Weekend Economists Lonelyhearts Weekend February 13-15, 2009

[Demeter]

I know, I know. It's Valentine's Day on Saturday, but it's Friday the 13th today. So let those with significant, or even insignificant Others celebrate. The rest of us will talk money.

Some people find that talking money is more stimulating than romance. Yes, if horror, suspense, terror and despair are meat and bread for you, this is the place! It's not that we don't look for good news, it's that there's little to be found. But, we're serving Schadenfreude with dollops of black humor for dessert, so sit down and partake. Life is a banquet, and maybe if we put our heads together we can keep a whole bunch of poor suckers from starving to death. (To which play/film/musical do I refer by that quote? Bonus points for first to correctly identify!)

Post them if you've got them.

[Demeter]

1. As Usual, First the Bank Closures (Four so Far)

From Pale Blue Dot:

Sherman County Bank of Neb. fails, 10th closure in 2009, and #11 Riverside Bank of the Gulf Coast


Source: Marketwatch

SAN FRANCISCO (MarketWatch) -- The Federal Deposit Insurance Corporation and state regulators on Friday shut down Sherman County Bank of Loup City, Neb., the tenth bank failure of 2009 and the 35th since the start of the current credit crisis. All deposit accounts have been transferred to Heritage Bank, Wood River, Neb. and former Sherman County Bank locations will reopen as branches of Heritage Bank on Tuesday. In addition to assuming all of Sherman County Bank's $85.1 million deposits, Heritage Bank agreed to purchase about $21.8 million in assets. The FDIC will retain the remaining assets for later disposition...

Riverside Bank of the Gulf Coast, Cape Coral, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with TIB Bank, Naples, Florida, to assume all of the deposits of Riverside Bank.

Due to the observance of Presidents' Day on Monday, Riverside's nine offices will reopen on Tuesday as branches of TIB Bank. Depositors of Riverside Bank will automatically become depositors of TIB Bank. Deposits will continue to be insured by the FDIC, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage. Customers of both banks should continue to use their existing branches until TIB Bank can fully integrate the deposit records of Riverside Bank.

Over the weekend, depositors of Riverside Bank can access their money by writing checks or using ATM or debit cards. Checks drawn on the bank will continue to be processed. Loan customers should continue to make their payments as usual.

As of December 31, 2008, Riverside Bank had total assets of approximately $539 million and total deposits of $424 million. TIB Bank agreed to pay the FDIC a premium of 1.3 percent.

TIB Bank will not assume $142.6 million in brokered deposits held by Riverside Bank. The FDIC will pay the brokers directly for the amount of their funds. Customers who placed money with brokers should contact them directly for more information about the status of their deposits.

http://www.fdic.gov/news/news/press/2009/pr09021.html

Read more: http://www.marketwatch.com/news/story/Sherman-County-Ba...


http://www.fdic.gov/bank/individual/failed/banklist.html

Failed Bank List

The FDIC is often appointed as receiver for failed banks. This page contains useful information for the customers and vendors of these banks. This includes information on the acquiring bank (if applicable), how your accounts and loans are affected, and how vendors can file claims against the receivership.

This list includes banks which have failed since October 1, 2000.

Just added

Pinnacle Bank of Oregon, Beaverton, OR
Corn Belt Bank and Trust Company, Pittsfield, IL

[Demeter]

16. FDIC shutters four banks in one day; year's total to 13

http://www.marketwatch.com/news/story/fdic-shutters-four-banks-one/story.aspx?guid={C37A3C34-58D1-4801-88CC-8622BDF57B6B}&siteid=yahoomy

By John Letzing, MarketWatch

...Nebraska has not seen a bank failure since 1990, according to the FDIC...Nebraska's Sherman County Bank had roughly $129.8 million in assets as of Feb. 12 and $85.1 million in deposits, the FDIC said.
Wood River, Neb.-based Heritage Bank has agreed to assume all of the failed bank's deposits, and will purchase roughly $21.8 million worth of its assets, the FDIC said.

The FDIC estimated the cost of the failure to its deposit-insurance fund will be $28 million.

Florida's Riverside Bank had roughly $539 million in assets as of Dec. 31 and $424 million in total deposits, the FDIC said.Naples, Fla.-based TIB Bank has agreed to assume the failed bank's deposits, though it will not assume $142.6 million in brokered deposits held by the bank, according to the agency. TIB Bank will purchase roughly $125 million in the failed bank's assets, the FDIC added.

The FDIC estimated the cost to its deposit insurance fund as a result of the failure of Riverside Bank will be $201.5 million.

Illinois-based Corn Belt Bank had roughly $271.8 million in assets as of Dec. 31 and $234.4 million in deposits, the FDIC said. Carlinville, Ill.-based Carlinville National Bank will assume Corn Belt Bank's deposits and will buy roughly $60.7 million worth of its assets, the FDIC said, though it will not assume $92 million in brokered deposits held by the bank. Corn Belt Bank's two offices will reopen Tuesday as branches of the Carlinville National Bank.

The FDIC estimated the cost of Corn Belt Bank's failure to its deposit-insurance fund will be $100 million.

Washington Trust Bank of Spokane, Wash. will assume all of the deposits of Pinnacle Bank. As of Dec. 31, Pinnacle Bank had total assets of approximately $73 million and total deposits of $64 million. In addition to assuming all of the deposits of the failed bank, including those from brokers, Washington Trust Bank agreed to purchase approximately $72 million in assets at a discount of $7.6 million. The FDIC will retain the remaining assets for later disposition. The FDIC and Washington Trust Bank entered into a loss-share transaction. Washington Trust Bank will share in the losses on approximately $66 million in assets covered under the agreement.

The FDIC estimates that the cost to the Deposit Insurance Fund will be $12.1 million.

[Tansy_Gold]

39. "brokered deposits"???

Can someone explain this to me?

"TIB Bank will not assume $142.6 million in brokered deposits held by Riverside Bank. The FDIC will pay the brokers directly for the amount of their funds. Customers who placed money with brokers should contact them directly for more information about the status of their deposits."

Just curious.


As always,


Tansy Gold

[Hugin]

41. Not sure... It has something to do with Certificate of Deposits (CDs).

"Investopedia explains Brokered Deposit
A brokered deposit is sold by a bank to a brokerage, which then divides it into smaller pieces for sale to its customers."

http://www.investopedia.com/terms/b/brokereddeposit.asp


Interesting link on if the FDIC covers these Brokered Deposits: (Looks like they don't.)

http://digitaleconomy.wordpress.com/2008/05/31/does-fdic-cover-brokered-deposits/

[Tansy_Gold]

50. How much you wanna bet. . . . .

. . .. FDIC will cover even the funds they don't cover. . . . .


you can't make this shit up. you just can't.

[Demeter]

58. Here's an Informative Link

http://www.epfc.com/issuing_cd/faqs.html


And another:

http://www.bankrate.com/brm/news/sav/20080715-brokered-deposits-a1.asp

[Demeter]

57. I'm Wondering If it Has Something to Do With CDars

It's a program to take large sums, divide it among CDs in several small banks, so that no one account exceeds the insured size. Our condo is looking into dividing up our newly raised capital funds in this program, laddering the CDs for maturity when the funds are scheduled to be spent.

I shall have to check on that. Pronto!


On edit:

It looks like it does have to do with our scheme to get our capital in liquid, insured CDs. Thanks for raising the question, Tansy! You could have saved our condo association a world of pain there.

[Demeter]

2. Black Hole Alert: Fannie, Freddie Cash Needs May Exceed $200 Billion

http://www.nakedcapitalism.com/2009/02/black-hole-alert-fannie-freddie-cash.html

The Freddie/Fannie conservatorship, which seemed like an epic event at the time, was succeeded by so many crises, Lehman, the September/October meltdowns, AIG, the European bank rescues, that it seems like a distant memory. But the Treasury made a commitment to maintain positive net worth for both the mortgage lenders/guarantors and was remarkably non-specific as to what the damage over time might be (a $100 billion authorization for each from July looked to be more than adequate, or so we ere told). CBO estimates were not helpful, since the Treasury commitment was formally through the end of 2009 (meaning that time frame was all the CBO could opine on) when the backup would clearly be renewed.

Bloomberg gives us an update, and of course, the liability simply through the end of 2009 is much bigger than the officialdom pretended:

Fannie Mae and Freddie Mac, the mortgage-finance companies seized by regulators, may need more than the $200 billion in funding pledged by the U.S. government if the housing market continues to deteriorate, Federal Housing Finance Agency Director James Lockhart said....

“When we sized the amount in September, we obviously looked at stress tests and what was happening in the marketplace,” Lockhart said. “There’s been some significant events since then that weren’t in our forecast.”


Yves here. Ahem, by September, many forecasters were looking for housing prices to revert to historical norms in terms of their relationship to income and rents. That suggested a 30-35% fall from peak to trough. That's before you get into overshoot due to rising unemployment and typical bank tightening of lending standards in downturns. Back to the article:

The government seized control of Fannie Mae and Freddie Mac after their losses threatened to further disrupt the housing market, and pledged to invest as much as $100 billion into each company as needed if the value of their assets drops below the amount they owe on obligations.

Fannie Mae said in a November regulatory filing that “this commitment may not be sufficient to keep us in solvent condition or from being placed into receivership.” Freddie Mac is taking a “hard look” at whether it will need more than $100 billion, Koskinen said last week....

Federal officials are now leaning on the government- sponsored enterprises to help stabilize the housing market. House Financial Services Committee Chairman Barney Frank said last week that the companies will be used “very aggressively” to help reduce record foreclosures.

Lockhart said Fannie Mae and Freddie Mac aren’t expected to take a loss “under any program” that requires their involvement. “We would expect them to be writing business that’s profitable at this point, not a large profit,” he said yesterday. “But we would not expect them to be writing business at a loss under any program.”.


And that has been the recent problem. The GSEs have been and remain under pressure to keep the housing market afloat, when they are already badly impaired and require regular cash transfusions.

[Demeter]

3. Transcript of Conversation between Geithner and Volker

http://brucekrasting.blogspot.com/2009/02/transcript-of-conversation-between.html

I THINK THIS IS SUPPOSED TO BE FUNNY. PERHAPS MY SENSE OF HUMOR IS IMPAIRED...REALITY WILL DO THAT TO YA!


Transcript of phone conversation between Paul Volker (“BIG PAULIE’) and Tim Geithner (“TIMMY”)

BIG PAULIE: Good afternoon Tim. Are you ready for your big day tomorrow?

TIMMY: Well, to be honest I am nervous about this. It is a really big deal. I am not sure that we have a good plan. I am not sure that we have any plan.

BIG PAULIE: Did you outline the plan like I told you?

TIMMY: Yes, Sheila and I did what you told us to do. But I must tell you that neither she nor I agree with this proposal. We want more money to really fix things. We want to follow the Paulson Plan. He got a bazooka. And I want one too.

BIG PAULIE: There is no bazooka for you. There is no money for a bazooka. We are spending all the money on the stimulus plan.

TIMMY: I am also worried about the bond market. This is a really, really big week for Treasury. We have $67 billion of bonds for sale. The market is soft. We broke 3% on the ten year today. I am really worried. This could be a terrible week for me. And it is only my second week. I haven’t slept for days. If the market does not like my bailout plan the stock market could start crashing again. It is so much to worry about.

BIG PAULIE: Timmy, you have to calm down. We need you looking confident. You sound like you have lost before you even start. Do not sweat this stuff. I have it all fixed.

TIMMY: What do you mean fixed? What is fixed?

BIG PAULIE: Well first of all don’t worry about this week’s auction. I have that covered. If need be there will be a stealth bid.

TIMMY: A who bid?

BIG PAULIE: Stealth. Get it? Like secret? Bernanke is going to be bidding. He will be a phantom bidder. He is going to bid for size under the market to make the bid to cover ratio look good. And he is is going to be bidding aggressively on top of that for good-sized chunks. When word gets out he is on the bid the shorts are going to drop dead and run. Heh, heh.

TIMMY: Bernake is going to do that? He is going to be the stealth buyer? When I ran the New York Fed we never did anything like that. That sounds like you are monetizing the debt. That would be bad. How did you get him to do that?

BIG PAULIE: Monetize, smonetize. Do not use that word. Ever. Got that? These are Open Market purchases. That is what we are going to call them. Hold on I gotta do something. (Sounds of a cigar being lit is heard)

BIG PAULIE: About the hearing tomorrow. We are going with the shotgun approach I told you about right?

TIMMY: Yes but I really do not think that we have a big enough package. We can’t fool people with your plan. Your plan takes up maybe $500 billion of problems. That does not get it done. The problem is much bigger and the market knows it. The Sub Prime and Alt A are 1.5 Trillion. There are problems with A paper too. Then we have credit cards and auto loans. And corporate loans too. The market is going to laugh at this. I will look silly.

BIG PAULIE: We are going to have a half dozen sawed off shotguns when we are done. We will have some guarantees, We will have some insurance, we will have auctions to buy some of this stuff, we are going to partner up with some private equity guys and create a humongous leveraged CDO funded by Uncle SAM, the FDIC has deep pockets and of course I own Fannie and Freddie. And the rest of the TARP. So we have some ammo.

And by the way, have you ever been in a room where a couple a 12 gauges go off? I won’t kill anyone., but I will scare them to death. Watch them lawyer’s come. Bang! They are gone. I will keep the lawyers and the shorts at bay.Bang!


TIMMY: But that will not solve the problem. It will only delay it.

BIG PAULIE: Listen kid, I saved the financial system once before. I will do it again. But it has to be done my way. Last time I raised interest rates so high that it killed inflation. This time I am going to keep them near zero to beat back deflation. It is all about controlling the bond market. Puff, Puff, Puff And of course controlling the banks.

TIMMY: I don’t get it. Am I missing something?

BIG PAULIE: We own Fannie and Freddie. That is $2 Trillion in assets. Then we own the banks. They do not know it yet. But we own them and they will do what I tell them to do. So that is another $10 Trillion. The banks are paying 1/4 percent for money. They are earning 5% on their book. You know how much money that is?

TIMMY: Okay, hold on. Okay I got it. That comes to $570 billion a year. Wow! That is a lot of money! How did you do that? Two years of that and maybe the banks just might make it. That is another stealth move. You subsidize the banks without anyone knowing there is a subsidy. 1.2 Trillion over two years plus our measly $500mm. That might do it.

BIG PAULIE: I got Bernake to sign up for it. I told him he had to get short term rates to zero. And keep them there until I say so. And he had to be the stealth buyer at the auctions.

TIMMY: Boy that is asking a lot. You must be a good negotiator.

BIG PAULIE: I made him an offer he couldn't refuse. Either Buy or, Bye Bye.

TIMMY: Ouch! Well I am still worried about the stock markets reaction. You can fool the bond market, but not the stock market.

BIG PAULIE:I have that covered too. We are putting out a feeler along the lines of the Social Security Trust fund buying some common stock. We are going to call it the Buffett plan. Everybody loves this guy. It is a very credible story.

TIMMY: Hold on. I writing this down. This part about Social Security. Is that true? Are we talking about this? Because this is the first I have heard of it. This is big news..

BIG PAULIE: Do not call it news. Call it a rumor of news. That is different. That way if it doesn’t happen we can just say that we discussed it. We just did. Get it? So maybe you can tell that to someone. Get it?

TIMMY: Uh huh. I see. Rumor of news. I like that.

TIMMY: I am thinking. What you said. What you are doing. You’re controlling the bond market, the stock market, the Federal Reserve, the Treasury and Congress and the press. Have I got that right?

BIG PAULIE: That’s why they call me Big Paulie. Gotta go.

CLICK

Heard from BIG PAULIE: Puff, Wimp, Puff

Heard from TIMMY: Oh. Oh, my sphincter. Where is the number of that lady from the Times?

[Demeter]

4. How To Gauge Whether The Stimulus Is Working by Liz Halloran, NPR

http://www.npr.org/templates/story/story.php?storyId=100542251



NPR.org, February 11, 2009 · How and when can taxpayers, who will ultimately foot the hefty bill, measure the success of President Obama's $800 billion-plus stimulus package?

In unequivocal terms, the president has offered his own benchmark of success for his historic legislative gamble, now nearing approval on Capitol Hill.

"My initial measure of success is creating or saving 4 million jobs," Obama said during his prime-time news conference Monday.

"That's bottom line No. 1," he said. "Because if people are working, they've got enough confidence to make purchases, to make investments."

The president has set his standard. But it's not universally accepted. Ask a half-dozen economics experts how to gauge stimulus success and you'll most likely get a half-dozen answers.

Just raising the question of stimulus benchmarks opens the door to a debate as contentious as the one raging on Capitol Hill.

Whose Yardstick Is It, Anyway?

On one side is an emerging GOP argument: FDR's New Deal — designed to help lift the country out of the Great Depression of the 1930s — "did not work" in the long run, as Senate Minority Leader Mitch McConnell said Monday. And so, McConnell argued, it follows that Obama's new New Deal will also fail.

Administration officials have said that during the current crisis, the American people are unlikely to buy McConnell's "revisionist" argument against government intervention.

Brian Reidl of the conservative Heritage Foundation is no fan of the stimulus plan. He believes it will be impossible to distinguish what the legislation may do for the economy from what the economy would have fixed on its own.

"There is no single variable to measure if it works — and for the simple reason that you cannot distinguish what resulted from the stimulus and what would have happened to the economy without a stimulus," Reidl said. "But the goal seems to be creating jobs, so that will be the most relevant figure."

And the easiest to measure.

The Big Measure: Unemployment

Obama has said his stimulus plan would create millions of jobs at a time when the nation's unemployment rate has been on a frightening upward trajectory.

In the last month of 2008, unemployment rose in 98 percent of the nation's metropolitan areas; it climbed above 10 percent in 40 of them, including Detroit, where economic hopes are also pinned on a government bailout of the auto industry.

This year, in January alone, 598,000 jobs were lost.

"The stimulus is supposed to be designed to stabilize employment," said Richard Sylla of New York University's Leonard N. Stern School of Business.

Projected Jolt For The Economy

If Obama signs the stimulus legislation this month and a raft of so-called shovel-ready infrastructure projects get fast-tracked as planned, Sylla predicted that by midsummer, the nation's workers should start to feel some effects of the package.

"We can measure job creation then, and we can also measure new claims for unemployment benefits to see if the plan is doing what it's supposed to do — stabilize employment," he said.

Obama has said the stimulus could create up to 4 million jobs. That means he has been looking at the most optimistic numbers from the nonpartisan Congressional Budget Office. This month, the CBO released an analysis of the stimulus bill as approved by the House. The Senate passed its own version Tuesday. Because the two plans are substantively the same, CBO officials say their earlier analysis still holds. The two chambers will reconcile their versions before voting on a final bill in coming days.

According to Douglas Elmendorf, the CBO's director, the stimulus plan would, by the fourth quarter of 2010, increase employment by 1.3 million to 3.9 million jobs. Without the stimulus, the analysis projects, the jobless rate would be 8.7 percent in that same quarter. With the stimulus, unemployment would be lower by anywhere from 0.7 percentage points to 2.1 percentage points, according to the CBO.

Short-Term Boost?

But this boost to the economy might be short-lived, CBO warns. "The effects of the legislation would diminish rapidly after 2010," Elmendorf said in a report sent to leaders of the House and Senate budget committees.

And there lies the rub for economists like Tyler Cowen of George Mason University.

"We need to look two or three years down the road" to measure the stimulus plan's success, says Cowen.

He predicted that the nation's gross domestic product — the value of goods and services produced by the country — will be up a year from now, because the government will be pumping money into the economy at an unprecedented rate.

"But will that generate a second round of activity that will drag the economy out of the current mess?" he said. "Personally, I don't think it will."

Should Banking Have Been Job 1?

Tyler is among a cadre of economists who argue that the administration should have moved first to stabilize the nation's banking system and its housing market before moving the stimulus plan through Congress.

"Banks need to be working better for any stimulus to work," Tyler says. "I'll be looking at the whole mess of the banking system and how it is getting resolved."

Amity Shlaes, a senior fellow for Economic History at the Council on Foreign Relations, says that the stimulus package will encourage "some growth for the shorter term."

But, like Tyler, her more conservative priorities would have been to tackle banking first, then fix entitlement programs like Social Security and create tax laws that benefit business.

"Hang a sign around the U.S. that says, 'Open for Business,' " she says, "and then decide if you need a stimulus."

But many economists echo Alan Blinder, a Princeton University professor of economics and public affairs.

In a recent essay for The Wall Street Journal titled "My Economic Wish List," Blinder argued for a large stimulus bill that would be spent quickly on shovel-ready projects, on federal grants to forestall state and local government cutbacks, on payroll tax cuts and on expanded benefits for the unemployed.

For Blinder, the plan hinges on fast spending in the first 12 months. "Stimulus is, after all, about shortening recessions," he said.

Great Expectations

Obama has said, and reiterated Monday night, that stabilizing the banks and credit markets, as well as the housing market, also figures prominently in his plan for recovery.

But he has taken his first big gamble on jobs — and those on both sides of the stimulus/no stimulus divide say that, politically, it would have been difficult for him to do it any other way.

So economists will be watching job numbers and unemployment claims in the first year, and larger indicators — from the GDP to home sales — in years beyond.

"The macroeconomic impacts of any economic stimulus program are very uncertain," the CBO's Elmendorf said in his letter to Capitol Hill budget leaders, adding with some understatement: "Economic theories differ in their predictions about the effectiveness of stimulus."

And given the rarity of stimulus packages of this size, the range of expectation is vast.

During a town hall-style meeting Tuesday in Fort Myers, Fla., to sell his stimulus package, Obama said that he expects "to be judged by results."

He can count on it.

[Tansy_Gold]

60. Gauging success

"But will that generate a second round of activity that will drag the economy out of the current mess?" he said. "Personally, I don't think it will."


The grossly ignorant Michael Steele was, in fact, partly correct when he said the stimulus package will create work but it won't create jobs. And that's what the above quote is about, too.

Someone on NPR in the past week -- I've been looking for it on their website and haven't found it yet -- put it very bluntly: If the stimulus creates infrastructure jobs and people get paid and then they go out and buy stuff made in China, it hasn't accomplished anything. All the billions flung into the economy will have flown right out of it again.

In a nutshell, if the economic loop doesn't close itself within the national entity, then the national entity is no longer distinct and unique in terms of being able to provide for its citizens.

So Chinese toy factories are closing because they can't sell enough of their products to the U.S. and other markets. Why the hell can't they sell to their own domestic markets? Why can't the chinese government, with all its billions and trillions of stockpiled U.S. dollars, develop its own national economy, supplying goods and services to its own citizenry? Why does there always have to be a capitalist exploitation of workers to feed some developed market with tons and tons of junk while the exploited don't even have the basic necessities of life?

I don't think it's possible for all the world to be raised to the upper reaches of U.S. economic standards. I believe there are many Americans who are indeed going to have to lower their expectations and bring their level of consumption way down. No more eight cars, RV, boat, a trailer full of quads, nine bedrooms, 12 baths, etc., etc. There are many people who live simply, comfortably, and happily on a lot less.

But I think the warnings about the dangers of protectionism are false. I don't think there's a lot of danger in protectionism in terms of the general population. I think the danger is to the uber-elites and their obscene way of life. The Madoffs and the Gateses and the Soroses and the Buffets, the Jobses and so on. They are no longer confined to the national economy of any given state, and in order to protect their own enormous wealth, they need to keep THEIR capital flowing freely between nations but they must not allow any kind of equality between the labor forces of the nations. Their wealth depends on labor inequality.

From what I've seen, there is little in the stimulus plan that addresses the creation and defense of a stable job base in the national economy. There has been pressure applied to labor to restrict its compensation but there has been no call for capital to do likewise. And unless and until labor -- which is the only source for the creation of real wealth -- is granted the economic protection it needs to be successful, the creation of wealth cannot succeed.

There will be work, but there will be no jobs. There will be bridges built and schools remodeled, but without factories, without textile mills, without a closed loop economy, there can be no success.

Now, for those who think I'm advocating a closed society -- on the model of North Korea -- far from it. Allowing fair trade with other economies is part and parcel of a healthy economy. If our economy needs to buy a commodity that we lack, then we should be able to buy it from a supplier on fair terms. But we should not be starving our own industries and destroying our own economic health in order to put our money in the hands of a few.

This will undoubtedly require a lowering of our level of consumer consumption. Our economy may not be able to sustain the manufacturing and sale of 10 million passenger vehicles per year. As individuals we may have to make a car last seven years instead of three, and thus lower the rate of consumption. But in doing so, we also lower our income requirements. In effect, we reverse the spiral of debt and credit. We return to a sustainable economy in terms of cash as well as resources.

What we need, of course, is a return to reality. Obama's rhetoric is not reality. And his administration so far has been relying on fantasies produced by the same people who created the fantasies taht got us in the economic mess we're in. Derivatives are NOT assets or investments; they are imaginary entities on which people gamble, and their bets should not be covered by tax-payers who have no control over the risks. EVERY investment prospectus I've ever seen, every commercial on TV for AmeriTrade or ScotTrade or Charles Schwab or any other investment facilitator says that returns are not guaranteed and that there is risk involved.

The government should not be in the business of protecting the wealthy from risks. There should indeed be liberty and justice for all. All should be endowed with the rights to life, liberty, and hte pursuit of happiness, not shoved aside as mere peasants put on the earth to slave for their aristocratic masters.

Unless and until the jobs are brought back, via protectionism if you will or under some other euphemism, there can be no success, no recovery. Work isn't enough.


Enough of


Tansy Gold

[Demeter]

62. Never Enough! Tansy Gold for Treasury Secretary!

Since I can't talk you into President....

[Joe Chi Minh]

78. So Milton Friedman was wrong, Tansy? But, seriously, you know, the way they're

still going on, you'd think neoliberalism hadn't been cataclysmically discredited, wouldn't you? When corporations pull the strings...

[Tansy_Gold]

91. What do you think? What does Bernie Sanders think?

BTW, it irks me to see Sanders listed as "I-VT" when he should be "S-VT."

http://inthesetimes.com/article/4193/the_failed_prophet

<snips>
But Friedman was more than an academic. He was an advocate for, and popularizer of, a radical right-wing economic ideology.



But the issue here is not just economic policy. It goes deeper than that. It touches on the core of who we are as a society and as a people. Are we as human beings supposed to turn around and not see the suffering that so many of our brothers and sisters are experiencing? Are we content to be living in a nation where, thanks in part to the Friedmanite ideology, the richest 1 percent owns more than the bottom 90 percent and the top one-tenth percent owns more than the bottom 50 percent?


With all due respect to the late Milton Friedman, his economic program is nothing more than a wish list for the greediest, the most monied interests in our society. At the same time that this ideology is supported by the rich and powerful—except when they’re lining up in Washington for their welfare checks—this same ideology is almost unanimously opposed by working families and middle-class people across this country.




Now we have a case study for what happens when the ideology of Milton Friedman becomes the operating ideology of the government. Under Bush, the median family income has declined by thousands of dollars. Millions of Americans have entered the ranks of the poor. Some 7 million have lost their health insurance. Some 3 million have lost their pensions. And the gap between the very rich and everybody else has grown much wider.



From an economic perspective, from a moral perspective and from a philosophical perspective, the ideology of Milton Friedman is dead wrong.



<end snips>


Now if only the ideology of Milton Friedman were just dead.



TG

[Joe Chi Minh]

119. A fascinating article, Tansy. I thought he was a Communist, strange,

beyond strange, as that may seem in the US, but then, I believe little or no distinction is made between the two in the US! (I take the 'I-V' and the 'S-V' to denote "Indepent - Vermont" and "Socialist - Vermont"; maybe not even "Vermont")

[DemReadingDU]

122. Maybe it was NPR, but here is something that I read elsewhere

I don't think this is the original link that I read, but what I remembered was that we need to spend in America was yard sales, prostitutes, beer and tattoos
:)


2/6/09 IMPORTANT INFORMATION FOR AMERICANS ON THE U.S. STIMULUS PAYMENTS

This year, taxpayers will receive an Economic Stimulus Payment.

This is a very exciting new program that I will explain using the Q and A format:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a teeny amount of what you paid.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn’t that stimulating the economy of China?
A. Shut up.

Below is some helpful advice on how to best help the US economy by spending your stimulus check wisely:

If you spend that money at Wal-Mart, all the money will go to China.
If you spend it on gasoline, it will go to the Arabs.
If you purchase a computer, it will go to India, China, or Taiwan.
If you purchase fruit and vegetables, it will go to Mexico, Honduras, and Guatemala .
If you buy a car,it will go to Japan.
If you purchase useless crap, it will go to Taiwan.
And none of it will help the American economy.

We need to keep that money here in America. You can keep the money in America by spending it at yard sales, going to a baseball game, or spend it on:

prostitutes,
beer (domestic ONLY), or
tattoos,
since those are the only businesses still in the US.

http://thecriticalthinker.wordpress.com/2009/02/06/go-stimulus/

[KoKo]

148. Tansy...incredible insight on what we face....

Hard times ahead...but hopefully we can work it through, creatively. Lowering expectations, finding pleasure in small things in life, coupon clipping, buying and selling at Flea Markets holding Swap Meets and conserving. "make do, use it up, wear it out." But, without basic health care for all the coming hard times will be devastating for so many of us.

Anyway, :thumbsup: for the reality kick.

[Demeter]

5. Some tidbits about stimulus, recovery, and the Great Depression Posted by Edward Harrison

http://www.creditwritedowns.com/2009/02/some-tidbits-about-stimulus-recovery-and-the-great-depression.html

Paul Kasriel of Northern Trust is one of the few economists to have warned about the present economic malaise. So his analysis of present events carries weight. In making recommendations about the future economic path in the United States, Kasriel leans heavily on historic precedent regarding periods of deleveraging, one such period being the Great Depression. He draws some interesting conclusions.

In a post yesterday, he said the following about the Great Depression:

Contrary to what you might believe, the Great Depression of the 1930s was not a decade-long era of economic decline. Rather, the Great Depression was made up of two distinct economic slumps – August 1929 through March 1933 and May 1937 through June 1938. As Chart 1 shows, the first recessionary period of the Great Depression was not only longer in duration, but more severe in magnitude. Notice, however, that a quite robust economic recovery/expansion occurred between the two recessions. In the four years ended 1937, real GDP grew at a compound annual rate of 9.4%. Lest you think that all of the increase in real GDP growth in the four years ended 1937 was accounted for by federal government spending, Chart 2 should dissuade you of this notion. In the four years ended 1937, real GDP excluding real federal government expenditures grew at a compound annual rate of growth of 9.0%. In the four years ended 1937, industrial production grew at a compound annual rate of 12.9%. Although this vigorous real economic recovery did not bring the unemployment rate back down to anywhere near where it was before the 1929 recession commenced, the unemployment rate did fall from a cycle high of 25.6% in May 1933 to a cycle low of 11.0% in July 1937.

Chart 1



gdp-1929-1939



Now, I am actually not a fan of Franklin Roosevelt. However, the line that Amity Shlaes and others take on New Deal stimulus causing the Depression is false. Roosevelt was not in office until March 1933 — the same month the economy bottomed. Actually, stimulus may have been a net benefit for the United States during the Great Depression and hastened recovery post-1933. This is why, despite my Austrian Economics roots, I do see a role for stimulus in the present crisis.

Despite protective tariffs, Fed discount rate increases, personal income tax rate increases and massive bank failures, the first recession of the Great Depression ended in March 1933, the same month in which Franklin D. Roosevelt was inaugurated as president. That is, the business cycle trough occurred before the “New Deal” policies were implemented.

In 1936, marginal personal income tax rates were increased again. For incomes between $100,000 and 150,000, the tax rate went from 56% to 62%, a 10.7% increase in the tax rate; for incomes between $1,000,000 and $2,000,000, the tax rate went from 63% to 77%, a 22.2% increase; and for incomes in excess of $5,000,000, the marginal tax rate became 79%, an increase of 25.4% from the previous top marginal tax rate of 63%. Between August 1936 and May 1937, the Federal Reserve doubled the percentage of reserves commercial banks were required to hold relative to their deposits. The economic expansion that commenced in April 1933 then peaked in May 1937. The economy entered the second recession of the Great Depression, which lasted through June 1938.

There is much discussion in the media of late that FDR’s “New Deal” policies were detrimental to economic growth during the 1930s. But we need to make a distinction between New Deal policies that dealt with increased federal government spending and those that dealt with the direct interference in markets. Perhaps the New Deal policies that directly interfered with markets were responsible for keeping the unemployment rate from falling as much as it otherwise would have. But as was discussed at the outset of this commentary, real GDP grew at a compound annual rate of growth of 9.4% in the four years ended 1937. …. Perhaps it is coincidental that real GDP contracted by significantly less in 1933 and grew in 1934 through 1937 as the rate of growth in real federal government expenditures increased significantly in 1933, 1934 and 1936. Perhaps, had it not been for the stepped up increases in real federal government expenditures, the compound annual rate of growth in real GDP in the four years ended 1937 would have been even higher than 9.4%. Perhaps.

Edward here. At a minimum, the preceding analysis should cause you to question those who claim that stimulus categorically will not work to cushion a hard landing and speed recovery. However, what is key is that this stimulus be felt in terms of an increase in bank reserves. Otherwise, as when you fund the stimulus through tax increases, you are robbing Peter to pay Paul. Back to Kasriel.

I have argued that increased government spending without the monetization of the increased federal debt has little impact on aggregate demand – real or nominal. That is, if increased federal government spending is funded by increased taxes or increased sales of Treasury securities to the nonbank public that are not monetized by the Fed and the banking system, then spending “power” is merely transferred from the private sector to the government sector, the net result of which is little if any increase in total spending in the economy. In this regard, it is interesting to observe the behavior of commercial bank reserves, which are, in effect, credit created by the Fed figuratively “out of thin air,” during the 1930s. This is shown in Chart 6. The change in bank reserves was negative from 1929 through 1932. Then rapid growth in reserves commenced in 1933. In the four years ended 1936, bank reserves grew at a compound annual rate of 25.9%. Then, in 1937, reserves contracted by 18.9% along with a contraction in nominal federal government expenditures.




bank-reserves-1929-1939

Kasriel’s conclusion should give those expecting a recovery some cheer:

It is not my role to endorse government policies. It is my role to forecast the impact of government policies on the economy. I believe that large increases in federal government spending that are monetized by the Fed and the banking system will result in a recovery in real economic activity. When that recovery sets in depends on how quickly the federal government increases its spending and by the magnitude of that increase. We can debate whether tax rates should be cut or federal spending should be increased. We can debate what kinds of spending should be increased. We can debate whether the federal government should increase any of its spending. But the facts of the 1930s appear to be pretty clear – monetized increased federal government spending does result in increased real economic activity in the short run.

The economic data are likely to be abysmal through the first half of this year. The popular media will reinforce the gloom of the data. The same pundits who did not see this downturn coming will not see the recovery coming either. My advice to you is to keep your eye on the index of Leading Economic Indicators. If history is any guide, the LEI will signal a recovery well ahead of the pundits.

I like this analysis. Where things are different today is that Barack Obama enters the picture at a point much earlier in the bottoming cycle than Roosevelt. We still have a lot of downside to course through both in the financial sector and the real economy. Nevertheless, this is another important piece of analysis from Kasriel.

Source
The Great Depression — Just the Facts, Ma’am - Paul Kasriel, Northern Trust

Related Reading
Market Wizards: Interviews with Top Traders
The Forgotten Man: A New History of the Great Depression
The Great Crash of 1929
Keeping at it: Congress debates economic stimulus; agency actions affect business. (Capitol Retail Report).(Occupational Safety and Health Administration)(Brief ... An article from: Do-It-Yourself Retailing
A People's History of the United States: 1492 to Present (P.S.)

[Demeter]

6. SOME GOOD NEWS: Salmonella-hit peanut company files for bankruptcy

http://news.yahoo.com/s/nm/20090213/bs_nm/us_peanutcorp_bankruptcy_4

NEW YORK (Reuters) – Peanut Corporation of America sought bankruptcy protection on Friday after a salmonella outbreak traced to one of its plants led to one of the biggest product recalls in U.S. history.

The company filed a Chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the Western District of Virginia, saying the negative economic effects of the recalls have been "extremely devastating" to its financial condition.

Under Chapter 7 companies liquidate their assets to repay creditors rather than reorganize.

The salmonella outbreak that has sickened 600 people, more than half of them children, and may have killed nine people, has been traced to a plant in Blakely, Georgia operated by Peanut Corporation.

More than 1,800 products have been recalled since mid-January due to the outbreak, either because they were linked to Peanut Corporation or because such links could not be ruled out.

Peanut Corporation is a peanut processing company and maker of peanut butter for bulk distribution to institutions and private label companies.

The owner of Peanut Corporation, Stewart Parnell, refused to answer questions before Congress on Wednesday citing rights under the U.S. Constitution. A Congressman at the hearing displayed internal company e-mails showing Parnell complaining about lost profits while the scare was being investigated.

Federal Bureau of Investigation officials in Atlanta and Virginia said earlier this week they had joined the U.S. Food and Drug Administration in a criminal investigation of the company.

Inspections showed the company not only had several tests that showed salmonella contamination, but also cockroaches, a leaky roof and filthy equipment, the FDA has said.

The company said in court documents that it had hired turnaround firm The Finley Group to initially help it consider Chapter 11 protection, which would have allowed it to reorganize under bankruptcy protection or try to sell parts of its business as a going concern.

Peanut Corporation listed assets in the range of $1 million to $10 million and liabilities in the same range, according to court documents.

The case is In re: Peanut Corporation of America, U.S. Bankruptcy Court, Western District of Virginia, No. 09-60452

[Demeter]

7. AND SOME BAD: PNC pays bonuses to execs after getting TARP money

http://news.yahoo.com/s/nm/20090213/bs_nm/us_pnc_bonuses_1

NEW YORK (Reuters) – PNC Financial Services Group Inc (PNC.N) said on Friday it has awarded bonuses for 2008 to its chief executive and other top officers, becoming the largest recipient of taxpayer money under the government's $700 billion Troubled Asset Relief Program to do so.

Chief Executive James Rohr was awarded a $3 million bonus, down from $3.5 million a year earlier. PNC also awarded bonuses of $1.3 million to President Joseph Guyaux, $1.24 million to Senior Vice Chairman William Demchack, $785,400 to Vice Chairman Timothy Shack and $710,000 to Chief Financial Officer Richard Johnson.

The Pittsburgh-based bank disclosed the awards in a U.S. Securities and Exchange Commission filing.

PNC received $7.6 billion of TARP money and used some of it to buy the troubled Cleveland lender National City Corp, creating the nation's seventh-largest bank.

None of the banks that received more TARP money, including Bank of America Corp (BAC.N) and Citigroup Inc (C.N), are awarding bonuses to their chief executives for 2008.

"The board's decision takes into account PNC's strong relative performance, as well as the challenging circumstances facing our industry and the economy," PNC spokesman Brian Goerke said.

He also said no TARP money is going toward the bonuses, saying: "This is coming from our business revenue."

Investors, politicians and regulators have faulted banks for doling out big bonuses as the industry hemorrhages losses from soured loans and tightens the availability of credit generally.

In Friday's filing, PNC said it reduced the maximum annual perks it awards any top executive to $10,000 from $50,000. It also said Rohr, Guyaux and Demchak will retain access to the bank's aircraft, but will pay for personal flights themselves.

PNC shares closed Friday down $3.00, or 9.7 percent, at $28.07. They have fallen 67.5 percent from their 52-week high set last September 19.

[Demeter]

8. Get Out Your Love Beads--the 60's Revival, Millennial Style!

http://www.lastchancedemocracycafe.com/?p=1887

Upon listening to NPR, the poster had this creative urge:

Little Pundits (Tune of "Little Boxes")

Little pundits on the boob tube
Little pundits made of ticky-tacky,
Little pundits, little pundits,
Little pundits, all the same.

They all blather out the same blow
Not a new thought in the bunch though
Baseless rumors at their hands grow
And they’re all made out of ticky-tacky
And they all sound just the same.

You know, the more I think about it, the more I hope the revolution isn’t televised. I don’t think I could stand the color commentary.

[Demeter]

9. Obama on nationalization / Paul Krugman

http://krugman.blogs.nytimes.com/2009/02/11/obama-on-nationalization/

Felix Salmon is impressed by President Obama’s response to a question about nationalization of banks. Me, not so much.

Yes, Obama is impressively articulate and well-informed — and his response shows that he has actually considered the issue. It’s light-years better than what we’ve grown accustomed to in recent years.

But his two main arguments aren’t actually very good. Yes, we have thousands of banks — but the problems are concentrated in a handful of big players. In fact, the Geithner plan, such as it is, already acknowledges this: the “stress test” is to be applied only to banks with assets over $100 billion, of which there are supposed to be around 14.

And the argument that our culture won’t stand for nationalization — well, our culture isn’t too friendly towards bank bailouts of any kind. Yet those bailouts are necessary; and even in America they may be more palatable if taxpayers at least get to throw the bums out.

Oh, and not a week goes by without the FDIC taking several smaller banks into receivership. Nationalization is actually as American as apple pie.

[Joe Chi Minh]

84. Well, Bush was the patriarch of statist Socialism in your country wasn't he?

The first US president ever to introduce it. Sure it has got a long way to go yet, but it was given a massive start - which no left-winger would ever have had the remotest chance of doing.

And the world should be grateful, even if you had to, and still have to, pay a heavy price for its introduction. Only the cataclysmic failure of Neoliberalism was able to bring it about.

[Demeter]

10. Morgan Stanley suspends top official

http://www.ft.com/cms/s/0/ecb74bbe-f914-11dd-ab7f-000077b07658.html



Morgan Stanley has suspended its global head of real estate investing after revealing that actions by an employee believed to be the former China property head “appear to have violated” the foreign corrupt practices act, a US law that prohibits corporate bribery.

People close to Morgan Stanley said the bank had put Sonny Kalsi, a high-profile banker who leads its big real estate division, on administrative leave effective immediately.

The move came after Morgan Stanley disclosed in a filing to the Securities and Exchange Commission that it had discovered actions initiated by an unnamed China-based employee that “appear to have violated” the act.

Three people familiar with the matter said the employee referred to in the filing was Garth Peterson, Morgan Stanley’s top property deal-maker in China until he was fired around Christmas.

The bank said it had “terminated the employee” involved and reported the activity to the appropriate authorities.

The regulatory disclosure about the China-based employee, which came in the last paragraph of a filing on an unrelated matter, made no mention of Mr Kalsi.

The 41-year-old Indian-born banker is well-regarded within Morgan Stanley and was seen as a rising star following his successful tenure as head of the bank’s real estate business in Asia at the beginning of the decade.

Morgan Stanley declined to comment beyond the filing. Mr Kalsi and Mr Peterson could not be reached.

Starting in 2003, the bank invested several billion renminbi in shopping malls, apartment blocks and office buildings in Shanghai and at one point was regarded as the largest single global real estate investor in the city.

It put a number of those properties on the market last September. By the end of September, Morgan Stanley had $91.3bn of real estate assets under management globally, with $26.5bn of that in Asia.

China’s real estate sector is rife with bribery, corruption and consulting firms that promise access to senior government officials and preferential treatment in bids for land and projects in exchange for “consulting fees”. US companies and their agents are prohibited from paying bribes to win business abroad.

[Demeter]

11. Dow Chemical cuts dividend for first time in 97 years

http://www.ft.com/cms/s/0/d012cabe-f960-11dd-90c1-000077b07658.html



Dow Chemical bowed to the financial and economic crisis on Thursday and cut its dividend for the first time in its 97-year history, in a effort to save about $1bn that could be used for its $15.4bn takeover of Rohm and Haas.

The US chemical group’s decision to slash its ­quarterly payout by 64 per cent to 15 cents a share comes two months after Andrew Liveris, the chief executive, had pledged not to halt Dow’s run of 389 quarters without a dividend cut.

“We will not break that streak. Not Dow. Not on my watch,” Mr Liveris said at the time.

Since then, the company has been plagued by tough markets and the surprise decision by Kuwait’s state-owned oil company to pull out of a joint venture for Dow’s low-growth plastics business.

The withdrawal deprived the company of about $7.5bn and caused it to miss its deadline for the ­completion of the deal with Rohm and Haas, a speciality chemical producer, which would have increased Dow’s reliance on high-margin products.

Rohm and Haas has since sued Dow.

Mr Liveris had repeatedly said that Dow did not need the proceeds of the plastics joint venture to close the takeover because it had secured $4bn from Warren Buffett and the Kuwait Investment Authority, and a $13bn bridge loan from several banks.

However, Dow’s chief executive was forced to backtrack after rating agencies indicated that drawing down the bridge loan would burden the company with too much debt and prompt a downgrade of its debt rating.

IT SUCKS TO BE POOR, DOESN'T IT?

[Demeter]

12. WITH APOLOGIES TO Tom and Ray Magliozzi, IT'S CAR TALK!

AT HOME:

Chrysler faced with equity carve-up

http://www.ft.com/cms/s/0/e6fd74f6-f954-11dd-90c1-000077b07658.html



Chrysler’s restructuring plan could see the combined equity of owners Cerberus and Daimler shrink to less than 10 per cent, with the rest of the company divided between the US government, the United Auto Workers’ union, bank lenders and Italian carmaker Fiat, according to people close to the US carmaker.

Chrysler and General Motors, which have been granted a combined $17.4bn in government loans, must present restructuring plans to the Obama administration by February 17 in order to retain that financing.

Chrysler is currently trying to reorganise without seeking protection under US bankruptcy laws. As part of this effort, Chrysler is likely to take on additional loans from the government. Existing bank lenders are being asked to swap some of their debt for equity, while other stakeholders divide the rest.

Cerberus currently owns 80 per cent of Chrysler with Daimler holding 20 per cent. That equity is likely to be wiped out as part of the restructuring. However, Cerberus and Daimler could trade their debt in the carmaker for a small equity stake.

The UAW is expected to demand a slug of equity in both Chrysler and GM, its larger crosstown rival, in exchange for letting the companies slash their retiree health obligations in half.

Fiat has requested a 35 per cent stake in Chrysler in exchange for giving Chrysler access to its technologies as part of a proposed alliance between the two carmakers.

Chrysler is also weighing its options without Fiat as a partner, according to one person close to the matter. But if the partnership stands, it will leave Chrysler’s bank debtholders and the union to fight over the rest of the company – assuming that they believe that equity in a reorganised Chrysler would have value...

An even more complex situation is playing out at GM, which is trying to formulate a business plan that would persuade unsecured bondholders to accept equity in exchange for debt. Chrysler has no unsecured debt, but its bank lenders may balk at swapping their claims on secured assets for equity.

Chrysler requested $7bn from the government and received $4bn, while GM has been granted $13.4bn, of which it has received $9.4bn.

GM’s loan agreement says it could receive the extra $4bn once it submits its proposal next week. Chrysler’s document does not explicitly state when it could receive more money.

Chrysler’s restructuring plan details that if it partnered with Fiat, it might pull a range of car models off the market to focus on its Dodge and Jeep brands and smaller, more fuel-efficient cars, according to people close to the matter.

WHILE TOYOTA COPYCATS:

Toyota takes measures to trim costs in US

http://www.ft.com/cms/s/0/2ee3dc58-f96c-11dd-90c1-000077b07658.html



Toyota said it was cutting production days, freezing wages, eliminating or reducing employees’ bonuses, and cutting executive pay in North America in response to the motor industry’s worst slump in decades.

The world’s largest carmaker, and America’s second-largest after General Motors, said it was taking the measures in an attempt “to protect jobs during the sales downturn”.

Toyota said it would schedule more non-production days in April, and that there was a “strong possibility” that employees would receive reduced pay under work-sharing arrangements at some plants, working 72 hours a week instead of 80.

The carmaker, which saw its US sales drop 32 per cent in January, said it was cutting executive pay and eliminating bonuses for its manufacturing arm of roughly 3,000 executive and white-collar employees, and reducing bonuses for production workers.

Toyota also said it would not increase wages for the foreseeable future and that it would implement a voluntary redundancy programme.

The carmaker had already frozen hiring, eliminated overtime, suspended capital spending, and scheduled non-production days as the US suffers its slowest car market since the early 1980s. US car sales fell to an annualised rate of 9.6m last month.

In December, Toyota suspended work on its latest North American plant in Mississippi, which is due to make the new model of its Prius hybrid car.

Like other non-US carmakers, Toyota is trying to avoid making job cuts that might leave it understaffed when demand for cars revives.

..............
In Japan, Toyota has already scrapped executive bonuses, slowed or shut production lines, and eliminated thousands of contract workers.

However, it has ruled out forced redundancies for full-time staff.

Reporting earnings last week, the company said it was heading for its first full iscal-year net loss since 1950.

Standard & Poor’s and Moody’s downgraded the company’s top-notch debt ratings, a blow for a company that previously enjoyed pride of place as the global industry’s most profitable big car manufacturer.

Toyota expects its global vehicle sales to be 7.32m this year, 18 per cent below its sales in 2008.

[Demeter]

13. Why You Can't Buy a New Car Online

http://www.motherjones.com/politics/2009/02/why-you-cant-buy-new-car-online




Americans can buy virtually anything over the Internet these days—sex, booze, houses—everything, that is, but a new car. If you want to buy a new Ford Fusion, you have to go down to your local dealership and haggle with the car salesmen, an unpleasant and daunting task. The process usually subjects consumers to hours in the dealership hotbox and can add hundreds, if not thousands, of dollars to the price of the car. Wouldn't it be nice if you could cut out the middleman and just order your Prius straight from Toyota?

But you can't. And there's one reason why: the car-dealer lobby, which has worked hard to ensure that this will never happen. Since the late 1990s, car dealers have used their considerable political clout to pass or better enforce state franchise laws that in many cases make it a criminal offense for an auto manufacturer to sell a new car to anyone but a state-licensed car dealer. The laws governing who can sell new cars are among the most anti-competitive of any domestic industry. By creating local monopolies for dealerships and prohibiting online sales for new cars, they constitute a major restraint on interstate commerce; in 2001, the Consumer Federation of America estimated that the laws added at least $1,500 to the price of every new car.

These parochial state laws also make the distribution system for new cars incredibly inefficient and expensive, one factor in the financial problems facing the Big Three in Detroit. Online sales would help companies like GM and Chrysler align production to sales better by allowing more people to buy their cars built-to-order from the factory, rather than having Detroit send out truckloads of vehicles to sit around on dealer lots for months in the hopes that a rebate offer will finally entice someone to buy them.

Now that the federal government is bailing out GM and Chrysler to the tune of $13.4 billion, and Congress is demanding major changes in the way they're run, consumer advocates think the time is ripe for Congress to clear the way for online sales as part of its effort to move Detroit out of the Stone Age. You'd think they would find a sympathetic ear among deregulatory Republicans who take great umbrage over any state interference with the free market, but you'd be wrong. Most free-market Republicans have no interest in taking on the car dealers, who are among their strongest local supporters. Since 1990, American car dealers have given more than $66 million to federal candidates, with more than three-quarters going to Republicans.

For decades, Republican governors have been some of the dealers' biggest champions and have signed much of the legislation creating their bulwark against real competition. California legislator Mark Leno discovered just how entrenched these roadblocks are in 2005, when he introduced legislation to let consumers buy hybrid and other low-emission vehicles directly from manufacturers online. The bill came in response to evidence that local dealerships were price-gouging consumers seeking hybrids, which were then in short supply. Environmentalists believed the savings consumers were likely to get by purchasing online would spur more sales for the cleaner cars and encourage automakers to produce more of them.....

MORE AT LINK

[Tansy_Gold]

14. If I were Secretary of Commerce, I'd go after these quasi-legal

monopolies!!!

:rofl:


And thank you to my "secret admirer" for the candy heart. (It's gotta be a SMWer/WEEer.) Hmmmm, I might even have enough left in my budget to buy a few, too. The dilemma would be who to give them to, since I have a feeling I can't afford one for EVERYBODY. . . . .



Tansy Gold, wishing she were. . . . .

[Hugin]

17. I'll second the candy hearts bit!

To my inner 'Big Kid' this is my favorite DU fundraiser. :)

And, quite possibly, I'd go after the Trusts as well. After first getting the duties of the SoC re-written out of the 18th century and modernized.

(To include my ability to wear a uniform of my own design with outrageous meteorological headgear... Except, not quite as outrageous as Aretha Franklin's hat. She can pull it off with a flair, I can't. Oh, and I'd want the ability to carry a baseball bat with "The Commissary" stamped on it... If I don't get that, then immunity for those times when I just can't stand it anymore and I proceed to 'commerce' a couple of Wall Street Trustees heads together in a coconut crunch.)

BTW... Your's and Demeter's hearts look lovely on your posts. :)

[Demeter]

19. Commisary, or Commisar?

Or both, tovarisch?

[Hugin]

23. I had this definition in mind...

Commissary

"A commissary is someone delegated by a superior to execute a duty or an office; in a formal, legal context, one who has received power from a legitimate superior authority to pass judgment in a certain cause or to take information concerning it."

http://en.wikipedia.org/wiki/Commissary

[Demeter]

25. Apologies. I thought You Wanted to Raid the Kitchen Pantry!

And a Happy V Day to you, too!

[Demeter]

20. "All That's Gold Does Not Glitter"

and all who wander are not lost....

Happy V Day, Tansy!

[MattSh]

15. Impairing the European Union, Gibe by Gibe

PRAGUE — The Czech president, Vaclav Klaus, jokes about Nicolas Sarkozy’s desire to be Europe’s “permanent chairperson.” Mr. Sarkozy, the president of France, says rather patronizingly of the Czechs, “They’re doing what they can.”

It may seem like a round of adolescent insults more suited to high school, but the bitterness between the last holder of the European Union presidency, France, and the current one, the Czech Republic, is damaging the alliance’s ability to cope with the severe economic crisis.

The spat, which is both personal and political, highlights the divisions in the 27-nation group between larger countries and smaller ones, between more liberal-minded economies and more statist ones, between nations that use the euro and those that do not, and between Western Europe and Central Europe — so-called old Europe and new.

The divisions are worsened by the global economic meltdown, which is bringing out protectionist and nationalist talk and decisions that are undermining the idea of a common European market for goods and services, and make the idea of a Europe that wants to be a global player in an Obama era seem more than faintly ridiculous. Mr. Klaus has never cared much for the European Union anyway.

Mr. Sarkozy, who only reluctantly handed over the revolving European Union presidency at the end of the year, has criticized the Czechs for being both timid and slow in their response to the crisis. The Czech prime minister, Mirek Topolanek, and his aides have accused Mr. Sarkozy of irresponsibility and megalomania. Mr. Klaus added dryly: “I don’t think it’s necessary to be overactive and to organize a European summit every weekend.”

more >>> http://www.nytimes.com/2009/02/14/world/europe/14union.html?hp

[Demeter]

18. Worst Than The Great Depression? 'Worst Economic Collapse Ever'

http://www.youtube.com/watch?v=9nJ7LM3iyNg&eurl=http://informationclearinghouse.info/article21983.htm&feature=player_embedded





In 2009 we're going to see the worst economic collapse ever, the Greatest Depression, says Gerald Celente, U.S. trend forecaster. He believes its going to be very violent in the U.S., including there being a tax revolt.

[DemReadingDU]

30. That's a great interview. Scary but realistic to what's coming

more about Gerald Celente
Gerald Celente is a United States trend forecaster and author, and CEO of The Trends Research Institute founded in 1980. He is noted for predicting the 1987 stock market crash and the fall of the Soviet Union.<1> Celente is a Close Combat practitioner and black belt trainer whose practice reflects his proactive philosophy.<2> He is a self-described "political atheist" and "citizen of the world".<2> Celente has appeared on The Oprah Winfrey Show, The Today Show<3> amongst other business news and morning shows.

Celente has criticized the Consumer Price Index because it does not integrate statistics for food and fuel.<11> He accuses the Federal Reserve of "jive talk" about interest rates, claiming that they are in a "rate trap" where lowering interest rates crashes the dollar and raising them crashes the economy.<11> He claims the Fed is exacerbating the economic crisis of 2008 by "bailing out their buddies with cheap money".<11> He also believes that the general populace has more wisdom regarding the crisis than Wall Street, the media, and the political world.<11> He has repeatedly said the public should not be looking for solutions to the economic crisis from people who failed to see it coming in the first place. Celente is on record with the Hudson Valley Business Journal and UPI presswire service as having stated on November 12, 2007 that the coming year would bring the beginning of an economic crisis "the likes of which no one alive has ever seen."
more...
http://en.wikipedia.org/wiki/Gerald_Celente

[ozymandius]

32. It says the video is no longer available.

Too bad. I was hoping there would be something in there about Phil Gramm, box canyons and pitchforks.

[DemReadingDU]

35. It's still there, maybe a browser problem? Here is a different link

Worst Than The Great Depression?

' Worst Economic Collapse Ever'

In 2009 were going to see the worst economic collapse ever, the Greatest Depression, says Gerald Celente, U.S. trend forecaster. He believes its going to be very violent in the U.S., including there being a tax revolt.

http://informationclearinghouse.info/article21983.htm


edit to add direct link to video
http://www.youtube.com/watch?v=9nJ7LM3iyNg

[Joe Chi Minh]

83. I think the level of flat taxes in the UK is insane and outrageous, but when I saw a

list of the kind of flat taxes you have to pay in the US, I was just sickened. You'd think the petty officials and empire-builders in each state were vying to see who could rip off Joe Public the most imaginatively and exhaustively. That's quite apart from the Federal government. And you don't even have a welfare state to show for it!!!!!!

[Tansy_Gold]

88. That's the point

One of my right wing acquaintainces was whining this morning at coffee that our taxes keep going up and up and up. Property taxes. Income taxes. License plates for cars. Sales taxes on cars bought in one state but to be driven in another. Gas taxes. Cigarette taxes.

"We're as bad as Europe!" he lamented.

I did not say, "No, we're far worse than Europe; we get so little after paying so much."



What a wanker.



TG

[Joe Chi Minh]

113. I .... almost ..... found it unbelievable! The Republican establishment is like

one of those superbugs, carrying (off) all before them. Most people had either thought or hoped Obama would an the effective anti-biotic, but I fear he's not going to go down fighting the Republicans; instead his period in office may amount to another interregnum, albeit by default, when the US can least afford another one.

[Tansy_Gold]

118. No almost about it

The guy is a retired union member, believes Ronald Reagan should be canonized at least, if not deified, and laments (direct verbatim quote) "And I voted for Republicans. For all the good it did me."

His retirement is thanks to FDR (social security) and LBJ (Medicare) and his union (pension), yet he whines that the drop in the stock market is keeping him from enjoying his "golden years."

He's a devout Catholic who was screaming a few days ago that we should all be writing "IN GOD WE TRUST" on our out-going mail because some post office in Texas was required to remove a banner with those words from its walls.

He is anti-choice, anti-gay, anti-immigrant. He is pro-gun, pro-Arpaio, pro-school prayer.

There is no reasoning with people like this. but there are many reasons to fear them.



Tansy Gold

[Joe Chi Minh]

125. Well, I'm a Catholic and unapologetic about it, but it seems an inescapable fact of history

that many of the worst people in the world as well as many of the best have called themselves Catholic or been baptised Catholic. This is not surprising, since the more is given, the more is expected. It has always seemed to me that in Catholic countries, the good people and the bad people seem to be much more obvious, more polarised, than among Nordic peoples.

Your acquaintance sounds to me a combination of a British trade-union leader - an atheist Socialist, who simply uses politics to get a leg up the greasy pole, and then it's "I'm all right, Jack"; and a klu-klux-clan type redneck. Despicable beyond belief.

Actually, if you study the faces of the Nazi troops on the tanks entering Paris, you see basically two types, the serious ones who'd rather not have been there, and the grinning dim-wits who the Russians despatched in their hundreds of thousands. Guess which group he'd have numbered among?

I don't want to start a sub-thread, but I think it's a mistake for Western countries to de-Christianise their culture. "Broken Britain" is an egregious a case study, in what happens to a country when its leaders abolish its Christian culture. An alluring advertisement for atheism it certainly isn't. Many young people (probably up to forty-year olds, alas) no longer know right from wrong (any more than their quasi-criminal political leaders), but what they do seem to sense is that it's become a jungle and they count among the prey. It's "dog eat dog".

[Demeter]

129. It's not for a lack of Christianity

It's for a lack of ethics from the top on down. This is the century of Cheaters--from SATs to resumes to marriage to jobs to government. And some of the worst offenders are loudly religious.

You don't have to be Christian to be ethical. Sometimes it's a definite roadblock on the way to ehical living.

[Tansy_Gold]

130. And I think one of the best things they could do is de-christianize the culture

Government should not be in the business of promoting any religious. I abhor "In God We Trust" on the currency. Why should be have to trust in god? Isn't the coin of the realm any good?

Too many religious folk are publicly immoral. Look at the most obvious just in terms of sexual escapades. Ted Haggard. Jimmy Swaggart. Newt Gingrich. David Vitter. But where is the christian morality in lying? In building up lavish mansions and racing stables (Pat Robertson) while so many go hungry? Where is the suffer the little children morality when it comes to bombing Iraq and Afghanistan to smithereens? Where was the love thy neighbor as thyself in New Orleans?

For every book copied by every scribe in a medieval monastery, how many were burned in Alexandria? How much knowledge has been lost as a result of religion? How much art? How much beauty? How much life?

Must we celebrate the birth of Jesus at the solstice? Can we not have parties and exchange gifts and wish each other peace just to celebrate the earth's having completed another orbit? Can we not do those things every day of every year?

Do we need religion to force us to respect life? To cherish it? To glorify it?

Do we need religion to sanction love? Doesn't love exist with or without religion?

What do we need religion for? Does it in and of itself make us better people? A better nation?

You said you didn't want a sub thread. Oh well.

TG

[Joe Chi Minh]

136. "Too many religious folk are publicly immoral. Look at the most obvious just

in terms of sexual escapades. Ted Haggard. Jimmy Swaggart. Newt Gingrich. David Vitter. But where is the christian morality in lying? In building up lavish mansions and racing stables (Pat Robertson) while so many go hungry? Where is the suffer the little children morality when it comes to bombing Iraq and Afghanistan to smithereens? Where was the love thy neighbor as thyself in New Orleans?"

What on God's green earth has the villainy of the worst people purporting to be Christian to do with Christ's teachings? Before making any other point, why not respond to that? Really, Tansy. You're an intelligent woman, but I thought you were wiser than that.
Have you read the Gospels? If so, do you find any ground at all for comparing Christ with Jimmy Swaggert, Pat Robertson, The Bush cabal et al? If so, I think you'll be the first person to do so.

I read recently - I think in a biography of Lloyd George - that when Britain was Catholic, at least the poor were cared for. However, the speaker then went on to say that since it became C of E, that ceased. And what I found particularly obscene was that, in a TV ad. to sell insurance they showed some porky, sybaritic old clergyman walking down some stairs quaffing a glass of wine. It tells you something of our debased, national character that it evidently viewed as a selling point. Likewise, the series, Upstairs and Downstairs. How people can watch the goings on in such a cruelly unjust and divided society for entertainment beats me. But maybe it's a mankind thing, and not just English. If so, it helps explain the plight we're in. (Well Catholic Britain spanned a fair few centuries, and the poor certainly weren't cared for too sedulously by the Norman magnates and barons, who denied them their immemorial forest hunting rights, and often wantonly torched their crops for military reasons).

However, that to revert to the issue of Chrsitianity AS TAUGHT: you must know that there are crimes committed now that were never even dreamt of in the forties and fifties, when children who were to become good, bad and indifferent when they grew up, were taught about Chritianity in classes and in morning assemblies.

They knew right from wrong, and evidently tended far more to fear doing evil on a deep subliminal level, because they belonged to a coherent society and culture, which retained taboos concerning evil. They weren't comprehensive or invariably adhered to, but they were adhered to on a far more generalised basis than today.

Atheists, on the other hand, create as many value-systems and codes of conduct, as there are individuals. There is no over-arching, unifying culture - just anomie, anarchy and lawlessness. And it's going to get immeasurably worse by the look of it, as everyone who reads these threads will be aware. It's not the individual atheist today, some of whom are surely good people, but their denying the young the moral teaching they themsleves probably had, if they are over a certain age is leading to trouble, and will do so increasingly. And it's happening on YOUR watch.

We've been hearing how Christianity caused all the wars and misery of mankind throughout its history. But you all know different. It's not for nothing that atheists are more than happy to ask, "Who would Christ bomb?" And many get upset if told their behaviour is un-Christian, simply because we all know that no-one has ever given mankind more sublime teachings than Christ.

The nature of this board is such that I can't take you up on some of the individual issues you raise, but in any case it would do no good. We all know the situation and we take sides, and the more threatened our assumptions, the more hardened we become in holdng them. But there is right and there is wrong. And one side is right and the other wrong. The truth is not the average of right and wrong.

[Tansy_Gold]

137. I don't consider the earth to be "god's"

Sorry, but I will NOT be browbeaten by a biblethumper.

You are now on ignore

[Joe Chi Minh]

147. That's all right. You wanted the subthread, not me. But let's not split hairs. And who was it

started an anti-religious rant.

I could see where it would lead, and sure enough, you sniped at me for suggesting we didn't start a subthread, then went for me for responding. It seems I was supposed to be intimidated and defer to your hectoring.

Actually, I'd have loved to. Anything for a quite life. But my faith won't allow it.

[Demeter]

143. You Don't Know Many Atheists

as well as you think you do.

[Joe Chi Minh]

146. I'm talking about fiercely militant atheists. I've posted a letter written to Joe Bageant

by a man who is formally an atheist, but who is as good an example of a true Christian as I have come across in life or literature. Not a canonised saint, like Mother Theresa, spending his life in prayer and ascetiscism, and yet, in some ways, more grounded in the world as it is. A man who could be an icon for Christians; who lives and breathes the priorities of the Beatitudes and the Sermon on the Mount. But - and maybe I'm wrong - I don't see him trying to destroy Christianity in the country and the world, and impose his minority position on the majority.

But I think you're wrong about my thinking I know atheists well. Who possibly could, since they would have as many different variants of personal as there are atheists? They have no anchor - indeed that is one of the things they are most proud of, believing religious faith is an abnegation of our intelligence - and feel answerable to no-one for their beliefs, though some of the most naive seem to think Darwin and Dawkins are kind of Moses figures..... presumably of Mother Nature!

As is inevitable, I've met some bad Christian people in various churches as well as good ones - and at have been scarcely an exemplar, myself; but I'm sure I met more, almost "natural" Christians in the army, among fellow privates and other ranks - though of course, our goodness and indeed our badness partake more than a little of the supernatural, however normal, spontaneous and natural they may seem.

So, while I find atheism, as opposed to agnosticism, utterly incomprehensible, even insane, I know many Americans tend to confuse the two, and in view of the distorted witness to Christianity of the far right, "atheism" has assumed a certain rebellious "chic" among the young. Rather like Wiccan, though I haven't heard much about it for a while. Perhaps because pagan religions had a marked taste for human sacrifices: usually young women and children.

I suppose, in a nutshell, my contention is that individuals can "get away with" espousing no formal belief and, evidently, even witness heroically to Christ's Gospel priorities, but nations can't. I know that raises a whole lot of issues in the US, because of the satanic witness and dire influence of certain high-ranking, nominal Christians in your country, who actually make a religion our of materialism/Mammon worship with their nonsense about The American Dream.

Well, I appreciated the civil tone of your post, and hope I haven't sounded offensive.

[Demeter]

43. It's There Now

[ozymandius]

52. Thank you. Got it!

Just watched it. I can find no substantive objection to his observations and forecasts. He seems to have a keen sense into patterns of human behavior.

[Demeter]

21. Why is Obama Reluctant to Kill the Zombie Banks Threatening Our Economy?

http://www.huffingtonpost.com/arianna-huffington/why-is-obama-reluctant-to_b_166572.html


The battle lines over how to deal with the banking crisis have been drawn. On the one side are those who know what needs to be done. On the other are those who know what needs to be done -- but won't admit it. Because it is against their self-interest.

Unlike the conflict over the stimulus package, this is not an ideological fight. This is a battle between the status quo and the future, between the interests of the financial/lobbying establishment and the public interest.

What needs to be done is hard but straightforward. As Martin Wolf of the Financial Times sums it up: "Admit reality, restructure banks and, above all, slay zombie institutions at once."

This tough love for bankers is being promoted by everyone from Nouriel Roubini, Paul Krugman, and Ann Pettifor to Niall Ferguson, the Wall Street Journal, and Milton Friedman's old partner, Anna Schwartz, the co-author of his seminal work, A Monetary History of the United States, 1867-1960. "They should not be recapitalizing firms that should be shut down," says Schwartz. "Firms that made wrong decisions should fail."

The plan laid out -- or, more accurately, sketched out -- this week by Tim Geithner makes it very clear that he is on the wrong side of the issue, more worried about the banking industry than the American people. Like Hank Paulson before him, Geithner appears more concerned about saving particular banks than saving the banking system. No real shocker there. As Henry Blodget points out on HuffPost, it's hard to be surprised that Geithner is sticking with the Paulson plan "inasmuch as he was likely the one who created it."

The big problem is Geithner is acting as if the crisis we are facing is a crisis of liquidity when, in fact, it's a crisis of insolvency. As Ann Pettifor puts it on HuffPost: "Much of Wall Street is effectively insolvent. It's not that these banks lack cash or capital -- it's just that they're never going to meet all their financial liabilities -- i.e. repay their debts. Ever."

Trying to prop these zombies up, as Geithner seems intent on doing, will lead to what Roubini calls "a royal rip-off of the taxpayer" and the risk of "turning a U-shaped recession into an L-shaped near-depression."

President Obama has made it unambiguous that he understands what is at stake -- both for the country, and for himself politically. On Tuesday, he said that if his economic plan doesn't work, "a few years from now, you'll have a new president."

And we know that many within his administration -- including senior advisor David Axelrod - favor a strategy that may be harder on Wall Street but will more quickly revive the U.S. economy.

So it's time to take off the kid gloves Geithner and Larry Summers are using to handle Wall Street and pull the plug on Geithner's deeply flawed plan.

And let's not be distracted by the shiny objects of the financial crisis -- corporate jets, redecorated offices, CEO bonuses, etc. -- as happened to the members of the House Financial Services at yesterday's hearing.

These are important issues, to be sure -- worthy of public outrage, Congressional grilling, and presidential action. But the central task at hand is cleaning up the toxic assets -- and the toxic thinking -- that have contaminated America's banking system.

Being diverted from that is like obsessing over the cut on your finger while the Great White shark that has already bitten off your leg is about to finish you off.

[Demeter]

22. Who is Pulling Geithner’s Strings? By Cliff Kincaid (Tin foil Hat Area)

http://canadafreepress.com/index.php/article/8405

Appearing behind a podium that proclaimed, “Financial Stability and Recovery,” Treasury Secretary Timothy Geithner on Tuesday carefully read from a teleprompter and provided what his flack said was a “comprehensive” plan. It was not comprehensive in any way. It seemed so amateurish and shallow that the market dropped and commentators and senators were almost incredulous at the lack of detail.

But what were they expecting? Geithner doesn’t know the details because he hasn’t been given them yet. Those who expected the details of the plan were operating under the false assumption that the Treasury Secretary―and by extension, the U.S. Government―is in practical control and charge of the U.S. economy.

Geithner’s performance followed President Obama having advertised Geithner’s appearance in advance by saying, “He’s going to be terrific. I’m going to make sure that Tim gets his moment in the sun.” The sun? One analyst said Geithner looked like a deer caught in the headlights.

It turns out the speech, which did mention the spending of trillions of dollars, was delivered in the Treasury Department’s “Cash Room.” No kidding.

Senator Orrin Hatch had voted to confirm Geithner, saying that he “is not merely acceptable for the job―he is highly qualified.” That was largely because of his role as President of the New York Federal Reserve Bank in previous financial bailouts that have yet to succeed. Hatch understood this, but said that Geithner’s recognition that mistakes had occurred “makes him more valuable, in my view, in the continuing effort to right our economic ship.”

Why is he so valuable? It’s not because he learns from his mistakes. As we have argued in previous columns, Geithner is valuable because he is a major player in the global financial community, a prominent figure in the “Group of Thirty” organization of central bankers and the Council on Foreign Relations. He is a former employee of Kissinger Associates and lived in China and speaks Chinese. His father, Peter Geithner, is a former top official of the Ford Foundation who knew Obama’s mother when she was working on “microfinance” in Indonesia.

It would be a serious mistake to say that Geithner is incompetent. He knows exactly what he’s doing. Essentially, his programmed performance was designed to send the message to the American people and the Congress that we can’t be trusted with the details, even when they are available. It was pathetic to watch our elected senators at a subsequent hearing pleading for details. But it was also a “teaching moment.” This is out of our hands. This is the “New World Order” and we had better get used to it...

You didn’t have to be a pundit to be aghast at Geithner’s performance.

But wait a minute. Wasn’t this the guy who was so smart that his tax cheating had to be overlooked in order to be confirmed?

What is going on here? Is Geithner’s “plan,” such as it is, designed to fail? Or does he not know what he’s doing? Or could there be another explanation?

Geithner may not have all the answers because he has not gotten his marching orders. Those orders come from China, the global elite and the international bankers. After giving non-answers to Congress, Geithner is preparing to take off for a G-7 Meeting of Finance Ministers and Central Bank Governors in Rome, Italy. These foreign finance officials may determine the nature and fate of Geithner’s “stability and recovery” plan.

These top finance officials include central bank governors, who play a role in what press reports described as “economic coordination among the top industrialized nations.”

One key global player is China. “Geithner spoke late on Sunday evening with Chinese Vice Premier Wang Qishan,” Reuters reported. Hence, Geithner was talking to a Chinese official even before he outlined his “plan” to the American people and the Senate. This was the second such conversation in a week.

In a statement, the Treasury Department said that Wang and Geithner “agreed that strong cooperation on macroeconomic financial and regulatory matters was an essential part of the U.S. relationship with China and that it was important to sustain close dialogue, particularly at this time of global financial turmoil.”

Wang Qishan was honored last year at a dinner sponsored by the United States Committee on United States-China Relations, on whose board Kissinger and Peter Geithner serve. Another speaker at the dinner was Bush Treasury Secretary Henry Paulson, Geithner’s predecessor.

Meanwhile, in her first trip abroad since taking office, Secretary of State Hillary Rodham Clinton will be traveling to Asia, including in China from February 20-22. The State Department explained that she will be discussing “common approaches to the challenges facing the international community,” including “the financial markets turmoil.”

So both Geithner and Clinton will be attempting to persuade the Chinese to sign on. In this “New World Order,” China is in the driver’s seat.

The conclusion has to be that Geithner doesn’t know how his “stability” plan will work out in practice because he’s not yet sure what China and other global players are going to do. Our fate lies in their hands, signaling desperate times for our nation.

Obama speaks of a possible catastrophe but he isn’t telling the American people the brutal truth at his carefully orchestrated town hall meetings. His prescription is more debt and spending―the same policies that brought us to this precipice. He can only succeed, at least in the sense of getting foreign credit to pay for this spending spree, if the Communist Chinese and the rich Arabs agree.

For the most part, the media won’t tell the truth, either. They’re too busy clamoring for front row seats at presidential press conferences.

[Demeter]

24. Geithner's Debut: "Not Ready for Prime Time" By Mike Whitney

http://informationclearinghouse.info/article21978.htm


Tuesday was Treasury Secretary Timothy Geithner's coming out party. He was supposed to outline Obama's Financial Stability Plan to the Senate Banking Committee. Wall Street was looking for clarity, but it didn't get it. Instead, they got 25 minutes of political posturing and blather. The markets went into freefall. By the end of the day, the Dow was down 382 points. It was a complete fiasco.

Geithner is a smart man. He knows what Wall Street wants. They want a plan and they want the details. They don't want more gibberish. He knew that he'd get hammered if he didn't produce a workable scheme for fixing the banks, but he went ahead anyway figuring he could dazzle his audience with his brilliance. It didn't work. The markets plummeted and the pundits wrote him off as "not ready for prime time". Now his credibility is shattered just three weeks into the new administration. Why did he do it?

............


Economist James Galbraith says...

"I think it’s fair to conclude that the large banks, which the Treasury is trying very hard to protect, cannot in fact be protected, that they are in fact insolvent, and that the proper approach for dealing with them is for the Federal Deposit Insurance Corporation to move in and take the steps that the FDIC normally takes when dealing with insolvent banks.

And the sooner that you get to that and the sooner that you take these steps, which every administration, including the Bush administration, actually took in certain cases—replacing the management, making the risk capital take the first loss, reorganizing the institution, guaranteeing the deposits so that there isn’t a run, reopening the bank under new management so that it can begin to function again as it should have all along as a normal bank—the sooner you get to that, the more quickly you’ll work through the crisis.

The more you delay and the more you try to essentially prop up an institution whose books have already been poisoned, in effect, by this—the practices of the past few years, the longer it will take before the credit markets begin to function again. And as I said before, the functioning of the credit markets is absolutely essential to the success of the larger package, of the stimulus package and everything else, in beginning to revive the economy."

.................



Most of the bad paper and non-performing loans appear to be concentrated in the very largest banks. By some estimates Citigroup, Bank of America, JP Morgan-Chase and Wells Fargo are holding two-thirds of all the toxic mortgage-backed paper. Therein lies the problem. These banking Goliaths have powerful constituencies and substantial political power. Keep in mind, the Obama campaign received over $10 million in contributions from Wall Street, the largest contributors by far. This suggests that Timothy Geithner is point-man for the banksters and his job is to fend off nationalization. Geithner admitted as much on Tuesday in an interview with Brian Williams when he said that he intended to "keep the system in private hands". If that's the case, then the taxpayer better get ready for a real shellacking, because it will take many trillions to keep these dinosaurs from extinction.
...............


Rosner explains the political dynamic which is driving the decision making:

Rosner: "I think this argument has less to with Lehman and more to do with the fact that the Fed of New York and the Board (of Governors) have always benefited from the failure of small institutions and the absorption of those assets by the big banks. There is no way that they can stomach seeing their regulatory power dissipated by those institutions now being broken up and sold. Perhaps we have to go back to the question of whether it makes sense for the Fed to be a regulator as well as a central bank."

The IRA (Institutional Risk Analysis): "Especially to investors outside of the New York district and even outside the Fed's immediate jurisdiction, to foreign investors. But whether anyone at the Fed or Treasury likes it or not, we are talking about the absorption by the US Treasury of at least half a trillion in losses for the top three banks in the next 12-18 months if an FDIC resolution is to be avoided.....This issue of resolving the larger banks has been a political issue going back to Paul Volcker's day. Democracy is inefficient." (The Big Banks vs. America: A Roundtable with David Kotok and Josh Rosner http://us1.institutionalriskanalytics.com/pub/IRAstory.asp?tag=337

The problem goes well beyond the failed banks. The issue can't be resolved because important clients of the banking lobby have a stranglehold on the Dept of Treasury and are sabotaging the rescue operation. In fact, it's looking more and more like Obama's election was part of a quid pro quo to ensure that Geithner, Summers and the other "big bank" loyalists would continue to control the levers of political power during the stormy years ahead, otherwise they would do what is necessary and and shut them down now.
........................


Most of the critics believe that Geithner is in over his head, but that's probably not the case. More likely, he has a plan but wants to keep the public in the dark. After all, there's no graceful way to tell people that they are about to get shafted for another $2 trillion to keep the larder on Wall Street full of Dom Perignon and chocolate truffles.

One thing Geithner will insist on is that the Treasury and the Fed remain the final arbiters of "who is solvent and who is not" as regards the big banks. That should be Sheila Bair's job. As the head of the FDIC, Bair is the regulator who should be in charge of checking capital reserves and closing underwater banks. But, apparently, Bair has been crowded out for political reasons. Geithner and his insider friends are calling the shots.
................


In his speech Geithner admitted that, "In our financial system, 40 percent of consumer lending has historically been available because people buy loans, put them together and sell them. Because this vital source of lending has frozen up, no plan will be successful unless it helps restart securitization markets for sound loans made to consumers and businesses -- large and small.”

40 percent! Think about that. Nearly half the credit pumped into the economy comes from securitization.

In other words, the banks ARE lending; it's just that Wall Street's credit-generating mechanism is kaput. That's why the fall-off in auto sales, consumer spending and foreign trade has been so dramatic, unlike anything anyone has ever seen before. Wall Street's credit model is broken. Shouldn't there at least be public hearings before Geithner and Bernanke put Humpty together again and we resume the same tragic boom and bust cycle? There has to be another way.

Credit production should never be in the hands of speculators. It's too dangerous. That's why the banks need to be strictly regulated, because the power to create credit is "more dangerous than standing armies".
.......................


According to the UK Telegraph:

"The past five quarters have seen 40pc of the world's wealth destroyed and business leaders expect the global economic crisis can only get worse."

[Demeter]

26. Obama, like Bush, is Throwing Public Money into a Black Hole By Prof. Rodrigue Tremblay

http://www.globalresearch.ca/index.php?context=va&aid=12271

Tuesday, February 10, may be the date when the U.S. economy officially entered into an economic depression. This was when President Obama's Treasury Secretary, Timothy Geithner, announced that the Obama administration was about to expand Bush's Secretary Paulson's $700-billion plan to rescue large U.S. banks from insolvency, euphemistically called the Troubled Assets Relief Program (TARP). The purpose now, as it was previously, is to use public capital, loans and guarantees to remove toxic financial assets from private banks' balance sheets and to transfer them to the Government and/or to willing private investors (hedge funds, private equity firms and other investors). One must keep in mind that Mr. Paulson and Mr. Geithner were the principal architects of last October's original plan. This was then, and it is now, a plan designed primarily to use hundreds of billions of taxpayer dollars to prevent banks from declaring bankruptcy, while in fact doing little to accomplish its presumed primary objective of getting banks to resume normal lending. Such a cure has failed in the past and is likely to fail now. Saving insolvent banks is not the same as fixing them and making them viable.

Indeed, when Mr. Geithner announced on Tuesday, February 10, that he was expanding the Paulson plan to make it a $1.5 trillion bailout plan, financial markets saw it as simply rearranging the chairs on the deck of the Titanic, and they sold off. I believe the markets are right and the Obama-Geithner plan only makes the Bush-Paulsen plan worse. Both are misguided and do little to address the root cause of the financial crisis, which is a mountain of unsustainable bad debts that was allowed to expand recklessly over the last ten years, and which is now crumbling down, dragging the entire economy down with it.

With more public money thrown at the problem with little strings attached, large U.S. banks will only use the new cash to de-leverage themselves and pay off their debts, buyout smaller banks and find a way to reward their incompetent executives with large bonuses, but little will trickle down to the real economy. We are back to the discredited Reagan era's economic trickle-down theory, the rich helping themselves first and the poor getting the crumbs.

Let's look coldly at the situation. The ratio of total debt to the U.S. Gross Domestic Product (GDP) is now higher than it was in 1933, when it reached the lofty and unsustainable level of 299.8 percent. It took nearly twenty years to bring down the debt/GDP ratio to below 140 in 1952. In the second quarter of 2008, all debt records were broken when the total debt ratio in the U.S. registered at 356,7 percent of GDP. If the same process of unwinding of excessive debt level plays itself out this time, this could translate into a debt deflation process lasting possibly until 2027!

It all depends on the problem being recognized for what it is, that is to say a mountain of unsustainable and insolvable debts and bets that have to be cancelled and erased from the books. Transferring such bad debts from the banks and other entities to the government will not solve the problem. It will only displace the it from one place to another and potentially create new and even more serious problems, such as horrendous future tax increases or an onset of hyperinflation down the road.....

[Joe Chi Minh]

86. It's ironic, but Einstein's remark about WWIV being fought with sticks and stones

springs to mind. But civil wars within countries, and as a result of an economic, rather than a nuclear, holocaust, seems more probable on the basis of the current facts.

[Demeter]

27. For All My Secret Admirers, With Thanks!

[Tansy_Gold]

28. I love ferrets!

Don't have any -- just four dogs -- but I think ferrets are so cool!


TG

[DemReadingDU]

29. My daughter has 2 ferrets

1 big dog, a Borzoi
2 goats
3 cats
4 chickens

When she was in college, she had a horse! We've had birds and hamsters too. Now just 1 cat and 2 dogs.

[ozymandius]

31. Stimulus Package Explained (Q&A) - snark!

Sometime this year, taxpayers will receive an Economic Stimulus Payment. This is a very exciting new program that I will explain using the Q and A format:

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. No, they are borrowing it from China. Your children are expected to repay the Chinese.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn’t that stimulating the economy of China ?
A. Shut up.

Below is some helpful advice on how to best help the US economy by spending your stimulus check wisely:

.....

And none of it will help the American economy. We need to keep that money here in America. You can keep the money in America by spending it at yard sales, going to a baseball game, or spend it on prostitutes, beer (domestic only), or tattoos, since those are the only businesses still in the US.

http://www.ritholtz.com/blog/2009/02/stimulus-package-explained-qa/

[Dr.Phool]

34. And make sure you cash your check at a payday lender.

Otherwise, part of it will go to some Wall Street bankers bonus.

:think:

Oh, wait. They own those too, don't they?

[Demeter]

44. That Sounds Like Dave Barry

I'd recognize his style of humor anywhere!

[ozymandius]

33. Another Sign That Volcker is Marginalized (And a Preview of His Program)

Last week. Bloomberg reported that Volcker, who many regard as the best asset on Obama's economics team, is sorely underutilized:

Paul Volcker has grown increasingly frustrated over delays in setting up the economic advisory group President Barack Obama picked the former Federal Reserve chairman to lead...

Volcker, 81, blames Obama’s National Economic Council Director Lawrence Summers for slowing down the effort to organize the panel of outside advisers....Summers isn’t regularly inviting Volcker to White House meetings and hasn’t shown interest in collaborating on policy or sharing potential solutions to the economic crisis.

The usual denials ensued. But a story that corroborates this picture comes from the Globe and Mail, courtesy reader Marshall. Volcker is very much in favor where bank do the bulk of credit intermediation and focus on traditional lending. Effectively, he is calling for the re-imposition of Glass Steagall, the Depression-era legislation that separated commercial banking from investment banking. As we discuss below, this is a radical idea and is at odds with the program Geithner announced earlier this week.

.....

Yves here. An international survey recently put Canada's banking system as the best in the world. It has five large banks and was never deregulated in a serious way. Back to the article:

Mr. Volcker, an imposing 6-foot 8-inch figure who chaired the Federal Reserve for most of the 1980s under former presidents Jimmy Carter and Ronald Reagan, said the primary characteristic of the new model must be strong commercial banks whose main purpose is to serve consumers and businesses, and provide credit.

They would be protected by the government, because their failure would pose a distinct threat to the economy. As a result, they would require closer supervision and regulation than has recently existed in the United States. "Those institutions should not engage in highly risky entrepreneurial activities," Mr. Volcker said.

In that central part of the system, $25-million or $50-million paydays would not be warranted, he added.

The second part of the financial system would involve the capital markets and include hedge funds, private equity funds, traders and other players who provide fluid markets. Those players would not be dealing directly with customers, and would not need to be highly regulated unless they became extremely large, Mr. Volcker said.

Mr. Volcker's vision would mark the end of the so-called supermarket banking model, in which a single financial institution dabbles in a range of services from consumer accounts to investment banking.

While this prescription may sound commonsensical to most Americans, for the very big players, it runs counter to their strategic direction of the last 20 years. First, just as the House of Morgan was split into JP Morgan and Morgan Stanley in the Depression. so too would many firms have to be broken apart. Indeed, Volcker's prescription could conceivably require brokers of various sorts (capital markets intermediaries and retail brokers) to be separate from asset managers. (Over the years where I have upon occasion worked with firms that have money management operations and brokerage, they are inevitably keen to treat their customers as stuffees).

Now why is this radical? Aside from the way it would require the dismantling of some empires built up over the years, it woudl also call for a big change in how banking is done in the US. Most consumers are not aware of the degree to which the "originate and distribute" model has taken hold. Most loans are not held by the bank that provided the loan to the customer. Just as mortgages are bundled and sold, so to are credit card receivables, auto loans, student loans, home equity loans, commercial real estate loans.

http://www.nakedcapitalism.com/2009/02/another-sign-that-volcker-is.html

[Demeter]

45. That Was On My List of "To Post"

thanks for putting it up!

[Dr.Phool]

36. The Economists Who Missed the Housing Bubble Are Coming After Your Social Security

:mad:

http://tpmcafe.talkingpointsmemo.com/2009/02/13/the_economists_who_missed_the_housing_bubble_are_c/

The Economists Who Missed the Housing Bubble Are Coming After Your Social Security

By Dean Baker - February 13, 2009, 4:13PM

Word has it that President Obama intends to appoint a task force the week after next which will be charged with "reforming" Social Security. According to inside gossip, the task force will be led entirely by economists who were not able to see the $8 trillion housing bubble, the collapse of which is giving the country its sharpest downturn since the Great Depression.

This effort is bizarre for several reasons. First, the economy is sinking rapidly. While President Obama's stimulus package is a good first step towards counteracting the decline, there is probably not a single economists in the country who believes that is adequate to the task. President Obama would be advised to focus his attention on getting the economy back in order instead of attacking the country's most important social program.

The second reason why this task force is strange is that Social Security doesn't need reforming. According to the Congressional Budget Office, it can pay all scheduled benefits for the next 40 years with no changes whatsoever.

The third reason that this effort is pernicious is that this talk of reform is occurring with the baby boomers just as the cusp of retirement. Due to the reckless policies of the Rubin-Greenspan-Bush clique, this cohort has just seen their housing equity wiped out with the collapse of the housing bubble. Tens of millions of baby boomers who might have felt reasonably secure three years ago are now approaching retirement with little or no equity in their homes.

(more)

[Hugin]

40. antigop will be very interested in this one.

Right now I'm having a chicken/egg paradox about this whole crisis thing. I haven't determined, if the whole thing was caused by the Republican's (via Bush) trying to get their hooks in the Social Security Trust Fund (via privatization) or if their grab for the golden ring was a last ditch maneuver to try to forestall this crisis (at a profit) until they could hang it around somebody else's Administration.

Hmm... Probably some of both.

[antigop]

42. I've wondered that as well, Hugin.

I wonder if we'll ever know.

[antigop]

49. More here....

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=367x17390

[Dr.Phool]

37. A little Valentines Day humor.

AND THEN THE FIGHT STARTED !!!!!!!!!!!!!!!!!!!!!!!!!!!!!

My wife sat down on the couch next to me as I was flipping channels.

She asked, "What's on TV?"

I said, "Dust."

And then the fight started.

============ ========= ========= ========= ========= =========

My wife was hinting about what she wanted for our upcoming anniversary.
She said, "I want something shiny that goes from 0 to 150 in about
3 seconds."

I bought her a scale.

And then the fight started.

============ ========= ========= ========= ========= =========

When I got home last night, my wife demanded that I take her someplace
expensive...

So I took her to a gas station...

And then the fight started.

============ ========= ========= ========= ========= =========

After retiring, I went to the Social Security office to apply for Social
Security.
The woman behind the counter asked me for my driver's license to verify my
age. I looked in my pockets and realized I had left my wallet at home.
I told the woman that I was very sorry, but I would have to go home and come
back later.

The woman said, 'Unbutton your shirt'. So I opened my shirt revealing my
curly silver hair.

She said, 'That silver hair on your chest is proof enough for me', and she
processed my Social Security application.

When I got home, I excitedly told my wife about my experience at the Social
Security office.

She said, 'You should have dropped your pants. You might have gotten
disability, too.'

And then the fight started

============ ========= ========= ========= ========= =========

My wife and I were sitting at a table at my high school reunion, and I kept
staring at a drunken lady swigging her drink as she sat alone at a nearby
table.
My wife asked, 'Do you know her?'
'Yes,' I sighed, 'She's my old girlfriend. I understand she took to drinking
right after we split up those many years ago, and I hear she hasn't been
sober since.'

'My God!' says my wife, 'who would think a person could go on celebrating
that long?'

And then the fight started.

============ ========= ========= ========= ========= ========= =

I rear-ended a car this morning. So, there we were alongside the road and
slowly the other driver got out of his car.
You know how sometimes you just get soooo stressed and little things just
seem funny?
Yeah, well I couldn't believe it... he was a DWARF!!!
He stormed over to my car, looked up at me, and shouted, 'I AM NOT HAPPY!'
So, I looked down at him and said, 'Well, then which one are you?'

And then the fight started.

============ ========= ========= ========= ========= =========
Still fighting



My wife and I are watching "Who Wants To Be A Millionaire" while we were
in bed.
I turned to her and said, "Do you want to have sex?"
"No," she answered.
I then said, "Is that your final answer?"
She didn't even look at me this time, simply saying, "Yes."
So I said, "Then I'd like to phone a friend."
And then the fight started....

========================================================

Saturday morning I got up early, quietly dressed, made my lunch, grabbed
the dog, and slipped quietly into the garage. I hooked up the boat up
to the truck, and proceeded to back out into a torrential down pour.
The wind was blowing 50 mph, so I pulled back into the garage, turned on
the radio, and discovered that the weather would be bad all day. I went
back into the house, quietly undressed, and slipped back into bed. I
cuddled up to my wife's back, now with a different anticipation, and
whispered, 'The weather out there is terrible.'
My loving wife of 10 years replied, 'Can you believe my stupid husband
is out fishing in that?'
And that's how the fight started ...

====================================================


I took my wife to a restaurant. The waiter, for some reason, took my
order first.
'I'll have the strip steak, medium rare, please.'
He said, 'Aren't you worried about the mad cow?'
'Nah, she can order for herself.'
And then the fight started ...

===============================================

A woman is standing nude, looking in the bedroom mirror. She is not
happy with what she sees and says to her husband, 'I feel horrible; I
look old, fat and ugly. I really need you to pay me a compliment.'
The husband replies, 'Your eyesight's darn near perfect.'
And then the fight started ...

[Demeter]

47. Thanks Doc! Laughter is the best medicine

It's free, aerobic, and universally effective.

[tomreedtoon]

38. I don't know economics, but here's the answer...

"Life is a banquet, and most poor bastards are starving to death."

From Auntie Mame, the original play, perhaps best performed by Ethel Merman, or the movie Mame, performed by Lucille Ball.

Also quoted by Lwaxana Troi, Deanna Troi's Mame-like mother, in the Star Trek: The Next Generation novel Q-in-Law, an audio book written by Peter David. This last was performed by Majel Barrett, the actress who played Lwaxana, and incidentally Gene Roddenberry's wife.

Perhaps the point is that although I don't know a damn thing about how economics works, apparently neither does anybody else. And I know entertainment and you don't.

[Demeter]

46. But what About Rosalind Russell?

And Angela Lansbury?

Heavens, it is classic, Depression-era, just in keeping to be this weekend's movie/play/musical!

And here's my favorite song (because it's the only one in my range):



Agnes Gooch:

With my wings resolutely spread, Missis Burnside,
And my old inhibitions shed, Missis Burnside,
I did each little thing you said, Missis Burnside,
I lived! I lived! I lived!

I altered the drape of a drop of my bodice
And softened the shape of my brow;
I followed directions
And made some connections,
But what do I do now?

Who'd think this Miss Prim would have opened a window
As far as her whim would allow;
And who would suppose it was so hard to close it,
Oh, what do I do now?

I polished and I powdered and puffed myself,
If life is a banquet I stuffed myself;
I had my misgivings, but went on a field trip,
To find out what living's about.
My thanks for your training,
Now I'm not complaining,
But you left something out!

Instead of wand'ring on with my lone remorse,
I have come back home to complete the course,
Oh, what do I do now?

Missis Burnside,
I traveled to hell in my new veneer,
And look what I got as a souvenir;
But still I'll defend you
As guide and instructor,
Would I recommend you and how.
Although I was leery, I thrived on your theory,
That life can be a wow!

You said there's nothing wrong with a harmless smooch,
So I'm gonna call him Burnside Gooch,
But what do I do now?

[antigop]

48. Can anyone please explain to me how Bernanke bought Canadian Treasury bonds?

http://www.independent.co.uk/news/business/news/us-fed-chief-bernanke-puts-his-trust-in-canadian-bonds-874937.html

Never regarded as the raciest of figures, the chairman of the United States Federal Reserve, Ben Bernanke, has revealed an especially dull personal approach to investment, with Canadian Treasury bonds forming a key element in his portfolio.

I'm curious as to how a US citizen purchases Canadian Treasury bonds. Can you buy them through a brokerage account? I used to have a Vanguard brokerage account and don't remember seeing any way to purchase foreign government bonds. Perhaps there was a way to do it and I just wasn't paying attention at the time. I'm curious as to how Bernanke did this.

I did find an ETF--XGB -- iShares CDN Government Bond Index Fund that is Canada-listed.
http://etf.stock-encyclopedia.com/XGB-TSX.html

Any info would be appreciated.

TIA. I may not be on for a while, so thanks for any replies.

[kickysnana]

51. Putting this back in order n/t

[Dr.Phool]

53. Kick

For this morning.

And thanks for all the valentines. They had to come from you comrades. This is about the only place I go on DU anymore!

:hi: :loveya: :loveya: :grouphug:

[Dr.Phool]

54. February 14 2009: A wet daydream (Automatic Earth w/ a nice pic)

Ilargi: I saw a Washington Post headline today that read: ”Obama Scores Early Victory of Historic Proportions". Now there may be all sorts of political agenda's among reporters and editors, and people may genuinely see things in different ways, but that headline is nothing but a huge pile of horse nonsense. The stimulus plan is a blunder of historic proportions, not a victory. The article touts the speed with which is was set up and pushed through, but that in reality is not exactly a positive aspect. It makes it all worse, not better. There are many voices among economists who have said the plan lacks substance and detail; a large part of the reason why lies in the haste with which it was concocted. Tim Geithner was attacked by his peers yesterday in the G7 meeting for the same reason.

Moreover, we now know that virtually no-one in the Senate and Congress has actually read the plan. You don't get to celebrate $787 billion victories because you're fast, you do that because you're good. Obama has nothing like that to show for the plan, which is a victory only for Wall Street and other corporations that get to profit from it. About 25% of the original TARP funds were completely wasted, and there is zero reason to presume it'll be different this time around. In fact, it's guaranteed to be as bad, simply by the fact that it has been prepared too hastily and with scant attention for details.

Meanwhile, the FDIC closed another 4 US banks, which means 7 closures so far this month (it’s February 14th only), and we're well on our way to over 100 failed banks in 2009. Without TARP it would have been much worse, and TARP has merely delayed the inevitable for many banks, not solved their problems. There is an absolute killer storm on its way in commercial real estate loans, and it's hard to see how 10 or more folding banks per week will not become the norm come spring.

The first warning of Obama's upcoming darkest hour will likely not come from the financial sector, however. General Motors today announced a sort of ultimatum for the administration: give us more money, or we'll file for Chapter 11. I have warned about this throughout 2008: Obama should have solved the Detroit situation before becoming president, in order to not let the Formerly Big Three go down on his watch. GM and Ford are stronger symbols of America than any other companies, and their bankruptcies will be held against the president who allows them to fail, in a big way. Detroit needs a minimum of 15 million cars sold in the US market to stay viable. Forecasts for 2009 are 10 million sales, but I bet that is way too high, even as Washington has started handing out cash for car-buyers. Subsidies or no subsidies, sales may fall to as low as 5 million this year.

(more)

http://theautomaticearth.blogspot.com/

[DemReadingDU]

56. Thanks! I love the TAE

always interesting commentary by Ilargi, and a good picture too


:hi:

[Demeter]

59. What? You Want QUALITY?

We specialize in fast and cheap. Look at food, fashion, legislation--there is no quality there!

Quality is so Pre-Reagan! Although I'm sure that those born before me would push it back even further, Reagan marked an acceleration in crap in all its forms. He fired quality workers and hired the untrained to land airplanes, and Big Business followed suit. Gingrich purged the GOP of quality (the old guard was dying off anyway) and created his Robotic Legislators, while the Federalist Society created the robotic Judiciary. And let's not even talk about the televangelists and their new, improved, drive-through religion.


It's going to take a catastrophe to turn the quality issue around. The nation has endured several generations of Cheaters, who have destroyed everything from their marriages to the economy, and they aren't done yet.

[DemReadingDU]

55. I just posted Martenson's mini-crash course he presented on PBS

check this thread
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x57012


and thanks for all the hearts!
:loveya:

[muriel_volestrangler]

61. Ireland ‘could default on debt’

The cost of buying insurance against Irish government bonds rose to record highs on Friday, having almost tripled in a week. Debt-market investors now rank Ireland as the most troubled economy in Europe.

Simon Johnson, the former chief economist of the International Monetary Fund, called for this weekend’s meeting of G7 finance ministers to put Ireland’s troubles at the top of the agenda.

Johnson said: “Don’t, please, tell me more about the basic principles of financial reform unless and until you have addressed the Irish problem. And don’t tell me the Irish have to sort this out for themselves. Eventually, the world always comes to help; check your notes on Iceland.
...
The cost of insuring Irish debt hit 350 basis points on Friday, meaning that for every £100 of debt it would cost £3.50 to insure against default. A year ago it would have cost 10p to insure every £100 of Irish debt.

http://business.timesonline.co.uk/tol/business/economics/article5733723.ece

[Demeter]

63. Sounds Like Someone or something Is Putting the Squeeze on Ireland

Iceland fell when it's prop disappeared...which prop is disappearing for Ireland?

Someday someone is going to string it all together into a coherent narrative, if there is any civilization left, and we will know exactly who is to blame and how to prevent it.

This is the real domino theory, right here. It makes SE Asia look like an excuse to rumble.

[Tansy_Gold]

67. Okay. Tell me if I've got this right. Or correct my errors.

A government, any government, but we'll take Ireland as an example, seeks to raise money by selling "bonds." Essentially, the bond is a loan from An Entity to The Government. The governemnt then uses the money thus raised to do whatever it needed the money for: build schools, improve roads, start a war. Whatever.

The government also, however, has some kind of plan to raise OTHER money to pay off the loan. With interest. In installments.

The purchaser, however, doesn't have enough faith in the government to pay off its debt, so the purchaser ALSO buys insurance to cover the debt.

Since the purchaser probably intended to make a profit off the investment/loan/bond, wouldn't they want to make sure that their return on the bond (principal + interest) would be at least equal to the amount lent + cost of insurance? And wouldn't they also insure the investment for that same amount? And what happens if they insure it for more? Would they then have an incentive to see that the government couldn't pay it back? In other words, an incentive to see the government fail?

Now of course the insurer doesn't want to see that because then they'd have to pay off on the insurance, right? Is this what happened to AIG? Is that why they want to get a bailout from the very government that its investors wanted to bring down?

Who wins in any of this? The investor/lender/bondholder, right? And why should their gamble have been so carefully protected that its underlying motive -- profit -- ensured the collapse of the economy?

Did I get it wrong?



Tansy Gold

[Demeter]

81. I think you are spot on

Alas for us all....

[muriel_volestrangler]

126. That sounds about right

The 'insurance' is called a 'credit default swap' (some say this was to bypass insurance regulations, which actually make sure the insurer, such as AIG, actually have enough money to pay out if the loans do go bad).

"And what happens if they insure it for more?" Ahh, there's the rub. Being unregulated, anyone has been able to buy these credit default swaps concerning the entities (companies, governments), even if they haven't lent them money; effectively, it's betting on whether someone will go bust.

There was a proposal to restrict CDSs (in the US, anyway) to the people who've actually made the loans, but Wall Street seemed to holler too loud this would hurt them (no matter that this has been a major reason for the problems we now have):

WASHINGTON, Feb 11 (Reuters) - The U.S. futures industry regulator would be empowered under a bill filed by the House Agriculture Committee chairman on Wednesday to suspend trading in credit default swaps if needed to protect investors and the financial market.

The bill also would require clearing of over-the-counter transactions through entities registered with the Commodity Futures Trading Commission or the Securities and Exchange Commission, according to a summary.
...
An earlier draft would have banned "naked" CDS and limit the instrument to investors who can show a need, such as owning the underlying bonds. Financial industry groups said a ban would destroy the U.S. market for CDS and impair the availability of credit.

Instead, the bill empowers the CFTC, if the president agrees, to "summarily suspend trading in any credit default swap" to protect investors and the markets.

http://uk.reuters.com/article/americasIpoNews/idUKN1138178920090211

Allowing the insurance against default, in some form, makes some sense to me. But regulating it, and restricting it so that all that it is doing is spreading the risk in case of default, seems vital. As you say, "an incentive to see the government fail" (or a company) mustn't appear for anyone.

Who wins? As the Alaskan article says, with AIG, it was those who took the 'insurance premiums', and got out before the crash happened - AIG employees with bonuses, or shareholders who sold in time. If the company issuing the CDSs can pay out when the default happens, then those holding CDSs worth more than any loans they've made to the company win too. But to me, that's the kind of betting that should only happen between consenting adults on a race track, and shouldn't be called 'finance' at all.

[Demeter]

64. North Carolina Attorney General Asks Bank of America to Describe and Justify Bonuses

http://www.nakedcapitalism.com/2009/02/north-carolina-attorney-general-asks.html

Reader Russell had wondered whether the attorney general of North Carolina might go after Bank of America over the difficult-to-rationalize bonuses paid to Merrill staff, given that the Charlotte bank had signed off on them (failing to inform and obtain consent Bank of America would have been grounds for terminating the deal).

I had thought it unlikely that the AG of the state in which Bank of America was headquartered would be likely to pursue the big bank. Attorneys general tend not to make waves with their state's biggest employer (even in the communist state of New York, look what happened to Eliot Spitzer).

However, much to my surprise, the North Carolina AG, Roy Cooper is at least taking names and making waves. It remains to be seen whether this goes beyond the political theater stage. A Civil Investigative Demand, the North Carolina analogue to a subpoena, has apparently been issued, but it isn't clear what legal theory Cooper is relying upon. Note also that New York attorney general Andrew Cuomo is also pursuing the Merrill bonuses. Another sign of changes in the zeitgeist, or merely a reflection in the dramatic fall in the standing of banks?

From the Charlotte Observer:

N.C. Attorney General Roy Cooper wants Bank of America Corp. to immediately disclose the amount in bonuses it's paying employees this month for their work in 2008, according to a letter sent to the bank's board of directors on Thursday.

Cooper also asked the board for an explanation “as to the appropriateness of any bonuses while public money is being provided to the bank,” the letter states. The request follows an earlier demand by his office for records on bonuses paid by merger partner Merrill Lynch & Co. as well as the bank's acceptance of government assistance.

The new demand follows a Capitol Hill appearance Wednesday by Bank of America chief executive Ken Lewis and seven other CEOs whose banks have received money from the Troubled Asset Relief Program. During his testimony, Lewis faced questions about the bonuses paid by Merrill in December shortly before Bank of America bought the New York investment bank. Lewis noted that his Charlotte bank is paying reduced bonuses this month.

“After the acceptance of public funds, the payment of additional discretionary bonuses under these circumstances is most troubling,” Cooper wrote. The attorney general's earlier “investigative demand” required the bank to produce records, including information on the bank's bonuses, by March 4....

Half of the 10 “bands” of Bank of America employees are eligible for year-end incentive pay. Workers have been learning of their lowered payouts in recent weeks. The company employs about 301,000 worldwide... New York Attorney General Andrew Cuomo is also investigating the $3.6 billion in Merrill bonuses, and this week he said that Bank of America acted with “apparent complicity” to Merrill's bonus plan. Bank of America says those bonus decisions were made by Thain and other Merrill officials.

Lewis told the House Financial Services Committee Wednesday that the bank urged Merrill to slash bonuses, particularly for top executives. But he added that he had no legal right at the time to tell Merrill what to do, since it was still an independent company. Merrill's fourth-quarter losses ultimately exceeded $15 billion.

Bank of America traditionally pays out its employee bonuses on the 15th of February. In good years, the money can provide a boost to consumer spending in Charlotte.

[Demeter]

65. "We Are Threatened by a Veritable Disaster"

http://www.nakedcapitalism.com/2009/02/we-are-threatened-by-veritable-disaster.html



Leijonhufvud's current post at VoxEU does a very good job of looking at the economic mess the US is in and assesses policy options. It is a remarkably straightforward piece. Most of the information cited will be familiar to many readers, but he connects them and concludes that stimulus will almost certainly be ineffective unless undertaken on a scale that would produce very serious inflation.

From VoxEU:

This recession is different. Balance sheets of consumers, firms, and banks are under strain. The private sector is bent on reducing debt and this offsets Keynesian stimulus more than standard flow calculations would suggest. Bank deleveraging is by far the most dangerous. Fiscal stimulus will not have much effect as long as the financial system is deleveraging.

This is not an ordinary recession that differs from other recent episodes simply by being somewhat more severe. It differs in kind.

Past recessions and the reallocation of employment

The end of the Cold War brought a decline in military spending and a recession which impinged most heavily on the states, like California, where the military-industrial complex was an important part of the local economy. The nationwide unemployment rate rose from 5.25% in 1989 to 7.5% in 1992. It then fell every year reaching just under 4% in 2000. The “free market” took care of the recession of the early 1990’s. Resources moved from the defence industries, trickling into other uses through innumerable channels. The federal government did not need to take a hand. Beginning in 1993, the federal deficit in fact shrank every year turning into a modest surplus in 1998. That was a very ordinary recession.

If the current situation were at all similar we would expect a recession in residential construction with unemployment among construction workers and mortgage brokers. Naturally, recent boom areas would be hard hit but we would expect resources gradually to trickle into alternative employment. Instead, we are threatened by a veritable disaster.

Balance sheet recessions

What is the difference? It resides in the state of balance sheets. The financial crisis has put much of the banking system on the edge – or beyond -- of insolvency. Large segments of the business sector are saddled with much short-term debt that is difficult or impossible to roll over in the current market. After years of near zero saving, American households are heavily indebted.

The holes that have opened up in the balance sheets of the private sector are very large and still growing. A recent estimate by Jan Hatzius and Andrew Tilton of Goldman Sachs totes up capital losses of $2.1 trillion; Nouriel Roubini thinks the total is likely to be $3 trillion. About half of these losses belong to financial institutions which means that more banks are insolvent – or nearly so – than has been publicly recognised so far.

So the private sector as a whole is bent on reducing debt. Businesses will use depreciation charges and sell off inventories to do so. Households are trying once more to save. Less investment and more saving spell declining incomes. The cash flows supporting the servicing of debts are dwindling. This is a destabilising process but one that works relatively slowly. The efforts by financial firms to deleverage are the more dangerous because they can trigger a rapid avalanche of defaults (Leijonhufvud 2009).

The Japanese example

Richard Koo (2003) coined the term “balance sheet recession” to characterise the endless travail of Japan following the collapse of its real estate and stock market bubbles in 1990. The Japanese government did not act to repair the balance sheets of the private sector following the crash. Instead, it chose a policy of keeping bank rate near zero so as to reduce deposit rates and let the banks earn their way back into solvency. At the same time it supported the real sector by repeated large doses of Keynesian deficit spending. It took a decade and a half for these policies to bring the Japanese economy back to reasonable health.

The Great Depression counterexample

The US Great Depression saw no consistent policy of deficit spending on adequate scale in the 1930’s. War spending not only brought the economy back to full resource utilisation but also crowded out private consumption to a degree (Barro 2009).1 The deficits run during the war meant that:

At war’s end, the federal government’s balance sheet showed a debt of a size never before seen, but also

The balance sheets of the private sector were finally back in good shape.


At the time, a majority of forecasts predicted that the economy would slip back into depression once defence expenditures were terminated and the armed forces demobilised. The forecasts were wrong. This famous postwar “forecasting debacle” demonstrated how simple income-expenditure reasoning, ignoring the state of balance sheets, can lead one completely astray.

Lessons from the two cases: Fill the financial sinkholes first

The lesson to be drawn from these two cases is that deficit spending will be absorbed into the financial sinkholes in private sector balance sheets and will not become effective until those holes have been filled. During the years that national income fails to respond, tax receipts will be lower so that the national debt is likely to end up larger than if the banking sector’s losses had been “nationalised” at the outset.

Sweden’s successful policy mix: Don’t forget the mega devaluation

The Swedish policy following the 1992 crisis has been often referred to in recent months. Sweden acted quickly and decisively to close insolvent banks, and to quarantine their bad assets into a special fund.2 Eventually, all the assets, good and bad, ended up in the private banking sector again. The stockholders in the failed banks lost all their equity while the loss to taxpayers of the bad assets was minimal in the end. The operation was necessary to the recovery but what actually got the economy out of a very sharp and deep recession was the 25-30% devaluation of the krona which produced a long period of strong export-led growth. Needless to say, the US is in no position to emulate this aspect of the Swedish success story.


Yves here. I wouldn't bet on that. In fact, if I were the Fed, I'd very much want a cheaper dollar, but the conundrum is how to achieve that without causing more global instability. Back to the article:


Perils, present and future
Strong contractionary forces are at work in the US emanating both from the capital and the income accounts. Stabilisation requires major policy actions on both fronts.

First, the financial system must be recapitalised so as to remove the relentless pressure to deleverage from the banks

Second, a spending stimulus sufficient to reverse the rapidly worsening decline in incomes must be administered.


When the entire private sector is bent on shortening its balance sheet and paying down debt, the public sector’s balance sheet must move in the opposite, offsetting direction. When the entire private sector is striving to save, the government must dis-save. The political obstacles to doing these things on a sufficient scale are formidable.

If banking system losses are of the magnitude estimated by Goldman Sachs or Roubini, the banks need capital injections of at least another $200-300 billion. Even if injections equal to all their losses could be effected, the banks might still want to contract, now that they know how dangerous their leverage of yesteryear was.

US policy: A strangely contrived way out of a political impasse

The American public understands clearly that the present disaster was fashioned on Wall Street (albeit with some stimulus from Fed policy). Outright bail-outs are a “hard sell” therefore. But the American ideological taboo against “nationalisation” also stands in the way of dealing with the matter in the straightforward way that Sweden did. The present administration, like the last, would like to recapitalise the banks at least partly by attracting private capital. That can hardly be accomplished as long as the value of large chunks of the banks’ assets remains anybody’s guess. Government guarantees against (some part of) losses that may be incurred might solve this problem. But it would be a strangely contrived way out of a political impasse.

Fiscal stimulus + financial deleveraging = zero impact

Fiscal stimulus will not have much effect as long as the financial system is deleveraging. Even if that problem were to be more or less solved, the government deficit would have to offset both the decline in industry investment and the rise in household saving – a gap that is rising as the recession deepens. Here, too, the public is sceptical and prone to conclude that a program that only slows or stops the decline but fails to “jump start” the economy must have been a waste of tax payers’ money. The most effective composition of such a program is also a problem.

US states and local governments undoing the federal spending boost

Almost all American states now suffer under self-imposed constitutional balanced budget requirements and are consequently acting as powerful amplifiers of recession with respect to both income and employment. The states will have a spending propensity of one, as will a great many local governments. Income maintenance for unemployed and other low income households will also be effective.3 Tax cuts will have considerably lower spending propensities. However, the political prospects seem to portend a less than ideal program mix.

The danger of deflation, or inflation

If government programs end up not being large enough to turn the recession around, we have to look forward to a deflationary period of indeterminate length. If they do succeed, however, severe inflationary pressures may surface quite quickly.

The US ratio of federal debt to GNP is not particularly high at this time. But it does not take into account the very large off-balance liabilities of entitlement programs. Since the present crisis began, moreover, the Federal Reserve System and other federal agencies have made bail-out, loan and credit guarantee commitments totalling many trillions of dollars with uncertain eventual implications for the consolidated federal balance sheet.

If the US’s foreign creditors balk, inflation will be hard to contain

Much will depend on the willingness of the nation’s foreign creditors to continue to accumulate or at least to hold dollars at low rates of interest. Should this willingness falter, inflation will be hard to contain.

There is much to fear beyond fear itself.

[Demeter]

66. How We Can Restore Confidence By Charles T. Munger

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/10/AR2009021003122.html


... should we create new controls to stamp out much sin and folly and thus dampen future booms? The answer is yes. Sensible reform cannot avoid causing significant pain, which is worth enduring to gain extra safety and more exemplary conduct. And only when there is strong public revulsion, such as exists today, can legislators minimize the influence of powerful special interests enough to bring about needed revisions in law.

Many contributors to our over-the-top boom, which led to the gross bust, are known. They include insufficient controls over morality and prudence in banks and investment banks; undesirable conduct among investment banks; greatly expanded financial leverage, aided by direct or implied use of government credit; and extreme excess, sometimes amounting to fraud, in the promotion of consumer credit. Unsound accounting was widespread.

There was also great excess in highly leveraged speculation of all kinds. Perhaps real estate speculation did the most damage. But the new trading in derivative contracts involving corporate bonds took the prize. This system, in which completely unrelated entities bet trillions with virtually no regulation, created two things: a gambling facility that mimicked the 1920s "bucket shops" wherein bookie-customer types could bet on security prices, instead of horse races, with almost no one owning any securities, and, second, a large group of entities that had an intense desire that certain companies should fail. Croupier types pushed this system, assisted by academics who should have known better. Unfortunately, they convinced regulators that denizens of our financial system would use the new speculative opportunities without causing more harm than benefit.

Considering the huge profit potential of these activities, it may seem unlikely that any important opposition to reform would come from parties other than conventional, moneyed special interests. But many in academia, too, will resist. It is important that reform plans mix moral and accounting concepts with traditional economic concepts. Many economists take fierce pride in opposing that sort of mixed reasoning. But what these economists like to think about is functionally intertwined, in complex ways, with what they don't like to think about. Those who resist the wider thinking are acting as engineers would if they rounded pi from 3.14 to an even 3 to simplify their calculations. The result is a kind of willful ignorance that fails to understand much that is important.

Moreover, rationality in the current situation requires even more stretch in economic thinking. Public deliberations should include not only private morality and accounting issues but also issues of public morality, particularly with regard to taxation. The United States has long run large, concurrent trade and fiscal deficits while, to its own great advantage, issuing the main reserve currency of a deeply troubled and deeply interdependent world. That world now faces new risks from an expanding group of nations possessing nuclear weapons. And so the United States may now have a duty similar to the one that, in the danger that followed World War II, caused the Marshall Plan to be approved in a bipartisan consensus and rebuild a devastated Europe.

MORE AT LINK, GOING INTO THE NEVER-NEVER LAND OF "BIPARTISAN TAX INCREASES", BUT I KEPT THE GOOD STUFF

The writer, a Republican, is vice chairman of Berkshire Hathaway Inc., which owns 21 percent of The Washington Post Co.'s common stock.

[Demeter]

68. The Stock Picker's Defeat By TOM LAURICELLA

http://online.wsj.com/article/SB122886123425292617.html


William H. Miller spent nearly two decades building his reputation as the era's greatest mutual-fund manager. Then, over the past year, he destroyed it.

Fueled by winning bets on stocks other investors feared, Mr. Miller's Legg Mason Value Trust outperformed the broad market every year from 1991 to 2005. It's a streak no other fund manager has come close to matching.

Mr. Miller was in his element a year ago when troubles in the housing market began infecting financial markets. Working from his well-worn playbook, he snapped up American International Group Inc., Wachovia Corp., Bear Stearns Cos. and Freddie Mac. As the shares continued to fall, he argued that investors were overreacting. He kept buying.

What he saw as an opportunity turned into the biggest market crash since the Great Depression. Many Value Trust holdings were more or less wiped out. After 15 years of placing savvy bets against the herd, Mr. Miller had been trampled by it.

The financial crisis has created losers across the spectrum -- homeowners who can't afford their subprime mortgages, banks that loaned to them, investors who bought mortgage-backed securities and, as financial markets eventually crumbled, just about everyone who owned shares. But it has also brought low contrarians like Mr. Miller who had been lionized for staying a step ahead of the market. This meltdown has provided a lesson for Mr. Miller and other "value" investors: A stock may look tantalizingly cheap, but sometimes that's for good reason.

"The thing I didn't do, from Day One, was properly assess the severity of this liquidity crisis," Mr. Miller, 58 years old, said in an interview at Legg Mason Inc.'s Baltimore headquarters.

Mr. Miller has profited from investor panics before. But this time, he said, he failed to consider that the crisis would be so severe, and the fundamental problems so deep, that a whole group of once-stalwart companies would collapse. "I was naive," he said.

A year ago, his Value Trust fund had $16.5 billion under management. Now, after losses and redemptions, it has assets of $4.3 billion, according to Morningstar Inc. Value Trust's investors have lost 58% of their money over the past year, 20 percentage points worse than the decline on the Standard & Poor's 500 stock index....

[Demeter]

69. Is the Fed Taking the First Steps to Selective Default and Devaluation?

TWO MONTHS OLD--BUT STILL TROUBLING


http://jessescrossroadscafe.blogspot.com/2008/12/is-fed-taking-first-steps-to-default-or.html


We have been looking for an out-of-the-box move from the Fed, but this was not what we had expected.

The obvious game changing move would have been for the Treasury and the Fed to make an arrangement in which the Fed is able to purchase Treasury debt directly without subjecting it to an auction in the public market first. This is known as 'a money machine' and is prohibited by statute.

But as usual the Fed surprises us all with their lack of transparency. They are asking Congress about permission to issue their own debt directly, not tied to Treasuries.

This is known in central banking circles as 'cutting out the middleman.' Not only does the Treasury no longer issue the currency, but they also no longer have any control over how much debt backed currency the Fed can now issue directly.

If the Fed were able to issue its own debt, which is currently limited to Federal Reserve Notes backed by Treasuries under the Federal Reserve Act, it would provide Bernanke the ability to present a different class of debt to the investing public and foreign central banks.

The question is whether it would be backed with the same force as Treasuries, or is subordinated, or superior.

There will not be any lack of new Treasury debt issuance upon which to base new Fed balance sheet expansion. The notion that there might be a debt generation lag out of Washington in comparison with what the Fed issues as currency is almost frightening in its hyperinflationary implications.

This makes little sense unless the Fed wishes to be able to set different rates for their debt, and make it a different class, and whore out our currency, the Federal Reserve notes, without impacting the sovereign Treasury debt itself, leaving the door open for the issuance of a New Dollar.

What an image. The NY Fed as a GSE, the new and improved Fannie and Freddie. Zimbabwe Ben can simply print a new class of Federal Reserve Notes with no backing from Treasuries. BenBucks. Federal Reserve Thingies.

Perhaps we're missing something, but this looks like a step in anticipation of an eventual partial default or devaluation of US debt and the dollar.

[Demeter]

70. America vs. the Oligarchs

http://jessescrossroadscafe.blogspot.com/2009/02/american-vs-wall-street-banking.html


Bill Moyers has an interview with former IMF Chief Economist and MIT professor Simon Johnson that puts forth the notion that there is a small group of financial oligarchs essentially holding the country hostage.

Simon Johnson's premise is that the big Wall Street banks represent an oligarchy that is exerting undue influence and control on our government and the economy. They are turning this crisis to their advantage, and circumventing the democratic process.

What we are seeing looks to Simon Johnson like a financial coup d'etat.

Now is the time to break up the big money center banks. Now is the time to reinstate Glass-Steagall. We must demand the reforms for which we elected the Obama Administration.

Watch this interview. Think about it. Let other people know. Write your congressmen.

And be prepared to act on a larger scale in a peaceful way to get the point across that we value our liberty and we will stand for justice. We are not optimistic that the government will do the right thing without more prodding and significant support from the public.

[Demeter]

71. First We'll Kill All the Economists...

http://www.charlierose.com/view/clip/9722

video interview with Nassim Nicholas Taleb

[Demeter]

72. GE to inject finance arm with $9.5bn cash

http://www.ft.com/cms/s/0/440ad326-f7d1-11dd-a284-000077b07658.html

By Justin Baer and Francesco Guerrera in New York

Published: February 11 2009 00:23 | Last updated: February 11 2009 00:23

General Electric plans to shore up the balance sheet of its finance arm, GE Capital, by diverting the remaining $9.5bn in cash from the conglomerate’s stock sale last year.

The move, which follows last quarter’s $5.5bn capital infusion, will enable GE Capital to reach its goal of reducing its debt, net of cash, ratio to 6-to-1 earlier than expected.

It also comes amid mounting scepticism that GE can weather the downturn with either its $1.24-a-share annual dividend or its pristine triple-A credit rating intact.

The company’s board, which on Friday approved GE’s quarterly dividend while agreeing to review whether to maintain the pay-out’s current levels for the second half of the year, supported the plan to shift cash to GE Capital.

..........

GE sold $15bn in stock to investors such as Warren Buffett’s Berkshire Hathaway to stockpile cash until the crisis subsided or “play offense” should the market turmoil create opportunities to buy distressed assets or companies.

The deteriorating economic outlook gave GE little choice but to take a more defensive approach to a credit crunch that had already consumed some of the world’s biggest banks and brokers. The turmoil has also taken its toll on GE Capital, and while the division has remained profitable, analysts and investors now doubt it can deliver the $5bn in 2009 earnings forecast by its corporate parent.

GE responded to the turbulence by reducing the company’s dependence on GE Capital for earnings, shrinking its borrowing needs, slashing costs and participating in government programmes devised to stimulate liquidity. The company is raising more funds from deposits to help become less reliant on the commercial-paper market.

“There’s a real focus on ‘safe and secure’, from a cash, liquidity and cost perspective,” Mr Sherin said.

In Mr Sherin’s presentation, he also noted Wall Street had pegged GE Capital’s profits at $3.6bn. “We’re sitting here in February,” he said. “We think we have a pretty reasonable view about the year, and we acknowledge other people have a different view.”

ANOTHER VULTURE FOILED!

[Demeter]

73. Bank Failures May Reach 1,000 on Bad Loans, RBC Says (Update2)

http://www.bloomberg.com/apps/news?pid=20601087&sid=afK.wvOmLMpU&refer=home


By David Mildenberg and Margaret Chadbourn

Feb. 9 (Bloomberg) -- As many as 1,000 U.S. banks may fail in the next three to five years, almost double the one-year tally at the height of the saving-and-loan collapse, as losses mount on commercial real-estate loans, RBC Capital Markets analysts said.

Most of the failures will probably occur at banks with less than $2 billion in assets as their commercial customers default, said Gerard Cassidy, an analyst at RBC, in an interview today.

“There are billions of dollars of losses embedded in the system, and the system has to flush them out,” Cassidy said. “The people that are going to take the losses are the taxpayers and bank stockholders, and if regulators say there won’t be much loss to taxpayers, they will be lying.”


...The FDIC has already raised the estimate for the cost of U.S. bank failures through 2013 after fourth-quarter financial reports from banks signaled possible additional losses to the deposit insurance fund. The agency said failures through 2013 may cost more than the $40 billion estimated in October.

The U.S. seized 534 lenders in 1989, including 327 saving- and-loan associations, during the peak of a crisis among thrift institutions, FDIC data showed.

‘Nowhere Near the End’

The FDIC on Dec. 16 doubled premiums it charges banks to replenish its reserves, which totaled $34.6 billion as of the third quarter. The agency and Congress are taking steps to offer safeguards for the banking industry, including more than tripling the FDIC’s borrowing authority from the Treasury Department, to $100 billion, to support consumers against bank failures.

“The sooner the bank regulators can shut down the troubled banks, the faster the industry will get back on its feet,” Cassidy said in the report. “We are nowhere near the end of this down leg in the current credit cycle.”

[Robbien]

103. Leg of a cycle he says.

This is no cycle. Worldwide financial systems are all careening down the road to a sudden end.

Failure to save East Europe will lead to worldwide meltdown
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4623525/Failure-to-save-East-Europe-will-lead-to-worldwide-meltdown.html

If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.

Austria's finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria's GDP.

"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.

The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary Stalingrad" in the East.

Mr Pröll tried to drum up support for his rescue package from EU finance ministers in Brussels last week. The idea was scotched by Germany's Peer Steinbrück. Not our problem, he said. We'll see about that.

. . .

Stephen Jen, currency chief at Morgan Stanley, said Eastern Europe has borrowed $1.7 trillion abroad, much on short-term maturities. It must repay – or roll over – $400bn this year, equal to a third of the region's GDP. Good luck. The credit window has slammed shut.

Not even Russia can easily cover the $500bn dollar debts of its oligarchs while oil remains near $33 a barrel. The budget is based on Urals crude at $95. Russia has bled 36pc of its foreign reserves since August defending the rouble.

"This is the largest run on a currency in history," said Mr Jen.

the article talks about each eastern Europeon country's banking situation and how there is not enough money no where in the EU to even begin to bail anyone out.

A cycle has both up and down legs.

There is no up from here if all the best and brightest minds are focused on saving the banks.

[Demeter]

74. VALENTINE'S DAY NEWS FLASH: De Beers loses its sparkle

http://www.ft.com/cms/s/0/f91cd3a4-f79f-11dd-a284-000077b07658.html


De Beers does not expect any recovery in demand for diamonds until Christmas next year at the earliest and is planning to cut production drastically.

The world’s biggest rough diamond producer is scrambling to scale down its business as consumers cut their spending on luxury goods and diamond cutting houses struggle to finance their purchases of rough gems.

“We are going to significantly reduce production levels to align them with levels of demand,” Stephen Lussier, executive director for external and corporate affairs, said on the fringes of a mining conference in Cape Town. “There’s no point digging a diamond out of the ground when you don’t have a client ready to buy it.”

Mr Lussier refused to put a number on the cutbacks.

Some analysts say recent auctions of diamonds – which do not trade on exchanges like other commodities – have seen prices paid for lots falling by as much as 50 per cent. Diamond industry experts have reported that De Beers’ latest sale of rough diamonds in January raised $100m, compared with $600m in January 2008...Chaim Even-Zohar, a consultant and industry veteran, did little to raise the spirits of the executives and investors at the conference by predicting that demand for rough diamonds will fall by between 59 per cent and 63 per cent this year.

The US, which is feeling the brunt of the global recession, normally buys about half of all polished diamonds sold....

[Demeter]

75. FBI Shifts – Counter-terrorism To Anti-Fraud By James Raider

http://www.opednews.com/articles/FBI-Shifts--Counter-terr-by-James-Raider-090213-320.html


As the economy's meltdown confuses politicians and economists, and stresses businesses and wage earners, the FBI has suddenly discovered a new path to career advancement. It has announced open season on the financial community with 530 corporate fraud investigations.



The FBI also claimed that 38 of these new investigations involve some of the biggest names on Wall Street, and that it has a record 1,800 investigations digging into mortgage fraud. Mortgage industry professionals, including the CEOs of companies, brokers, and lawyers are apparently being scrutinized for their roles in the evaporation of hundred of millions of dollars. 



Some of the disappearance is related to the $700 billion Troubled Asset Relief Program's cash distribution already dispensed. No-one was watching. What can really be expected for the stimulus money Obama and Congress will shortly be disposing of? Neil Barofsky, the special inspector general of the TARP program put it rather aptly, "History teaches us that an outlay of such money in such a short period of time will inevitably draw those seeking to profit criminally."

.................
We can rest assured that the FBI investigation, along with an allegedly revived SEC, will not delve too deeply into any affairs of financially healthy friends of the Administration or Congress. Future results will be consistent with past inaction on abuses perpetrated by former executives of organizations such as Fannie Mae and Freddie Mac. Where was the SEC's oversight during the past few months or the past year? Where is it now? 



America can look forward to being entertained by in-depth coverage of occasional culprits assembled into the corral constructed specifically for scapegoats. Sure, they will be guilty, and mountains of evidence will be collected then disgorged on their heads with flamboyance in the public square, but they will be bit players in the game.

The new FBI initiative is another tool in the arsenal prescribed for taking the taxpayer's eye off the ball. Fraudsters should be punished. All fraudsters, including the ones at the top of any fraudulent food-chain, even those whose cosy relationships provide insulation from prosecution. Delivering otherwise is repeating tired myths, and is a prolonging of past disrespect of taxpayers.

James Raider writes The Pacific Gate Post

[Demeter]

76. A Short History of US Government Handouts By Stephen Lendman

http://www.opednews.com/articles/A-Short-History-of-US-Gove-by-Stephen-Lendman-090213-519.html


In America today, they're called bailouts, but throughout history they were handouts. Some quite generous (though nothing like today's) and always for the privileged. Never for the public interest or greater good.

Last October, Howard Zinn wrote about them in his Nation magazine article titled "Bailout - A Great Opportunity:"

"Let's face a historical truth: we have never had a 'free market,' we have always had government intervention in the economy, and indeed that intervention has been welcomed by the captains of finance and industry. These titans of wealth hypocritically warned against 'big government' but only when (it) threatened to regulate their activities, or when it contemplated passing some of the nation's wealth on to the neediest people."

"They had no quarrel with 'big government' when it served their needs, (and it) started way back" in 1787 when the Constitution was drafted. The year before farmers from Western Massachusetts and elsewhere rebelled to protect their properties from being seized for nonpayment of taxes. The Founders took note and "created 'big government' powerful enough" to deter them in future incidents. To return runaway slaves to their owners, and to massacre Indians to make way for new settlers.

They established the idea of handouts as well. The first one to pay full value for near-worthless bonds held by speculators - an earlier version of buying today's toxic assets.

It was bad enough, then compounded by taxing the public to pay for them each time, and having a standing army ready in case of resistance. What precisely happened in 1794 when Pennsylvania farmers stood up against unfair tax laws.

"In the first sessions of the first Congress," markets were manipulated with tariffs "to subsidize manufacturers." Government also partnered with private banks to establish a national one. These practices were commonplace from that time to now. Only the amounts get bigger. The more concentrated business gets, the greater its appetite and more power it has to satisfy it. It's now insatiable enough to demand trillions more in handouts before the current crisis ends, looted from the Treasury with taxpayers getting the bill...

[Demeter]

77. Will You Help Me With My Next Film? ...a request from Michael Moore

http://www.michaelmoore.com/words/message/index.php?id=245

Friends,

I am in the middle of shooting my next movie and I am looking for a few brave people who work on Wall Street or in the financial industry to come forward and share with me what they know. Based on those who have already contacted me, I believe there are a number of you who know "the real deal" about the abuses that have been happening. You have information that the American people need to hear. I am humbly asking you for a moment of courage, to be a hero and help me expose the biggest swindle in American history.

All correspondence with me will be kept confidential. Your identity will be protected and you will decide to what extent you wish to participate in telling the greatest crime story ever told.

The important thing here is for you to step up as an American and do your duty of shedding some light on this financial collapse. A few good people have already come forward, which leads me to believe there are many more of you out there who know what's going on. Here's your chance to let your fellow citizens in on the truth.

If you have any info that would help, please contact me at my private email address: [e-mail].

[Demeter]

79. Economists Heal Thyselves

http://www.dailyreckoning.com/the-economic-panic-of-2009/


Back in the ’90s, when Americans still believed in capitalism, they sent a steady stream of advisors and kibitzers to Japan. The world’s second largest economy was in a stall and seemed in no hurry to get out of it. Its largest banks were “zombies,” said the Americans; they were propped up by the Japanese government in order to avoid losses and embarrassment. If the Japanese wanted to get things moving again they should let those banks fail...let the free market do its work...let the chips fall where they may. Then, capitalists, entrepreneurs and scrappy businessmen could pick them up and build with them.

The Japanese didn’t take the advice. To this day, 19 years after the beginning of Japan’s long, soft, on-again, off-again depression, the economy is still in a slump...and expecting negative growth again this year. All together, Japanese investors are said to have lost a sum equal to 300% of the nation’s annual GDP...the equivalent to a loss of about $45 trillion in the United States.

Years ago, we predicted – in these daily reckonings – that when the crisis came in the United States, Americans wouldn’t take their own advice. Alas, we were right. Instead, they are keeping the zombies alive, just like the Japanese did. And the zombies are sucking the blood out of the economy.

And poor Barack. Our guess is that Paul Volker has spelled the nuts and bolts of the situation out for him. But Obama, surrounded by a fluff of advisors with their dog-eared copies of Keynes’ General Theory of Employment, Interest and Money , doesn’t know who to believe...or who to trust. So, he goes with the flow. It would take a strong man, with strong convictions about economics to resist a gaggle of Ph.D. economists and experts telling him that he risks ‘catastrophe’ if he doesn’t act quickly. Poor Barack may be a decent fellow...but he is a decent fellow in a bad trade. He doesn’t know it, but the flow leads nowhere.

[Tansy_Gold]

85. You knew it was coming. You knew it.

Ya know, the sad thing is that in the zealous determination to find the perfect Secretary of Commerce or Secretary of the Treasury in terms of their tax history and moral fiber and all that other happy horseshit, they're not getting anyone who could really fix the problems.

Mr. Obama, GET REAL.

Find some people who are less than perfect but who can get the job done. Do they have a few sex scandals in their past? So did Newt Gingrich and John McCain. Sarah Palin was pregnant when she got married. Her pregnant daughter never did get married. Bill Clinton? 'Nuff said.

Did they pay every penny of their taxes on time? Did they ever default on a credit card? Did they have a late mortgage payment? A bounced check?

Is all that stuff really important?

How about asking questions like this:

Do you know how to survive when the main breadwinner in the house is laid off?
Have you managed to raise a family without any major catastrophes?
Will you have a nervous breakdown if your income is slashed by 10% or will you know how to stretch what you've got?
When was the last time your income didn't cover your household budget and what did you do to get by?
How often in the past six months have you done any of the following:
Pumped your own gas?
Washed your own dishes?
Bought your own groceries?
Taken out your own trash?
Driven your own car?
Taken public transportation?
Balanced your checking account?
Do you know what any of the following items cost:
A gallon of milk?
A loaf of bread?
A jar of peanut butter (salmonella-free, that is)?
A movie ticket?
An oil change?
A box of Pampers/Depends?
A routine doctor visit?
A paperback book?
Could you perform any of the following tasks without instruction/assistance:
Change a flat tire?
Wash a load of laundry?
Replace a printer cartridge?
Sew a button on a shirt?
Milk a cow?

The game has changed, Mr. Obama. The old rules no longer pertain. You'd better either learn the new game or get off the playing field.

Lee Iacocca's suggestion to "Lead, follow, or get out of the way" might be applied to the current crop of pukes in Washington. Their spoiled-brat shenanigans are unworthy of their positions or their salaries. But the same admonition applies to you, Mr. Obama. Right now, you're a follower, and what you're following are the leaders of a failed economic policy. If you don't start leading in a new direction, you may find a very unfriendly and unsympathetic populace forcing you to get out of its way.


Tansy Gold

[Joe Chi Minh]

109. I woulnd't necessarily go along with a literal interpretation of your grocery/DIY

list, but assuming you mean a "hands dirty", non-ivory tower, practical thinker and doer, your post makes intriguing reading; all the more so, with your concluding paragraph.

In the forces, one of the key features, I believe, they look for in an aspiring officer is "character"; not necessarily in the sense of virtue, but, rather, of self-belief. Obama gave the impression that he had a superabundance of that, and maybe, he's so far ahead of the rest of us, he has actually been showing that character unbeknown to us. But, it's not the impression he leaves me with now, either.

Your point on the paramount importance of a policy of common-sense protectionism to protect the jobs created by the bail-out and the income produced by them for Americans and the country - and not outsourced abroad - could hardly be more pivotal.

[Tansy_Gold]

123. Practical thinkers and doers can probably answer at least some

of those questions.

Remember Hillary struggling at the gas pump?

Remember booosh the first marveling at the grocery scanner?

If they can't demonstrate even the slightest familiarity with The Real World of the 90 Percenters, they have no business being in power.

I'm trying to read David Lebedoff's "The Uncivil War" and having a difficult time with it because I find virtually no logic in anything he's written in it. But when he likens boooosh the stupider/meaner to "one of us" in the sense that his values and his character appeal to a portion of the population that is, in effect, anti-intellectual, Lebedoff does make a point. We here on DU -- well, at least on SMW and WEE -- are the intellectual elite. We are the Al Gores, the John Kerrys, the Arianna Huffingtons, the Hillary Clintons. We are the policy wonks. We are the liberals, the radicals, the Know Somethings.

We are intimidating to many.

We intrude upon the comfort zone of people for whom comfort is everything.

As a presidential candidate, Barack Obama spoke to the discomforts of those who want comfort. He spoke to the fears of the fearful. He offered hope and change, but he did not offer challenge. He called for sacrifice, but he was speaking to those who had already sacrificed and not to those who had gained the most by others' sacrifices.

Unfortunately, in order to deliver on his message of hope and change, he must challenge the status quo, and he doesn't seem to have the backbone or the stomach for it. He is seeking bipartisanship as if it is essential to the change he wants to make. He does not seem to understand -- in a way that maybe Joe Biden would/does, but then again perhaps not -- that there is nothing to be gained from bipartisanship. As always, they seek not compromise but capitulation. It is not, in their lexicon, bipartisanship but "by partisanship" and it's by their partisanship.

They are the dragon, and if he wishes to be Saint Barack, he must slay the beast, not cozy up to it. Or it will eat him -- and us -- alive.

Tansy Gold

[Joe Chi Minh]

127. "He called for sacrifice, but he was speaking to those who had already

sacrificed and not to those who had gained the most by others' sacrifices....." Wonderful point. I doubled up when I read it!

Yes, surely, it would help if they were familiar with the ordinary chores of most people's daily round!

[Demeter]

80. OLD NEWS FOR GOLD BUGS by The Mogambo Guru

http://www.dailyreckoning.com/old-news-for-gold-bugs/

It looks like the rush to buy gold is really getting started, as Julian D. W. Phillips of GoldForecaster.com reports that “the combined gold holdings of the World Gold Council gold Exchange Traded Funds and Barclays Gold Trust” has grown to “1079.83 tonnes, a growth of almost 70 tonnes in two weeks.”

And this is just part of the good news, as “There are many other gold bullion-holding funds in the developed world from Canada to Switzerland that are not included in this total. If they were the total would be approaching 1200+ tonnes. Clearly we are seeing a stampede of institutional fund management into gold at present!”

One of them is the Central Fund of Canada, the top-performing trust in Canada (up 117% in 3 years!) and which holds only gold and silver bullion, is selling another giant swath of shares to get the money to, as I understand it, buy another big potload of precious metals, which is not that remarkable, I guess, except for where the underwriter, according to the press release, “Exercises Its Right To Purchase Additional Class A Shares”, which made a big impression on me for some reason that I don’t understand, but I sense that “somebody knows something.”

To keep things in perspective, Mr. Philips reminds us to “Bear in mind that at $900 an ounce, one tonne of gold costs $29 million, so far.” But even he admits that gold really hasn’t gotten up a good head of steam yet, as “With global pension fund assets estimated at $18.6 trillion by the end of 2005 only a tiny proportion of that amount has entered the gold Exchange Traded Fund market so far. So the 1200 tonnes held in this manner represent only $34.8 billion or 0.19% of these pension funds assets . Quite a way to go before gold makes a dent on these portfolios.”

And it is the same thing with silver, as I learn from an essay at SilverMiners.com which had the headline, “Gold Mine Production Down, But Costs Up 24% World-Wide”, which tells you everything you need to know about the future price of gold, which assumes that you already know that the price of everything is determined by the intersection of supply and demand, and in the case of gold, supply was down by 88 tonnes last year and is still going down, while demand is going up, and under which there is a rising “floor” price since the costs of gold mining are mounting , and will continue to mount as long as the corrupt socialist bastard morons running the world continue to increase deficit-spending by governments ,and as long as the corrupt socialist bastard morons running the central banks continue to create the money and credit to finance the damned deficit-spending, which causes higher prices!

And, of course, this is already old news to gold bugs around the world, as Nick Barisheff writes in his essay, “Making Money in Troubled Times with Gold” at SeekingAlpha.com that in the last year “Gold rose: 9% in Euros, 45% in British Pounds, 25% in Russian Rubles, and 38% in Brazilian Reals” which is not to mention that gold “increased by 31% in Canadian dollars.”

The reason for all of this is that, as he explains, “In 1971, when the US abandoned the gold standard, total M3 money supply stood at $800 billion. Since then, the Federal Reserve has increased the money supply well in excess of GDP growth. In 1987, Alan Greenspan took over as Federal Reserve chairman and opened the money supply floodgates. He expanded the US money supply by $6.5 trillion during his 19-year tenure to $10 trillion – more than all of the previous Fed chairmen combined. Ben Bernanke surpassed Alan Greenspan’s record by adding another $4 trillion in just the last three years.”

What does this have to do with gold and gold going up in value so high that I can quit my lousy job and get the hell away from my clinging family, all the time whining “Please stop buying so much gold and please just buy us some food, daddy!” and all the rest of their gimme gimme gimme?

Well, since you asked, the point is that “At the end of 2007, above-ground privately held gold bullion amounted to less than $650 billion, and the total amount of silver and platinum bullion was less than $5 billion. Put together, this is less than 1/3 of 1 percent of the estimated $187 trillion of global financial assets”, which doesn’t even start to address the implications that “China, Russia and the OPEC countries are considering substantial increases to their gold allocations in order to diversify their US dollar risk”, which means that “Any reallocation by these countries will drive prices much higher.”

And it is already beginning, as “Last year investors experienced shortages of the smaller wafers and coins, with premiums running as high as 10-40 percent for gold and 30-100 percent for silver”, which may have been what led Citibank to predict that gold could soar to “$2,000 an ounce sometime in 2009.”

And in that regard, people keep asking me if the government is going to confiscate gold, and I tell them “Why don’t you ask the government?” Hahaha! As if they would tell you the truth! Hahaha!

But not even mentioning that the Federal Reserve can print up all the money it wants, so they would not confiscate gold for the money, or the fact that all the gold held at the Federal Reserve is chump change; if the Fed still has all of its reported 261 million ounces, then at even $1,000 an ounce, all the gold would only be worth a lousy $261 billion dollars! Less than a quarter of the Federal budget deficit for this year alone! Hahaha!

And then the government has to store the gold someplace and start absorbing all of the expenses of guarding it, which doesn’t even address that the “takings clause” of the Constitution which prevents the government from taking anything away from you, including gold, without paying full market value to you, the owner.

So will the government confiscate gold? Why in the hell would they want to do that? Hahaha!

And that means that YOU should be buying it! Whee! This investing stuff is easy!

Until next time,

The Mogambo Guru

[Demeter]

82. Next wave in Madoff mess: tax troubles / Taxes paid on phantom earnings a dicey issue.

http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202428218969

Pamela A. MacLean / Staff reporter

February 16, 2009

A second wave of bad news is coming for victims of disgraced financier Bernard Madoff's purported $50 billion Ponzi scheme: personal tax troubles.

The victims have seen promised profits vanish and may see only pennies on each dollar of principal they invested.

Now add to that the specter of severe limits on their ability to recover taxes paid for years on those phantom earnings, and the added burden of having to wait to claim losses due to theft, according to tax lawyers.

Madoff investors who never touched the alleged profits reported on account statements most likely paid taxes on the purported gains for years. Not only did the profits never exist, but now the taxes paid will add to the pile of losses because the statute of limitations limits to three years their ability to claim refunds on overpaid taxes.

The investors, clients and friends who squirreled away money with Madoff face limits on the deductibility of their losses and may be barred from claiming refunds on overpaid taxes for any years prior to 2005, according to Jay Weill, a tax partner at Sideman & Bancroft in San Francisco and former tax division chief of the U.S. attorney's office there.

"They cannot expect the IRS to come to their rescue," he said....

[Tansy_Gold]

87. cue

:nopity:

[Demeter]

89. Subject: Nationalize the Banks! We're all Swedes Now

FROM THE PAPER OF RECORD IN DC!

http://www.washingtonpost.com/wp-dyn/content/article/20...



By Matthew Richardson and Nouriel Roubini
Sunday, February 15, 2009; B03

The U.S. banking system is close to being insolvent, and unless we want to become like Japan in the 1990s -- or the United States in the 1930s -- the only way to save it is to nationalize it.

As free-market economists teaching at a business school in the heart of the world's financial capital, we feel downright blasphemous proposing an all-out government takeover of the banking system. But the U.S. financial system has reached such a dangerous tipping point that little choice remains. And while Treasury Secretary Timothy Geithner's recent plan to save it has many of the right elements, it's basically too late.

The subprime mortgage mess alone does not force our hand; the $1.2 trillion it involves is just the beginning of the problem. Another $7 trillion -- including commercial real estate loans, consumer credit-card debt and high-yield bonds and leveraged loans -- is at risk of losing much of its value. Then there are trillions more in high-grade corporate bonds and loans and jumbo prime mortgages, whose worth will also drop precipitously as the recession deepens and more firms and households default on their loans and mortgages.

Last year we predicted that losses by U.S. financial institutions would hit $1 trillion and possibly go as high as $2 trillion. We were accused of exaggerating. But since then, write-downs by U.S. banks have passed the $1 trillion mark, and now institutions such as the International Monetary Fund and Goldman Sachs predict losses of more than $2 trillion.

But if you think that $2 trillion is high, consider our latest estimates at the financial Web site RGE Monitor: They suggest that total losses on loans made by U.S. banks and the fall in the market value of the assets they are holding will reach about $3.6 trillion. The U.S. banking sector is exposed to half that figure, or $1.8 trillion. Even with the original federal bailout funds from last fall, the capital backing the banks' assets was only $1.4 trillion, leaving the U.S. banking system about $400 billion in the hole.

Two important parts of Geithner's plan are "stress testing" banks by poring over their books to separate viable institutions from bankrupt ones and establishing an investment fund with private and public money to purchase bad assets. These are necessary steps toward a healthy financial sector.

But unfortunately, the plan won't solve our financial woes, because it assumes that the system is solvent. If implemented fairly for current taxpayers (i.e., no more freebies in the form of underpriced equity, preferred shares, loan guarantees or insurance on assets), it will just confirm how bad things really are.

Nationalization is the only option that would permit us to solve the problem of toxic assets in an orderly fashion and finally allow lending to resume. Of course, the economy would still stink, but the death spiral we are in would end.

Nationalization -- call it "receivership" if that sounds more palatable -- won't be easy, but here is a set of principles for the government to go by:

First -- and this is by far the toughest step -- determine which banks are insolvent. Geithner's stress test would be helpful here. The government should start with the big banks that have outside debt, and it should determine which are solvent and which aren't in one fell swoop, to avoid panic. Otherwise, bringing down one big bank will start an immediate run on the equity and long-term debt of the others. It will be a rough ride, but the regulators must stay strong.

Second, immediately nationalize insolvent institutions. The equity holders will be wiped out, and long-term debt holders will have claims only after the depositors and other short-term creditors are paid off.

Third, once an institution is taken over, separate its assets into good ones and bad ones. The bad assets would be valued at current (albeit depressed) values. Again, as in Geithner's plan, private capital could purchase a fraction of those bad assets. As for the good assets, they would go private again, either through an IPO or a sale to a strategic buyer.

The proceeds from both these bad and good assets would first go to depositors and then to debt-holders, with some possible sharing with the government to cover administrative costs. If the depositors are paid off in full, then the government actually breaks even.

Fourth, merge all the remaining bad assets into one enterprise. The assets could be held to maturity or eventually sold off with the gains and risks accruing to the taxpayers.

The eventual outcome would be a healthy financial system with many new banks capitalized by good assets. Insolvent, too-big-to-fail banks would be broken up into smaller pieces less likely to threaten the whole financial system. Regulatory reforms would also be instituted to reduce the chances of costly future crises.

Nationalizing banks is not without precedent. In 1992, the Swedish government took over its insolvent banks, cleaned them up and reprivatized them. Obviously, the Swedish system was much smaller than the U.S. system. Moreover, some of the current U.S. financial institutions are significantly larger and more complex, making analysis difficult. And today's global capital markets make gaming the system easier than in 1992. But we believe that, if applied correctly, the Swedish solution will work here.

Sweden's restructuring agency was not an out-of-control bureaucracy; it delegated all the details of the cleanup to private bankers and managers hired by the government. The process was remarkably smooth.

Basically, we're all Swedes now. We have used all our bullets, and the boogeyman is still coming. Let's pull out the bazooka and be done with it.

Matthew Richardson and Nouriel Roubini, professors at New York University's Stern School of Business, contributed to the upcoming book "Restoring Financial Stability: How to Repair a Failed System."

[Demeter]

90. Financial Versus Actuarial Models of Risk

http://alephblog.com/2009/02/10/financial-versus-actuarial-models-of-risk/

There are two basic investment risk models, one based on projected cash flows over a long period of time, discounted at a variety of future interest rate scenarios, and one based on short term correlations of expected market values. I call the first model the actuarial model, and the second the financial model (pejoratively, the Wall Street model).

Under ordinary conditions, the financial model looks better. It asks, “Can we make money in the short run versus our capital costs?” The actuarial model asks, “Can we assure that we will be solvent under a wide number of economic scenarios over the long run, some of which might be quite severe?”

During boom conditions, the financial model wins, while those following an actuarial model are branded fuddy-duddies. During bust conditions, those following an actuarial model survive, while many following the financial model don’t.

There were many on Wall Street that claimed to be following a WOW “Worst Of the Worst” model. I remember interviewing the chief risk officer of one of those firms in 2005 — Bear Stearns. Talked a really good game. To be fair, so did the risk manager of Goldman Sachs that year. I assume most of the risk managers of Wall Street had their WOW models — after the crisis with LTCM, they had to look at the correlations on risk assets going to one in a crisis.

My guess is the WOW models were largely ignored, and the more common VAR models followed. Perhaps Goldman And Morgan Stanley gave more weight to the worst outcomes, but hindsight is 20/20. They might have survived in spite of themselves.

My point: you’ve got to survive in order to win. Models that emphasize current profits at the expense of survivability get whacked during large busts. Even if they survive, the hole that they must crawl out of is deep.

The economy is highly variable, and the financial economy as a derivative of it is even more so. Companies that think long-term with respect to risk management tend to survive crises; they have limited their risks, and left returns on the table during the boom times.

Survival is a major part of the game. Look at previously successful financial companies. It doesn’t matter how well you did in the past if you are down 90, 95, 99% over the last two years.

As such, for those that invest in financial companies, evaluate their survivability. How likely is it that they will get hit badly? Are they overleveraged? Do they need additional financing?

Actuarial models focus on the long run, and analyze survivability. Why aren’t they used more frequently? The actuarial models indicate a greater need for capital than VAR models. More capital left in reserve means a lower return on equity, and a lower stock price in the short run.

High quality management teams for financials place more value on their long-run (actuarial) risk models. They want to make money over the long term, if they can. Those that focus on VAR will do better in the short run, until the next big bear market hits. For value investors, stick with the quality players relying on long-term risk models. Momentum players are free to play with the VAR users, but keep your stop orders ready.

[Demeter]

92. Bond Investors Call Fed's Bluff

http://www.nakedcapitalism.com/2009/02/bond-investors-call-feds-bluff.html

Even a casual market observer like your humble blogger has noticed the dramatic increase in Treasury bond yields from 2.5% on the 30 year bond to over 3.5% in a bit more than a month. I had assumed that the Fed, at its last FOMC meeting, would shed a bit of light on its December statement, when it said it would use all available means to free up credit markets and was considering buying Treasuries. The latter was particularly credible, since Bernanke has discussed the idea in some of his academic work.

The long bond, which had fallen from its peak (remember lower prices mean higher yields) but stabilized and rallied a bit right before the January Fed meeting. Not only did the announcement fail to clarify how a Treasury program might work, but the language suggested an intent to focus on instruments other than Treasuries. This seems odd, for as long as the benchmark rate continues to rise, trying to control spreads over it can achieve only so much.

Or maybe the truth has dawned on the Fed: the market is bigger than it is. Even so, it had better learn to bluff better, since Treasury investors, discouraged by the latest announcement, are demanding higher yields.

Ambrose Evans-Pritchard of the Telegraph gives us a typically verging-on-apocalyptic but nevertheless informative piece, starting with the Fed and then looking at the pretty alarming data from other economies. However, since IMF managing director Dominique Strauss-Kahn said last week that advanced economies are already in a depression, Evans-Pritchard in increasingly in line with consensus reality. That alone should get readers worried.

From the Telegraph:

The yield on 10-year US Treasury bonds – the world's benchmark cost of capital – has jumped from 2pc to 3pc since Christmas despite efforts to talk the rate down.

This level will asphyxiate the US economy if allowed to persist... The US is already in deflation. Core prices – stripping out energy – fell at an annual rate of 2pc in the fourth quarter. Wages are following. IBM, Chrysler, General Motors, and YRC, have all begun to cut pay.

The "real" cost of capital is rising as the slump deepens. This is textbook debt deflation. It was not supposed to happen. The Bernanke doctrine assumes that the Fed can bring down the whole structure of interest costs, first by slashing the Fed Funds rate to zero, and then by making a "credible threat" to buy Treasuries outright with printed money.

Mr Bernanke has been repeating this threat since early December. But talk is cheap. As the Fed hesitates, real yields climb ever higher. Plainly, the markets do not regard Fed rhetoric as "credible" at all.

Who can blame bond vigilantes for going on strike? Nobody wants to be left holding the bag if and when the global monetary blitz succeeds in stoking inflation. Governments are borrowing frantically to fund their bail-outs and cover a collapse in tax revenue. The US Treasury alone needs to raise $2 trillion in 2009.

Where is the money to come from? China, the Pacific tigers and the commodity powers are no longer amassing foreign reserves ($7.6 trillion). Their exports have collapsed. Instead of buying a trillion dollars of extra bonds each year, they have become net sellers. In aggregate, they dumped $190bn over the last fifteen weeks.

The Fed has stepped into the breach, up to a point. It has bought $350bn of commercial paper, and begun to buy $600bn of mortgage bonds. That helps. But still it recoils from buying Treasuries, perhaps fearing that any move to "monetise" Washington's deficit starts a slippery slope towards an Argentine fate. Or perhaps Bernanke doesn't believe his own assurances that the Fed can extract itself easily from emergency policies when the cycle turns.

As they dither, the world is falling apart. Events in Japan have turned deeply alarming. Exports fell 35pc in December. Industrial output fell 9.6pc. The economy is contracting at an annual rate of 12pc....

The< [Japanese central> bank is already targeting equities on the Tokyo bourse. That is not enough for restive politicians. One bloc led by Senator Koutaro Tamura wants to create $330bn in scrip currency for an industrial blitz. "We are facing hyper-deflation, so we need a policy to create hyper-inflation," he said.

This has echoes of 1932, when the US Congress took charge of monetary policy...

German orders fells 25pc year-on-year in December. French house prices collapsed 9.9pc in the fourth quarter, the steepest since data began in 1936....

Spain's unemployment has jumped to 3.3m – or 14.4pc – and will hit 19pc next year, on Brussels data. The labour minister said yesterday that Spain's economy could not "tolerate" immigrants any longer after suffering "hurricane devastation". You can see where this is going.

Ireland lost 36,500 jobs in January – equal to a monthly loss of 2.3m in the US. As the budget deficit surges to 12pc of GDP, Dublin is cutting wages, disguised as a pension levy. It has announced "Rooseveltian measures" to rescue the foundering companies...

Meanwhile, Eastern Europe is imploding. Industrial output fell 27pc in Ukraine and 10pc in Russia in December. Latvia's GDP contracted at a 29pc annual rate in the fourth quarter. Polish homeowners have had the shock from Hell. Some 60pc of mortgages are in Swiss francs. The zloty has halved against the franc since July.

Readers have berated me for a piece last week – "Glimmers of Hope" – that hinted at recovery. Let me stress, I was wearing my reporter's hat, not expressing an opinion. My own view, sadly, is that there is no hope at all of stabilizing the world economy on current policies.

[Demeter]

93. WHERE'S TANSY WITH THAT STAMP? Half of all CDOs of ABS failed

http://www.ft.com/cms/s/0/ddaa47f4-f79b-11dd-a284-000077b07658.html

By Paul J Davies

Published: February 10 2009 19:38 | Last updated: February 10 2009 19:38

Almost half of all the complex credit products ever built out of slices of other securitised bonds have now defaulted, according to analysts, and the proportion rises to more than two-thirds among deals created at the peak of the cycle.

The defaults have affected more than $300bn worth of these collateralised debt obligations, which were built from bits of other asset backed securities (ABS) such as mortgage bonds, other CDOs and structured bonds, or derivatives of any of these, according to analysts at Wachovia and Morgan Stanley.

So-called CDOs of ABS caused huge losses to banks such as Merrill Lynch, UBS and Citigroup, which held large amounts of the supposedly safest, top-rated chunks of them. They have since been damned by bodies such as the Bank for International Settlements as being too complex to risk manage effectively.

CDOs of ABS were used increasingly at the peak of the credit bubble to keep the securitisation machine moving by recycling hard to sell bits of subprime mortgage bonds and other risky tranches into new structures with top-notch credit ratings.

However, the ratings of these deals proved unsustainable, as evidenced by the fact they have accounted for 92.9 per cent of all 16,587 ratings downgrades globally from all rating agencies since the beginning of last year, according to Morgan Stanley.

The way these complex and risky transactions were exploited at the peak of the bubble can be seen in data from analysts at Wachovia, who reckon that 47.6 per cent of all CDOs of ABS by volume issued since the market substantively began in 2002 have now hit an event of default.

By their records, the first three years of the market saw less than 100 deals sold per year and less than 10 per cent of those have defaulted. The number of deals done rose to 133 in 2005, less than 20 per cent of which defaulted, and 89 in just the first half of 2006, about one-third of which have defaulted.

However, the real peak of the market saw 147 deals done in the second half of 2006 and 172 done in the first half of 2007 – of which 68 per cent and 76.2 per cent, respectively, have now defaulted.

The way these CDOs have performed has especially hurt the new wave of specialist credit hedge funds, which sprang up in recent years and became heavily dependent from creating and managing such deals. They were drawn to such business by a belief in the sustainability and predictability of the fees it would generate.

However, about one-third of the CDOs of ABS that have defaulted, or almost $105bn worth, have been or are being liquidated – often ­leading to losses for investors and putting further pressure on market prices of the bits of mortgage bonds and other CDOs they are selling.

[Demeter]

95. PMorgan Analysts Double Jumbo-Mortgage Loss Forecast (Update3)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHd1M2bqYfUU&refer=home


By Jody Shenn

Feb. 9 (Bloomberg) -- JPMorgan Chase & Co. analysts almost doubled their projections for losses on some prime-jumbo mortgages underlying securities, created at the start of the U.S. housing slump, because of soaring defaults.

Losses on so-called hybrid adjustable-rate mortgages backing 2006 and 2007 prime-jumbo securities will reach 8 percent to 10 percent, according to a Feb. 6 report by New York- based analysts John Sim and Abhishek Mistry.

“The pickup of defaults in prime during the second half of 2008 has caused us to nearly double our loss projections on prime hybrids,” the analysts wrote.

Defaults on home loans not labeled as “subprime” that back so-called non-agency mortgage securities, the debt that sparked the global financial-market meltdown, have soared as home prices continue to tumble and the U.S. recession deepens. The share of prime-jumbo mortgages at least 60 days late climbed 0.71 percentage point to 5.29 percent in the month covered by January bond reports, according to JPMorgan.

About $500 billion of prime-jumbo bonds exist, according to Memphis, Tennessee-based FTN Financial. Jumbo loans are larger than what government-chartered Fannie Mae and Freddie Mac can buy or guarantee, currently $417,000 in most areas and as much as $625,500. Hybrid ARMs offer a few years of fixed interest rates, before switching to payments that vary with indexes.

Lower-Loss Sector

Losses on prime-jumbo mortgages with completely fixed rates in “recent vintage” bonds will be lower than losses on hybrid ARMs, partly because more of the borrowers will be able to qualify to refinance out of the loans, JPMorgan said.

“Although historical experience would lead us to increase prime fixed losses to 4 percent, faster prepayments could prevent many future defaults, keeping losses in the 2 percent range, a decrease from last month’s 2.3 percent to 2.8 percent” projection, the analysts wrote.

The share of Alt-A mortgages underlying bonds at least 60 days late, in foreclosure or already turned into seized properties climbed 1.53 percentage points last month to 22.88 percent, JPMorgan said. Defaults on so-called option ARMs rose 2.47 percentage points to 30.96 percent, the report said.

With the market for prime-jumbo mortgage bonds closed since early 2008 and banks issuing fewer loans to keep on their books, the average rate on a typical 30-year fixed-rate jumbo mortgage was 6.91 percent on Feb. 6, compared with 5.44 percent on similar “conforming” loans, according to Bankrate.com data.

Shares of Thornburg Mortgage Inc., a mortgage real-estate investment trust that specializes in jumbo-loan debt, and Redwood Trust Inc., a REIT with a similar focus, have fallen almost 100 percent and 75 percent over the past 24 months.

Santa Fe, New Mexico-based Thornburg gained 2 cents to 10 cents in over-the-counter trading as of 4:00 p.m. in New York today, while Mill Valley, California-based Redwood climbed 42 cents to $15.30 in New York Stock Exchange composite trading.

To contact the reporter on this story: Jody Shenn in New York at [e-mail]

[Robbien]

96. Be wary of bankers back to their old tricks---issuing NEW CDOs

Of the long line of repentant bankers who passed before the Treasury committee last week, the one that perhaps garnered the least coverage was John Varley, the Barclays chief.

He would have liked it that way. The bank refused to take taxpayers’ cash in October, instead accepting £8 billion from Qatar, and in the process escaped the scrutiny applied to the bosses of Royal Bank of Scotland, Halifax Bank of Scotland and Lloyds TSB.

If the products coming across my desk are anything to go by, it’s no wonder Barclays wants to remain out of the limelight. Barclays Wealth, its private-banking arm, seems to be launching one structured product a week at the moment — you know, the kind of product that offers great returns from the stock market plus your capital back in full. They seem too good to be true, and they usually are.

I had thought the credit crunch would see the end of this kind of toxic product, given that thousands of people in Lehmans-backed plans discovered to their cost that the capital guarantees can be useless.

They are a marketing department’s dream, though, and Barclays is still selling them with impunity.

http://www.timesonline.co.uk/tol/comment/columnists/article5732021.ece


If Barclays is doing it, you know JPMorgan and the rest of the gang are doing it.

Pensions are most likely the buyers.

[Tansy_Gold]

98. At your service

[Demeter]

100. Thanks!

[Demeter]

94. Bullion sales hit record in rush to safety

http://www.ft.com/cms/s/0/359da604-f6d4-11dd-8a1f-0000779fd2ac.html

By Javier Blas in London

Published: February 9 2009 18:16 | Last updated: February 9 2009 18:16

Investors are buying record amounts of gold bars and coins, shunning risky assets for the relative safety of bullion amid renewed fears about the health of the global financial system.

SEE GRAPH AT LINK

The US Mint sold 92,000 ounces of its popular American Eagle coin last month, almost four times that which it sold a year ago and more than it shipped during the whole of the first half of 2007.

Other countries’ mints have also reported strong sales. “Large purchases of coins are perhaps the ultimate sign of safe-haven gold buying,” said John Reade, a precious metals strategist at UBS.

Inflows into gold-backed exchange traded funds surged in January, pushing their bullion holdings to an all-time high of 1,317 tonnes. Last month’s flows of 105 tonnes were above September’s previous record of 104 tonnes, and absorbed about half the world’s gold mine output for January, said Barclays Capital.

“We estimate that investment demand could double in 2009 compared to 2007,” said Mr Reade. “Purchases of physical gold have jumped over the past six months as investors’ fears about the current financial crisis ... have intensified.”

The move into gold is being driven by the very rich, with bankers saying that some clients are hoarding gold in their vaults. UBS and Goldman Sachs said last week that investor hoarding would drive prices back above $1,000 an ounce. On Monday gold was trading at $892 an ounce.

Traders and analysts said jewellery demand, historically the backbone of gold consumption, had collapsed under the weight of the high prices. Sharp falls in demand in the key markets of India, Turkey and the Middle East have capped the potential of any price rally. But the lack of jewellery demand has not discouraged investors.

Jonathan Spall, director of commodities at Barclays Capital in London, said: “We have seen more new enquiries about investing in gold so far this year than during the whole 2008.”

Philip Klapwijk, chairman of GFMS, the precious metal consultancy, said that investors were buying gold because of fears about the global financial system rather than looking for a quick gain.

“This is a new round of safe haven buying,” Mr Klapwijk said.

GFMS estimated bullion coin demand last year reached its highest level in 21 years.


SEEMS LIKE ANOTHER BUBBLE--SELF-DEFEATING, TOO! NOT LIKELY THAT ANYBODY WOULD GO BACK TO A GOLD STANDARD LONG-TERM. AND BARTER WILL NOT GET YOU EVERYTHING, EITHER.

ANOTHER FINE MESS, COURTESY OF BUSHCO/REAGAN INDUSTRIES

[Demeter]

97. Madame Defarge Watch: Pay Disparity in US Exceeds France Under Its Last King

The Wall Street Journal Economics Blog today featured an update of a chart prepared by Alexis de Tocqueville, author of Democracy in America, comparing the compensation of French and American civil servants, with an update (click to enlarge):





The problem is that this comparison is misleading. The intent is to illustrate pay disparities over time.

However, while the President and the King were indeed the highest paid "civil servants", the President than as now was almost certainly not the highest paid individual, while the King most certainly was. And that's before we get into the royal perks: the castles, staff, stables, artwork, the list goes on). Plus the idea of a king as civil servant is a bit strained too. However, this was the Bourbon Restoration, so kings were a bit more mindful of the citizens than in pre-Revolutionary times.

But the King was almost certainly the richest and best paid individual in France. He made 8,000 times the most menial civil worker. Our disparity (minimum wage versus Lloyd Blankfein) at a mere 5,000+ isn't quite as bad, right?

But Blankfein was far from the best paid American. Forbes told us that the 400 highest earning taxpayers reported $105 billion in adjusted gross income. That averages $262.5 million. $262 million versus the minimum wage level of $13,100 gives a ratio of over 20,000 to one.

Now some will protest that the $105 billion probably includes one time windfalls, like the sale of major businesses. Doesn't wash. We are looking for the disparity top to bottom. I haven't seen any estimates for 2008 yet, and hedge funds had a rougher year, but the Institutional Investor ranking of top hedge fund managers for 2007 showed John Paulson at $3.7 billion, George Soros at $2.9 billion, and James Simons at $2.8 billion.

So the popular perception is right. The super wealthy today are better off than royalty of old. And it's not due to indoor plumbing, either.

[Demeter]

99. How Much of That Loot Is In Useless Pieces of Paper?

and without the services of the 3 musketeers, how long will the rich hold on to more than one property?

No, I think they only think they are wealthy--and when nobody else believes in their Mastery of the Universe, they will collapse like the punctured balloon economy.

Time wounds all heels.

[Tansy_Gold]

102. Ah. but their balloon hasn't been punctured yet.

The uber wealthy still ride high. They still wash their carriages in champagne, tell the rabble to eat cake, and make merry while the red menace waits to pounce.

Someone a few days ago -- probably GhostDog but I'm not sure -- suggested that the Brits, who lopped off their king's head with constitutional authority, have lost their bloodthirstiness over time. The French, of course, employed Madame Guillotine with the approval of the mob rather than the legislature. The American internal/internecine conflagration of 1860-65 seemed to be a combination of popular insurrection and government-led invasion/defense, culminating in the outraged individual seeking revenge against the offending state.

What will happen this time around, who knows? Will this follow more the Russian or Chinese or even Mexican model? I doubt it. While there is still the obscene disparity in wealth between top and bottom, the U.S. still has a substantial populace that is not in of the starving peasant class. Most people, while not wealthy, are still reasonably comfortable because a placating percentage of the wealth they create is allowed to remain in their hands.

But a single catastrophe could shift that, and shift it quickly. An oil embargo? A natural disaster affecting food supplies? A total Wall Street collapse that instantly demolishes pensions and social security at a time the boomers are expecting some return on the investment of their labor?

:shrug:

I dunno. But I think that's what it's gonna take to puncture the balloon of the top .1% -- and the rabble is gonna wield the pin.


Tansy Gold

[Demeter]

101. Insurers' Finances Clouded by Bookkeeping Changes

http://www.washingtonpost.com/wp-dyn/content/article/2009/02/05/AR2009020503509.html


Allstate, the big insurer, last week declared that despite unprecedented trouble in the markets, it remains financially strong.

But tucked deep inside a company report is evidence that Allstate changed its bookkeeping last year in ways that improve its financial appearance.

One accounting change added $347 million. Another delivered a year-end boost of $365 million.

Allstate's actions illustrate a broader risk to investors, policyholders and people looking for insurance. Insurers have been asking regulators to let them operate with thinner financial cushions or to pad those cushions with assets they could not otherwise count. For anyone trying to assess the companies' financial strength, the changes can cloud the picture. That could make it harder for people to make sound decisions when buying policies or annuities to protect their families.

For regulators, the insurance companies' requests can pose a dilemma. At a time of financial peril, is it better to loosen financial standards for insurers and hope they pull through the crisis still able to keep their promises to policyholders? Or would it be more prudent to hold insurers to existing standards, even if that forces them to take costly and painful steps to shore up their financial stability?


LET ME THINK FOR A MINUTE....

[Demeter]

104. I have fallen into recession’s web of fear

THIS IS FOR PACHAMAMA ESPECIALLY

http://www.ft.com/cms/s/0/fce6d744-eefa-11dd-bbb5-0000779fd2ac.html

By Lucy Kellaway

Published: February 1 2009 16:25 | Last updated: February 1 2009 16:25

In the middle of last week I tipped over from a state of mild fearfulness about the global economy to one of wild panic over what is to become of us.

On Wednesday, I became host to all sorts of crazy worries – big, unmanageable ones as well as little, stupid ones. I worried about there being anarchy on the streets of London – while at the same time fretting over whether I should have painted the boxroom cream rather than white.

This is the sort of mixed-up mental state I am familiar with from bouts of wakefulness at three in the morning. Never before have I known it at three in the afternoon.

The thing that tipped me over was tiny and distant and concerned a woman I have never met, who lives 3,000 miles away. There were plenty of other bigger things that happened to me last week, but none of them really moved me.

On Monday, I stayed at the InterContinental Hotel in Cologne – a vast temple to the god of business travel – and found myself in a ghost hotel. The miles of corridor I walked to my room were deserted and the breakfast buffet bar offered a bounty of cheese and ham but there were no takers.

‘Just as no country can decouple itself from the ailing global economy, none of us as individuals can decouple ourselves from the ailing global psyche’

On Tuesday, I met a perpetually cheerful friend who runs a hitherto successful advertising agency who was grimly preparing to fire large numbers of her capable staff. And later that day I made a nasty discovery that my own financial cushion was considerably less comfortable than I had thought it was. All of this was dismal, but not unbalancing.

Instead, I tripped and fell at a moment when I should have been safe from economic harm. I was sitting in the rare books room at the British Library surrounded by scholars in scuffed shoes for whom the recession is not even of academic interest.

If I had stuck to my writing, I might have been all right. But instead I started checking e-mails and wasting time on the internet and found myself reading a story from the Huffington Post about a nameless, well-dressed woman on Madison Avenue who had lost her job and was begging on the street to feed her four children.

The story may not even have been true, yet the image lodged itself in my mind so that all the other depressing things I went on to read stuck to it and looked even uglier than they did already.

I read on FT.com my colleague Luke Johnson beating his breast and saying we must expect years of economic misery. Then I read variously that classes of MBA students were graduating with not a job between them, and that the wives of unemployed bankers were so distressed that they were setting up support groups to provide a shred of comfort.

By the time I cycled home from the library I was in such a state of anxiety I marvelled at the way ordinary people were still popping in and out of Starbucks on the Euston Road as if nothing were wrong.

This is our first experience of recession in the internet age, and so far I don’t like it one little bit. You could say that the internet makes the recession more bearable as there are all those networks to help people get jobs and there is Ebay for buying things second-hand.

Yet such things are trivial compared to what the internet is doing to our confidence. The internet has created a global psyche. The web has mentally joined us at the hip, so we can no longer put our heads in the sand. If that sounds painfully contorted, it is because it is. Just as no country can decouple itself from the ailing global economy, none of us as individuals can decouple ourselves from the ailing global psyche.

Through blogs, websites and e-mails the world’s economic ills are fed to us on a drip all day long. It is not just that we hear about bad things faster, we hear about more of them and in a more immediate way. My worries become yours, and yours become mine. On the internet, a trouble shared online is not a trouble halved. It is a trouble needlessly multiplied all over the world. After reading this article, people in Australia will surely start worrying about my paint colours, too.

This would not matter so much if it were not for the fact that confidence is the medicine that cures a recession; and all this sharing of bad news leaves one with no confidence at all.

If I had been alive during the last comparable recession, over 60 years ago, I would have limited my news injection to reading The Times every morning. In those days it had a front page given over not to big scary headlines, but to small classified ads. The news inside would probably have left me a little depressed over breakfast, but I would have had the rest of the day to recover my equanimity.

Instead, I sit over my computer all day and feed my anxiety. The day after I read about the begging woman I was sent something even more upsetting. A banker at Commerzbank e-mailed me to say that he and 499 other senior colleagues had just been summoned to the bank’s headquarters and told to write their ideas on A4 pieces of paper and stick them on the plastic branches of a tree.

In good times I used to delight in stories like these. Aren’t people silly, I used to think with a complacent air of superiority. But now my thinking is different: if banks’ response to the current crisis is to stick bits of paper on fake trees, then the only rational thing for the rest of us to do is to surrender ourselves to panic.

[Pachamama]

149. OMG!!! This article was written for me!!!

Ha ha ha :LOL: Demeter....I love you for posting this in my honor....

Thanks... :hug:

[Demeter]

105. "Fix the Accounting, Then Fix the System"

http://www.nakedcapitalism.com/2009/02/fix-accounting-then-fix-system.html

Your humble blogger has been saying for some time that efforts to prop up bank asset values are prolonging the financial crisis, and the the various incarnations of "bad bank" plans inevitably entail buying dud assets at above market prices. That has the ugly side effect, which some no doubt see as a virtue, of letting banks that hold similar assets mark them at phony prices. The mechanism is different, but failing to write down bad assets is straight out of the Japan playbook.

The financial system grew too large by lending money to people and businesses who could not afford them (at least, if anything remotely bad happened, and bad things happening is part of the human condition). That means it CANNOT be restored to status quo ante (unless you are willing to see it fall apart again in short order). But the plans in motion seem to be an effort to do just that.

Instead, we need a program for shrinking and rationalizing the financial system. That imeans understanding how far underwater the system and its various components are. We then need to do triage: figure out which concerns are beyond repair, and how to wind them up, which are reasonable bets with some combination of cleanup, restructuring, and new capital, and which are more or less sound (ie, they may be impaired, but not enough to put survival in doubt) This process also involves making shareholders and when appropriate, bondholders take losses, and also developing mechanisms to write off and restructure bad loans (and lend to viable borrowers, but this is getting priority at the expense of the other steps).

Roger Ehrenberg is of similar views. Excerpts from his post:

Almost all of the bailout plans being discussed fail to consider a simple fact: without the homogenization of accounting rules, any plan will represent a piecemeal approach to the problem.....The system is broken, and current proposals do nothing to address the overarching issue: we don't know the true tangible book value of ANY financial institution, and therefore are unclear as to which have strong capital positions, which are on the verge of failure, and which are essentially bankrupt but have been propped up temporarily with taxpayer dollars. As has been suggested by many, draconian steps must be taken to repair the system. Problem is, the only thing draconian so far is the damage done to the wallets of every US citizen today and tomorrow.

What needs to happen, right now, is to make EVERY financial institution apply mark-to-market accounting to their portfolios. No readily observable market? Have an administrator apply an independent third-party valuation that takes into account polling possible buyers. The only circumstance under which mark-to-market accounting can be avoided is if an institution has the intention of holding an asset to maturity and has the term financing in place to carry it. The two biggest problems with the current accounting regime relate to leverage and illiquidity. Banks have been financed largely with short-term capital, piled on top of a sliver of equity. But when assets have maturities extended either due to a changing rate environment (e.g., rising term rates cause mortgage-backed securities to experience longer maturities) or to rising illiquidity (e.g., CDOs, CDS', high-yield bonds, leveraged lending commitments, etc.), the lack of term capital puts them in a very precarious position almost overnight. These kinds of surprises could have been avoided by forcing mark-to-market treatment, as we would have seen a precipitous decline in carrying values much faster than we did and dealt with the problem far more quickly.

As it stands today, those who argue against mark-to-market treatment say "This will just exacerbate the capital problem at troubled banks. And after the markets unlock, those assets will be salable at far higher prices." Exactly. Let's smoke out the problems NOW, and figure out the magnitude of the problem NOW. The fact that assets might fetch higher prices in the future is immaterial if you don't have the balance sheet to get to the future, and it is certainly not the taxpayer's responsibility to support those institutions' common stockholders and bondholders in this mission....

But in the absence of policy clarity, aligned motives and strategic thinking, we will limp out of this crisis like a terminally wounded animal. Alive, but destined to never regains its former swagger. We can get our swagger back, a better swagger, a swagger built on real value and not on vapor, if only we have the guts to effect real change. And it all starts with something as mudane as accounting.....We simply can't afford to wait any longer.

[Demeter]

106. Zimbabwe Dumps Currency

http://paul.kedrosky.com/archives/2009/01/30/zimbabwe_dumps.html

This had to happen eventually. Zimbabwe has decided to allow Zimbabweans to conduct transactions in other currencies, not just the Zimbabwe dollar. The upshot: In the face of hyperinflation-induced irrelevance, the country is abandoning its currency.

"In line with the prevailing practices by the general public, government is therefore allowing the use of multiple foreign currencies for business transactions alongside the Zimbabwean dollar," said.

The country is in the grip of world-record hyperinflation which has left the Zimbabwean dollar virtually worthless - 231m% in July 2008, the most recent figure released.

Teachers, doctors and civil servants have gone on strike complaining that their salaries - which equal trillions of Zimbabwean dollars - are not even enough to catch the bus to work each day.

A 40-year-old Zimbabwean primary school teacher from the capital Harare, told the BBC news website earlier this week it cost nearly US$2 a day to travel to work, but inflation had reduced the average teacher's wage to the equivalent of US$1 a month.

[Demeter]

107. LET'S PLAY THE BAILOUT GAME!

http://www.thebailoutgame.us/

[Demeter]

108. Feds allege plot to destroy Fannie Mae data

Fired Fannie Mae worker charged with planting virus to destroy mortgage giant's computer data

http://finance.yahoo.com/news/Feds-allege-plot-to-destroy-apf-14214374.html

HAGERSTOWN, Md. (AP) -- A fired Fannie Mae contract worker pleaded not guilty Friday to a federal charge he planted a virus designed to destroy all the data on the mortgage giant's 4,000 computer servers nationwide.

Had the virus been released as planned on Saturday, the Justice Department said the disruption could have cost millions of dollars and shut down operations for a week at Fannie Mae, the largest U.S. mortgage finance company.

Rajendrasinh B. Makwana, 35, of Glen Allen, Va., pleaded not guilty in U.S. District Court in Baltimore to one count of computer intrusion, the U.S. attorney's office said.

Makwana's federal public defender, Christopher C. Nieto, didn't return calls seeking comment on the case.

The Associated Press was unable to reach Makwana in Glen Allen, Va., a suburb of Richmond. A search of public records found no address or telephone number for him there.

Makwana is an Indian citizen who has lived in the United States since at least 2001, according to public records.

He was fired Oct. 24 from his computer programming job at Fannie Mae's data center in Urbana, about 35 miles from the company's Washington headquarters, where he had worked since 2006, according to the Justice Department. He was fired for erroneously writing programming instructions two weeks earlier that changed the settings on the servers, according to an FBI affidavit.

Fannie Mae did not immediately terminate Makwana's computer access after telling him he was fired early on the afternoon of Oct. 24, the affidavit states. Before surrendering his badge and laptop computer about 3 1/2 hours later, the indictment accused Makwana of "intentionally and without authorization caused and attempted to cause damage to Fannie Mae's computer network by entering malicious code."

As first reported by The (Washington) Examiner, the code "would have resulted in destroying and altering all of the data on Fannie Mae servers," the indictment states.

According to the affidavit signed Jan. 6 by FBI Special Agent Jessica A. Nye, a Fannie Mae engineer discovered the malicious instructions by chance Oct. 29. The virus was removed that day and did no harm, according to the affidavit.

Had the virus been released, "it would have caused millions of dollars of damage and reduced if not shut down operations" for at least a week, Nye wrote.

Fannie Mae may have had to clean out and restore all 4,000 servers, restore and secure the automation of mortgages and restore all data that was erased, the agent said. Fannie Mae declined to comment.

Fannie Mae owns or guarantees about $3 billion in home loans, or one in every five mortgages in the United States. A slowdown would have affected the investors who rely on Fannie Mae to guarantee the timely payment of mortgage interest and principal, said Guy Cecala, publisher of Inside Mortgage Finance.

"To the extent they can't meet those obligations, that's a big problem," Cecala said.

The charge against Makwana carries a maximum sentence of 10 years in prison.

Makwana was arrested Jan. 7 and released on $100,000 bond Jan. 8, according to court records.

The Justice Department didn't disclose the name of the contractor for whom he worked. He was one of 10 to 20 workers with access to the server from which the virus would have launched, according to the FBI affidavit.

Fannie Mae and Freddie Mac, both publicly traded, were created by Congress to inject money into the home-loan market by purchasing mortgages and bundling them into securities for sale to investors. Both were taken over by their government regulator in September after mounting mortgage losses put them in distress.

[Demeter]

110. THIS IS OUTRAGEOUS! It’s Theirs and They’re Not Apologizing

http://www.nytimes.com/2009/01/31/nyregion/31bonuses.html?ref=business

By ALAN FEUER and KAREN ZRAICK

Getting between a broker and his bonus is like getting between a schnauzer and his lunch bowl. He may not bite you, but you are going to smell his breath.

“People come here because they want to work hard and get paid a lot for working hard,” one investment banker said Friday as he wended his way, lunch bag in hand, through the World Financial Center. “I think there’s a disconnect between Wall Street and Main Street.”

That certainly was the case this week when Main Street learned that, despite the craters of a down economy, Wall Street bonuses were more than $18 billion last year — roughly what they were in the fatty, solvent days of 2004. The media hollered, the president scolded, and ordinary people checked their wallets. But downtown, in the caverns of finance, the moneymakers shrugged and took it on the chin.

It is a complicated thing, they said, to apportion compensation in a bear market. First of all, profits do not stop; they often ebb. Second of all, losses move unequally, so the law of the jungle should still apply: you eat what you can kill.

“My bonus is ‘shameful’ — but I worked hard to get it,” said John Konstantinidis, a wholesale insurance broker, lunching Friday at Harry’s at Hanover Square.

“I’m a HENRY,” Mr. Konstantinidis added. “High Earner but Not Rich Yet.”

Nonetheless, it was rather remarkable on Friday how many white shirts denied getting a bonus altogether when they were asked. Indeed, if the data obtained by reporters in the district was any measure, there is no telling where that $18 billion really went.

What can be told, however, is that President Obama is substantially less popular on Wall Street this week than he was last week. Words like “outrageous,” “shameful” and “the height of irresponsibility” — especially when applied to a man’s paycheck — tend not to make you many friends.

“I think President Obama painted everyone with a broad stroke,” said Brian McCaffrey, 55, a Wall Street lawyer who was on his way to see a client. “The way we pay our taxes is bonuses. The only way that we’ll get any of our bailout money back is from taxes on bonuses. I think bonuses should be looked at on a case by case basis, or you turn into a socialist.”

That, indeed, was a recurring equation: Broad strokes + bonuses = socialist.

“It’s a very slippery slope to go down,” said another insurance broker as he waited to be seated for lunch at Cipriani Downtown. “A blanket statement like that borders on” — you guessed it — “socialism.”

There were, of course, those downtown who were disgusted by the thought of this year’s bonuses, though they were mainly wage earners like Ashton Johnson, 32, a courier who was chatting outside the Stock Exchange with a buddy wearing a sandwich board reading, “We buy gold.”

“It definitely is ‘shameful,’ ” Mr. Johnson said. “With the fact that stock is going down, they shouldn’t be paid so much.”

Meanwhile, around the corner, Larry Meyers and Gerard Novello, who work for an Italian securities firm, ducked into a Mexican cantina for a drink. It was Mr. Meyers’s 43rd birthday, and he ordered the tequila.

“On Main Street, ‘bonus’ sounds like a gift,” he said. “But it’s part of the compensation structure of Wall Street. Say I’m a banker and I created $30 million. I should get a part of that.”

“There’s got to be a better term for it,” he added, turning to Mr. Novello.

“Earned income credit?” he wondered aloud.

Colin Moynihan contributed reporting.

[Tansy_Gold]

115. I'm a socialist and I'm not apologizing either.

and there is neither humor nor sarcasm in that statement.



Tansy Gold

[Demeter]

111. Corruption And The Global Financial Crisis

http://www.forbes.com/2009/01/27/corruption-financial-crisis-business-corruption09_0127corruption.html?feed=rss_news

...There are multiple causes of the financial crisis. But we can not ignore the element of "capture" in the systemic failures of oversight, regulation and disclosure in the financial sector. Concrete examples abound....

[Demeter]

112. The Consumption Collapse Continues

http://www.econbrowser.com/archives/2009/01/the_consumption_2.html




SEE LINK FOR MORE

[Demeter]

114. We're NOT Number 1! (Buit you knew that already!)

http://econompicdata.blogspot.com/2009/02/moodys-united-states-is-resilient-not.html


..Apparently Moody's has broken up their AAA rating into three tiers and the United States is not in the top tier (though I am left wondering who trusts / listens to / respects / cares about Moody's these days). Reuters reports:

The "Resistant" category included Germany, France, Canada and the four Scandinavian countries, whose ratings have so far been untested. These countries have either entered the financial crisis from a very strong position or have economic models that remain robust, it said.

The "Resilient" group comprises the United States and the UK, whose ratings are being tested due to a shock to their growth model and large contingent liabilities. But it added: "These countries display an adequate reaction capacity to rise to the challenge."

The size of the U.S. and UK economies, financial markets and capital flows and relative debt levels to growth mean policymakers have more scope to loosen fiscal policy without endangering the public finances too much.

Ireland and Spain fell into the third, "Vulnerable" group, which refers to nations which are forced to take risks with their public finances...

[Demeter]

116. Depression economics: Four options

http://www.straitstimes.com/vgn-ext-templating/v/index.jsp?vgnextoid=a4b3cd4c9f72f110VgnVCM100000430a0a0aRCRD&vgnextchannel=0162758920e39010VgnVCM1000000a35010aRCRD


WHEN an economy falls into a depression, governments can try four things to return employment to its normal level and production to its 'potential' level. Call them fiscal policy, credit policy, monetary policy and inflation.

Inflation is the most straightforward to explain: The government prints lots of banknotes and spends them. The extra cash in the economy raises prices. As prices rise, people don't want to hold cash in their pockets or their bank accounts - its value is melting away every day - so they step up the pace at which they spend, trying to get their wealth out of depreciating cash and into real assets that are worth something. This spending pulls people out of unemployment and into jobs, and pushes capacity utilisation up to normal and production up to 'potential' levels.

But sane people would rather avoid inflation. It is a very dangerous expedient, one that undermines standards of value, renders economic calculation virtually impossible, and redistributes wealth at random. As John Maynard Keynes put it, 'there is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose...'

But governments will resort to inflation before they will allow another Great Depression. We just would very much rather not go there, if there is any alternative way to restore employment and production.

The standard way to fight incipient depressions is through monetary policy. When employment and output threaten to decline, the central bank buys up government bonds for immediate cash, thus shortening the duration of the safe assets that investors hold. With fewer safe, money-yielding assets in the financial market, the price of safe wealth rises. This makes it more worthwhile for businesses to invest in expanding their capacity, thus trading away cash they could distribute to their shareholders today for a better market position that will allow them to reward their shareholders in the future. This boost in future-oriented spending today pulls people out of unemployment and pushes up capacity utilisation.

The problem with monetary policy is that, in responding to today's crisis, the world's central banks have bought so many safe government bonds for so much cash that the price of safe wealth in the near future is absolutely flat - the nominal interest rate on government securities is zero. Monetary policy cannot make safe wealth in the future any more valuable. And this is too bad, for if we could prevent a depression with monetary policy alone, we would do so, as it is the policy tool for macroeconomic stabilisation that we know best and that carries the least risk of disruptive side effects.

The third tool is credit policy. We would like to boost spending immediately by getting businesses to invest not only in projects that trade safe cash now for safe profits in the future, but also in those that are risky or uncertain. But few businesses are currently able to raise money to do so.

Risky projects are at a steep discount today, because the private-sector financial market's risk tolerance has collapsed. No one is willing to buy assets and take on additional uncertainty, because everyone fears that somebody else knows more than they do - namely, that anyone would be a fool to buy. Although the world's central banks and finance ministries have been devising many ingenious and innovative policies to stimulate credit, so far they have not had much success.

This brings us to the fourth tool: fiscal policy. Have the government borrow and spend, thereby pulling people out of unemployment and pushing up capacity utilisation to normal levels. There are drawbacks: the subsequent dead-weight loss of financing all the extra government debt that has been incurred, and the fear that too rapid a run-up in debt may discourage private investors from building physical assets, which form the tax base for future governments that will have to amortise the extra debt.

But when you have only two tools left, neither of which is perfect for the job - credit policy and fiscal policy - the rational thing is to try both, at the same time. That is what the Obama administration in the United States and other governments are attempting to do right now.

The writer, a former assistant US treasury secretary in the Clinton administration, is professor of economics at the University of California at Berkeley.

[Demeter]

117. YES WE CAN!! have a global depression if we really continue to work at it…

http://blogs.ft.com/maverecon/2009/02/yes-we-can-have-a-global-depression-if-we-really-contintue-to-work-at-it/


I used to be optimistic about the capacity of our political leaders and central bankers to avoid the policy mistakes that could turn the current global recession into a deep and lasting global depression. Now I’m not so sure.

I used to believe that the unavoidable protectionist and mercantilist rhetoric would not be matched by protectionist and mercantilist deeds. Protectionism was one of the factors that turned a US financial crisis into a global depression in the 1930s. Protectionism imposes large-scale structural sectoral dislocation, as exporters are ejected from their foreign markets and domestic producers that depend on cheap imported imports suddenly find themselves to no longer be competitive, on top of the global effective demand failure we are already suffering from.

I used to believe that our central bankers would overcome their natural conservatism, caution and timidity to do what it takes to bring to bear the full measure of what the central bank can deliver on a disfunctional financial sector and on a depressed economy, at risk of deflation. Now I’m not so sure. While the Fed is turning on most of the taps (albeit in a unnecessary moral hazard-maximising way), the Bank of England and the ECB are falling further and further behind the curve. What the Bank of Japan does, no-one fully understands, and I will observe a mystified, if not respectful silence.

I used to believe that our fiscal policy makers would, when faced with a combination of national and global disaster, manage to come up with a set of national fiscal packages that would be modulated according to national fiscal spare capacity and that would be designed not only to boost domestic and global demand but also to eliminate or at any rate reduce the underlying global imbalances that are an important part of the story of this global crisis. Instead we find the US engaged in fiscal policies that will aggravate the underlying global imbalances.

Protectionism

The odious US House of Representatives has tagged a Buy American clause onto the Obama administration’s $819 bn (or more) fiscal stimulus bill. If this were to become law, US federal spending would, wherever possible, be restricted to goods and services produced by US companies. The main promotor of this act of global economic vandalism was the US steel industry, but other import-competing industries have lobbied also. It is quite likely that the Buy American net will be cast even more widely when the Senate gets its turn at the fiscal stimulus act.

There is little doubt that if the Buy American provisions of the Economic Stimulus Package were to become law, this would amount to an economic declaration of war on the rest of the world. The response of the assembled non-US finance ministers in Davos made this clear. Retaliation from the EU countries and the rest of the world would follow swiftly. Because this disastrous US Congressional actions follows so closely on Treasury Secretary Geithner’s declaration that China is manipulating its currency, it is essential that the Obama administration draw a clear line in the sand. If anything like the Buy American clause inserted by the House survives in the bill president Obama gets on his desk, he must veto it. The questionable value of the fiscal stimulus is overwhelmed by the unquestionable domestic and global harm caused by the Buy American clause. If president Obama fails to veto a protectionism-laced bill, it will be clear that we have a wuss in the White House. If such is the case, God help us all.

The US is not alone in moving down the protectionist track. Since the last G20 meeting (with its unanimously endorsed call to avoid protectionism), virtually all the emerging market member nations of the G20 have introduced or announced protectionist measures.

In the UK, prime minister Gordon Brown is reaping the protectionist storm he sowed with his infamous protectionist and xenophobic call for “British jobs for British workers”. What was he thinking? Follow the logic: ‘British jobs for British workers’,'Scottish jobs for Scottish workers’ (along with ‘It’s Scotland’s oil’), ‘Welsh jobs for Welsh workers’ and ‘English jobs for English workers’. Why not London jobs for London Workers, or London jobs for native-born London workers, or even London jobs for white Christian native-born London workers?

How divisive can you get? British workers are demonstrating against workers from elsewhere in the EU - Italian and Portuguese workers are currently at the centre of a rather disgusting series of altercations at UK oil refineries, gas terminals and power stations, following a dispute at Total’s oil refinery at Killinghome in Lincolnshire, where an Italian engineering company was bringing its own staff from Portugal and Italy for a egnineering construction project.

Under British law, conforming to EU Treaty obligations, there are no jobs earmarked for British workers in Britain. With the exception of some transitional arrangements for workers from new member states and a few jobs where nationality still matters for national security or similar reasons, any EU worker can compete freely with any other EU worker in any EU country. So Italian and Portuguese workers can be brought in to complete a contract in the UK if this makes commercial sense to the contractor, just as British workers can compete, individually or as part of team of workers, under the excellent Posted Workers Directive, for jobs and projects in the rest of the EU.

I feel some sympathy for British workers who, because of the poor state of the British educational system, and the lamentable state of foreign language education in particular, are less competitive outside the UK than workers from elsewhere in the EU are in Britain. But that is another argument (if one were needed) for doing something about educational standards in British (and more specifically in English) secondary schools, not an argument for denying workers from elsewhere in the EU the right to compete for work in the UK.

The protectionist tide in Britain is rising. £2.3 bn worth of state aid to the British-based car manufacturers is unlikely to be the last state aid with protectionist consequences. Britain has company, of course, with the US, France, Germany and Sweden among the countries announcing measures to prop up their automobile manufacturers.

Financial protectionism is on the rise everywhere. This is partly the inevitable result of the belated discovery of the truth that cross-border banking must be severely restricted as long as regulation, supervision and tax-payer-financed bail-out support for banks is arranged at the national level. The post-crisis world will no longer have cross-border branch banking, with the foreign branches controlled by the parent, its depositors guaranteed by the parent, home country regulation and supervision and no independent capitalisation. Instead we will have just independently capitalised and financially ring-fenced subsidiaries (no Lehman UK last-minute raid by the failing parent on the local kitty), with host country regulation and supervision, deposit guarantees provided by the host country and with fiscal bail-out support provided by the host country Treasury or by no-one.

Beyond this unavoidable re-nationalisation or repatriation of cross-border banking and cross-border financial intermediation generally, there have been other, quite unnecessary manifestations of financial protectionism, in the UK and elsewhere. In the UK, banks involved in the government’s recapitalisation scheme, or benefiting from the ever-expanding range of liquidity facilities and guarantees provided by the Bank of England and the Treasury, are being pressured to lend to SMEs and to households and to exercise patience and leniency in their dealings with over-extended residential mortgage borrowers. It is clear - not surprisingly as the British tax payer is ultimately underwriting all these schemes - that only lending to British SMEs and British households and forbearance vis-a-vis British residential mortgage borrowers is expected and demanded. And the banks are responding. Foreign lending by British banks is way down. So, of course, are foreign deposits in, loans to and investment in British banks.

The world is engaged is an accelerated form of financial de-globalisation. With banks short of capital and having to retrench, their foreign activities will be the first to suffer and the ones to suffer most. Government pressure and conditionality re-inforce the natural tendency of headquarters to withdraw the legions from the periphery of the empire to defend Rome when the barbarians are at the gate. It doesn’t help, of course, when the barbarians are already inside the gate.

The hypocrisy and chutzpah of politicians knows no bounds. In Davos, UK prime minister Gordon Brown - the same man who launched the ‘British jobs for British workers’ missile and who leads a government that is brow-beating British banks to favour domestic lending over foreign lending - pontificated about the dangers of protectionism in general and the need to stand up to financial protectionism in particular. He is right to be worried about financial protectionism. The coming re-patriation of cross-border banking will affect London more than any other financial centre.

Monetary policy

Given the dismal prospects for real economic activity and the sharp decline of inflation everywhere, the task of the monetary authorities in the US, the Eurozone and the UK is really rather easy: set the official policy rate at zero and engage in large-scale quantitative and qualitative easing.

The Fed is doing this. The UK and the Eurozone are behind the curve. Indeed, the Eurozone is now getting so far behind the curve that, if the ECB were on an Olympic race-track, it would be looking itself in the back.

At the ECB, a special branch of voodoo monetary theory has been developed that sees insurmountable problems and dangers associated with getting the official policy rate below some value that is well above the zero floor set by the zero nominal interest on currency. The exact location of this mysterious liquidity trap lower bound has never been revealed, but on the basis of the stammering, incoherent and incomprenhensible statements in this regard from Jean-Claude Trichet, Jurgen Stark, Gertrude Tumpel-Gugerell, Lorenzo Bini-Smaghi and Ives Mersch (to name but a few), it appears to be migrating south slowly from around 2.00 percent.

The ECB’s blabbering about a possible liquidity trap above a zero percent nominal interest rate is complete and utter nonsense. The only floor, if there is one at all, is the zero floor. There are no conceptual or operational problems operating monetary policy with a zero official policy rate. Even at the Bank of England there are some operational types who argue that they cannot conduct overnight operations with Bank Rate at zero. What they mean to say is that they cannot continue to implement overnight operations with their arcane, unwieldy and unnecessary existing management procedures. All they have to do instead is the following. During what is now called a reserve maintenance period (i.e. between scheduled MPC rate-setting meetings), accept, 24/7, any amount of overnight deposits from banks at a zero rate and/or lend, 24/7, any amount overnight to the banks at a zero rate against the highest grade collateral (UK sovereign debt instruments or better). That is what it means to set the risk-free overnight nominal interest rate at zero. If the Bank of England’s staff cannot do it, I volunteer to do it for them, against a small fee.

Once at the zero floor, quantitative easing and qualitative easing are the only instruments open to the central bank. Both quantitative easing (increasing the base money stock by purchasing government securities) and qualitative easing (purchasing private securities outright, including possibly illiquid private securities and/or private securities subject to substantial default risk) without increasing the monetary base, can also be pursued when the official policy rate is positive, of course. Indeed, at this conjuncture, I consider qualitative easing (what Bernanke calls credit easing) to be more important even than getting the official policy rate to zero as soon as possible. Of course, there is no reason not do do both if you can.

In the UK, quantitative easing is not terribly urgent, because longer-term government rates, while higher than they were at the end of last year, are still rather low. The key problem are the availability and cost of credit to the private sector, as reflected in part in the large spreads of private interest rates over the corresponding maturity government and central bank yields. The Bank of England should therefore engage in qualitative easing (spread hunting) on a large scale. The asset purchase facility (APF) is designed to do just that. The Bank buys private securities (high-grade, supposedly, but I doubt whether there are many of those left). The Treasury sterilises the resulting increase in the monetary base by issuing Treasury Bills and deposits the proceeds in its account with the Bank of England (a liability that is not part of the monetary base). The Treasury gives the Bank of England an indemnity, currently up to £50 bn, to insure it against any losses it may make on its purchases of risky private instruments.

The amount is clearly too small. I expect to see it go up to £300 bn before long, and it may well reach £500 bn, as the socialisation of finance proceeds. Clearly, well before that point the sterlisation of the increase in the monetary base will also stop, and the Bank of England will engage in a combination of quantitative and qualitative easing: increasing the monetary base (’printing money’) as the counterpart of the purchase of private securities, under an indemnity from the Treasury.

The ECB, after being the leader of the pack in fighting the liquidity crunch - it accepted as collateral in its repos and at the discount window anything that did not move and a few things that did - has become the laggard as regards the outright purchasing of private securities (qualitative easing). It is even reluctant to engage in significant quantitative easing.

There are no obstacles to quantitative easing by the ECB/Eurosystem to be found in the Treaties. The ECB/Eurosystem is banned from lending directly to national governments and from buying government securities directly in the primary or new issues market, but there is nothing to stop it from purchasing all the govenment securities it wishes in the secondary markets. All it takes is a decision by the ECB’s Governing Council.

The question as to how much of each government’s debt instruments to buy is something it should not take longer than 5 minutes to decide. The obvious solution is to first decide how much in toto to buy and then to determine the shares of the debt instruments of each of the 16 national governments in the Eurozone, by setting these equal to their (normalised) shares in the capital of the ECB. Whether these shares should refer to market value or notional/face value can be decided by the flip of a coin.

According to the rule book there are no counterparty restrictions in what would be structural outright purchases by the ECB/Eurosystem. The instruments have to be marketable and satisfy high credit standards, to be assessed using ECAF rules for marketable assets. For marketable assets to be eligible as collateral, they must be rated at least BBB- (reduced from A- at the beginning of the crisis). I assume (it is not stated explicitly in the ECB’s manual) that the same creditworthiness criteria apply to marketable securities purchased outright. This means that even the recently downgraded government debt of Greece, Spain and Portugal is eligible, as well as the soon-to-be-downgraded sovereign debt of Ireland.

As regards outright purchases of private securities (sterlised or non-sterilised), the reluctance of the ECB/Eurosystem is understandable. This issue brings out a yawning gap in the ECB/Eurosystem edifice: the absence of clear fiscal backing of the ECB/Eurosystem for losses incurred in the conduct of monetary policy and liquidity operations, including the outright open market purchases of private securities that the ECB/Eurosystem should be gearing up to do very soon.

For losses incurred in the normal market operations used for monetary and liquidity management by the Eurosystem (which are implemented in a decentralised manner by the national central banks (NCBs) of the Eurozone), there is the rule that such losses are shared by all the NCB’s in the Eurosystem in proportion to their relative shares in the capital of the ECB.

For losses incurred because of an NCB acting as lender of last resort towards one or more specific banks in its jurisdiction/country, the national Treasury of that country would have to indemnify the NCB in question. Indeed the NCB would only act as lender of last resort to assist specific institutions as an agent of the national Treasury, and not in its capacity as a member of the Eurosystem. A prior commitment by the national Treasury to indemnify the NCB for any losses incurred during a lender-of-last-resort-operation would be required before the NCB could engage in such an action.

The structural outright open market purchases of private securities by the ECB/Eurosystem involved in qualitative easing would also be performed bilaterally by the NCBs, but since they are aimed at unclogging financial markets and enhancing liquidity in the Eurozone as a whole, the fiscal backing should be provided by the fiscal authorities of the Eurozone jointly. The 16 national fiscal authorities of the Eurosystem must, as soon as possible - and preferably immediately - provide the ECB/Eurosystem with an indemnity of, say, €500bn to begin with, to enable to ECB to engage in qualitative and/or combined qualitative and quantitative easing in the very near future. Again, the shares of each of the 16 national Treasuries in the aggregate indemnity should be determined by the (appropriately scaled) NCB shares in the ECB’s capital.

As alternative to such a binding, ex-ante Eurozone fiscal burden-sharing rule for ECB/Eurosystem losses incurred as a result of quantitative and qualitative easing operations, would be the creation of a Eurozone-wide fund that would indemnify the ECB/Eurosystem.

Fiscal policy

Effective fiscal stimuli involving increased government deficits can only be provided by governments with fiscal credibility, that is, governments that can cut taxes and increase public spending now and credibly commit themselves to future tax increases and public spending cuts of equal magnitude. The relentlessly procyclical behaviour of most fiscal authorities in Europe and North America during the past decade means that in the north Atlantic region, at the beginning of the crisis, only Germany and Spain had any significant fiscal credibility and spare capacity. As far as I can tell, the US and the UK have little if any.

In the emerging market universe, China and Brazil have some fiscal elbow room. Few other countries do.

This means that the contribution of fiscal policy to the recovery of global demand will (a) be limited and (b) have to be modulated according to national fiscal spare capacity. That means little if any fiscal stimulus in the USA and the UK and a large fiscal stimulus in Germany and China. Germany is being dragged, reluctantly, towards the Halls of Reason. The US and the UK seem intent on expansionary fiscal actions that are likely to more than exhaust their government’s credibility capital. These fiscal actions by the US and the UK will also re-invigorate the underlying global imbalances that provided some of the combustible material that caught fire on August 9, 2007.

Conclusion

We can go down in history as the generation that created the Great Depression of the Noughties. Just keep on beating the protectionist drums. Keep on the footdragging that prevents effective qualitative and quantitative monetary policy easing in the Eurozone and the UK. And go ahead with unsustainable fiscal stimuli in the US, the UK and elsewhere that will spook markets, push up long-term interest rates and raise the spectre of sovereign default by countries not belonging to the group of usual suspects. Yes we can! I hope we won’t.


OKAY--FRESH MEAT! TEAR HIM APART, GUYS!

[Tansy_Gold]

124. when he admits China is manipulating their currency but

the U.S. and U.K. can't be protectionist. . . . . dumb. Just fucking stupid.

Once again -- China and India and many other nations have the expertise, the equipment, everything they need to establish their own economies. If they don't want to put all labor on a level playing field, then they aren't playing fair. Why should we play with one hand tied behind our backs?


Fuck him. Fuck them.



Tansy Gold

[Demeter]

128. Thanks, I Knew You Could and Would Do It

It's funny how the screwballs are so selective. Their world view is full of gaping holes.

[Demeter]

120. THAT'S ALL, FOLKS!

My Email box is EMPTY!

Due to a tremendous reluctance to go out, yet again, into freshly-fallen snow, and inspired by the many Valentine's Day tributes, I stayed in and completely posted myself out.

But don't worry! Next weekend, goddess willing, I will be back with newer, fresher, never-before-seen snippets for your entertainment and edification. It's been lovely keeping company with you!

I will continue to snark for a bit, never fear!

Meanwhile, do carry on!

[Demeter]

121. And Congratulations, Tomreedtoon! For correctly Identifying This Week's Culture Bit

[Dr.Phool]

131. Kick

Markets are closed today. Don't know if Oz will start a thread or not.

[Hugin]

140. Not usually. (Barring accidental time travel... Which has happened from time to time.)

It's one of the unspoken rules of the SMW.

The first rule of SMW is that when the Markets aren't open don't post a SMW thread.

The only exception to Rule #1 is when the Fed/Treasury/1%-ers/Congress are pulling some shenanigans on Sunday... *coff*Bear-Stearns*hack* Then, it's okay. But, now we have the WEE for these not so rare under-the-table days.

Eh... Or when Ozy (or the SMW caretaker) gets crazed and forgets what day it is and shoves one up anyway. :)

:hi:

[DemReadingDU]

132. Today's a bank & mail holiday, is the stock market closed too?

good morning
:hi:

[Dr.Phool]

133. Good morning.

I'm pretty sure the markets are closed today also.

[Demeter]

134. I guess We're Going Into Extra Innings, then

I never have a holiday, so I never notice.....

The Weekend Continues!

[DemReadingDU]

135. Yea! Thanks Demeter!

[Tansy_Gold]

138. Maybe someone should put up a post over in LBN?

I just went over there three times, didn't see SMW and left. .. . . .



Tansy Gold, who likewise has no/few holidays and therefore pays little attention

[CatholicEdHead]

139. Same here, no SMW and I then assumed that the US markets were closed today

lots of action happening elsewhere in the world.

[Demeter]

142. They Don't Like Me Over There

They just push anything I put over somewhere else....

[Robbien]

141. Inside Story: no one is working on re-regulating the financial system

I’ve been calling around to get a sense of the progress being made on structural reforms of the US securities markets. The answer is, very little, if any. The inside information I can whisper to you is that the inside has no information.

The financial system has a peacetime officer corps in a wartime situation. The people in positions of responsibility are principally interested in preserving their careers and avoiding public embarrassment. There are rare and important exceptions, such as Paul Volcker, who has nothing to prove about his integrity, and who is past any need to advance his career.

To identify what has to be done to put securities markets, banking and regulation on a sound basis for the future the people at the top might have to admit to the specifics of their own past mistakes. They would also need a command of detail of the workings of the financial system that they have avoided acquiring over the years, since it was much more advantageous to spend one’s time scheming and toadying.

. . .

Let’s consider a specific issue, the reform of the major US ratings agencies. The shortcomings of the ratings agencies have been well known for many years on Wall Street, and at least a couple of years in Washington. The direct conflict of interest created by having the issuers of securities pay the people who are rating their creditworthiness has been clear for years. The effects of that conflict, including the insolvency of “investment grade” issuers, contributed heavily to the present crisis. There have been hearings, op-eds, speeches, and denunciations, all to this effect.

So what are the Federal regulators, and Congress, actually doing about ratings agency reform? Not much. The key agency is the Securities and Exchange Commission, which has supervisory authority over the Nationally Recognised Statistical Rating Organisations, as the ratings agencies are called. The SEC, though, is an agency run by lawyers who tend to use legal, rather than economic, reasoning.

According to a securities industry person who has had intensive contact with the SEC lately, its staff is preoccupied with damage control. “They’re not thinking about ratings reform, they’re thinking about keeping their jobs. The Bernie Madoff fiasco has them in shell shock.”

. . .

There is a widespread assumption that the Federal Reserve is available as a universal, supreme regulator of all financial risk. However, the staff is preoccupied with figuring out the details of the various “temporary” support programmes. Not many Fed staff people have operating experience in financial markets; they hired on to take the long view on monetary policy, not tactical execution of investment programmes.

Congressional leaders know that. Democratic and Republican senators share a high degree of scepticism about the ability of the Fed to, effectively, redesign and then run the financial world.

In the past, there were Wall Streeters of both parties with sufficient weight and creditability to identify problems and put together solutions. Not now. All we need to end the remaining illusions, is, I believe, one more big trauma. Auto companies?

http://www.ft.com/cms/s/0/8f1ae106-fa03-11dd-9daa-000077b07658,dwp_uuid=d8e9ac2a-30dc-11da-ac1b-00000e2511c8.html

[antigop]

144. U.S. Government short $1.2 trillion to pay its own retiree healthcare (another bailout?)

http://rawstory.com/news/2008/US_short_1.2_trillion_to_pay_0216.html

There may yet be more bailouts in sight. Next time it might not be the banks -- it might be your retirement, and there might not be enough money left.

While it's relatively well-known that Social Security is short as much as $50 trillion needed to pay the benefits of future retirees, the shortfall needed to pay civil servants' retiree benefits -- split between the federal government and US states -- is a whopping $1.7 trillion, according to an estimate released Monday.

State and local governments have set aside "virtually no money" to fund medical benefits for retired state and federal employees, USA Today revealed.

The estimate has gotten almost no attention, but the unfunded toll continues to climb. While the US government can spend money it doesn't have in an effort to jumpstart the economy, many cities and states have laws requiring them to balance their budgets, meaning the only way they could meet retirement benefit mandates is to raise taxes or cut benefits and services, or both.

Such unfunded medical benefits includes those of city, state and town employees; teachers; principals; superintendents; librarians; administrative assistants; custodians; school district staff; judges; public attorneys; retired military personnel; federal employees; park rangers; and water district personnel.

On the federal side, the cost totals around $1.2 trillion -- which includes retirement benefits for the Pentagon and for the federal government, the report says. On the states' side, the cost is harder to estimate but is at least $500 billion, according to the report.

[antigop]

145. NY Times article, 1999:Fannie Mae Eases Credit to Aid Mortgage Lending

http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260&sec=&spon=&pagewanted=1

In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.


The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.

Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.

In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.

''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''