)	`
Net position:	`
Earmarked funds (Note 24)	752.7
Non-earmarked funds	(12,208.6)
Total net position	(11,455.9)
Total liabilities and net position	2,667.9

But the news gets much worse. It is important to understand Uncle Sam does not have "his" financial statement prepared according to generally accepted accounting principles (GAAP). Most notably, if you go to page 158 of the U.S. Government's 2009 audited financial statement (Table 6), you will see that the net present value of future Social Security and Medicare costs is $107 trillion. Under GAAP accounting, it could be argued that such liabilities would be included in the U.S. Government's balance sheet as accrued liabilities. One could confidently assert, therefore, that Uncle Sam's liabilities exceed assets by over $118 trillion. How the rating agencies continue to rate the United States as a AAA risk completely escapes me. Uncle Sam's financial condition is a train wreck. Without the Federal Reserve's printing press, this confidence game couldn't keep moving forward.

For up-to-date information, with respect to the debt and liabilities the U.S. is racking up at warp speed, I suggest visiting U.S. Debt Clock.org. As of October 15, 2010, the national debt was approaching $13.6 trillion and unfunded liabilities were approaching $111 trillion. One would suppose even Alexander Hamilton would be alarmed at such surreal figures. Ah, but the bond market is forecasting tranquility and absolute safety for the next 30 years.

This is exactly why I like the idea of being short U.S. Treasury bonds. Wall Street analysts, for the most part, will not sound the alarm indicating a bond bubble has emerged. After witnessing the subprime-mortgage collapse and then the ensuing bailout of Wall Street, I have concluded Wall Street is a criminal enterprise designed to separate you from your money. So don't expect any help from these crooks.

As for the rating agencies, such as Fitch, Moody's, and Standard & Poor's, they won't sound the alarm simply due to the fact that they are incompetent. After Enron, MBIA, and the entire subprime mortgage-backed securities disaster, who takes the rating agencies seriously anymore? So while institutions and individuals flee to the alleged safety of long-term U.S. Treasuries, AAA rating and all, the "shorts" properly view Uncle Sam as a subprime borrower; and have detected an opportunity to profit when the Treasury-bond bubble bursts.

As a quick tangent, I highly recommend Christine Richard's book covering the downfall of MBIA. It is titled Confidence Game: How a Hedge Fund Manager Called Wall Street's Bluff. This book masterfully details how a hedge fund manager skillfully dissected MBIA's business model and financial condition; and then openly questioned its AAA rating via a critical research report. The backlash, against this hedge fund manager, was vicious. In the end, he was vindicated when MBIA was stripped of its AAA rating and imploded. The reward for his lonely battle, against Wall Street and the rating agencies, was over a billion dollars in profits for his investors via astutely purchasing credit-default swaps and shorting MBIA's common stock.

Aside from the above-mentioned inverse bond fund, there are other vehicles available to short U.S. Treasury bonds. There are exchange-traded funds (ETFs) that appreciate as bond prices fall (examples linked here and here). There is also a mutual fund "that corresponds to one and one-quarter times (125%) the inverse (opposite) of the daily price movement of the most recently issued 30-year U.S. Treasury bond." To be sure, there are other vehicles for shorting Treasury bonds; but the purpose of this essay is to provide an idea allowing one to profit when the Treasury-bond bubble bursts — further research and risk assessment are up to you.

Without a doubt, I do see U.S. Treasury bonds as the next big short. Uncle Sam, after all, has a subprime financial condition yet is rated AAA. Keep in mind the hedge fund managers, who profited from the subprime-mortgage meltdown (as chronicled in The Big Short), waited several years for their positions to pay off; thus patience is a virtue when holding a short position in U.S. Treasury bonds. Even if interest rates rise and bond prices drop like a stone, the U.S. could ban the short-selling of Treasury bonds. Political risk, therefore, must be considered when taking a short position in T-bonds. Consequently, shorting T-bonds is not a risk-free proposition. This aside, I savor the idea of making money by shorting the long-term debt of the retarded, clumsy "debtaholic" known as Uncle Sam.

Eric Englund [send him mail], who has an MBA from Boise State University, lives in the state of Oregon. He is the publisher of The Hyperinflation Survival Guide by Dr. Gerald Swanson. He is also a member of The National Society, Sons of the American Revolution. You are invited to visit his website.

The Catholic Church’s Secret Gay Cabal

He said, "Religion is not necessarily bad. A lot of people seem to need religion, with its mysteries and rituals — so they will have religion. But the major religions of today have to be changed because they are not compatible with the changes to come. The old religions will have to go, especially Christianity. Once the Roman Catholic Church is brought down, the rest of Christianity will follow easily. Then a new religion can be accepted for use all over the world. It will incorporate something from all of the old ones to make it more easy for people to accept and feel at home. Most people won't be too concerned with religion. They will realise that they don't need it." The Bible will be changed. It will be rewritten to fit the new religion. Gradually, key words will be replaced with new words having various shades of meaning. Then the meaning attached to the new word can be close to the old word — and as time goes on, other shades of meaning of that word can be emphasised, and then gradually that word replaced with another word. I don't know if I'm making that clear, but the idea is that everything in Scripture need not be rewritten, just key words replaced by other words. The variability in meaning attached to any word can be used as a tool to change the entire meaning of Scripture and, therefore, make it acceptable to this new religion. Most people won't know the difference; and this was another one of the times where he said, "The few who do notice the difference won't be enough to matter." - Dr. Lawrence Dunegan, The New Order of the Barbarians: Changing the Bible Through Revisions of Key Words (the Churches Will Help Us), March 1988

The Irish report finished me. Because it wasn't just about sexual abuse; it was about the physical and emotional abuse people with power in the Church thought they could get away with. And if you think about it, there's no way it will ever end. The structure of the religion, where the priestly class gets to talk directly to God and therefore always has some power over you, is the source of all corruption. In many cases, the corruption played out in sexual terms, in other cases in monetary terms, and in yet others both. Of course, there are good clergy -- many people do manage to resist the temptation to skim the funds, diddle the kids, etc. But many fewer manage to avoid lording it over the people in the pews -- always trying to preserve the satrapy. You can't hand people power over another human's very soul and then expect them not to abuse it. The religion is based on a flawed principal, and as a result I can't go back, and I won't support them with my dollars, even though I know some of that gift is going to causes I support. - Wannabeer@theballgirl

The Catholic Church’s Secret Gay Cabal

By Brandon K. Thorp, Gawker.com
July 28, 2011

John C. Favalora is a sallow old man who looks like the corpse of Dom DeLuise. He likes attractive young men to sit on his lap and allegedly treats them to trips in the Florida Keys. He was, until recently, part owner of a company that makes "all natural" boner-inducing beverages. He's also the Archbishop Emeritus of Miami.

Favalora, who was the most powerful Catholic official in Southern Florida from 1994 until last year, stands accused of cultivating what one group of pissed-off Catholics describes as a corrupt "homosexual superculture" in the 195 churches, schools, missions, seminaries, and universities that constitute the Miami Archdiocese.

If their allegations are to be believed, for sixteen years Favalora ran his organization like the don of a lavender mob, rewarding his favorite homosexual sons and forgiving their many indiscretions—rampant sex, hedonism, embezzlement, alcoholism, and the railroading of chaste priests among them—while punishing those with the temerity to complain. Wanton hedonistic gay sex is of course unobjectionable—even encouraged!—among those not in thrall to the idea that God hates your penis. But for the 500-or-so priests and deacons charged by The Holy Father Pope Benedict XVI with ensuring the spiritual integrity of 1.3 million of God's children in Southern Florida, it's…unorthodox.

John Favalora, the Archbishop Emeritus of Miami. (Photo via AP)

Favalora's accusers are loosely organized under the name "Christifidelis," and in 2005 they undertook an extensive investigation of priestly misbehavior in the Archdiocese. They now believe their findings resulted in Archbishop Favalora's sacking last year, and his replacement by a manly, conservative workaholic named Thomas Wenski. The leader of Christifidelis, an attorney named Sharon Bourassa, declined to comment for this story. But it hardly matters.

Christifidelis's exertions on behalf of Mother Church are recorded in an enormous, binder-bound document entitled "Miami Vice: A Preliminary Report on the Financial, Spiritual, and Sexual Improprieties of the Clergy of the Miami Archdiocese." Today, for the first time, Gawker is releasing portions of it to the public.

A Kind of Gay Hogwarts With Palm Trees

Here are just some of the un-Catholic behaviors that "Miami Vice" accuses Favalora of engaging in: He partially owned a company that manufactured Yohimbe, an aphrodisiac beverage marketed to horny club-kids with the promise of "the hands-down best sex of your life." He allegedly took frequent trips to fabulous Key West with his gay associates. He was over-familiar toward his seminarians. (One ex-employee of the diocese recalls him telling a young seminarian at a gathering to "Come to papa and sit on my lap.") Favalora's second- and third-in-command, Monsignor William Hennessey and Monsignor Michael Souckar, are both accused by Christefidelis of being active homosexuals—and if they are, that counts among the least of their difficulties with Catholic orthodoxy.

In fact, the Archdiocese was a hotbed of sodomy long before Favalora set foot in Florida. Two unrelated sources, both priests, speak of a flamboyantly gay bishop in Arecibo, Puerto Rico, named Miguel Rodriguez Rodriguez, who was known to his pupils as "Lili." These sources claim that during the 1970s and 80's, Lili treated Arecibo like his own personal harem, urging cute young men into the priesthood and plying them with gifts and money in exchange for sexual favors. Rome allegedly interceded in 1990 and banished Lili to a secluded monastery, where he remained until his death 20 years later. Several of Lili's erstwhile pupils landed in Miami in the 80's and 90's. Naturally, they were disinclined to take their celibacy oaths too seriously.

Priests speak, too, about the culture of "sex-driven favoritism" at St. John Vianney College Seminary—a kind of gay Hogwarts with palm trees, located out in the flat suburban wastes of southwest Dade County. Seminaries are traditionally gay places—Papist wits refer to Notre Dame seminary as "Notre Flame," Theological College as "Theological Closet," Mundelein as "Pink Palace," and so on. But St. John Vianney was special. One seminarian who dropped out in disgust in the 1980s recalls a miserable year being bullied by gay faculty, and the rector, Robert Lynch, fawning over his favorite seminarian: an attractive upper-classman named Steven O'Hala. The dropout also recalls Lynch installing a camera in the seminary's weight room to capture images of pumped, sweaty seminarians. (He is now a minister in a liberal Christian denomination, and says he has no beef with gay people.)

"He grabbed my crotch. Then he apologized, and we became friends."

A similar story is told by Peter P. Fuchs, an ex-seminarian who was at St. John Vianney during the last two years of Lynch's tenure.

"Steve O'Hala was definitely his boy. He was very buff—[Lynch] used to take pictures of him in the weight room." Asked whether Lynch actually installed a camera there, Fuchs laughs. "No. I think that would have been a little overt."

Robert Lynch departed St. John Vianney in the mid-80's. Twenty years later, as the bishop of the St. Petersburg diocese on Florida's west coast, he was accused of sexually harassing Bill Urbanski, the diocese's spokesman and the father of Lynch's godson. Funnily enough, one of Urbanski's more mild complaints was that Lynch liked to photograph him with his shirt off. The diocese settled out of court for $100,000.

Lynch's replacement at St. John Vianney was a priest named Bernard Kirlin, whom a former pupil describes as an openly gay alcoholic. In 1983, Kirlin began an intense relationship with Peter P. Fuchs, then a young seminarian.

"I probably entered [the seminary] partially because I was attracted to the idea of being in a gay environment," says Fuchs, an erudite gay man who now lives with his husband in Washington, D.C. "But I was also very interested in theology, in the big questions."

Fuchs was in his third year at St. John Vianney when Kirlin arrived. He was "urbane" and "brilliant," Fuchs says.

"Of course his attention flattered me."

Kirlin gravitated to Fuchs immediately, and invited him to dinner a few weeks into the academic year along with a few other seminarians.

"I think he probably just invited the boys he thought were hot," says Fuchs.

 The two men hit it off, and afterward Kirlin invited Fuchs back to the faculty building, where the pair sat and talked in the lounge. "He came on to me," Fuchs says. "Very, very sloppily. He grabbed my crotch. Then he apologized, and we became friends."

A Sick Culture

Kirlin and Fuchs were together "all the time" that year, relaxing, talking, and especially eating.

"We ate out almost every night," says Fuchs. "Nice restaurants. Remember Charade, in Coral Gables? That was a really, really expensive restaurant."

Eventually it occurred to Fuchs to ask where the money for these excursions came from.

"[Kirlin] told me, 'I work really hard, and they hardly pay me anything. So I take money out of the slush fund.'"

Fuchs says he loved Bernie Kirlin for his mind. He was "a profound mind, a deep mind, and incredibly fun and funny." Bernie Kirlin seems to have loved Fuchs in a very different way, with the kind of keening, desperate, altogether embarrassing love that stunted sexual beings occasionally develop for objects of unrequited romantic feeling. During the pair's trip to Rome, Fuchs says Bernie Kirlin would drunkenly enter his room in the small hours of the morning, wake him, and profess his undying devotion.

"It was obnoxious. We fought a lot on that trip," says Fuchs. "I can't even remember what about. But the relationship was, at that time, becoming a little cloying."

In an effort to save it, Fuchs says he decided to sleep with Kirlin, just once.

"I can't believe I was so stupid," he says. "I guess I thought, you know, if I give him what he wants this one time, maybe he'll be satisfied. What did I know? I was nineteen."

It didn't work. Fuchs says that in the weeks after their one night stand, Kirlin's ardor intensified.

After graduating from St. John Vianney, Fuchs was slated to continue his studies at St. Vincent de Paul in Boynton Beach, Fla. But this was too close to Miami, says Fuchs; an Archdiocesan official who had grown alarmed by Kirlin's unhealthy fixation on Fuchs intervened. Fuchs was sent instead to Washington, D.C., where he met his future husband the following year. "

And I got out," he says. "I'm immensely glad. It's a sick culture. The worst of religion and the worst of malformed human sexuality, jammed together in one place. The people who make it through to the priesthood have had to sublimate so much of themselves, have ignored so much. And then they're supposed to minister to people? Please."

Kirlin continued ministering to people, even after he was fired from the seminary.

"I'll never forget it," says a former pupil. "They found [Kirlin] wasted in the bed of a seminarian. They dragged him out by his feet and his hands—dragged him all the way to the priest's quarters. He was removed over that Christmas break."

Kirlin went to rehab. After stints in the Florida Keys and a Haitian neighborhood in Miami, Favalora rewarded him a beautiful parish in Coral Gables; a lush, moneyed municipality two miles south of downtown Miami.

Father Morales' Live-in Boyfriend

Christifidelis formed in 2005 after the sacking of Father Andrew Dowgiert from All Saints Church, in Sunrise, FL, where Dowgiert served as an associate pastor. Officially, he was sacked because of his bad attitude and fondness for alcohol. Not so, says Christifidelis.

Dowgiert was a Polish priest who spent much of the 90's ministering in Zimbabwe, where he contracted malaria. He was assigned to the Archdiocese of Miami in 1999, and became an associate pastor at St. Justin Martyr, in Key Largo, under Father Edward Olszewski. Shortly after Dowgiert's arrival, Olszewski was charged with having raped a boy decades earlier in Michigan. (Olszewski was convicted, and sentenced to four years' probation.) With Olszewski indisposed, Dowgiert took leadership of St. Justin Martyr for three years until a permanent pastor was installed. Dowgiert then moved to Good Shepherd parish in Miami, where he served as associate pastor under Father Michael Greer. Later, in a lawsuit Dowgiert filed against the Archdiocese, he alleged that Greer tried to seduce him.

Dowgiert served at Good Shepherd for a year. When Favalora announced that Dowgiert was to move again, Good Shepherd's parishioners petitioned the Archdiocese to reconsider. According to the lawsuit, "the parishioners complained to Monsignor Michael Souckar … that Father Greer was not available to them and that Father [Dowgiert] was a stable priest." The transfer proceeded anyway, and Dowgiert was assigned to serve under Father Anibal Morales at All Saints' Church.

Perhaps you can imagine Dowgiert's state of mind as he undertook his new assignment. He had, in the last decade, witnessed soul-crushing poverty in Zimbabwean villages, contended with a life-threatening illness, and been repeatedly forced to consider the implications of the Mother Church's inability to pair him with a celibate priest, or even a non-celibate priest who got his rocks off in ways that didn't involve coercive sodomy. And there he was, walking into Morales's All Saints rectory, and already he'd heard the rumors.

"Morales has a light touch with the parish funds," and "Morales has a boyfriend."

Father Anibal Morales (Right, photo via Archdiocese of Miami)

Morales may or may not have had a light touch with parish funds—if he did, he's hardly unusual—but he was almost certainly a homosexual. Morales first attended seminary in Puerto Rico, where, incidentally, he is alleged to have been the pupil of the aforementioned Bishop Miguel "Lili" Rodriguez Rodriguez. Despite his august patronage, he was allegedly expelled for "sexual misconduct" with fellow students. He re-enrolled at St. John Vianney Seminary College in Miami, and was ejected from there, too. According to Dowgiert's lawsuit, Favalora interceded on Morales's behalf, and placed him under the tutelage of Father Gary Wiseman. (Allegedly, Wiseman himself was subsequently exiled to Mandeville, Jamaica, after accusations of sexual misconduct.) Morales received holy orders shortly thereafter.

Between his ordination and star-crossed meeting with Dowgiert, Morales scooted from church to church, pissing off parishioners wherever he went. According to Dowgiert's lawsuit, Morales's tenure at St. Francis de Sales was marked by rumors of missing parish funds. At St. John, Morales earned his parishioners' wrath by parading his boyfriend in front of a youth group. (This resulted in a formal letter of complaint to the Archdiocese.) By the time Dowgiert arrived at All Saints, Morales's reputation was tanking there, too.

Ejection from the Rectory

Upon Dowgiert's arrival, Morales departed for a six-week vacation with his alleged live-in boyfriend, Carlos Insignares, leaving the parish in Dowgiert's care. Dowgiert was soon approached by a deacon who expressed concern about Morales's handling of church money. As Dowgiert was responsible for signing church checks during Morales's absence, he began carefully questioning Morales's secretary about the checks' purposes. According to the lawsuit, the secretary was greatly discomfited, and interrupted Morales's vacation to tell him about Dowgiert's snooping. And so Dowgiert and Morales's relationship was strained before it had rightly begun.

Among the records assembled in "Miami Vice" is this mortgage document showing that Father Anibal Morales co-owns a condo with his alleged boyfriend, Carlos Insignares.

Not long after, Dowgiert claims he received a visit from Monsignor William Hennessey, Archbishop Favalora's hatchet man, who asked that Dowgiert cease spending his off-days in the church rectory. This was an unusual request, as Dowgiert lived in the rectory. Dowgiert protested; he had nowhere else to go. Hennessey told him to get a hotel room. According to the lawsuit, "[Dowgiert] understood this to mean that Morales wanted to be alone with his homosexual lover."

Dowgiert's relationship with Morales suffered after his ejection from the rectory, and allegedly ceased to exist after Morales's boyfriend came to the church to conduct a "training exercise" and insulted Dowgiert in front of other parish employees. In 2004, Morales sent a letter to Favalora accusing Dowgiert of alcoholism, cruelty, and crudity; his letter was substantiated by several accompanying notes from parish staff, all of whom reported Dowgiert's strange words from his first week at All Saints as evidence of his bitter, un-Catholic outlook:

"Don't remind me of my ordination."

Hennessey summoned Dowgiert to discuss the charges, and informed Dowgiert he was to be sent away for treatment. According to the lawsuit, Dowgiert asked to speak to a lawyer, at which point Hennessey verbally terminated Dowgiert's employment.

Hennessey (inset) and Favalora. (Photos via Getty, Miami Archdiocese)

Andrew Dowgiert was, most claim, a good priest; a priest who had never been in trouble, who saved St. Justin Martyr when its pastor was nabbed for boy-rape. A great many of All Saints most devout senior parishioners liked and admired him. They wondered: Why was the Archdiocese defending a non-celibate homosexual with a history of unpriestly behavior, and casting aside a devout, heroic priest who'd single-handedly rescued one of its parishes?

First they wondered privately. Then they wondered aloud. When a lay minister at All Saints named Gloria Luca was fired for wondering too loudly, they sought answers. Christifidelis was born.

Miami Vice

Sharon Bourassa, Christifidelis' founder, is an attorney who works entirely pro-bono, providing lawyerly aid to the poor. She represented Dowgiert in his lawsuit. The suit was unsuccessful (the judge decided the Catholic church has the right to be as skeazy as it wants), but yielded interesting things.

During a pre-trial investigation, for example, it emerged that Anibal Morales and his alleged boyfriend, Carlos Insignares, bought a house together on SW 13th Street, in Miami, where they cohabitated on Morales's days off; that Morales had granted Insignares power of attorney; that Insignares made extensive use of a gay hookup site called Bear411; and that Insignares was (and presumably still is) uncircumsized.

This photodocumentary evidence, along with filings from Dowgiert's lawsuit, make up a large portion of the document called "Miami Vice," the introduction to which reads, in part:

In accordance with the rights and duties guaranteed them by the Catholic tradition, the faithful of the Archdiocese of Miami wish to make known to their pastors at Rome the spiritual condition which they find themselves in in the aforementioned Archdiocese. To the point, it has come to their attention that there exists among the clergy of the Archdiocese a 'gay' superculture which fosters active homosexual activity, the misspending and misdirecting of parish funds, and the persecution of those (clergy and laity) who question this type of activity...

What follows are hundreds of pages of documentation divided into nine chapters and four appendices, consisting mostly of anonymous testimony accusing various diocesan priests of wanton promiscuity and financial misdeeds over the course of Favalora's reign. These testimonies were compiled with the help of concerned Floridian Catholics, priests and laity alike, with a great deal to lose if their involvement with Christifidelis became public. Which is why the accusations are generally accompanied by statements like this one:

"The primary source for this information is the above-mentioned priest-brother, whose name and contact information will be made available upon request."

That is, "upon request" from a Catholic official of the appropriate rank. The intended audience for "Miami Vice" was never the press. It was the Vatican.

"We're defending the Church," says Eric Giunta, an ex-seminarian and contributor to "Miami Vice." "It's essential to remember—the last thing we wanted was to hurt her."

Christifidelis was initially hopeful. In 2006, Bourassa received a visit from a Vatican official she cannot name. (She told Giunta the visitor was a Cardinal, but that's all.) The visitor listened sympathetically, and promised to investigate. Bourassa heard no more. Giunta says he convinced Bourassa to unleash "Miami Vice" upon the press at the end of 2008, when, at the far extremity of pious desperation, he decided only a public scandal might spur the Church to action. Neither Giunta nor Bourassa had any way of knowing that even as they hounded reporters, Favalora was packing his bags. When Favalora announced his retirement, they realized their mistake. After February, 2010, the world's journalists would hear no more from Christifidelis. They weren't about to make Wenski's life any harder by siccing some gutter-brained reporter on the Archdiocese at the most fragile stage of its recovery. Which is why, of all the members of Christifidelis, only Eric Giunta is now willing to go on record, and only reluctantly.

Thomas Wenski, Miami's current Archbishop. (Photo via AP)

Why? "Because Wenski's not moving fast enough," he says. "He's walking a fine line." Giunta suggests that Wenski, though "a very good Bishop" who probably "wants to do the right thing," is hemmed in by political considerations.

"If you walk into the Archdiocese and fire everybody," he says, "there's going to be a scandal." Giunta is willing to talk, he says, because scandal might "allow [Wenski] more freedom to act."

Though it's easy to imagine Giunta wants the Archdiocese to squirm for more personal reasons, too.

"They're still there."

The bulk of Eric Giunta's contribution to "Miami Vice" takes the form of a letter addressed to "His Eminence Zenon Cardinal Grocholewski, Prefect, Congregation for Catholic Education and Seminaries" in Vatican City. When he wrote it, Giunta was a 22-year-old at a tragic impasse.

He had embraced conservative Catholicism in his teens, and in 2004 felt a calling to the priesthood. Giunta applied to Saint John Vianney at the beginning of 2005. In March, he began the standard battery of interviews to which prospective seminarians are subjected.

Giunta should have aced the interviews. At the time, he attended mass up to three times a week. His bedtime reading consisted of Thomas Aquinas, Thomas More, the aging then-Cardinal Ratzinger, and Augustine. You'd think such enthusiasms would excite the headhunters of a religion facing a demographic crisis, but no. One of his interviewers, Father Juan Sosa, spent his interview chatting to Giunta about Broadway musicals and the Oscar-night parties in his rectory. Another interviewer, Father Thomas O'Dwyer, wanted to talk about sodomy.

He asked Giunta if he would feel comfortable sharing a bedroom with a homosexual seminarian. Giunta allowed that he might not feel comfortable, but that he would cope. "[O'Dwyer] pressed this issue," says Giunta, "and I remember my exact words:

'In this as in all things, I submit to the prudential judgment of my superiors, insofar as they act in accord with the law and teaching of the Church.'"

Asked how he'd feel sharing a rectory with a gay pastor, Giunta says he repeated that answer verbatim.

"I told him the truth. I said: 'Father, I've known people who attended St. John Vienney, and I've heard rumors that until very recently there were certain behaviors there that might not be conducive to the living out of the evangelical counsels.'

Father O'Dwyer said: 'They're still there.'"

He told O'Dwyer that he wasn't worried. The new Pope would soon initiate an "apostolic visitation" (that's when the Vatican sends out a heavy to make sure the global Church is behaving), and Giunta was confident any egregious lapses of orthodoxy would be addressed.

"And then [O'Dwyer] chuckled," says Giunta, "and said something like, 'Don't get your hopes up.'

And then he said: 'Eric my boy, if the Holy Father were to get rid of every gay priest, this Archdiocese could run—' and then he paused, and said, 'ten parishes.'"

There are 118 parishes in the Archdiocese of Miami.

Eric Giunta never made it to to the rest of his interviews. In April, Giunta was rejected via email. A follow-up letter explained he'd been disqualified by a faulty "understanding of priestly ministry and Church life in general."

In his letter, Giunta wrote:

I do not know with absolute certainty that my rejection by the Miami Archdiocese was motivated by malice. Out of charity, I am giving all parties the benefit of the doubt. However, given what was revealed to me during the process about the prevalence of homosexuality in the Archdiocese of Miami …. along with the ambiguous reasons for my rejection, I thought I'd make my experience known to you and to those others in the hierarchy under whose jurisdiction these ecclesiastical institutions fall.

Not long after his rejection from St. John Vianney, a mutual acquaintance introduced Eric Giunta to Sharon Bourassa.

The Archdiocese, In Brief

When told about Giunta's interview with O'Dwyer, most of the sources consulted for this story were skeptical, suspecting either hyperbole on O'Dwyer's part or total fabrication on Giunta's.

"I have a hard time believing O'Dwyer would say something like that," says Peter Fuchs, who was at St. John Vianney with O'Dwyer. "These things aren't discussed in the open. In a formal interview? For someone to say that? No way."

But Fuchs and almost everyone else agrees that the information allegedly revealed by O'Dwyer is basically sound.

"You certainly couldn't run the Archdiocese without gay clergy," says a former diocesan priest. "Not the Archdiocese of Miami or any other one."

How gay is the Archdiocese of Miami? And, in particular, how gay was it under Archbishop Favalora? "Miami Vice" goes into great detail on the subject. It would probably be wrong to name names without Sharon Bourassa's sources around to offer corroboration, but even an overview shorn of identifying information paints a vivid picture.

As of 2005:

• A priest who's been previously mentioned in this story was known to plan regular "sleepovers" with seminarians at his rectory in southwest Miami, and owned a "luxury" property.
• A homosexual priest in Coral Gables owned "luxury" property and regularly used illicit drugs.
• A homosexual priest who served as principal at one of the Archdiocese's high schools poached sexual partners from among the seminarians at St. John Vianney.
• A homosexual priest in far, far south Miami kept attractive young men living in his rectory.
• A homosexual priest in the town of Miramar was co-habitating with his lover, who's also a parishioner.
• A homosexual priest in Miami had a lover who was also a priest in the Florida Keys. They co-owned a condominium at a Yacht Club.
• A member of the Archdiocesan Tribunal owned a condominium on ritzy Bayshore Drive, in Miami, with his male lover.
• An Archdiocesan official, previously mentioned in this article, sought out "young boys from third-world countries, from unprivileged backgrounds, and recruited them for the Archdiocese's seminaries. These men [were] groomed to engage in sexual relationships with the older homosexual priests of the Archdiocese." Until 1998, this official owned a home with a male lover in northern Miami.
• Two homosexual priests, each with his own Miami parish, co-habitated in Miami Shores.
• Two homosexual priests, each with his own parish, were lovers; one liked to go shopping "with the girls" on Lincoln Road for feminine cosmetics; the other used to date one of the Archdiocese's male IT personnel.
• A homosexual priest in Sunny Isles liked to jog nude on the gay-dominated, clothing-optional beach at nearby Haulover Park.
• A monsignor liked to flash his willy at young men.
• A monsignor slept with his female (!) parishioners.
• A priest got busted attempting to buy sex from an undercover male cop.
• A homosexual priest pissed off parishioners by using a banana to demonstrate proper condom usage to young children, contrary to the birth-control method prescribed by the Church (abstinence).
• More recently, an associate pastor had received full pastorship at a church in the Florida Keys after being caught en flagrante delecto with his male lover—while the person who caught him, a Philippino priest, was booted from the Archdiocese.

And these are just the priests about whom something unusual has been said. It excludes the many who were merely non-celibate homosexuals, or who have been accused only of embezzling money. And it excludes the 33 Miami priests (and one nun) accused of criminal sexual abuse. (Of course, there is some overlap.)

It's unlikely that all of these allegations are true, and of the ones that are, it's unlikely that all are symptomatic of corruption or moral depravity. But some must be. Perhaps the most difficult allegations to explain away are those which have attached themselves to two particular individuals, whose names were repeated again and again in interviews and in the pages of "Miami Vice": Monsignor William Hennessey and the erstwhile mentor of Peter P. Fuchs, Father Bernie Kirlin.

Monsignor Hennesey's Bondage Gear

"He's a sweet man, very kind," says a diocesan priest of Bill Hennessey, which is what just about everyone says of the man.

Nicest guy in the diocese, and maybe the most corrupt.

A passage from an interview transcript included in "Miami Vice" in which an Archdiocese worker claims that Monsignor William Hennessey kept a photo of a male security guard employed by the Archdiocese "dressed like he was a stripper club."

Bill Hennessey spent much of the 70's and 80's as the principal of Monsignor Pace Senior High School, in Miami Gardens, where one of his employees was a young Bill O'Reilly—the shouty Fox News talking head was a history teacher there before he got his start. Hennessey allegedly stole a great deal of money from Pace in a variety of canny ways—for instance, by siphoning money from a trust fund set up for a quadriplegic student. (The student eventually brought charges against Hennessey, some of which stuck.)

When Favalora arrived in the Archdiocese, "the finances were a mess" at Pace High, according to the former diocesan priest, and Hennessey was quietly removed from his position and replaced with his good friend Dr. Richard Perhla. Hennessey was installed as Favalora's "Vicar General"—a kind of Archdiocesan enforcer, who wields the Archbishop's power and acts in his stead.

Meanwhile, Hennessey lived in a condominium in Quayside Towers, in Miami Beach, with a man who was almost certainly his lover. (They had mutual rights of survivorship.) He maintained a friendship with Perhla—himself a gay man with a live-in-lover—and remained on the high school's board of directors. He was joined there by another friend, a physician named Dr. Jerome Waters, who handled physical examinations for Pace students trying out for sports teams. Waters was gay too. In the mid-90's, one of his young lovers apparently shot one of his ex-lovers to death on his lawn.

For years, two rumors about Bill Hennessey circulated endlessly through the Archdiocese. The first was of his passion for bondage gear. The other involved his funky financial relationship with the local high schools, and in particular with the brand-new Archbishop McCarthy High, of which his close friend Dr. Richard Perhla was the first-ever principle.

"There was some kind of stink there, with Hennessey acting as a 'consultant,'" says a diocesan priest. "They'd talk on the phone, Hennessey and Perhla—and remember, these guys are great friends—and then Hennessey would bill Perhla for his time."

Money for nothing.

When Archbishop Wenski assumed control of the Miami Archdiocese, he immediately initiated an audit of the local high schools. The results of the audit have not been published, but they mustn't have been good: Just before the beginning of the recent school year, Perhla was sacked from Archbishop McCarthy High, and was allegedly escorted from the premises by security. Monsignor Hennessey announced his retirement a month later.

A Late-Night Shredding Party

Like Bill Hennessey, Bernie Kirlin's career has been dogged by rumors of financial ill deeds. After he was ejected from a seminarian's bed at St. John Vianney, Kirlin served as a pastor in the Keys, and then in a Miami ghetto. In 1999, Favalora appointed him to lead the congregation at St. Augustine, in Coral Gables, where he replaced Father Terrence Hogan, himself a former employee of St. John Vianney and alleged non-celibate homosexual.

Hogan was much beloved of his congregation, not least of all because of his rigid fiscal discipline. Every month in the parish bulletin, Hogan published a list of the church's expenses and a summary of its balance sheet. When he departed St. Augustine, the parish was more than $2 million in the black. Good thing, too: the physical church had fallen into considerable disrepair.

"We did very little to help the church building," says Maria Diaz, a former member of St. Augustine's Pastoral Council. "We never believed in spending money on brick and mortar. We wanted to help people."


Kirlin's first act upon assuming leadership of the parish was to cease publicizing the church's finances. When Kirlin left eleven years later, his replacement was shocked to discover St. Augustine was $1 million in the red.

No one knows for sure how St. Augustine came to this sad impasse, but speculation must take into account a number of awkward facts, including Kirlin's purchase, in 2002, of a condominium on Brickell Avenue, a glittering stretch of road a few hundred yards from Biscayne Bay. The condo cost $307,000. (In 2002, the average American diocesan priest made $30,000 per year.)

Three years later, an employee of Kirlin's accused him of embezzling church moneys, thereby initiating an internal audit—which was supervised, in part, by Kirlin's long-time friend and alleged boyfriend Monsignor Michael Souckar, whom Kirlin had first met on that long-ago night when he treated Souckar, Peter P. Fuchs, and another "hot" St. John Vianney student to dinner. During the audit, Kirlin allegedly threw a late-night paper shredding party in the rectory. Then he fired his accuser, who in turn sued the Archdiocese for violating whistle-blower protection laws. The Archdiocese settled out of court, and the plaintiff was compelled to sign a non-disparagement agreement. She would not comment for this story.

Wenski's Clean-up

Favalora resigned eight months before attaining the age of 75—the age at which Archbishops customarily tender their resignations. A friend of his replacement says she knows why.

"For ages [the Vatican] had been begging [Bishop Thomas] Wenski to come and clean up Favalora's mess, but Wenski wouldn't work with the man. He said 'Favalora's got to go before I come down there.'"

So Favalora went.

The September after Favalora's ouster (if it was indeed an ouster), the Miami Herald ran a brief item detailing some of the changes instituted in the Archdiocese during the first few months of Wenski's reign. Mostly, it was a matter of priest-shuffling; moving clerics from one parish to another.

The priests named in "Miami Vice" were disproportionately well-represented in the Herald's account of the shuffle. Of the 35 priests accused by name in the binder, seven had retired already. Of those remaining, most have been reassigned.

Wenski shuffled personnel at all levels of the diocese. Souckar was sent to Rome to pursue "advanced studies." Morales, the All Saints pastor who clashed with Dowgiert, was demoted to "parochial vicar." So was another priest accused of keeping a boyfriend in the rectory. According to canon law, such demotions are very grave. According to custom, they are very rare.

Dowgiert has disappeared. A background check suggests he may have spent some time in Washington state before dropping off the map. Maybe he's in Poland.

Big questions remain in the Archdiocese. Arguably the worst pedophile priest ever arrested in the United States, Neil Doherty, is a St. John Vianney alum who spent most of his career in Florida. He served as the seminary's vocational director under Robert Lynch. For thirty years, Doherty raped child after child, drugging them with alcohol and Qualudes and sodomizing them until they bled. He was one of Kirlin's closest friends, and enjoyed sleepovers in his condo. How much did Kirlin know? Souckar? Favalora?

The Church isn't talking, but it may be acting. Apart from priest-shuffling, there is a rumor circulating among South Floridian clerics that Archbishop Wenski has hired private investigators to monitor Miami's priests. Christifidelis lays low, hoping it's true; that the Archdiocese's long orgy of sodomy and illicit cash is finished. If not, we'll be hearing from them again.

The Dollar Is Doomed and America Is Dying

The Dollar Is Doomed and America Is Dying

During the debate over the re-charter of the Bank Bill in 1809, Thomas Jefferson said: "I believe that banking institutions are more dangerous to our liberties than standing armies... If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered... The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

We are experiencing an economical crisis — like the one in and after 1929 — which was created by the biggest sharks of the Wall Streets. It seems that no one can or will stop the crisis — as though it is to be allowed to crash the world economy completely — in order to give a larger proportion of our money, as well as more political control of the world, to those behind the crisis. - Anders, The Way to World Government: Enslavement through IMF World Currency and CO2 Tax to the UN, Euro-med, March 31, 2009

The Climate Change Control Bill strongly supported by Obama calls for an international governing regime to monitor and regulate carbon dioxide and ‘carbon footprints’ from discovery, to production, to consumption at a cost of $50 trillion globally and at a cost of $8 trillion for US taxpayers, all to be paid for by a global tax, whose monies will be used to establish a world government body. - Patrick Briley, Brezinski: Obama's Globalist ‘Rasputin’, NewsWithViews.com, September 16, 2008

Death of the American Empire

By Tanya Cariina Hsu, Global Research
October 23, 2008

America is dying. It is self-destructing and bringing the rest of the world down with it.

Often referred to as a sub-prime mortgage collapse, this obfuscates the real reason. By associating tangible useless failed mortgages, at least something 'real' can be blamed for the carnage. The problem is, this is myth. The magnitude of this fiscal collapse happened because it was all based on hot air.

The banking industry renamed insurance betting guarantees as 'credit default swaps' and risky gambling wagers were called 'derivatives.' Financial managers and banking executives were selling the ultimate con to the entire world, akin to the snake-oil salesmen from the 18th century, but this time in suits and ties. And by October 2008 it was a quadrillion-dollar (that's $1,000 trillion) industry that few could understand.



Propped up by false hope, America is now falling like a house of cards.

It all began in the early part of the 20th century. In 1907 J.P. Morgan, a private New York banker, published a rumour that a competing unnamed large bank was about to fail. It was a false charge but customers nonetheless raced to their banks to withdraw their money, in case it was their bank. As they pulled out their funds the banks lost their cash deposits and were forced to call in their loans. People now therefore had to pay back their mortgages to fill the banks with income, going bankrupt in the process. The 1907 panic resulted in a crash that prompted the creation of the Federal Reserve, a private banking cartel with the veneer of an independent government organisation. Effectively, it was a coup by elite bankers in order to control the industry.

When signed into law in 1913, the Federal Reserve would loan and supply the nation's money, but with interest. The more money it was able to print, the more 'income' for itself it generated. By its very nature the Federal Reserve would forever keep producing debt to stay alive. It was able to print America's monetary supply at will, regulating its value. To control valuation however, inflation had to be kept in check.

The Federal Reserve then doubled America's money supply within five years, and in 1920 it called in a mass percentage of loans; over 500 banks collapsed overnight. One year later the Federal Reserve again increased the money supply by 62%, but in 1929 it again called the loans back in, en masse. This time, the crash of 1929 caused over 16,000 banks to fail and an 89% plunge on the stock market. The private and well-protected banks within the Federal Reserve system were able to snap up the failed banks at pennies on the dollar.

The nation fell into the Great Depression, and in April 1933 President Roosevelt issued an executive order that confiscated all gold bullion from the public. Those who refused to turn in their gold would be imprisoned for ten years, and by the end of the year the gold standard was abolished. What had been redeemable for gold became paper 'legal tender,' and gold could no longer be exchanged for cash as it had once been.

Later, in 1971, President Nixon removed the dollar from the gold standard altogether, therefore no longer trading at the internationally fixed price of $35. The US dollar was now worth whatever the US decided it was worth because it was 'as good as gold.' It had no standard of measure and became the universal currency.

Treasury bills (short-term notes) and bonds (long-term notes) replaced gold as value - promissory notes of the US government and paid for by the taxpayer. Additionally, because gold was exempt from currency reporting requirements, it could not be traced, unlike the fiduciary (i.e. that based upon trust) monetary systems of the West. That was not in America's best interest.

After the Great Depression private banks remained afraid to make home loans, so Roosevelt created Fannie Mae. A state supported mortgage bank, it provided federal funding to finance home mortgages for affordable housing. In 1968 President Johnson privatised Fannie Mae, and in 1970, Freddie Mac was created to compete with Fannie Mae. Both of them bought mortgages from banks and other lenders, and sold them onto new investors.

The post World War II boom had created an America flush with cash and assets. As a military industrial complex, war exponentially profited the US and, unlike any empire in history, it shot to superpower status. But it failed to remember that, historically, whenever empires rose they fell in direct proportion.

Americans could afford all the modern conveniences, exporting its manufactured goods all over the world. After the Vietnam War, the US went into an economic decline. But people were loath to give up their elevated standard of living despite the loss of jobs, and production was increasingly sent overseas. A sense of delusion and entitlement kept Americans on the treadmill of consumer consumption.

In 1987, the US stock market plunged by 22% in one day because of high-risk futures trading, called derivatives; and in 1989, the Savings & Loan crisis resulted in President George H.W. Bush using $142 billion in taxpayer funds to rescue half of the S&L's. To do so, Freddie Mac was given the task of giving sub-prime (below prime-rate) mortgages to low-income families.

In 2000, the "irrational exuberance" of the dot-com bubble burst and 50% of high-tech firms went bankrupt, wiping $5 trillion from their over-inflated market values. After this crisis, Federal Reserve Chairman Alan Greenspan kept interest rates so low they were less than the rate of inflation. Anyone saving his or her income actually lost money, and the savings rate soon fell into negative territory.

During the 1990s, advertisers went into overdrive, marketing an ever more luxurious lifestyle, all made available with cheap easy credit. Second mortgages became commonplace, and home equity loans were used to pay credit card bills. The more Americans bought, the more they fell into debt. But as long as they had a house, their false sense of security remained: their home was their equity, it would always go up in value, and they could always remortgage at lower rates if needed. The financial industry also believed that housing prices would forever climb, but should they ever fall the central bank would cut interest rates so that prices would jump back up. It was, everyone believed, a win-win situation.

Greenspan's rock-bottom interest rates let anyone afford a home. Minimum wage service workers with aspirations to buy a half million-dollar house were able to secure 100% loans, the mortgage lenders fully aware that they would not be able to keep up the payments.

So many people received these sub-prime loans that the investment houses and lenders came up with a new scheme: bundle these virtually worthless home loans and sell them as solid US investments to unsuspecting countries who would not know the difference. American lives of excess and consumer spending never suffered, and were being propped up by foreign nations none the wiser.

It has always been the case that a bank would lend out more than it actually had, because interest payments generated its income. The more the bank loaned, the more interest it collected even with no money in the vault. It was a lucrative industry of giving away money it never had in the first place. Mortgage banks and investment houses even borrowed money on international money markets to fund these 100% plus sub-prime mortgages, and began lending more than ten times their underlying assets.

After 9/11, George Bush told the nation to spend, and during a time of war, that's what the nation did. It borrowed at unprecedented levels so as to not only pay for its war on terror in the Middle East (calculated to cost $4 trillion), but also pay for tax cuts at the very time it should have increased taxes.

Bush removed the reserve requirements in Fannie Mae and Freddie Mac from 10% to 2.5%. They were free to not only lend even more at bargain basement interest rates, they only needed a fraction of reserves. Soon banks lent thirty times asset value. It was, as one economist put it, an 'orgy of excess'.

It was flagrant overspending during a time of war. At no time in history has a nation gone into conflict without sacrifice, cutbacks, tax increases, and economic conservation.

And there was a growing chance that, just like in 1929, investors would rush to claim their money all at once.

To guarantee these virtually worthless high risk, sub-prime mortgages bundled and sold as solid US investments, the same financial houses that sold them created 'insurance policies' against them, marketed as Credit Default Swaps (CDS). But the government must regulate insurance policies, so by calling them CDS, they remained totally unregulated. Financial institutions were 'hedging their bets' and selling premiums to protect the junk assets. In other words, the asset that should go up in value could also have a side-bet, just in case, that it might go down.

By October 2008, CDS were trading at $62 trillion, more than the stock markets of the whole world combined. These bets had absolutely no value whatsoever and were not investments. They were just financial instruments called derivatives - high stakes gambling, 'nothing from nothing' - or as Warren Buffet referred to them, 'Weapons of Financial Mass Destruction.' The derivatives trade was 'worth' more than one quadrillion dollars, or larger than the economy of the entire world (in September 2008, the global Gross Domestic Product was $60 trillion).

Challenged as being illegal in the 1990s, Greenspan legalised the derivatives practise. Soon hedge funds became an entire industry, betting on the derivatives market and gambling as much as they wanted. It was easy because it was money they did not have in the first place. The industry had all the appearances of banks, but the hedge funds, equity funds, and derivatives brokers had no access to government loans in the event of a default. If the owners defaulted, the hedge funds had no money to pay 'from nothing.' Those who had hedged on an asset going up or down would not be able to collect on the winnings or losses.

The market had become the largest industry in the world, and all the financial giants were cashing in: Bear Stearns, Lehman Brothers, Citigroup, and AIG. But homeowners, long maxed out on their credit, were now beginning to default on their mortgages. Not only were they paying for their house but also all the debt amassed over the years for car, credit card and student loans, medical payments and home equity loans. They had borrowed to pay for groceries and skyrocketing health insurance premiums; to keep up with their bigger houses and cars, they refinanced the debt they had for lower rates that soon ballooned. The average American owed 25% of their annual income to credit card debts alone.

In 2008, housing prices began to slide precipitously downwards and mortgages were suddenly losing value. Manufacturing orders were down 4.5% by September, inventories began to pile up, unemployment was soaring, and average house foreclosures had increased by 121% and up to 200% in California.

The financial giants had to stop trading these mortgage-backed securities, as now their losses would have to be visibly accounted for. Investors began withdrawing their funds. Bear Stearns, heavily specialised in home loan portfolios, was the first to go in March.

Just as they had done in the 20th century, J.P. Morgan, swooped in and picked up Bear Stearns for a pittance. One year prior, Bear Stearns shares traded at $159, but JP Morgan was able to buy in and take over at $2 a share. In September, Washington Mutual collapsed, the largest bank failure in history. J.P. Morgan, again came in and paid $1.9 billion for assets valued at $176 billion. It was a fire sale.

Relatively quietly, over the summer, Freddie Mac and Fannie Mae, the publicly traded companies responsible for 80% of the home mortgage loans, lost almost 90% of their value for the year. Together they were responsible for half the outstanding loan amounts but were now in debt $80 to every $1 in capital reserves.

To guarantee they would stay alive, the Federal Reserve stepped in and took over Freddie Mac and Fannie Mae. On September 7, 2008, they were put into "conservatorship:" known as nationalisation to the rest of the world, but Americans have difficulty with the idea of any government-run industry that required taxpayer increases.

What the government was really doing was handing out an unlimited line of credit. Done by the Federal Reserve and not US Treasury, it was able to bypass Congressional approval. The Treasury Department then auctioned off Treasury bills to raise money for the Federal Reserve's own use, but nonetheless the taxpayer would be funding the rescue.

The bankers had bled tens of billions from the system by hedging and derivative gambling, and triggered the portfolio inter-bank lending freeze, which then seized up and crashed.

The takeover was presented as a government-funded bailout of an arbitrary $700 billion, which does nothing to solve the problem. No economists were asked to present their views to Congress, and the loan only perpetuates the myth that the banking system is not really dead.

In reality, the damage will not be $700 billion but closer to $5 trillion, the value of Freddie Mac and Fannie Mae's mortgages.

It was nothing less than a bailout of the quadrillion dollar derivatives industry which otherwise faced payouts of over a trillion dollars on CDS mortgage-backed securities they had sold. It was necessary, said Treasury Secretary Henry Paulson, to save the country from a "housing correction." But, he added, the $700 billion taxpayer funded takeover would not prevent other banks from collapsing, in turn causing a stock market crash.

In other words Paulson was blackmailing Congress in order to lead a coup by the banking elite under the false guise of necessary legislation to stop the dyke from flooding. It merely shifted wealth from one class to another, as it had done almost a century prior. No sooner were the words were out of Paulson's mouth before other financial institutions began imploding and with them the disintegration of the global financial system - much modelled after the lauded system of American banking.

In September the Federal Reserve, its line of credit assured, then bought the world largest insurance company, AIG, for $85 billion for an 80% stake. AIG was the largest seller of CDS, but now that it was in the position of having to pay out from collateral it did not have, it was teetering on the edge of bankruptcy.

In October the entire country of Iceland went bankrupt, having bought American worthless sub-prime mortgages as investments. European banks began exploding, all wanting to cash in concurrently on their inflated US stocks to pay off the low interest rate debts before rates climbed higher.

The year before the signs had been evident, when the largest US mortgage lender Countrywide fell. Soon after, the largest lender in the UK, Northern Rock, went under - London long having copied Wall Street creative financing. Japan and Korea's auto manufacturing nosedived by 37%, global economies contracting. Pakistan is on the edge of collapse too, with real reserves at $3 billion - enough to only buy a month's supply of food and oil and attempting to stall payments to Saudi Arabia for the 100,000 barrels of oil per day it provides to the country. Under President Musharraf, who left office in the nick of time, Pakistan's currency lost 25% of its value, its inflation running at 25%.

Meanwhile energy costs had soared, with oil reaching a peak of almost $150 per barrel in the summer. The costs were immediately passed on to the already spent homeowner, in rising heating and fuel, transport and manufacturing costs. Yet 30% of the cost of a barrel of oil was based upon Wall Street speculators, climbing to 60% as a speculative fear factor during the summer months.

As soon as the financial crisis hit, suddenly oil prices slid down, slicing oil costs to $61 from a high of $147 in June, and proving that the 60% speculation factor was far more accurate. This sudden decline also revealed OPEC's lack of control over spiralling prices during the past few years, almost squarely laid on the shoulders of Saudi Arabia alone. When OPEC, in September, sought to maintain higher prices by cutting production, it was Saudi Arabia who voted against such a move at the expense of its own revenue.

Europe then decided that no more would it be ruined by the excess of America. 'Olde Europe' may have had enough of being dictated to by the US, who refused to compromise on loans lent to their own broken nations after WWII. On October the 13th, the once divided EU nations unilaterally agreed to an emergency rescue plan totaling $2.3 trillion. It was more than three times greater than the US package for a catastrophe America alone had created.

By mid October, the Dow, NASDAQ and S&P 500 had erased all the gains they made over the previous decade. Greenspan's pyramid scheme of easy money from nothing resulted in a massive overextension of credit, inflated housing prices, and incredible stock valuations, achieved because investors would never withdraw their money all at once. But now it was crashing at break-neck speed and no solution in sight. President Bush said that people ought not to worry at all because "America is the most attractive destination for investors around the globe."

Those who will hurt the most are the very men and women who grew the country after WWII, and saved their pensions for retirement due now. They had built the country during the war production years, making its weapons and arms for global conflict. During the Cold War, the USSR was the ever-present enemy and thus the military industrial complex continued to grow. Only when there is a war does America profit.

Russia will not tolerate a new cold war build-up of ballistic missiles. And the Middle East has seen its historical ally turn into its worst nightmare, be it militarily or economically. No longer will these nations continue to support the dollar as the world's currency.

The world's economy is no longer America's to control, and the US is now indebted to the rest of the world. No more will the US be able to demand its largest Middle Eastern oil supplier open up its banking books so as to be transparent and free from corruption and terrorist connections lest there be consequences - the biggest act of criminal corruption in history has just been perpetrated by the United States.

It was the best con game in town: get paid well for selling vast amounts of risk, fail, and then have governments fix the problem at the expense of the taxpayers who never saw a penny of shared wealth to begin with.

There is no easy solution to this crisis, its effects multiplying like an infectious disease.

Ironically, least affected by the crisis are Islamic banks.

They have largely been immune to the collapse because Islamic banking prohibits the acquisition of wealth via gambling (or alcohol, tobacco, pornography, or stocks in armaments companies), and forbids the buying and selling of a debt as well as usury. Additionally, Shari'ah banking laws forbid investing in any company with debts that exceed thirty percent.

"Islamic banking institutions have not failed per se as they deal in tangible assets and assume the risk," said Dr. Mohammed Ramady, Professor of Economics at King Fahd University of Petroleum & Minerals.

"Although the Islamic banking sector is also part of the global economy, the impact of direct exposure to sub-prime asset investments has been low," he continued. "The liquidity slowdown has especially affected Dubai, with its heavy international borrowing. The most negative effect has been a loss of confidence in the regional stock markets."

Instead, said Dr. Ramady, oil surplus Arab nations are "reconsidering overseas investments in financial assets" and speeding up their own domestic projects.

Eight years ago, in May 2000, Saudi Islamic banker His Highness Dr. Nayef bin Fawaaz ibn Sha'alan publicly gave a series of economic lectures in Gulf states. At the time his research showed that Arab investments in the US, to the tune of $1.5 trillion, were effectively being held hostage, and he recommended they be pulled out and reinvested in the tangibles of the Arab and Islamic markets.

"Not in stocks, however, because the stock market could be manipulated remotely, as we have seen in the last couple of years in the Arab market where trillions of dollars evaporated," he said.

He warned then that it was a certainty that the US economic system was on the verge of collapse because of its cumulative debts, ever-increasing deficit, and the interest on that debt.

"When the debts and deficits come due, they just issue new Treasury bonds to cover the old bonds due, with their interest and the new deficit too."

The cycle cannot be stopped or the debt cancelled because the US would no longer be able to borrow. The consequence of relieving this cycle would be a total collapse of their economic system as opposed to the partial, albeit massive, crash of 2008.

"Islamic banking," said Dr. Al-Sha'alan, "always protects the individuals' wealth while putting a cap on selfishness and greed. It has the best of capitalism - filtering out its negatives - and the best of socialism - filtering out its negatives too."

Both systems inevitably had to fail. Additionally, Europe and Japan did not need to be held accountable and indebted to America anymore for protection against the Soviets.

"The essential difference between the Islamic economic system and the capitalist system," he continued, "is that in Islam wealth belongs to God - the individual being only its manager. It is a means, not a goal. In capitalism, it is the reverse: money belongs to the individual, and is a goal in and of itself. In America especially, money is worshipped like God."

In sum, the crash of the entire global economic system is a result of America's fiscal arrogance based upon one set of rules for itself and another for the rest of the world. Its increased creative financing deluded its people into a false sense of security, and now looks like the failure of capitalism altogether.

The whole exercise in democracy by force against Arab Muslim nations has almost bankrupted the US. The Cold War is over and the US has nothing to offer: no exports, no production, few natural resources, and no service sector economy.

The very markets that resisted US economic policies the most, having curbed foreign direct investments into America, are those who will fare best and come out ahead.

But not before having paid a very high price.