Weekend Economists Hogmanay Celebration January 1-3, 2010!

[Demeter]

http://www.rampantscotland.com/know/blknow12.htm

While New Year's Eve is celebrated around the world, the Scots have a long rich heritage associated with this event - and have their own name for it, Hogmanay....An integral part of the Hogmanay partying, which continues very much today, is to welcome friends and strangers, with warm hospitality and of course a kiss to wish everyone a Guid New Year. The underlying belief is to clear out the vestiges of the old year, have a clean break and welcome in a young, New Year on a happy note.

CONSIDER YOURSELVES KISSED AND WELCOMED TO THIS FIRST WEE OF 2010!

There are many theories about the derivation of the word "Hogmanay". The Scandinavian word for the feast preceding Yule was "Hoggo-nott" while the Flemish words (many have come into Scots) "hoog min dag" means "great love day". Hogmanay could also be traced back to the Anglo-Saxon, Haleg monath, Holy Month, or the Gaelic, oge maidne, new morning. But the most likely source seems to be the French. "Homme est né" or "Man is born" while in France the last day of the year when gifts were exchanged was "aguillaneuf" while in Normandy presents given at that time were "hoguignetes". Take your pick!

In Scotland a similar practice to that in Normandy was recorded, rather disapprovingly, by the Church.

"It is ordinary among some Plebians in the South of Scotland, to go about from door to door upon New Year`s Eve, crying Hagmane."
Scotch Presbyterian Eloquence, 1693.

Origins http://en.wikipedia.org/wiki/Hogmanay

The roots of Hogmanay perhaps reach back to the celebration of the winter solstice among the Norse, as well as incorporating customs from the Gaelic New Year's celebration of Samhain. In Rome, winter solstice evolved into the ancient celebration of Saturnalia, a great winter festival, where people celebrated completely free of restraint and inhibition. The Vikings celebrated Yule, which later contributed to the Twelve Days of Christmas, or the "Daft Days" as they were sometimes called in Scotland. The winter festival went underground with the Protestant Reformation and ensuing years, but re-emerged near the end of the 17th century.
Customs

There are many customs, both national and local, associated with Hogmanay. The most widespread national custom is the practice of 'first-footing' which starts immediately after midnight. This involves being the first person to cross the threshold of a friend or neighbour and often involves the giving of symbolic gifts such as salt (less common today), coal, shortbread, whisky, and black bun (a rich fruit cake) intended to bring different kinds of luck to the householder. Food and drink (as the gifts) are then given to the guests. This may go on throughout the early hours of the morning and well into the next day (although modern days see people visiting houses until 3 January). The first-foot is supposed to set the luck for the rest of the year...

"Auld Lang Syne"

The Hogmanay custom of singing "Auld Lang Syne" has become common in many countries. "Auld Lang Syne" is a traditional poem reinterpreted by Robert Burns, which was later set to music. It is now common for this to be sung in a circle of linked arms that are crossed over one another as the clock strikes midnight for New Year's Day, although in Scotland the traditional practice is to cross arms only for the last verse.<7>

But there's other traditional verses, such as this one:


Haste ye back, we loue you dearly,
Call again you're welcome here.
May your days be free from sorrow,
And your friends be ever near.

May the paths o'er which you wander,
Be to you a joy each day.
Haste ye back we loue you dearly,
Haste ye back on friendship's way.

[Demeter]

1. Before We Get Down to Closing Out the Old Year, a chorus of auld lang syne

Words adapted from a traditional song
by Rabbie Burns (1759-96)

http://www.youtube.com/watch?v=acxnmaVTlZA&feature=related

http://www.youtube.com/watch?v=rId95N2teUc&feature=related

Should auld acquaintance be forgot,
And never brought to mind?
Should auld acquaintance be forgot,
And auld lang syne?

CHORUS:
For auld lang syne, my dear,
For auld lang syne,
We'll tak a cup of kindness yet,
For auld lang syne!

And surely ye'll be your pint-stowp,
And surely I'll be mine,
And we'll tak a cup o kindness yet,
For auld lang syne!

We twa hae run about the braes,
And pou'd the gowans fine,
But we've wander'd monie a weary fit,
Sin auld lang syne.

We twa hae paidl'd in the burn
Frae morning sun till dine,
But seas between us braid hae roar'd
Sin auld lang syne.

And there's a hand my trusty fiere,
And gie's a hand o thine,
And we'll tak a right guid-willie waught,
For auld lang syne

Meanings

auld lang syne - times gone by
be - pay for
braes - hills
braid - broad
burn - stream
dine - dinner time
fiere - friend
fit - foot
gowans - daisies
guid-willie waught - goodwill drink
monie - many
morning sun - noon
paidl't - paddled
pint-stowp - pint tankard
pou'd - pulled
twa - two

[Demeter]

16. Wrong Hat!

http://www.youtube.com/watch?v=wmnHLUW8Z1o&NR=1

[DemReadingDU]

29. Happy New Year!

Well, already off to a bad start. Spouse's computer has some kind of virus/spyware/trojan, that periodically talks and sings. It has me baffled. So I'm off to the computer forum.

[CatholicEdHead]

50. Malwarebytes is worth a shot

[DemReadingDU]

51. ok, thanks!

and someone answered my question in the computer forum. Appreciate all the help.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=242x29181

[Demeter]

2. Mark Fiore Aptly Sums It Up for Us!

http://www.markfiore.com/political-cartoons/watch-new-year-animation-year-in-review-cartoon

[Demeter]

3. I Sincerely Doubt That the FDIC Is Working This Weekend

My bank may be open, but the Feds keep old-fashioned Bankers' Hours. Still, check back later tonight, just in case new traditions are formed...

[Demeter]

52. 8:30 Eastern and the Bankers Are Asleep Safe in Their Beds

Next weekend ought to be a honey!

[Demeter]

4. Black economies shore up states, says study

http://www.ft.com/cms/s/0/7b7e0984-f318-11de-a888-00144feab49a.html

Unofficial, or “shadow”, economies can help shield European countries during a recession – but illicit activity has to be on a sizeable scale, according to report by Germany’s Deutsche Bank.

Countries with a high prevalence of moonlighting builders, unrecorded cash transactions, missing invoices, tax evasion or illegal activities such as drug dealing, have seen smaller contractions during Europe’s worst downturn since the 1930s than more honest neighbours, researchers at the Frankfurt-based bank have concluded.

The relationship works, however, only if the “shadow economy” is large – such as in Greece, where George Papandreou, prime minister, acknowledged this month that the public services are riddled with corruption.

In spite of its growing fiscal problems, Greece’s economy has shrunk only about 1 per cent this year – compared with about 4 per cent for the European Union as a whole.

At the other extreme, Deutsche Bank found that countries with a “particularly honest” population – such as Austria, France or the Netherlands had also fared relatively well during the crisis.

Indicating that its research was not to be taken entirely seriously, Deutsche Bank said the countries faring worst included Germany where inhabitants “are neither impeccably honest in their work ethic, like the Austrians, nor do they expend so much effort in circumventing the state as, for instance, the Greeks”.

The “most unfavourable level of shadow market activity”, according to Deutsche Bank’s calculations, was exactly 14.3318 per cent of official gross domestic product. At 14.6 per cent, Germany “is on the brink of the worst-case scenario”, it concluded.

As a result Germany faced two options: either to follow the example of “successful countries” such as Greece and “not just employ a moonlighting painter to do the living room but to build the entire house”; or to choose the path of virtue.

Sebastian Kubsch, the report’s author, admitted he “couldn’t find a straight answer” to explain why a large, or tiny, black economy had helped shore up economies in the past year.

One explanation could be that a well-functioning unofficial sector provided a viable alternative, for instance, for the officially unemployed but pervasive honesty also creates better outcomes.

Support for the idea that a large informal sector can help in a downturn came from Professor Friedrich Schneider of Linz University, Austria, an expert on “hidden” or “black” economies. “People earn extra money, and nobody works in the shadow economy in order to pay into a savings account – so the money is spent on consumer goods, boosting demand,” he said. Greece’s large black economy was “welfare increasing,” Professor Schneider added. “The only loser is the state”.

But economic prospects could also be boosted by encouraging honesty. “If people feel fairly treated by the state, and that they get a good bundle of goods and services for their taxes, then they are more likely to pay taxes – which increases revenues,” Professor Schneider said.

Deutsche Bank was clear in its policy recommendations for Germany, however. Perhaps wisely, it argued that the country should opt for honesty. The financial market crisis – and, it might have added, perhaps also Greece’s woes – had shown that “morals and decency are the key to sustainable business activity”.

[Demeter]

5. Reality board game craze hits Argentina--“Can you beat the IMF?”

http://www.ft.com/cms/s/0/7bdcce10-f3e0-11de-ac55-00144feab49a.html

...While the world has been devouring reality television shows, many Argentines have been opting this Christmas for reality board games, such as Eternal Debt, involving the International Monetary Fund.

Among the wave of reality board games to have hit the Argentine market in recent years, Eternal Debt has remained a niche favourite among those who still blame the IMF for leading the country into a nearly $100bn default eight years ago.

The game, by local manufacturer Ruibal, involves taking Latin American raw materials, turning them into industrial products and selling the finished goods in world markets, using IMF capital.

Also available is Bureaucracy, which exploits locals’ disenchantment with the country’s notoriously cumbersome civil service. Argentina ranked 118th out of 183 nations in the World Bank’s latest Doing Business survey, which benchmarks obstacles to commerce.

The game is designed to elicit groans of recognition to anyone who has ever spent hours grappling with regulatory issues in public offices in Argentina.

The game, made by toymaker Habano, cheerfully invites players “to waste time and lose their patience” as they move across the board with a lengthening list of documents to procure and departments to visit in their quest to complete a simple piece of paperwork.

It is a game “where everyone loses”, crows the box.

Environmentalists disillusioned with the lacklustre outcome of this month’s United Nations climate change summit in Copenhagen can play another game, Ecological Defender, though a new campaign by the Buenos Aires government urging citizens to stop dropping litter and allowing their dogs to foul the pavements suggests there may yet be a long way to go.

Traffic Education, a game billed as a way to “enjoy learning the rules of the road” for players as young as five, seems not to have had the desired effect either, judging by Argentines’ often madcap driving.

If all else fails and the stress of the holidays gets to be too much, there is another board game, inspired by Argentines’ renowned use of psychoanalysis – In Therapy.

SOMEHOW, I DON'T SEE SUCH GAMES CATCHING ON IN THE US, WHERE WE DON'T EVEN "PLAY" AT REALITY....

[Demeter]

6. Forecast 2010 (James Howard Kunstler)

http://worldnewstrust.com/index.php?option=com_flexicontent&view=items&id=7441:forecast-2010-james-howard-kunstler

Introduction

There are always disagreements in a society, differences of opinion, and contested ideas, but I don't remember any period in my own longish life, even the Vietnam uproar, when the collective sense of purpose, intent, and self-confidence was so muddled in this country, so detached from reality. Obviously, in saying this I'm assuming that I have some reliable notion of what's real. I admit the possibility that I'm as mistaken as anyone else. But for the purpose of this exercise I'll ask you to regard me as a reliable narrator. Forecasting is a nasty job, usually thankless, often disappointing -- but somebody's got to do it. There are so many variables in motion, and so much of that motion is driven by randomness, and the best one can do in forecasting amounts to offering up some guesses for whatever they are worth.

I begin by restating my central theme of recent months: that we're doing a poor job of constructing a coherent consensus about what is happening to us and what we are going to do about it.

There is a great clamor for "solutions" out there. I've noticed that what's being clamored for is a set of rescue remedies -- miracles even -- that will allow us to keep living exactly the way we're accustomed to in the USA, with all the trappings of comfort and convenience now taken as entitlements. I don't believe that this will be remotely possible, so I avoid the term "solutions" entirely and suggest that we speak instead of "intelligent responses" to our changing circumstances. This implies that our well-being depends on our own behavior and the choices that we make, not on the lucky arrival of just-in-time miracles. It is an active stance, not a passive one. What will we do?

The great muddlement out there, this inability to form a coherent consensus about what's happening, is especially frightening when, as is the case today, even the intelligent elites appear clueless or patently dishonest, in any case unreliable, in their relations with reality. President Obama, for instance -- a charming, articulate man, with a winning smile, pectorals like Kansas City strip steaks, and a mandate for "change" -- who speaks incessantly and implausibly of "the recovery" when all the economic vital signs tell a different story except for some obviously manipulated stock market indexes. You hear this enough times and you can't help but regard it as lying, and even if it is lying ostensibly for the good of the nation, it is still lying about what is actually going on and does much harm to the project of building a coherent consensus. I submit that we would benefit more if we acknowledged what is really happening to us because only that will allow us to respond intelligently. What prior state does Mr. Obama suppose we're recovering to? A Potemkin housing boom and an endless credit card spending orgy? The lying spreads downward from the White House and broadly across the fruited plain and the corporate office landscape and through the campuses and the editorial floors and the suites of absolutely everyone in charge of everything until all leadership in every field of endeavor has been given permission to speak untruth and to reinforce each others lies and illusions.

How dysfunctional is our nation? These days, we lie to ourselves perhaps as badly the Soviets did, and in a worse way, because where information is concerned we really are a freer people than they were, so our failure is far less excusable, far more disgraceful. That you are reading this blog is proof that we still enjoy free speech in this country, whatever state of captivity or foolishness the so-called "mainstream media" may be in. By submitting to lies and illusions, therefore, we are discrediting the idea that freedom of speech and action has any value.

Where We Are Now

2009 was the Year of the Zombie. The system for capital formation and allocation basically died but there was no funeral. A great national voodoo spell has kept the banks and related entities like Fannie Mae and the dead insurance giant AIG lurching around the graveyard with arms outstretched and yellowed eyes bugged out, howling for fresh infusions of blood... er, bailout cash, which is delivered in truckloads by the Federal Reserve, which is itself a zombie in the sense that it is probably insolvent. The government and the banks (including the Fed) have been playing very complicated games with each other, and the public, trying to pretend that they can all still function, shifting and shuffling losses, cooking their books, hiding losses, and doing everything possible to detach the relation of "money" to the reality of productive activity.

But nothing has been fixed, not even a little. Nothing has been enforced. No one has been held responsible for massive fraud. The underlying reality is that we are a much less affluent society than we pretend to be, or, to put it bluntly, that we are functionally bankrupt at every level: household, corporate enterprise, and government (all levels of that, too).

The difference between appearance and reality can be easily seen in the everyday facts of American economic life: soaring federal deficits, real unemployment above 15 percent, steeply falling tax revenues, massive state budget crises, continuing high rates of mortgage defaults and foreclosures, business and personal bankruptcies galore, cratering commercial real estate, dying retail, crumbling infrastructure, dwindling trade, runaway medical expense, soaring food stamp applications. Meanwhile, the major stock indices rallied. What's not clear is whether money is actually going somewhere or only the idea of "money" is appearing to go somewhere. After all, if a company like Goldman Sachs can borrow gigantic sums of "money" from the Federal Reserve at zero interest, why would it not shovel that money into the burning furnace of a fake stock market rally? Of course, none of this behavior has anything to do with productive activity.

The theme for 2009 -- well put by Chris Martenson -- was "extend and pretend," to use all the complex trickery that can be marshaled in the finance tool bag to keep up the appearance of a revolving debt economy that produces profits, interest, and dividends, in spite of the fact that debt is not being "serviced," i.e. repaid. There is an awful lot in the machinations of Wall Street and Washington that is designed deliberately to be as incomprehensible as possible to even educated people, but this part is really simple: if money is created out of lending, then the failure to pay back loaned money with interest kills the system. That is the situation we are in.

The inertia displayed by our system -- especially its manifest ability to keep stock markets levitating in the absence of value creation -- is strictly a function of its size and complexity. It is running on fumes. I thought it would finally crash and burn in 2009. The Dow Jones industrial average certainly fell on its ass last March, bottoming in the mid-6000 range. But then it picked its sorry ass off the ground and rallied back up again thanks to bail-outs and ZIRPs and really no other place to look for returns on the accumulated wealth of the past two hundred years, especially for large institutions like pension funds that need income to function. I'd called for a Dow at 4000. A lot of readers ridiculed that call. Was it really that far off?

A feature of 2009 easily overlooked is what a generally placid year it was around the world. Apart from the election uproar in Iran, there were few events of any size or potency to shove all the various wobbly things -- central banks, markets, governments, etc -- into failure mode. So things just kept wobbling. I don't think that state of affairs is likely to continue. With that, on to the particulars.

The Year Ahead

Just about everything which evaded fate via gamed numbers, budgets, and balance sheets in 2009 seems destined to hit a wall in 2010. To pick an arbitrary starting point, it is hard to see how states like California and New York can keep staving off monumental changes in their scale of operations with further budget trickery. Those cans they've been kicking down the street have fallen through the sewer grate. What will they do? They can massively raise taxes or massively lay off employees and default on obligations - or they can do all these things. The net result will be populations with less income, arguably impoverished, suffering, and perhaps very angry about it. Welcome to reality. Will Washington bail the states out, too? I wouldn't be surprised to see them pretend to do so, but not without immense collateral damage in everybody's legitimacy and surely an increase in US treasury interest rates.

But backing up a moment, I'm writing between Christmas and New Year's Eve. The frenzied distractions of the holidays ongoing for much of Q4-2009 are still in force. In a week or so, when the Christmas trees are hauled out to the curbs (and it turns out that municipal garbage pickup has been curtailed for lack of funds) a picture will start to emerge of exactly how retail sales went leading up to the big climax. My guess is that sales were dismal. Reports of such will start a train of events that sends many retail companies careening into bankruptcy, including some national chains, leading to lost leases in malls and strip malls, leading to a final push off the cliff for commercial real estate, leading to the failure of many local and regional banks, leading to the bankrupt FDIC having to go to congress directly to get more money to bail out the depositors, leading again to rising interest rates for US treasuries, leading to higher mortgage interest rates for whoever out there is crazy enough to venture to buy a house with borrowed money, leading to the probability that there are few of the foregoing, leading to another hard leg down in house values because so few are now crazy enough to buy a house in the face of falling prices - all of this leading to the recognition that we have entered a serious depression, which is only a facet of the greater period of hardship we have also entered, which I call The Long Emergency.

This depression will be a classic deleveraging, or resolution of debt. Debt will either be paid back or defaulted on. Since a lot can't be paid back, a lot of it will have to be defaulted on, which will make a lot of money disappear, which will make many people a lot poorer. President Obama will be faced with a basic choice. He can either make the situation worse by offering more bailouts and similar moves aimed at stopping the deleveraging process -- that is, continue what he has been doing, only perhaps twice as much, which may crash the system more rapidly -- or he can recognize the larger trends in The Long Emergency and begin marshalling our remaining collective resources to restructure the economy along less complex and more local lines. Don't count on that.

Of course, this downscaling will happen whether we want it or not. It's really a matter of whether we go along with it consciously and intelligently -- or just let things slide. Paradoxically and unfortunately in this situation, the federal government is apt to become ever more ineffectual in its ability to manage anything, no matter how many times Mr. Obama comes on television. Does this leave him as a kind of national camp counselor trying to offer consolation to the suffering American people, without being able to really affect the way the "workout" works out? Was Franklin Roosevelt really much more than an affable presence on the radio in a dark time that had to take its course and was only resolved by a global convulsion that left the USA standing in a smoldering field of prostrate losers?

One wild card is how angry the American people might get. Unlike the 1930s, we are no longer a nation who call each other "Mister" and "Ma'am," where even the down-and-out wear neckties and speak a discernible variant of regular English, where hoboes say "thank you," and where, in short, there is something like a common culture of shared values. We're a nation of thugs and louts with flames tattooed on our necks, who call each other "motherfucker" and are skilled only in playing video games based on mass murder. The masses of Roosevelt's time were coming off decades of programmed, regimented work, where people showed up in well-run factories and schools and pretty much behaved themselves. In my view, that's one of the reasons that the US didn't explode in political violence during the Great Depression of the 1930s -- the discipline and fortitude of the citizenry. The sheer weight of demoralization now is so titanic that it is very hard to imagine the people of the USA pulling together for anything beyond the most superficial ceremonies -- placing teddy bears on a crash site. And forget about discipline and fortitude in a nation of ADD victims and self-esteem seekers.

I believe we will see the outbreak of civil disturbance at many levels in 2010. One will be plain old crime against property and persons, especially where the sense of community is flimsy-to-nonexistent, and that includes most of suburban America. The automobile is a fabulous aid to crime. People can commit crimes in Skokie and be back home in Racine before supper (if supper is anything besides a pepperoni stick and some Hostess Ho-Hos in the car). Fewer police will be on guard due to budget shortfalls.

I think we'll see a variety-pack of political disturbance led first by people who are just plain pissed off at government and corporations and seek to damage property belonging to these entities. The ideologically-driven will offer up "revolutionary" action to redefine some lost national sense of purpose. Some of the most dangerous players such as the political racialists, the posse comitatus types, the totalitarian populists, have been out-of-sight for years. They'll come out of the woodwork and join the contest over dwindling resources. Both the Left and the Right are capable of violence. But since the Left is ostensibly already in power, the Right is in a better position to mount a real challenge to office-holders. Their ideas may be savage and ridiculous, but they could easily sweep the 2010 elections -- unless we see the rise of a third party (or perhaps several parties). No sign of that yet. Personally, I'd like to see figures like Christopher Dodd and Barney Frank sent packing, though I'm a registered Democrat. In the year ahead, the sense of contraction will be palpable and huge. Losses will be obvious. No amount of jive-talking will convince the public that they are experiencing "recovery." Everything familiar and comforting will begin receding toward the horizon.

Markets and Money

I'll take another leap of faith and say that 6600 was not the bottom for the Dow. I've said Dow 4000 for three years in a row. Okay, my timing has been off. But I still believe this is its destination. Given the currency situation, and the dilemma of no-growth Ponzi economies, I'll call it again for this year: Dow 4000. There, I said it. Laugh if you will....

I'm with those who see the dollar strengthening for at least the first half of 2010, and other assets falling in value, especially the stock markets. The dollar could wither later on in the year and maybe take a turn into high inflation as US treasury interest rates shoot up in an environment of a global bond glut. That doesn't mean the stock markets will bounce back because the US economy will only sink into greater disorder when interest rates rise.

Right now there are ample signs of trouble with the Euro. It made a stunning downward move the past two weeks. European banks took the biggest hit in the Dubai default. Now they face the prospect of sovereign default in Greece, the Baltic nations (Estonia, Latvia, Lithuania), the Balkan nations (Serbia, et al), Spain, Portugal, Italy, Ireland, Iceland and the former soviet bloc of Eastern Europe. England is a train wreck of its own (though not tied into the Euro), and even France may be in trouble. That leaves very few European nations standing. Namely Germany and Scandanavia (and I just plain don't know about Austria). What will Europe do? Really, what will Germany do? Probably reconstruct something like the German Deutschmark only call it something else... the Alt.Euro? As one wag said on the Net: sovereign debt is the new sub-prime! The Euro is in a deeper slog right now than the U.S. dollar (even with our fantastic problems), so I see the dollar rising in relation to the Euro, at least for a while. I'd park cash in three month treasury bills -- don't expect any return -- for safety in the first half of 2010. I wouldn't touch long-term U.S. debt paper with a carbon-fiber sixty foot pole.

I'm still not among those who see China rising into a position of supremacy. In fact, they have many reasons of their own to tank, including the loss of the major market for their manufactured goods, vast ecological problems, de-stabilizing demographic shifts within the nation, and probably a food crisis in 2010 (more about this later).

Though a seemingly more stable nation than the United States, with a disciplined population and a strong common culture with shared values, Japan's financial disarray runs so deep that it could crash its government even before ours. It has no fossil fuels of its own whatsoever. And in a de-industrializing world, how can an industrial economy sustain itself? Japan might become a showcase for The Long Emergency. On the other hand, if it gets there first and makes the necessary adjustments, which is possible given their discipline and common culture, they may become THE society to emulate!

I'm also not convinced that so-called "emerging markets" are places where money will dependably earn interest, profits, or dividends. Contraction will be everywhere. I even think the price of gold will retrace somewhere between $750 and $1,000 for a while, though precious metals will hold substantial value under any conditions short of Hobbesian chaos. People flock to gold out of uncertainty, not just a bet on inflation. My guess is that gold and silver will eventually head back up in value to heights previously never imagined, and it would be wise to own some. I do not believe that the federal government could confiscate personal gold again the way it did in 1933. There are too many pissed off people with too many guns out there - and I'm sure there is a correlation between owners of guns with owners of gold and levels of pissed-offness. A botched attempt to take gold away from citizens would only emphasize the impotence of the federal government, leading to further erosion of legitimacy.

Bottom line for markets and money in 2010: so many things will be out of whack that making money work via the traditional routes of compound interest or dividends will be nearly impossible. There's money to be made in shorting and arbitrage and speculation, but that requires nerves of steel and lots and lots of luck. Those dependent on income from regular investment will be hurt badly. For most of us, capital preservation will be as good as it gets -- and there's always the chance the dollar will enter the hyper-inflationary twilight zone and wipe out everything and everyone connected with it.

Peak Oil

It's still out there, very much out there, a huge unseen presence in the story, the true ghost-in-the-machine, eating away at economies every day. It slipped offstage in 2009 after the oil spike of 2008 ($147/barrel) over-corrected in early 2009 to the low $30s/barrel. Now it's retraced about halfway back to the mid-$70s. One way of looking at the situation is as follows. Oil priced above $75 begins to squeeze the US economy; oil priced over $85 tends to crush the US economy. You can see where we are now with oil prices closing on Christmas Eve at $78/barrel.

Among the many wishful delusions operating currently is the idea that the Bakken oil play in Dakota / Montana will save Happy Motoring for America, and that the Appalachian shale gas plays will kick in to make us energy independent for a century to come. Americans are likely to be disappointed by these things.

Both Bakken and the shale gas are based on techniques for using horizontal drilling through "tight" rock strata that is fractured with pressurized water. It works, but it's not at all cheap, creates plenty of environmental mischief, and may end up being only marginally productive. At best, Bakken is predicted to produce around 400,000 barrels of oil a day. That's not much in a nation that uses close to 20 million barrels a day. Shale gas works too, though the wells deplete shockingly fast and will require the massive deployment of new drilling rigs (do we even have the steel for this?). I doubt it can be produced for under $10 a unit (mm/BTUs) and currently the price of gas is in the $5 range. In any case, we're not going to run the US motor vehicle fleet on natural gas, despite wishful thinking.

Several other story elements in the oil drama have remained on track to make our lives more difficult. Oil export rates continue to decline more steeply than oil field depletion rates. Exporters like Iran, Mexico, Saudi Arabia, Venezuela, are using evermore of the oil they produce (often as state-subsidized cheap gasoline), even as their production rates go down. So, they have less oil to sell to importers like the USA -- and we import more than 60 percent of the oil we use. Mexico's Pemex is in such a sorry state, with its principal Cantarell field production falling off a cliff, that the USA's number three source of imported oil may be able to sell us nothing whatsoever in just 24 months. Is there any public discussion about this in the USA? No. Do we have a plan? No.

A new wrinkle in the story developing especially since the financial crisis happened, is the shortage of capital for new oil exploration and production -- meaning that we have even poorer prospects of offsetting world-wide oil depletion. The capital shortage will also affect development in the Bakken play and the Marcellus shale gas range.

Industrial economies are still at the mercy of peak oil. This basic fact of life means that we can't expect the regular cyclical growth in productive activity that formed the baseline parameters for modern capital finance -- meaning that we can't run on revolving credit anymore because growth simply isn't there to create real surplus wealth to pay down debt. The past 20 years we've seen the institutions of capital finance pretend to create growth where there is no growth by expanding financial casino games of chance and extracting profits, commissions, and bonuses from the management of these games -- mortgage backed securities, collateralized debt obligations, credit default swaps, and all the rest of the tricks dreamed up as America's industrial economy was shipped off to the Third World. But that set of rackets had a limited life span and they ran into a wall in October 2008. Since then it's all come down to a shell game: hide the giant pea of defaulted debt under a giant walnut shell.

Yet another part of the story is the wish that the failing fossil fuel industrial economy would segue seamlessly into an alt-energy industrial economy. This just isn't happening, despite the warm, fuzzy TV commercials about electric cars and "green" technology. The sad truth of the matter is that we face the need to fundamentally restructure the way we live and what we do in North America, and probably along the lines of much more modest expectations, and with very different practical arrangements in everything from the very nature of work to household configurations, transportation, farming, capital formation, and the shape-and-scale of our settlements. This is not just a matter of re-tuning what we have now. It means letting go of much of it, especially our investments in suburbia and motoring - something that the American public still isn't ready to face. They may never be ready to face this and that is why we may never make a successful transition to whatever the next economy is. Rather, we will undertake a campaign to sustain the unsustainable and sink into poverty and disorder as we fight over the table scraps of the old economy... and when the smoke clears nothing new will have been built.

President Obama has spent his first year in office, and billions of dollars, trying to prop up the floundering car-makers and more generally the motoring system with "stimulus" for "shovel-ready" highway projects. This is exactly the kind of campaign to sustain the unsustainable that I mean. Motoring is in the process of failing and now for reasons that even we peak oilers didn't anticipate a year ago. It's no longer just about the price of gasoline. The crisis of capital is making car loans much harder to get, and if Americans can't buy cars on installment loans, they are not going to buy cars, and eventually they will not be driving cars they can't buy. The same crisis of capital is now depriving the states, counties, and municipalities of the means to maintain the massive paved highway and street system in this country. Just a few years of not attending to that will leave the system unworkable.

Meanwhile President Obama has given next-to-zero money or attention to public transit, to repairing the passenger railroad system in particular. I maintain that if we don't repair this system, Americans will not be traveling very far from home in a decade or so. Therefore, Mr. Obama's actions vis-à-vis transportation are not an intelligent response to our situation. And for very similar reasons, the proposal for a totally electric motor vehicle fleet, as a so-called "solution" to the liquid fuels problem, is equally unintelligent and tragic. Of course something else that Mr. Obama has barely paid lip-service to is the desperate need to retool our living places as walkable communities. The government now, at all levels, virtually mandates suburban arrangements of the most extremely car-dependent kind. Changing this has to move near the top of a national emergency priority list, if we have one.

Even with somewhat lower oil prices in 2009, the airlines still hemorrhaged losses in the billions, and if the oil price remains in the current zone some of them will fall back into bankruptcy in 2010. Oil prices may go down again in response to crippled economies, but then so will passengers looking to fly anywhere, especially the business fliers that the airlines have depended on to fill the higher-priced seats. I believe United will be the first one to go down in 2010, a hateful moron of a company that deserves to die.

My forecast for oil prices this year is extreme volatility. A strengthening dollar might send oil prices down (though that relationship has temporarily broken down this December as both oil prices and the dollar went up in tandem for the first time in memory). So could the cratering of the stock markets, or a general apprehension of a floundering economy. But the oil export situation also means there is less and less wiggle room every month for supply to keep pace with demand, even in struggling economies if they are dependent on foreign imports. Another part of the story that we don't pay attention to is the potential for oil scarcities, shortages, and hoarding. We may see the reemergence of those trends in 2010 for the first times since 1979.

Geopolitics

The retracement of oil prices in 2009 took place against a background of relative quiet on the geopolitical scene. With economies around the world sinking into even deeper extremis in 2010, friction and instability are more likely. The more likely locales for this are the places where most of the world's remaining oil is: the Middle East and Central Asia. The American army is already there, in Iraq and Afghanistan, with an overt pledge to up-the-ante in Afghanistan. It's hard to imagine a happy ending in all this. It's increasingly hard to even imagine a strategic justification for it. My current (weakly-held) notion is that America wants to make a baloney sandwich out of Iran, with American armies in Iraq and Afghanistan as the Wonder Bread, to "keep the pressure on" Iran. Well, after quite a few years, it doesn't seem to be moderating or influencing Iran's behavior in any way. Meanwhile, Pakistan becomes more chaotic every week and our presence in the Islamic world stimulates more Islamic extremist hatred against the USA. Speaking of Pakistan, there is the matter of its neighbor and adversary, India. If there is another terror attack by Pakistan on the order of last year's against various targets in Mumbai, I believe the response by India is liable to be severe next time, leading to God-knows-what, considering both countries have plenty of atom bombs.

Otherwise, the idea that we can control indigenous tribal populations in some of Asia's most forbidding terrain seems laughable. I don't have to rehearse the whole "graveyard of empires" routine here. But what possible geo-strategic advantage is in this for us? What would it matter if we pacified all the Taliban or al Qaeda in Afghanistan? Most of the hardest core maniacs are next door in Pakistan. Even if we turned Afghanistan into Idaho-East, with Kabul as the next Sun Valley, complete with Ralph Lauren shops and Mario Batali bistros, Pakistan would remain every bit as chaotic and dangerous in terms of supplying the world with terrorists. And how long would we expect to remain in Afghanistan pacifying the population? Five years? Ten Years? Forever? It's a ridiculous project. Loose talk on the web suggests our hidden agenda there was to protect a Conoco pipeline out of Tajikistan, but that seems equally absurd on several grounds. I can't see Afghanistan as anything but a sucking chest wound for dollars, soldiers' lives, and American prestige.

What's more, our presence there seems likely to stimulate more terror incidents here in the USA. We've been supernaturally lucky since 2001 that there hasn't been another incident of mass murder, even something as easy and straightforward as a shopping mall massacre or a bomb in a subway. Our luck is bound to run out. There are too many "soft" targets and our borders are too squishy. Small arms and explosives are easy to get in the USA. I predict that 2010 may be the year our luck does run out. Even before the start of the year we've seen the attempted Christmas bombing of Northwest-KLM flight 253 (Amsterdam to Detroit). One consequence of this is that it will only make air travel more unpleasant for everybody in the USA as new rules are instated limiting bathroom trips and blankets in the final hour of flight.

As far as the USA is concerned, I think we have more to worry about from Mexico than Afghanistan. In 2009, the Mexican government slipped ever deeper into impotence against the giant criminal cartels there. As the Cantarell oil field waters out, revenue from Pemex to the national government will wither away and so will the government's ability to control anything there. The next president of Mexico may be an ambitious gangster straight out of the drug cartels, Pancho Villa on steroids.

Another potential world locale for conflict may be Europe as the European Union begins to implode under the strains of the monetary system. The weaker nations default on their obligations and Germany, especially, looks to insulate itself from the damage. Except for the fiasco in Yugoslavia's breakup years ago, Europe has been strikingly peaceful for half a century. For most of us now living who have visited there, it is almost impossible to imagine how violent and crazy the continent was in the early twentieth century. I wonder what might happen there now, with more than a few nations failing economically and the dogs of extreme politics perhaps loosed again. History is ironical. Perhaps this time the Germans will be the good guys, while England goes apeshit with its BNP. Wouldn't that be something?

One big new subplot in world politics this year may be the global food shortage that is shaping up as a result of spectacular crop failures in most of the major farming regions of the world. The American grain belt was hit by cold and wet weather and the harvest was a disaster, especially for soybeans, of which the USA produces at least three-quarters of the world's supply. Crops have also failed in Northern China's wheat-growing region, in Australia, Argentina, and India. The result may range from extremely high food prices in the developed world to starvation in other places, leading to grave political instability and desperate fights over resources. We'll have an idea where this is leading by springtime. It maybe the most potent sub-plot in the story for 2010.

Conclusions

The Long Emergency is officially underway. Reality is telling us very clearly to prepare for a new way of life in the USA. We're in desperate need of decomplexifying, re-localizing, downscaling, and re-humanizing American life. It doesn't mean that we will be a lesser people or that we will not recognize our own culture. In some respects, I think it means we must return to some traditional American life-ways that we abandoned for the cheap oil life of convenience, comfort, obesity, and social atomization.

The successful people in America moving forward will be those who attach themselves to cohesive local communities, places with integral local economies and sturdy social networks, especially places that can produce a significant amount of their own food. I don't think that we'll be living in a world without money, some medium of exchange above barter, but it may not come in the form of dollars. My guess is that for a while it may be gold and silver, or possibly certificates issued by bank-like institutions representing gold-on-hand. In any case, I doubt we'll arrive there this year. This is more likely to be the year of grand monetary disorders and continued shocking economic contraction.

Political upheaval can get underway pretty quickly, without a whole lot of warning. I'm still waiting to hear the announced 2009 bonuses for the employees of the TBTF banks. All they said before Christmas was that thirty top Goldman Sachs employees would be paid in stock instead of money this year, but no other big banks have made a peep yet. I suppose they'll have to in the four days before New Years. I still think that could be the moment that shoves some disgruntled Americans into the arena of protest and revolt. Beyond that, though, there is plenty room for emotions to run wild and for behavior to get weird.

President Obama will have to make some pretty drastic moves to salvage his credibility. I see no sign of any intention to seriously investigate or prosecute financial crimes. Yet the evidence of misdeeds piles higher and higher -- just this week new comprehensive reports of Goldman Sachs's irregularities in shorting their own issues of mortgage-backed securities, and a report on the Treasury Department's issuance of treasuries to "back-door" dumpers of toxic mortgage backed securities. And on Christmas Eve, when nobody was looking, the Treasury lifted the ceiling on Fannie Mae and Freddie Mac's backstop money to infinity. Even people like me who try to pay close attention to what's going on have lost track of all the various TARPs, TALFs, bailouts, stimuli, ZIRP loans, and handovers to every bank and its uncle in the land.

Good luck to readers in 2010. To paraphrase Tiny Tim: God help us, every one....

[Demeter]

7. Musical Antidote--Because We Need It!

http://www.youtube.com/watch?v=1TWd3skb-Rw&feature=related

[Tansy_Gold]

31. My favorite --- "Beat Detroit" (1972)

http://www.boardgamesrus.com/70s_pg_7.htm






"If you can travel 50,000 miles before you go broke, or before your car falls apart, you beat Detroit! That is what this game is all about."



Mine is in better condition than the one listed on this site.

Instructions for choosing which player starts? "Roll the dice or bitch among yourselves to decide."

One square is designated "Write a letter to Detroit." It's the one square on the board on which nothing happens.



Tansy Gold, who has beaten Detroit three times over with her 2000 Blazer

[Demeter]

8. The Bankster SubThread

news about the continuing tale of fraud and malfeasance go here

[Demeter]

10. Santander chief guilty of ‘false accusation’

http://www.ft.com/cms/s/0/464f1a8e-f3ed-11de-ac55-00144feab49a.html

A Spanish court has found the chief executive of Santander, Spain’s largest bank, guilty of “false accusation” in a private criminal case that began 15 years ago.

In a ruling published on Monday, judges of the provincial court of Barcelona found Alfredo Sáenz and two former colleagues guilty of charges stemming from the collapse of Banesto, the Spanish lender rescued by the Bank of Spain in late 1993 and taken over a year later by Santander.

...Efe, the Spanish state news agency, reported on Monday that Mr Sáenz was sentenced to six months in jail – which under Spanish law he is unlikely to serve – and fined €9,000. He and his co-accused were also ordered to pay one of the plaintiffs €100,000 in damages, and the other three a symbolic €1 apiece.

Banesto said it would appeal against the decision.

According to Banesto, the ruling stems from a series of lawsuits filed against the bank’s debtors as part of efforts to recover bad loans as it sank into insolvency in 1993. As the result of one such action, a group of businessmen were held provisionally in jail for allegedly concealing assets.

The businessmen and a Banesto board member sued Mr Sáenz as head of Banesto, along with another executive and the bank’s lawyer at the time, for false accusation, giving false evidence and bribery.

Most of the claims in the suit had been ruled inadmissible or shelved during a decade of verdicts and appeals in various courts, according to Banesto....

[Demeter]

11. Fed to offer term deposits to banks

http://www.ft.com/cms/s/0/bdcc9a80-f3e0-11de-ac55-00144feab49a.html

The US Federal Reserve plans to offer term deposits to banks as part of its “exit strategy” from the exceptionally loose monetary policy used to fight the recession.

In a consultation paper released on Monday the Fed said it planned to change its rules so that it could pay interest on money locked up at the central bank for a defined period.

The Fed added that the well-flagged rule change - designed to allow it more influence over the $1,100bn in excess reserves held by banks - was part of “prudent planning. . . and has no implications for monetary policy decisions in the near term”.

It is one of a number of measures that has been outlined over the past few months by Ben Bernanke, chairman of the Fed, as an option to drain liquidity from the financial system in a manner that protects the economic recovery while heading off the threat of inflation.

The period over which interest would be paid would be less than a year and probably between one and six months, the Fed said, while the rate would be determined by an auction.

The Fed said this month that it continued to expect to keep interest rates at ”exceptionally low levels” for an ”extended period”. Most economists believe there will be no increase from the near-zero policy until the middle of 2010.

Earlier this month the New York Fed conducted its first live test of “reverse repos” - or reverse repurchase agreements - selling assets such as Treasuries to dealers for cash with an agreement to buy them back later at a slightly higher price.

By draining reserves, both reverse repos and term deposits prevent excess money from entering the broader economy.

Some Fed officials believe outright asset sales might be necessary to drain liquidity while others think reverse repos and term deposits should be sufficient.

Morten Bech and Elizabeth Klee, both Fed officials, published a paper this month that suggested that if the Fed tightens policy it “could use some combination” of paying interest on bank reserves - authority granted last year - coupled with “tools to drain reserves such as term deposits or reverse repurchase agreements”.

[Demeter]

12. JPMorgan London plans in doubt

http://www.ft.com/cms/s/0/e37b923e-f40f-11de-ac55-00144feab49a.html

JPMorgan is considering axing plans for new European headquarters in Canary Wharf, London, in the wake of the bank bonus tax Alistair Darling, UK chancellor, announced in his pre-Budget report this month.

A senior JPMorgan executive said: “It will be a factor in the decision. It is part of the mix.”

Bankers recognise that the 50 per cent bonus tax is a one-off measure this year justified by exceptional profits aided by international government bail-outs, but many see the tax as further evidence that the UK is becoming anti-bank.

Jamie Dimon, JPMorgan’s chief executive, made that point to Mr Darling in a phone call shortly after the bonus announcement, people close to both men said.

He stressed the bank had been a “good corporate citizen” in London for decades and that if the business environment was deemed hostile, it could divert future investment elsewhere, though he is thought not to have worded the remarks as a threat.

Certain trading functions are highly mobile such as foreign exchange, interest rates and commodities.

The bank had taken an option on a newly built headquarters in Canary Wharf in late 2008 to consolidate staff from several London buildings.

However, the bank has been uncertain for months whether to proceed because of financial uncertainty.

The UK Treasury is phlegmatic about such threats because it believes the one-off nature of the bonus tax will prevent companies leaving the UK.

The levy is pencilled in to raise £550m ($880m), although many analysts predict that it could raise a much higher figure.

The Treasury said last night that the chancellor had regular phone conversations with corporate figures. An official said: “This is a fair measure. No bank would be left standing around the world without government intervention.”

AN INEFFECTIVE FORM OF BLACKMAIL, METHINKS

[Demeter]

23. Why is Lloyd Blankfein By Aetius Romulous

http://www.opednews.com/articles/Why-is-Lloyd-Blankfein-by-Aetius-Romulous-091209-518.html


Lloyd Blankfein is the name of the human who is the Chief Executive Officer (the big man) of the global finance corporation called Goldman Sachs. Goldman Sachs is one of history's most successful human endeavours, a legal set of contracts that has accumulated over a trillion dollars in wealth. As CEO of Goldman Sachs, Lloyd Blankfein is an agent of the corporation - the top agent - and so another set of legal contracts rewards him with a share of that wealth in return for his agency service. His share amounted to about 65 million USDs in 2007.

Lloyd Blankfein is ranked among the top 1% of all humans in financial wealth and power by any earthly measure. Except for this fact, and all facts that trail from it, Lloyd Blankfein is a pretty average human in all other regards. There are thousands of Lloyd Blankfeins atop thousands of similar bundles of legal entities - as well as a number of illegal ones. However, there are billions of humans of exact biology on the planet, 99 out of every one hundred (or more) without the wealth, power, and prestige of the very few Lloyd Blankenfein subsets.

One might expect that in a situation such as this, the 99% side would simply knock Lloyd Blankfein on the head with a stick and take all his stuff. There are more of them, after all. Strange, however, that they don't. In fact, on the occasion that anybody ever tries to force a more equitable arrangement (as sometimes happens) members of the 99 club chuck the pushy bugger into jail. Or worse.

How did it come to pass that such a system grew and flourished where the set up is so head - scratchingly inequitable? Why does the near entirety of the human race voluntarily acquiesce to such a system? Why have millions wasted human ingenuity, labour, production...and their very own precious lives to defend a status quo that is grievously unnatural? Are people stupid?

Sort of.

At some distant point in the long forgotten past, in the age where humans became humans, Lloyd Blankfein's direct descendant was among the first to trade his half eaten fish for some other guys stinking hunk of gazelle. This was a time in pubescent civilization where nature was powerful, both giving and taking with equal resolve and mystery. The earth and its gifts were venerated - the fickle bounty of celestial beings, spirits which cowering humans called gods. All beasts took from the earth's natural resources to their sustainable limit, and no more. Homo Habilis Lloyd Blankenfein survived by using his new and wonderfully adaptable brain to sate his desire for sustenance. Community and cooperation improved the human condition. Progress was born.

The "economics" were pretty simple. The earth's resources were abundant and free, belonging to no man. Humans took from the earth, and by applying their peculiar skill and resolve, manufactured goods to meet their desires. From nothing came something; a rock became a tool, a log became a boat, a cave became a home. All the products of human production were composed of only two things - the natural and free resources of the world within reach, and the application of human exertion and creativity. The rock - chipped into a sharp edge - became the reward for human labour. A prehistoric scraping tool the wages of a day's labour to the man who invested the effort.

The confluence of labour and natural resources gave rise to an inventory of human production; that inventory was the created wealth of human existence. Some of that wealth was used to increase the production of more wealth. Some of it was directed to community sustenance. None of it was wasted, as overproduction was pointless. All the produce of human endeavour was added to a pool of wealth from which was drawn by exchange the individual desires of the cooperating community. The wages humans received for their individual effort were retained for use, or traded for the wages of others in the form of goods that met additional desires. Equilibrium was reached where the pooled wealth of the community was enough to sustain mankind, and provide from the pool enough surpluses that some could become capital used to continuously improve production, and thus wealth. Community and equality - where an individual soul could take no more wealth than that which he invested in his own tradeable labour - lifted the condition of man from savage beast to wondrous civilization.

This setup lasted for... a week or so, maybe. Who really knows?

What happened next became a signature event in the history of civilization as we understand it. Until that moment, only a man's labour was his own - the products of that labour by extension his own property to do with what he pleased. Then, suddenly, there arose a class of people who changed the rules forever, folks whose actions have become cemented into modern consciousness as accepted norm, the status quo, and the way it is and always should be. A distant Lloyd Blankfein decided that his share was not enough, and over reached to claim the share of others. Lloyd Blankenfein's lineal ancestor created private property, picked up a weapon, and announced that this land was no longer common, but his alone. Since that moment all of history has been a defence or rationalization of that singular act - the violent appropriation of the free and unbounded by a few, at the expense of the many. And the rest, as they say, is history.

For over twenty thousand years humans have been enshrining as natural law that which is unnatural. The violent expropriation of another's labour has disappeared from view, covered by the complex blanket of social economics we call normal. Free markets, democratic freedoms, patriotism, religion, and dogma off all kinds have celebrated and defended Lloyd Blankfein types throughout the ages. Civilization's measure has become the very uncivilized pursuit of accumulating more than your fair share. All wealth comes - ultimately - from the natural environment. By privatizing that environment and keeping it from free use, we deny others their equal due. That natural environment is finite, and the fencing of one part decreases the balance for the rest. Lloyd Blankenfein can only exist at the expense of others, a fact we just seem to love to death.

Our wretched poverty and excess are firmly buttressed by law and custom - law and custom created and defended over centuries by the established aristocracies of expropriated wealth. We used to call these governments. Now we call them corporations. The vast majority of law in any language is still property law - rules for getting more than your share, forests of tomes on then defending it from others. And lawyers. Lloyd Blankfein is just following the rules, and living within the full extent of both law and custom. Which is, of course, an understatement. Lloyd Blankfein exists because we think we need him to, and so acquiesce despite the fact that deep down inside, every one of us knows that something about that is just wrong somehow.

Wrong somehow. Only the most ideology riddled Luddite amongst us does not question, in some small way, the overwhelming wealth of some at the same time as the spirit breaking lack of same of so many, many others. Every person alive today feels to some degree a deep, gut anger and simmering resentment at the difference between us and ours, and Lloyd Blankfein and his. I know it, and you know it. Why can't we simply admit our basic human instinct, buried deep in our genes and our DNA and every atom of our humanness, that this is wrong and is neither civilization, nor progress. We can't admit it because of the constraints society, culture, and dogma place upon us, built there stick by stick over tens of thousands of revolutions of the earth about the sun. Are we stupid? Sort of. We are conflicted, beaten and subjugated by the rules we were born under, and we know no other. We have a good excuse I guess, and plasma TVs with which to enjoy it.

Of course, there is always the chance that we are wrong, that earth is not meant to be shared, and that poverty and squalor should rejoice at Lloyd Blankfein. Still, it just seems too awfully squishy to accept it the way it is. As that simmering inequity grows, the gap widens and the pie shrinks, don't we all feel more and more like we should do something about it? Don't we just wish someone would step into history and deal with this thing? Or are we waiting for someone else to do it?

Or am I the only person who feels this way?

Aetius Romulous

Historian, Economist, Accountant, Writer, and blood sucking CEO.

Born at the wrong end of the Baby Boom Generation - too late to enjoy the ride, too early to have missed it, and stuck in the middle with the mess.

Aetius writes and blogs from his frozen perch atop the earth in Canada, spending the useful capital of a life not finished making sandwiches and fomenting revolution.

It's a living.

http://screambucket.com/

[e-mail]

[Demeter]

9. The IMF SubThread

Because these vultures have gotten a new lease on life--reports of their actions go here

[Demeter]

13. IMF frees up $2bn for Ukraine

http://www.ft.com/cms/s/0/2843f1ac-f606-11de-bf49-00144feab49a.html

The International Monetary Fund gave the green light to Ukraine to lower its minimum international reserve requirement, freeing up $2bn from central bank coffers to pay Russian natural gas bills and keep the cash-crunched country financially-afloat ahead of a hotly contested presidential election.

The announcement late on Wednesday helped further to defuse fears in Europe that gas supplies could be cut off again as they were during last January’s Moscow-Kiev spat, should recession-ravaged Ukraine fail to cover multi-billion-dollar import bills in coming months.

“The IMF Executive Board agreed to the government’s request to modify the performance criterion on Net International Reserves, as specified in the current Stand-By Arrangement, to lower the end-December NIR floor by about $2bn,” said Max Alier, the IMF’s resident representative to Kiev. “This important step will enable the Ukrainian authorities to use existing resources to make external payments due – including gas payments – within the framework of Ukraine’s programme with the Fund.”

The IMF has helped keep Kiev afloat since the global financial crisis, providing $11bn in support as Ukraine’s gross domestic shrank by 15 per cent. But the fund froze assistance in November due to lacklustre reforms and political infighting in Kiev. Mr Alier said that fresh aid hangs on the ability of Ukraine’s leadership to demonstrate consensus and adopt a fiscally prudent 2010 budget.

Ukraine’s request in December for a fresh $2bn emergency loan was turned down, and the IMF has sought to keep its distance from the country’s messy pre-election politics. Kiev’s political leaders are bitterly divided, with president Viktor Yushchenko, prime minister Yulia Tymoshenko and ex-premier Viktor Yanukovich all campaigning in a January 17 presidential election campaign.

Ms Tymoshenko’s opponents have accused the IMF of being too soft on her government. Ms Tymoshenko accuses opponents of trying to cash-starve her government and undercut her presidential bid by sabotaging cooperation with the IMF. The political temperature is not expected to cool down until after a second round run-off is held in February.

Wednesday’s decision marks continued flexibility by the IMF in dealing with Kiev. It should help keep Ms Tymoshenko’s government afloat with just enough cash from central bank reserves that were built up with IMF funds after the global financial crisis struck.

SO, RUSSIA CAN BEND THE IMF? THE IMF CAN BEND TO REALITY? MAYBE IT IS A NEW YEAR, AFTER ALL!

[Demeter]

14. COMMODITIES SUBTHREAD--NOT JUST OIL, EITHER!

The market in real goods reports here.

[Demeter]

15. Soft commodities prices at historic highs

http://www.ft.com/cms/s/0/92f4cad6-f31c-11de-a888-00144feab49a.html

The prices of key soft commodities – including tea, cocoa and sugar – have jumped to multi-decade highs, boosted by supply shortages and robust demand.

The rises are set to translate into higher retail prices early next year, according to analysts. Coffee and orange juice prices have also risen to their highest level in more than a year.

The shortages – because of to bad weather and a persistent lack of investment – have started to attract financial investors into soft commodities, further boosting prices.

Production of many of these commodities is concentrated in a small group of developing countries, mostly in tropical areas prone to output troubles caused by a combination of bad weather, political unrest, credit shortages and the inability of small farmers to respond to rising prices.

That concentration of output in a small group of countries also means supply disruptions are more likely to have a big impact on prices...

[Demeter]

28. The Top 10 Reasons for Energy Independence have Little to do With Global Warming By Scott Baker

http://www.opednews.com/articles/The-Top-10-Reasons-for-Ene-by-Scott-Baker-091211-131.html


Climate of The World

For those who wonder how to convince resistant people we must move away from fossil fuels due to Climate Change, I have one word of advice: Don't.

There's actually no need. Not because Global Warming isn't real - it is, and the overwhelming evidence is that it's largely fueled by human actions - but because there are other reasons why we should move away from fossil fuel-based energy. The elegant thing about a multi-pronged approach like this is that you can always find some reason to convince someone with. For example, hard-core conservatives may simply refuse to believe anything people do could affect "God's perfect world" but they are perfectly willing to accept that we should not be sending half a trillion dollars a year to foreign oil producers who mostly hate us, and who export terrorism along with their oil (#s 4-6).

1. Climate Change: Oil and Coal contribute to global warming and will only do so more as China, India etc. emulate American lifestyles. According to many scientists, we may already be past the temperature "tipping point" where runaway synergistic effects will make warming inevitable, even if we could stop all CO2 production today (which we can't).

2. Balance of Trade: We import 70% of our oil - $500 billion/year - often from countries that hate us, fund terrorists, and buy our businesses (Citigroup) and infrastructure (Chrysler Building). This is an unsustainable transfer of wealth, which will only make America poorer. We are now paying foreign powers both what we earn personally AND what our companies earn, while they sit back and enjoy the results of their geological luck. Take a look at T. Boone Pickens' presentation for a more realistic assessment of what exporting our wealth will do to us in 10 years. Or, take a look at post-Columbus Spain, which thought having all the gold in the new world would keep them prosperous forever and allow them to import whatever skills and goods they needed. It didn't, and they couldn't.

3. Green Jobs: Germany has created 250,000 new green jobs in its solar industry, which supplies 13% of its electric needs. We need to replace oil, coal and nuclear producing jobs with wind and solar installation and maintenance jobs. (It takes 10 years to build a nuclear plant and 2 years to build a solar thermal field).

4. National Security: We must not depend on foreign powers to supply us with vital energy, which is as critical to modern society as food and shelter. Even if we drill the arctic for oil (home to up to 25% of the world's reserves, according to US Geological Survey), we will have to defend those new wells not only from nature, but from Russia, Canada, Denmark (Greenland), and others with a claim to the high north, leading to unnecessary conflict with these countries. Clearly, ANWR has never been about the tiny bit of land off northern Alaska that would supply just 2 years of oil for America; it's been about opening up the entire Arctic to exploration. We cannot afford to defend such a large and inhospitable region from other regional players with as large or larger geological claims.

5. The Oil Curse: Countries that depend on natural resources to make money, and not people, are the most corrupt, despotic, self-righteous and anti-human rights regimes on Earth. China does not seem to care where their oil comes from, encouraging rogue states like Sudan, Iran, Burma and Venezuela, where human rights barely exist. This is a naïve and ultimately counter-productive strategy for China but not one we should be encouraging again either (see: the downfall of the Shah of Iran).

6. Military Overreach: America cannot afford to defend oil fields. The Iraq war is, at least partly, a subsidy for Big Oil. Lives are being lost and resources are being spent ($12 Billion/month) so that - maybe, eventually - we can get more oil out of Iraq (estimated to be 2 or 3 largest holder of oil reserves). Meanwhile, Iraq does not even use its own $79 billion surplus to pay for its infrastructure needs, while here in the U.S. our bridges collapse from lack of care (Minnesota) and our electrical grid blacks out.

7. Peak Oil: We are probably only seeing peak geopolitical oil, not peak geological oil, now, but it will only get more expensive to drill oil. Most estimates put peak oil within 10 years, and since global demand has exceeded earlier estimates, we may be even closer. The perversion of the OPEC dominated oil market means that they will drill LESS, not MORE, as the price goes up, since they literally collect more money than they know what to do with already, and they want to stretch out their supply. It's only when the price of oil goes DOWN that OPEC members are tempted to cheat on their quotas because their dysfunctional economies become desperate for cash. Right now, they want to sell oil only a trickle at a time.

8. Local Environmental Damage: If we drill everywhere, we will eventually have oil wells all over the west (instead of wind turbines), and even in the (newly melted) arctic. These high-risk drilling areas will be more likely to see oil spills, soot, and CO2 damage and the further eradication of local animal (Polar Bears) and plant life. Already, regional water tables are being polluted by accidents and poisonous chemicals involved in the drilling industry. This is especially true of the Natural Gas and Coal industries, which use and pollute prodigious amounts of scarce water resources. The cost to clean up the toxic coal ash release in Harriman, Tennessee has been estimated to be as high as $800 billion, higher than President Obama's entire stimulus bill. This "pond" was merely average out of hundreds of similar ponds located all over the south and west.

9. We eat too much oil: Oil goes into fertilizer, which goes into corn, which goes into EVERYTHING we eat, including meat. Omega 6 fatty acids (the bad kind) are higher in factory-fed beef. Omega 3 fatty acids (the good kind) are higher in grass-fed beef and almost as high as in fish, according to Michael Pollen (the Omnivore's Dilemma). Oil-based Corn-fed meat is making us fat and raising the national health bill. Cattle, pigs, chickens live a cruel, short life in tight, economical confines because it is cheaper to make them do so than to let them live on the open range. Even an omnivore must realize there is a difference for an animal to be raised humanely and then killed for food than one that is tortured in a CAFO its entire life and then killed. Each wind turbine pays farmers $5,000-$10,000 annually and allows livestock to graze in their shade, making natural grass-fed meat economically competitive again. This synergy could make us healthier AND wean us off imported oil. It would also make our streams, rivers and the Gulf of Mexico healthier by reducing fertilizer runoff.

10. Loss of American's position as Innovation Leader: The oil and automotive industries were born here over 100 years ago. It is time for America to lead the world into the renewable era with Zero Emission Vehicles and renewable energy. If not us, then China or some other countries will take our place and America will become a second-rate power dependent on others for everything.




Author's Bio: Scott Baker is a Senior Editor and Writer at Op Ed News, a Writer for DailyKos...

[Demeter]

17. Obama Mia--The Current Administration SubThread

The Ghost of Christmas Present! (I think we all got coal in our stockings this time around)

[Demeter]

19. Unemployment plan would change rules on bank bailouts

http://www.washingtonpost.com/wp-dyn/content/article/2009/12/10/AR2009121003931.html?hpid=topnews

FOCUS ON SMALL BUSINESS
Executive pay, other limits may be lifted

By David Cho
Washington Post Staff Writer
Friday, December 11, 2009; A01

The Obama administration plans to channel money from the government's massive financial bailout program to small businesses as part of an effort to limit the political and economic damage of high unemployment.

One plan under consideration involves spinning off a new entity from the Troubled Assets Relief Program that would give banks access to federal funds without restrictions, including limits on executive pay, as long as the money was used to support loans to small businesses. But officials are not yet certain whether carving the program out of TARP would be the best way to encourage banks to boost small-business lending, according to sources familiar with the matter who spoke on the condition of anonymity because the plans are not final.

As an alternative, officials are prepared to ask Congress to modify TARP itself, easing the pay limits and other restrictions that would be imposed on small-business lenders taking the money, the sources said...

...Treasury Secretary Timothy F. Geithner told a congressional oversight panel Thursday that TARP would focus on aiding small-business lending, community banks and homeowners struggling to keep up with their mortgage payments, and he hinted at the new program...

Elizabeth Warren, who heads the oversight panel, chided Geithner for taking so long in setting up several other small-business lending initiatives, two of which were announced last spring.

"It's not news to anyone that small-business lending is important," she said. "Small businesses are closing every day. But Treasury has now announced three plans and clearly has not gotten the job done."

Each of those earlier efforts ran into roadblocks. Banks were reluctant to participate because taking the aid would make them look weak and force them to submit to executive pay limits and other conditions, said Camden Fine, who heads the Independent Community Bankers of America.

"As long as those restrictions, particularly the compensation restrictions, remain as a condition to receiving TARP money, community banks won't touch it," he said. "To them, TARP equals toxic."

No dollar figures have yet been attached to the new small-business lending effort, which is still in development, the sources said. But it remains one of the top priorities of the Treasury, which is crafting the program, they said.

"The president asked Treasury and to look hard at how the TARP program could be deployed to help creditworthy small businesses who are not getting the financing they need to grow and create jobs," said Gene Sperling, a counselor to Geithner. "Treasury and SBA are taking that assignment very seriously and working hard to see what would be most feasible and effective."

The new program relies on a structure called a "special-purpose vehicle," an entity that is typically used by financial firms to achieve a temporary investment or business objective while separating the parent company from any legal risk of that activity. In this case, the vehicle would be financed by rescue funds and would lend to banks that provide small-business loans. In theory, this structure would free banks of the TARP conditions because they would be getting the money from a separate entity. They could also avoid being labeled as a TARP recipient...

The Treasury prefers to set up the program on its own, without the need for a congressional change to TARP, which could be time-consuming, the sources said. These sources added that the initiative is still in flux and could be scrapped altogether...I'LL BET THEY DO!

[Demeter]

20. Obama Lost, Obama Found

http://nymag.com/news/politics/62377/

(THE WEEK BEFORE THANKGSGIVING), President Barack Obama came home from his eight-day trip to Asia and received a welcome even frostier than the subfreezing temperatures that had greeted him in Beijing. In the House of Representatives, the populist Democrat Peter DeFazio of Oregon was calling for the heads of Tim Geithner and Larry Summers on a pair of pikes. The Congressional Black Caucus was thwarting the progress of Obama’s financial-reform agenda, on the grounds that the economic policies of the first African-American president were callous toward African-Americans. The Congressional Hispanic Caucus, furious about provisions regarding illegal immigrants in the Senate health-care bill, was casting blame on the White House chief of staff, Rahm Emanuel. The next morning, the front page of the Washington Post featured a story with the blaring headline “Angry Congress Lashes Out at Obama,” but which might as well have been titled “What a Difference a Year Makes.”

...Obama has brought to bear great aplomb and fortitude, and his achievements have been considerable. Together with his team and Fed chairman Ben Bernanke, he has helped prevent the economy from tumbling into the abyss. He has changed the tone of America’s relationships abroad and begun the restoration of the country’s global standing. At considerable political cost, he has undertaken the reformation of a health-care system desperately and urgently in need of it. Compared with his predecessor, he is a model of rationality and rigor. Compared with the extant Republican alternatives—the appalling burlesque sideshows that are Sarah Palin and Dick Cheney—he occupies an entirely different rung on the political and moral evolutionary ladder. And yet, for all of that, there’s no denying this fact: You’d have to be stone deaf not to hear the air hissing out of the Obama balloon.

...“I have no idea what they believe,” a leading House Democrat and Obama ally told me recently when I asked if he could define the administration’s governing philosophy. “I know that their governing strategy seems to be, ‘Don’t worry, the big guy will make it all right in the end.’ They have the sublime sense that they don’t have to do all that much to plan events, or to come up with the message for what they’re doing, or to line up support, because whenever they need to, they can just put Mike Tyson in the ring. And I think (a) it’s wrong, and (b) it’s a bad way to run a White House.”

... national polls, which peg Obama’s support at below 50 percent on virtually every significant issue facing the country: the economy, unemployment, Afghanistan, Iraq, health care, immigration, and the deficit. Equally troubling, Obama’s overall job-disapproval ratings are now in the mid-40s; since Dwight Eisenhower, the only president with numbers that high at this early stage in his first term was (gulp) Bill Clinton.

Historically, it’s true that disapproval ratings almost always move in lockstep with the state of the economy, and with the unemployment rate in particular. But even beyond Obama’s tremulous ratings on non-economic issues, there are other warning signs lurking in the digits. According to Gallup, a year ago, in the wake of Obama’s election, a roughly equal number of voters expected him to pursue “mostly moderate” and “mostly liberal” policies. More recently, 54 percent say that he has governed from the left, with just 34 percent saying he’s done so from the center. In the same poll, the percentage of people that believe Obama is keeping his campaign promises has fallen 17 percent since April, from 65 to 48—a perception shared to a similar degree among Democrats, Republicans, and independents.
....

But Obama’s was not a candidacy, to put it mildly, in which substance played a starring role—though the problem was subtler than the claim that his run was a policy-free zone. “What struck me about the campaign is what I like to call ‘the missing middle,’ ” explains the Brookings Institution scholar Bill Galston, who was among the architects of Clinton’s New Democratic creed in 1992. “Up here there was the riveting rhetoric, and down here a series of reasonably well-crafted, intelligent, and serious policy prescriptions. What was missing in the middle was the connective tissue that might be called the theory of the case.”

As Galston points out, both Clinton and Ronald Reagan campaigned on and carried with them to Washington cohesive theories of the case: not simply proposals, but analyses and narratives about the transformation of the economy, America’s place in the world, and the role of government (or lack thereof) in adapting to and shaping the future. For Obama, the absence of a theory of case caused him no harm in 2008. But his failure in office to articulate one has been more damaging. In the debates that have dominated his maiden year, it has left his plans looking formless and untethered, and made it far more difficult to frame them in a fashion maximally compelling to the public or politically effective on Capitol Hill.

“What Obama is learning,” says a prominent Democrat and Clinton-administration veteran, “is that it’s easier to get elected out of nowhere than it is to govern from nowhere.”

The first object lesson in the dangers of Obama’s theory-of-the-caselessness is the largest and most important piece of legislation that he has yet to enact: the American Recovery and Reinvestment Act of 2009—a.k.a., the $787 billion stimulus bill. Hatched by his advisers even before he took office, the bill was designed to inject a large amount of dough into the economy quickly to stave off the possibility of a horrendous recession turning into a second Great Depression. Its passage in mid-February was a major victory right out of the chute for the new administration, but its longer-term fallout has proved considerably less salutary....

With the stimulus, Emanuel’s devotion to the art of the possible caused him to make two fateful choices. The first involved the proportions of the package. Though Christina Romer, the chair of the Council of Economic Advisers, believed that its optimal size would have been $1.2 trillion, Emanuel scotched that figure as unpalatable to Congress and settled on a price tag almost identical to what was later approved. (When Paul Krugman moaned that the package was too small, Emanuel scoffed, “How many bills has he passed?”) The second choice, driven by similar imperatives, was to forgo having the White House draft the legislation and instead outsource its cobbling-together to the Democratic leadership on the Hill.

Nearly ten months later, the broad consensus verdict among economists is that the stimulus has been a kind of success. That, as the New York Times reported the other day, it “is helping an economy in free fall a year ago to grow again and shed fewer jobs than it otherwise would.” That “Mr. Obama’s promise to ‘save or create’ about 3.5 million jobs by the end of 2010 is roughly on track, though far more jobs are being saved than created.”

All of which is true enough. But viewed from other angles, the stimulus looks more like the Obama administration’s original sin. With unemployment now in double digits and apparently headed higher still, the dismissal of Romer’s $1.2 trillion figure seems a glaring screwup purely on policy grounds. And in the absence of a strong hand by the White House, the bill degenerated into substantive incoherence, failing to focus not only on job creation but also, as the Earth Institute’s Jeffrey Sachs argues, on any of the structural reformations—from the conversion to a low-carbon energy supply to updating America’s infrastructure—that would benefit the American economy most and that Obama touted in his campaign.

The political consequences of the bill have been equally problematic. “Obama came in in January with a 70 percent approval rating,” notes a senior Democratic strategist. “Harry Reid, Nancy Pelosi, and the rest of the congressional Democrats were around 40, so the White House managed to attach itself to a body of people who were 30 points less popular than they were and allow their fate to be determined by the performance of Congress. One of the reasons Obama got elected was to fix Washington, to make the city work for everyday people again. Turning this over to the guys the public didn’t trust was, on its face, a crazy thing.”

The decision to defer to Pelosi and Reid produced other ill effects. When Democrats on the Hill (inevitably) inserted dubious provisions in the package—the contraceptives, the resodding of the National Mall—the door was opened to the GOP mockery of the bill as a fatback-festooned grotesquerie concocted by drunk-at-the-punchbowl liberals. Not a single member of the opposition in the House, and a meager two in the Senate, voted for the bill. “That was the moment,” maintains Republican consultant Alex Castellanos, “when the party coalesced, when the battle lines were drawn.”

It’s fair to surmise that the GOP was destined to wind up pounding on Obama with a sledgehammer no matter how he conducted himself. But it was the president, after all, who had made the abatement of hoary ideological divisions an animating theme of his campaign. “By handing over the stimulus to Congress, he determined that post-partisanship would be tonal and not substantive,” says Galston. “And that’s fine. It was a clean choice. But it was a choice with consequences. It set the tone for what we now have.” Which is to say, a degree and intensity of polarization even greater than what obtained before Obama’s ascendancy.

But the most damaging consequence of all may have been inside the White House, where bullishness about how rapidly the stimulus would kick in led to foolish projections that unemployment would peak at 8 percent—and where the bill’s passage bred a certain cockiness and complacency about the need to drive a sustained economic message in the months thereafter. “I recently talked to a very senior friend of mine in the White House, and I said, ‘How did we not spend a year talking about the economy?’ ” a Democratic think-tank maven recalls. “And he said, ‘Look, I think Barack did the stimulus and he thought he checked the box and he moved on.’ I said, ‘That’s not governing, dude. That’s some other thing.’ ”

To date, the verdict of the public on the stimulus has been rather different from the one rendered by the professionals. According to a recent Rasmussen Reports poll, only a third of likely voters believe that the package has helped the economy. And together with the bank and auto bailouts, it left the impression of an administration enamored of both Big Business and Big Government—arguably the worst image conceivable for a spanking-new Democratic administration at a time when populist passions are running hot.

....

Unlike the stimulus, which in principle was seen as necessary by virtually every Democrat, health care was a war of choice—and one that any number of legislators in Obama’s party counseled him to avoid, at least in his first year. Instead, they advised him to take on energy or education, or to maintain a laserlike focus on the economy. “They should have done something where the preexisting common ground was much greater,” argues a centrist Democratic senator. “Health care for all has been a cherished ideal of our party forever, but getting there was always going to be a quagmire.”

The White House’s approach to keeping health care from turning into a tar baby was identical to how it tackled the stimulus: a strategy of congressional deference. Once again, the plan was masterminded by Emanuel and called for the administration to enunciate broad principles—expanding coverage, bending the cost curve, not increasing the deficit—but leave drafting the mega-bill to the barons on the Hill.

The standard knock on this strategy has come from leftier congressmen, such as New York’s Anthony Weiner, who ardently favor a strong public option and have been irked that Obama has failed to put his finger more forcefully on the scale in favor of that proposal. Their complaint has been straightforward: that the White House has been more interested in passing something, anything, no matter how ineffectual, that could be labeled reform than in making sound policy. “There’s a certain Rahmian sense that all they really want is to put the win on the board,” says Weiner. “Their essential view has been, ‘Whatever has the votes, we like.’ ”

Emanuel’s response to such critiques has been blunt: Yes, and your point is? “Let’s be honest,” he recently told the Times. “The goal isn’t to see whether I can pass this through the executive board of the Brookings Institution. I’m passing it through the United States Congress … I’m sure there are a lot of people sitting in the shade at the Aspen Institute …  who will tell you what the ideal plan is. Great, fascinating.”

...By delegating the heavy lifting to the Hill, Emanuel was wagering that the House and Senate would have more skin in the game and hence be more likely to make progress. And that any of the policy options that might be enacted would represent an enormous improvement on the status quo. In short, Emanuel, and by extension Obama, was adhering to the wisdom of Abraham Lincoln, who was fond of saying, “My policy is to have no policy.”

That comprehensive reform is now closer to passage than ever before has fueled a sense of vindication in the White House. “For the first time in 50 years, after five presidents have tried, you have five bills that passed committee, you had the passage in the House, and it’s now moving forward in the Senate,” says Jarrett. “So what the president is doing has worked.”

The view from Capitol Hill is different, and not just from public-option purists. Among some senators and representatives, the obstacles that remain to passing a bill—on abortion, the public option, cost-cutting, and tax-hiking—appear to be growing larger rather than receding. Among others, a sense of guarded optimism remains, if only because the political wreckage that would ensue if the bill collapses would be so cataclysmic. “Every Democrat, from the most liberal to the most conservative, realizes that we have to pass a bill,” argues Senator Chuck Schumer. “Failure is simply not an option.”

Yet the widespread sense among Democrats is that, even if health-care does cross the finish line, it will be a pyrrhic victory, at least in the short term. That Obama and his people badly botched the job of presenting reform to the country and persuading the electorate of its necessity. (According to Quinnipiac, voters disapprove of the president’s handling of the issue by a 53 to 41 percent margin.) That Obama’s above-the-fray posture over the summer allowed the Republicans to define the bill in lasting and lastingly damaging ways. That he wasted precious political capital on an issue that few voters (just 17 percent) consider paramount at this time of economic frailty. And that he allowed the potentially transformative wave that carried him into Washington to slink back into the sea. “We’ll get a health-care bill,” says a Democratic senator. “But we’ve squandered the ability to change America.”

This kind of Monday-morning quarterbacking is par for the course in the Senate, to be sure. But in this case what’s driving it is one brute reality: that any bill that Obama signs into law is likely to be a political loser for Democrats in Congress in 2010 and 2012. Why? Because most of its key elements won’t go into effect until 2013. “It’s not gonna have affected anything a year from now,” says another senator. “Nobody’s premiums will be lower; some people’s will be higher. Nobody who isn’t already covered will be covered yet. That’ll all be in the pipeline, but nobody will have felt it yet.”

For Obama, the problem is less acute than it is for congressional Democrats up for reelection in the coming mid-terms. But a problem it still is—not only for his own reelection effort three years from now, when the effects of reform will still be minimal, but because of the atmosphere the entire health-care endeavor has engendered in his party on the Hill. “The House is angry at the Senate, the Senate thinks the House is crazy, and they’re all pissed at the White House for not exerting adequate leadership over the process and for taking its eye off the ball on the economy,” says the Democratic strategist. “I don’t think the White House understands what’s going on or how bad it is.”

Had Emanuel or Axelrod been present two weeks ago when the members of the House Democratic caucus held their weekly meeting in a windowless room in the Capitol, the picture would have been all too clear. The frustration with Obama’s perceived fecklessness on unemployment was simmering, with open attacks on his economic team and emotional calls for a second stimulus. The next day, Pelosi announced she intended to introduce a jobs bill before year’s end, while across the Hill, Reid signaled his interest in doing the same in early 2010—although congressional aides noted tartly that the White House had “yet to get onboard.”

These rattlings presage the sort of conflict that’s likely to attend the critical, maybe seminal, hundred days that lie ahead for Obama. The White House may or may not climb aboard a jobs bill, but its enthusiasm for the prospect is roughly equivalent to that of a 6-year-old confronted with a plate of cauliflower. Obama and his budget chief, Peter Orszag, have been sending clear signals for weeks that the administration intends to focus in its upcoming budget on fiscal restraint—on at least mapping out the path it will take to wage an assault on Mount Deficit. But congressional liberals have close to zero appetite for such a hike. “If the White House comes out in January all deficit hawkish,” says the strategist, “House and Senate Democrats are going to have an anti-Obama tea party of their own.”

...Assuming that the Senate passes its bill, Obama will likely be compelled to step in and place his cards on the table when a conference committee attempts to meld it with the legislation passed by the House. By all indications, he is ready to abandon the public option (or accept a triggerized incarnation so watered down it barely merits the name) and make other compromises that threaten to enrage, or at least depress to the point of contemplating seppuku, the Democratic base.

What’s ominous about the prospect of enthusiasm for Obama’s faltering on the left is that the president has already lost so much ground with the center. The national polling averages compiled by Pollster.com show that his numbers among independent voters are upside down, with 45 percent disapproving of the job he is doing and 44 percent approving. “He’s stuck, and it’s kind of ironic,” says Castellanos. “Obama has tried so hard not to be George Bush and Bill Clinton, and yet he is becoming exactly that. The guy who ran against ideological division has brought it back with such a vengeance that he’s lost the middle, but not sufficiently to make his base happy. He’s got no friends.”

... the next hundred days, despite or perhaps because of the difficulties they will present, offer Obama an ideal chance to reclaim his lost mojo. Accomplishing this will require a marked shift in métier. Less detachment and more engagement. Less deference and more defiance. Less diffusion and more focus. Less pragmatism and more principle. Less conciliation and more cannon fire.

What’s required most of all from Obama at this moment, however, is clarity. There will be no avoiding unhappiness in many quarters about his decision when it comes to Afghanistan. There is no answer to the deficit-unemployment conundrum that will satisfy everyone. But the process of making unpopular choices will help turn Obama from a passive to an active president. The challenge for him—and what he does so well when he is so moved—will be to explain those choices, to educate the electorate, to speak to us as adults. To lay out what he believes and why, along with a vision of the future to which he wants to shepherd the country. As Simon Rosenberg, the head of the progressive advocacy group NDN, puts it, “He needs to say, day after day, ‘This is where we’re going. We can differ on the tactics on how to get there, but four years from now, eight years from now, this is where we’re going to be. Come with me. I’m going to lead you there.’”

Easier advised than done, you might say, and you would be right. But Obama has always been at his best when the stakes were highest, the risks greatest, the 24-second clock dwindling perilously close to zero. In his race for the White House, he met every moment of maximum peril—from the Reverend Jeremiah Wright furor to the financial crisis—in the same way: He seized control of his campaign, raised his own game, and calmly drained a three-pointer. And that is exactly what he needs to do now with his presidency. As a wise man once observed in another context, the time for change has come.

"ROCKY, WATCH ME PULL A RABBIT OUT OF MY HAT!"

[Demeter]

21. Bernanke’s Unfinished Mission By PAUL KRUGMAN

http://www.nytimes.com/2009/12/11/opinion/11krugman.html?_r=2&ref=opinion



Ben Bernanke, the Federal Reserve chairman, recently had some downbeat things to say about our economic prospects. The economy, he warned, “confronts some formidable headwinds.” All we can expect, he said, is “modest economic growth next year — sufficient to bring down the unemployment rate, but at a pace slower than we would like.”

Actually, he may have been too optimistic: There’s a good chance that unemployment will rise, not fall, over the next year. But even if it does inch down, one has to ask: Why isn’t the Fed trying to bring it down faster?

Some background: I don’t think many people grasp just how much job creation we need to climb out of the hole we’re in. You can’t just look at the eight million jobs that America has lost since the recession began, because the nation needs to keep adding jobs — more than 100,000 a month — to keep up with a growing population. And that means that we need really big job gains, month after month, if we want to see America return to anything that feels like full employment.

How big? My back of the envelope calculation says that we need to add around 18 million jobs over the next five years, or 300,000 jobs a month. This puts last week’s employment report, which showed job losses of “only” 11,000 in November, in perspective. It was basically a terrible report, which was reported as good news only because we’ve been down so long that it looks like up to the financial press.

So if we’re going to have any real good news, someone has to take responsibility for creating a lot of additional jobs. And at this point, that someone almost has to be the Federal Reserve.

I don’t mean to absolve the Obama administration of all responsibility. Clearly, the administration proposed a stimulus package that was too small to begin with and was whittled down further by “centrists” in the Senate. And the measures President Obama proposed earlier this week, while they would create a significant number of additional jobs, fall far short of what the economy needs.

But while economic analysis says that we should have a large second stimulus, the political reality is that the president — faced with total obstruction from Republicans, while receiving only lukewarm support from some in his own party — probably can’t get enough votes in Congress to do more than tinker at the edges of the employment problem.

The Fed, however, can do more.

Mr. Bernanke has received a great deal of credit, and rightly so, for his use of unorthodox strategies to contain the damage after Lehman Brothers failed. But both the Fed’s actions, as measured by its expansion of credit, and Mr. Bernanke’s words suggest that the urgency of late 2008 and early 2009 has given way to a curious mix of complacency and fatalism — a sense that the Fed has done enough now that the financial system has stepped back from the brink, even though its own forecasts predict that unemployment will remain punishingly high for at least the next three years.

The most specific, persuasive case I’ve seen for more Fed action comes from Joseph Gagnon, a former Fed staffer now at the Peterson Institute for International Economics. Basing his analysis on the prior work of none other than Mr. Bernanke himself, in his previous incarnation as an economic researcher, Mr. Gagnon urges the Fed to expand credit by buying a further $2 trillion in assets. Such a program could do a lot to promote faster growth, while having hardly any downside.

So why isn’t the Fed doing it? Part of the answer may be political: Ideological opponents of government activism tend to be as critical of the Fed’s credit expansion as they are of the Obama administration’s fiscal stimulus. And this has probably made the Fed reluctant to use its powers to their fullest extent. Meanwhile, a significant number of Fed officials, especially at the regional banks, are obsessed with the fear of 1970s-style inflation, which they see lurking just around the bend even though there’s not a hint of it in the actual data.

But there’s also, I believe, a question of priorities. The Fed sprang into action when faced with the prospect of wrecked banks; it doesn’t seem equally concerned about the prospect of wrecked lives.

And that is what we’re talking about here. The kind of sustained high unemployment envisaged in the Fed’s own forecasts is a recipe for immense human suffering — millions of families losing their savings and their homes, millions of young Americans never getting their working lives properly started because there are no jobs available when they graduate. If we don’t get unemployment down soon, we’ll be paying the price for a generation.

So it’s time for the Fed to lose that complacency, shrug off that fatalism and start lending a hand to job creation.

[Demeter]

24. Are Food Stamps the Soup Lines of this Great Recession? By George Washington

http://www.opednews.com/articles/Are-Food-Stamps-the-Soup-L-by-George-Washington-091210-820.html


Bloomberg notes that, as of 2007:

In Missouri, about 100 percent who were eligible that year took advantage of the program, the highest rate in the nation, followed by residents of Maine and Michigan, at 91 percent and 89 percent, respectively ...

Things have gotten much worse since 2007:




As the New York Times notes, "one in eight Americans and one in four children" receive food stamps.

Many economists and financial experts have said that we are in a depression. See this, this and this.

I hope they are wrong, or that - if we were in a depression - we're out of it now.

But it is indisputable that the unemployment numbers are still grim. Specifically:

* More people will be unemployed than during the Great Depression

* Some of the top economists say that America has suffered a permanent loss of jobs

* By some measures, unemployment is worse than it was during a comparable time-frame in the Great Depression

* Vice President Biden said recently: "It's a depression for millions of Americans"

Given the above, Stacy Herbert's question of today is compelling:

The food stamps story seems to be one that keeps popping up; I guess food stamps are the soup lines of this Great Depression?





Author's Bio: George Washington


As a political activist for decades, I have rejoiced in victories for the people and mourned in defeats. I chose the pen name "George Washington" because - as Washington's biographies show - he wasn't a very good strategist, but he was incredibly persistent. He hung in again and again during the worst setbacks and bleakest winters for years. That is what made him great: he simply refused to quit. George Washington therefore inspires me to be a life-long activist.


As an attorney and former law school professor, I am a firm believer that no one - even the high and mighty - are above the law.


As someone trained in environmental systems analysis, I am always looking at how different trends influence each other ... and the big picture.

[proudohioan]

30. Yes.

Food stamps are the only thing propping me up right now. Without them, I don't know what I would do. And my family is obviously not the only ones in that boat!

[Demeter]

33. You Aren't the Only One--Thanks for Posting!

May this new year bring us all some relief form the madness of the greedy!

[Demeter]

26. Has Obama Sold Out? By Bob Burnett

http://www.opednews.com/articles/Has-Obama-Sold-Out-by-Bob-Burnett-091211-885.html

2009's biggest story was not the economy, health care, or the escalation of the war in Afghanistan, but rather the resurrection of America's largest banks. Twelve months ago they were teetering at the edge of the abyss; since, they have roared back to life, bigger and badder than ever. There's widespread suspicion that the Obama administration facilitated this, that the President sold out his principles to aid and abet Wall Street.

On February 24thPresident Obama addressed the economy in a speech to a joint session of Congress. At the time, he seemed to have a firm command of the situation: "we have lived through an era where too often short-term gains were prized over long-term prosperity; where... Regulations were gutted for the sake of a quick profit at the expense of a healthy market."

After the presidential address, most Americans assumed that while the behemoth banks would be saved, there would be savage reform; that many banks deemed "to big to fail" would be reorganized, broken into smaller, more manageable units. Obama implied that Wall Street's investment and compensation practices would be dramatically revised. A day of reckoning seemed imminent.

Instead, Wall Street business as usual returned with a vengeance. America's biggest banks resumed their old practices and registeredrecord profits. They used the money that America's taxpayers had loaned them to pay lavish executive salaries and bonuses, and to lobby Congress to emasculate proposed reforms. For most Americans the recession continues, but for Wall Streethappy days are here again.

Many observers fault the President. Perhaps the most savage indictment was written by the acerbicMatt Taibbi. In the December 10th edition of ROLLING STONE he summarized the case against Obama. First, that his economic team is flawed: "the key economic positions in his White House with the very people who caused the crisis in the first place." Taibbi writes that Bob Rubin - Wall Street heavy hitter and former Clinton Treasury secretary - is calling the shots; he's assembled a team of his cronies including current Treasury chief Tim Geithner and director of the National Economic Council Larry Summers. Taibbi isn't alone in criticizing this team, on November 20thOregon Congressman Peter Fazioobserved, "Treasury Secretary Tim Geithner and White House economic adviser Larry Summers should lose their jobs for protecting Wall Street at the expense of broader job creation."

Taibbi's second accusation is that the Rubin gang has directed Federal funds to Wall Street instead of Main Street, including an ill-advised November 23rd, 2008, bailout of Citigroup - Rubin's firm. So far, $454 Billion has been spent bailing out financial institutions. RecentlyNeil Barofskyhead of the Troubled Asset Relief Program (TARP) observed, "the effort to save the nation's financial sector came at great cost to taxpayers, to the integrity of the financial system and to the public's perception of the federal government." On December 9th, a Congressional Oversight Panelreported on TARP, noting: "Markets remain dependent on government support... Government intervention signaled an implicit government guarantee of major financial institutions, and unwinding this guarantee poses a difficult long-term challenge."

Taibbi's third accusation is that Wall Street hasn't changed: "Obama and his team of Rubinites have done almost nothing to reform the warped financial system responsible for imploding the global economy in the first place." In an interview in the December issue of THE PROGRESSIVE, Elizabeth Warren, chair of the TARP Congressional Oversight Panel bemoaned the failure to reform Wall Street: "The banks lobbied Washington so they could write the rules that got us into this mess. They then lobbied Washington to get the money to bail them out. And now they are lobbying Washington to write the rules so they can get us into the next crisis."

Considering this situation, is it reasonable to conclude that President Obama has sold out?

At the least, he's made a serious mistake assembling an economic team headed by Rubin, Geithner, and Summers. Obama has continued the economic policies of the Clinton era - widely bemoaned as Reganomics-lite.

The failure of the Obama economic team has two serious consequences. First, the triumph of Wall Street over Main Street has fueled a populist backlash. On the left this has discredited the Obama Administration. On the right it has spurred the "Tea Party" movement that's suspicious of all Federal programs, lumping the bailout of Wall Street with healthcare reform - seen as a bailout of those who aren't "responsible" enough to secure insurance.

The second serious consequence is the failure to reform Wall Street. This is equivalent to a patient receiving a cancer diagnosis and submitting to invasive surgery that fails to excise the malignancy -- a life-threatening situation. Unless Wall Street is forced to change, the American economy is going to waste away.

Obama is a smart guy; man enough to admit he made a mistake. In January, he needs to dump his financial team and replace them with folks who care about Main Street. It's time to fix America's core economic problem.




Author's Bio: Bob Burnett is a Berkeley writer. In a previous life he was one of the executive founders of Cisco Systems.

[Demeter]

42. More ammo for the bazooka

http://blogs.reuters.com/rolfe-winkler/2009/12/30/more-ammo-for-the-bazooka/

Treasury has reloaded its bazooka and stands ready to shock and awe the housing market.

Though, Standard & Poor’s/Case-Shiller data showed a fifth month of improvement yesterday, analysts still expect prices to fall 10 percent or more next year as various government supports wind down.

Political pressure ahead of midterm elections will likely force the administration to do something in response and Treasury’s Christmas gift of nearly unlimited support for Fannie Mae and Freddie Mac gives them a powerful weapon to do so.

But it will be a tough fight as artificial, government-sponsored demand dries up.

The housing tax credit — $8,000 for first-time buyers, $6,500 for move-up buyers — ends in April. Meanwhile, the Federal Housing Administration plans to tighten its loose lending standards as its reserve fund has dwindled.

Moreover, mortgage rates may head higher as the government ends purchases of mortgage-backed securities. Treasury’s $220 billion buyback program ends this week. The Federal Reserve’s $1.25 trillion program ceases in March.

And then there’s the continuing flood of Treasuries to finance the federal deficit. Morgan Stanley estimates that could drive 30-year mortgage rates back above 7.5 percent, an effective 40 percent increase in the cost of financing home purchases. That looks high, but even a smaller jump will drive buyers from the market and force house prices down.

But the biggest threat may be foreclosures. Credit Suisse expects 4.2 million next year and says that 3.2 million must be prevented to keep prices stable. That’s a tall order, considering unimpressive results from modification efforts that mostly focused on extending terms or lowering interest payments.

Banks, mortgage bond investors and servicers are loath to go further, by forgiving principal, because it’s either a direct hit to capital or tricky to do under current bond documents. Extend and pretend is less painful.

Enter Fannie and Freddie. With unlimited support from Treasury the two have theoretically unlimited capacity to eat losses, useful to Treasury if it wants to finance an expanded modification program that includes principal forgiveness.

It’s a tempting weapon to deploy ahead of midterm elections. But financing principal writedowns with taxpayer money only adds to America’s debt burden while rewarding irresponsible borrowers and lenders.

[Demeter]

44. “What Are We? – Stupid?” By Bruce Krasting

http://www.nakedcapitalism.com/2009/12/what-are-we-%E2%80%93-stupid.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

I was disappointed with the Christmas Eve ditties from Treasury and FHFA re: the Agencies. To be honest, I was appalled. The two releases contained significant information. The timing was obviously an attempt to slip in some bad news while everyone is drinking eggnog.

Of course that backfired. The blogs, and yes, the MSM disintegrated those that sent the emails out on Christmas Eve. The smell that these announcements have created is not likely to go away anytime soon.

If you are reading this you know the story. Treasury ponied up for another $200b for Fannie and Freddie and the management of these entities are getting serious paychecks.

The former clearly establishes that Fannie and Freddie have been nationalized. I don’t care what they say any longer. The numbers speak for themselves. The $400 billion the taxpayers have signed up for far exceeds any theoretical value for these two important institutions. Sadly, ‘the people’ own these things at this point.

The notion that the Agencies are private sector companies with influential shareholders is over. These entities are no longer big shot players on Wall Street. There is no earnings prospect for these behemoths. There is no upside. There is no justification for multimillion dollar salary packages.

The Agencies fund themselves with lines of credit from Fed and Treasury. The Fed is buying 1.45 Trillion of their dodgy paper. Why in the world do we need to pay someone $6mm per year to run that mess?

A question for Mr. Geithner; What are the salaries and bonuses being paid to the people who run FHA? These are government salaries. FHA is a part of HUD. Compensation for Fannie and Freddie Exec’s should conform to those guidelines. Not the other way around. We need to end the myth that F/F are private sector entities. They are not.

We are not stupid Mr. Geithner. We watch what you are doing very closely. There are a significant number of us who flat out do not trust you. You have given us good reason in the past and you have proven again that you are not trustworthy. You tried to ‘Sneaky Pete’ some important information past us. In my view you owe us an apology and explanation, or better still, a letter of resignation. This Administration has promised a much higher standard than you have delivered.

[Demeter]

18. Jobs

http://www.youtube.com/watch?v=QyVsWx3JaHM

[Demeter]

25. It's Time to View Good Jobs as a National Resource By Steve Klingaman

http://www.opednews.com/populum/diarypage.php?did=15238

December 10, 2009



I'm with Robert Reich when it comes to creating good jobs.

::::::::
Steve Klingaman at Open Salon...

On Tuesday, President Obama announced a modest but appropriate plan to stimulate job growth in the near-term.For small business, the traditional engine of rebound job growth, he touted tax breaks, tax credits, and access to capital.On the energy front, he talked up a “cash for caulkers” program.In the big-ticket category, he pushed for an initiative to rebuild and expand infrastructure.All of the initiatives are fine as far as they go, but they will not stimulate even a fraction of the jobs it would take to stem populist anger over the issue...

click here

http://open.salon.com/blog/steve_klingaman/2009/12/09/its_time_to_view_good_jobs_as_a_national_resource

Author's Bio: Steve Klingaman is a nonprofit development consultant and nonfiction writer living in Minneapolis. His music reviews can be found at minor7th.com.

[Demeter]

27. Bob Kuttner at the Jobs Summit. VIDEO

http://www.prospect.org/csnc/blogs/tapped_archive?month=12&year=2009&base_name=bob_kuttner_at_the_jobs_summit

[Demeter]

22. A Major University Is Infected With Research Fraud By Roger Shuler

http://www.opednews.com/articles/A-Major-University-Is-Infe-by-Roger-Shuler-091210-100.html


For the third time this year, a faculty member at the University of Alabama at Birmingham (UAB) has been found to have committed scientific research fraud.

This comes on the heels of a massive research-funding fraud lawsuit that UAB settled with the federal government for $3.4 million in 2005. A whistleblower in that case, a forensic accountant, estimated the actual fraud to be about $600 million.

The latest case also comes on the heels of reports that multiple UAB physicians are involved in a physical-therapy company (with Homewood attorney Rob Riley, son of Governor Bob Riley), which faces charges in federal court that it has practiced health-care fraud.

All of the incidents of fraud either started or continued under the leadership of current UAB President Carol Garrison. The most recent incident comes roughly three weeks after UAB announced that Dr. Robert Rich, dean of the School of Medicine, was stepping down.

We speculated at the time that something serious probably was behind Rich's decision. Today's news definitely is serious--but it is far from the only major problem that exists in UAB's biomedical enterprise.

H.M. Krishna Murthy, who worked in the Center for Biophysical Sciences and Engineering, is the latest UAB researcher to have problems with fraud. The Birmingham News reports that UAB has asked that nine of Murthy's research papers be retracted because his experimental findings appear to be false or fabricated. The Journal of Biological Chemistry already has retracted one of Murthy's papers.

In July, UAB researchers Juan R. Contreras and Judith M. Thomas were barred from receiving grants and contracts after falsifying results from animal studies.

Contreras and Thomas no longer work at UAB, and Murthy left the university in February 2009.




Author's Bio: I live in Birmingham, Alabama, and work in higher education. I became interested in justice-related issues after experiencing gross judicial corruption in Alabama state courts. This corruption has a strong political component. The corrupt judges are all Republicans, and the attorney who filed a fraudulent lawsuit against me has strong family ties to the Alabama Republican Party, with indirect connections to national figures such as Karl Rove. In fact, a number of Republican operatives who have played a central role in the prosecution of former Alabama Governor Don Siegelman (a Democrat) also have connections to my case. I am married, with no kids and two Siamese cats. I am the author of the blog Legal Schnauzer. The blog is written in honor of Murphy, our miniature schnauzer (1993-2004)who did so much to help my wife and me survive our nightmarish experience with corrupt judges. I grew up in Springfield, Missouri, and I am pretty much a lifelong St. Louis Cardinal baseball fan. I've lived in Birmingham for almost 30 years and have adopted the UAB Blazers as my Southern college football and basketball team to follow. Also, follow East Tennessee State basketball. An avid reader, both fiction and non-fiction. Influential writers on public affairs are Kevin Phillips, Michael Lind, Thomas Edsall, E.J. Dionne, Molly Ivins, and Scott Horton.

[Demeter]

32. The Year In: Economy FROM AMERICAN PROSPECT

As the "Great Recession" dragged on, the unemployment rate climbed. Here are the top five articles explaining how we got into this situation and how we can get out of it:

Through the debate over the bailouts, it seemed that every financial institution was "too big to fail." But when it comes to banking, size isn't the only thing that matters.

The Myth of Too Big to Fail
http://www.prospect.org/cs/articles?article=the_myth_of_too_big_to_fail

"...When the news of Wachovia's failure first reached Federal Deposit Insurance Corporation (FDIC) Chair Sheila Bair, she wanted to liquidate the bank and cut into the pocketbooks of its investors -- as she had done with Washington Mutual, the largest U.S. bank failure ever, a few days prior. But Tim Geithner, then president of the New York Federal Reserve Bank, argued strenuously for Bair to invoke her agency's "too big to fail" exception and spend more money to cover the costs of the bank's sale. He worried another collapsing bank would only intensify the financial panic at a time when the government's hands were tied. (While the FDIC can liquidate a commercial bank like Wachovia, the Fed doesn't have the tools to shut down financial institutions, only the ability to prop them up with loans.)..."

A number of states are still undergoing budget crises. Could our commitment to federalism actually be slowing down our economic recovery?

Fed Up With Federalism
http://www.prospect.org/cs/articles?article=fed_up_with_federalism

"...There is a classic algebra problem in which water pours into a bathtub from the tap at a specified rate but also exits the tub at a different rate because someone has neglected to stop the drain. If you know the rates, you should be able to figure when the water will rise to a certain level. During a recession, the United States becomes a version of that bathtub. The federal government is the tap. The state and local governments are the drain.

That's no way to fight a recession. When investment, production, and consumption are all in decline, the only way to keep the economy from shrinking is for the federal government to deficit spend and create a stimulus. But while the federal government pours money in, the state and local governments, which cannot deficit spend, see their tax revenue shrinking, so they cut spending, raise taxes, or both -- taking money out of the economy. America's distinct brand of federalism inherently impedes an economic recovery...."

As foreclosures swept the nation, opportunistic housing speculators moved in and hindered efforts of block-by-block revitalization.

There Goes the Neighborhood
http://www.prospect.org/cs/articles?article=there_goes_the_neighborhood

"...It found six out of 10 homes in Pittsburgh, GA, are now vacant, casualties of foreclosure, with wood planks and metal shields guarding their windows...

Like other community leaders trying to save neighborhoods devastated by reckless lending, Hoffman is in a race against time. As soon as Pittsburgh foreclosures go on the market -- usually within two weeks of repossession -- buyers make cash offers, no strings attached. Many have never been to the neighborhood, or even to Atlanta. They are looking to exploit a phenomenal opportunity: Lenders are dumping foreclosed real estate onto the market at prices so low that it's worth buying empty houses in bulk, on the mere prospect that they may sell for more in the future. The cast of players has largely changed, but the new wave of speculation is bringing back a familiar disruptive frenzy. As Pittsburgh's foreclosures are plucked off one by one, Hoffman helplessly watches the wave of profiteering wash over his project to rebuild the neighborhood.

"Properties we think we can acquire today -- snap, snap, snap; they're already gone," he says...AND THE HOUSES REMAIN EMPTY, HELD BY SPECULATORS"

The unemployment rate for men certainly climbed quickly, but the "He-cession" was a myth.

Don't Call It a 'He-cession'

http://www.prospect.org/cs/articles?article=dont_call_it_a_hecession

'...Just in time for Father's Day, Men's Health editor-in-chief David Zincenko penned a USA Today op-ed heralding the "Great He-cession" as one more example of how men are "an endangered species." Citing statistics about men's declining job security, shorter life span, and lack of government attention, he pits women against men in a delusional race for resources. He writes: "Let's think about men. It's about time we caught a break, and a he-covery would be just the thing." As if thinking about men would be a big societal shift.

Zincenko's ingratiating use of cutesy prefixes and total neglect of historical fact aside, this sort of polarized punditry is exactly what keeps both men and women from making true progress. The truth is our fates are inextricably tied together, not running on two parallel tracks. When men lose their jobs -- and, indeed, they have at a higher rate than women recently -- American families all suffer, just as they suffer when women are paid unequal wages or fired for missing work to take care of sick kids or an elderly parent. Newsflash: Men aren't from Mars and women aren't from Venus; we're all struggling to make healthy, meaningful lives on the same damn planet -- and it's time we started acting like it...Men have a real stake in feminism, and no, it's not just getting laid more often...

....Jackson Katz sums it up in his book, The Macho Paradox: "When we ask men to reject sexism … we are not taking something away from them. In fact, we are giving them something very valuable -- a vision of manhood that does not depend on putting down others in order to lift itself up." "



So, how do we keep our financial architecture from crumbling once again? In a word: regulation.

Risk Is Best Managed From the Bottom Up

http://www.prospect.org/cs/articles?article=risk_is_best_managed_from_the_bottom_up

The Rich and Powerful Can Avoid Risk

http://www.prospect.org/cs/articles?article=the_rich_and_powerful_can_avoid_risk

'...We undermined the public institutions constructed to bear risk and insulate citizens from the worst consequences. Health-care policy treated patients as empowered consumers, ignoring their fundamental vulnerability. (Most people heading to the emergency room are not focused on comparison shopping among providers.) Congress cut back on bankruptcy protections for individuals. At the same time, unemployment insurance, welfare, and other aspects of the social contract were charged with creating a disincentive to work. When it came to institutions that protect individuals, concerns about moral hazard were rampant in the economics departments throughout the land. To be sheltered from risk was to be weak or corrupt.

Unfortunately, all this concern about perverse incentives of the weak and unfortunate was not applied in the world of finance. Free-market fundamentalism dominated academic and political debates. Regulations and restraints on the behavior of financial institutions and investors were seen as inefficiencies and unnecessary constraints, getting in the way of greater and greater financial efficiency...'

The Rich and Powerful Can Avoid Risk

http://www.prospect.org/cs/articles?article=the_rich_and_powerful_can_avoid_risk

"...We have to think of risk not as a problem of faulty math but a problem of power..."

Housing is Local, and Lending Should Be, Too

http://www.prospect.org/cs/articles?article=housing_is_local_and_lending_should_be_too

"...We're just now learning how dangerous it is that the sources of finance for homeowners and their neighborhoods have no real connection to those people and places..."

A Strong Safety Net Encourages Healthy Risk-Taking

http://www.prospect.org/cs/articles?article=a_strong_safety_net_encourages_healthy_risk_taking

"...The basic underlying principle of the New Deal was that security is not opposed to opportunity but essential to it..."

WELL, YOU'VE GOT YOUR HOMEWORK CUT OUT FOR YOU, FOLKS!

[Demeter]

34. 5 Minute Warning

"One good reason to guard your finances in 2010: The Federal Reserve's balance sheet has quietly ballooned back to near-record highs. The Fed announced yesterday that it's balance sheet expanded to $2.22 trillion last week, it's grossest level in nearly a year and just a hair from an all time high. Hmmm... if Mr. Bernanke assures us the recession is 'very likely over,' then why is the Fed balance sheet in crisis mode? What are they worried about? Here's the answer:

Fed Balance Sheet



"The Federal Reserve went from a non-existent player in the mortgage backed security market a year ago to owning $904 billion of the stuff today. The 'private' bank has clearly moved its aim from the financial sector to housing, loading up on MBS, debt spilling out of Fannie Mae and Freddie Mac and Treasury bonds (a handy way to suppress mortgage rates).

"Coupled with the Treasury's blank check to Fannie and Freddie, we're detecting a trend."

[Demeter]

35. Bill Bonner posts today's reckoning from London, England

http://dailyreckoning.com/taxpayer-supported-colossal-blunders/


The days really are dwindling down to a very precious few. Tomorrow is Near Year's Eve. And on Friday begins a new year...

What's ahead?

We were right all along. Sort of. Kind of. It must have been two years ago that we looked into the future and thought we saw where we were headed.

"Japan...then Zimbabwe..."

The de-leveraging process began in 2007. It's already been going on for more than two years. This is just what happened in Japan after the bubble burst in '89. And as in Japan, US authorities acted with vigor, with rapidity and like morons. They propped up inefficient firms. They saved the bankers from their just desserts. They prodded and bribed consumers to return to their free spending ways.

And what result did they get? They managed to stretch out and delay the depression. Instead of a quick, sharp depression...they got a slow, retarded one.

Several years ago, we opined that the US would probably not have the sort of long, drawn-out slump Japan has had. Japan had high domestic savings, we pointed out; so the government could afford to waste trillions of dollars fighting the downturn. It simply borrowed its citizens' money and used it to imitate prosperity. People were given jobs on public works projects. GDP held up. Unemployment stayed low.

But America depends on the kindness of strangers just to pay its ordinary operating expenses. It wouldn't be able to stay on the Japanese road for very long, said we; it couldn't afford it.

We may have been wrong about that. The US has been following the Japanese now for 2 years. The bond market hasn't fallen apart. The dollar hasn't lost its value. The crisis stage seems to have passed...leaving an on-again, off-again funk, just as in Japan.

But wait. The latest numbers we saw showed the need to rollover $2.5 trillion worth of US government debt over the next two years. Add as much as $2 trillion more to cover current deficits. How could so much debt be funded?

Well, in a slump the best thing you can do with your money is not lose it. And the savings rate goes up. What do people do with their savings? They put them in safe Treasury debt. Imagine that the US savings rate goes back up to 10% of GDP...which it very well could, as the depression makes people more and more worried about the future. That's $1.3 trillion per year in available savings. And imagine that holders of US debt want to rollover their positions rather than cash them out. And imagine that foreigners, too, are looking for safe places to put their money....

..could the staggering debts of the US government over the next 5 years be funded? Yes...they could. Could the Japan phase last longer than we thought at first? Yes it could. It could last years...maybe even 10 years. Depression is a long, slow process under the best of circumstances.

As we keep saying, anyone can make a mistake. A colossal blunder, on the other hand, typically requires taxpayer support. It takes taxpayer support, for example, to turn an ordinary, run-of-the-mill depression into a Great Depression. Stall, subsidize, bail out, mislead...hoodwink - use enough tricks, and enough taxpayer money, and you can stretch it out for 20 years or more. In the US, stock prices didn't return to '29 levels until 1956. Interest rates didn't return to '20s levels until 1959 - 30 years later.

Japan's been at it for 20 years already. It already borrowed so much money its government debt rose to nearly 200% of GDP. US government debt is still below 100%...though it is rising quickly.

Of course, we don't have any doubt about where this leads - to bankruptcy. In Japan, the government attempted to save the private sector from bankruptcy by effectively transferring private sector debt to the public sector. The final result will be bankruptcy for both of them.

But that could be years in the future. In the meantime, our goal for 2010 is a modest one. We hope to avoid losing money...and enjoy the show.

[Demeter]

36. Japan: Slowly Going Broke By Bill Bonner

http://dailyreckoning.com/japan-slowly-going-broke/

We reported that the US government would need to roll over $2.5 trillion worth of debt next year. We probably erred. The number was right, but it was meant to be over the next two years. During the next two years also, worldwide, banks need to roll over $7 trillion. Whether it is over one year or two years, we’re talking big money.

Most people who bother to think about it are coming to the conclusion that this is very inflationary…and very bullish for gold. They think the Fed will need to “monetize the debt” directly, or indirectly. One way or another, they say, the central bank will have to increase the volume of money so that the government can finance its deficits.

Paul Krugman, Nobel Prize winner in economics, suggested that the Fed add another $2 trillion to the nation’s monetary base, partly to accommodate federal borrowing…and, he believes, to stimulate employment.

This idea is widespread. Richard Koo, one of the few economists to understand the Japanese depression and what awaits the US, thinks along similar lines. The US economy is going into a depression, like Japan; the government must spend huge amounts of money in order to keep GDP from falling.

Japan’s top man shocked the nation last week when he announced the largest budget deficit ever. The government will spend about $1 trillion – a new record. And it will collect less than half that much in taxes. Meaning, most of what the Japanese government spends is borrowed – something the Japanese haven’t done since the days when Americans were dropping bombs on them.

The Japanese government is doing what it should do, says Koo. It is replacing missing private spending with public spending. So doing, it has avoided a drop in GDP and employment. Throughout its 20 year slump, Japan’s GDP has never fallen below the peak set in 1989. Nor has unemployment ever risen above 6%. Bravo!

Bravo?

Thanks to this new budget, Japan’s national debt will reach a new record…nearly 200% of GDP. The Japanese have a lot of private savings, but they also have a lot of public debt. And what have they gotten for it? Well, they have kept people employed…and have allowed the private sector to pay down its debts. Or, to put it another way, they have lived through a classic depression fairly comfortably. Instead of forcing the banks to fess up to their mistakes and clean up their balance sheets, the Japanese government saved them. Instead of allowing big companies to go broke…and other companies to take their places…the Japanese propped up the ‘brain dead’ firms…and kept them alive with taxpayers’ money. Result? A depression that should have been over in, say, 5 years…has been stretched out to 20. And now the Japanese face a public debt that is bound to cause them big problems in the years ahead…. What kind of problems?

Well, Japan is going broke… just like the US.

[Demeter]

37. Russia: The RE-Emerging Market By Ian Mathias

http://dailyreckoning.com/russia-the-re-emerging-market/

12/30/09 Baltimore, Maryland – Pop quiz: Guess which BRIC nation paid off the biggest returns in the last ten years. No peeking…

BRIC Index Performance



Russia has a bad rep among its BRIC brethren. It’s politically unstable, GDP there is actually plummeting, it’s fate seems totally dependant on oil and gas revenues and it doesn’t even fit the bill of a real emerging market… more like a wounded superpower stumbling back to economic relevance. But as we begin the process of wrapping up the decade, here’s more proof that, as Rick Rule likes to say, “you’re either a contrarian, or a victim.” Buying into Russia after it’s 1998 default and every dip thereafter – despite all the booing and hissing from the cheap seats — would have made you very, very rich.

Stay tuned in 2010 for more on these nations from our newest service: BRIC by BRIC.

[ozymandius]

38. China Property Bubble May Lead to U.S.-Style Real Estate Slump

Happy New Year, folks. Here's some fresh speculation on speculation to begin the teens.

Millions of Chinese are pursuing property with a zeal once typical of house-happy Americans. Some Chinese are plunking down wads of cash for homes. Others are taking out mortgages at record levels. Developers are snapping up land for luxury high- rises and villas, and the banks are eagerly funding them. Some local officials are even building towns from scratch in the desert, certain that demand won’t flag. And if families can swing it, they buy two apartments: one to live in, one to flip when prices jump further.

And jump they have. In Shanghai, prices for high-end real estate were up 54 percent through September, to $500 per square foot. In November alone, housing prices in 70 major cities rose 5.7 percent, while housing starts nationwide rose a staggering 194 percent. The real estate rush is fueling fears of a bubble that could burst later in 2010, devastating homeowners, banks, developers, stock markets, and local governments.
.....

Although parallels with other bubble markets, the China bubble is not quite so easy to understand. In some places, demand for upper middle class housing is so hot it can’t be satisfied. In others, speculators keep driving up prices for land, luxury apartments, and villas even though local rents are actually dropping because tenants are scarce. What’s clear is that the bubble is inflating at the rich end, while little low- cost housing gets built for middle and low-income Chinese.

http://www.bloomberg.com/apps/news?pid=20601109&sid=arp0XyPoRxW0&pos=10

I am sure the Chinese version of Kramer is shouting, "This time it's different!"

[Demeter]

41. It Looks Like Australia Is Also a Late-Blooming Bubble, Not a Miracle

http://digitaljournal.com/article/284509#tab=comments&sc=0&contribute=&local=

Opinion: Australians are now the biggest borrowers in the world

“Once a jolly banker/Couldn’t get their numbers right”…. The old folk song is so true. Australia’s Reserve Bank changed roles from Roadrunner to Wile. E. Coyote with ease. Australians now owe $56000 per head, compared to $44,000 for Americans.

It's a pretty hideous story. Our “recovery” and “growth” turn out to be debt based. Like one of the cartoons where the coyote keeps running for a while over going over the cliff, Australia’s debt is now more than GDP. 90 per cent of that debt is tied up in mortgages. The rest is various forms of personal debt.

What's much worse is that these figures have apparently been sitting around for a while, gathering accolades, not concern.

Now- the story here is that:

1. Australia’s GDP is just over $1 trillion per year.

2. Net debt is $1.2 trillion.

3. There are only 21 million people in the entire country.

4. The housing market was propped up by a Federal and State First Home Buyers grant for a year or so, which has apparently added fuel to the situation as interest rates rise.

5. Most houses are ridiculously overpriced anyway.

6. Debt levels currently account for 39% of income.

7. Stress levels on debts kick in according to analysts at 41%.

8. Severe stress starts at 43%.

Australia has been blowing its own trumpet about its economic performance for a while now, but the next tune is likely to be “Taps”, unless somebody gets their finger out. This is way too close to the bone to be healthy.

A high level of debt of this type is pretty normal in any modern economy. Debt and credit are usual economic prostheses. However, in this case, the fact that so much debt is tied up in a potentially volatile housing market isn’t good news for anyone.

The next Black Saturday bushfire could be in the housing market.

The trouble is that while everyone’s happily doing GDP like an Irish stew, just adding everything, there doesn’t seem to be any measure of actual equity. (Equity is what you own after debts.)

That’s sort of a pity, because it would give a much more accurate picture of the economy. The theory that all debts become equally or higher valued assets over time doesn’t necessarily stand up, unless you’re talking decades or buying and selling rapidly in a boom. Otherwise, your break even point is some distance away, and until you hit it, you’re actually buying a loss.

So knowing actual equity values might help pin down exactly how dangerous this huge debt based market situation is. Presumably somebody other than banks does have owner equity in this 900 billion fruitcake. If you know how much is equity, you can measure how serious the problem is.

The economic management factor, however, is less hilarious than the mere fact of possible national crash and burn. If you tried doing a business plan for a fruit stall like this, you’d get laughed out of any bank if you went for a loan. (Imagine writing a business plan where you have no idea of your asset values, with a potential market plunge in plain sight.) Yet the Reserve Bank of Australia has somehow managed to approve three successive rate rises, in this environment. Each rate rise is theoretically a step closer to a tipping point.

This is a really lousy time for the RBA to decide to start being selective with its interpretations of economic situations. We’re on the cusp, next year, of the first wave of Baby Boomer retirements. There’s a lot of capital up in the air. Debt, savings, and equity are the big issues, and we don’t seem to have a clear picture of any of them except debt, and that’s noticeably blurry in some areas.

If the housing market crashes, it will take with it:

1. Home equity values

2. Bank asset values

3. The stock market

4. Employment

5. The difference between old and new market prices, which could be huge.
So if a bank lends $500,000, forecloses, and eventually sells for $350,000 after equity and interest reconciliation, it loses 30%. However, that also means that the resale value is under 70% of the original market price.

If you knock more than 30% off the current $900 billion value of Australian mortgages, you’re looking at a black hole, not a writedown.

Australia has been playing Monopoly for too long, and playing it very badly. There’s no capital gains tax on sale of residences, so the family home has been progressing nicely, if insanely, as a means of capital creation, with big vertical price rises the usual result.. The result is a form of dependency which has now locked in the entire economy. Superannuation, and other comparatively sane forms of capital saving and wealth creation, aren’t in this league.

Australia’s super is worth more than the GDP of some countries, but the housing market supports a huge slice of the Australian economy, including employment. If it tips over, it’ll be as bad as the US. It’ll also take the share market with it, knocking out a huge amount of superannuation capital, and seriously affecting the retiring Baby Boomers, which will pass on to revenue demand for welfare and pensions.

The revenue won’t be there, because of the loss of lending capital and employment incomes, as in the US scenario. At this stage the debt factor has effectively crippled the entire economy.

The RBA, like most central banks, is stuck with the interest rate method as its only effective control. Thanks to monetarism, (which is economically “LEGO for Losers”), there are no real concepts of things like cutting overheads, reducing costs to business, creating viable methods of creating personal capital, etc. Everything equates to just moving the same damn figure around and hoping it achieves something.

May one suggest that at the next RBA meeting, rather than singing a few more rousing choruses of “Nearer my monthly press release to thee”, someone goes to work on pinning down the actual risk factors, and perhaps even condescending to provide Treasury and the government with some hard data?

Another innovation would be finding ways of both reducing the impacts and increasing incentives on savings, disposable income and business capital by waking up once or twice a decade and doing the sort of studies the RBA is supposed to be doing in those areas. The RBA charter doesn’t say a word about being a spectator.

[Robbien]

39. Foreclosure.com parent seeks bankruptcy court protection

Even though foreclosure filings and interest in purchasing foreclosed homes is at an all-time high, a Boca Raton-based company that runs several prominent foreclosure search Web sites has fallen into bankruptcy court.

FFS Data filed for Chapter 11 reorganization on Dec. 23 citing $9.1 million in assets and $27.5 million in debts. It listed gross income of $15.7 million so far this year.

The company runs the Web sites Foreclosure.com, ForeclosureFreesearch.com and ForeclosureDatabase.com. It lists foreclosures, pre-foreclosures, bankruptcies, repossessed properties and tax liens from across the country and sends out foreclosure e-mail alerts. Brad Geisen, a licensed mortgage broker and real estate broker, founded the company in 1999. He remains president and CEO.

. . .

It listed Geisen’s salary at $125,000 this year and showed that he got nearly $115,000 in salary, plus a $1.09 million bonus, in 2008.

FFS Data’s largest creditor is Cincinnati-based Fifth Third Bank, which is listed as holding a $17 million non-secured guaranty note plus a $1.8 million secured loan.
. . .

Its largest asset is $4.9 million for a loan it granted to Boca Raton-based Live Data Group, another company controlled by Geisen. Live Data Group also filed for Chapter 11 on Dec. 23.

http://www.bizjournals.com/southflorida/stories/2010/01/04/story4.html?b=1262581200^2656011


This sounds like a company that is tied to those late night infomercials which claim one can buy homes with no money down.

In addition to that, so much is shady here. The company took in about $16 mil this year and the CEO gets a bonus of over a mil?

The company's largest asset is a loan to its subsidiary, which also happens to be in bankruptcy.

This company seems to be pure sleaze through and through. On what basis did Fifth Third give these guys an unsecured loan of $17 mil?

[Demeter]

40. Blood Relation, Maybe?

Fifth Third is sleazy, IMO. Starting with their preposterous name and their previous two entities that merged.

[Demeter]

43. Which states are facing the worst budget deficits in 2010?

http://www.csmonitor.com/USA/2009/1230/Which-states-are-facing-the-worst-budget-deficits-in-2010

...“Unless you’re North Dakota, you’re probably a state that has had some degree of difficulty or crisis involving finances,” says Arturo Pérez, a fiscal analyst with the National Conference of State Legislatures (NCSL), which released its survey of state budget situations earlier this month. “It’s the worst situation states have faced in decades, perhaps going as far back as the Great Depression in some states.”

The result: furloughs, deep cuts to state programs and services, fee and tax hikes.

“The next couple of calendar years will be some of the worst in terms of the tough choices that elected officials will have to make,” says Scott Pattison, executive director of the National Association of State Budget Officers, adding that the stimulus funds that benefited states will soon be drying up, make the situation even more difficult. “There’s not a lot left to do that aren’t really really tough political choices.”

Heading into 2010, here are some of the states facing the toughest fiscal challenges:

California. The state has come to symbolize the budget crisis for many people, because of its massive shortfalls and the extreme measures the state has already been forced to take: mandatory furloughs for all state workers, teacher layoffs, aid to the university system reduced by 20 percent, and massive cuts to education, corrections, and social services. It already faces a $6 billion budget gap, and projections from the state’s Legislative Analyst’s Office show that by the time the state has to come up with its next budget, it will have a $20.7 billion budget gap on its hands. On the plus side, the outlook isn’t worsening, and state revenues appear to be stabilizing.

Oklahoma. Until recently, Oklahoma wasn’t doing too badly, helped by oil and natural gas prices. The big drop in those prices are one of the reasons the state is now facing a budget gap that’s 18.5 percent of its general-fund budget. Revenues for the first quarter of the fiscal year were 26 percent below the estimates.

Arizona. Like California, Florida, and Nevada, Arizona is one of the states that was hit worst and earliest by the housing crisis. “The fiscal situation is dire,” state officials states in NCSL’s survey, citing major shortfalls in all budget categories. Lawmakers are forecasting a 30 percent budget gap in the next fiscal year.

Illinois. The Land of Lincoln is already facing a budget gap of 16.5 percent through the first five months of this fiscal year, and the outlook for next year – particularly with looming pension payments – is gloomy, with a gap of at least $11 billion.

Hawaii. Three-day-a-month furloughs, a reduced school year, and an income tax raise on top earners haven’t been enough to help the state make up its budget gaps: It already faces a shortfall of 13 percent since the fiscal year began in June, and is projecting a 21-percent gap for the next fiscal year.

New Jersey. The state has the third-highest projected budget shortfall for FY2011 (behind Nevada and Arizona) – 27.5 percent – and incoming Gov. Christopher Christie (R) is eyeing cuts of up to 25 percent, on top of $800 million in cuts already outlined. The state’s unemployment fund is forecast to have a $1.2 billion deficit within three months, and will trigger a controversial automatic tax increase on employers.

New York. The state already has a $3 billion budget gap (6 percent) since its fiscal year began in July, which is expected to double by the next budget. Gov. David Paterson (D) ran into controversy earlier this month by proposing to delay payments to schools, hospitals, and cities to keep the state from running out of money. He and the legislature have been battling over how to balance the budget, and he is threatening to use executive powers to cut about $1.6 billion from the budget.

Nevada. One of the hardest hit by the housing crisis, the state faces a projected shortfall of 33 percent for its next budget year. The good news is that the legislature has already approved actions to close that gap.

Colorado. The governor has proposed big cuts to try to eliminate a budget gap of at least 10 percent next fiscal year. Efforts to balance the budget are hobbled by laws that limit state revenue and require annual increases in K-12 spending.

Michigan. Michigan entered the recession long before any other state, and has continued to suffer as the auto industry gets hammered. Currently, unemployment is 14.7 percent – the worst in the nation – though it’s stabilizing.

[Demeter]

45. The Big Zero By PAUL KRUGMAN

http://www.nytimes.com/2009/12/28/opinion/28krugman.html?ref=opinion

Maybe we knew, at some unconscious, instinctive level, that it would be an era best forgotten. Whatever the reason, we got through the first decade of the new millennium without ever agreeing on what to call it. The aughts? The naughties? Whatever. (Yes, I know that strictly speaking the millennium didn’t begin until 2001. Do we really care?)

But from an economic point of view, I’d suggest that we call the decade past the Big Zero. It was a decade in which nothing good happened, and none of the optimistic things we were supposed to believe turned out to be true.

It was a decade with basically zero job creation. O.K., the headline employment number for December 2009 will be slightly higher than that for December 1999, but only slightly. And private-sector employment has actually declined — the first decade on record in which that happened.

It was a decade with zero economic gains for the typical family. Actually, even at the height of the alleged “Bush boom,” in 2007, median household income adjusted for inflation was lower than it had been in 1999. And you know what happened next.

It was a decade of zero gains for homeowners, even if they bought early: right now housing prices, adjusted for inflation, are roughly back to where they were at the beginning of the decade. And for those who bought in the decade’s middle years — when all the serious people ridiculed warnings that housing prices made no sense, that we were in the middle of a gigantic bubble — well, I feel your pain. Almost a quarter of all mortgages in America, and 45 percent of mortgages in Florida, are underwater, with owners owing more than their houses are worth.

Last and least for most Americans — but a big deal for retirement accounts, not to mention the talking heads on financial TV — it was a decade of zero gains for stocks, even without taking inflation into account. Remember the excitement when the Dow first topped 10,000, and best-selling books like “Dow 36,000” predicted that the good times would just keep rolling? Well, that was back in 1999. Last week the market closed at 10,520.

So there was a whole lot of nothing going on in measures of economic progress or success. Funny how that happened.

For as the decade began, there was an overwhelming sense of economic triumphalism in America’s business and political establishments, a belief that we — more than anyone else in the world — knew what we were doing.

Let me quote from a speech that Lawrence Summers, then deputy Treasury secretary (and now the Obama administration’s top economist), gave in 1999. “If you ask why the American financial system succeeds,” he said, “at least my reading of the history would be that there is no innovation more important than that of generally accepted accounting principles: it means that every investor gets to see information presented on a comparable basis; that there is discipline on company managements in the way they report and monitor their activities.” And he went on to declare that there is “an ongoing process that really is what makes our capital market work and work as stably as it does.”

So here’s what Mr. Summers — and, to be fair, just about everyone in a policy-making position at the time — believed in 1999: America has honest corporate accounting; this lets investors make good decisions, and also forces management to behave responsibly; and the result is a stable, well-functioning financial system.

What percentage of all this turned out to be true? Zero.

What was truly impressive about the decade past, however, was our unwillingness, as a nation, to learn from our mistakes.

Even as the dot-com bubble deflated, credulous bankers and investors began inflating a new bubble in housing. Even after famous, admired companies like Enron and WorldCom were revealed to have been Potemkin corporations with facades built out of creative accounting, analysts and investors believed banks’ claims about their own financial strength and bought into the hype about investments they didn’t understand. Even after triggering a global economic collapse, and having to be rescued at taxpayers’ expense, bankers wasted no time going right back to the culture of giant bonuses and excessive leverage.

Then there are the politicians. Even now, it’s hard to get Democrats, President Obama included, to deliver a full-throated critique of the practices that got us into the mess we’re in. And as for the Republicans: now that their policies of tax cuts and deregulation have led us into an economic quagmire, their prescription for recovery is — tax cuts and deregulation.

So let’s bid a not at all fond farewell to the Big Zero — the decade in which we achieved nothing and learned nothing. Will the next decade be better? Stay tuned. Oh, and happy New Year.

[Demeter]

46. 2009: The Year Wall Street Bounced Back and Main Street Got Shafted

http://robertreich.blogspot.com/2009/12/2009-year-wall-street-bounced-back-and.html


In September 2008, as the worst of the financial crisis engulfed Wall Street, George W. Bush issued a warning: "This sucker could go down." Around the same time, as Congress hashed out a bailout bill, New Hampshire Sen. Judd Gregg, the leading Republican negotiator of the bill, warned that "if we do not do this, the trauma, the chaos and the disruption to everyday Americans' lives will be overwhelming, and that's a price we can't afford to risk paying."

In less than a year, Wall Street was back. The five largest remaining banks are today larger, their executives and traders richer, their strategies of placing large bets with other people's money no less bold than before the meltdown. The possibility of new regulations emanating from Congress has barely inhibited the Street's exuberance.

But if Wall Street is back on top, the everyday lives of large numbers of Americans continue to be subject to overwhelming trauma, chaos and disruption.

It is commonplace among policymakers to fervently and sincerely believe that Wall Street's financial health is not only a precondition for a prosperous real economy but that when the former thrives, the latter will necessarily follow. Few fictions of modern economic life are more assiduously defended than the central importance of the Street to the well-being of the rest of us, as has been proved in 2009.

Inhabitants of the real economy are dependent on the financial economy to borrow money. But their overwhelming reliance on Wall Street is a relatively recent phenomenon. Back when middle-class Americans earned enough to be able to save more of their incomes, they borrowed from one another, largely through local and regional banks. Small businesses also did.

It's easy to understand economic policymakers being seduced by the great flows of wealth created among Wall Streeters, from whom they invariably seek advice. One of the basic assumptions of capitalism is that anyone paid huge sums of money must be very smart.

But if 2009 has proved anything, it's that the bailout of Wall Street didn't trickle down to Main Street. Mortgage delinquencies continue to rise. Small businesses can't get credit. And people everywhere, it seems, are worried about losing their jobs. Wall Street is the only place where money is flowing and pay is escalating. Top executives and traders on the Street will soon be splitting about $25 billion in bonuses (despite Goldman Sachs' decision, made with an eye toward public relations, to defer bonuses for its 30 top players).

The real locus of the problem was never the financial economy to begin with, and the bailout of Wall Street was a sideshow. The real problem was on Main Street, in the real economy. Before the crash, much of America had fallen deeply into unsustainable debt because it had no other way to maintain its standard of living. That's because for so many years almost all the gains of economic growth had been going to a relatively small number of people at the top.

President Obama and his economic team have been telling Americans we'll have to save more in future years, spend less and borrow less from the rest of the world, especially from China. This is necessary and inevitable, they say, in order to "rebalance" global financial flows. China has saved too much and consumed too little, while we have done the reverse.

In truth, most Americans did not spend too much in recent years, relative to the increasing size of the overall American economy. They spent too much only in relation to their declining portion of its gains. Had their portion kept up -- had the people at the top of corporate America, Wall Street banks and hedge funds not taken a disproportionate share -- most Americans would not have felt the necessity to borrow so much.

The year 2009 will be remembered as the year when Main Street got hit hard. Don't expect 2010 to be much better -- that is, if you live in the real economy. The administration is telling Americans that jobs will return next year, and we'll be in a recovery. I hope they're right. But I doubt it. Too many Americans have lost their jobs, incomes, homes and savings. That means most of us won't have the purchasing power to buy nearly all the goods and services the economy is capable of producing. And without enough demand, the economy can't get out of the doldrums.

As long as income and wealth keep concentrating at the top, and the great divide between America's have-mores and have-lesses continues to widen, the Great Recession won't end -- at least not in the real economy.

[Demeter]

47. “What’s in Store for 2010?" By Bruce Krasting

http://www.nakedcapitalism.com/2009/12/whats-in-store-for-2010.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

..The following are not predictions of things that will happen. Just some thoughts on what might happen in 2010. THIS IS BRUCE'S WISH LIST, IN OTHER WORDS, WHAT SHOULD HAPPEN! OR RATHER, THE BEST THAT WE CAN HOPE FOR.

-Tim Geithner will resign as Treasury Secretary. Sheila Bair will replace him.

-AIG will be dismantled. What is good will be sold, what is bad will be shuttered. The end result will be a loss to the US of $40 billion.

-The Mid term elections will go to the Republicans. A surprising number of independents will be elected. The Democrats will still have a narrow majority. The end result will be legislative deadlock.

-Gold prices will trade as low as $900 and as high as $1,400. $1,400 will come first.

-Fourth quarter GDP will be at -1%.

-Unemployment will fall from 10% as the 800,000 census workers are hired. Outside of that there will be no growth in employment. Ex the census impact and other government hiring, job creation will be negative.

-Fiat/Chrysler will introduce some sexy new fuel-efficient cars. They will sell well. GM’s Volt will not be in full production. Demand will not be there.

-Boeing will finish a few Dreamliners but they will face many delays and problems.

-Apple will trade at $300 (tablet) and Google at $750. Amazon’s stock will be lower over the full year.

-Oil will trade at $100 by midyear, but it will be closer to $75 by year-end as the global slowdown re-emerges.

-The La Nina conditions will revert to El Nino conditions. This will result in a significant increase in Hurricane activity. Four named storms will hit the US coastlines. Total damages will approach $50 billion. There will be no CAT 5 hits on the mainland. But the Yucatan Peninsula is hit with a big one. Storm activity will interrupt Gulf gas production. Nat Gas will trade at $9 at one point in the fall.

-Typhoon activity in Asia will fall from the pace seen in 2009. The result will be a significant increase in Pacific Ocean temperatures.

-2010 will see another significant increase in ice melt. No meaningful steps will be made toward a global response to climate warming.

-Fannie and Freddie will convert their outstanding Preferred stock into common shares at a ratio of 3 to 1.

-After the Preferred conversion the shares of the Agencies will be delisted. Shareholders will be thrown a bone. They will get a beneficial interest in the REO owned by the Federal government. This could be in the form of a trust or individual transactions where old shares are tendered for individual properties. (Hotels/big stuff). The objective of this will be to remove these properties from the market for a meaningful period of time. The result will be that medium priced homes will stabilize in value. Rental costs will fall.

-High-end home prices (+$1mm) will continue to fall in value. In some areas the decline will be 20%. The absence of a viable mortgage market for these homes is the culprit for these declines. Prime defaults will rise to 8%.

-On September 1, 2010 the Federal Funds target will be at ½%. The 10-year bond will be at 4.5%. During the course of the year the ten-year will trade at 3.5% and also 5%. Interest rates will be lower at the end of the year than they will be on September 1st. There will be no meaningful reduction in the Fed’s balance sheet.

-At some point in 2010 there will be a test in the bond market for a government auction. At that time the Federal Reserve will, without hesitation or consent, re-establish a form of the QE policy. They will not permit a “failed’ auction.

-The Federal Reserve will become active in the foreign exchange markets. At different times of the year they will both buy and sell dollars. Their objective will be stability. These efforts will be referred to as “smoothing operations”.

-Volatility for all exchanges and commodities will increase from current levels. Intra-day moves greater than 2% will become common.

-The Sovereign Risk Story will continue to be a major theme. Italy and the UK will be lumped into the status of Greece, Spain and Portugal. Eastern Europe will see negative growth.

-There will be no breakup of the Euro. Greece will not pull out. The strong members will provide some relief for the weak. But the problems will not go away and the possibility of some form of two-tiered Euro will be a matter of open discussion. It is in this context that the Fed’s FX intervention takes place.

-There will be no meaningful overhaul of Social Security. This topic will be more controversial than Healthcare. It is too hot a potato for a bi-election year. As a result the SS Trust Fund will be at cash flow breakeven for all of 2010. Down from a surplus of +$200 billion in 2006. This reality will impact bond yields.

-The dollar will trade as high as 1.35 vs. the Euro. The low for the year will be at 1.60. At some point the Yen could weaken to as low as 110 to the dollar. Trade the extremes.

-China will surprise us all and revalue the Yuan by 10%. The currency will still be undervalued. China’s GDP will grow at 10% for the year. But the prospect for 2011 will be in doubt. China will not lose its rank as number 2 in global GDP.

-Mexico will devalue the Peso by 15% and Brazil will revalue the Real by the same amount. The Canadian Dollar will exceed 1 to 1 versus the US dollar.

-The Treasury will not sell the 10 billion of Citicorp shares that it holds. The argument put forth will be to maximize the value of the holdings.

-Some of the folks from Bear Sterns and Lehman will form a Boutique. It will be a success.

-The debate over Glass-Steagall will linger. It will not happen. It is not practical at this point. This creates a dilemma for Goldman Sachs. Can they go private and then just ignore all the noise?

-Fannie and Freddie will be merged. Their troubled assets will be transferred to a workout trust. There will be talk of returning the cleaned up entities to the private sector. The cost of these steps will bring the total losses to $500 billion.

-FHA will receive a $40 billion equity infusion from Congress. This capital increase will be necessary as it will be determined that the FHA model is the best approach for Government involvement in the mortgage market. FHA will use the new capital and substantially increase its lending activities. This step will avoid the necessity of a bailout of FHA. These actions will marginalize Fannie and Freddie.

-In 2010 over 90% of all new mortgages will come from or be supported by the government.

-There will be spot shortages of all manner of things. Soy oil, diesel fuel, specialty steel, industrial chemicals, ball bearings, replacement parts etc. This is an inventory problem. It will result in price jumps for things. This will be a global story.

-There will be several occasions when it will appear that we are about to fall off a cliff (or soar to the moon). Beware of these conditions. It is more than likely that the markets will be oversold and over-worried (or too enthusiastic).Take profits at these points. Do not stretch a bet too far. If you have some winnings in the jar consider counter trading big market moves on the day that the issue at hand gets front page coverage in the NY Times.

-Japan will not get out of recession. They will have to confront the issue of deficit spending and their debt to GDP ratio. Their response will be to sell reserve holdings to fund the deficit. The amounts involved will be small but the change in direction will be perceived to be significant.

-We will pay significantly more for virtually everything that we consume. The CPI and COLA numbers will be modest. We will be poorer as a result.

-American’s distrust of their financial institutions and our financial leadership will deepen. The whole notion of “I Promise to Pay” will come into question. As a result, the availability of consumer credit will continue to dry up.

-There will be no curbs placed on Dark Pools or flash trading. The short sale rule will not be re-introduced. There will be no regulated futures market for CDS. The Securitized Market will not recover.Nothing will change.

-The “Flight to Quality Trade” will be a dominant theme for the markets throughout the year. At some points this topic will drive the big capital flows. A month later they will have been reversed. This instability is driven by the conclusion that there really is no ‘Quality’ that the capital is Fleeing to. It is just the constant movement of the deck chairs. This creates good trading markets. Great opportunities to make and lose money will present themselves. It should be a fun year. Enjoy it.

[Demeter]

48. “2010: Foreseeable and Unforeseeable Risks --The Room For Policy Error is Enormous” By John Bougea

http://www.nakedcapitalism.com/2009/12/2010-foreseeable-and-unforeseeable-risks-the-room-for-policy-error-is-enormous.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Policymakers managed to extinguish a financial panic in 2008-09 by March 2009. This rescue operation allowed the broad U.S. stock market as measured by the SP500 to rally nearly 70%. Extinguishing the panic was to be expected. What I have questioned throughout the year are the measures that policymakers took to extinguish the panic and effect a stock market rescue. In particular, I wonder if the measures taken are only masking over serious unresolved issues within our financial atmosphere.

U.S. Treasury Secretary Timothy Geithner in a December 22, 2009, All Things Considered interview with Michele Norris claimed that 2009 is ending on the road to recovery.

The economy’s growing again. The policies the president put in place are helping lay the foundation for growth and job creation…American’s “can be more confident about their financial future, financial security. Growth looks like its accelerating in the 4th quarter.

NPR queried Timothy about a second wave of systemic crisis coming from commercial real estate or some other seen or unforeseen or unintended time bomb. Many experts remain quite concerned this credit crisis will be back-end loaded with second-round effects and positive feedback loops that spirals us further into the rabbit hole the economy entered in 2008-09. Geithner adamantly replied,

"We’re not going to have a second wave of financial crisis. We will do what is necessary to prevent that. We can not afford to let the country live again with the risks of another series of events like we had last year. That’s not something that is acceptable and we will prevent that. And that is something completely within our capacity to prevent… When you have the will to act we have substantial ability to prevent that and we will do what is necessary."

Much of the Treasury Secretary’s positive forecast for 2010 and beyond is predicated on the political will to act and anecdotal signs of Q4 GDP growth, incremental increases in business confidence and consumer spending, and the stabilization of the housing and jobs markets. Never again will America be plunged into the 2008-09 rabbit hole because the Treasury Secretary asserts “that is something completely within our capacity to prevent,” and they have the political “will to act.” Throughout the crisis, we saw policymakers displaying the political will to act in a manner that best served the interests of financial lobbyists, not that of the American public. That was transparent enough. Less apparent was how well policymakers served the short and long term interests of their constituents, the highest authority to which politicians’ should have been appealing.

I do not share Treasury Secretary Geithner’s confidence in the policies the Obama administration “put in place” to effect this recovery, and I will not champion them. In fact, many of the policies put in place only mask unresolved issues. So, I am quite concerned about the secondary effects resulting from this global financial meltdown. There are significant unrealized losses still in the pipeline. The full effects of this global financial meltdown have not been felt yet.

Nor do I share Mr. Geithner’s peculiar brand of optimism which is seemingly reminiscent of Chance the Gardener played by Peter Sellers in Being There “As long as the roots are not severed, all is well, and will be well, in the garden.” Policy measures and legislation passed to date to stabilize the financial crisis in 2008-09 have primarily been aimed at saving the dysfunctional big banks and preserving the OTC Debt and Derivatives markets. In short, the aim has been to restore the tentacled and tightly coupled roots in the big banks Financial Garden of Eden. The fact that lawmakers on Capitol Hill helped big banks preserve their Financial Garden of Eden in 2008-009 as much as possible should come as no surprise, because these same lawmakers had previously played such a large role helping banks create their garden in the first place which made possible the big banks fall and subsequent global financial meltdown.

I do have a great deal of reservations and skepticism about America’s financial future and more specifically about American’s financial security. As 2009 comes to a close, we are in the eye of the hurricane. We have yet to be hit by the backside of this financial storm. This credit-collapse is not your typical Post WWII recovery from recession as economist David Rosenberg and others like Paul Volker so often and thankfully remind us. Paul Volcker in a December 2009 Der Spiegel Interview titled America Must Reassert Stability and Leadership:

What complicates this (crisis) as compared to the ordinary garden variety recession is that we have this financial collapse on top of an economic disequilibrium…We have not been on a sustainable track and that has to be changed….those changes don’t come…in a quarter in a year. If we don’t make that adjustment and if we pump up consumption, we will just walk into another crisis. We have not yet achieved self-reinforcing recovery. We are heavily dependent upon government support so far…both in the financial markets and in the economy.

The Room For Policy Error is Enormous

Thus, the room for error in Mr. Geithner’s optimistic forecast is enormous. His outlook ignores the fact that an incredible, wide array of uncertainties can blind-side both domestic and global policymakers in a post credit-bubble collapse environment. In particular, I will add, the room for downside risks to the Treasury Secretary’s optimism is significantly heightened by the policy measures implemented to stabilize the big banks, precisely because these policies masked the effects of so many underlying issues. If the stabilization of the big banks and the financial system becomes unhinged again, in spite of what Mr. Geithner insists must be and can be prevented from ever happening again, we will walk right back into crisis and Irving Fisher’s debt-deflation spiral will resume.

Charles Kindleberger tells us financial crises are “hardy perennials.” That is true, but traditional remedies for extinguishing panics in the financial system over the past two hundred years have more or less always followed Walter Bagehot’s prescript that you “lend freely and early, to solvent firms, against good collateral, and at high rates.” This is what the bank of England did to avert the Panic of 1825. It is exactly what JP Morgan did to avert the Rich Man’s Panic of 1907 ~ he liquidated the bad banks and recapped the good ones. This is roughly what FDR did in 1933 and what Sweden did in the 1990s. They all separated the good banks and good collateral from the bad banks and bad collateral, letting the bad banks fail, and backstopping the still solvent banks. The broader aim was always the same, to save the financial system rather than the bad banks and their shaky collateral. To do this, they let the under-collateralized banks fail, and lent freely to solvent banks against good collateral at a high rate.

The financial panic of 2008-09 stands in stark contrast to the extinguishing of previous financial panics. The most outstanding features to the financial panic of 2008-09 was that the policies set in place were to save the bad banks loaded with toxic collateral on and off its balance sheets rather than to save the financial system itself. Lawmakers effected this change in March 2009 when they eliminated the fair value accounting rule to allow insolvent banks to mark their toxic assets at full value rather than at market value. Effectively, they swept the toxic asset under the rug. They masked their toxic effect, but unresolved issues remain. These toxic assets are now being stored on the Federal Reserves and other off-balance sheets, loaded with unrealized losses. The Basel Committee and FASB are now allowing banks until 2012-2013 to put these assets back onto their balance sheets. This explosive timetable has been reset to 2012, the end of the Mayan Calendar. For those with an eschatological bent, this date with destiny might be the End Days of our financial system as we knew it.

This is a first-ever occurrence in 200 years of banking history that losses stemming from bad collateral were not realized early on. They are time bombs with delayed fuses. To partially offset this day of reckoning in 2012, the Federal Reserve adopted a Zero Interest Rate Policy (ZIRP) to help the very same insolvent banks lever up the yield curve borrowing short and lending long to earn their way out of insolvency. But rather than letting these profits restore the banks impaired balance sheets, bank executives are redistributing these profits in the form of bonuses. Worse yet, ZIRP is a financial hardship that hurts millions of saving Americans plowing their hard earned dollars into CDs and money market funds. In this way, a zero interest rate policy serves to undermine the financial security of millions of Americans. And still, the unanswered question is whether insolvent banks can successfully recap themselves before these Bouncing-Betty’s detonate. In a race against the clock, policymakers are simply buying banks time, hoping they can avoid mutually assured destruction when their eschatological date with destiny arrives.

Global Warming Trends Serve as a Model for the Global Financial Meltdown

Financial innovation over the past thirty years led to a huge growth spurt in the OTC Debt and Derivatives markets. One could say that innovation led to a revolution within the financial industry. This revolution has created vast sums of toxic assets now being stored on the Federal Reserves and other off-balance sheet vehicles. By way of analogy, these man-made toxic assets can be likened to man-made greenhouse gases being created by the industrial revolution and fossil-fuel industries which are now contributing to accelerating global-warming trends. The meltdown in the global financial markets has many dangerous parallels to global-warming trends to consider.

Man-made greenhouse gases like carbon dioxide that have been released into the earth’s atmosphere are being partially absorbed by the ocean and then stored there. However, the carbon dioxides that have been absorbed into the ocean are not passively sitting there; they are actively destroying the ocean’s corral reefs and shellfish. These gases being stored in the ocean have yet to be re-released into the earth’s atmosphere. The ocean creates a lagged effect on global warming trends. When they are re-released into the earth’s atmosphere, this will create negative second-round effects thereby accelerating global-warming trends in the decades ahead.

Today, the Federal Reserve acts much like the ocean for greenhouse gases, absorbing and storing the toxic assets and shaky collateral created and released by the big banks. These financial carbon dioxides being stored on and eating away at the Fed’s balance sheets have yet to be re-released into the global financial system. When these financial carbon dioxides are re-released into the global financial system, this will create negative second-round effects that will broaden the reach of the global financial meltdown in the immediate years ahead <2011-2013>. Do you see where I am going now?

Jim Hansen, a leading global warming scientist has shown us that global warming trends in the earth’s atmosphere do not respond instantaneously to increases in greenhouse gases. There is a “substantial amount of what Jim calls ‘unrealized warming’ or warming that was still ‘in the pipeline’ – we hadn’t felt it yet.” What Jim Hansen is describing are the feedback loops and secondary effects that are still in the pipeline. “And feedbacks are inherently slow to unfold.” One of the most important examples of feedback is the melting of permafrost in Alaska, northern Canada and Siberia. “Plants that have been frozen for thousands of years are now supplementing the greenhouse effect as they decompose and send prodigious quantities of carbon dioxide and methane into the air.” The artic tundra stores more than 500 billion tons of carbon which is twice that of all the rainforests on the planet and 20 times the amount of fossil fuels emitted in a year. The secondary and lag effects with respect to global warming, Jim Hansen notes “obviously complicates the tasks of decision-makers.”

To the extent that the policy measures put in place in 2009 to “mask” “store” and “freeze” the financial dioxides embedded in the financial system rather than having them purged them from the system, most American’s financial futures and their financial security will be at risk for several years to come. I see no room for complacency. Moreover, American’s financial security will be further compromised in the coming decades as and when Social Security and Medicare pass their tipping points as well. Will the U.S. government default on their social obligations to meet their financial obligations in the years to come?

So what happens as and when the frozen and unrealized losses still in the pipeline and being stored on off-balance sheets are allowed to decompose over the course of the next three years? What will be the cost to millions of American’s financial security once the full effect of this financial meltdown is felt? And I speak as if this were only an American problem. But in point of fact, this is a global problem, particularly in those countries running large deficits. The financial security and well being of hundreds of millions of global citizens remain vulnerable.

Mr. Geithner’s reassurances to Americans aside, the lagged consequences of the global financial meltdown remain considerable. While some of these risks are transparent, many of the risks are opaque and remain hidden. Final outcomes are imaginable yet highly uncertain and largely unquantifiable. No one person can possibly get their arms around all of the risks. Below I attempt to highlight some of the foreseeable uncertainties, risks, and challenge that lie ahead between 2010 and 2013. The list is by no means comprehensive.

Domestic Risks and Uncertainties

1. The Bulk of the Option Arm resets trigger in 2010-2011 – “The reality is that these loans were never meant to survive the reset. Unless an alternative is created, the human pain and loss will be massive.” Institutional Risk Analyst Chris Whalen

2. The Black Holes at FNM and FRE and other GSEs continue to grow

3. Bank hoarding in 2009, with no end in sight until those option arm resets trigger and all toxic assets have been brought back onto their balance sheets by 2013

4. State and local governments defaulting on financial obligations. To meet financial obligations, austerity measures will be required, social obligations will suffer, meaning more unemployment and less teachers, firemen, and policemen. This burden will be another source of drag on the U.S. economy.

5. Credibility of the Fed and U.S. Treasury and White House Administration will be on the forefront on Investors minds in 2010 and beyond. If their credibility suffers, there will be negative ramifications in the financial markets

6. Stock Market Rescue Operations like the one that got underway in March 2009 tend to last roughly two years, and are followed by bear market resumptions. My models indicate the 2009 bear market rally may end sometime in 2H 2010 followed by a resumption of the secular bear market into 2012-2013.

7. My models also indicate the 2009 bear market rally in the Dow Jones may peak at 11,750-to 12,000, near the bull market crest in 2000. That leaves maybe 12% further upside in 2010 and implies that most of the gains from this bear market rally are already in place. As David Rosenberg pointed out throughout 2009, this is a rally for investors to ‘rent.’ What reallocations can they make as and when the rally ends?

8. Advanced Economies in America and Europe all face Pension liability nightmares with shrinking workforces to support the retiring population, recent examples are GM and YRC pension nightmares. Are taxpayers going to be obligated to fund all private and public pensions of bankrupt companies and state governments?

9. Risk Aversion, saving more versus spending more will be a drag on the economy

10. U.S. government mandate requiring 30 million uninsured Americans to buy health insurance will curb consumer spending and act as a tax on the economy. It will also curb hiring plans amongst U.S. employers further prolonging Americans sidelined from employment opportunities and exacerbating the unemployment rate issues.

11. Will the kindness of foreigners continue to fund the U.S. deficit spending? Eric Sprott and David Franklin noted in their December 2009 missive titled “Is it all just a Ponzi Scheme?” that the “household sector” bought $528 billion of the $1.88 trillion of U.S. debt that was issued to them. This sector only bought $15 billion of treasuries in 2008, where would this group find the wherewithal to buy 35 times more than then bought in the previous year. Sprott concludes that makes no sense with accelerating unemployment and foreclosures, so the household sector must be a “phantom. They don’t exist. They merely serve to balance the ledger in the Federal Reserve’s Flow of Funds report.”

Global Risks and Uncertainties

12. Sovereign Risks of Default are increasing as is their fiscal credibility in countries with large debts

13. Asymmetries within the EMU could precipitate a possible breakup of the EMU. The solidification of the countries in the EMU may break-up like ice sheets in the Artic tundra as the global financial meltdown puts further stress on the EMU. Incentives to remain in the EMU, for many EU countries it might be better to leave the EMU than stick around for its constraints and austerity measures

14. The One-size fits-all monetary policy in the EMU may be derailed by this crisis

15. Germany may not want to subsidize weaker countries in the EMU if their exports to those weaker euro countries are falling off a cliff as the crisis rolls on

16. The ECB may not be able to accept sovereign collateral and assets from countries in the EMU that have a negative credit outlook and are later hit with further downgrades. That could have spillover effects into the banks-at-large, including the ones the U.S. government sought so frantically to save.

17. The PIIGS (Portugal, Ireland, Italy, Greece, and Spain) debt ratios are all expected to exceed the 3% GDP 1992 Maastricht Treaty requirement.

18. PIIGs negative 2009 GDP resulting from global export decline leaves them with little incentive to stay strapped to an expensive Euro.

19. Italy is expected to be the first country that will first kiss the EMU good riddance. Greece and Spain might not be far behind as a domino-effect takes hold.

[Demeter]

49. Best Wishes to You All!

I'm going to break it off here for the night, as I have a party to attend. This thread will get picked up tomorrow, but in a second posting. This one is pretty long already.

Feel free to add to this one. The forward link will go up tomorrow.

And what is this? Insomnia Central? I know why I can't sleep, but I have to shake my head at the number of recs that accumulated before anything like a reasonable breakfast time on a holiday. Get some rest, guys, we are going to need our strength to get through 2010!

[Karenina]

53. HAPPY NEW YEAR, DEMETER!!!

:party::loveya::party:

[Demeter]

54. Our Hogmanay Continues! Jump to the following:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x506916