The Death Rattle of Our Economic Order

Don't Bail Out the Banks One Last Time

2010-12-09T06:25:00.000-08:00

This is my response to an awful article in the Star Tribune that begs us to bail out the banks "one last time." Good grief.

The Opinion page article “Help banks, one last time, and help us all,” by Claire Hill and Prentiss Cox, was inaccurate and one-sided. It was particularly disappointing to see something so full of factual errors and unjust policy prescriptions coming from University of Minnesota Law School professors.

The purpose of their proposals is to save the banks from their own sins “one last time,’ in order to “help us all.” One of the most trotted-out yet false assertions throughout the financial crises of the past two years has been that we cannot afford let “too-big-to-fail” banks go bankrupt.

Wrong. The function of banks is to channel the savings of individuals and companies into productive investments. In the case of the housing market, a family may need a loan to purchase a house if they have not saved up enough to pay for it in cash. The loan must be paid back with interest, or the bank can foreclose to recoup the investment. This capital formation function could be accomplished by new banks, seeded with public funds if necessary, if the big banks go bankrupt due to their bad decisions and fraudulent behavior. Do we really want to continue to reward bad business models and criminally negligent CEO’s because of the false notion that they are necessary? Besides the fact that this undermines the very basis of capitalism, the real reason the big banks are being propped up is because of their political influence, purchased through lobbying and campaign donations.

The authors of the essay used the euphemism “cut corners” to describe the actions of the big banks as they attempt to foreclose on millions of homeowners. Is the mass production of forged documents really just “cutting corners?” If you or I show up in court with forged documents, we end up with a perjury charge and probably wind up in jail. The banks get a “do over” until they get it right, it seems.

The fact is, the fraud goes much further than the robo-signing controversy. There was serious fraud at every stage of the housing crisis, from the origination of “liar-loans” and sub-prime mortgages, to the way mortgages were bundled into mortgage-backed securities (MBS), and onward to the process of foreclosure. Borrowers have been swindled by hidden or changing terms. Investors in MBS have been swindled because the loans they thought they were investing in did not meet the underwriting standards claimed by the banks. Furthermore, the promissory notes seem not to have been conveyed to the trusts that were supposed to administer many MBS securities. Fraud from top to bottom is pervasive. This fact is starting to be revealed in the mainstream press and in congressional hearings.

In light of this, Hill and Cox propose “one last” bailout for the banks. Does anyone really believe that this “one last” bailout will be the last? I thought TARP was the last one!

The greatest risk is not even the perverse economic incentives that will be created by bailing out the bad actors, and penalizing the victims. The greatest risk of all is to the rule of law that underlies our society in general. How long will the average person go along with a system in which banks and CEOs of financial companies get away with fraud and perjury, or at most get a wrist-slap that doesn’t come close to negating their ill-gotten gains, while the average joe is forced to abide by every statute down to the last clause? A two-tier justice system will lead to a loss of respect for the law in general. Such a system is eerily similar to the one that existed in France prior to their revolution.

Joe Stack's Suicide Note

2010-02-19T09:38:00.000-08:00

If you’re reading this, you’re no doubt asking yourself, “Why did this have to happen?” The simple truth is that it is complicated and has been coming for a long time. The writing process, started many months ago, was intended to be therapy in the face of the looming realization that there isn’t enough therapy in the world that can fix what is really broken. Needless to say, this rant could fill volumes with example after example if I would let it. I find the process of writing it frustrating, tedious, and probably pointless… especially given my gross inability to gracefully articulate my thoughts in light of the storm raging in my head. Exactly what is therapeutic about that I’m not sure, but desperate times call for desperate measures.

We are all taught as children that without laws there would be no society, only anarchy. Sadly, starting at early ages we in this country have been brainwashed to believe that, in return for our dedication and service, our government stands for justice for all. We are further brainwashed to believe that there is freedom in this place, and that we should be ready to lay our lives down for the noble principals represented by its founding fathers. Remember? One of these was “no taxation without representation”. I have spent the total years of my adulthood unlearning that crap from only a few years of my childhood. These days anyone who really stands up for that principal is promptly labeled a “crackpot”, traitor and worse.

While very few working people would say they haven’t had their fair share of taxes (as can I), in my lifetime I can say with a great degree of certainty that there has never been a politician cast a vote on any matter with the likes of me or my interests in mind. Nor, for that matter, are they the least bit interested in me or anything I have to say.

Why is it that a handful of thugs and plunderers can commit unthinkable atrocities (and in the case of the GM executives, for scores of years) and when it’s time for their gravy train to crash under the weight of their gluttony and overwhelming stupidity, the force of the full federal government has no difficulty coming to their aid within days if not hours? Yet at the same time, the joke we call the American medical system, including the drug and insurance companies, are murdering tens of thousands of people a year and stealing from the corpses and victims they cripple, and this country’s leaders don’t see this as important as bailing out a few of their vile, rich cronies. Yet, the political “representatives” (thieves, liars, and self-serving scumbags is far more accurate) have endless time to sit around for year after year and debate the state of the “terrible health care problem”. It’s clear they see no crisis as long as the dead people don’t get in the way of their corporate profits rolling in.

And justice? You’ve got to be kidding!

How can any rational individual explain that white elephant conundrum in the middle of our tax system and, indeed, our entire legal system? Here we have a system that is, by far, too complicated for the brightest of the master scholars to understand. Yet, it mercilessly “holds accountable” its victims, claiming that they’re responsible for fully complying with laws not even the experts understand. The law “requires” a signature on the bottom of a tax filing; yet no one can say truthfully that they understand what they are signing; if that’s not “duress” than what is. If this is not the measure of a totalitarian regime, nothing is.

How did I get here?

My introduction to the real American nightmare starts back in the early ‘80s. Unfortunately after more than 16 years of school, somewhere along the line I picked up the absurd, pompous notion that I could read and understand plain English. Some friends introduced me to a group of people who were having ‘tax code’ readings and discussions. In particular, zeroed in on a section relating to the wonderful “exemptions” that make institutions like the vulgar, corrupt Catholic Church so incredibly wealthy. We carefully studied the law (with the help of some of the “best”, high-paid, experienced tax lawyers in the business), and then began to do exactly what the “big boys” were doing (except that we weren’t steeling from our congregation or lying to the government about our massive profits in the name of God). We took a great deal of care to make it all visible, following all of the rules, exactly the way the law said it was to be done.

The intent of this exercise and our efforts was to bring about a much-needed re-evaluation of the laws that allow the monsters of organized religion to make such a mockery of people who earn an honest living. However, this is where I learned that there are two “interpretations” for every law; one for the very rich, and one for the rest of us… Oh, and the monsters are the very ones making and enforcing the laws; the inquisition is still alive and well today in this country.

That little lesson in patriotism cost me $40,000+, 10 years of my life, and set my retirement plans back to 0. It made me realize for the first time that I live in a country with an ideology that is based on a total and complete lie. It also made me realize, not only how naive I had been, but also the incredible stupidity of the American public; that they buy, hook, line, and sinker, the crap about their “freedom”… and that they continue to do so with eyes closed in the face of overwhelming evidence and all that keeps happening in front of them.

Before even having to make a shaky recovery from the sting of the first lesson on what justice really means in this country (around 1984 after making my way through engineering school and still another five years of “paying my dues”), I felt I finally had to take a chance of launching my dream of becoming an independent engineer.

On the subjects of engineers and dreams of independence, I should digress somewhat to say that I’m sure that I inherited the fascination for creative problem solving from my father. I realized this at a very young age.

The significance of independence, however, came much later during my early years of college; at the age of 18 or 19 when I was living on my own as student in an apartment in Harrisburg, Pennsylvania. My neighbor was an elderly retired woman (80+ seemed ancient to me at that age) who was the widowed wife of a retired steel worker. Her husband had worked all his life in the steel mills of central Pennsylvania with promises from big business and the union that, for his 30 years of service, he would have a pension and medical care to look forward to in his retirement. Instead he was one of the thousands who got nothing because the incompetent mill management and corrupt union (not to mention the government) raided their pension funds and stole their retirement. All she had was social security to live on.

In retrospect, the situation was laughable because here I was living on peanut butter and bread (or Ritz crackers when I could afford to splurge) for months at a time. When I got to know this poor figure and heard her story I felt worse for her plight than for my own (I, after all, I thought I had everything to in front of me). I was genuinely appalled at one point, as we exchanged stories and commiserated with each other over our situations, when she in her grandmotherly fashion tried to convince me that I would be “healthier” eating cat food (like her) rather than trying to get all my substance from peanut butter and bread. I couldn’t quite go there, but the impression was made. I decided that I didn’t trust big business to take care of me, and that I would take responsibility for my own future and myself.

Return to the early ‘80s, and here I was off to a terrifying start as a ‘wet-behind-the-ears’ contract software engineer... and two years later, thanks to the fine backroom, midnight effort by the sleazy executives of Arthur Andersen (the very same folks who later brought us Enron and other such calamities) and an equally sleazy New York Senator (Patrick Moynihan), we saw the passage of 1986 tax reform act with its section 1706.

For you who are unfamiliar, here is the core text of the IRS Section 1706, defining the treatment of workers (such as contract engineers) for tax purposes. Visit this link for a conference committee report (http://www.synergistech.com/1706.shtml#ConferenceCommitteeReport) regarding the intended interpretation of Section 1706 and the relevant parts of Section 530, as amended. For information on how these laws affect technical services workers and their clients, read our discussion here (http://www.synergistech.com/ic-taxlaw.shtml).

SEC. 1706. TREATMENT OF CERTAIN TECHNICAL PERSONNEL.

(a) IN GENERAL - Section 530 of the Revenue Act of 1978 is amended by adding at the end thereof the following new subsection:

(d) EXCEPTION. - This section shall not apply in the case of an individual who pursuant to an arrangement between the taxpayer and another person, provides services for such other person as an engineer, designer, drafter, computer programmer, systems analyst, or other similarly skilled worker engaged in a similar line of work.

(b) EFFECTIVE DATE. - The amendment made by this section shall apply to remuneration paid and services rendered after December 31, 1986.

Note:

· "another person" is the client in the traditional job-shop relationship.

· "taxpayer" is the recruiter, broker, agency, or job shop.

· "individual", "employee", or "worker" is you.

Admittedly, you need to read the treatment to understand what it is saying but it’s not very complicated. The bottom line is that they may as well have put my name right in the text of section (d). Moreover, they could only have been more blunt if they would have came out and directly declared me a criminal and non-citizen slave. Twenty years later, I still can’t believe my eyes.

During 1987, I spent close to $5000 of my ‘pocket change’, and at least 1000 hours of my time writing, printing, and mailing to any senator, congressman, governor, or slug that might listen; none did, and they universally treated me as if I was wasting their time. I spent countless hours on the L.A. freeways driving to meetings and any and all of the disorganized professional groups who were attempting to mount a campaign against this atrocity. This, only to discover that our efforts were being easily derailed by a few moles from the brokers who were just beginning to enjoy the windfall from the new declaration of their “freedom”. Oh, and don’t forget, for all of the time I was spending on this, I was loosing income that I couldn’t bill clients.

After months of struggling it had clearly gotten to be a futile exercise. The best we could get for all of our trouble is a pronouncement from an IRS mouthpiece that they weren’t going to enforce that provision (read harass engineers and scientists). This immediately proved to be a lie, and the mere existence of the regulation began to have its impact on my bottom line; this, of course, was the intended effect.

Again, rewind my retirement plans back to 0 and shift them into idle. If I had any sense, I clearly should have left abandoned engineering and never looked back.

Instead I got busy working 100-hour workweeks. Then came the L.A. depression of the early 1990s. Our leaders decided that they didn’t need the all of those extra Air Force bases they had in Southern California, so they were closed; just like that. The result was economic devastation in the region that rivaled the widely publicized Texas S&L fiasco. However, because the government caused it, no one gave a shit about all of the young families who lost their homes or street after street of boarded up houses abandoned to the wealthy loan companies who received government funds to “shore up” their windfall. Again, I lost my retirement.

Years later, after weathering a divorce and the constant struggle trying to build some momentum with my business, I find myself once again beginning to finally pick up some speed. Then came the .COM bust and the 911 nightmare. Our leaders decided that all aircraft were grounded for what seemed like an eternity; and long after that, ‘special’ facilities like San Francisco were on security alert for months. This made access to my customers prohibitively expensive. Ironically, after what they had done the Government came to the aid of the airlines with billions of our tax dollars … as usual they left me to rot and die while they bailed out their rich, incompetent cronies WITH MY MONEY! After these events, there went my business but not quite yet all of my retirement and savings.

By this time, I’m thinking that it might be good for a change. Bye to California, I’ll try Austin for a while. So I moved, only to find out that this is a place with a highly inflated sense of self-importance and where damn little real engineering work is done. I’ve never experienced such a hard time finding work. The rates are 1/3 of what I was earning before the crash, because pay rates here are fixed by the three or four large companies in the area who are in collusion to drive down prices and wages… and this happens because the justice department is all on the take and doesn’t give a fuck about serving anyone or anything but themselves and their rich buddies.

To survive, I was forced to cannibalize my savings and retirement, the last of which was a small IRA. This came in a year with mammoth expenses and not a single dollar of income. I filed no return that year thinking that because I didn’t have any income there was no need. The sleazy government decided that they disagreed. But they didn’t notify me in time for me to launch a legal objection so when I attempted to get a protest filed with the court I was told I was no longer entitled to due process because the time to file ran out. Bend over for another $10,000 helping of justice.

So now we come to the present. After my experience with the CPA world, following the business crash I swore that I’d never enter another accountant’s office again. But here I am with a new marriage and a boatload of undocumented income, not to mention an expensive new business asset, a piano, which I had no idea how to handle. After considerable thought I decided that it would be irresponsible NOT to get professional help; a very big mistake.

When we received the forms back I was very optimistic that they were in order. I had taken all of the years information to Bill Ross, and he came back with results very similar to what I was expecting. Except that he had neglected to include the contents of Sheryl’s unreported income; $12,700 worth of it. To make matters worse, Ross knew all along this was missing and I didn’t have a clue until he pointed it out in the middle of the audit. By that time it had become brutally evident that he was representing himself and not me.

This left me stuck in the middle of this disaster trying to defend transactions that have no relationship to anything tax-related (at least the tax-related transactions were poorly documented). Things I never knew anything about and things my wife had no clue would ever matter to anyone. The end result is… well, just look around.

I remember reading about the stock market crash before the “great” depression and how there were wealthy bankers and businessmen jumping out of windows when they realized they screwed up and lost everything. Isn’t it ironic how far we’ve come in 60 years in this country that they now know how to fix that little economic problem; they just steal from the middle class (who doesn’t have any say in it, elections are a joke) to cover their asses and it’s “business-as-usual”. Now when the wealthy fuck up, the poor get to die for the mistakes… isn’t that a clever, tidy solution.

As government agencies go, the FAA is often justifiably referred to as a tombstone agency, though they are hardly alone. The recent presidential puppet GW Bush and his cronies in their eight years certainly reinforced for all of us that this criticism rings equally true for all of the government. Nothing changes unless there is a body count (unless it is in the interest of the wealthy sows at the government trough). In a government full of hypocrites from top to bottom, life is as cheap as their lies and their self-serving laws.

I know I’m hardly the first one to decide I have had all I can stand. It has always been a myth that people have stopped dying for their freedom in this country, and it isn’t limited to the blacks, and poor immigrants. I know there have been countless before me and there are sure to be as many after. But I also know that by not adding my body to the count, I insure nothing will change. I choose to not keep looking over my shoulder at “big brother” while he strips my carcass, I choose not to ignore what is going on all around me, I choose not to pretend that business as usual won’t continue; I have just had enough.

I can only hope that the numbers quickly get too big to be white washed and ignored that the American zombies wake up and revolt; it will take nothing less. I would only hope that by striking a nerve that stimulates the inevitable double standard, knee-jerk government reaction that results in more stupid draconian restrictions people wake up and begin to see the pompous political thugs and their mindless minions for what they are. Sadly, though I spent my entire life trying to believe it wasn’t so, but violence not only is the answer, it is the only answer. The cruel joke is that the really big chunks of shit at the top have known this all along and have been laughing, at and using this awareness against, fools like me all along.

I saw it written once that the definition of insanity is repeating the same process over and over and expecting the outcome to suddenly be different. I am finally ready to stop this insanity. Well, Mr. Big Brother IRS man, let’s try something different; take my pound of flesh and sleep well.

The communist creed: From each according to his ability, to each according to his need.

The capitalist creed: From each according to his gullibility, to each according to his greed.

Joe Stack (1956-2010)

02/18/2010

One and only blog

2010-02-09T08:58:00.000-08:00

I have decided to consolidate all my blog writing into one blog:
Bugarug

I will completely remove this blog in about two weeks.

From Breakdown to Chaos

2010-01-12T12:50:00.000-08:00

Unbelievably prescient:

From Breakdown to Chaos

I can only conjecture on how the breakdown of industrial society will ultimately become a critical issue. But I can make rather firm statements about the qualifications for providing guidance within the coming crisis. I believe that growth will grind to a halt. The total collapse of the industrial monopoly on production will be the result of synergy in the failure of the multiple systems that fed its expansion. This expansion is maintained by the illusion that careful systems engineering can stabilize and harmonize present growth, while in fact it pushes all institutions simultaneously toward their second watershed. Almost overnight people will lose confidence not only in the major institutions but also in the miracle prescriptions of the would-be crisis managers. The ability of present institutions to define values such as education, health, welfare, transportation, or news will suddenly be extinguished because it will be recognized as an illusion.

This crisis may be triggered by an unforeseen event, as the Great Depression was touched off by the Wall Street Crash. Some fortuitous coincidence will render publicly obvious the structural contradictions between stated purposes and effective results in our major institutions. People will suddenly find obvious what is now evident to only a few: that the organization of the entire economy toward the “better” life has become the major enemy of the good life. Like other widely shared insights, this one will have the potential of turning public imagination inside out. Large institutions can quite suddenly lose their respectability, their legitimacy, and their reputation for serving the public good. It happened to the Roman Church in the Reformation, to Royalty in the Revolution. The unthinkable became obvious overnight: that people could and would behead their rulers.

Sudden change is of a different order than feedback or evolution. Observe the whirlpools below a waterfall. For many seasons the eddies stay in the same place no matter whether the water is high or low. Then, suddenly, one more stone falls into the basin, the entire array changes, and the old can never be reconstructed. People who invoke the specter of a hopelessly growth-oriented majority seem incapable of envisaging political behavior in a crash. Business ceases to be as usual when the populace loses confidence in industrial productivity, and not just in paper currency.

Brace Yourself For a Hard Landing By Mike Whitney

2009-12-29T12:33:00.001-08:00

http://dandelionsalad.wordpress.com/

By Mike Whitney
December 22, 2009 “Information Clearing House“

Ben Bernanke has been a bigger disaster than Hurricane Katrina. But the senate is about to re-up him for another four-year term. What are they thinking? Bernanke helped Greenspan inflate the biggest speculative bubble of all time, and still maintains that he never saw it growing. Right. How can retail housing leap from $12 trillion to $21 trillion in 7 years (1999 to 2006) without popping up on the Fed’s radar? It’s not possible. Bernanke is just fudging the facts to save his skin.

Bernanke was also staunch supporter of the low interest rate policy which led to the crash. Greenspan never believed that it was the Fed’s job to deal with credit bubbles. “The free market is self-correcting”, he thought. He was the nation’s chief regulator, but he was opposed to the idea of government regulation. Go figure? Here’ a quote from Greenspan in 2002:

“I do have an ideology. My judgment is that free, competitive markets are by far the unrivaled way to organize economies. We have tried regulation, none meaningfully worked.”

What rubbish. Listen to Greenspan try to dignify class warfare as a matter of principle.

Bernanke is no different than Greenspan; they’re two peas in a pod. Everyone could see what the Fed-duo was up to from the get-go. They were working hand-in-hand with their crooked friends on Wall Street to milk the bubble for all it was worth before the whole thing blew sky-high. It was one ginormous skimming operation orchestrated by the Federal Reserve.

Now Bernanke is carrying on where his former boss left off, using all the tools at his disposal to offset the atrophy that’s endemic to mature capitalist economies. “Stagnation”, that the real enemy, which is why Bernanke supports this new galaxy of oddball debt-instruments and bizarre-sounding derivatives; because it creates a world where surplus capital can generate windfall profits despite chronic overcapacity. It’s Financial Nirvana for the parasite class; the relentless transfer of wealth from workers to speculators via paper assets. Marx figured it out. And, now, so has Bernanke.

Bernanke is just following Greenspan’s basic blueprint. It’s nothing new. Unregulated derivatives trading is just one of the many scams he’s thrown his weight behind. The list goes on and on; one swindle after another.

Just look what happened when Lehman Bros blew up. Just weeks earlier, Bernanke and Co. had worked out a deal with JP Morgan to buy Bear Stearns with the proviso that the government would guarantee $40 billion in Bear’s toxic assets. Fair enough. The whole transaction went by without a hitch. Then Lehman starts teetering, and Bernanke and Treasury Secretary Henry Paulson decide to do a complete policy-flip and let Lehman default. Their reversal stunned the markets and triggered a frenzied run on the money markets that nearly collapsed the global financial system. Why?

It was because Bernanke knew that the big banks were buried under a mountain of bad assets and needed emergency help from Congress. The faux-Lehman crisis was cooked up to extort the $700 billion from taxpayers via the TARP fund. Bernanke and Paulson pulled off the biggest heist in history and there’s never even been an investigation. It was blackmail, pure and simple.

Bernanke was in the wheelhouse when the subprime bubble blew and carved $13 trillion from aggregate household wealth. Consumers are now so deeply underwater that personal credit is shrinking for the first time in 50 years while unemployment is hovering at 10 percent. If Bernanke isn’t responsible, than who is?

Take a look at Bernanke’s so-called lending facilities. They are all designed with one object in mind, to support financial markets at the expense of workers. It’s just more corporate welfare. The media praises the Troubled asset-backed security lending facility (TALF) as a way to restart the wholesale credit system (securitzation). But is it? Under the TALF, the government provides up to 92 percent of the funding for investors willing to buy assets backed by auto, credit card, or student loans. In other words, the Fed is putting the taxpayer on the hook for another trillion dollars (without congressional authorization or oversight) to produce more of the same high-risk junk which investors still refuse to purchase two years after the two Bear Stearns hedge funds defaulted in July 2007. Fortunately, the TALF turned out to be another Fed boondoggle that fizzled on the launchpad.

Bernanke’s latest stealth-ripoff is called quantitative easing (QE) which is being touted as a way to increase consumer lending by building up banks reserves. In fact, it doesn’t do that at all and Bernanke knows it. As an “expert” on the Great Depression, he knows that stuffing the banks with reserves was tried in the 1930s, but it accomplished nothing. Nor will it today. Here’s how economist James Galbraith explains it:

“The New Deal rebuilt America physically, providing a foundation from which the mobilization of World War II could be launched. But it also saved the country politically and morally, providing jobs, hope, and confidence that in the end democracy was worth preserving….

“What did not recover, under Roosevelt, was the private banking system. Borrowing and lending—mortgages and home construction—contributed far less to the growth of output in the 1930s and ’40s than they had in the 1920s or would come to do after the war. If they had savings at all, people stayed in Treasuries, and despite huge deficits interest rates for federal debt remained near zero. The liquidity trap wasn’t overcome until the war ended….. the relaunching of private finance took twenty years, and the war besides.

“A brief reflection on this history and present circumstances drives a plain conclusion: the full restoration of private credit will take a long time. It will follow, not precede, the restoration of sound private household finances. There is no way the project of resurrecting the economy by stuffing the banks with cash will work. Effective policy can only work the other way around.” (“No Return to Normal:Why the economic crisis, and its solution, are bigger than you think” James K. Galbraith, Washington Monthly)

And, there’s more proof that Bernanke knows that quantitative easing is a hoax, too. Here’s a quote from the late Paul Samuelson’s magnum opus “Foundations of Economic Analysis”:

“Today few economists regard Federal Reserve monetary policy as a panacea for controlling the business cycle. Purely monetary factors are considered to be as much symptoms as causes, albeit symptoms with aggravating effects that should not be completely neglected.

By increasing the volume of their government securities and loans and by lowering Member Bank legal reserve requirements, the Reserve Banks can encourage an increase in the supply of money and bank deposits. They can encourage but, without taking drastic action, they cannot compel. For in the middle of a deep depression just when we want Reserve policy to be most effective, the Member Banks are likely to be timid about buying new investments or making loans. If the Reserve authorities buy government bonds in the open market and thereby swell bank reserves, the banks will not put these funds to work but will simply hold reserves….

In terms of the quantity theory of money, we may say that the velocity of circulation of money does not remain constant. “You can lead a horse to water, but you can’t make him drink.” You can force money on the system in exchange for government bonds, its close money substitute; but you can’t make the money circulate against new goods and new jobs. You can get some interest rates down, but not all to the same degree. You can tempt businessmen with cheap rates of borrowing, but you can’t make them borrow and spend on new investment goods.” (Paul Samuelson, “Foundations of Economic Analysis” Harvard University Press, 1947)

Bernanke was bread-and-buttered on Samuelson. He knows QE is a joke. He’s just creating a diversion so he can shovel more money into insolvent banks, pump-up the stock markets, and recycle Treasurys. Otherwise why would Obama’s Chief Economic Advisor, Lawrence Summers say this:

“In the current circumstances the case for fiscal stimulus… is stronger than ever before in my professional lifetime. Unemployment is almost certain to increase — probably to the highest levels in a generation. Monetary policy has little scope to stimulate the economy given how low interest rates already are and the problems in the financial system. Global experience with economic downturns caused by financial distress suggests that while they are of uncertain depth, they are almost always of long duration.” (“A Bailout Is Just a Start”, Lawrence Summers, Washington Post)

QE is monetary policy writ large and–by Summers own admission–it won’t work. It won’t reduce unemployment or spark a credit expansion. That’s why total consumer spending is falling, retail sales are flat, and wages are beginning to tank. Everywhere businesses are trimming hours and cutting salaries. Bernanke’s $1 trillion in excess bank reserves has had no material effect on lending, credit expansion or jobs. It’s been a dead loss. Here’s Damian Paletta of the Wall Street Journal:

“U.S. lenders saw loans fall by the largest amount since the government began tracking such data, suggesting that nervousness among banks continues to hamper economic recovery.

Total loan balances fell by $210.4 billion, or 3%, in the third quarter, the biggest decline since data collection began in 1984, according to a report released Tuesday by the Federal Deposit Insurance Corp. The FDIC also said its fund to backstop deposits fell into negative territory for just the second time in its history, pushed down by a wave of bank failures.

The decline in total loans showed how banks remain reluctant to lend, despite the hundreds of billions of dollars the government has spent to prop up ailing banks and jump-start lending. The issue has taken on greater urgency with the U.S. unemployment rate hitting 10.2% in October, even as the economy appears to be stabilizing.

The total of commercial and industrial loans, a category that includes business loans, fell to $1.28 trillion at the end of September, from $1.36 trillion at the end of June. The outstanding total of construction loans, credit cards and mortgages also fell. (“Lending Declines as Bank Jitters Persist” Damian Paletta, Wall Street Journal)

Bernanke, Summers, Geithner and Obama have all misrepresented quantitative easing (QE) so they can improve the liquidity position of the banks without the public knowing what’s going on. The fact is, the banks are not “capital constrained” by lack of reserves. Therefore, extra reserves won’t lead to increased lending. Here is an excerpt from Billy Blog which clarifies how the banking system really works and how that relates to QE:

“Does quantitative easing work? The mainstream belief is that quantitative easing will stimulate the economy sufficiently to put a brake on the downward spiral of lost production and the increasing unemployment.

It is based on the erroneous belief that the banks need reserves before they can lend and that quantitative easing provides those reserves. That is a major misrepresentation of the way the banking system actually operates. But the mainstream position asserts (wrongly) that banks only lend if they have prior reserves. The illusion is that a bank is an institution that accepts deposits to build up reserves and then on-lends them at a margin to make money. The conceptualization suggests that if it doesn’t have adequate reserves then it cannot lend. So the presupposition is that by adding to bank reserves, quantitative easing will help lending.

But this is a completely incorrect depiction of how banks operate. Bank lending is not “reserve constrained”. Banks lend to any credit worthy customer they can find and then worry about their reserve positions afterwards. If they are short of reserves (their reserve accounts have to be in positive balance each day and in some countries central banks require certain ratios to be maintained) then they borrow from each other in the interbank market or, ultimately, they will borrow from the central bank through the so-called discount window. They are reluctant to use the latter facility because it carries a penalty (higher interest cost).

The point is that building bank reserves will not increase the bank’s capacity to lend. Loans create deposits which generate reserves.” (Billy Blog, Bill Mitchell)

So, if bank lending is not constrained by lack of reserves, then what does QE actually do?

Not much, apparently. All quantitative easing does is exchange one type of financial asset (long-term bonds) with another (reserve balances). “The net financial assets in the private sector are in fact unchanged although the portfolio composition of those assets is altered (maturity substitution) which changes yields and returns.” (Bill Mitchell)

The net result of Bernanke’s meddling is just this: Quantitative easing and the lending facilities have kept the price of financial assets artificially high, which has minimized financial sector deleveraging. (Financial sector debt is currently $16.4 trillion, nearly the same as it was a year ago. $16.3 trillion) In contrast, households have lost $13 trillion which has thrust the middle class into a severe downturn. Bernanke’s policies have made a bad situation even worse.

TIGHTENING THE NOOSE

The Fed is engaged in various strategies to recapitalize the banking system. At the same time, Bernanke, Summers, Geithner, and Obama have stated repeatedly, that they’re committed to slashing the long-term deficits. This means that they plan to reduce liquidity and push the economy back into recession so they can launch an attack on Medicaid, Medicare, and Social Security. Last Thursday, Bernanke announced that he will begin to tighten the noose as early as March 31 2010, when the Fed ends its $1.65 trillion purchases of agency debt, mortgage-backed securities, and US Treasurys. That’s why stock market volatility has picked up since the Fed released its December 16 statement. Here’s a clip:

“In light of ongoing improvements in the functioning of financial markets, the Committee and the Board of Governors anticipate that most of the Federal Reserve’s special liquidity facilities will expire on February 1, 2010,… These facilities include the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, and the Term Securities Lending Facility. The Federal Reserve will also be working with its central bank counterparties to close its temporary liquidity swap arrangements by February 1. The Federal Reserve expects that amounts provided under the Term Auction Facility will continue to be scaled back in early 2010. The anticipated expiration dates for the Term Asset-Backed Securities Loan Facility remain set at June 30, 2010, for loans backed by new-issue commercial mortgage-backed securities and March 31, 2010, for loans backed by all other types of collateral.”

By April 1, 2010 the mortgage monetization program will be over; long-term interest rates will rise and housing prices will fall. When the Fed withdraws its support, liquidity will drain from the system, stocks will drop, and the economy will slide back into recession. Obama’s second blast of fiscal stimulus–which is a mere $200 billion dollars—won’t make a lick of difference.

The Obama administration and the Fed are on the same page. There will be no lifeline for the unemployed or the states. Those days are over. Now it’s on to “starve the beast” and crush the middle class. Maestro Greenspan summed up the Fed’s approach in a recent appearance on Meet the Press when he opined,

“I think the Fed has done an extraordinary job and it’s done a huge amount (to bolster employment). There’s just so much monetary policy and the central bank can do. And I think they’ve gone to their limits, at this particular stage.”

Brace yourself for a hard landing.

see

The Lost Science of Classical Political Economy By Michael Hudson

Predictions: The USA during the second decade of the XXI century by Dmitry Orlov

EU/IMF Revolt: Greece, Iceland, Latvia May Lead the Way by Dr. Ellen Brown

The Economy Sucks and or Collapse 2

Getting close

2009-12-23T13:39:00.000-08:00

The U.S. economic and systemic solvency crises of the last two years are just precursors to a Great Collapse: a hyperinflationary great depression. Such will reflect a complete collapse in the purchasing power of the U.S. dollar, a collapse in the normal stream of U.S. commercial and economic activity, a collapse in the U.S. financial system as we know it, and a likely realignment of the U.S. political environment. The current U.S. financial markets, financial system and economy remain highly unstable and vulnerable to unexpected shocks. The Federal Reserve is dedicated to preventing deflation, to debasing the U.S. dollar. The results of those efforts are being seen in tentative selling pressures against the U.S. currency and in the rallying price of gold.

Obama Doctrine: Eternal War For Imperfect Mankind by

2009-12-11T11:54:00.000-08:00

In his novel La Bête Humaine (The Human Beast) Emile Zola interwove images of a French crowd clamoring for a disastrous war with Prussia (“A Berlin!”) and a locomotive heading at full steam down the track without an engineer. Obama’s speech in Oslo indicates that America remains bent on rushing headlong to war even after a change of engineers. Veteran war hawks Robert Gates, James Jones, Richard Holbrooke, David Petraeus and Stanley McChrystal have stoked the furnace for a long run.

Globalization and some home truths for Bernard Avishai

2009-10-03T16:34:00.000-07:00

Must read article on our new economic reality.

You've got to be kidding

2009-08-10T21:15:00.000-07:00

US must reappoint chairman Ben, according to the Financial Times (a prominent mouthpiece of crony capitalism and neo-fascism).

Gerald Celente predicts bad shit...

2009-08-10T21:13:00.000-07:00

Not much to say

2009-06-10T13:58:00.000-07:00

The foundation of our economy and social and political life is so undermined by now, that's it's barely worth writing about anymore.

Prepare to take care of yourself and your family in an environment in which your money buys next to nothing, and in which you may not have a job in the traditional sense.

Stock up.
Learn a skill to barter with.
Take to the friends and neighbors you can trust.
Prepare.

* Services * Email briefings & alerts * RSS feeds * Portfolio * Currency converter * Executive jobs Desperate ‘baby boomers’ re

2009-05-10T07:15:00.000-07:00

Eva Coffey had planned to fill her retirement with sewing and good deeds. She would make uniforms for the school band and flags for its cheerleaders.

Instead, the 60-year old spent last week driving a school bus and is worrying about how she will replace her $17.50-an-hour wage when that work dries up in the summer. “I’m not going to retire. Can’t afford it,” she says, sipping soup in a Chinese noodle joint in Springfield, Virginia. “You still have to put the food on the table and the gas in the car.”

Instead of pushing older Americans like Ms Coffey out of work, the economic slump has forced more of them back into it. Since the recession started in December 2007, some 5.7m US workers have lost their jobs, pushing up the unemployment rate to 8.9 per cent, data showed on Friday. But the number of over-55s in work has risen more than 800,000.

The impending retirement of America’s 78m-strong “baby boomer” generation has caused consternation among policymakers for years. Now the “silver tsunami” may be on hold. “Older workers are actually coming into the labour force – many are finding jobs,” says Richard Johnson, a senior fellow at the Urban Institute. “It is being driven by economic insecurity . . . they have become so desperate that they are returning to work.”

The collapse in share prices and property eroded the value of assets many older people thought would sustain them. Ms Coffey and her husband have two townhouses as investments, but these have dropped in value from $450,000 each to $275,000 for the pair. Their savings, which were largely in mutual funds, have halved. An extension to their kitchen sits half-finished, with walls but no appliances.

The participation of older people in the labour force has been growing as health and life expectancy improves. Before the recession, about 15 per cent of baby-boomers said they intended to work until they died. That has risen to more than 25 per cent, according to one survey.

“We did expect people would continue to work longer,” says Bob Skladany at RetirementJobs, a recruitment website. “What we did not expect was this economic crush, which has propelled retirees back to work.”

Older people face mixed fortunes in the recession-ravaged labour market. Some have skills and experience sorely in demand. An ex-nurse “could have purple hair and be 72 and still get hired”, quips Mr Skladany.

Ms Coffey has an accounting background, but has struggled to find such work because technology has moved on. “I could take a set of books from nothing . . . and bring it all the way through to financial statements, tax returns and everything else,” she says. “But tell me how to do it on the computer!”

Older people without highly valued skills are taking low-paying jobs in shops, hotels and restaurants. “I was thinking of checking out Wal-Mart,” Ms Coffey says. “I’m sure there are so many people looking for work there’s probably not going to be much of anything out there . . . I may be in for a rude awakening.”

There's nobody left to fucking fire!

2009-05-08T14:18:00.000-07:00

Great news, everyone:

The American economy lost another 539,000 jobs in April and the unemployment rate leapt to 8.9 percent, the government reported Friday, yet the deterioration was slightly milder than expected, buoying hopes that better days are approaching.

That's good news? What if there's simply fewer people around to fire?

Green shoots my ass.
We're fucked.
Learn to garden and hunt. Learn how to preserve your food. Learn how to shift for yourself.

Why Our Credit Crunch Mirrors the Weimar Hyperinflation from 1919-1923

2009-04-14T08:44:00.000-07:00

I am an amateur economist. But, one doesn't need years of schooling to be a better "economist" than Ben Bernanke. One merely needs to take the blinders off and release common sense. A broad background in law, economics and history helps, but it is not absolutely necessary. Economics is the study of human nature as it applies to money. So, it is precisely those who are narrowly educated, like some professional economists who don't study enough history, take an intensely academic viewpoint on things, and who don't understand fundamental human nature, who get things wrong. A narrowness of outlook and training may be blinding people like Ben Bernanke from reality, but, if they are operating knowingly and intentionally, as some claim, the situation is even more frightening.

Unfortunately, Ben Bernanke has been wrong on almost all his predictions concerning the course of this crisis. That has been true since the beginning. Where, then, can we obtain the confidence that he knows what he is doing, or, frankly, that he knows more than we do, as he should? Many wrong-headed people seem to believe that we must throw away common sense and listen to him, and the others who think like him, even though we have been consistently correct, over the past 4 years, and he has been consistently wrong. The American people understandably have little confidence in the Washington crowd. Is this surprising in light of the events? What assurance is there that they know how to address this situation, when they first failed to regulate the financial madness, and, then, afterward, were completely wrong on almost all economic projections, one after another?

One must reach the inevitable conclusion that neither Bernanke, nor his comrades, such as Timothy Geithner, actually "know" what they are doing. Instead, that crowd in Washington DC, think that if they throw money around, it will land somewhere, and help things. They are wrong. But, to partly achieve this goal, they have forced changes in accounting standards, legalizing misrepresentation of bank bookkeeping, and removed "mark to market" standards, replacing those standards with a system of "mark to fantasy" that is remarkably similar to that which previously existed and caused this crisis. "Mark to fantasy" accounting, now the order of the day once again, will allow insolvent banks to present the false appearance of big profits this quarter, even as they are really on the brink of failing. The end result will be more economic imbalances, as investors unknowingly misallocate their investment dollars to buy into the fraud.

In truth, there is only one way to save the zombie banks, and it is not through faked-up accounting books. The only way is to inflate their obligations away, while increasing the value of their assets at the expense of the rest of us. That appears to be the plan, if there is any plan. But, if Ben Bernanke and that crowd do know what they are doing, the most nefarious heist against the American people, as well as other innocent folks all over the world, is being planned. The upcoming massive inflation is going to be a stealth tax upon millions of innocent people, all for the benefit of a few still wealthy bank executives, who made huge mistakes, and should be forced to pay for those mistakes themselves. I will give Ben Bernanke and Timothy Geithner the benefit of the doubt and conclude, until presented with more evidence, that they simply don't know what they are doing.

The mass "throwing of money" has already resulted in a stealthy transfer of wealth, from those who earned it, to those who have political clout. This process is inherently destructive to the long term health of the economy, and it will get worse. This is the same insidious series of events that occured in post World War I Germany. Hyperinflation is a greater evil than economic depression. It is evil in nature, insidiously immoral in that it rewards misbehavior and is fundamentally destructive of our economy and the fabric of our society. It will eventually wipe out the American middle class.

So far, due to various external events, the U.S. Treasury has been able to borrow the money used. The final bill has not arrived. But, when it does, it will be left at the doorstep of the American people, and every other person, around the world, who once believed in America and the American dollar. The deep and sudden devaluation of the U.S. dollar, which is coming, will steal money from innocent pensioners, savers, and good people of all types and kinds, both here and abroad. Unfortunately, after having spent and wasted trillions of dollars for the benefit of those closely connected to the U.S. Treasury and Federal Reserve, there will be a massive dollar devaluation. Indeed, were that not to happen, there would be an overt legal default.

The intent to transfer wealth is the key to understanding all economic catastrophes. It is also the key to understanding why this particular crisis more closely mirrors that of the German hyperinflation 1919-23, rather than the early years of the Great Depression in 1930s America. To fixate on the Great Depression, as Ben Bernanke is doing, ignores the true problem, and sets us off into wrong directions. Let me point out some comparisons:

1) Post WW I Germany was the biggest debtor nation in the world, at that time. Debtor nations are dependent upon foreign cash flows. In contrast, in the 1930s, like Japan in 1990, the U.S. was the biggest creditor nation in the world. That is why Germany had hyperinflation when it printed money, while 1990s Japan and 1930s America had deflation as they did the same thing. Because we are the biggest debtor nation in the world, the current money printing will result in hyperinflation, NOT deflation.

2) Post WW I Germany had just finished fighting a major war on borrowed money, without properly budgeting or taxing. The USA has just fought, and continues to fight, multiple wars on multiple fronts that, while not quite as "big" as WW I, have been extraordinarily costly. We use a professional army, and its pay and equipment add huge costs. We have failed to budget these wars, and have borrowed money instead in order to fight them. By contrast, from an economic point of view, late 1920s and early 1930s America was a net "beneficiary" of WW I, which resulted in huge debts being owed to the USA, and the first stage of the rise of the U.S. dollar to replace the British pound as an international medium of exchange.

3) Post WW I Germany was heavily dependent upon the import of foreign raw materials. Indeed, the USA was one of its biggest creditors. The USA is no longer a creditor. It is now very dependent upon the import of foreign raw materials and finished goods. The temporary improvement in trade figures will disappear as the fake recovery gets under way. By contrast, in the 1930s, the U.S.A. was one of the biggest exporters of raw materials.

4) Post WW I Germany was heavily dependent upon foreign cash flows to plug holes in its budget after the War. Sales of bundesbonds to foreign buyers, including the American financier, J.P. Morgan, were critical. The USA is now even more dependent than post-war Germany once was, upon foreign cash flows. Sales of huge numbers of Treasury bills, notes and bonds are critical, and a lot of those sales are to China, who, unlike America to Germany in 1918, is currently our strategic competitor, and that makes our situation somewhat worse.

5) It is important to point out that Germany was not the only nation affected by the post-War depression and the so-called 1918 "credit crunch." All of Europe experienced it. Not all countries, however, followed the same path to ruin. Similarly, the whole world is now experiencing the so-called "credit crunch". Hopefully, not all nations will follow the path to ruin being forced by the United States, although the tendency to do so is greater, given the leadership position of this nation in the world compared to Germany then.

6) So, Germany led Europe in the effort to spend its way out of the post-war depression, while the rest of Europe, with the exception of the former Hapsburg possessions (the former Austro-Hungarian Empire) did NOT follow Germany's lead. The former Hapsburg possession did follow the German lead, although with less gusto, and ended up with hyperinflation, at a somewhat lower level. Similarly, the USA leads the world in an effort to spend its way out of this depression, and the U.K. is basically following in our footsteps. In 1919, many admired the Reichsbank. Employment rose, unemployment fell...economic output exploded -- or seemed to, at first. No doubt, that will be the case, again, this time as America leads the way into a fake recovery. Most of Germany's recovery amounted to irrational production. The industrial bailouts were improperly allocated and colored by the illicit transfer of wealth that is inherent when a nation chooses to print up new money. The same will be the case with America.

7) Like America, now, the post WW I German money flows, into that nation, continued for quite a while, in spite of the flawed policies of the Reichsbank. American trade interests, for example, supported German spending on U.S. raw material products, because Germany was one of their biggest markets. The USA played a similar role with respect to the Weimar Republic as China plays now to the USA. It was Germany's biggest creditor. It is quite likely that money flows to America may continue for an even longer time. However, eventually, they will be cut off. It is important, once again, to point out that China is our strategic competitor, whereas a large part of the U.S. population has German ancestry that made us a natural friend to Germany.

8) Like the foolish foreigners who now buy U.S. bonds, even otherwise savvy American financiers, like J.P. Morgan, were convinced by officials of the Reichsbank, that the problems were temporary, and that the mark would regain value, just as buyers of Treasury debt are now convinced that the dollar will retain value. The U.S. has a distinct advantage, because it is able to pump the exchange value of its currency with credit default events that must be settled in dollars. This results in a direct benefit to the dollar in terms of exchange value, and allowed the Fed to obtain foreign currency swap lines. The swap lines were obtained because foreign central banks temporarily needed to supply dollars to financial firms who needed to settle CDS events. In addition, most of the U.S. debt is denominated in dollars. So, the temporary party will go on longer in America, until the world's patience is finally exhausted, and the devaluation of the dollar will not be in the trillions, but, rather likely, it will be in the high single digits, or low double digits. My personal estimate is from a 4 to 10 to 1 devaluation, although anything is possible.

9) The Reichsbank claimed that it could control the events it created, just as the Federal Reserve does now. Questionable statistics were regularly published, just as is now the case in the USA. German authorities believed, just as American authorities now believe, that the perception is more important than economic reality. Eventually, however, when the foreign cash flows dried up, reality did reassert itself, as it always does, and the German economy entered hyperinflation.

10) Finally, most tellingly, the German "professional" economists called the 1918 post war depression, prior to the hyperinflation, "the credit crisis", or "the credit crunch", and the prevailing complaint was that banks were hesitant to lend money. Unwittingly, American professional economists, including Mr. Bernanke, have dubbed the present crisis with the same names, and the complaint is exactly the same. Notoriously, the prescribed remedy is also exactly the same, even though, from all the speeches given by Federal Reserve officials, rather than overtly intending to copy the Reichsbank, they seem to be blissfully unaware of the entire German event. Frightening...

Speaking frankly, in all the years I have studied history, I have never seen two historical events that turn out to be exactly the same. Yet, the parallels between the German hyperinflation and the current Credit Crisis are astounding, and the likelihood that the eventual outcome will be similar, is very high. The parallels that link this crisis to the Great Depression are far weaker.

For more information about the German hyperinflation experience, read the following book. It was written long before the current crisis, and even before the full impact of the Great Depression hit the world, back in the 1930s. Thus, it has no bias. It will be an eye-opener for the "doubting Thomas". In the German hyperinflation, only gold and silver, agricultural lands and, to some extent, rationalized modern plant and equipment, held its value over time. The word rationalized is very important, because a lot of useless stuff was purchased by German manufacturers who thought that all "hard" goods would protect the value of their money.

Turroni-Bresciano, Constantino, The Economics of Inflation – A Study of Currency Depreciation in Post-War Germany (George Allen Unwin 1931)

Parasites come in many shapes and sizes!

2009-04-13T14:22:00.000-07:00

the coming fedual age

2009-04-07T11:47:00.000-07:00

"Bankrupt corporate capitalism is on its way to bankrupting the socialism that is trying to save it," Nader added. "That is the end stage. If they no longer have socialism to save them then we are into feudalism. We are into private police, gated communities and serfs with a 21st century nomenclature."

What a way to go

2009-04-07T07:09:00.001-07:00

Most of you are so far gone there is no way you will ever catch up...you will until the day you die be at the complete and total mercy of liars.

Decapitate them!

2009-04-01T09:19:00.000-07:00

twittering oneself to death

2009-03-31T08:23:00.001-07:00

I heard an interesting and concerning piece on MPR this morning as I drove through the dismal fog to work. It seems that clever hackers and programmers are using Twitter for all sorts of novel uses. "Twitter what you eat" allows you to enter each bite of food you take, and adds up the calories to help you monitor your diet.

Someone else had created a moisture sensor that you can embed in your houseplant soil, and it will twitter you when the plants need water. Etc. etc. etc.

What sad madness - as if the post-industrial human needs to become more isolated from the natural and matter-based reality. How does becoming dependent on a technology like Twitter free the mind and spirit (or even body) to do anything? For one thing, developing the skill and mindfulness to actually water your plants without a technological aid might be satisfying.

The greater concern is that modern life began to be overrun by electronic media with the invention of radio and television. Television especially has basically removed the experience of of being alone with one's thoughts from the life experience of the majority of humanity (at least those in the industrialized world).

The inability to focus, the anxiety provoked by unmediated and unplugged-in existence has created a society of individuals prone to distraction, ADHD, and lack of ability to focus. The inability to sustain a long chain of thought, or to reason based on autonomously gathered knowledge and experience, has produced societies that have proved to be highly susceptible to propaganda and top-down control. Despite the initial promise of the Internet as a modality that would encourage and allow political activism and protest to thrive, like most new media, it's main use (as measured in bytes of information transferred) is pornography and gaming.

Sure, there are a lot of great blogs and independent sites full of highly thoughtful journalism, but this is a small minority. The vast majority of the content on the Internet is a vast sea of inanity that is exponentially growing, allowing the denizen of the Internet to get lost in a self-chosen and self-selecting subculture of narcissism and solipsistic entertainment.

Twitter is for twits - may they twit away until the few remaining nuclear power plants go offline, and the Internet grows dark for the last time. The Remnant will be reading and playing music by lamplight, telling ghost stories, and making love in the fragrant hay.

Geithner’s Hog-wallow: the US Treasury’s Cash Giveaway Bonanza by Mike Whitney

2009-03-30T14:06:00.001-07:00

Dandelion Salad

by Mike Whitney
Global Research, March 28, 2009

There’s depressing news this week that the big banks are up to their old shenanigans again. This time they’ve zeroed in on Geithner’s cash giveaway bonanza, the “Public Private Investment Partnership” (PPIP). As expected, Bank of America and Citigroup have angled their way to the front of the herd, thrusting their pig-heads into the public trough and extracting whatever morsels they can find amid a din of gurgling and sucking sounds. Here’s the story from the New York Post:

“As Treasury Secretary Tim Geithner orchestrated a plan to help the nation’s largest banks purge themselves of toxic mortgage assets, Citigroup and Bank of America have been aggressively scooping up those same securities in the secondary market, sources told The Post…

But the banks’ purchase of so-called AAA-rated mortgage-backed securities, including some that use alt-A and option ARM as collateral, is raising eyebrows among even the most seasoned traders. Alt-A and option ARM loans have widely been seen as the next mortgage type to see increases in defaults.

One Wall Street trader told The Post that what’s been most puzzling about the purchases is how aggressive both banks have been in their buying, sometimes paying higher prices than competing bidders are willing to pay.

Recently, securities rated AAA have changed hands for roughly 30 cents on the dollar, and most of the buyers have been hedge funds acting opportunistically on a bet that prices will rise over time. However, sources said Citi and BofA have trumped those bids.”(”Double Dippers; Citi and B of A buy laundered loans at lower rates”, Mark DeCambre, New York Post)

Thus begins the next taxpayer-subsidized feeding frenzy featuring all the usual suspects. The race is on to vacuum up as much toxic mortgage paper as possible so it can be dumped on Uncle Sam at a hefty profit. Nice. These are the same miscreants the Obama administration is so dead-set on rescuing. It’s crazy to try to help people who use the cover of a financial crisis to fatten their own bottom line. It’s better to let them sink from their own bad bets.

How is it that industry rep Geithner couldn’t see that his latest round of corporate welfare would create incentives for the bank scoundrels to game the system again? Naturally, if the government goes into the business of buying crap-loans from teetering financial institutions, the speculators and snake oil salesmen will follow. And so they have. Citi and B of A are just the first to respond to Geithner’s pigwhistle. Next will be the hedgies and the Private Equity porkers, all nuzzling up to the Treasury’s burgeoning feedbin hoping to sink their teeth into whatever tasty nuggets bob to the top of the trough.

Geithner’s plan is a disaster from the get-go. It jacks up the price of garbage assets, rewards the misallocation of capital, invites rampant fraud, and prolongs the recession. Worst of all, it transforms the FDIC into a hedge fund putting individual bank deposits at greater risk. Economist Jeffrey Sachs sums up Geithner’s “public-private” boondoggle in his article “Will Geithner and Summers suceed in raiding the FDIC and Fed?”:

“Geithner and Summers have now announced their plan to raid the Federal Deposit Insurance Corporation (FDIC) and Federal Reserve (Fed) to subsidize investors to buy toxic assets from the banks at inflated prices. If carried out, the result will be a massive transfer of wealth — of perhaps hundreds of billions of dollars — to bank shareholders from the taxpayers (who will absorb losses at the FDIC and Fed)…

The FDIC is lending money at a low interest rate and on a non-recourse basis even though the FDIC is likely to experience a massive default on its loans to the investment funds….In essence, the FDIC is transferring hundreds of billions of dollars of taxpayer wealth to the banks…The public will not accept overpaying for the toxic assets at taxpayers’ expense. Thus, it is very likely that the Administration will attempt to avoid Congressional oversight of the plan, and to count on confusion and the evident “good news” of soaring stock market prices to justify their actions. ….

Other parts of the plan support subsidized loans from the Treasury and, even more, from the Fed. The Fed is already buying up hundreds of billions of dollars of toxic assets with little if any oversight or offsetting appropriations. Since the Federal Reserve profits and losses eventually show up on the budget, the Fed’s purchases of toxic assets also should fall under the Federal Credit Reform Act and should be explicitly budgeted. (”Will Geithner and Summers suceed in raiding the FDIC and Fed?”, Jeffrey Sachs, Huffington Post)

As Sachs points out, the Fed’s liabilities will eventually be shifted onto the taxpayer. But that hasn’t stopped Bernanke from writing checks on an account that is overdrawn by $11 trillion. Nor has it compelled Geithner to seek congressional authorization before he leverages the FDIC up to its eyeballs. These decisions are all being made by a small coterie of bank loyalists who operate independent of any oversight or government supervision. They do what’s best for their constituents and let the chips fall where they may.

Earlier this week, Geithner asked Congress for additional powers to take over insolvent non-bank financial institutions. According to the Washington Post:

“The Obama administration is considering asking Congress to give the Treasury secretary unprecedented powers to initiate the seizure of non-bank financial companies, such as large insurers, investment firms and hedge funds, whose collapse would damage the broader economy, according to an administration document.”

Geithner must think he’s a shoe-in for the new “systemic regulator” post because of the exemplary way he handled the AIG bonus scandal.

Of course, in the bizarro world of Washington–where failure typically catapults one to higher office–it’s only logical that Geithner would be elevated to Uber-Regulator, not only controlling the public purse, but using his own peerless grasp of the marketplace to decide which institutions pose a systemic risk and need to be sidelined, and which need stepped-up government support via limitless capital injections. (aka-”Freebies”)

Prediction: If Geithner is granted these special powers by the braindead Congress, the country will undergo the greatest period of bank consolidation in its 230 year history. This is a blatant power grab by a shifty character who has risen to his present pay-grade by nosing his way up the political stepladder. Congress had better get its act together and put an end to this nonsense or the nation will continue its fast-paced metamorphosis into a feudal oligarchy run by the Bank Mafia and Wall Street racketeers. The first step, is to give Geithner, Summers and any other of the Rubin-clones a full-body bacon-rub followed by a few brisk dunks in the shark tank. Then, hose down Treasury and bring in a whole new team.

Nobel Prize winning economist Joseph Stiglitz summed up Geithner’s “public-private” fiasco like this:

“Quite frankly, this amounts to robbery of the American people. I don’t think it’s going to work because I think there’ll be a lot of anger about putting the losses so much on the shoulder of the American taxpayer.”

Geithner has got to go. Now.

The url address of this article is: www.globalresearch.ca/index.php?context=va&aid=12933

see

Geithner’s Plan: $1 Trillion for Shredding? at The Catherine Austin Fitts Blog h/t: Speaking Truth to Power

Pepe Escobar: Obama held hostage by PPPIP

Chomsky on Geithner

Credit As A Public Utility: The Solution to the Economic Crisis by Richard C. Cook (videos)

Geithner Update - Bend Over and Say, “Uncle Sam” By Mike Whitney + Geithner Grilled

The Economy Sucks and or Collapse 2

Filed under: Business, Corporations, Corporations Really Suck, Dandelion Salad Posts News Politics and-or Videos 2, Economy, Politics, The Economy Sucks and or Collapse 2 | Tagged: Geithner-Timothy, PPIP, Whitney-Mike

Obama is a ?

2009-03-30T12:38:00.001-07:00

Obama "asked" Rick Wagoner to resign as CEO of GM. He's threatening to put them into bankruptcy (GM) or liquidation.

Ok. Why them, and not the banks? The bank CEO's are not punished, but an industry that actually makes something is punished.

All of them, the banks and automakers, should be allowed to fail.
However, the fact that the banks get trillions and the auto companies grovel to get a few billion shows that our government is directly controlled by the elites and bankers, for their own benefit.

The entire rest of the economy is now coming under the control of the Federal government, which can dictate that a private company fire it's CEO (or "ask" him to resign).

This is fascism, according to the original definition - the direction of all aspects of society by the government, ostensibly for the interests of the nation, but really for the elite plutocrats.

As far as being "eloquent", Obama's eloquence is over-rated. Furthermore, Mussolini and Hitler were pretty "eloquent" too, at least their peoples thought so. I am absolutely unconvinced by rhetoric not based on actions, nor based on reality. As people start to go homeless and starve, we will see the truth behind this hollow professor.

The nation is being destroyed from the inside out, with no possibility that it will stop until it collapses. The elites simply want to loot it to the bone.

Thankfully, for those that survive the phase change, there will be an opportunity for a more localized, less competition driven way of life.

Partial evidence:
http://www.businessweek.com/managing/content/mar2009/ca20090324_745312.htm?chan=careers_managing+index+page_top+stories

America the Tarnished

2009-03-30T06:48:00.000-07:00

By PAUL KRUGMAN

Ten years ago the cover of Time magazine featured Robert Rubin, then Treasury secretary, Alan Greenspan, then chairman of the Federal Reserve, and Lawrence Summers, then deputy Treasury secretary. Time dubbed the three “the committee to save the world,” crediting them with leading the global financial system through a crisis that seemed terrifying at the time, although it was a small blip compared with what we’re going through now.

All the men on that cover were Americans, but nobody considered that odd. After all, in 1999 the United States was the unquestioned leader of the global crisis response. That leadership role was only partly based on American wealth; it also, to an important degree, reflected America’s stature as a role model. The United States, everyone thought, was the country that knew how to do finance right.

How times have changed.

Never mind the fact that two members of the committee have since succumbed to the magazine cover curse, the plunge in reputation that so often follows lionization in the media. (Mr. Summers, now the head of the National Economic Council, is still going strong.) Far more important is the extent to which our claims of financial soundness — claims often invoked as we lectured other countries on the need to change their ways — have proved hollow.

Indeed, these days America is looking like the Bernie Madoff of economies: for many years it was held in respect, even awe, but it turns out to have been a fraud all along.

It’s painful now to read a lecture that Mr. Summers gave in early 2000, as the economic crisis of the 1990s was winding down. Discussing the causes of that crisis, Mr. Summers pointed to things that the crisis countries lacked — and that, by implication, the United States had. These things included “well-capitalized and supervised banks” and reliable, transparent corporate accounting. Oh well.

One of the analysts Mr. Summers cited in that lecture, by the way, was the economist Simon Johnson. In an article in the current issue of The Atlantic, Mr. Johnson, who served as the chief economist at the I.M.F. and is now a professor at M.I.T., declares that America’s current difficulties are “shockingly reminiscent” of crises in places like Russia and Argentina — including the key role played by crony capitalists.

In America as in the third world, he writes, “elite business interests — financiers, in the case of the U.S. — played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive.”

It’s no wonder, then, that an article in yesterday’s Times about the response President Obama will receive in Europe was titled “English-Speaking Capitalism on Trial.”

Now, in fairness we have to say that the United States was far from being the only nation in which banks ran wild. Many European leaders are still in denial about the continent’s economic and financial troubles, which arguably run as deep as our own — although their nations’ much stronger social safety nets mean that we’re likely to experience far more human suffering. Still, it’s a fact that the crisis has cost America much of its credibility, and with it much of its ability to lead.

And that’s a very bad thing.

Like many other economists, I’ve been revisiting the Great Depression, looking for lessons that might help us avoid a repeat performance. And one thing that stands out from the history of the early 1930s is the extent to which the world’s response to crisis was crippled by the inability of the world’s major economies to cooperate.

The details of our current crisis are very different, but the need for cooperation is no less. President Obama got it exactly right last week when he declared: “All of us are going to have to take steps in order to lift the economy. We don’t want a situation in which some countries are making extraordinary efforts and other countries aren’t.”

Yet that is exactly the situation we’re in. I don’t believe that even America’s economic efforts are adequate, but they’re far more than most other wealthy countries have been willing to undertake. And by rights this week’s G-20 summit ought to be an occasion for Mr. Obama to chide and chivy European leaders, in particular, into pulling their weight.

But these days foreign leaders are in no mood to be lectured by American officials, even when — as in this case — the Americans are right.

The financial crisis has had many costs. And one of those costs is the damage to America’s reputation, an asset we’ve lost just when we, and the world, need it most.

Obama's rescue plan is 'road to hell', claims EU president

2009-03-25T11:11:00.001-07:00

Czech prime minister Mirek Topolanek adds to transatlantic friction over plan for global economic recovery

get a fucking imagination, people of the world

2009-03-24T07:29:00.000-07:00

The mayor of a Swedish town where Saab is the major employer said the following, after the Swedish government said "no" to a bailout of Saab:

“I’m being optimistic, because I can’t envision a time when Saab doesn’t exist,” Mr. Andersson said in an interview in City Hall.

Time to start exercising those imaginations weakened by lack of use, people of the world.

GDP will never go up again, unless you mean in nominal, inflated currencies.

Full Commanding Denial

2009-03-23T09:26:00.000-07:00

If central casting called for a poised, straight-talking, and capable-seeming president, it would be hard to come up with someone better than the Barack Obama who walked and talked around the White House grounds with Steve Croft on "60-Minutes" Sunday night. He may perfectly represent the majority who elected him, though, because he also appears to be in full commanding denial of the realities overtaking our American experience.
Those realities include the fact that we can't possibly return to the easy credit and no money down "consumer" economy no matter how many nominal dollars get shoveled into the fiery furnaces of banks too-big-to-fail. As Treasury Secretary Geithner's underling, Stephanie Cutter, said last week, "Our singular focus is on increasing lending to support economic recovery. Everything we do to stabilize the financial system is done with that goal in mind."
Lending on the scale that became normal over the last decade is for sure the one thing that we will not recover. We turn around in 2009 to find ourselves a much poorer nation than we thought we were a year ago, especially among that broad range of formerly middle-class wage-earners who lived so luxuriously until yesterday. The public can't process this reality and the president, for all his relaxed charm, is either not ready to articulate it, or can't process it himself.
Everything that we're doing right now is engineered to avoid reality, to sustain the unsustainable, to recover the unrecoverable, when the mandate of reality compels us to face our losses in order to move on to the next chapter of a collective American life. The next chapter would be a society that runs on a much more local and modest scale, centered on essential activities like growing food, requiring harder physical work, and focused attention -- in other words, the opposite of a society lost in abstractions, long-range daisy chains of off-loaded responsibility, and incessant pleasure-seeking.
In retreat from this reality, we've set in motion two forces that are pretty certain to bring us to grief. The first proceeds from the fateful FMOC decision last week at the Federal Reserve Bank to begin buying massive amounts of our own treasury bonds and bills. This is predicated on the idea that the mechanisms of wealth production -- even of illusory wealth, such as the fortunes created by trading securitized unpayable debt -- can keep chugging along, spinning off limitless additional suburban villas, chain stores, car trips, and deep-fried snacks. It would be sententious to explain how this destroys currencies, but wherever "monetizing debt" has been tried before in history, that is the outcome. The result would be ruinous at every level and would lead straight to the second terrible force: social upheaval brought on by the conversion of economic problems into political turbulence.
Those two forces are underway right now, in fact, since the overt monetizing of last week was preceded by the shoveling of bail-outs, which tacitly guaranteed a collapse of credibility in US debt instruments. I'm not in favor of violence and anarchy, but after the AIG bonus affair, it's hard to imagine that we are not one more corporate misdeed away from a rocket-propelled-grenade, or something like that, being fired into a glass office tower somewhere -- and then the "first-broken-window" rule of social disintegration comes into play. Meanwhile, I stick to my time-table of six-to-eighteen months before the reckless creation of new money-for-nothing filters through the system, overcomes even compressive mass bankruptcy, and starts expressing itself in the sinking value of dollars and the revved up velocity of their circulation in pursuit of tangible commodities.
We're already seeing the first twinges of that in the up-creep of oil prices, busting through the $50-a-barrel barrier last week. Since scarcity tends to express itself in gross volatility, it's easy to imagine oil prices rising swiftly beyond the $147-per-barrel record level of last year. As that occurs, the most basic premises of everyday life in the USA will be called into question. If you think car sales have been bad lately, with oil in the $35-a-barrel range most of the winter, just wait. The newly-minted unemployed will be marooned in their subdivisions. They will not be buying GMC Yukons on 48-month installment contracts, let alone X-boxes on their Visa cards. They might be very very hungry, though. All bets are off as to how these social classes may organize themselves to alleviate their hunger (and express their anger about it).
Given all this, it's kind of hard to believe that the savvy, thoughtful Mr. Obama is going along with such a disastrous program as the one his "team" is rolling out. Perhaps his ease and confidence masks a tragically conventional world-view, an incapacity to imagine "change" outside a very narrow range of possibility. I must say I doubt this is the case. I think, he is going along, for the moment, with a consensus of wishes to prop up life as we know it at all costs. This consensus emanates from the top down and the bottom up. The millions of "Joe-the-Plumber(s)" out there don't want to rethink the terms of existence anymore than the lords of Goldman Sachs. I also think that circumstances will force Mr. Obama's hand before long -- specifically that a moment will arrive when he goes on TV and tells the American public that things have changed way beyond the scope of what they even imagined when they pulled the levers last fall and voted for an uncharted future.
Capable observers are calling, meanwhile, for a robust bear market rally moving through Spring, on technical grounds that have little to do with the greater forces roistering in the background. Reality is a cruel mistress. If the stock market rally rolls out as predicted, it will surely fake-out the mainstream media. They'll conclude wishfully and foolishly that something like "recovery" is underway. They may even interpret rising oil prices as a "positive sign" that the great groaning enterprise of the something-for-nothing economy is back "on track."
They'll be shocked sometime after Memorial Day when it all comes off the rails again. We have a lot to sort out and very little time to get on with job. Notice, I haven't even mentioned the potential for mischief and instability coming out of the rest of the world -- enough black swans to blot out the sun. Want some concrete advice? For those of you sitting on US Treasury bonds and bills, now would be a good time to get out.

The Battle Over the A.I.G. Bonuses: Class War in the Media

2009-03-23T08:34:00.000-07:00

The debate over the A.I.G. bonuses is class war in its full naked glory. On the surface, everyone agreed that paying multi-million bonuses to the folks who bankrupted their company and handed the taxpayers a bill for $170 billion ($2,300 for a family of four) was outrageous. The difference is between the angry masses, who actually want to take back the bonuses, and the elites who insist that there is nothing that can be done.

In spite of the superior education of the elites, the masses have the much better argument. As a result, the elites have been desperately cooking up excuse after excuse as to why their well-heeled friends at A.I.G. and the bankrupt banks shouldn't lose their bonuses.

The first line of defense against measures to retake the bonuses, such as the tax passed by the House, was that retroactive taxes that apply to income already "earned," are unfair. This one carries little weight to those who can remember back to 1993 when President Clinton signed a tax bill in August 1993 that increased taxes on income earned since January: Masses 1, Elites 0.

The second line was a moral plea that the A.I.G. crew and other Wall Street bonus babies had worked for their money. While most did show up at the office, the value of their "work" is questionable. More substantively, the elites have been perfectly happy in other circumstances to take away money that people have worked for. For example, Congress changed the rules on Social Security so that beneficiaries cannot get the benefits they paid for while they are in prison: Masses 2, Elites 0.

But, the third line of defense was the best: The elites claimed that the bonus tax and other similar measures would disrupt compensation patterns on Wall Street. Banks receiving TARP money will lose good people to hedge funds and others who are not similarly restricted.

This is the line that sends tens of millions of ordinary people rushing to get their baseball bats. The reason the banks are bankrupt, the reason we have more than 12 million people unemployed, the reason we are facing the worst downturn since the Great Depression is that the banks don't have "good" people: Masses 3, Elites 0.

The people running these banks were unable to see an $8 trillion housing bubble, the largest financial bubble in the history of the world. They sold bonds and complex derivative instruments that only had value if this bubble would continue to inflate. Now, as we sit in the wreckage, with millions of people having lost their jobs in construction, manufacturing, real estate, and other areas, we are supposed to use taxpayer dollars to pay these bankers multi-million dollar bonuses?

It was bad enough when they got their multi-million dollar paychecks when the money at least belonged to the companies. Of course, that was illusory - the too big crowd was always playing with the taxpayers' dollars, we just didn't know it back then. But now, we know it is our money. We are taxing schoolteachers, firefighters and bus drivers to pay multi-million dollar bonuses to incompetent bank executives and traders. Yes, people are angry.

This is what really has the elites appalled more than anything. It's one thing for banks, drug companies or insurance companies to use their money to influence legislation. The elites all know and understand that. This is their game. However, when angry people try to affect Congress, then the elites get concerned. And, clearly, that is what is going on with the bonus tax.

The last time that angry people tried to influence Congress like this was with the original passage of TARP last fall. At that time, popular pressure led the House to vote down the bailout the first time.

At that point, the elites rallied. They turned over most of the country's newspapers, and radio and television stations to the PR effort to pass the TARP. They abandoned any pretense of objectivity, essentially branding members of Congress who were opposed to the TARP as "know-nothings" and making it clear that they would be blamed for everything that went wrong in the economy if the TARP was defeated.

Members of Congress folded under this pressure. In effect, the media created a one-sided bet for members of Congress in which voting against the TARP meant that you would be held responsible for everything bad that happened, while voting for the TARP made you immune from responsibility. (No major news outlet has run a story blaming the horrible economic news over the last six months on the passage of the TARP. By contrast, there were numerous stories blaming the stock market plunge on the initial defeat of the TARP. The market has fallen much lower in subsequent months.)

Of course, the bonus money is relatively small change in the scheme of things. The same people who think it's fine to give incompetent financial company executives multi-million dollar bonuses are busy crafting plans to hand several thousand times this amount to the same crew in their latest bailout scheme. They are saying that if this plan doesn't go through, the economy will be wrecked.

Just to be clear (because the media won't tell you), the people who designed this plan are the same people who wrecked the economy. Before anyone even thinks of supporting this plan, they should get a clear answer from Bernanke, Geithner, and the rest of the crowd to the question: "When did you stop being wrong about the economy?"

Dean Baker is the Co-director of the Center for Economic and Policy Research. CEPR's Jobs Byte is published each month upon release of the Bureau of Labor Statistics' employment report.

Fire Geithner

2009-03-18T12:31:00.000-07:00

"This week's news on the AIG bonus scandal is but the latest fiasco under his watch and he has lost the confidence of the American people," Mack said in a statement. "Quite simply, the Timothy Geithner experience has been a disaster."

Dear Senator Klobuchar

2009-03-16T11:45:00.001-07:00

Dear Senator Klobuchar:

I am extremely outraged about the continuing bailout of the companies and fools (i.e. banking and insurance executives) who created the financial disaster sweeping across America.

This weekend's revelations of the AIG “retention” bonuses may be the last straw. I am outraged. My coworkers are outraged. The American people may just crack.

I have a suggestion: if you are really going to just rape the American taxpayer and their children and grandchildren, and transfer their money to the bank accounts of executives who are proven incompetents, then JUST DO IT. Pass a bill transferring a trillion or two dollars from us, the taxpayers, and giving it to Wall Street.

Don't continue doing it in dribs and drabs: a hundred billion to AIG here, sixty billion to Citigroup there... just get it over with. This Chinese water torture is killing not just confidence: soon it will be killing REAL PEOPLE: families are already living in tent cities outside Sacramento and other US cities. Read the news... do a Google search on “tent cities.”

People living in tent cities don't tend to have health insurance. They tend to not have money for food. They tend to die young.

You and President Obama are now responsible for regulating the banks and working on a recovery, if that is even possible in an economy that has been looted to the bone by Wall Street over the past twenty years.

You, your fellow senators and house members, and Obama are responsible for the ongoing phony debate about “fixing” the financial mess. The “fix” is in, all right: the bankers fixed the debate with their campaign contributions, it seems, because literally ALL of the solutions proposed so far benefit them, and cost the taxpayer. The taxpayer is the patsy in every plan proposed so far.

So again, just destroy the public finances and burden the taxpayer with a deadly burden all at once, or stop the madness.

The only solution to the banking crisis is a solution suggesting by many mainstream economists the world over: let the insolvent banks fail. Use public money to create new “good banks.” These new banks would have no toxic assets whatsoever, and could easily fulfill the public utility of extending credit to credit-worthy households and businesses.

Finally, what kind of mad logic would lead people like Bernanke and Geithner to believe that the cure to insolvency in banks and households is more debt, more lending, more credit?

I pray that you start to use your proven lawyer's ability to think critically, because the state of this nation is going critical.

Best Regards

We're fucked!

2009-03-13T20:24:00.001-07:00

Waiting for the Saucers

2009-03-13T13:59:00.000-07:00

Thus I'd encourage my readers to be at least a little wary of any movement in the years to come, however reasonable and hopeful it may seem, that claims to have a solution to the rising spiral of crises that is building around today's industrial civilization. I have argued here and elsewhere that those crises define a predicament rather than a problem – a situation that cannot be solved, only lived with – but that definition flies in the face of some of the most deeply rooted assumptions of our culture. I suspect that unless we cultivate an unusual degree of common sense, a great many of us in the years to come may end up doing some equivalent of standing in suburban backyards, waiting for the saucers to arrive.

READ THE WHOLE ARTICLE BY CLICKING ABOVE

Jobless Rate Above 10% Defines Recession as Bernanke Predicted

2009-03-13T09:13:00.000-07:00

March 13 (Bloomberg) -- Sergio Barreto landed his first job out of college during the recession that began in 1990, as a mechanic for United Airlines. He survived the next one a decade later, selling semiconductor materials. This time, he may be out of luck.

Barreto, who has an engineering degree from San Jose State University and 12 years experience in the chip industry, has been out of work since he was laid off in December with a month’s severance pay from closely held CoorsTek Inc.’s sales office in Fremont, California.

“I was very surprised because I was one of the top sellers,” said Barreto, 46, whose wife gave birth to their second child in October. “I’m in survival mode.”

At least 4.4 million jobs have been claimed by the U.S. recession that began in December 2007, cutting across the country and the economy. Positions have been eliminated by employers as diverse as Microsoft Corp., KB Toys Inc., Dartmouth College and the nonprofit organization that produces “Sesame Street.”

“This recession is incredibly broad-based,” said Mark Vitner, a senior economist at Wachovia Corp. in Charlotte, North Carolina. “Parts of the country that have traditionally weathered recessions fairly well are being impacted.”

Contractions are usually centered in one sector or region, such as manufacturing in the Midwest in 1982, he said. This one, propelled by a credit crisis spawned by a real-estate slump, is simultaneously rooted in housing, financial services and auto manufacturing, he said.

Highest Since 1984

Unemployment climbed in January in every U.S. state except Louisiana, and the decline there, to 5.1 percent from 5.5 percent in December, was due to rebuilding from Hurricane Katrina, the Labor Department said.

The jobless rate topped 10 percent in four states, led by Michigan, where at 11.6 percent it was the highest since May 1984, according to data compiled by Bloomberg.

South Carolina, at 10.4 percent, and California, with 10.1 percent, also saw their steepest rates in a quarter-century. Unemployment in Rhode Island was 10.3 percent, greater than since at least 1976, according to the data.

Wyoming’s was the lowest in January at 3.7 percent.

An average unemployment rate of 10 percent for a period of time is “certainly well within the realm of possibility,” Federal Reserve Chairman Ben S. Bernanke said during congressional testimony on March 10.

‘Like a Cancer’

While that outcome isn’t the “central tendency” of Fed forecasters, the central bank is using that level in an adverse scenario model that will determine whether banks need more capital, Bernanke said.

Workers bearing the brunt span economic, social and regional lines, according to interviews conducted around the country. They include Mimi Bardet, who is losing a six-figure job this month after 23 years at Time Warner Inc.’s Warner Brothers in Burbank, California, and Tanya Jones, who moved back to subsidized housing in Trenton, New Jersey, and gave up her 2002 Ford Explorer after she lost a $1,500-a-week nursing-home job in November.

“It’s like cancer -- there are so many people who know somebody going through this,” said Lynne Bee, 52, of Lawrenceville, Georgia, who was fired as a dental office manager in January.

California, which led the nation in mortgage foreclosures last month, had the most job losses, with 79,300. Next were Michigan and Ohio, battered by the auto industry collapse, with 60,800 and 59,600, respectively.

‘More Discouraging’

Southern states where the population is rapidly growing through immigration or migration have also been hard hit as their shrinking economies can no longer absorb the labor force, Vitner said. Georgia and Florida each had an 8.6 percent unemployment rate in January, and neither state topped 6 percent in 2001, according to data compiled by Bloomberg.

“I’ve tried to shift around to different professions and change my work status, but it just keeps hitting different markets,” said Mark Risetter, 54, a Dallas machinist laid off six weeks ago from Atco Rubber Products Inc., which makes insulated ducts for homes.

For Risetter, who has leukemia that is in remission, it was the third job loss since 1982. “It’s more discouraging now than it’s been in the past,” he said.

At the height of the Depression in 1933, 24.9 percent of the workforce was unemployed and shantytowns of crates and abandoned cars sprang up, according to the Franklin D. Roosevelt Presidential Library in Hyde Park, New York.

‘Shocked’

In Sacramento, there’s an echo in the dirt along the American River, where more than 300 people have pitched tents. Fewer than a dozen tents were at the site a year ago, said Joan Burke, director of advocacy at Sacramento Loaves & Fishes, which provides food and medical services.

“These are people that haven’t been homeless before and are shocked to find themselves in this situation,” she said.

At Ministry of Caring in Wilmington, Delaware, 10.4 percent more meals were served last year than in 2007, some to people who once had steady jobs, said Brother Ronald Giannone, a Capuchin Franciscan friar and the nonprofit’s executive director.

“We’re seeing what I call the ‘new poor,’” he said. “The last thing in the world these people ever expected to do was to have to rely on our facilities to eat, but when it comes down to paying the utilities or buying food, they are opting to keep the lights on.”

One Exception

Delaware’s 6.7 percent unemployment rate is already higher than the 5.8 percent at which it peaked in the 2001 recession, said John Stapleford, a senior economist at Moody’s Economy.com who monitors mid-Atlantic states.

Nationally, the jobless rate moved to a 25-year high of 8.1 percent in February.

The rate will reach 9.4 percent this year and remain above last month’s rate through at least 2011, threatening the nation’s longer-term growth potential, according to the median forecast of economists surveyed by Bloomberg News.

One exception to the grim data is in Washington, D.C., and neighboring Maryland and Virginia. The Obama administration may create 100,000 jobs to help administer the $787 billion economic stimulus package, said Max Stier, who runs the Partnership for Public Service, a non-profit group that monitors government employment.

15,000 People

With federal spending in the metro area increasing in 2009, as it has every year since 1983, that is trickling into the local economy, according to the Center for Regional Analysis at George Mason University in Fairfax, Virginia.

Sales at Morton’s steakhouse in downtown Washington are up almost 3 percent from the same time a year ago, said Dan Festa, 41, the general manager. The restaurant has hired nine servers since December, he said.

Business at Washington’s Ritz-Carlton hotel is comparable to two years ago, before the recession hit, said Elizabeth Mullins, who oversees four of the chain’s hotels.

“So far, touch wood, we’re lucky to be in DC!” Mullins said. “I don’t want to rub it in, but I’m so glad to be here.”

In Atlanta, more than 15,000 people attended a job fair at the Georgia World Congress Center this week, three times the number at a similar event three years ago, said State Labor Commissioner Michael Thurmond. A workshop called “Stimulus 101: What’s in it for you?” drew the most people, he said.

“There is a tremendous amount of anxiety and fear,” Thurmond said. “It is a Great Recession, no question about it.”

To contact the reporter on this story: Peter Robison in Seattle at robison@bloomberg.net
Last Updated: March 13, 2009 01:05 EDT

bad sign: insurance on Treasuries jumps

2009-03-11T11:56:00.000-07:00

The first thing you're taught in B-school is that the prevailing Treasury rate--most likely on the 10-year note--establishes the 'risk-free' rate of return. Now, imagine the entity issuing all these Treasuries being on the hook for all the risks previously borne by various financial institutions (plus airlines, automakers, and I don't know what else). Also imagine that the institutions in question had declared over a trillion in losses, with several more yet to be disclosed. I am of course not telling you a FEDtime story but the fate of the entity known as 'The United States of America'.

It seems investors are bidding up default premia on probably the world's largest banana republic. Just as all sorts of subprime-related riffraff were rated AAA before the crisis hit, so is Treasury riffraff still being given the blessing of rather clueless rating agencies. Ooh Sammy, you're the greatest [smooching sounds all around]! As I've mentioned before, America's rating will probably never be lowered despite its relentless Summers-style jihad on fiscal sanity. Others, however, probably know better as the costs of insuring against American default are ballooning at a rapid clip. From MarketWatch:

The cost of buying protection against the risk that the United States will default on its mounting debt has surged in the past months, outpacing the rise in corporate-credit costs, now that the government has absorbed more private-sector debt. The spreads on credit-default swaps for U.S. government debt jumped to 97 basis points Tuesday, nearly seven times higher than a year ago and 60% higher than the end of last year, to a level roughly in line with those of France, according to data supplied by Markit. The spreads also hit a record last week.

In contrast, an index that tracks the cost of buying credit protection against defaults on North American companies with investment-grade ratings -- the Markit CDX.NA.IG index -- has not even doubled in the past year. The index, which includes CDS on blue-chip companies like Altria Group and Bristol-Meyers Squibb Co. has risen 30% this year.

Higher spreads on credit-defaults swaps indicate sellers have raised the price of guaranteeing protection because they perceive the likelihood of a default as higher. A spread of 97 means it would cost about $97,000 to buy protection on $10 million in U.S. government debt.

The rise in U.S. sovereign CDS spreads reflects the increasingly active role the United States has played in debt markets, according to Bank of America Securities analysts. In the past year, it's absorbed the toxic assets that led to Bear Stearns' collapse; taken mortgage-backed and asset-backed securities as collateral for loans; and bought commercial paper and agency debt, among other moves.

"Having effectively guaranteed the short-term markets, that risks shifts to the government," wrote Bank of America Securities-Merrill Lynch analysts led by Jeffrey Rosenberg, in a note issued early Tuesday. The rising costs to buy credit protection undermine hopes that credit markets are improving -- a turnaround that could set up the U.S. economy and stock market for revival...

As the US nationalizes ever-greater swathes of what used to be known as the 'private sector' (remember that?) its risk premia should increase accordingly. And we haven't even talked about surefire dollar devaluation yet. God Bless America, for it will require divine intervention soon.

1,600 families seek food handouts in Indiana city

2009-03-11T10:12:00.000-07:00

ELKHART, Ind. – Roughly 1,600 familes picked up food and other items sent by a charity to economically distressed Elkhart, Ind., which has an unemployment rate of 18.3 percent.

The 13 semitrailers that came to Elkhart carried more than $2.1 million worth of food, enough to help sustain about 5,200 families for a week. In addition to those who picked up supplies Tuesday, Feed the Children arranged for shipments to 3,600 northern Indiana families.

President Barack Obama visited Elkhart recently to muster public support for economic stimulus legislation. Layoffs in the recreational vehicle industry have driven much of the job loss in northern Indiana.

"What we want people to know is that in this time of despair, there is hope," said Larry Jones, the founder and president of Feed the Children. "People haven't forgotten you."

About 300 volunteers handed out the supply packages as hundreds of cars waited in a line wrapped around a shopping mall parking lot and onto surrounding roads. The city was the second of several cities on Feed the Children's "Americans Feeding Americans Emergency Caravan."

"It's been a struggle," said Patricia Smith, of Elkhart, who waited more than an hour to get her supplies, which came in a box containing macaroni and cheese, canned goods, toilet paper and other items. "We're surviving and we're going to make it through this."

Orlov on collapse

2009-03-09T17:49:00.000-07:00

Employment decline compared to Depression

2009-03-09T07:03:00.000-07:00

The March payroll employment data showed that the decline in employment from the peak in December 2007 is now larger in percentage terms than the decline in the worst recession since 1960, in 1981-82. The plot below shows, however, that the decline is small in comparison to the Depression. The government did not collect monthly employment data during the Depression, so we have fitted a smooth curve through the annual data. The peak before the Depression was in August 1929, according to the NBER.

What Are the Odds of a Depression?

2009-03-04T13:26:00.001-08:00

International evidence suggests there is a 20% chance our stock-market crash will lead to much worse.

Letter from a Farmer

2009-03-04T08:36:00.000-08:00

to Jim Kunstler:
March 4, 2009
Letter from a farmer

Dear Jim:

You stated in your blog today that you were anticipating financing problems for the 2009 crop year. That couldn’t be further from the truth. If there is one exception to the high risk borrowing, it would be agriculture. Having learned some difficult lessons in the 80’s, farmers by and large are in great financial condition in comparison to Wall Street and Main Street. The reason: Most farmers have little debt leverage. Ground that has been selling for astronomical levels over the past 5 years has mostly been purchased by farmers – FOR CASH! There will be no difficulty in obtaining financing for the 2009 crop. The banks would like for nothing more than to get their grimy hands on some prime farmland as collateral for operating loans.

I am a relatively small farmer with about 1,200 acres of row crops including corn, wheat, soybeans, milo and sunflowers in SE Illinois. My biggest fear isn’t financing for 2009 crops. My biggest fear is the continuing collapse in commodity prices. Current price levels for grains won’t come close to breakeven. My biggest fear is that once I plant my crop, prices will continue to plummet and I’ll be left stranded with huge input costs for fuel, machinery, labor, land, fertilizer seed, etc. Our input costs have not dropped in synch with commodity prices.

The other possibility I see is a systemic collapse of the banking system which would leave us with the counterparty risk of not having a viable end user to purchase what we grow. At the moment, my best strategy would be to leave my land idle and preserve my capital instead of throwing it on the crap table. It will require approximately $ 375,000.00 for me to plant my crops this year. We are about 45 days from normal planting date. It’s getting pretty scary at the moment.

I’m afraid as farmers we’ll be diving headlong into the abyss. . .

Dave Burt
Burt Farms

Prepping and paranoia, Big Brother and collapse

2009-03-03T12:08:00.001-08:00

This little essay is going to discuss a subject that has slowly started to concern me more as the collapse intensifies (I'm not claiming that all-out collapse and Mad Max is imminent, just that things are progressing).

Some of the bloggers and preppers out there are extremely paranoid about what is coming. A great example is the guy who runs and blogs at www.survivalacres.com . Here's a link to a sample essay of his (click on long excerpt below):

Survival is personal warfare, not in the sense of ‘attack and destroy’, but in the sense that all the rules are thrown out. All of them. We saw this with 500 law enforcement officers quitting during the Katrina disaster. It just didn’t matter anymore when their world was totally destroyed. We saw looters, assassinations, rapes, murders and probably much more. And that was in a regional disaster, actually fairly localized compared to what could occur on a global scale now.

Loyalties got thrown out with the dirty flood waters and people reverted to self-preservation mode very quickly. Of course, not everyone did (or will), but many did, bearing in mind that they all expected rescue. What about when there is no more rescue? No more larger society to come tooling along and fix the problems? This is when things will really reveal themselves, the will to live, struggle, survive and go on will be the daily challenge, hour by hour, minute by minute.

It’s when the food runs out (or runs low) that people will start getting really afraid (and really wierd). Food is comfort, safety and security. Food is life itself, few really seem to consider it’s critical importance or fragile nature. Civilizations and tribes throughout history have risen and fallen according to the food supply (duh!). I emphasize this because that is the very issue at risk. Humans can live without power, and humans can even cope with climate change (to an extent), but 6.8 billion humans cannot live without food that was raised with cheap power, cheap petroleum, vast distribution systems and predictable climates. When these go away, and they will, cheap energy, vast crop lands, affordable transportation, distribution systems and stocked shelves disappear, desperation will set in. And then violence will set in, with a vengeance.

I thought a fairly long excerpt was warranted, and I suggest that you read the whole thing, and check out some of his other essays.

This blogger really thinks that it is very dangerous, perhaps suicidal, to stick your neck out and be a public "prepper," or try to get involved in politics, etc. He did it, obviously, but he has taken steps to remain anonymous.

According to this line of reasoning, when collapse sets in, the government, or even local gangs and bad guys, will seek out preppers to take their stores, or to prevent them from forming any kind of coherent opposition to the fascist-type government that is coming.

Other thinkers, like the wonderfully witty Dmitri Orlov, do not think that there is really any great danger in standing up and blogging, writing, and getting involved in your local community in a political way. There will be dangers and challenges, but it will be caused mainly by human stupidity and the economic and social challenges posed by a collapsing economy and political system. I recommend the following link for a look into Dmitri Orlov's thinking:

http://docs.google.com/Doc?id=dtxqwqr_19gjjvp8

But I highly recommend his other essays, and his book, Reinventing Collapse.

So... what is the truth here? Do preppers have much to fear from our increasingly (it's true) Orwellian government, with its thought-police and computerized spying systems? Are we at risk of being targeted?

In a fast collapse, what is the best way to avoid becoming the victims of local gangs or warlords? If the collapse is slow, how do we avoid becoming the victims of government confiscation? Did you know that the government has, in the distant past, outlawed "hoarding," and still has the power to do so?

At the very least, I believe it is prudent to hide the extent of your preparations from neighbors, and all but the most trustworthy friends. If a friend is not a prepper, he should not know about your preps. It's time to start blending in.

But how paranoid should we really be?

Laid-off professionals turn to "survival jobs"

2009-03-02T14:48:00.000-08:00

By MICHAEL LUO

The New York Times

TEMPE, Ariz. — Mark Cooper started his workday recently cleaning the door handles of an office building with a rag, vigorously shaking out a rug at a back entrance and pushing a dust mop down a long hallway.

Nine months ago he lost his job as the security manager for the Western United States for a Fortune 500 company, overseeing a budget of $1.2 million and earning about $70,000 a year. Now he is grateful for the $12 an hour he makes in what is known in unemployment circles as a "survival job" at a friend's janitorial-services company. But that does not make the work any easier.

"You're fighting despair, discouragement, depression every day," he said.

Cooper is not counted in traditional unemployment statistics since he works five days a week, 9 a.m. to 6 p.m. But his tumble down the economic ladder is among the more disquieting and often hidden aspects of the downturn.

It is not clear how many professionals such as Cooper have taken on these types of lower-paying jobs, which are themselves in short supply. Many professionals are doing their best to hold out as long as possible on unemployment benefits and savings while looking for work in their fields.

About 1.7 million people, however, were working part time in January because they could not find full-time work, a 40 percent jump from December 2007, when the recession began, according to the Bureau of Labor Statistics.

Experts agree that as the downturn continues and as more people begin to exhaust their jobless benefits and other options, the situation Cooper is in will become more common.

"... layers of bad onion"

Interviews with more than 24 laid-off professionals across the country, including architects, former sales managers and executives who have taken on lower-paying, stopgap jobs to help make ends meet, found that they were working for places such as UPS, a Verizon Wireless call center and a liquor store. For many of the workers, the psychological adjustment was just as difficult as the financial one, with their sense of identity and self-worth upended.

"It has been like peeling back the layers of a bad onion," said Ame Arlt, 53, who recently accepted a position as a customer-service representative at an online insurance-leads referral service in Franklin, Tenn., after 20 years of working in executive jobs. "With every layer you peel back, you discover something else about yourself. You have to make an adjustment."

Some people had exhausted their jobless benefits, or were ineligible; others said it was impossible for them to live on their unemployment checks alone or said it was a matter of pride, or sanity, that drove them to find a job, any job.

In one illustration of the demand for low-wage work, a spokesman for UPS said the company saw the number of applicants this past holiday season for jobs sorting and delivering packages almost triple to 1.4 million from the 500,000 it normally receives.

When Arlt applied for her job, she sent in a stripped-down résumé that hid her 20-year career at national media companies, during which she ascended to vice president of brand development at On Command Video and was making $165,000 a year. She decided in 2001 to start her own business, opening an equestrian store and founding a magazine devoted to the sport. But with the economy slowing, she was forced to shutter both businesses by last June.

After applying for more than 100 jobs, mostly director-level and above in marketing and branding, and getting just two interviews, Arlt said she realized last fall that she had to do something to "close the monthly financial hemorrhage."

$10-$15 an hour

Her new job at HometownQuotes pays $10 to $15 an hour and has mostly entailed data entry. But even though she has parted ways with some friends because she is no longer in their social stratum, Arlt said, she was glad she was no longer sitting at home, "thinking, 'Who have I not heard from today?' "

Her new paycheck covers her mortgage but not her other living expenses. Recently, she cashed out what was left of her retirement portfolio, about $17,000.

"It has been the hardest thing in my life," she said. "It has been harder than my divorce from my husband. It has really been even worse than the death of my mother."

Nearly all of those interviewed said they considered their situation temporary and planned to resume their careers where they left off once the economy improves. But there are people such as John Eller, 51, of Lee's Summit, Mo., who offer a glimpse of how difficult it can be to bounce back.

Eller had been a senior director at Sprint, earning as much as $150,000 a year and overseeing 7,000 employees at 13 call centers, before being laid off in 2002 amid the economic contraction after the Sept. 11 terrorist attacks.

A year later, he found another job, at roughly half the pay, managing a call center in New Jersey. After he lost that job two years later in a downsizing, Eller was out of work for another year before landing a contract position running two call centers in Kansas and Illinois, earning close to six figures.

But after that ended a year later, he was unable to find work for several months. In July 2007, he took what he thought would be a temporary job for $10 an hour as a baker in a grocery store. He was laid off again last October.

Survival job

He quickly landed a new survival job, working as a supervisor on the overnight shift for a contractor processing immigration applications for the federal government at a salary of about $34,000 a year. But with eight children and a wife to support, Eller said, he was still "below poverty level." The family has not been able to make mortgage payments in five months and has been on the brink of foreclosure.

In Cooper's case, relying on unemployment checks was never a serious consideration. The maximum benefit that jobless people can collect in Arizona is $240 a week, among the lowest in the country, and much less than is required to cover the mortgage on the comfortable four-bedroom home in Glendale that he and his wife, Maggie Macias-Cooper, share.

Macias-Cooper, who works as a personal trainer in a gym built in what used to be the couple's three-car garage, has seen her client base shrink to 10 from about 50 in the past year.

In addition to giving Cooper a job as a janitor, his friend agreed to pay for the couple's benefits through COBRA. Maintaining health-care coverage was paramount for the family because Macias-Cooper recently had breast cancer.

"... what I've become"

Some unemployed professionals said they decided not to seek even part-time work because it might interfere with their job searches. But Cooper rises every day at 4 a.m. and, after a time of prayer, devotes two hours to his job hunt on the computer.

"There were times I broke down," Cooper said. "I broke down thinking, 'This is what I've become.' "

Jim Rogers Doesn't Mince Words About the Crisis

2009-02-27T09:37:00.000-08:00

Maria Bartiromo talks to global investor Jim Rogers

By Maria Bartiromo

In 1970 a young Wall Streeter named Jim Rogers hooked up with George Soros to start the legendary Quantum Fund. The ensuing decades have seen Rogers build an iconoclastic career as an author, adventurer, and creator of the Rogers International Commodities Index. And throughout, Rogers—now based in Singapore—has remained an outspoken global investor. Today is no different. He has harsh words for former Fed Chairman Alan Greenspan, suggests President Barack Obama and his economic team are not up to the task, and thinks tough love is the answer for America.
MARIA BARTIROMO

What do you think of the government's response to the economic crisis?

JIM ROGERS/leadin>Terrible. They're making it worse. It's pretty embarrassing for President Obama, who doesn't seem to have a clue what's going on—which would make sense from his background. And he has hired people who are part of the problem. [Treasury Secretary Tim] Geithner was head of the New York Fed, which was supposedly in charge of Wall Street and the banks more than anybody else. And as you remember, [Obama's chief economic adviser, Larry] Summers helped bail out Long-Term Capital Management years ago. These are people who think the only solution is to save their friends on Wall Street rather than to save 300 million Americans.

So what should they be doing?

What would I like to see happen? I'd like to see them let these people go bankrupt, let the bankrupt go bankrupt, stop bailing them out. There are plenty of banks in America that saw this coming, that kept their powder dry and have been waiting for the opportunity to go in and take over the assets of the incompetent. Likewise, many, many homeowners didn't go out and buy five homes with no income. Many homeowners have been waiting for this, and now all of a sudden the government is saying: "Well, too bad for you. We don't care if you did it right or not, we're going to bail out the 100,000 or 200,000 who did it wrong." I mean, this is outrageous economics, and it's terrible morality.

You have said Bear Stearns and Lehman (LEHMQ) would still be around if Greenspan hadn't bailed out Long-Term Capital Management in 1998. Can you explain?

Well, if Long-Term Capital Management had been allowed to fail, Lehman and the rest of them would've lost a huge amount of money, their capital would've been impaired, and it would've put a terrible crimp on Wall Street. It would've slowed them down for years. Instead of losing capital, losing assets, and losing incompetent people, they hired more incompetent people.

Should AIG (AIG) have been allowed to fail, too?

First of all, banks and investment banks and insurance companies have been failing for hundreds of years. Yes, we would've had a terrible two years. But you're dragging out the pain. We had 10 years of the worst credit excesses in world history. You don't wipe out something like that in six months or a year by saying: "Oh, now let's wake up and start over again."

What about Citigroup (C)? What about the car companies?

They should be allowed to go bankrupt. Why should American taxpayers put up billions to save a few car companies? They made the mistakes! We didn't make the mistakes! I'm sure they'll give them the money, but I'm telling you, it's a mistake. It's a horrible mistake.

I totally understand what you're saying, but the banks are under massive pressure.

They all took huge, huge profits. Who was the head of Citigroup? Chuck Prince? I mean, how many hundreds of millions of dollars did Prince take out of the company? How many hundreds of millions of dollars did other Citibank execs take out of the company? Wall Street has paid something like $40 billion or $50 billion in bonuses in the past decade. Who was that guy who was the head of Merrill Lynch (MERR)?

Stan O'Neal?

Right, Stan O'Neal. He got $150 million for leaving, even though he ruined the company. Look at the guy at Fannie Mae (FNM), Franklin Raines. He did worse accounting than Enron. Fannie Mae and Freddie Mac (FRE) alone did nothing but pure fraudulent accounting year after year, and yet that guy's walking around with millions of dollars. What the hell kind of system is this?

Are you worried the economic crisis will lead to political turmoil in China and elsewhere?

I absolutely am. We're going to have social unrest in much of the world. America won't be immune.

What does all this mean from an investment standpoint?

Always in the past, when people have printed huge amounts of money or spent money they didn't have, it has led to higher inflation and higher prices. In my view, that's certainly going to happen again this time. Oil prices are down at the moment, but that's temporary. And you're going to see higher prices, especially of commodities, because the fundamentals of commodities are enhanced by what's happening.

Which commodities are worth buying or holding on to?

I recently bought more of all of them. But I really think agriculture is going to be the best place to be. Agriculture's been a horrible business for 30 years. For decades the money shufflers, the paper shufflers, have been the captains of the universe. That is now changing. The people who produce real things [will be on top]. You're going to see stockbrokers driving taxis. The smart ones will learn to drive tractors, because they'll be working for the farmers. It's going to be the 29-year-old farmers who have the Lamborghinis. So you should find yourself a nice farmer and hook up with him or her, because that's where the money's going to be in the next couple of decades.

Maria Bartiromo is the anchor of CNBC's Closing Bell.

HOW NATIONS ECONOMY’S WORK

2009-02-26T09:27:00.001-08:00

from Murph

Sharon Astyk in her book “ Depletion and Abundance” introduced me to a different perspective on what she calls the informal economy, or the real economy, as opposed to the formal economy. Now before you gulp and the brain cells overheat on terms, this is not going to be an essay with a bunch of esoteric financial terms and theories. Frankly, I’m a bit burned out reading all the different perspectives and statistics and numbers being tossed around on the internet concerning the economy. Her book gave some interesting other ways of looking at this.

There is also a 1 hr 23 min lecture on how money works at; http://informationliberation.com/?id=26471
Worth the watch if you have interest in such things and is very well presented in very logical non technical way.

The formal or official economy is found in all of the rich countries, and involves tax forms, endless other documents, fees and statistics, the banks and other financial entities. In actuality, most of the world’s populations do not live in a formal economy. A great deal of our economy isn’t involved in that either. The informal economy is ‘under the table’, involves little if any forms, definitely no taxes or fees, and can be also referred to as a biological economy, or a survival economy. The formal economy got a real boost from the industrial revolution. Prior to then, most of what was called economy was the informal kind. In actuality, when you look at it from this perspective, the informal economy dwarfs the formal. It includes all volunteer work, all work within the family. How would you put a national value on all of the work a housewife does as an example? How much work is done ‘under the table’ with nothing in between the employer and employee? I know people that have been doing that for most of their work lives. The problem in western societies is that we have been taught that the formal economy is all there is, and what little of the informal economy we run into is considered negligible and unimportant, viewed with suspicion and often is illegal. Of course governments are not happy with that informal jazz, they aren’t getting their cut of the booty and it is difficult to control, it’s under the radar.

I agree with Astyk in that kind of economy is what we are going to have to develop. The concept that this will involve great hardship and not getting what you need for a good and happy life is not necessarily true. Relocalization of production and growing all or a great deal of your own food is part of this type of economy. While it probably does involve what is called a ‘lower standard of living’, it doesn’t mean you have to be impoverished in what you need to live a fruitful and satisfying life. It does mean doing without a whole lot of toys and non essential stuff. It does mean that families will have the time to interact with each other and spend time talking with the kids and spouse, something that appears to be lacking in most families.

Our Grange farmers market started last Saturday. There were vendors we had to turn away, not enough room for all of them. We had a vendor selling Cockatiels, other selling eggs, cookies, candies, hand made crafts while a guy played guitar and sang at one end of the room. A local massage therapist gave massages. We sold out our 10 dozen eggs in an hour. There was bartering going on between tables. We are thinking of having a local didgeridoo player come. Won’t that be a gas. The place was intensively busy from opening to closing time. All of the vendors made some money; everyone had a good time and new friends and acquaintances made. Just wait till the fruit and veggies start coming in. The trade and barter table got a lot of tradesmen and handymen signing on, we are going to be publishing a register of that. This is an example of an operating informal economy.

Now since the state doesn’t like this kind of shenanigans going on (the state figures it must control everything and get a percentage of the exchange going on), there is always the danger of someone not happy with it due to it cutting into their profits and reporting this activity to government agencies. Another good reason to involve as much of the community as possible. There is some safety in numbers, especially if most involved are quite determined to resist government control.

As a branch off of this subject, I am supposing some of you dear readers managed to sit through Obama’s speech to the combined congress critters on Tues night. About all he talked about was the economy and what he planned to do about it. Of course there was partisan cheering on his points. Interestingly, the Repugs have suddenly discovered financial responsibility and at least voiced criticism of the huge spending Obama proposes. Isn’t it interesting that they ignored 8 years of the largest expanding government spending and government expansion in our history but if a Democrat wants to continue it, they are against it.

Now I am going to admit that Obama gives a great speech, really clutches at the heart strings in many aspects. As Freeacre commented in the last post, it was intended to give hope and direction to the nation and appeals for support of his policies and plans. On the surface, the speech seems to really be concerned with the ‘common citizen’. He brazenly talked about taxing the rich (those with more than $250 grand a year income) and closing tax loopholes for the rich. And, we have a majority of people who are adamant about the concept that this problem is of such magnitude that massive government intervention and control is what it will take to drag us out of this economic mess.

Despite my dear spouse’s hopefulness and clear support of Obama, I remain skeptical. Speeches by a practiced orator are one thing, doing it is entirely something else. Let’s look at the situation;
1. Nothing that is publicly stated by Obama wants to significantly change the paradigm of how our money works. Yeh, taxing the wealthy will put more money under the control of the government. But then what? Has the government ever been truly reformist in concept?
2. Frankly, if Obama pushes too hard for restructuring how money works, I figure that the big money people (about 1% of our population) will try and assassinate him. I just don’t see these people passively allowing a reduction of their global power and wealth which is what redistribution of wealth entails..
3. When I look at history, redistribution of wealth is always precluded by a change or dissolution in governments and almost always is accompanied by active and violent rebellion.
4. All of Obama’s speeches contain the element of trying to recapture the momentum of economic growth through capitalistic economic system. For those of us that maintain that continual economic and material growth is simply unsustainable, this is just plain stupid to try and revitalize.

So, in relation to the original theme of this posting, it appears to me that somewhere down the road the concept and practice of an underground or informal economy and a vastly decreased ‘standard of living’ is a necessity. While I admit the possibility of Obama’s efforts might bring temporary relief to the crashing system that is going on right now, I maintain it is unsustainable. I also admit that Obama and his crew are completely unable to deal with this politically if they actually realize this and believe it to be true. Any policies that outright attempt to force a new paradigm and new way of living that proceeds toward sustainability will be met with overwhelming opposition by the very people it would be designed to help, much less the PTB.

While I listened to Obama’s speech, I had the constant thought go through my head that “God is he good at this”. It is such a pleasure, in one sense, to finally hear an articulate thoughtful, educated person lay out their thoughts and policies. That alone is quite a change from the last 8 years. But, keep in mind; it is still a speech, not the actions. And, while in an hour or so, nobody could give all the justification for what they want to do, we can judge what he said from what was omitted. You will notice that there was no solid data presented for his brief mention of his energy policy and why it would work. The main focus was to put people to work, and not what the outcome would be. Does this constitute another government boondoggle and excessive spending program? Do we really need gigantic government spending programs to update and repair roads and bridges to support more car culture and suburban living? Do we really need to spend the money for support of the suburban housing industry and financing? Should we really be spending huge sums of money to support the mafia types that have run our economy for years?

The bottom line is that as citizens we do not have the power to move the government in any particular direction, no matter how justified. Witness the massive opposition to the original bank bailouts. We now can only wait and see what transpires with the new crew. Personally, I hold no illusions that there will be a long term recovery of the system and on an individual basis, better be ready for it. If my gloomy outlook proves to be wrong, so much the better. I am still living the life style I want and in the meantime, will continue to prepare for the worst.

AIG's Distress: Are There Enough Fingers for This Dike?

2009-02-24T08:20:00.000-08:00

Management at AIG has calculated exactly how much money the Treasury and Fed will have access to after all of the TARP, financial stimulus, and mortgage bailout projects have been funded. The insurance company then plans to ask for whatever is left to fund its deficits so that it can stay in business, effectively making the federal government insolvent.

According to CNBC, AIG is about to post another huge loss. "Sources close to the company said the loss will be near $60 billion due to writedowns on a variety of assets including commercial real estate." The financial channel also reports that the need for capital may be so great that AIG might have to enter Chapter 11, something the government has spent over $130 billion trying to prevent. (See pictures of the Top 10 scared traders.)

Just like Detroit, Bank of America (BAC), and Citigroup (C), AIG is playing a game of chicken with Washington that the government does not feel it can afford to lose. Imagine what it would be like if all of these businesses failed at the same time. (Read a TIME story on why the government wouldn't let AIG fail.)

It is actually worth imagining. The government has so many balls in the air between the financial systems and deteriorating parts of the industrial sector that it may not have either the capital or intellectual capacity to go around. The Treasury has just appointed a prominent investment banker to help oversee the mess in Detroit, but it would take an army of financiers to first comprehend and then advise on what should happen to GM (GM) and Chrysler. The period for comprehension is already in the past. The trouble in the auto industry has to be addressed in the next few weeks or its capacity to operate will go up in flames.

The government made noises about taking a larger position in Citigroup (C). Based on the market's reaction, not may analysts and investors believe that the action will solve much. The poison of bad investments is in the blood of the financial system. Quarantining Citigroup will not solve that problem. The Treasury and Fed will have to take a holistic approach which involves healing the entire financial system. It is not clear that can even be done. How it would be done is an even more complicated matter.

The Little Dutch Boy is running out of fingers. The water that threatens to swamp the international financial system is getting closer to breaching the walls and pouring in. A month ago that seemed inconceivable. Now the odds that the government will have to allow large operations like AIG go into bankruptcy are fairly high. The trouble with that is not what will happen to AIG. As the market found out with the Lehman Brothers bankruptcy, many of the firms that are doing business with a very large financial institution when it becomes insolvent can have transactions worth billions of dollars wither voided or devalued.

In the intricate global financial system, there is no such things as one big player going down in a vacuum.

— Douglas A. McIntyre

See pictures of the global financial crisis.

The Abyss Stares Back

2009-02-23T12:45:00.001-08:00

From http://www.kunstler.com/

The public perception of the ongoing fiasco in governance has moved from sheer, mute incomprehension to goggle-eyed panic as the scrims of unreality peel away revealing something like a national death-watch scene in history's intensive care unit. Is the USA in recession, depression, or collapse? People are at least beginning to ask. Nature's way of hinting that something truly creepy may be up is when both Paul Volcker and George Soros both declare on the same day that the economic landscape is looking darker than the Great Depression.
Those tuned into the media-waves were enchanted, in a related instance, by Rick Santelli's grand moment of theater in the Chicago trader's pit last week when he seemed to ignite the first spark of revolution by demonstrating that bail-out fatigue had morphed into high emotion -- and that the emotion could be marshaled against public policy. The traders in the pit on-screen seemed to color up and buzz loudly, like ordinary grasshoppers turning into angry locusts preparing to ravage a waiting valley. "Are you listening, President Obama?" Mr. Santelli asked portentously.
In the broad blogging margins of the web that orbit the mainstream media like the rings of Saturn, an awful lot of reasonable people have begun to ask whether President Obama is a stooge of whatever remains of Wall Street, with Citigroup and Goldman Sachs's puppeteer, Robert Rubin, pulling strings behind an arras in the Oval Office. Personally, I doubt it, but it is still a little hard to understand what the President is up to. For one thing, the stimulus package, so-called, looks more and more like national sub-prime mortgage itself, a bad bargain made under less-than-realistic terms, with future obligations fobbed onto whoever inhabits this corner of the world for the next seven hundred years -- and all to pay for a bunch of granite counter-tops and flat-screen TVs.
I suppose Mr. Obama is burdened with the knowledge that the economic truth is so much worse than he imagined back in November that there is simply nothing to do at this point except pretend to serve up a "tasting menu" of rescue plans in the hope that markets and mechanisms might be conned back into compliance with our wish keep getting something-for-nothing forever. FDR already used the fear of fear itself trope, so Mr. O is left with little more than displaying pluck and confidence in the face of overwhelming bad news.
The sad truth is that banking has become a Chinese fire drill -- a frantic act of futility -- as insolvent companies persist in covering up their losses in order to avoid the counter-party hell of credit default swaps that would ring the world's "game over" bell. This can only go on so long. All the chatter about "nationalizing" the banks really boils down to what kind of bankruptcy work-out will they be put through, how destructive will the process be, and how much of the pain can be shoved forward in time to people now in diapers and their descendants.
Among the questions that disturb the sleep of many casual observers is how come Mr. O doesn't get that the conventional process of economic growth -- based, as it was, on industrial expansion via revolving credit in a cheap-energy-resource era -- is over, and why does he keep invoking it at the podium? Dear Mr. President, you are presiding over an epochal contraction, not a pause in the growth epic. Your assignment is to manage that contraction in a way that does not lead to world war, civil disorder or both. Among other things, contraction means that all the activities of everyday life need to be downscaled including standards of living, ranges of commerce, and levels of governance. "Consumerism" is dead. Revolving credit is dead -- at least at the scale that became normal the last thirty years. The wealth of several future generations has already been spent and there is no equity left there to re-finance.
If contraction and downscaling are indeed the case, then the better question is: why don't we get started on it right away instead of flogging rescue plans to restart something that is DOA? Downscaling the price of over-priced houses would be a good place to start. This gets to the heart of Rick Santelli's crowd-stirring moment. Let the chumps and weasels who over-reached take their lumps and move into rentals. Let the bankers who parlayed these fraudulent mortgages into investment swindles lose their jobs, surrender their perqs, and maybe even go to jail (if attorney general Eric Holder can be induced to investigate their deeds). No good will come of propping up the false values of mis-priced things.
No good, in fact, will come of a campaign to sustain the unsustainable, which is exactly what the Obama program is starting to look like. In the folder marked "unsustainable" you can file most of the artifacts, usufructs, habits, and expectations of recent American life: suburban living, credit-card spending, Happy Motoring, vacations in Las Vegas, college education for the masses, and cheap food among them. All these things are over. The public may suspect as much, but they can't admit it to themselves, and political leadership has so far declined to speak the truth about it for them -- in short, to form a useful consensus that will allow us to move forward effectively. One of the sad paradoxes of politics is that democracies do not seem very good at disciplining their citizens' behavior. The wish to please voters and the influence of campaign money overwhelm even leaders with mature instincts. In America's case, this could lead to what I like to call corn-pone Naziism a few years down the road. Someone will design snazzy uniforms and get us all marching around to "God Bless America." At the point of a gun.
It's not too late for President Obama to start uttering these truths so that we can avoid a turn to fascism and get on with the real business of America's next phase of history -- living locally, working hard at things that matter, and preserving civilized culture. What a lot of us can see now staring out of the abyss is a new dark age. I don't think it's necessarily our destiny to end up that way, but these days we're not doing much to avoid it.

Black Monday

2009-02-23T11:56:00.000-08:00

Well, Wall Street is down almost 3% so far today. Just as I had suspected, it looks like a Black Monday for stocks.

The timing of events like Market Crashes is not really predictable. It's part mass psychology, part hope, part fear...

However, I would imagine that there is a breaking point at which the small investors will flee the markets. It's the reverse of a bubble: the small investors, or sheep, pile into the market near the top of the bubble, because they don't want to be left out.

They pile out of the market near the bottom, because they don't want to lose everything, after staying the course hoping to make up for past losses.

The problem today is that even if there is a market capitulation, it may not be the real bottom, as earnings and profits continue to evaporate in the worse economic debacle since the Great Depression. Scratch that: in the worse economic depression since the crash of 1873.

Main point: don't be afraid. What good is fear? But be prepared. Systemic crisis is in the air.

The pornography of death and violence saturates us.

2009-02-19T12:46:00.000-08:00

I discovered this blogger recently:
Think Or Be Eaten

Here's an excerpt from a recent post. Click to get to the full post at her blog:

The pornography of death and violence saturates us. The trauma, mass violence and destruction of war, tearing families apart, mocking justice, decency and life itself. The obscenity of this planet slowly choking to death from the toxification of military, industrial and chemical pollutants, pouring out nonstop belching streams in the millions upon millions of tons, poisoning our food by intent, our air and our water by unavoidable result, and penetrating every human body, including the unborn.

Peak oil - what do we do now?

2009-02-19T07:03:00.000-08:00

by Robert Hirsch

The history of world peak oil production has been truly remarkable. Modern day concerns were rekindled in 1998 when Campbell and Laherrere published their peak oil thinking in Scientific American. Not surprisingly, they were largely ignored. Some in the establishment took the time to utter “Bah-humbug,” but a few independent souls decided to seriously consider the problem.

ASPO was formed soon thereafter and began annual meetings, fostering communication and helping to create increasing interest in the subject. Peak oil concernists began to form a community and momentum increased. Counter arguments buttressing the no-problem point of view came from OPEC, CERA, EIA, IEA, and some of the major oil companies. The denier proclamations grew in intensity, indicating that the serious consideration of peak oil was beginning to trouble parts of the establishment. Various new studies supporting the peak oil threat emanated from independent individuals and groups. Forecasts for the onset of peak oil went from being up to 20 years into the future, to roughly 15 years and then to less. The establishment continued to argue that the problem was so distant that people need not worry.

There were a number of significant milestones along the way - one of special note being Matt Simmons’ book, Twilight in the Desert. As time went on, IEA and some of the major oil companies began to join the list of those who were openly concerned. Momentum grew, influenced in large part by the remarkable increase in oil prices.

In mid-2008 the economic crisis struck. As world economies slowed, oil demand declined. To the surprise of almost everyone, oil prices dropped from near $150 per barrel to less than $40. With gasoline prices in the U.S. retreating to what was considered generally tolerable levels and economic threats avalanching, it’s no wonder that peak oil slid to the back burner of public consciousness.

The world is now in a period of epic economic chaos. People are disoriented and unsure of what it will take to restore their economies. Many serious economists, financiers, and executives are loath to even forecast when an economic recovery might begin. It’s easier for me now to understand how my parents and grandparents must have felt during the 1930s.

But the peak oil problem has not gone away. World liquid fuels production reached a plateau in mid-2004 and has fluctuated within a relatively narrow range in spite of mighty efforts to increase world production. In mid-2008, benefitting from the work of Campbell, Laherrere, Skrebowski, Aleklett, Simmons, Robelius, Gilbert, Bentley, Al Husseini, Deffeyes, Koppelaar, Birol, and others, I came to believe that world liquids production might stay on the existing plateau for the next 2-5 years and then go into a 3-5% per year decline

Recently, OPEC cut back oil production in an attempt to stem the oil price decline. How much might their cutbacks delay the onset of world liquid fuels production decline? Assuming the plateau model and five years to the onset of decline, each million barrels per day of oil production withholding buys roughly three weeks delay, so a steady, continuing reduction of say four million barrels per day over five years might result in a delay in the onset of world oil production decline by maybe three months. That’s not very much.

We’ve now in a period of major human disorientation, but geology does not become disoriented on the human timescale. The impending peak oil problem may now be generally absent from the media and the public consciousness, but it has not gone away. We would do well to continue meaningful studies of peak oil production and mitigation during this period of peak oil quiet. More studies of practical physical and administrative mitigation options are needed. Totally remaking our cities and transportation systems are wonderful goals but will require an extremely long time. In the meantime, we have relatively little in-depth thinking about what we can do when the will-to-act suddenly appears. We need better analyses on such options as rationing (how to do it), carpooling (how to force and police it), telecommuting (how to make it happen), rapidly switching to more fuel efficient vehicles during a deepening recession, rapidly implementing EOR, CTL, shale oil, etc (business-as-usual won’t do), etc. Between now and the wakeup, we can develop carefully thought-out mitigation options for when people are ready to begin to seriously mitigate peak oil. Working on practical solutions represents a high calling.

Robert L. Hirsch is Senior Energy Advisor at MISI. Previously he was Assistant Administrator of U.S. ERDA; EPRI VP; ARCO VP; and Chairman of the Board on Energy and Environmental Systems at the National Academies. He was lead author of “Peaking of World Oil Production: Impacts, Mitigation and Risk Management” (Feb 2005).

Why can't we believe in Doom?

2009-02-18T14:29:00.000-08:00

It's kind of funny - even as a so-called "Doomer" (at least according to my wife), even I can't really believe in the reality of what is happening.

My reason tells me we are going downhill fast, but my emotions tell me that everything will be just fine.

Is it just human nature to not be able to fully comprehend reality until it is too late? I don't think so. We modern humans are all here because our ancestors were very good at predicting the future and adapting. They had to be paranoid and watchful to survive in a world of enemies and dangers, without the benefit of a police force or a central government.

Why, then, are most of our fellow citizens what some preppers and survivalists refer to contemptuously as "sheeple"?

I would wager that most Western World citizens have been brainwashed by the ideology of Progress. The Enlightenment gave birth to the idea that using reason and science, humanity would be able to take control of its own fate, a very different view of history than existed in the Ancient world, where history and fate were seen as cyclical. The idea of the Wheel of Fortune of the goddess Fortuna are examples of that world view.

Descartes and his ilk thought that by reducing the material world to atoms and equations, we could predict and control it. Well, it's worked out pretty good for a long run. The element left out by Descartes and the Enlightenment optimists, though, was the limited nature of the physical world. The Earth has limited resources. Darwin explained that all species tend to overpopulate to the point where there is a crash in the population. The crash tends to overshoot in the other direction, due to a depleted environment.

Peak Oil is a reality, and despite the currently low gas prices, the reality of Peak Oil is a rabid bitch that's going to soon bite humanity in the ass.

Another reason to prep. Those who are prepared do not guarantee their survival, but they certainly increase their chances.

City and Country Partnerships

2009-02-16T12:28:00.000-08:00

A lot of preppers either already live in the country, or they wish to escape there. I understand that - if necessary, I will relocate my family to the family spread up north.

Unless things become quite degenerate, however, cities are going to remain centers of commerce and sources of resources. Just think of how many junkyards and surplus stuff is lying around in the city. I was just in a store named Ax Man on University Avenue in St. Paul yesterday. I hadn't been there in years, and it was still a great place to go to find... well, just about anything. Old surplus electric motors, electronics parts, storage cases... even a Swedish stomach pump, whatever that is.

Those of you living in the countryside - do you REALLY think you will be able to get along without any help from the city? What if something in your country dwelling wears out? What if you need a solar cell, or you need your generator fixed?

The fact is that cities came about in human history, because when humans live together in a concentrated population center, synergy is possible. Synergy is the idea that the whole is more than the sum of its parts. Change encounters and ideas discussed at the coffee shop or bar can turn into life-saving ideas or inventions. Something about just hanging out with other people and talking leads to a higher level of commerce and invention.

Thus, even in a TEOTWAWKI scenario, we might expect human commerce and markets to survive in some form, even if it requires barter or a new currency.

With that in mind, why not start to form the commercial alliances and marketplaces of the future NOW? Why not form a network of like-minded people in the city and the country who can trade with each other, even if it involves travel by horseback, canoe, or bicycle?

If you are at all interested in discussing this idea, or forming a future trade relationship with someone in Minneapolis, just leave a comment.

The time to start talking about these ideas is now, because our government seems hell-bent on destroying our currency and therefore the economy. We need to reinvent the meaning of "economy" now.

I cross-posted this at the Minnesota Preppers Network.

U.S. Debt Default, Dollar Collapse Altogether Likely

2009-02-04T13:02:00.000-08:00

The prospect of the United States defaulting on its debt is not just likely. It's inevitable, and imminent.

The regulatory black holes into which sanity and reason disappear on a daily basis are soon to collapse under the mass of their sheer size. The circle jerk going on among G7 governments has to end – the steady advance of gold, even in the face of a managed price, exposes the real value of the U.S. dollar, as opposed to its apparent value expressed in the dollar index.

Is 2009 the year that the United States formally defaults? And with that, will the dollar collapse be rolled back ten for one or more?

There are a lot of reasons to support that theory. To Wall Street economists, such an event is heresy and therefore unthinkable. Yet Wall Street is the very La-la-land that bred the idea of a perpetually indebted nation in the first place.

Number one among the indicators favoring this scenario is what is happening in the U.S. Treasuries auction market.

Last Thursday, an $30 billion auction in five-year notes failed to stir the interest of traditional primary dealers. The auction itself was saved by an anonymous “indirect” bid.

Buyers are discouraged by the prospect of what is expected to amount to $2 trillion total issuance for the full year of 2009. The further out the maturities on notes, the more bearish the sentiment towards them. The only way to entice buyers is through the increase in yields.

But with yields at 1.82 per cent, five-year notes were met with a demand for 1.98 times the amount offered - the lowest bid-to-cover ratio since September. A sell-off in treasuries began in earnest upon the conclusion of that auction.

The U.S. Federal Reserve suggested last week that it was going to step up its treasury-buying activity, and the mainstream media interprets this as a form of market support. What it actually is evidence of growing anxiety and desperation on the part of the Fed as the realization dawns that demand for treasuries is progressively evaporating.

The increased demand for gold as an investment witnessed throughout the last two weeks that has pushed gold to a 4 month high is further evidence that investors across the board are gravitating more towards gold and away from U.S. debt.

So what is the catalyzing event that will precipitate outright capitulation?

I think the spin-controlled version of events will make the collapse of the derivatives market the red herring that facilitates the aw-shucks-we-have-no-choice shoe-gazing moment possible, and that’s exactly the parachute the government needs to retain a veneer of credibility - at least in its own delusional mirror.

The announcement that the CFTC was about to become the target of a regulatory overhaul supports this theory. Consistent with his unfortunate proclivity to hiring foxes to guard chickens, Barack Obama’s choice for CFTC commissioner Gary Gensler was the undersecretary of the U.S. Treasury when the Commodity Futures Modernization Act of 2000 was passed, and is one of its architects. This was the piece of legislation that was put forth to appease the opposition to “dark market” trading in certain OTC derivatives first noisily derided by CFTC commissioner Brooksley Born in 1998.

Ignoring Born’s admonishments with this act, it exempted credit default swaps (CDO’s) from regulation, resulting in the somewhere between 58 and 300 trillion dollars in value presently under threat if the positions were to be unwound. Because of their unregulated status, counterparties in the largest transactions can simply “roll forward” contracts, instead of the losing party in the transaction covering their loss with a transfer of money. It is this massive “nominal” value that could be the Achilles heel of what’s left of the U.S. banking system, and by extension, the U.S. dollar.

I don’t arrive at this conclusion because I like making catastrophic outlandish predictions. Its merely the result of following certain logical paths to their most likely outcome based on what has happened in the past.

In discussions on this topic with editors of top tier financial publications, such speculation is dismissed out of hand, and the argument to refute the likelihood of such outcomes is never brought forward.

Gold exchange traded funds (ETFs) are now the largest holders of physical gold, and as a proxy for investors who don’t want to be encumbered with taking delivery of the physical, provide a simple way to participate in the gold market.

United States citizens should bear in mind, however, that should the banking system be brought down completely by the collapse of the futures market, proxies for gold such as ETF’s and bullion funds could theoretically be targeted by a government desperate for possession of value. The risk from security in holding physical bullion is matched by the risk of confiscation by government in these volatile times. Don’t forget, the government confiscated and outlawed private ownership of gold in 1933 in support of an ill-conceived gold standard, which to some extent, was that era’s spin to halt the flight of gold (and real value) from U.S. soil.

Don’t think for a minute such drastic events are outside the realm of possibility. If somebody had told you in 1998 that a bunch of angry crazy pseudo-Muslims were going to fly jetliners into the World Trade Center, what would you have said?

Are We Ready to Change the System?

2009-01-30T12:20:00.000-08:00

I think Jesse is too optimistic, but it's a good post:

"The general spread of the light of science has already laid open to every view the palpable truth, that the mass of mankind has not been born with saddles on their backs, nor a favored few, booted and spurred, ready to ride them..."
Thomas Jefferson

It is time to begin serious, and significant, systemic reforms in the financial system.

Maintaining the status quo will be fruitless because the system is broken. Trying to keep it from becoming 'more broken' is a nice short term fix, but we are beyond that now. This has been a long time in the works.

There has been a recent increase in noise from the Congress about changing a system which promotes excessive pay, and encourages the virtual looting of companies, by overpaid management and a corrupt financial system.

Rather than strike at the branches, and call a few individuals up before Congress for their ten minutes of tut-tutting, how about some serious change that cuts to the roots of the crisis?

One potential solution would be to institute a marginal income tax rate of, let's say, 80% at the 30 million dollar level of aggregate income in the AMT, with a significant raising of the minimum levels of income that trigger the AMT to about 4 million in aggregate income. It can graduate from 50% to 80% from the minimum to the maximum. The AMT was always intended to be a safeguard against loopholes for the highest income brackets. We can permit five year income averaging to allow the incredibly lucky to keep a bigger share. But rewarding luck encourages gambling and gaming the system, which is an open door to white collar crime and fraud.

And we have to ask, just how much is enough. Do you really think that having a 30 million dollar per year income is 'not enough?' Are we insane? Yes, allowing people to 'keep what they kill' is ingrained in our psyche by the last 100 years of a steady stream of propaganda, but its time to start thinking about social interaction and the protection of the innocent as well as the glorification of greed.

Yes, this will alarm the "Joe the Plumbers" out there who wish to fantasize about the looting of the system, or have pretensions of being the next American Idol, with a Pavlovian impulse to consider realistic expectations and a middle class life as socialism.

The top 1% of the wealthy Americans do not need additional incentive to take. They are, for the most part excepting the lucky and the idle heirs, psychologically driven to acquire beyond all rational need. What they need is restraint. And they will absolutely hate it.

But since most wannabe billionaires are delusional why let them drag us down under the bus with them? Let's stop legislating for the .1% probability, leaving the garden gate open for the pigs to come in.

We cannot continue to build and maintain this country if the most rewarding pursuits are gambling, gaming the system, fraud, and white collar crime. That game is over. We're done.

Reform the accounting rules for acquisitions and goodwill, inventory writedown with subsequent earnings effects. "Earnings management" is a tool of the price manipulation for stock option bonuses that is a source of market distortion.

Bring back Glass-Steagall. Let Goldman and Morgan get into the conventional banking business after passing through receivership. The point is to be solvent first BEFORE you get government support. And if you are not solvent we will help you become so through liquidation.

Back up the individuals, the savers and pensions, to the hilt, 100%, and put the financial institutions through the wringer, if not a meat-grinder. Stop beating this 'trickle down' approach in curing our problems by throwing money at the uber-wealthy and corporations. It does not work. It will not work. It is destroying our country.

Oh no, we cannot let honest people be limited in acquiring enormous wealth. Well, there probably aren't many completely honest people pulling down over 30 million per year in income. The criminal prosecution system is also horribly compromised, and we can fix it AFTER we stop the looting, and then the rules can be relaxed.

Direct the FBI and Justice Department to conduct a serious investigation of naked short selling and price manipulation. That aspect of the market is an open sore.

Institute aggregate position limits in commodities, and make them high enough so that they do not bother any legitimate speculators.

Refuse to admit any nation into the favored nation status unless their currency is open for trading on the world markets, free of pegs.

Stop the system of legalized bribery of the Congress and the Executive by lobbyists. That requires campaign funding reform, then let's do it now.

Stop selling this country short for the sake of 'competitiveness' and a perverted image of the "American Dream." If the Founding Fathers came back they would not be able to stop throwing up at what we now call 'freedom' and what we have done with their legacy for which they pledged their lives and sacred honor.

Europe needs to tell the Brits and the Yanks to piss off, fix the euro, take an enormous dose of humility, reform their financial system, and don't play the fool again so easily. Asia needs to take care of its own and grow a middle class, and stop treating its people as coolies. Australia needs to go walkabout with Europe. The Mideast is its own worst enemy. Africa is the shame of our world.

Too radical? Then you're not ready yet for the changes that are required to end this cycle of boom, loot and bust.

It is time to begin serious, and significant, systemic reforms in the financial system. It is preferable to the historically likely alternatives.

It's time to stop lamenting and start prepping

2009-01-30T09:52:00.001-08:00

The premise of this new "gloom and doom" type blog is simple:

The coming "stimulus" plan from the Obama administration and the Democratic-led Congress will be the last "death rattle" of our economic order.

By spending money we don't have (which represents claims on non-existent future human labor and oil-dependent resources), the system will seem to recover for a while.

During this false-dawn, it is essential that those of us who want to have a chance of a decent life for ourselves and our families prepare.

The consequences of collapse are unknown: will it be a "fast crash" or a slow one? Will there be civil disorder (likely), and if so, how much? Which regions will fare better?

This blog will be a forum to discuss preparations, predictions, and ways to adapt.

Stay tuned.