Weekend Economists' Beach (Boys) Extravaganza July 10-12, 2009

[Demeter]

http://www.thebeachboys.com/

Click on the above link for our summer soundtrack while you read the latest from our cadre of muck-raking bloggers and skeptics.

It's officially summer, time to kick back and enjoy the respite, to drown in the nostalgia that the 60's Greatest Hits evokes, and get through the dog work with a little lift of the spirits. Hope you can post or comment while you bliss out with the Beach Boys! Photo album follows!

http://www.thebeachboys.com/photo.asp?i=16

[Tansy_Gold]

1. Yay! First Rec!

I've got an article/editorial to post, too, but I can't believe I got in the first rec!!!


Tansy Gold, bored and stuck at the computer. . . .

[Demeter]

4. Congratulations, Tansy Gold!

Special youtube for you!

http://www.youtube.com/watch?v=mN7Xs9WVNBU&feature=fvw

[DemReadingDU]

19. In case anyone has forgotten who the Beach Boys are

Names, instruments, and a car song!

http://www.youtube.com/watch?v=B1LiKpv-VfE


P.S. The guy announcing is Mike Love, with hair

[KoKo]

49. Thanks much Demeter...I'm wondering who gave that Father's Day Album

to their kids....Ayyyy Parents are getting older and older...but then there's Donald Trump...

:eyes: Not saying that there aren't many older parents...but this one really brings back memories...

Thanks! :D

[DemReadingDU]

26. Jan and Dean

http://www.youtube.com/watch?v=go9oiOzpQPQ

[Tansy_Gold]

2. Robert Reich: When will the recovery begin? Never.

http://robertreich.blogspot.com/2009/07/when-will-recovery-begin-never.html

The so-called "green shoots" of recovery are turning brown in the scorching summer sun. In fact, the whole debate about when and how a recovery will begin is wrongly framed. On one side are the V-shapers who look back at prior recessions and conclude that the faster an economy drops, the faster it gets back on track. And because this economy fell off a cliff late last fall, they expect it to roar to life early next year. Hence the V shape.
Unfortunately, V-shapers are looking back at the wrong recessions. Focus on those that started with the bursting of a giant speculative bubble and you see slow recoveries. The reason is asset values at bottom are so low that investor confidence returns only gradually.


That's where the more sober U-shapers come in. They predict a more gradual recovery, as investors slowly tiptoe back into the market.


Personally, I don't buy into either camp. In a recession this deep, recovery doesn't depend on investors. It depends on consumers who, after all, are 70 percent of the U.S. economy. And this time consumers got really whacked. Until consumers start spending again, you can forget any recovery, V or U shaped.

Problem is, consumers won't start spending until they have money in their pockets and feel reasonably secure. But they don't have the money, and it's hard to see where it will come from. They can't borrow. Their homes are worth a fraction of what they were before, so say goodbye to home equity loans and refinancings. One out of ten home owners is under water -- owing more on their homes than their homes are worth. Unemployment continues to rise, and number of hours at work continues to drop. Those who can are saving. Those who can't are hunkering down, as they must.


Eventually consumers will replace cars and appliances and other stuff that wears out, but a recovery can't be built on replacements. Don't expect businesses to invest much more without lots of consumers hankering after lots of new stuff. And don't rely on exports. The global economy is contracting.

My prediction, then? Not a V, not a U. But an X. This economy can't get back on track because the track we were on for years -- featuring flat or declining median wages, mounting consumer debt, and widening insecurity, not to mention increasing carbon in the atmosphere -- simply cannot be sustained.

The X marks a brand new track -- a new economy. What will it look like? Nobody knows. All we know is the current economy can't "recover" because it can't go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin. More on this to come

[Demeter]

5. Yup. Says It All. Why Isn't He Advising Obama?

[hay rick]

51. Like "recovery" from a stroke.

The new economy will be smaller and the average person will be poorer. Maybe in the new threadbare economy the electorate will be more inclined to deal with the extravagant costs of our military, our health care system, and the parasitic class of the super-wealthy.

[AnneD]

137. Good in site......

This feels right. I think this will be the final outcome of this depression.

[DemReadingDU]

3. Bank Closing

On Friday, July 10, 2009, Bank of Wyoming, Thermopolis, WY was closed by the State of Wyoming, Department of Audit, Division of Banking, and the Federal Deposit Insurance Corporation (FDIC) was named Receiver. No advance notice is given to the public when a financial institution is closed.

The FDIC has assembled useful information regarding your relationship with this institution. Besides a checking account, you may have Certificates of Deposit, a car loan, a business checking account, a commercial loan, a Social Security direct deposit, and other relationships with the institution. The FDIC has compiled the following information, which should answer many of your questions.

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

[Demeter]

6. detail from press release

Bank of Wyoming, Thermopolis, Wyoming, was closed today by the State of Wyoming, Department of Audit, Division of Banking, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Central Bank & Trust, Lander, Wyoming, to assume all of the deposits of Bank of Wyoming.

Bank of Wyoming's sole office will reopen as a branch of Central Bank & Trust during normal business hours...As of June 30, 2009, Bank of Wyoming had total assets of $70 million and total deposits of approximately $67 million. In addition to assuming all of the deposits of the failed bank, Central Bank and Trust agreed to purchase approximately $55 million of assets. The FDIC will retain any remaining assets for later disposition.

Central Bank & Trust will purchase all deposits, except about $8 million in brokered deposits, held by Bank of Wyoming. The FDIC will pay the brokers directly for the amount of their funds. Customers who placed money with brokers should contact them directly for more information about the status of their deposits...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $27 million. Central Bank & Trust's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to alternatives. Bank of Wyoming is the 53rd FDIC-insured institution to fail in the nation this year, and the first in Wyoming. The last FDIC-insured institution to be closed in the state was Westland, FS & LA, Rawlins, on July 26, 1991.

[Demeter]

7. And you Get a Special Gift for Posting, Too!

http://www.youtube.com/watch?v=N3rGMpSc0j4&feature=related

[DemReadingDU]

9. and a treat for you, for the Weekend Thread

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

Edit - This is a twofer link (2 songs!)

[Demeter]

11. I Didn't Know About That One! Thanks!

[DemReadingDU]

15. We need to go Surfin

http://www.youtube.com/watch?v=k1FaflUn4Co

[AnneD]

132. One of the fun things my daughter and I did when I visited her...

was go to Santa Monica. She worked for a surf shop on the pier. I had a blast on the pier but one day I want to take surfing lessons. We just don't have waves here unless a hurricane is approaching. I love everything about surfing and I always love to body surf.

How many miles did I burn up in my youthful summers going from Houston to Galveston (104 mi round trip) with the Beach Boys and Jan and Dean blasting on the radio. That was the sound track of my summers. I also liked Booker T and the MGs-the essence of cool.

www.youtube.com/watch?v=U-7QSMyz5rg

http://www.youtube.com/watch?v=ar-Z_l907DY&feature=related

[DemReadingDU]

142. That 2nd video is just, groovy!

The girls sure dressed so modestly in 1966

[Demeter]

8. I Think Ben's Got His Feelings Hurt! "Fed warns on Congressional scrutiny"

http://www.ft.com/cms/s/0/4d07bc82-6cc5-11de-af56-00144feabdc0.html

By Tom Braithwaite in Washington

Published: July 9 2009 21:27 | Last updated: July 9 2009 23:42

The Federal Reserve warned on Thursday that a growing congressional threat to curtail its independence would destabilise markets and raise the cost of servicing US debt for “current and future generations”.

WE WILL HAVE A BRIEF MUSICAL INTERLUDE SO WE CAN ALL FINISH LAUGHING AND GET OFF THE FLOOR:

http://www.youtube.com/watch?v=CKmaq-v1OKM&feature=related



Ron Paul, the Texas Republican, has gathered the support of a majority of the House of Representatives for a bill that would audit the Fed’s monetary policy decisions. He told a Congressional hearing he wanted the power to prevent the Fed being "secret and clandestine and serving special interests”.

The Fed is struggling to face down a political backlash from different parts of Congress amid scepticism over its policies designed to restart the flow of credit and the award of new powers to curb systemic risks.

Donald Kohn, vice-chairman of the Fed, argued at the House financial services subcommittee hearing that any sense of political interference would negatively affect markets. “Any substantial erosion of the Federal Reserve’s monetary independence likely would lead to higher long-term interest rates as investors begin to fear future inflation,” he said.

Not only did Mr Kohn argue that the Fed should be given the power to regulate large systemically significant companies, but he argued against giving up responsibility for consumer protection, asking Congress to overturn the Obama administration’s proposal to create a new Consumer Financial Protection Agency.

”I would hope that the Congress might think about whether there are ways of strengthening the Federal Reserve’s commitment to consumer regulation as an alternative to creating a new regulator,” he said.

As US authorities have considered how to reform the country’s regulatory regime in the wake of the current economic crisis, the Fed has been drawn into an argument with other regulators over who oversees the US’s largest financial institutions.

The conflict appeared to end with the Obama administration giving power over systemically significant insitutions to the Fed, with additional oversight from a council of regulators including the Federal Deposit Insurance Corporation.

But critics in Congress have not given up an attempt to push all or more of the power to the council, taking it away from the Fed. The hearing on Thursday heard support for that view. Mr Paul’s audit bill now has more than 250 co-sponsors.

[Hawkowl]

75. Ron Paul: Obama's most dangerous opponent

It is my belief that if Obama continues on his current path of economic suicide and appeasement of Wall Street, free traders, and defense contractors, then Ron Paul will cleans his clock in 2012. This would be a tragedy of unimaginable proportions.

For those Obama ditto heads crowing about how there are no credible Rethuglican opponents, remember nature abhors a vacuum.

[Demeter]

79. Kucinich can Build on Obama's Non-Progress, Too

Especially if he sends out that magnificent wife of his. She is incredible.

[Tansy_Gold]

125. Kucinich is not now nor will he ever be a viable candidate.

And I'm 10 times more in sync with him than with any other candidate of the past three election cycles.

The American electorate is too dumbed down and too focused on superficial externals. And we don't have enough time to change that.


TG

[AnneD]

135. Same here but the way things are rigged here....

the most he can do is get enough support to have his ideas placed in the planks of the party. Too bad the real ideas were relegated to outside the parties.

[Demeter]

136. If He Became a GOP Interloper?

I'm desperate here, Tansy! If Palin and President can be mentioned in the same sentence.....

[Tansy_Gold]

139. ::sigh::

I love Dennis, but he's a dork. So am I. Which is why neither of us is electable.

Palin, with all her other faults, is not a dork. If you didn't know what she is and if you turn the sound off, visually she's an appealing candidate. She's affable and attractive. And that's what, in our visual-oriented culture, counts. (John Kerry, who is a wonk and somewhat of a dork, failed to capitalize on John Edwards' visual appeal. If he had, the vote would not have been close enough even for Ken Blackwell to steal.)

This is pragmatism, but not cynicism.

If and when Obama -- and I ain't holdin' my breath -- deigns to include the progressive agenda espoused by the likes of Kucinich, he'd do well to put the real McCoy on the blue ribbon panel.



Tansy Gold

[Demeter]

148. Dorks of the World Unite! We have Nothing to Lose But the Chains

that bind us to the whims of beautiful idiots.

[Tansy_Gold]

157. no kidding

TG, who lives with one of those beautiful idiots/assholes

[Demeter]

10. G8 Leaders seek trade deal by 2010

http://www.ft.com/cms/s/0/f42cf9e2-6c7e-11de-a6e6-00144feabdc0.html

By George Parker and Guy Dinmore in L’Aquila and Alan Beattie in London

Published: July 9 2009 13:01 | Last updated: July 9 2009 19:45


Manmohan Singh arrives with bodyguards and advisers at the G8 summit

Manmohan Singh, Indian prime minister, arrives at the summit. Hopes of a trade agreement have risen following the country’s elections

The world’s biggest economies agreed on Thursday to conclude a comprehensive trade deal in 2010, in the latest attempt to revive the stalled Doha round and give a shot in the arm to the world economy.

Rich countries gathered for the G8 summit signed a deal with 10 other large economies – including India, China and Brazil – that trade talks must resume urgently, with a deadline set for completion next year.

The agreement in the Italian town of L’Aquila will be hailed by world leaders as a decisive moment in reviving the global economy and a statement of intent to conclude a trade round which began in Doha in 2001.

But there will be widespread cynicism over whether such commitments are credible. Every G8 summit – not to mention other international summits – ends with leaders paying lip service to finalising a trade round.

When leaders of the G20 rich and developing countries met in Washington last November, they called for such a deal to be struck by the end of the year.

Nevertheless, there was renewed optimism on Thursday that prospects for a deal were improving, particularly with the completion of elections in India and an apparently more open approach by Anand Sharma, the country’s commerce minister.

Gordon Brown, Britain’s prime minister, said he believed the big sticking point between Washington and New Delhi on how to resolve a surge of imports into India was now closer to resolution.

Meanwhile, the US is demanding better access to agricultural markets, including India, in exchange for cutting farm subsidies.

“We have a new American government willing to enter into discussions through trade ministers,” said Mr Brown.

Talks at ministerial level are expected in India before the next G20 summit in Pittsburgh in September.

The approval of the L’Aquila agreement by Barack Obama, US president, may be seen as a signal of intent that he intends to give the Doha process a renewed push in the face of Congressional opposition.

The L’Aquila agreement paves the way for a reassessment of progress at the G20 summit in Pittsburgh, to be chaired by Mr Obama, who will come under international pressure if the US is seen to be intransigent.

José Manuel Barroso, European Commission president, was upbeat: “This is a realistic target and it is up to all countries, both developed and developing, to deliver on this promise.”

Meanwhile, in a separate communiqué, the G5 emerging economies – China, India, Brazil, Mexico and South Africa – said they were committed to addressing outstanding problems on Doha which would provide “a major stimulus to the restoration of confidence in world markets”. But they urged rich nations to remove trade barriers and restore credit to poor countries.

The Doha round began eight years ago with a focus on dismantling obstacles to trade for poor nations. The discussions have been dogged by disagreements over several issues, including to what degree the US and the European Union should cut aid to their farmers and how much advanced developing countries such as India, China and South Africa should cut tariffs.

Ban Ki-moon, United Nations secretary general, said earlier this week that global trade had “tremendous potential as an engine of sustained growth and development. Trade can and must be part of our efforts to stimulate a recovery,” he said.

Thursday’s summit communiqué, endorsed by the G8 and G5, also committed the world’s biggest economies to opposing protectionism and protecting free markets.

[Demeter]

21. Hu quits G8 trip to tackle Xinjiang crisis (A LIKELY EXCUSE!)

http://www.ft.com/cms/s/0/dbd76e6a-6ab0-11de-ad04-00144feabdc0.html

By Kathrin Hille in Urumqi and Richard McGregor in Beijing

Published: July 7 2009 05:46 | Last updated: July 8 2009 06:06

Hu Jintao, the Chinese president, on Wednesday cut short his visit to Italy, where he was planning to attend the annual Group of Eight summit of world leaders, three days after the worst ethnic unrest in China since the Cultural Revolution erupted in the Muslim-dominated Xinjiang autonomous region.

Mr Hu, who has yet to comment officially on the crisis, had been expected to play a high profile role in this week’s summit, with China pushing for a bigger voice for developing countries in international monetary policy.

In a sign of how seriously the leadership viewed the Xinjiang crisis, the president flew home ahead of the start of the summit on Wednesday. He had been in Rome since Sunday, the day more than 150 people, mostly Han Chinese, were killed in riots in Xinjiang...

I RATHER THINK CHINA DIDN'T GET WHAT IT WANTED IN PRE-SUMMIT MEETINGS AND TOOK THE CONVENIENT WAY OUT.

[Demeter]

12. Ex-Goldman adviser banned by HK watchdog OBAMA TAKE NOTE!

http://www.ft.com/cms/s/0/4a60c780-6cac-11de-af56-00144feabdc0.html

By Justine Lau in Hong Kong

Published: July 9 2009 20:39 | Last updated: July 9 2009 20:39

A former Goldman Sachs client adviser has been banned from re-entering the Hong Kong securities industry for two years after she admitted making unauthorised trades on behalf of a client, the market regulator said on Thursday.

Ronnie Wong, who left Goldman last year, bought so-called accumulators for a client without approval in November 2007, said the Securities and Futures Commission. The transaction had a total exposure of HK$13.8m ($1.8m), said the regulator.

In December, Ms Wong prepared a spreadsheet for the client that “did not present a true picture of the client’s portfolio”, said the regulator.

The spreadsheet included profits that had not yet accrued and overstated the client’s earnings by $1.72m.

The market regulator did not name the client but people close to the situation identified her as Joyce Tsang, founder of Modern Beauty Salon, a beauty parlour chain.

Local newspapers reported that Ms Tsang sued Goldman last year after she lost money on the trades. People familiar with the situation confirmed that Ms Tsang had taken legal action.

Accumulators are structured products that commit investors to purchases of stocks or foreign currencies. They are often lucrative when the underlying instruments are rising in value but can saddle investors with massive losses when falling, earning the nickname “I kill you later” in Hong Kong.

The market regulator said on Thursday that Ms Wong admitted that she had entered into the transaction without proper authorisation.

But she claimed that it was a good investment and that Ms Tsang normally accepted her recommendations, according to the SFC. Ms Wong co-operated in the investigation and had not intended to mislead the client, the SFC said.

Ms Tsang complained to the SFC about the unauthorised transaction in March last year.

“We reported this matter to the SFC and co-operated fully with its subsequent investigation,” said Goldman, which declined to comment on any lawsuits filed by Ms Tsang.

Ms Wong has been prohibited from re-entering the securities industry until July 2011.

[Demeter]

13. CAN YOU HEAR ME NOW? Sprint forms $5bn Ericsson network deal

http://www.ft.com/cms/s/0/5827f07a-6cc8-11de-af56-00144feabdc0.html

By Paul Taylor in New York

Published: July 9 2009 22:03 | Last updated: July 10 2009 00:03

Sprint Nextel, the struggling US mobile network operator, is to outsource the management and day-to-day running of its two nationwide networks to Sweden’s Ericsson in a seven-year deal worth between $4.5bn and $5bn.

ANOTHER GOOD REASON TO AVOID THEM!

The deal, believed to be the largest network management deal to date, represents a coup for Ericsson and the latest in a series of moves by Sprint to streamline its operations, stem customer defections and return to financial health.

Sprint, the third-largest US mobile operator, is the first of the large US network operators to adopt the outsourced managed services model, which has become increasingly popular among mobile telecommunications groups in recent years.

“This is a very important agreement for us,” said Hans Vestberg, Ericsson’s chief financial officer, who will succeed Carl-Henric Svanberg as chief executive at the start of 2010.

Mr Vestberg emphasised that Ericsson would focus on ensuring the success of the Sprint agreement, but he hoped it would lead to other deals in the US.

Sprint, formed through the $36bn merger of Sprint Communications and Nextel Communications in 2005, said on Thursday it would retain full control of its networks.

“This is about improving our customer experience,” said Steve Elfman, network operations head. “While we get the benefit of Ericsson’s expertise . . . we can focus our attention on bringing great devices, great services, great applications to them.”

Ericsson, under Mr Svanberg, helped pioneer the managed network services model and has signed more than 100 such deals with mobile operators, including a seven-year deal in the UK with 3, the mobile business of Hutchison Whampoa, in 2005 thought to be worth between $3bn and $3.5bn.

It struck a similar five-year deal with 3’s Italian network worth $1.75bn- $2.5bn the same year.

Ericsson manages networks serving more than 275m subscribers around the world and derived about 7 per cent of its revenues last year from managed network services.

Sprint has nearly 50m subscribers on its CDMA and iDen networks in the US. Under the deal’s terms about 6,000 Sprint employees will be transferred to Ericsson during the third quarter.

Sprint, led by chief executive Dan Hesse, has been struggling to return to financial health and stem customer losses following the 2005 merger.

Under Mr Hesse since 2007, the company has restructured operations, cut its workforce aggressively and spun off its embryonic 4G Wimax network operations into Clearwire.

[OhioChick]

14. Rec'd. n/t

[Demeter]

16. Why, Thank You! Here's YOUR Gift for those "Good Vibrations"!

http://www.youtube.com/watch?v=zFWXWrfj88I&feature=related

AND AN EXTRA FOR OHIO!

http://www.youtube.com/watch?v=Y6YSihrVvK4&feature=related

[Demeter]

17. Video interview: Fink warns on tough European restrictions

GO TO LINK FOR VIDEO!

http://www.ft.com/cms/s/0/d02a15d2-6a69-11de-ad04-00144feabdc0.html

By Richard Milne in London

Published: July 6 2009 22:19 | Last updated: July 6 2009 22:19

The adoption of tough European restrictions on hedge funds would provoke a transatlantic regulatory war, one of the sector’s leading figures has warned.

Stanley Fink, the former chief executive of Man Group known as the “godfather” of the British hedge fund industry, said that the European Commission’s proposed regulation would be “very restrictive” for non-EU funds and some styles of investing.

“That could, and probably would, lead to retaliatory action whereby European hedge funds will be stopped from marketing in other jurisdictions – and that could be very bad for the industry,” he told the Financial Times in a video interview. Asked if the restrictions could spark an international hedge fund war, he said: “I think that could be one of the unintended consequences.”

Mr Fink, now chief executive of ISAM hedge fund and co-treasurer of the UK’s opposition Conservative Party, criticised the Labour government for its failure to defend the UK financial services industry. “It is hard to imagine that legislation that harmed agriculture wouldn’t have been killed at birth by the French, and legislation that damages the car industry wouldn’t have been stopped by the Germans,” he said.

Sweden, which holds the EU’s presidency, has suggested it could dilute future rules. But in draft form, they could make it difficult for hedge funds from the US to market themselves in Europe. The commission’s plans would require hedge fund and private equity managers to register and seek government authorisation for the first time as well as meet stricter reporting, governance and risk management standards.

Gary Litman, European policy expert at the US Chamber of Commerce, warned of the dangers of “regulatory favouritism”: “It sounds like it invites trouble and is very worrying.”

Stuart Popham, senior partner at law firm Clifford Chance in London, said there was a danger of “casserole regulation with everybody putting a bit of everything in” leading to unintended consequences such as making Europe a fortress, impregnable to US funds.

Mr Fink warned the UK government against killing “the golden goose” of hedge funds and private equity. He added that taken with recent tax increases, many managers “don’t feel they’re being very loved in London at the moment, and there are other cities out there like Geneva, Zurich and other capitals that are showing much more love and care for their financial community.”

I WONDER HOW LONG IT TOOK TO GET THE SMELL OF TESTOSTERONE OUT OF THE ROOM...

[Demeter]

18. AIG brands Greenberg ‘a liar’ (SOUNDS LIKE AN APPEAL FORTHCOMING)

http://www.ft.com/cms/s/0/6d0fd636-6a86-11de-ad04-00144feabdc0.html

By Alan Rappeport in New York

Published: July 7 2009 00:46 | Last updated: July 7 2009 00:46

A lawyer for AIG called Hank Greenberg, the insurer’s ex-chief executive who was ousted in 2005, “a liar” and accused him of fabricating evidence in a $4.3bn lawsuit involving his private investment fund.

The forceful remarks punctuated the closing arguments on Monday in a three-week trial involving Mr Greenberg’s Starr International Company, which once funded a retirement plan at the insurer. Ted Wells, AIG’s attorney, painted the termination of that plan in 2005 as an act of retaliation by Mr Greenberg after he was forced out of the company. “He lied to you,” Mr Wells said of Mr Greenberg to the jury.

David Boies, who is representing Starr and Mr Greenberg, called Mr Wells’ words “harsh” and argued that AIG was being dishonest in its portrayal of Starr as a trust that was created by the insurer with the sole purpose of supporting the company and paying its managers. He said the trust was ultimately intended for charitable purposes, was not required to only compensate AIG managers and questioned why the terms of the trust appeared nowhere in AIG’s financial reports.

“You don’t have a multi-billion dollar trust that exists for 35 years and nobody knows about it until lawyers make a claim,” Mr Boies said. “I think they should get zero.”

Mr Wells also accused Mr Greenberg of giving false testimony to a federal court and forging meeting minutes and memos to blur the purpose of the trust as a vehicle that AIG contends was meant to compensate its managers.

Mr Greenberg faced an assault on his character, as Mr Wells said that the 84-year-old acted as if he could “walk through raindrops and not be touched” and that he had disrespected the witness stand by dodging questions and lying under oath.

Starr had funded the plan since 1970 and the shares in the fund were used to compensate AIG executives until 2005. Under the lawsuit, AIG wants the stock and the $4.3bn Starr made when it sold some of its stake in the company, alleging that Starr improperly sold shares it claims were earmarked for its employees.

Last month Mr Greenberg told the court he had been “exaggerating” when he told the Starr plan’s participants in 2000 that the plan was developed to “have sufficient shares in the trust for a couple hundred years”. Mr Wells presented him with evidence including videos, speeches and memos spanning 30 years where he made similar assertions.

AIG has said that any damages that it is awarded will go towards repaying the US government, which has spent $180bn in the last year to bail out the stricken insurer after it nearly collapsed. The jury will begin its deliberations on Tuesday to decide if Starr broke the terms of the trust by ending the plan and if the group is illegally withholding AIG’s property.

[Demeter]

20. Ex-Goldman employee accused of cyber-theft (FT ON THE RUSSIAN)

http://www.ft.com/cms/s/0/87953578-6a54-11de-ad04-00144feabdc0.html


By Greg Farrell in New York

Published: July 6 2009 19:17 | Last updated: July 7 2009 00:03

US law enforcement officials arrested a former Goldman Sachs employee over the weekend, accusing him of stealing sensitive automated trading codes and uploading them to a server based in Germany.

Sergey Aleynikov, a computer programmer who joined Goldman in May 2007 and resigned last month, was arrested as he disembarked from a flight at Newark airport and charged with theft of trade secrets and transfer of stolen property.

According to an affidavit filed by the Federal Bureau of Investigation, Mr Aleynikov, who held the title of vice-president at Goldman before leaving on June 5, was part of a team that developed and improved the software codes in the firm’s trading programs. He was bound by Goldman’s standard confidentiality agreements.

The FBI affidavit alleges that Mr Aleynikov, after accepting the offer from his new firm, which has yet to be identified, downloaded about 32 megabytes of proprietary trading platform data from his desktop computer at work as well as his laptop at home on four separate occasions between June 1 and June 5, his last day at Goldman.

Goldman, which monitored Mr Aleynikov’s e-mails and computer activity in his final days at the firm, brought the matter to the attention of the FBI. The firm had no comment on Mr Aleynikov or his arrest, but a person familiar with the matter insists that neither the firm, nor any of its clients, sustained any financial harm as a result of the file transfers.

According to the FBI affidavit, Mr Aleynikov allegedly tried to disguise his last file transfer by erasing his computer’s most recent commands. But Goldman retains a back-up copy of each computer’s history.

Mr Aleynikov was released on Monday after posting $750,000 bail.

[Demeter]

22. Fears over Gulf banks cause stocks to tumble

http://www.ft.com/cms/s/0/25018e36-6c0a-11de-9320-00144feabdc0.html

By Robin Wigglesworth in Abu Dhabi

Published: July 8 2009 23:20 | Last updated: July 8 2009 23:20

Concerns over the exposure of Gulf banks to two leading Saudi Arabian groups in financial difficulties have sent banking stocks tumbling across the region.

Saad Group, owned by billionaire Maan Al Sanea, and companies owned by the Algosaibi family, one of the most prominent Saudi families, have been forced to restructure their local and international debt, estimated at between $15bn to $16bn by bankers.

Financiers are becoming worried that there could be further trouble lurking in the widespread Gulf practice of “name lending” to prominent families and individuals.

Saudi banking stocks have shed 12.5 per cent since June 1, when Saad Group first admitted that it planned to restructure its debts, outpacing the 9 per cent decline of the Saudi stock market. Samba Financial Group, a leading Saudi bank, has lost nearly a fifth of its value since early June. “There are a lot of worried credit committees now,” said a senior Saudi-based international banker, who declined to be named.

Overall, banking shares have performed better in other Gulf markets, but certain banks have slumped on worries that they are exposed.

Abu Dhabi Commercial Bank, which has admitted exposure to the Saudi groups, and Commercial Bank of Qatar, which has so far declined to comment, have both declined about 18 per cent since early June. The ADX and Doha Securities market have lost 2.5 per cent and 13.6 per cent respectively.

“In the absence of any formal disclosures by the banks on the size and nature of their exposures to the two business groups, we believe that speculation will continue to increase,” EFG-Hermes analysts said in a report. “We expect this to dampen investor sentiment towards the banks.”

Transparency now appears to pay a premium. Tellingly, the banking sector in Oman – where the central bank forced all banks to declare their exposure of about $192m immediately – has gained 1.3 per cent since June 1, broadly in line with the overall Muscat stock market.

Banks in the United Arab Emirates and Saudi Arabia are expected to be among the worst hit by loans to Mr Sanea and the Algosaibi group. In a research note published on June 7, HSBC put exposure of Saudi banks at between $4bn and $7bn.

United Arab Emirates banks have declined to specify what they lent to the Saudi borrowers, but Sultan bin Nasser Al Suwaidi, the central bank governor, recently said the exposure was “significant”.

[Demeter]

23. Bern to block UBS record transfer to US

http://www.ft.com/cms/s/0/93572724-6bbf-11de-9320-00144feabdc0.html

By Haig Simonian in Zurich

Published: July 8 2009 14:37 | Last updated: July 8 2009 18:38

The Swiss government on Wednesday waded into the legal battle between UBS and the US authorities by saying it would forbid the bank from handing over confidential client information, if a crucial court case next week required it.

Bern warned it might go as far as confiscating the data, should a US court in Miami rule the bank was obliged to transfer the client names requested.

The move marks a major escalation in the war of words between Bern and Washington over US demands that UBS hand over names of up to 52,000 US taxpayers holding offshore accounts in Switzerland.

Although the Swiss government is not directly involved, Bern is represented as a “friend of the court”. In a filing revealed Wednesday, the government warned it would issue a blocking order and, if necessary, confiscate all relevant material, to prevent UBS from complying, should the Miami court side with the US authorities.

“The enforcement of the summons would require UBS to violate Swiss law,” it said.

UBS has argued such matters are best handled bilaterally between governments. The US has contended its action is valid, as UBS has admitted that Switzerland-based bankers broke US laws when visiting clients in America.

Last February, UBS agreed to pay $780m to settle a separate, but linked, criminal action by the US authorities. However, a civil case requiring the bank to reveal up to 52,000 client identities remained open, culminating in next week’s hearings.

Legal experts said the conflict recalled a similar case in the 1980s, when the US sought information about Marc Rich, the controversial commodities dealer based in Switzerland. Both sides have used that precedent to justify their positions.

Swiss ministers have acknowledged UBS made mistakes in soliciting business from US clients and have recognised the bank will face heavy penalties. Observers expect an out-of-court settlement, involving heavy fines and possibly other sanctions. But while the bank has long appeared ready for a deal, the US has held out for names, raising pressure on UBS and turning the affair into a diplomatic issue.

Bern’s position has been undermined by the fact that, in February, UBS was forced by the Swiss bank regulator to hand over 255 US client names most suspected of using sham companies to evade tax.

[Demeter]

24. Sky Capital staff face $140m fraud charges

http://www.ft.com/cms/s/0/ffee34b8-6be7-11de-9320-00144feabdc0.html

By Joanna Chung in New York

Published: July 8 2009 19:23 | Last updated: July 8 2009 23:58

Six former executives and brokers of Sky Capital, a New York brokerage, have been charged with a $140m transatlantic “boiler-room” fraud that law enforcers say reeled in UK and US investors.

According to a criminal indictment the individuals, including Ross Mandell, Sky Capital’s founder and chief executive, allegedly persuaded investors to buy shares through private placements in two related companies, Sky Capital Holdings and Sky Capital Enterprises, which traded on the Alternative Investment Market of the London Stock Exchange.

But they are alleged to have used the funds to enrich themselves and pay commissions to brokers often disguised as loans or bonuses. The six were also subject to a separate civil complaint by the US Securities and Exchange Commission, which alleged Mr Mandell used funds to pay for a lavish lifestyle.

He is alleged to have made frequent trips to London to pitch private placements to prospective investors. The SEC said the trips included first-class flights and adult entertainment.

The stock manipulation was allegedly designed to make it appear there was demand for the shares when there was not, to control the market and to maintain and increase the share price, the indictment said.

“Boiler-room tactics like those used by Sky Capital and its brokers undercut the level of honesty and fair play we seek to maintain in the securities markets,” said James Clarkson, acting director of the SEC’s regional office in New York.

Sky Capital enforced a “no net sales” policy that in essence prevented investors from selling their stocks, the SEC alleged. When trading in those stocks was suspended by the LSE in 2006, the investments were rendered worthless.

Mr Mandell pleaded not guilty and was released on $5m bail. Jeffrey Hoffman, his lawyer, said the indictment seemed to be based on evidence from “rogue brokers” at the company. He said: “When the evidence comes out, he will be fully and completely exonerated”.

Attorneys for two other defendants, Adam Harrington and Robert Grabowski, said their clients denied wrongdoing. Representatives for the others either declined to comment or were not available.

[Demeter]

25. AFTER THAT, WE NEED SOME MARGARITAS

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

Maybe the Sanford place will put us up for the night.

[AnneD]

141. Maybe something good to eat too....

A cheese burger in paradise.....

http://www.youtube.com/watch?v=oq69l32DCKs

and a pirate looks at 40 to our host(so spot on)

http://www.youtube.com/watch?v=KNmULx6sMo4

and changes in attitudes changes in latitudes

http://www.youtube.com/watch?v=CzRQyt0aTHA

[DemReadingDU]

27. Pontiac GTO Commercials

1968 Pontiac GTO Commercial
Bonnie and Clyde have robbed another bank! What better getaway car then a fast GTO?
http://www.youtube.com/watch?v=jKDhJL1BNdc


The Pontiac GTO Commercial (1965 )
http://www.youtube.com/watch?v=SQnE37VvCoM


edit to add the GTO song
http://www.youtube.com/watch?v=6c-bGVt3Pp8

[Demeter]

41. I'm not even going to ask why or how you found these

But they are screamingly funny and incredibly tear-jerking nostalgic.

[Tansy_Gold]

47. . . . .

www.ultimategto.com

Only go here if you have hours and hours and hours to spare. . . . .

[Tansy_Gold]

45. you shouldn't've done that. . . . . . . .

[Tansy_Gold]

28. Yes or No, Timmeh, YES OR NO!!!! (today's derivatives, tomorrow's bailouts?)

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=385x335388


It'll make ya wanta :puke:

[Demeter]

29. I've Got an Antidote for That!

http://www.youtube.com/watch?v=mN7Xs9WVNBU&feature=related

[DemReadingDU]

35. Brad Sherman gets it

Geithner
:puke:


I've read the derivative bubble is HUGE, over 1000 trillion, with a market value of only 20 trillion. When it pops, look for a financial tsunami over the whole world. There is no way we taxpayers can bail it out.


edit for the appropriate song
http://www.youtube.com/watch?v=45Ts4mGIVW4



or this one
http://www.youtube.com/watch?v=XmGqbOxzAwg

[Demeter]

38. Well, That's Good!

The bubble pops, the banksters go under, and the taxpayer gets out from under a burden that should never have been put on it. Oh, and the Obscenely Rich become Obscenely Poor.

Let me go find a hatpin....

http://www.youtube.com/watch?v=5Q8agQZkCfw

[DemReadingDU]

40. Nothing to worry about

With that, I really need to go put together my dish for brother's party tomorrow.

http://www.youtube.com/watch?v=BO0aNOpOYF0

[AnneD]

143. And the beleaguered taxpayer responds....

Sloop John B

http://www.youtube.com/watch?v=dEI2SrIJhsc

[Demeter]

30. 13 Real Estate Professionals Are Indicted on Mortgage Fraud Charges

http://www.nytimes.com/2009/07/09/nyregion/09mortgage.html?_r=1&ref=nyregion


By C. J. HUGHES

The Manhattan district attorney announced the indictment of 13 people on Wednesday in what he called a multimillion-dollar mortgage-fraud scheme that victimized lenders and low-income homeowners.

The 13, employed in nearly every profession in the real estate industry — including lawyers, real estate agents, appraisers and bank workers — were accused of participating in 19 sham real estate transactions.

Each of the defendants has been charged with a handful of larceny and fraud charges, the most serious of which, enterprise corruption, could result in 25-year sentences.

Prosecutors said the fraud occurred over a four-year period ending in April in Cypress Hills and East New York in Brooklyn, Washington Heights in Manhattan and in Westchester County and on Long Island.

The criminal enterprise, which they said tricked lenders into issuing loans for homes whose values were artificially inflated and then had lawyers pocket some of the money, could ultimately show losses of more than $100 million, as the investigation is continuing, Mr. Morgenthau said. The 19 transactions that prosecutors called shams totaled $12 million.

A financial system that encouraged the bundling of many overvalued home loans for sale as securities to unwitting investors, in a practice that has been blamed for kick-starting the current economic crisis, also played a role, he added.

“The banks had no occasion to be concerned or to check up because they were going to get rid of these mortgages,” Mr. Morgenthau said. “It was too easy for corrupt employees to falsify documents.”

The lenders that took the heaviest losses, according to Wednesday’s announcement, were New Century Mortgage, which probably lost more than $32 million and is no longer in business; Fremont General, which lost about $18 million; and Long Beach Mortgage Company, which has since been absorbed by Washington Mutual, and lost about $9 million.

Among the people indicted on Wednesday were the three principals of the AFG Financial Group, a mortgage broker based in Garden City, on Long Island, who, according to the indictment, were the masterminds of a plan hatched at Manhattan strip clubs in 2004.

AFG, which had 20 employees, was founded expressly to defraud banks, Mr. Morgenthau said. “If they had a legitimate side, it was by accident,” he said.

Under the complex plan, which the indictment charged was devised by Aaron Hand, the company’s president, and Eugene Culbreath and Eric Shields, the company would seek out homeowners in trouble with their mortgages, often by finding owners who had missed mortgage payments, and offer to take their homes off their hands.

If the owners agreed, the defendants would recruit buyers with good credit histories who would apply for mortgages to buy the properties, according to the indictment. Simultaneously, the defendants would use falsified documents to inflate the home’s value, to get the largest mortgage possible.

Finally, at the closings the sellers’ lawyers, who Mr. Morgenthau said were also in on the scheme, would essentially pocket the checks from the lenders. He said that the buyers, who were promised they could get out of the deal at some point, were stuck with mortgages they could not afford.

The indictment did not accuse any of the buyers or sellers of wrongdoing.

Mr. Hand pleaded not guilty on Wednesday afternoon before Judge Michael H. Melkonian in State Supreme Court in Manhattan. He was released on $400,000 cash bail, according to Richard Wool, his lawyer, who said his client had no comment.

Seven other defendants pleaded not guilty on Wednesday, another was expected to appear in court on Thursday, and the other four are not yet in custody. Twelve other people have already pleaded guilty to their involvement in the crimes, Mr. Morgenthau said.

Not only did AFG inflate the value of homes, according to the district attorney, but it also invented some. At one point during the press conference announcing the charges, Mr. Morgenthau held up a photo that was supposed to be of a two-family Bronx house valued at $500,000. It showed an empty, weedy lot.

[Demeter]

31. The Top 10 Mortgage Fraud States For 2008

http://www.usnews.com/blogs/the-home-front/2009/07/08/the-top-10-mortgage-fraud-states-for-2008.html

An FBI report released Tuesday found that mortgage fraud-related Suspicious Activity Reports increased 36 percent in fiscal year 2008 from the previous year. Meanwhile, financial firms reported at least $1.4 billion in mortgage fraud-related losses last fiscal year, an 83.4 percent jump.

“Mortgage fraud hurts borrowers, financial institutions, and legitimate homeowners,” Assistant Director Kevin Perkins, of the FBI Criminal Investigative Division, said in a statement. “The FBI, in conjunction with our law enforcement, regulatory, and industry partners, continues to diligently pursue perpetrators of mortgage fraud schemes.”

Here's a look at the top 10 mortgage fraud states for 2008:

1. California

2. Illinois

3. Texas

4. Georgia

5. Ohio

6. Colorado

7. Maryland

8. Florida

9. Missouri

10. New York.

[Demeter]

32. FBI: Mortgage fraud on the rise

http://www.bizjournals.com/portland/stories/2009/07/06/daily42.html

Mortgage fraud is increasing throughout the U.S., as distressed homeowners look for answers to troubled mortgages and find little help from their banks, according to a new FBI report.

Suspicious activity reports referred to law enforcement increased 36 percent, to 63,713 during fiscal year 2008 from 46,717 reports in 2007. While the total dollar loss attributed to mortgage fraud is unknown, financial institutions reported losses of at least $1.4 billion, an increase of 83.4 percent from 2007, according to the report.

The Los Angeles field office led the pack, with 9,971 suspicious activity reports in 2008. Miami followed, with 5,155 reports. In April, Florida was ranked third in the nation in the amount of mortgage fraud activity in the first quarter of the year, according to Mortgage.com's FraudBlogger Index, a measure of mortgage fraud case activity.

The downward trend in the housing market during 2008 provided a favorable climate for mortgage fraud schemes to proliferate, the report noted.

In May, the Mortgage Bankers Association reported that a record-high 12.07 percent of U.S. mortgage borrowers were either behind in their payments or facing foreclosure.

The FBI report said mortgage scams on the rise include fraudulent short sales, bankruptcy filings and reverse mortgage schemes, refinancings, modifications and sometimes arson to collect insurance money. Some of the fraud schemes hurt consumers and borrowers, while others hurt original lenders, according to the report.

The FBI also noted some less-reputable mortgage firms give the appearance to consumers they are government housing agencies empowered by the Obama administration’s stimulus and mortgage rescue programs.

Florida’s attorney general created a Web site designed to help homeowners. The Web site, at http://myfloridalegal.com/mortgagefraud, provides homeowners with access to investigations, complaint forms, and tips to identify and avoid foreclosure rescue fraud.

THE FBI REPORT IS HERE:

http://www.fbi.gov/publications/fraud/mortgage_fraud08.htm

[Demeter]

33. SOMEHOW, THIS SEEMS CRUELLY APPROPRIATE

http://www.youtube.com/watch?v=H-ThPN8ZY4I&feature=related

[AnneD]

140. Snarky........

how about this........
http://www.youtube.com/watch?v=xGdLDOXyWsg

[Demeter]

149. Now That's Something!

How could I forget that one!

[DemReadingDU]

36. Budget Nightmare: 10 Most Broke States

7/7/09 Budget Nightmare: 10 Most Broke States

From Road Paving to Services for the Poor, States Cut Back to Balance Budgets Crushed by Recession

The economic problems of American families are now pounding many state governments which are in turn slashing services to balance their budgets in one of the most difficult years in decades.

High on the chopping block are benefits to the poor, money for education, highway repairs, hours that state offices are open and even closures of state parks and recreation areas.

Things are so bad that 48 states addressed or are facing shortfalls in the fiscal year that just started. The total deficit: $166 billion, according to the Center on Budget and Policy Priorities. Many states are also already predicting shortfalls next year.

Only Montana and North Dakota have so far been unscathed in their state budgets.

The problem: as workers get laid off or see their pay cut, they end up owing the state less in income tax. Further compounding the issue is a shortfall in sales tax caused by consumers cutting back in the recession. Finally, companies are making less money and also paying less in taxes.

"It's a revenue problem, not a spending problem," said Elizabeth McNichol, a senior fellow at the center.

Unlike the federal government, nearly every state is legally required to balance its budget. For many, the spending cuts would have been worse without the $787 billion federal economic stimulus package.

No one is immune from the wide-ranging cuts.

"States are really looking at everything," said Todd Haggerty, a research analyst with the National Conference of State Legislatures. "Anything and everything is on the table."

To come up with a list of the worst state budget situations, ABC News asked the Center on Budget and Policy Priorities to look at the budget gaps that states closed -- or still need to close -- as a percentage of their overall budgets.

Coming in at the top of the busted list is California, which is going through a miserable budget crisis. But there are also some surprises on the list, including Alaska and Vermont.

California: $53.7 billion shortfall or 58 percent of its budget
Arizona: $4 billion shortfall or 41 percent of its budget
Nevada: $1.2 billion or 38 percent of its budget
Illinois: $9.2 billion or 33 percent of its budget
New York: $17.9 billion or 32 percent of its budget
Alaska: $1.35 billion shortfall or 30 percent of its budget
New Jersey: $8.8 billion or 30 percent of its budget
Oregon: $4.2 billion or 29 percent of its budget
Vermont: $278 million or 25 percent of its budget
Washington: $3.6 billion or 23 percent of its budget
Connecticut: $4.1 billion or 23 percent of its budget

more info on each state...
http://abcnews.go.com/print?id=8016634

[Demeter]

34. Are We Having Fun Yet?

Music is my drug of choice..it's the only thing that's getting me through this!
Inspired suggestion, DemReadingDU!

[DemReadingDU]

37. WooHoo!

There's something about the songs from the sixties. They're timeless, And I can understand the words
:)

[Demeter]

39. Yeah, Standard English Was Spoken Here, Once Upon a Time

Can you imagine coming to this country without English, and trying to learn it from pop culture?

[Joe Chi Minh]

144. Fifties even better.

[DemReadingDU]

153. Elvis!

http://www.fiftiesweb.com/elvisong.htm

[Joe Chi Minh]

158. You got it! And a million others! But the sixties, too... I mean how about the names of some of

those groups, e.g. The Loving Spoonfulls! For crying out loud. They made Mom and apple-pie seem cool, those names.

[Demeter]

42. Congress’s $1.2 Million a Day Drug Habit By Unsilent Generation

http://unsilentgeneration.com/2009/06/30/congresss-1-2-million-a-day-drug-habit/

July 09, 2009 "Unsilent Generation" -- - When it comes to securing their interests against even the flimsiest of threats, the drug-makers’ pockets appear bottomless. A look at last week’s Center for Responsive Politics report on the industry offers an awe-inspiring view of the druggies in action: To begin with, we’re not talking about a handful of lobbyists twisting the arms of members of Congress. Pharma had 1,814 flacks at work last year and 1,309 in the first 3 months of this year. That’s 12 percent of all the lobbyists in Washington. Last year alone the drug industry spent $234 million on lobbying. In the first three months of this year, it spent more than $66.5 million–$1.2 million a day. And that doesn’t include polling, advertising, and research. Among the top recipients of Pharma funds are several members of the Senate Finance Committee, including Chair Max Baucus, who have positioned themselves as a “coalition of the willing” dedicated to promoting a bipartisan middle ground on health care reform–in other words, minor changes that won’t seriously affect private sector profits.

And that’s just what we’re getting from Big Pharma, in the form of a phony “discount” program for Medicare recipients. As I wrote last week, the drug-makers are offering a 50 percent discount–on brand name drugs only–to old and disabled people when they fall into the Part D coverage gap known as the “donut hole.” Pharma’s purported “gift” to seniors, and to the health care reform effort, is actually a smart long-term business strategy, since it is likely to keep Medicare recipients hooked on brand name drugs, rather than switching to less costly generics when they reach the gap.

A study released last year by Wolters Kluwer Health showed “clear evidence of a growing affinity for generics and a continual slide away from brands” since the institution of the Medicare prescription drug program. In 2007, the study found, generics accounted for 67 percent of the Part D market, up from 50 percent just three years earlier. “What’s most striking,” said a VP of the information services company, “is the fact that of those who discontinue their branded drug therapy in the coverage gap, only 6% return to them after leaving the gap.”

In other words, seniors keep taking the cheaper generics, even once the government starts picking up the bill again in the new calendar year. Since most Medicare recipients spend more time outside of the donut hole than in it, the drug-makers could actually see a big payoff from their discount program if it keeps a fair number of elders taking the brand name drugs, and keeps the government—and the taxpayers—funding them.

All this points to the fact that despite their protestations, the drug companies (and insurance companies) have no real objection to health care “reform,” as long as it happens on their terms. The Republican-penned Medicare prescription drug bill, for example, was a huge boon to both industries, opening up a mammoth new market for their products, with the government footing the bill.

What the drug-makers want to avoid, then and now, is an end to what Dean Baker calls “their government-granted monopolies,” which allow them “to charge whatever they want. As a result, we pay nearly twice as much for our prescription drugs as people in countries like Canada and Germany.

By making voluntary “concessions,” the industry positions itself to combat any real change that might affect its profit margins. And with drug spending estimated to total $3.3 trillion over the next decade, $80 billion in discounts is a small price for Big Pharma to pay to preserve its stranglehold on the American health care system. And so is $1.2 million a day to preserve its friends in high places in the United States Congress.

[Demeter]

43. Are Our Markets Being Manipulated By "Rogues" Or Firms? By Danny Schechter

http://informationclearinghouse.info/article23016.htm

There’s New Evidence to Suggest that Crime In The Financial Markets is Rife



July 09, 2009 "Information Clearing House" -- New York, New York: Everyone has heard of the Wikipedia but not everyone knows about the Investopedia, a Forbes website, that monitors finance for market players. One of the issues it is concerned about is market manipulation, actions by rogue and not so rogue players who, working alone or together, unduly influence the way our supposed “free” markets function.

It is a fascinating source of information for the uninitiated who hear the daily reports on the ups and downs of the Dow and believe that somehow it is all part of the natural order of the universe.

It isn’t

Thanks to an even more informative web site, Gamingthemarket.com, we learn that in fact markets are subject to, prone to, and characterized by all sorts of manipulative practices. Here’s one you may not have heard of.

“Ghosting: An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. Ghosting is used by corrupt companies to affect stock prices so they can profit from the price movement.

This practice is illegal because market makers are required by law to act in competition with each other. It is known as "ghosting" because, like a spectral image or a ghost, this collusion among market makers is difficult to detect. In developed markets, the consequences of ghosting can be severe.” -Investopedia

It looks like we have gone from the age of the trustbuster to the era of the ghost buster as fiction once again turns into “faction.”

Last week, the price of oil mysteriously shot up. There were reports of yet another “rogue” trader. The New York Times later reported:

“Reacting to recent swings in oil prices, federal regulators said they were considering limits on “speculative” traders in markets for oil and other energy products.” Of course, the big banks and Wall Street firms are expected to zealously oppose more oversight.

Some things don’t change. Anyone remember Nicholas Leeson, a one man engine of speculation who lost over a billion dollars and brought down his own bank before going to jail? He later gloated on his website; “How could one trader bring down the banking empire that had funded the Napoleonic Wars?"

On July 4th, Bloomberg News reported:

“Sergey Aleynikov, an ex-Goldman Sachs computer programmer, was arrested July 3 after arriving at Liberty International Airport in Newark, New Jersey, U.S. officials said. Aleynikov, 39, who has dual American and Russian citizenship, is charged in a criminal complaint with stealing the trading software. At a court appearance July 4 in Manhattan, Assistant U.S. Attorney Joseph Facciponti told a federal judge that Aleynikov’s alleged theft poses a risk to U.S. markets. Aleynikov transferred the code, which is worth millions of dollars, to a computer server in Germany, and others may have had access to it, Facciponti said, adding that New York-based Goldman Sachs may be harmed if the software is disseminated.”

The next sentence is particularly eye-opening: “The bank has raised the possibility that there is a danger that somebody who knew how to use this program could use it to manipulate markets in unfair ways,” Facciponti said.”

J.S. Kim who runs an independent investment research and wealth consultancy firm commented on the financial site, Seeking Alpha:

“It’s curious to note that Goldman Sachs has admitted that it has developed trading software that could be used to, in their own words, “manipulate markets in unfair ways”, yet nobody in the mainstream media has questioned whether Goldman Sachs was / and is using its proprietary trading platform to manipulate markets in unfair ways. Only extremely naive investors with zero understanding of how global stock markets operate would deny that there has been continual and excessive intervention into US stock markets to prop them up over the past several months.”

I spoke with Christian Angelich, the founder or Gaming the Market.com, a former airline pilot turned trader, who told me that in recent years efforts to manipulate markets have become pervasive and, yet, are mostly illegal.

He too cited Goldman when I asked how it often works.

Without prodding, he came up with one possible scenario involving a firm like Goldman Sachs that had 00 millions of shares of Intel it wanted to offload. So they issue a report predicting it will sell for $50 a share. As a major player at the New York exchange where they do l out of ever ten shares, and have become even more powerful now that competitors like Bear, Lehman and others are out of business, their recommendations are given lots of weight even though in this case they really want to just dump the shares.

“None of this is new,” he told me, “its been going on for years. Even the founding Fathers warned about it, but is more egregious today in part because of all the technology these firms have.” He says it is illegal and has been winked at, citing one example: former Senator Phil Gramm attaching a plan to kill the Glass Steagall act as an amendment to a bill that then sailed through the Congress while his wife was on the Commodity Futures Trading Commission.”

“We will only have a real bottom,” he believes’ when the masses are out in the streets like they are in parts of Europe. For change, pressure from below is needed.”

Sometimes unexpected events can take over markets too, as Michael Jackson’s untimely demise’s meteoric impact on the music market shows. His sales went from nowhere to everywhere confirming one jaded pundit’s cynical comment that “he was more valuable dead than alive.”

In making a new film on the financial crisis as a crime story, I spoke with Moe Saceriby, a former lawyer and VP of Standard and Poors who went on to become a UN Ambassador. I knew him as a credible analyst of current affairs, an experienced professional. We spoke on Wall Street.

He told me:

‘I think we had a transition from what truly was a free-market system to something now that is out of control and probably what I would define as a predatory system where we are not so much dealing anymore about the notion of fair prices, and the notion of markets that -- that work transparently an open late but in fact frequently markets that are manipulated for the end of maybe a few out there -- a few investors, mega-investors. It's even -- even that's very difficult to tell. “

This was new to me---the whole system being described as predatory which smacks of criminal.

He went on:

“And these market movements may not be necessarily reflective of the underlying value of that real asset whether it be a commodity or whether it be in equity. What I mean by that is frequently you see prices wildly fluctuating. As an example: how could oil be at $147 in July of 2008 and all of a sudden fall to below $40 a barrel at the end of that same year? We all knew that in fact the whole economic system was in trouble over a year ago. But the price of oil kept rising sharply. The price of foods kept rising sharply.

Question: “Manipulated?”

Answer: “I think it was manipulated. There is a lot of debate whether it's about speculation or manipulation but there is an old expression among traders which is ‘the trend is your friend.’ What that means is that in fact a few people can use significant resources, financial resources, freely as a weapon.”

Umm, weapons on Wall Street? Already credit default swaps have been compared to financial hydrogen bombs as financial terms merge with military language. Does anyone doubt that these Wall Street manipulations have become form of warfare and that, until now, the wrong side has been ahead.

Surely, all this demands a serious investigation and serious regulation. Will it happen?

Mediachannel.org’s News Dissector Danny Schechter is producing a film on “the Crime of Our Time” as a follow-up to his book PLUNDER; Investigating Our Economic Calamity (Cosimo Book, Amazon.com) Comments to [e-mail]

[KoKo]

53. This is a good read...n/t

[Demeter]

44. Honduran Coup, Damning Indictment of Capitalism By Dennis Rahkonen

http://dissidentvoice.org/2009/07/honduran-coup-damning-indictment-of-capitalism/

-- Since he’s spending his summer vacation at our home, I recently washed my 11-year-old grandson’s dirty clothes.

As I later folded them, small tags told me they were manufactured in the Philippines, Bangladesh, Pakistan, Sri Lanka, Guatemala, and Honduras.

Not one item bore a “Made in USA” label, which is very sad, considering that the unionized needle trades were once a bastion of our country’s labor movement, and that finding attire produced overseas was a rarity just a few decades ago.

All this relates closely to the despicable coup that deposed Honduras’ democratically elected president, Manuel Zaleya.

Although the coup’s initiators say they were motivated by other factors, what really spurred their reactionary ire was Zaleya promoting better pay and conditions for Honduran workers in general, but particularly for the virtual sweatshop slaves whose cruel exploitation by mostly U.S. garment firms has been an utterly obscene profit generator for shameless owners residing in luxury in the North.

It would be extremely naive to think those “foreign” companies, along with others involved in banana and fruit growing, did not facilitate the coup in more than minor ways. It goes without saying, also, that U.S. political conservatives, with operative ties to covert Central American intrigues dating back to the Reagan years, are now malevolently present in Tegucigalpa.

Our nation’s anti-democratic, imperialist role in Central America is nothing new.

Countless religious activists, teachers, clinic workers, union organizers, and ordinary campesinos were brutalized by sordid contras secretly armed and trained by the U.S. under illegal Reagan administration aegis during the ’80s.

Much earlier, however, Yankee pillage of Latin America (as well as other world locales) was already standard operating procedure, as starkly exposed by former Marine Corps Commandant Smedley Butler

I spent 33 years (in the Marines)…most of my time being a high-class muscle man for Big Business, for Wall Street and the bankers. In short, I was a racketeer, a gangster for capitalism…

I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-1912. I helped make Mexico and especially Tampico safe for American oil interests in 1914. I brought light to the Dominican Republic for the American sugar interests in 1916. I helped make Haiti and Cuba a decent place for the National City (Bank) boys to collect revenues in. I helped in the rape of half a dozen Central American republics for the benefit of Wall Street…

In China in 1927 I helped see to it that Standard Oil went on its way unmolested. I had a swell racket. I was rewarded with honors, medals, promotions. I might have given Al Capone a few hints. The best he could do was operate in three city districts. The Marines operated on three continents.

Progressives familiar with people’s history know about the titanic struggle it took to unionize U.S. labor, lifting largely immigrant masses out of deep poverty, winning them the pay, benefits, and conditions that would shape the contours of our storied “good life”.

They know, too, that the most militant unions were purged and broken during the McCarthyite Red Scare, allowing class-collaborationist tendencies to rise, making the decimation of American labor in the aftermath of Reagan’s firing of the air traffic controllers essentially a cake walk, much to the profitable delight of corporate parasites.

Now our working class — the backbone of society and the creator of all productive wealth — is losing its jobs, homes, health care, pensions, and collective temper on an unprecedented scale.

The savagely exploitative, intensely destructive Walmart labor relations model dominates U.S. life, and everything we buy is produced abroad in oppressive settings where women and children toil long hours for mere pennies. We (and certainly they) are being ground into the dust as a tiny minority of private “entrepreneurs” live high on the hog, via stolen wealth that properly should be used to improve everyone’s living standards.

But capitalism can’t do that.

It’s unable to function in anything but an increasingly rapacious way, shafting majority wage earners ever more painfully, whether through the acute injustice that leaves evicted families on the street in U.S. cities, or Hondurans fearfully facing military repression and a drastic deterioration of their already desperate existence.

As its growing resort to super-exploitation, dictatorial harshness, violence and war clearly proves, capitalism is the intrinsic enemy — not the ballyhooed champion — of fair play, democracy, simple decency, and peace.

Humanity will have no future worth aspiring to if it stays tied to capitalism’s irreparable flaws and fiercely down-pulling restraints.

The rest of this pivotal century clearly must be devoted to building truly democratic, broadly uplifting socialism on a global scale.

It’s the great moral imperative of our era.

Dennis Rahkonen, from Superior, Wisconsin, has been writing progressive commentary with a Heartland perspective for various outlets since the '60s

[Joe Chi Minh]

70. It's difficult to credit, but there are low-lifes on here who vociferously

attack Zelaya, Chavez and anyone else who makes an attempt at redistributing in some small measure the vast wealth of the few - Dives's demoniac brothers; that very polarization which has significantly contributed to this mushrooming, economic holocaust.

Hell will be a strange place with these types filling it up to the gills. Hunter Thompson's matchless, dark irony covers their pathological influence in that sad continent - which ought long ago to have become an industrial power-house.

[Demeter]

46. Barack McNamara Obama Why Can't Obama See His Wars Are Unwinnable? By Ted Rall

http://informationclearinghouse.info/article23020.htm


July 10, 2009 "uexpress" --- PORTLAND, OREGON--Robert McNamara, one of the "best and the brightest" technocrats behind the escalation of the Vietnam War, eventually came to regret his actions. But his public contrition, which included a book and a series of interviews for the documentary "The Fog of War," were greeted with derision.

"Mr. McNamara must not escape the lasting moral condemnation of his countrymen," editorialized The New York Times in 1995. "Surely he must in every quiet and prosperous moment hear the ceaseless whispers of those poor boys in the infantry, dying in the tall grass, platoon by platoon, for no purpose. What he took from them cannot be repaid by prime-time apology and stale tears, three decades late."

McNamara's change of heart came 58,000 American and 2,000,000 Vietnamese lives too late. If the dead could speak, surely they would ask: why couldn't you see then what you understand so clearly now? Why didn't you listen to the millions of experts, journalists and ordinary Americans who knew that death and defeat would be the only outcome?

Though Errol Morris' film served as ipso facto indictment, its title was yet a kind of justification. There is no "fog of war." There is only hubris, stubbornness, and the psychological compartmentalization that allows a man to sign papers that will lead others to die before going home to play with his children.

McNamara is dead. Barack Obama is his successor.

Some call McNamara's life tragic. Tragedy-inducing is closer to the truth. Yes, he suffered guilt in his later years. "He wore the expression of a haunted man," wrote the author of his Times obit. "He could be seen in the streets of Washington--stooped, his shirttail flapping in the wind--walking to and from his office a few blocks from the White House, wearing frayed running shoes and a thousand-yard stare." But the men and women and boys and girls blown up by bombs and mines and impaled by bullets and maimed in countless ways deserve more vengeance than a pair of ratty Nikes. Neither McNamara nor LBJ nor the millions of Americans who were for the war merit understanding, much less sympathy.

Now Obama is following the same doomed journey.

"We must try to put ourselves inside their skin and look at us through their eyes," McNamara warned long after the fact, speaking of "America's enemies" but really just about people--people who live in other countries. People whose countries possess reserves of natural gas (Vietnam) or oil (Iraq) or are situated between energy reserves and deep-sea ports where oil tankers dock (Afghanistan and Pakistan).

Why can't President Obama imagine himself living in a poor village in Pakistan? Why can't he feel the anger and contempt felt by Pakistanis who hear pilotless drone planes buzzing overhead, firing missiles willy-nilly at civilians and guerilla fighters alike, dispatched by a distant enemy too cowardly to put live soldiers and pilots in harm's way?

"We burned to death 100,000 Japanese civilians in Tokyo--men, women and children," McNamara said. "LeMay said, 'If we'd lost the war, we'd all have been prosecuted as war criminals.' And I think he's right. He--and I'd say I--were behaving as war criminals." 900,000 Japanese civilians died in all.

"Make no mistake, the international community is not winning in Afghanistan," concluded the Atlantic Council in 2008. Things have only gotten worse as U.S. troop presence has increased: more violence, more drugs, less reconstruction.

Like McNamara, Obama doesn't understand a basic truth: you can't successfully manage an inherently doomed premise. Colonialism is dead. Occupiers will never enjoy peace. Neither the Afghans nor the Iraqis nor the Pakistanis will rest until we withdraw our forces. The only success we will find is in accepting defeat sooner rather than later.

"What went wrong was a basic misunderstanding or misevaluation of the threat to our security represented by the North Vietnamese," McNamara said in his Berkeley oral history." Today's domino theory is Bush's (now Obama's) clash of civilizations, the argument that unless we fight them "there" we will have to fight them here. Afghanistan and Iraq don't present security threats to the United States. The presence of U.S. troops and drone planes, on the other hand...

In fairness to McNamara, it only took two years for him to call to an end of the bombing of North Vietnam. By 1966 he was advising LBJ to start pulling back. But, like a gambler trying to recoup and justify his losses, the president kept doubling down. "We didn't know our opposition," concluded McNamara. "So the first lesson is know your opponents. I want to suggest to you that we don't know our potential opponents today."

Actually, it's worse than that. Then, like now, we don't have opponents. We create them.

[MattSh]

55. Well, on some days I think he does see this...

Some days, I think he really is doing all he can. "O" Knows that if he goes too far left, too quickly, the powers that be, the REAL powers that be, would not hesitate to JFK him. So he's really doing all he can with the limited wiggle room he has.

Then on other days, maybe more lucid, maybe not, I think maybe, just maybe "O" is not the great hope he was built up to be, and who he built himself up to be. What we see is what he is.

[Demeter]

48. One Last Golden Oldie--Tomorrow I'm Going to Ogle Men in Kilts!

Don't wait up for me, I may be late!

http://www.youtube.com/watch?v=q9SmT6cXGFQ&feature=fvw

[KoKo]

50. "The Goldman Sachs Tax"...........Ritholtz

The Goldman Sachs Tax

Posted By Barry Ritholtz On July 10, 2009 @ 7:14 am that saw all trades on the NYSE prior to their execution. Theoretically, this would allow GS to buy (or sell) stocks, selling (or covering) them back to the now compromised trader towards the end of their purchase (sale). Or, they could take a position, assuming there was more flow behind the initial order. Or, they could arbitrage a few fractional cents each trade.

The idea is fascinating. If the allegations are true — and I have no idea if they are — there are all sorts of fascinating repercussions.

Consider whether any of these are realistic, or even possible:

• The Goldman Sachs vig — a tax really — accompanies any trade large enough to catch their software’s attention: Meet the algo parameters, pay a GS tax;

• Why hasn’t the NYSE caught this? Is this another nail in the coffin of SRO (self-regulating organizations) ?

• Alternatively, if they saw it, why haven’t they done anything about it? Its not like the NYSE is run by Goldman alums (oh, wait . . . )

• What corporate or regulator can challenge GS? Congress? SEC? Federal Reserve? How powerful is Goldman? Is anyone, aside from Matt Taibbi, willing to take them on ?

• Perhaps Goldman Sachs is less smart as a group than previously believed — their returns are a function not of genius, but of cheating.

Now for a does of reality.

How might this work? The GS sniffer sees an order for 1 million shares. The computers pick up a 100,000 shares and based upon conditions, put them out for sale at some price higher. At 10 cents, its $10,000. In order for this to amount to any real amount of money, it would have to happen 1,000s of times a day. If GS’ program had 10% of daily volume of a billion shares, picking up a dime, its only $10 million per day.

One the other, hand, in what has been described by the pros as one of the most challenging trading environments in history, Goldman Sachs Trading Revenue is set to make all time records <2[/b>].

Any thoughts on this? How likely is a Goldman Sachs cheater program?

More and comments at:

http://www.ritholtz.com/blog/2009/07/the-goldman-sachs-tax/print/

[Hugin]

68. The fact that this isn't a bigger deal on the airwaves is a critical indicator of how owned the...

Media really has become.

The silence heard around the world.

Pathetic.

[Demeter]

73. Give It a Week or Two

this is the kind of story that will grow and grow as people become aware and start to ask questions, especially Congresspeople! And the Investor class.

[Hawkowl]

77. Especially when they report earnings

I agree that in a week or two at most, this is going to get considerably more airplay. I believe they are set to report record earnings next week and people are going to want answers. GS has made a lot of influential enemies. I'm hoping against hope that the mother of all shitstorms engulfs GS and impoverishes every last partner and criminal trader.

[KoKo]

52. "Jean-Pierre Aguilar, Head of French Fund, Dies" (Top French Hedge/Quant Fund)

KoKo Here: (I've been Googling for new news on how this experienced Glider Pilot and his Co-Pilot (Head of European Glider Association) could have died in the last round of this race over July 4th Weekend. There are STILL no DETAILS of what happened. I'm including some "tinfoilhat" from a blogger at the end of this post.) Weird...this guy was HUGE in the Hedge Fund World...no details of his death?

-------------

Hedge Funds »
Jean-Pierre Aguilar, Head of French Fund, Dies
July 6, 2009, 5:37 am

Jean-Pierre Aguilar, a pioneer in hedge fund investing in Europe and chief executive and co-founder of Capital Fund Management, died in a gliding accident over the weekend, the company said in a letter to investors Sunday. He was 49.

The accident, which occurred late Saturday morning near the airport of Barcelonnette, a town in the French Alps about 12 miles, or 20 kilometers, from the Italian border, also killed Mr. Aguilar’s co-pilot, Michel Fache, 56, president of the local gliding club, according to a local newspaper, La Provence.

The board of Capital Fund Management, the biggest independent French hedge fund with $2.7 billion in assets, met over the weekend to discuss the firm’s transition to new leadership.

“The firm has gone through several crises in the past and we want to reassure our investors that this terrible event will not interrupt C.F.M.’s high level of service,” the letter to investors said. “Jean-Pierre has assembled a terrific team, where all individuals are important but none, not even himself, are critical.”

Mr. Aguilar and his co-pilot were taking part in a gliding tournament, begun the Monday before, that had gathered together many of the best gliding pilots of Europe. French police are investigating the causes of the crash, which took place as the glider was ascending.

Mr. Aguilar began his career in finance with the French brokerage firm LeGrand in 1986, leaving it two years later to found Ubitrade, a financial software company. He later helped found Capital Fund Management, which was incorporated in 1991. Mr. Aguilar also led C.F.M. to sponsor a number of doctoral students studying math and physics in France.

He was member of the Chicago Mercantile Exchange and the Chicago Board of Trade.

– Chris V. Nicholson
Go to Article from La Provence (in French) »
http://dealbook.blogs.nytimes.com/2009/07/06/jean-pierre-aguilar-head-of-french-fund-dies/

AND MORE..................


Thursday, July 9, 2009

9Not sure if it means anything, but the lifespan of folks in high finance seems to be creeping downward these days.}
Hedge fund CEO dies in glider accident
by Emily Firth, citywire

Jean-Pierre Aguilar, the CEO and co-founder of French alternative asset manager, Capital Fund Management (CFM), died in a glider accident on Saturday, the firm has announced.

Set up in 1991, Paris-based CFM is one of the oldest French alternative managers. It specialises in statistical arbitrage on futures, equities and options...

Mssr. Aguilar was a computer scientist and big-time quant. I wonder what algos he was running?

Then this odd-sounding, follow-on tragedy:

..................................
Trader Dies in London Fall
By Tara Loader Wilkinson

A 24-year-old equity sales trader who worked at Deutsche Bank in London died this weekend after falling from a rooftop garden in London's financial district. Anjool Malde worked in the small- and midcap equity sales business at the German bank since joining as a graduate trainee in 2005...

...He had been asked to leave work at 3 p.m. on Friday, but Deutsche Bank said he wasn't under any suspension or part of a disciplinary action. "He was helping the bank with an inquiry into an IT matter," according to a bank spokesman. "It concluded at 3pm on Friday and he was expected to come back in this week to continue with the matter. It was very preliminary. We are deeply saddened by our colleague's death, and our thoughts are with his family and loved ones at this time..."

Huh. An IT matter? Glad I bailed from computer programming in the finance industry back in 2002. Getting unhealthy out there for folks involved with computers and finance.
More at............
http://74.125.47.132/search?q=cache:GYugueJLeTUJ:futurejacked.blogspot.com/+John-Pierre+Aguilar+Dies+in+Glider+Accident&cd=4&hl=en&ct=clnk&gl=us&client=firefox-a

[Demeter]

57. Something for Our World Traveler!

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

[MattSh]

54. Don't know how many of you have seen this... from a few years back...

But it's worth revisiting every once in a while.

The USSR was better prepared for collapse than the USA.

This article is an oldie but goodie, originally from 2006. Back then, few people, even here on DU, believed that economic collapse was possible at all. Now, collapse is looming, so it's time to revisit this article.

Closing the 'Collapse Gap': the USSR was better prepared for collapse than the US
by Dmitry Orlov

Good evening, ladies and gentlemen. I am not an expert or a scholar or an activist. I am more of an eye-witness. I watched the Soviet Union collapse, and I have tried to put my observations into a concise message. I will leave it up to you to decide just how urgent a message it is.

My talk tonight is about the lack of collapse-preparedness here in the United States. I will compare it with the situation in the Soviet Union, prior to its collapse. The rhetorical device I am going to use is the "Collapse Gap" – to go along with the Nuclear Gap, and the Space Gap, and various other superpower gaps that were fashionable during the Cold War.

Slide <2> The subject of economic collapse is generally a sad one. But I am an optimistic, cheerful sort of person, and I believe that, with a bit of preparation, such events can be taken in stride. As you can probably surmise, I am actually rather keen on observing economic collapses. Perhaps when I am really old, all collapses will start looking the same to me, but I am not at that point yet.

And this next one certainly has me intrigued. From what I've seen and read, it seems that there is a fair chance that the U.S. economy will collapse sometime within the foreseeable future. It also would seem that we won't be particularly well-prepared for it. As things stand, the U.S. economy is poised to perform something like a disappearing act. And so I am eager to put my observations of the Soviet collapse to good use.

Slide <3> I anticipate that some people will react rather badly to having their country compared to the USSR. I would like to assure you that the Soviet people would have reacted similarly, had the United States collapsed first. Feelings aside, here are two 20th century superpowers, who wanted more or less the same things – things like technological progress, economic growth, full employment, and world domination – but they disagreed about the methods. And they obtained similar results – each had a good run, intimidated the whole planet, and kept the other scared. Each eventually went bankrupt.

Slide <4> The USA and the USSR were evenly matched in many categories, but let me just mention four.

The Soviet manned space program is alive and well under Russian management, and now offers first-ever space charters. The Americans have been hitching rides on the Soyuz while their remaining spaceships sit in the shop.

The arms race has not produced a clear winner, and that is excellent news, because Mutual Assured Destruction remains in effect. Russia still has more nuclear warheads than the US, and has supersonic cruise missile technology that can penetrate any missile shield, especially a nonexistent one.

The Jails Race once showed the Soviets with a decisive lead, thanks to their innovative GULAG program. But they gradually fell behind, and in the end the Jails Race has been won by the Americans, with the highest percentage of people in jail ever.

The Hated Evil Empire Race is also finally being won by the Americans. It's easy now that they don't have anyone to compete against.

Slide <5> Continuing with our list of superpower similarities, many of the problems that sunk the Soviet Union are now endangering the United States as well. Such as a huge, well-equipped, very expensive military, with no clear mission, bogged down in fighting Muslim insurgents. Such as energy shortfalls linked to peaking oil production. Such as a persistently unfavorable trade balance, resulting in runaway foreign debt. Add to that a delusional self-image, an inflexible ideology, and an unresponsive political system.

Rest of the article, with associated graphics, here... http://www.energybulletin.net/node/23259

[Demeter]

56. Very Droll Sense of Humor--My Kind of Slav!

Thanks! Here's a song for you! I know it's not Beach Boys, but I'm sure they were the inspiration for it:

http://www.youtube.com/watch?v=XrtnnLor2UM&feature=related

[Joe Chi Minh]

145. His site is absolutely fascinating, and his dry wit, something else.

[MattSh]

58. NOT the Beach Boys. But it does have Sand!

This is from one of those "Got Talent" franchise shows, Ukraine's Got Talent.

Maybe I live a sheltered life, but I had never seen anything quite like this. But apparently there are books and videos that will teach you everything you need to know.

Dang, original link doesn't work. Let's try this...

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

Oh, she did win the competition and the money.

[Demeter]

59. That's Amazing! I've never seen anything like it!

Thank you so much! It's always a treat for us when you post, Matt!

Oh, well, back to the economy....it's raining hard and there was terrific lightning....hope it lets up before the parade in 1.5 hours...I'm so glad I don't have to march in wool! It's going to be 80F and 80% today!

[DemReadingDU]

66. That is so amazing!

I have never seen anything like this before, thanks for sharing!


edit: ok, off to the party, driving 3 hours west, into Indiana, and looks like into a big thunderstorm. Hopefully, the rain will be over by the time we get there. Carry on, check back tomorrow.

[Hugin]

69. Very enjoyable.

Thanks for sharing that, MattSh. :)

[Karenina]

81. WOW!

:wow:

[Demeter]

60. Apartment Vacancy at 22-Year High in U.S., Says Reis

http://www.bloomberg.com/apps/news?pid=20601213&sid=a5YNzreTGxLw



July 8 (Bloomberg) -- U.S. apartment vacancies rose to their highest in 22 years in the second quarter as job losses cut tenant demand and more units came to market.

Vacancies climbed to 7.5 percent from 6.1 percent a year earlier, New York-based real estate research firm Reis Inc. said today. The last time landlords had so much empty space was in 1987, when vacancies reached 7.6 percent as the Standard & Poor’s 500 Index plummeted 23 percent in the last three months of that year.

“Vacancies continued to rise despite what has traditionally been a strong leasing period for apartment properties,” said Victor Calanog, director of research at Reis.

Job losses and falling wages are shrinking the pool of potential renters, defying forecasts that prospective homebuyers would rent rather that purchase as house prices decline. The U.S. unemployment rate rose to a 26-year high in June and U.S. payrolls dropped more than forecast in June, the government said last week...

Asking rents for apartments fell 0.6 percent in the second quarter from the first, Reis said. That matched the rate of change in the first quarter, the biggest drop since Reis began reporting such data in 1999.

Asking rents dropped 0.7 percent from a year earlier to an average $1,040 a month.

Rents Drop

Rents paid by tenants, also known as effective rents, fell 0.9 percent from the previous quarter to $975, said Reis. Effective rents were 1.9 percent lower than a year earlier.

Effective rents fell the most in San Jose, San Francisco, Las Vegas, Southern California’s Orange County and Seattle. Those cities had been boosted by technology companies or the housing boom.

Rents paid by tenants climbed the most in Birmingham, Alabama; Chattanooga, Tennessee; Louisville, Kentucky; Norfolk/Hampton Roads, Virginia; and Syracuse, New York, according to Reis.

The vacancy rate increased the most in Tucson, Arizona, by 1.5 percent to 9.9 percent, followed by Charlotte, North Carolina; Little Rock, Arkansas; and Richmond, Virginia, Reis said.

New York’s Rate

Vacancies shrank the most in Columbia, South Carolina, by 1.2 percent to 13 percent, followed by New Haven, Connecticut; Colorado Springs and Birmingham, Alabama, the report said.

New York had the lowest vacancy rate in the second quarter, at 2.9 percent, followed by New Haven, home to Yale University; Central New Jersey; New York’s Long Island; and Syracuse, New York, according to Reis.

Jacksonville, Florida, had the most apartment vacancies, at 13.1 percent, Reis said. Next were Charleston and Columbia in South Carolina and Greensboro/Winston-Salem in North Carolina, said Reis.

The vacancy rate rose even as the net change in occupied space climbed by 2,530 units, Reis said.

A total of 22,696 units were completed last quarter, raising the total for the first half to 47,000, Calanog said. Reis expects more than 100,000 units to become available this year.

“New buildings coming online over 2009 and 2010 will face higher initial vacancy levels, and will work to increase the pressure on leasing managers,” Calanog said.

[Demeter]

61. True unemployment rate already at 20%

http://blogs.moneycentral.msn.com/topstocks/archive/2009/07/06/true-unemployment-rate-already-at-20.aspx


Posted Jul 06 2009, 01:16 PM by Anthony Mirhaydari


Really, how hard is it to find a job? Was June's horrid numbers, in which 467,000 people lost their jobs compared to 345,000 in May, a one-time fluke? Or does it mean that all those Wall Street economists who believe the economic recovery is starting are dead wrong?

Not to scare you, but the situation is actually worse than it seems. Over the years, the government has changed the way it counts the unemployed. An example of this is the criticized Birth-Death Model which was added in 2000. The model is designed to account for the birth and death of businesses and the resultant lag in survey data. Unfortunately, the model doesn't work that well during economic contractions (like we have now) and consistently overstates the number of jobs being created each month.

John Williams of Shadow Government Statistics specializes in removing these questionable tweaks to the government's statistical data to better align current numbers with the methodology used to gather historical data. After reviewing the data, Williams believes that "the June jobs loss likely exceeded 700,000." David Rosenberg of Gluskin Sheff notes that the fall in the number of hours worked in June (to a record low of 33 per week) is equivalent to a loss of more than 800,000 jobs.

There are similar issues with the way the unemployment rate is measured. The headline rate only jumped from 9.4% to 9.5% because of a drop in the number of people in the workforce. The more inclusive "U-6" measure of unemployment, which includes discouraged workers, jumped from 16.4% to 16.5%. But even this doesn't adequately capture the situation on the ground: Back in the Clinton Administration, the definition of discouraged worker was changed to only include those that had given up looking for work because there were no jobs to be had within the last year.

http://blogs.moneycentral.msn.com/photos/sample/images/437671/original.aspx

By adding these folks back in, William's SGS-Alternate Unemployment Measure rose to a jaw-dropping 20.6%. Separately, the Center for Labor Market Studies in Boston puts U.S. unemployment at 18.2%. Any way you cut the numbers, the situation is very bad. According to David Rosenberg, one-in-three among the unemployed have been looking for a job for more than six months and still can't find one.

http://blogs.moneycentral.msn.com/photos/sample/images/437672/original.aspx

This brings us to another issue: expiring unemployment benefits. Continuing unemployment claims fell 53,000 to 6.7 million last week, but Deutsche Bank's chief U.S. economist Joseph LaVorgna wonders how much of this decline is due people exhausting their standard 26-week benefit. He says: "We are concerned about what will happen when a significant share of out-of-work individuals' benefits completely expire, because this could lead consumer spending to re-weaken, hence jeopardizing a fragile recovery."

Unless the economy starts getting traction here in the third quarter, we could face a situation where people find that they have no job and no unemployment benefits. For these people, 2009 will feel an awful lot like 1932. As a result, spending cuts will be deep and dramatic.

My positions

The ongoing job losses will continue to weigh on the retail sector -- which was one of the best performing groups coming out of the March low. I've added short positions in Target (TGT), Macy's (M), and Office Depot (ODP) to my portfolio. Besides penny-pinching consumers, retailers face a federal minimum wage increase as well as a tough back-to-school and holiday shopping season.

Disclosure: The author does not own or control a position in any of the funds or companies mentioned.

[Demeter]

62. Unemployment, Not the Stock Market, Distinguishes a Recession From a Depression by Claus Vogt

GRAPHS AND TABLES AT ORIGINAL LINK

http://www.moneyandmarkets.com/unemployment-not-the-stock-market-distinguishes-a-recession-from-a-depression-4-34602

What are the most important and enduring characteristics of the Great Depression? And what should we monitor to determine how severe today’s situation really is?

The stock market will give important clues. But the economy, especially unemployment, defines depressions.

That should be obvious. However, after the stock market rallied off its March 2009 low, the media and many pundits seem to be fixated on the financial markets to determine the severity of the crisis and to call its end.

To see if the bulls’ hopeful thinking holds water, let’s go back to 1929 and have a look at the stock market’s behavior during those horrific times …

The Bear Market Rally of 1929/30

Yes, there was a spectacular stock market crash in 1929. But a stock market crash does not a depression make. Remember 1987? There was a very similar crash … but no depression. Not even a mild recession.

The crash of 1929 proved to be only the prelude to further heavy losses in 1930-1932. After the initial crash from 381 to 199, a huge rally emerged. Prices rose all the way back to 294 for a 48 percent bear market rally. Hence initial losses were roughly cut in half!
The stock market crash on Black Thursday, October 24, 1929, was just the beginning of the carnage to hit Wall Street.
The stock market crash on Black Thursday, October 24, 1929, was just the beginning of the carnage to hit Wall Street.

Unfortunately, investors didn’t recognize this rally as a selling opportunity. Instead, they listened to the bullish advice of Wall Street pundits and the government’s declarations that the worst was over and prosperity was right around the corner.

As we all know, this optimism proved to be, well, premature. The huge rally turned out to be just a bear market rally … soon the market started to tank again.

First, stocks tumbled back to the crash-lows, where a second and shallower rally emerged. Then after this bout of hope had evaporated, the market cascaded lower for another two years. From the high during the summer of 1929, the losses mounted to a staggering 89 percent.

Now, let’s fast forward to …

The Bear Market Rally of 2009

After having lost more than 50 percent off its October 2007 high, a huge stock market rally started in March 2009. This rally amounted to 43 percent and had all the typical characteristics of a counter trend move. Especially noteworthy was the low and diminishing volume, which is typical bear market rally behavior.

Just as in 1929, this rally led Wall Street and official sources to conjure economic optimism. This is not a coincidence … the stock market and sentiment measures are highly correlated. But rising sentiment does not forecast a betterment of the economy. Instead a rising stock market foregoes rising optimism.

Employment Is Much More Predictive
Of Recessions and Depressions Than the Stock Market …

Since the start of this crisis, world industrial production and world trade have been following the pattern of the 1930s very closely. But unemployment is the most important indicator to distinguish a recession from a depression.
Year

Unemployment Rate
1929

3.2%
1930

8.7%
1931

15.9%
1932

23.6%
1933

24.9%
1934

21.7%
1935

20.1%
1936


16.9%

Take a look at the table on the right to see the unemployment situation during the Great Depression.

Where do we stand now concerning this all important indicator?

The official U.S. unemployment rate rose from the cycle low of 3.4 percent in 2007 to 9.5 percent as of June 2009.

But the Bureau of Labor Statistics computes a second unemployment rate. This broader measure includes all forms of job market slack and is a whopping 16.5 percent. Yes, one in six Americans is unemployed or underemployed right now. That’s a horrible number! And it will not go away soon.

If you look at the chart below, showing the civilian employment to population ratio, you can see that the downtrend had already started in 2000. Then the stock market bubble burst. This was just the first act in a much longer drama …

Civilian Employment Population Ratio

The bursting of the real estate bubble was act two. And more is sure to follow. California’s default may be a harbinger of what the third act may look like.

The second chart shows the median duration of unemployment. Here you can see how long it takes Americans to find a job …

Median Duration of Unemployment

These statistics clearly show the severity of the current situation. Here you can easily see why this is not a garden variety post-WWII recession, but something very different.

The current plunge is structural, not cyclical. Most of the jobs lost will never come back. The real estate bubble severely distorted the economic structure. Now the world economy has a lot of rebalancing to do. And this process will last much, much longer than the “green shoots” crowd deems possible.

My suggestion for you today is to watch the stock market for hints of the beginning of the next stage of this crisis. Watch unemployment and world trade as reliable indicators of the severity of the slump. And then watch California to get a feel for the next important act of this economic and financial drama: The government funding crisis and all its related repercussions.

[Demeter]

63. Big Banks Don't Want California's IOUs By RYAN KNUTSON

http://online.wsj.com/article/SB124692354575702881.html


A group of the biggest U.S. banks said they would stop accepting California's IOUs on Friday, adding pressure on the state to close its $26.3 billion annual budget gap.

The development is the latest twist in California's struggle to deal with the effects of the recession. After state leaders failed to agree on budget solutions last week, California began issuing IOUs -- or "individual registered warrants" -- to hundreds of thousands of creditors. State Controller John Chiang said that without IOUs, California would run out of cash by July's end.

But now, if California continues to issue the IOUs, creditors will be forced to hold on to them until they mature on Oct. 2, or find other banks to honor them. When the IOUs mature, holders will be paid back directly by the state at an annual 3.75% interest rate. Some banks might also work with creditors to come up with an interim solution, such as extending them a line of credit, said Beth Mills, a California Bankers Association spokeswoman.

Meanwhile, on Monday morning, a budget meeting between Gov. Arnold Schwarzenegger and legislative leaders failed to produce a result. Amid the budget deadlock, Fitch Ratings on Monday dropped California's bond rating to BBB, down from A minus, the latest in a series of ratings downgrades for the state.

The group of banks included Bank of America Corp., Citigroup Inc., Wells Fargo & Co. and J.P. Morgan Chase & Co., among others. The banks had previously committed to accepting state IOUs as payment. California plans to issue more than $3 billion of IOUs in July.

Ms. Mills of the CBA said some banks were concerned that there aren't processes in place to accept IOUs, and also worried about fraud issues. She noted that not all banks have set a July 10 deadline, and that dozens of credit unions in the state will keep accepting IOUs.

Wells Fargo's head of community banking, Lisa Stevens, said: "We're very disappointed, as are many Californians, that California has taken the unfortunate step of issuing IOUs in lieu of payments to some businesses and individuals."

State officials said they were disappointed by the banks' decision. Garin Casaleggio, a spokesman for Mr. Chiang, said: "We don't want anybody to suffer who can't redeem them when they need cash."

[Demeter]

64. NOT INVENTED HERE: People's bank to break the Big Four

http://business.theage.com.au/business/peoples-bank-to-break-the-big-four-20090707-dbtx.html

THE growing power of the Big Four banks has been targeted by a coalition of six influential economists, who have petitioned the Prime Minister and the Treasurer to set up an inquiry into Australia's financial system.

They have suggested the Government set up a "basic bank" so Australians can deposit money with Australia Post and have it managed by the Future Fund.
Calls for a 'peoples' bank'

A group of economists appeal to the Federal Government to increase competition in the banking sector.

The so-called people's bank would be similar to New Zealand's successful Kiwibank, which was set up to break the dominance of the Australian-owned majors.

Read Stewart Oldfield's views on the stability of the nation's big banks

Since the financial crisis began the Big Four have increased their share of the mortgage market from 80 per cent to 92 per cent and taken over non-bank lenders such as RAMS and second-order banks including St George and BankWest.

The open letter expresses concern at how the banks are using their privileged access to government guarantees, saying they are "rushing offshore" to expand even though Australians are "repeatedly told that our banks were lucky not to have had substantial overseas exposures".

The banks have been under fire for failing to pass on to mortgage holders the full cuts made by the Reserve Bank. Yesterday the Reserve left its official cash rate unchanged at 3 per cent.

The open letter is signed by economists who have advised both sides of politics, including Christopher Joye, chairman of the former prime minister John Howard's 2003 Home Ownership Task Force, and Nicholas Gruen, chairman of the Government 2.0 Task Force for the Finance Minister, Lindsay Tanner.

The letter was delivered to the office of the Treasurer, Wayne Swan, late yesterday, and gained support from the ACTU president, Sharan Burrow, and the shadow treasurer, Joe Hockey.

But a spokesman for Mr Swan appeared to reject it, saying Australia's financial system had performed "very well" during the crisis compared with others and the Government was "not contemplating" a systemic review.

Dr Joye, who runs the research and investment firm Rismark, said Mr Swan's response was an example of the complacency the open letter warned against.

"Everybody knows that providence has played a part in Australia's ability to skate through this crisis. When a coalition of top academic economists calls for a review to evaluate improvements to Australia's decades-old regulatory system, politicians should listen," he said.

The letter says Australia would "do well not to discount the possibility that a roll of the dice left us without more significant system failures" and adds that "in future, we may not be so lucky".

It was also signed by Joshua Gans, a professor at Melbourne Business School, Stephen King, a Monash University professor and former ACCC commissioner, John Quiggin, a professor at Queensland University, and Sam Wylie, a management consultant.

The letter refers to two inquiries into Australia's financial system - the Wallis inquiry of 1997 and the Campbell inquiry of 1981 - and says much of what they brought in is now out of date. It says a new inquiry would examine whether the banks should pay a "systemic capital charge" to account for risks in their business and whether they should have to accumulate capital in good times.

[Demeter]

65. The Man Who Crashed the World

http://www.vanityfair.com/politics/features/2009/08/aig200908?printable=true¤tPage=all

Almost a year after A.I.G.'s collapse, despite a tidal wave of outrage, there still has been no clear explanation of what toppled the insurance giant. The author decides to ask the people involved-the silent, shell-shocked traders of the A.I.G. Financial Products unit-and finds that the story may have a villain, whose reign of terror over 400 employees brought the company, the U.S. economy, and the global financial system to their knees.

By Michael Lewis

Six months ago, I received an odd phone call from a man named Jake DeSantis at A.I.G. Financial Products—the infamous unit of the doomed insurance company, staffed by expensively educated, highly paid traders, whose financial ineptitude is widely suspected of costing the U.S. taxpayer $182.5 billion and counting. At the time A.I.G. F.P.’s losses were reported, it became known that a handful of traders in this curious unit had sold trillions of dollars of credit-default swaps (essentially unregulated insurance policies) on piles of U.S. subprime mortgages, but its employees hadn’t yet become the leading examples of Wall Street greed. And so this was before Jake DeSantis and his colleagues found themselves suburban-Connecticut outcasts, before their first death threats, before the House of Representatives passed a bill because of them (taxing 90 percent of their large bonuses), before New York attorney general Andrew Cuomo announced he was going after their paychecks, and before Iowa senator Charles Grassley said that A.I.G.’s leaders should follow the Japanese example and “either do one of two things, resign or go commit suicide.”

DeSantis turned out to be a friend of a friend. He’d called because he didn’t know anyone else “in the media.” As a type he was instantly recognizable: a “quant,” a numbers guy who was allowed to take financial risks because of his superior math skills, but who had no taste for company politics or public exposure. He’d grown up in the Midwest, the son of schoolteachers, and discovered Wall Street as a scholarship student at M.I.T. The previous seven years he’d spent running A.I.G. F.P.’s profitable stock-market-related trades. He wasn’t looking for me to write about him or about A.I.G. F.P. He just wanted to know why the public perception of what had happened inside his unit, and the larger company, was so different from the private perception of the people inside it, who actually knew what had happened. The idea that the employees of A.I.G. F.P. had conspired to maximize their short-term gains at the company’s longer-term expense, for instance. He and the other traders had been required to defer about half of their pay for years, and intertwine their long-term interests with their firm’s. The people who lost the most when A.I.G. F.P. went down were the employees of A.I.G. F.P.: DeSantis himself had just watched more than half of what he’d made over the previous nine years vanish. The incentive system at A.I.G. F.P., created in the mid-1990s, wasn’t the short-term-oriented racket that helped doom the Wall Street investment bank as we knew it. It was the very system that U.S. Treasury secretary Timothy Geithner, among others, had proposed as a solution to the problem of Wall Street pay.

Even more oddly, the public explanation of A.I.G.’s failure focused on the credit-default swaps sold by traders at A.I.G. F.P., when A.I.G.’s problems were clearly broader. There was the mortgage-insurance unit in North Carolina, United Guaranty, that had taken on all sorts of silly risks in the past two years, lost several billion dollars, and replaced their C.E.O. There were the fund managers at A.I.G., the parent company, who had blown nearly $50 billion on trades in subprime mortgages—that is, they had lost more than A.I.G. F.P., whose losses stood around $45 billion. And there was a pattern: all of this stuff had happened since 2005, after an accounting scandal forced C.E.O. Maurice “Hank” Greenberg to resign. Greenberg, who had headed A.I.G. since 1968, was a bullying, omnipotent ruler—one of those bosses who did not so much build a company as tailor it to his character and render it incapable of being run by anyone else. After he was forced out, Greenberg said, “The new management wanted to prove that they could continue to grow without former management” and so turned a blind eye to all sorts of risks. So how come most of the senior management at A.I.G. was left in place by the U.S. Treasury after the bailout? Why were officials, both public and private, so intent on leading others to believe all the losses at A.I.G. had been caused by a few dozen traders in this fringe unit in London and Connecticut?

I had no idea, was busy doing other things, and had no special interest in Jake DeSantis’s predicament. I listened politely, made my excuses—and went back to whatever it was I’d been doing. But then, on March 19, the new C.E.O. of A.I.G., Edward Liddy, went to Washington to testify. The story broke—or, rather, rebroke, as it had been reported two weeks earlier, without stirring much notice—that A.I.G. F.P. had just shelled out $450 million in bonuses to the 400 employees of A.I.G. F.P., including to Jake DeSantis. It must have been an otherwise slow news day because all hell broke loose, in a way it hadn’t before and hasn’t since in this financial crisis. The perception was that the very same people who had made these insane, greed-driven decisions that might cost the U.S. taxpayer $182.5 billion were still paying themselves big bucks! An exchange between C.E.O. Liddy and Florida congressman Alan Grayson captured the spirit of that moment:

LOTS MORE AT LINK!

[InkAddict]

67. Thanx for this Demeter

GoodGuys are in town this weekend; hubby and I and friends spent last evening cruisin' the parking lot of the host hotel. Sweet classic cars of every description. Live band playing hard "driving" musicand reasonable tailgate dogs and burgers. Felt like the old days...Then off to the malt shop (I don't mean ice cream). LOL

Fun, fun, fun til her Daddy took the T-bird away...

[Demeter]

71. Well, I'm Taking a Break From My Break

Our apocalyptic thunderstorm at 8:30 am left 4 inches of water on the field, so the opening parade was canceled and bales of hay were spread over the low spots to soak up the standing water and cover the mud. People showed up--not the mobs of past years, but a respectable showing. Some of the best vendors didn't come, and the musicians, while good, didn't include any really big names like Natalie McMasters this year. the festival's rainy day fund got wiped out a couple years ago by a VERY rainy day, so the committee didn't go for elaborate, what with the Michigan economy and all.

The stiff breeze tried, but the humidity was still oppressive, so I came home to cool off in the pool and nap in the AC until the sun starts to go down a bit. It's not too far for a return trip as the fair is open until midnight (although I've never lasted that long...)

The Men in Kilts looked fine, if a little hot. The SCAdians were out in sweltering force and knights in armor on Percherons and Clydesdales were jousting.

The Raisin River is full to overflowing, but staying within its banks, and no more rain is expected until after everyone goes home. So, for July, it was the usual. Next Wednesday is Art Fair, when the city is shut down by an insane number of artists, entertainers and craftspeople fill the streets with their works. It's always either sweltering, or a tornado, or both, for Art Fair.

Sometime before September, we have to go to Detroit to see the Star Trek exhibit...I love Michigan!

[Karenina]

72. Pssst, Demeter! I dated Dennis for a hot minute.

We called him Dennis the Menace, and indeed he was. I bailed when he tackled me at a party one night on the houseboat... :crazy:

[Demeter]

74. And Lived to Tell the Tale!

Did you have a favorite song I haven't listed? I can't believe I know this much of their repertoire, and like it, too. I guess I was an unconscious Beach Boys fan. They certainly provided the soundtrack to an era.

[Karenina]

82. Yes, indeed and the lyrics that expressed our feelings...

http://www.youtube.com/watch?v=hz7hPArVUqM

[burf]

76. Obama is now telling us the stimulus is

working as intended.

From Marketwatch: President Obama on Saturday defended his administration's stimulus package, saying it "has worked as intended."

"The recovery plan was not designed to work over four months. It is designed to work over two years," Obama said in his weekly radio and Internet address.

Some economists believe a second stimulus package will be needed because the economy may remain weak for many quarters. Others are worried that high federal spending will create a fiscal train-wreck.

Spending under the stimulus programs will accelerate greatly over the summer and into the fall, Obama said.

"We must let it work the way it is supposed to," Obama said.

Earlier this week, Vice President Joe Biden said the administration "misread" how bad the economy was

Pressure for a second stimulus may ease in the wake of the most recent economic reports, which now show a chance that economic growth turned positive in the second quarter.

Link: http://www.marketwatch.com/story/obama-says-stimulus-is-working-as-planned

It looks as though these guys need to get their talking points in order. Nevermind the unemployment rate was supposed to be 8% and is now closing in on 10. We appear to be up a stinkin' creek without a paddle.

Edited to add link

[Demeter]

78. But You See, That's The Problem!

It wasn't designed to do anything for people, just for criminal corporations, and by means of payment, the dirty politicians that designed the stimulus!

[Tansy_Gold]

80. Exactamente!

It ain't about us peons. Never was.






TG

[DemReadingDU]

83. Yep

the gov is for keeping status quo of the elites, lobbyists, banksters and politicians. Rules and laws are enacted to control the rest of us.

[Hugin]

84. Just 96 months to save world, says (Prince) Charles (x-post from LBN via Newsjock)

Source: The Independent

Capitalism and consumerism have brought the world to the brink of economic and environmental collapse, the Prince of Wales has warned in a grandstand speech which set out his concerns for the future of the planet.

The heir to the throne told an audience of industrialists and environmentalists at St James's Palace last night that he had calculated that we have just 96 months left to save the world.

And in a searing indictment on capitalist society, Charles said we can no longer afford consumerism and that the "age of convenience" was over.

... Last night the Prince said: "But for all its achievements, our consumerist society comes at an enormous cost to the Earth and we must face up to the fact that the Earth cannot afford to support it. Just as our banking sector is struggling with its debts – and paradoxically also facing calls for a return to so-called 'old-fashioned', traditional banking – so Nature's life-support systems are failing to cope with the debts we have built up there too.

"If we don't face up to this, then Nature, the biggest bank of all, could go bust. And no amount of quantitative easing will revive it."

More here... http://www.independent.co.uk/environment/green-living/just-96-months-to-save-world-says-charles-1738049.html

_____________________________________________________________________________________________________________

Darn it... Every time I've almost got him pigeon holed as a doofus. He says or does something sensible.

Keep on Chuck!


(Disclaimer: I am way more closely distantly related to Diana than Charles.)

[Demeter]

87. He's Still a Doofus

[Hugin]

89. Spoken like a true...

Distant Ex-in-law. ;)

[Demeter]

91. Don't Blame Me For Anyone But the Poles

And there's enough Polish doofuses at home and abroad to keep me well under cover!

[Hugin]

95. Prince Charles: Not your typical radical (A little more good press)

Prince Charles: Not your typical radical

Prince Charles's great experiment is proving a success on ancestral lands turned testing grounds for his ideas about sustainable agriculture, architecture, and community.

Prince Charles gave no warning that he was about to abandon his usual restraint. He simply began slicing the air with his hands as his voice rose in frustration: "I had witnessed this appalling horror of the 1960s, when everything was thrown away, denigrated, abandoned. I watched as woods were cut down, hedges uprooted, wonderful old buildings knocked down. I minded dreadfully.

"My whole aim was to repair the damage, to heal the wounds, as it were, of the countryside." Calmer now, his voice falling to its usual hoarse whisper, he settled back in the silk armchair, smoothing his flawless blue suit. Meanwhile, the uniformed footman at Clarence House, the prince's London mansion, went about his business, sliding in and out of the drawing room.

One day Prince Charles, now 57, will be crowned king (his mother is already 80). Judging from the way he has handled his inheritance so far—more than 135,000 acres of mostly rural land known as the Duchy of Cornwall—the country may be in for some surprises. He has used this private little kingdom as a place to test solutions to the problems of modernity, for the prince believes, fervently, that life in both town and country has gone awry.

More... http://ngm.nationalgeographic.com/ngm/0605/feature3/index.html

_________________________________________________________________________________________________________

Thanx to Javaman for this link.

[Demeter]

98. Okay, so Maybe not Quite a Doofus

but not forgiven, either.

[Karenina]

124. C'mon Demeter, my homie is DEF!

http://www.mirror.co.uk/news/top-stories/2009/05/05/prince-charles-and-the-frog-watch-the-hilarious-video-here-115875-21335123 /

The Prince is a bright and thoughtful guy. I LOVE his rants on architecture as he approaches the subject from the standpoint of the needs of communities and their people. The video posted above is an example of how he uses his "bully pulpit." Do give it a look. It's HILARIOUS!

[Tansy_Gold]

126. WATCH THIS -- WATCH THIS -- WATCH THIS

I'm bawling my eyes out!! It's precious!!


Sorry, folks, my socialist's heart has always had a soft spot for Charlie. He's a month and a day younger than I, and I have no other explanation for it.




Tansy Gold

[Karenina]

129. Thanx for watching, TG!

My first encounter with Charles was in Ladie's Home Journal. Seems the paparazzi sprung out from the bushes and scared the shit out of him and Anne. I KNEW the surveillance routine coming from an identifiable family in my own community. I wrote him offering my support and friendship. Eventually I got over not receiving a reply, at least from his gatekeepers. An autographed pic would have been nice.:sarcasm:

Anne is 2 months older and Charles a month shy of 2 years. They were the high profile children of my childhood. I cannot bear the status of their births being a negator of their humanity. Charles is doing what HE understands someone in his position CAN DO. Maybe we need to get on his ass about Monsanto. :evilgrin:

[Demeter]

150. I Recant--He's Still a Doofus, or perhaps Dork is the better word?

[DemReadingDU]

155. Oh, the frog is so cute!

sitting with Daniel Craig, Harrison Ford, Robin Williams, the princes

:)

[DemReadingDU]

85. WaPo - Obama: Rebuilding Something Better

Rebuilding Something Better

By Barack Obama
Sunday, July 12, 2009

Nearly six months ago, my administration took office amid the most severe economic downturn since the Great Depression. At the time, we were losing, on average, 700,000 jobs a month. And many feared that our financial system was on the verge of collapse.

The swift and aggressive action we took in those first few months has helped pull our financial system and our economy back from the brink. We took steps to restart lending to families and businesses, stabilize our major financial institutions, and help homeowners stay in their homes and pay their mortgages. We also passed the most sweeping economic recovery plan in our nation's history.

The American Recovery and Reinvestment Act was not expected to restore the economy to full health on its own but to provide the boost necessary to stop the free fall. So far, it has done that. It was, from the start, a two-year program, and it will steadily save and create jobs as it ramps up over this summer and fall. We must let it work the way it's supposed to, with the understanding that in any recession, unemployment tends to recover more slowly than other measures of economic activity.

I am confident that the United States of America will weather this economic storm. But once we clear away the wreckage, the real question is what we will build in its place. Even as we rescue this economy from a full-blown crisis, I have insisted that we must rebuild it better than before. For if we do not seize this moment to confront the weaknesses that have plagued our economy for decades, we will consign ourselves and our children to future crises, sluggish growth, or both.

There are some who say we must wait to meet our greatest challenges. They favor an incremental approach or believe that doing nothing is somehow an answer. But that is exactly the thinking that led us to this predicament. Ignoring big challenges and deferring tough decisions is what Washington has done for decades, and it's exactly what I sought to change by running for president.

Now is the time to build a firmer, stronger foundation for growth that not only will withstand future economic storms but that helps us thrive and compete in a global economy. To build that foundation, we must lower the health-care costs that are driving us into debt, create the jobs of the future within our borders, give our workers the skills and training they need to compete for those jobs, and make the tough choices necessary to bring down our deficit in the long run.

Already, we're making progress on health-care reform that controls costs while ensuring choice and quality, as well as energy legislation that will make clean energy the profitable kind of energy, leading to whole new industries and jobs that cannot be outsourced.

And this week, I'll be talking about how we give our workers the skills they need to compete for these jobs of the future. In an economy where jobs requiring at least an associate's degree are projected to grow twice as fast as jobs requiring no college experience, it's never been more essential to continue education and training after high school. That's why we've set a goal of leading the world in college degrees by 2020. Part of this goal will be met by helping Americans better afford a college education. But part of it will also be strengthening our network of community colleges.

We believe it's time to reform our community colleges so that they provide Americans of all ages a chance to learn the skills and knowledge necessary to compete for the jobs of the future. Our community colleges can serve as 21st-century job training centers, working with local businesses to help workers learn the skills they need to fill the jobs of the future. We can reallocate funding to help them modernize their facilities, increase the quality of online courses and ultimately meet the goal of graduating 5 million more Americans from community colleges by 2020.

Providing all Americans with the skills they need to compete is a pillar of a stronger economic foundation, and, like health care or energy, we cannot wait to make the necessary changes. We must continue to clean up the wreckage of this recession, but it is time to rebuild something better in its place. It won't be easy, and there will continue to be those who argue that we have to put off hard decisions that we have already deferred for far too long. But earlier generations of Americans didn't build this great country by fearing the future and shrinking our dreams. This generation has to show that same courage and determination. I believe we will.

The writer is president of the United States.
http://www.washingtonpost.com/wp-dyn/content/article/2009/07/11/AR2009071100647_pf.html


Edit: ok, I'm cynical. Why write this editorial, today? Why do we need to be reassured? What's going on? Clearing the economic wreckage followed by emphasis on community colleges. Hmmm.

[Demeter]

86. Doesn't Look Better to Me

In fact, it looks a lot like serfdom.

If you aren't both building the middle class and REDUCING both the ranks of the Obscenely Rich and the Desperately Poor, YOU ARE NOT IMPROVING THINGS!!!

If you are not building economic self-sufficiency for the nation and the regions of the nation, if you are enslaving local populations to some cruel and uncontrollable Global Market, YOU ARE NOT IMPROVING THINGS!!!

If you are not indicting, prosecuting, and imprisoning the white collar criminals, the war criminals, and the traitors, YOU ARE NOT IMPROVING THINGS!!!

If you are not putting sensible, practical and essential regulations on the abusers of Capitalism and Labor, YOU ARE NOT IMPROVING THINGS!!!

IN FACT, IF YOU DON'T GET THIS COUNTRY BACK TO WHERE IT WAS BEFORE REGAN/BUSH, THINGS WILL GO BEYOND ANY HOPE OF REDEMPTION SHORT OF MASSIVE CIVIL VIOLENCE, AND THIS IS NOT A THREAT, IT IS AN INEVITABILITY!!

[Hugin]

88. I'm thinking the situation in CA is weighing heavily.

That $53 Billion shortfall is sure to dish out some well earned political black eyes and have enough umph left over to give black eyes to others not so well earned.

Also, there is the recent announcement that a second stimulus package isn't on the horizon.

Maybe its preparing us for the ultimate, "We can't afford it." verdict on Single-payer or a public option in Health Care Reform.

I think I'll go up a few posts and add up what allotment would be necessary to even out the States' short-falls to compare it to what was given to GE Capital and other casinos from the first stimulus. My guess, the amount needed is actually far less. But, if any relief were given to the States, I'd hope it would come with a strong, "Reform or Else" message on budgets and taxation. (Unlike the message given to the Investment Banks with their bailout bonanza.)

[Tansy_Gold]

128. While you're at it, isn't Gov Quinn of IL trying to actually

RAISE taxes to combat the shortfall?

Puke Jan Brewer is trying to do the same here in AZ, but I'm sure it won't happen. Besides, she wants to raise sales tax, which hits the poor much more than it hits the rich. That, of course, may be enough to get the reigning pukes to approve it.

Tansy Gold, who really needs to generate some income of her own and isn't going to do it reading DU all day

[Demeter]

90. What a Difference a Year Makes! From 5 Minute Forecast

"Oh my, where do we begin? This beast calls for bullet points.

* Obviously, Wal-Mart is no longer No. 1. That title now goes to Royal
Dutch Shell. The American consumer is out, and a global oil
conglomerate is in… 'nuff said

* There's a clear sea-change in American business. AIG, Lehman and
Bear Stearns fell off the list from 2008-2009. Nike, Google and
Amazon moved up.

* The world is increasingly less Amero-centric. An American company
is not No. 1 for the first time in over a decade. In the whole list for
2009, 140 companies are American, the lowest number on record

* The world is increasingly more Sino-centric. Look at China National
Petroleum and Sinopec. Both Chinese companies are by far the biggest
movers up from 2008-2009. Sinopec, an oil and gas company, also
marks China's first foray into Fortunes' Top 10. China now has 37
companies in the list of 500, its largest presence ever

* Oil is still where it's at. In spite of all the price drama over the last
year, seven of the top 10 firms are oil companies.

* In the face of the worst global economic environment of our lifetimes,
the world's biggest companies are still making lots of money. The
2008 top 25 pulled in $4.88 trillion in revenue. This year they made
$5.38 trillion.

* And freakin' GE… what a black box. The world's producer of
everything was one of very few companies to retain the same position
from 2008 to 2009. And despite the infamous GE Capital, the finance
arm that apparently threatened to torpedo the whole company, GE
ended up increasing revenues by nearly $7 billion.

[Demeter]

92. More 5 Min. Forecast:"The Federal Reserve will retain its right to operate in secrecy. 'TGF Rule 16!

"Late Tuesday the Senate majority put the kibosh on a last hour provision
in the 2010 spending bill that would audit the Fed. Not because it's a bad
idea to audit the Fed… but because of the arcane Rule 16, which prohibits
policy legislation from being added to spending bills. (The kind of 'rule'
that's only evoked when the majority gets uncomfortable.)

"'The Federal Reserve will create and disburse trillions of dollars in
response to our current financial crisis,' said Sen. Jim DeMint, who
spearheaded the failed audit addition. 'Americans across the nation,
regardless of their opinion on the bailout, want to know where the money
has gone.' Under his proposed plan, the Government Accountability Office
would take a look into the Fed's discount window lending, various funding
'facilities,' bank bailouts and agreements with foreign players.

"Shame on Mr. DeMint for such an outrageous request. Down-to-the-wire
appropriations should be reserved for truly exigent causes…like protecting
the makers of wooden arrows designed for use by children. Why bother
wasting the time of the GAO with a simple audit of the most unaccountable
monetary body in the world?

You can watch Mr. DeMint get what's coming to him here:

http://www.youtube.com/watch?v=4tRQHsXujpo&eurl=http://%20www.prisonplanet.com/senate-blocks-bill-to-a%20udit-the-fed-as-government-prepares-for-seco%20nd-round-of-looting.html&feature=player_embedded

Ron Paul's bill – that other shameful attempt to audit the Fed – now has 249
co-sponsors in the house. Wonder what brand of parliamentary fine print
Barney Frank or Nancy Pelosi might summon to quash this one.

Find more details on Ron Paul's bill – that other shameful attempt to audit
the Fed – here:

http://www.govtrack.us/congress/bill.xpd?bill=h111-1207

[Demeter]

93. A Period of Creative Destruction By Bill Bonner

http://dailyreckoning.com/a-period-of-creative-destruction/

...The Golden State is issuing IOUs to paper over the holes in its budget. Wall Street has announced that it has found a way to make a buck on California’s troubles; it will trade the IOUs just like bonds. But major creditors – fearing the paper could decline in value – may not take it…forcing California into a more immediate crisis.

This will make people wonder something else: how come creditors take US IOUs, but not California’s? The feds’ deficit is 70 times greater than California’s. Yet, lend money to the federal government for 10 years and you get just 3.5%.

Meanwhile, in the business sector, Bloomberg continues its reports on the progress of the depression: “Earnings Drop Worldwide,” says the headline.

In the United States, dividends are going down faster than at any time in the last 50 years. Businesses are earning less and paying less in dividends because shoppers have stopped buying.

Maybe it’s just mid-summer. But despite the darkening clouds, there’s an air of eternity…like the stillness before a thunder storm…as if time were stuck in a drop of amber…and lightning would never strike.

“The worst is behind us,” says a report from the British Chamber of Commerce. Of course, those words could have come from any one of dozens of sources. Economists believe it. Businessmen. Investors. The recovery may be “long” and “fragile.” Maybe “L” shaped…rather than the V we were hoping for.

Now, should come the part where the rebuilding begins…and yet, there is no rebuilding. Instead, the economic model that has existed more or less intact since the end of WWII is being dismantled.

Yes, dear reader, we have entered a period of creative destruction. Between the Napoleonic Wars and WWI was a period of growth and stability. There were disruptions – even grave disruptions, such as the War Between the States in the United States and the Franco-Prussian War in Europe. There were various uprisings, communes and Risorgimientos. But the ‘powers that be’ were solid. So was their money. The pound, the dollar, and the franc were all backed by gold. European powers ruled the earth. Britain ruled the waves. And gold ruled commerce and banking.

It all came to a disastrous end in 1914. Soon, almost every government in Europe was bankrupt. The royal families of Europe – the Hohenzollerns, the Hapsburgs, the Ottomans, and the Romanovs – all were swept away by war and revolution. And then came the Genoa agreement of 1922 that allowed central bankers to hold pounds or dollars, instead of gold, as reserves. It was a small step for man…but a big step on the road to ruin. Thereafter came a number of other steps leading up to Richard Nixon’s giant step in August 1971, removing the last trace of gold from the world’s official financial system.

The Archduke Ferdinand was shot in Sarajevo in June 1914. The summer that followed was uneasy but, for a while, calm. No one was quite sure what would happen next. As the warm days went by, it began to look as though nothing would happen at all. People had lived through a century of relative peace and prosperity. Smart people believed that something fundamental had changed. It was a new era, they thought. Globalization was making them all rich. And new technological innovations – the internal combustion engine, automobiles, airplanes, electrical appliances – promised a better, easier life for everyone. This better life was based on capital…savings put to work in factories, buildings, machines and transportation systems. Wars no longer made sense, since they destroyed this vital capital. Everyone clearly benefited from the new system of globalized trade; no one stood to gain anything worthwhile from war. One popular book of the time argued that war had become obsolete…unthinkable in this new modern world.

Alas…here we are.

Despite the comforting arguments in July 1914, the guns opened up in August and didn’t stop until four years later. Even then, the destruction was not over. The next three decades were spent settling scores and sorting out the debris; the Bolshevik coup in Russia…Mao’s victory in China…taking the Germans and Japanese down a notch…hyperinflation in Germany…depression in America – taken together, these developments created a new world order.

The United States of America emerged triumphant. The US has dominated the planet’s military affairs ever since; the dollar has dominated its financial affairs.

But now this giant seems vulnerable. It still has the world’s strongest military, but depends on it rivals for financing. Britain depended on financing from America in WWII. But America’s elite were anglophiles…gladly sharing power with the British Empire in the interwar period, and then stepping into its boots after WWII. The handover of imperial power was smooth. Diplomats still speak of the ‘special relationship’ between the United States and Britain.

Today’s rivals are different. They speak different languages. They have different political systems…and different cultures. They are not European powers. Led by China, they are responsible for a larger and larger share of the world’s output. And they already are responsible for a large share of the world’s savings – with the biggest piles of cash in the world. Until now, they have recycled those savings back into the United States. It was as if you bought a new automobile and then the manufacturer gave you back your money so you could buy another one. This arrangement seemed to serve everyone fairly well for a long, long time. Americans got to enjoy a standard of living that not even they could afford. Emerging markets got to emerge much faster than they would have otherwise. Factories went up in Asia; debts went up in America.

But that economic model is finished. Broken. It’s over. Kaput. American consumers are not going to go further into debt so that Chinese factory workers can add to their savings. Instead, savings rates are soaring in the United States. And the Chinese are facing riots (described as “ethic riots” in the paper…they have left 156 dead in a remote Chinese province…How much effect did the financial downturn have on this civil insurrection? We don’t know…)

Like the great powers in the summer of ’14, no one has an interest in upsetting the economic model of the last 50 years or disturbing the political stability of post-Cold War period. Besides, the rising powers – again, led by China – are “trapped,” say analysts. They are thought to have “no choice” but to back the United States and its dollar.

“China – with 80 different car makers to bail out… tens of thousands of huge socialist-era factories… and 100s of millions of workers to support – has a big problem,” The Richebacher Letter’s Rob Parenteau tells us.

“Much bigger than they’re letting on.”

“But when you are trapped, you spend all your time trying to figure out how to get free,” said an analyst we met with yesterday. “Sooner or later, they’ll find a way. Then, watch out.”

[Demeter]

94. Bubble Deniers By Bill Bonner

And it’s one, two, three,
What are we fighting for?
Don’t ask me, I don’t give a damn,
Next stop is Vietnam;
And it’s five, six, seven,
Open up the pearly gates,
Well there ain’t no time to wonder why,
Whoopee! We’re all gonna die.

– Country Joe & the Fish, “I Feel Like I’m Fixin’ To Die Rag”

Robert McNamara must have been in a hurry too. He never had time to wonder why he was sending 500,000 American boys to fight a war when Lyndon Johnson was “publicly promising in campaign speeches not to ‘go North,’ not to send American boys to fight wars Asian boys ought to fight for themselves,” as an editorial appearing in the June 17, 1971 issue of The Washington Post put it.

Both the International Herald Tribune and the Financial Times describe the former Secretary of Defense as the “architect” of the Vietnam War. This is news to us and libelous to real architects; as near as we could tell, the war went on without plans or blueprints, clapped together by jackleg meddlers. Then, the whole thing fell down in a heap.

But we do not disrespect the dead here at The Daily Reckoning. Instead, we cut them open in order to figure out what was wrong with them...the autopsy report:

http://dailyreckoning.com/bubble-deniers/


07/10/09 London, England “War Criminal says Sorry, Sobs,” was the headline in the Nation on February 9th, 2004. Robert McNamara had just done something extraordinary for Secretaries of War: with tear in his eyes, he apologized for his role in the Vietnam War. The war made ghosts out of 58,000 American soldiers. On the Vietnamese side, the total was over a million. This week, McNamara went to meet them.

Why do smart people do such stupid things? The French had already shown what Western powers were up against in Indochina. De Gaulle had warned Kennedy that it was a “rotten” country. Still, the United States sent in troops…and McNamara, to his credit, spent the last 40 years of his life regretting it.

We do not disrespect the shades here on the back page. But once they are down, we can hardly wait for the autopsy report. We want to know what was wrong with them. McNamara had a brain “like a computer,” say the morticians. Too bad. He needed more than that.

Robert McNamara was described in the obituaries as the “architect” of the Vietnam War. This is libelous to real architects; as near as we could tell, the war went on without plans or blueprints. Instead, Robert McNamara took an economist’s approach to war. His formula had only three numbers: how much damage he could inflict on the enemy; at what price; and how much pain the Vietcong/North Vietnamese could stand. Later, he discovered that the enemy wasn’t even counting.

Long gone are the days when economists thought deeply about how life actually works. Adam Smith, Adam Ferguson, Anne-Robert Turgot - the great “moral philosophers” - all died hundreds of years ago. Since then, the trade has gone bad. They’re all numbers guys now. An economist, of the modern variety, is a statistician…an extrapolator…and a mountebank. If numbers go up two months in a row, he predicts they will go up another one. He rarely stops to ask whether his numbers really make any sense. Instead, he merely adds them up and rolls them out. Thus - at the bubbly top in 2006 - he was he able to describe the likelihood of default on a certain derivative instrument as a “Six Sigma event” without laughing. A Six Sigma event happens once every 2,500,000 days. Then again, when the Bubble of 2002-2007 popped, they happened once a week.

The blogs are full of chatter on the subject. What good is the economics profession, asks Paul Samuelson, if it cannot foresee the biggest single economic event in at least a quarter-century?

Yet, those same economists - who had failed so miserably at diagnosis and prevention - they barely hesitated. Rather than spend months in drunken shame, contemplating their own incompetence, and wondering what a bubble really is, they denied the wild bubble side of life altogether…and tried their hands at prescription. President Obama’s economics advisors went to Congress last autumn to predict that without the stimulus measure joblessness in the United States could rise to 8%! Bernanke made it seem that if the bill wasn’t passed that day, the economy may cease to exist all together. How he could know the future, when he demonstrably knew so little about the recent past, was a mystery. Still, the politicians responded by enacting the biggest bank bailout boondoggle in history.

What would have happened had the legislators failed to jump when economists threw them a bone? We don’t know. But we know what happened after the stimulus measures were passed - they failed to stimulate. The employment numbers for June showed that economists had misjudged both the direction and the speed of the oncoming bus. Instead of shifting down, the rate of job losses increased to 9.5% in the United States. Instead of going forward, the economy was backing up!

Do these setbacks cause economists to stop and wonder if their theories are bogus and their numbers are nonsense? Nope, they do what McNamara did. They turn up the heat. They propose to spend more money they don’t have on more programs that don’t work. Predictably, Obama advisor Laura Tyson now suggests that the stimulus thus far is “too small.” Other economists too are talking about a “son of stimulus,” that will offer even more credit to the debt-saturated consumer. Only trouble is, neither consumers, businesses nor banks cooperate. Despite trillions in cash and credit to the financial system, lending is still going down.

Robert McNamara was as smart as any of today’s number crunchers. A Harvard “whiz kid’ with a ‘can do’ attitude, he was one of the ‘brightest and the best,’ the kind of American that makes you proud to be one. He was an efficiency expert. But everything has its place. Poetry is not much in demand from bridge builders. In love, war and bubbles, on the other hand, rational efficiency is at best a second tier concern.

When asked to take the job at the Defense Department, McNamara replied to John Kennedy that he was “not qualified.” That was the last thing he was right about. As to everything else, he missed the point completely.

Sometimes it is the brain that fails. Sometimes, it is something else.

[Hugin]

97. This brings something to mind I observed last week...

Most of the Financial Reports in the Media were focusing on "Technical Analysis" of the Markets.

Talking about the analysis of the shape of the Market Index charts... Instead of the realities of Investment.

Basically talking about anything other that what real long term investment is and what it represents.

They've finally made a total disconnect between the markets and investing. Its truly a casino now... Where snake oil salesmen rule with the hocus-pocus plotting of betting strategies based on the bumps they feel on a Rube's skull.

In honor of this...

We need to have a "Hamlet" weekend here on the WEE.

"Alas, poor Yorick! I knew him, Horatio; a fellow of infinite jest, of most excellent fancy; he hath borne me on his back a thousand times; and now, how abhorred in my imagination it is! My gorge rises at it. Here hung those lips that I have kissed I know not how oft. Where be your gibes now? (Hamlet, V.i)



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

[Demeter]

99. A Hamlet Weekend? Do You Want Mass Suicide?

and for god's sake, don't even THINK about the Scottish Play!

The point of these themes is to make it possible for us to wade through the evidence of the end of the world as we knew it, and all hope for the foreseeable future, while looking for bone fide green shots, or at least the map to some.

I've got 11 more emails to wade through, dating to a month ago. It's not all sweetness and light, believe me.

[Hugin]

107. Okay, would you settle for a Phrenology Weekend then?

:shrug:

The Corporate Financial Media has... Obviously. :eyes:



All about Prenology.. http://en.wikipedia.org/wiki/Phrenology

[Demeter]

109. I'd rather read the bumps on the Heads of Goldman Sachs

after we all go down and beat on them.

[CatholicEdHead]

112. How about a Prairie Home Companion weekend

maybe also a Car Talk weekend.

[Demeter]

114. Car Talk?

Lights began to flash before my eyes....Tom and Ray fix the economy.

I think I need some beer, and maybe a bit of lunch to go with it....

I don't know if you saw the Prairie Home Companion movie version, but it wasn't a comedy by any stretch of the imagination.

Definitely time for another mindless, feel-good, take me away Beach Boys number (are there any I haven't listed, yet?)

http://m.youtube.com/results?search=by_related&q=by_related&v=xKKP_cZuk54&client=mv-google&gl=US&hl=en

A whole bunch of Beach Boys singing about that American obsession: the American muscle cars!

[AnneD]

146. We can always go for....

The Merchant of Venice.....

[Demeter]

151. Only If I Get to Carve the Pound of Flesh

off Cheney, I think. Would there still be one pound of organic material left, you think, near the heart?

[Tansy_Gold]

100. Doing what we want to do, or, setting priorities

I was sitting at coffee a few weeks ago, enjoying a pleasant morning on the sidewalk outside the coffee shop and chatting with friends. I kept my hands busy with a bit of craft work, nothing elaborate or difficult, just something simple to add to my inventory when the fall shows start.

One of my companions sighed and said, "I wish I had time to do that kind of thing."

"Make time," I suggested. "That's why I bring this with me to coffee. This is how I 'make time' for things I might not otherwise have time for."

But she chose not to, just as she chose not to give up her job which she complains about constantly, because she wants all new furniture for her house and she wants to take a vacation next month to San Diego and she's already planning a visit over Thanksgiving to her family in Ohio.

A few days later she was showing off a new pair of shoes, purchased on sale for a mere $49, a price she just couldn't pass up. She admitted she didn't need them, but they were originally over $300 and it was such a bargain and. . . .

Can you see where this is going? This is one woman whose priorities are not unlike the priorities of millions of Americans: the acquisition of stuff and the establishment of their identities based on whatever stuff they've acquired. Name brands. Logos. Labels. Price tags.

Obama and his administration have set their priorities. No matter how much they speechify about "the economy," their priority is saving the rich. Their priority is shifting as much of the wealth that working people have earned and are continuing to earn into the pockets and bank accounts and secret Swiss vaults as possible.

No one will confront them. No one will speak truth to their power. No one. Not Helen Thomas. Not David Shuster. Not Barney Frank or Bernie Sanders or Barbara Boxer or Ralph Nader or Rachel Maddow or anyone whose name you would recognize.

The public will not rise up against them. The public is kept in ignorance, drugged with religion and ritual, the circus of Michael Jackson's funeral, the distraction/lessons of the failed independence in Iran and the distraction/lesson of the successful coup in Honduras.

The mantra since the great learning opportunity of 9/11/01 is "security." "Safety." We need to be or at least feel safe. NOTHING ELSE MATTERS. The jobs don't matter. The environment doesn't matter. The economy, the foreclosures, the state budgets don't matter. The rise of religious fundamentalism in this country and around the world doesn't matter AS LONG AS WE FEEL SAFE. And we, collectively, will do anything to feel safe. We will NOT do anything that threatens our sense of security.

Our number one priority is safety. Like my friend who wants to do crafts but won't give up her other activities to make time for crafting, our entire nation refuses to give up its sense of security to actually make its life and the life of the planet better.

It's true that we have no control over the media, or the government. We only have control over our own lives. We need to set our own priorities.



Tansy Gold

[Demeter]

101. When Watergate Story Broke, I Was REALLY Scared

I may have been an infant at the time, but all my illusions about men and government were shattered. Richard Nixon was singlehandedly taking apart the Ship of State (well, John Mitchell and all the lesser cronies helped, including Rumsfeld, Rove, Atwater, Kissinger, and the like), and nobody but a couple of reporters stood between Nixon and the total death of all on board that ship of state, including us workers in steerage. Congress didn't care, couldn't be bothered listening to the war protests or the oil-cost induced screams. We went off the gold standard without a whimper and down in napalm flames in IndoChina. It was madness.

Then Nixon was driven from office by his own fellow GOP, and I thought, the Nation still stands for something.

Then Reagan/Bush/Cheney/Rumsfeld/and the rest came back, like the UnDead, and I've been in terror ever since. Clinton was a relief, but Clinton was weak, and he didn't give a shit either. And he was enabling the destruction to continue, in a kinder and gentler way, of course, and with a lot more charm than Reagan ever had.

No one could ever accuse a BFEE member of charm.

So, the point I'm trying to get to is:

I DON'T FEEL SAFE, AND I HAVEN'T EVER FELT SAFE ALL MY ADULT LIFE!!!

[Tansy_Gold]

103. But you feel safe and secure enough to go about your daily life

THAT's the priority. For THEM as well as for us. As long as they can keep us secure enough that we go to bed with reasonable expectations of getting up in the morning, they can control us.

We are only at 10% unemployment. That means 90% are still employed, still capable of taking care of the shortfall. Of course, we know that's not TRUE. We know the real unemployment number is closer to 20% and that many of those who are employed are underemployed. We know that many are homeless, meaning they do not have their own homes. They are on the street or bunking with family/friends, living in their cars. We know that many are squatting in homes they've already lost to foreclosure. The truth is out there, but it is not in the mainstream media and therefore we're able, collectively again, not us DU individuals, to blank out the truth and believe the necessary lies. We FEEL secure even if we aren't. We've accepted the illusion just as we accept jesus christ as our lord and savior.

You won't have revolution, not even a velvet or a silk or a satin or brushed denim one, until people no longer feel safe.

The propaganda continues to shout louder than the truth.




Tansy Gold

[Demeter]

105. No, Tansy, I don't think we as a nation feel safe

That's just the media spin. And it won't take much more to put that chestnut in the fire.

I go about my daily life because I am 100% stubborn Pollack, too stupid to die, and I have two daughters who need their mother to see that they survive. I'm trying to keep my genetic heritage alive. If I succeed in seeing another generation (puppies and cats don't count) I will consider myself successful. Everything else is secondary.

If I were a depressive, like my mother who smoked herself to death, drank caffeine even though she suffered migraines as a result, and stayed married to my father because she knew the family needed them and besides, though she may have denied it towards the end when the cancer was eating out her brain, she really did love him, and he really loved her, too, I might be on drugs and dragging and whining, but it would be my sense of duty passed down through several generations of Matriarchy, just as it was hers, that gets me out of bed every morning to cope.

It is fortunate that I don't indulge in those slow methods of suicide, because it's going to be an uphill road. Let me assure you all, they are going to have to put me down intentionally, because I'm not volunteering.

[Hugin]

110. As, I have no genetic heirs (that I'm aware of)...

My brother and I are the last in a distinguished (and somewhat checkered) hereditary line.

I only give a damn about what is occurring out of a deep sense of pure altruism.

I still have some high hopes for the future of the human species in the long term... Although, they have continually shown to be of a different ambition.

:sigh: I do what I can... However, meeting my end in some senseless tragedy, too soon, would be bad. I still have a long list of things to do.

[Demeter]

113. Live Long and Prosper, My Friends

Or as they say, I'm so far behind, I can't die. God won't let me.

[Tansy_Gold]

123. But that's the big picture. I'm talking about the little picture, the

day to day existence that we pretty generally take for granted.

We get up each morning and turn on the lights. Except for severe weather conditions, we pretty much expect the lights to come on and they do. The water runs from the tap. The internet boots on the computer and we connect with DU or whatever. If something happens that the lights DON'T come on or the water doesn't run out of the tap or DU is down, we think something is wrong. We don't accept it as just par for the course.

We drive to work or school and we expect the traffic lights to be working. We expect the gas station to have gas, the liquor store to have beer, the Circle K on the corner to have cigarettes and disposable diapers at 3:00 A.M. We send our kids off to school each day and expect them home in the afternoon, and if we have our moments of worry during the day, they're rare. We do not sit in armored cars in the school parking lot.

We read notices of bank closures with interest and maybe alarm, but we do not run out en masse and close our accounts in New Mexico because a bank in North Carolina has failed. We bitch on SMW and WEE about Timmy and Larry and the bunch, but we also take time out to go to Little League games, our daughter's or our grandson's wedding, a Celtic festival or a junior rodeo. We plan for birthdays and graduations because we expect these things to come to pass.

We do not spend our time and energy planning for expected disasters. The closest we come is having homeowner's or renter's insurance, keeping extra batteries for the flashlights and portable radios, stocking up on some non-perishable foodstuffs and bottled water.

In other words, we go about our daily lives -- most of us -- expecting each day to be pretty much like yesterday and the day before and the day before.

We aren't yet in a mindset of constant anxiety, or unrelenting depression. Some individuals might, and there may even be a concerted effort on the part of some groups to foster a generalized angst and/or fear, but even the worst of the C Street wackos don't want the populace to reach uncontrolled revolt.

And until the social structure actually does start to break down, nothing will change. TPTB are doing their best NOT to change. Health insurance companies don't want change, not real, substantive change. Banks and investment houses don't want change, not real, substantive change. Churches sure as hell (pun intended) don't want change. All of these institutions, and many more, are quite comfortable with the status quo, because the dynamics of the status quo have it moving, slowly but inexorably, to the right, and that's where they want it.

My high school Spanish teacher, whose degree was in pre-Columbian history from Mexico City College, told us 40+ years ago that in the history of Western Civilization, there had really only been three true "revolutions": The French, the Russian, and the Mexican, because they truly revolutionized the status quo. (The American war of independence was kind of an overgrown administrative reorganization.) Today I think I would add the Cuban revolution, but to be honest I don't know enough to truly argue this point, except to say that I have not seen any SIGNS of impending radical change in the structure of our society and its institutions since Obama's ascendancy. If there's going to be a revolution here, it's not imminent, and he's not going to be the one to lead it. If anything, I see him as quelling it, as surely and as forcefully as the ayatollahs in Iran.



Tansy Gold

[DemReadingDU]

154. That's it, nobody wants anything to change

Everyone expects tomorrow to be like today, well similar. And until something unexpected happens, there is nothing to worry about, so says spouse. Besides, since we don't know what/when something might happen, what can anybody do, so says spouse. It's like we take everything for granted, until it happens, and then we deal with it.

[Tansy_Gold]

156. Exactly.

A few will take action before something happens -- and I suspect many DUers are among those "few" -- either in the form of preparation for reaction or to make a difference. But for the most part, as long as there's no great shift from the norm, people don't do much of anything.

[InkAddict]

127. Sex and money make the world go 'round...

Since I've been denied active participation in both for many years, I've decided to keep my bad habits and start a new one - covertly or not so covertly giving TPTB (at every level) EXACTLY what they say they want -- an early supreme sacrifice from a depressed zombie citizen and marital unit because I can't stand the drawn out drama of what I'm convinced will be the on-going covert holocost and demise of the family tree any longer. Good luck in your intentional fight to keep standing...my life has three activities: I'm either sleeping, working PT at a going-nowhere (except maybe offshore)job that gives me some personal righteousness for the time being, or sitting at the 'puter until someone else besides me comes up with any worthwhile Plan A,B.C..ad nauseaum that can't be shut down. P.S. I'd be glad to roll bandages out of old Hanes when it takes to the streets in earnest. I might even have a few resources to contribute to the barricades. Did one sign up for the historical underground or was one recruited for skills/resources, or was it a sort of do whatever one could and the dots of resistance sometimes networked successfully? I'm waiting, but where's the call...

Sorry Demeter, I'm just feeling like crap...too hot...can't afford the A/C; crap, can't afford to bury myself and don't want to force anyone else to either...Yup, must be that matriarchal duty to breathe thing going on...and that unsafe feeling.

[AnneD]

147. Ways to keep cool when you can't afford a/c

Run a tub of water and don't drain it. Use it like a swimming pool and go for 'dips' during the day. I would not towel off but stand in front of a fan afterward. Really reduced my core temp. Popsicles and cold water and tea also helped. Packing your temp points (like back of neck, knees, and armpits is very effective at bringing relief from heat.

[InkAddict]

152. Thanx AnneD, I love my cobbie...

[Demeter]

96. Money Tsunami Capsizes the Global Economy By The Mogambo Guru

http://dailyreckoning.com/money-tsunami-capsizes-the-global-economy/

I was surprised that Barron’s reported that the banks show their Total Reserves fell from $896 billion to $848 billion, which is a simple math problem that seems custom-made for my abilities in that regard...Then, to add that essential touch of surreal whimsy that seems to permeate all things fiscal and monetary these days, I additionally note that not only did Total Reserves go down in the banks by $48 billion to $828 billion, but I will note that Total Reserves one year ago were a miniscule $41 billion! Hahahaha! They fell last week by more than they totaled one year ago! Hahaha!

In fact, Required Reserves are only now starting to rise from “nearly zero” to “slightly more than zero,” and banks are now “required” to have a miniscule $56 billion in reserves against their zillions of dollars in assets and liabilities, while meanwhile, a mere couple of lines up on the same Barron’s page, the Federal Reserve reports that “Reserves F. R. banks” went down by an astonishing $125 billion last week to $692.6 billion! Wow! Big move!

These huge tsunamis of money, joining all the other tsunamis of money sloshing back and forth around the banks and the world, around and around, getting everything all wet, are not only ruining the patio furniture and making a mess of everything, but are such that even the World Bank has revised its estimates, and now says the global economy will contract by 2.9% this year instead of their previous forecast of 1.7%, which is an error of 41%.

Well, when I show up at an executive board meeting sporting a 41% error on a forecast I made just a few months ago, all I hear is people all demanding that I be fired or killed for bringing the company to the edge of bankruptcy and ruination, which of course I seize upon to show that precision economic forecasting is a ridiculous exercise everywhere you go, especially since economics is, just as the Austrian school of economics always said it was, human behavior with a huge random element, which is not even to mention Taleb’s Black Swan Hypothesis of unforeseen catastrophic events making a complete mockery of using bell-curve probabilities to forecast long-term expected results.

It’s like expecting, but not getting, what you would expect from the statement from the Federal Open Market Committee after their recent meeting, which apparently showed that they are incredulous of the generally low level of intelligence of Americans, which they demonstrated when they said, “As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year,” which I figure would be $238 billion a month for the remaining six months of the year, which would normally make my heart start fibrillating with fear at the inflationary implications of such irresponsible monetary policy.

My snotty interpretation is that by saying “as previously announced” they mean, “we say again so that you can’t say we didn’t tell you that you morons are sitting there while we at the Federal Reserve are going to buy up the losses of our friends at a rate of $12,500.00 for every one of the 100 million non-government workers in the USA, which is admittedly a lot of money at $12,500.00 each, but which is almost certainly grossly understated so that we are going to keep coming back for more and more and more! Hahaha! Suckers!!”

Whether or not they meant that, it turns out that I was right, and this is all part of some nefarious plan, as they later slipped in, almost as an afterthought, that “In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn,” which made my eyes pop out painfully when I realized that this means that we are suddenly talking about buying up almost $350 billion a month in worthless assets and handing over the cash to the lucky current holders (who are making out like bandits!) of those toxic assets, which means that these guys will suddenly have a lot of cash in their pockets looking for a home, and the prices of something, or some things, are going to go up as this $350 billion of new cash Per Freaking Month (PFM) gets plowed into “investing” in some asset or another.

This is where some people think it gets tricky, but it is not. This is, in fact, the easy part, as all you have to do is buy gold, silver and oil when your government is acting so impossibly stupid.

At least, that is the lesson of the last 4,500 years of history! And like the saying goes, “The race is not always won by the swiftest, nor the battle by the strongest, but that is the way to bet!” which is just another way of saying, “Whee! This investing stuff is easy!”

Until next time,

The Mogambo Guru
for The Daily Reckoning

[Demeter]

102. Ken Lewis points the finger at Bernanke and Paulson by Edward Harrison

http://www.nakedcapitalism.com/2009/06/ken-lewis-points-finger-at-bernanke-and.html

ISN'T IT AMAZING HOW THIS SCANDAL HAS SLID OFF OUR EVENT HORIZON, LIKE A SUNSPOT THAT DISAPPEARS AS THE EARTH AND SUN ROTATE...THE SPOT IS STILL THERE, WE JUST CAN'T OBSERVE IT. WILL IT STILL BE THERE WHEN WE'VE RETURNED TO THAT POINT OF ROTATION?

June 11, 2009

The drama at Bank of America continues with Ken Lewis testifying before Congress today. Most of the events surround claims by Lewis that he was coerced into doing the Merrill deal by Hank Paulson and Ben Bernanke. I chronicled these events when they were made public back in April.

* BofA CEO confirms government coerced him into Merrill deal
* BofA CEO Lewis investigated by SEC
* BofA saga continues as John Thain calls Lewis a liar
* Bof A’s MAC clause was as porous as swiss cheese

Just yesterday, it was revealed that Fed officials called Lewis “reckless” in internal e-mails. The Republican party is running with this and looking to make trouble for Bernanke and the Fed. Given the fact that Bernanke is up for re-appointment, these events could have a material impact on the Obama Administration’s desire to keep him on. The last two Fed Chairmen, Greenspan and Volcker were appointed by a President of one party, but subsequently kept on by the next President of another party. If Bernanke goes, we could expect Larry Summers to be a top candidate for the Fed Chairman role.

As for Lewis, he argues that the Countrywide and Merrill acquisitions were in the country’s and in Bank of America’s best interest. Below is the video of Lewis on Capitol Hill making his opening statements before Congress.

My take here is that the Bank of America case has become very political – and that means the blame game is going to be played. Someone -- Bernanke, Lewis, Thain or Paulson -- is going to take the fall. The knives are out.


I'D RECOMMEND KNIFING THEM ALL, AND LETTING GOD SORT THEM OUT. BUT THEN, I'M NOT KNOWN FOR MY PATIENCE, BUT FOR MY FRSPs!

[Demeter]

104. What De-leveraging? by Rolfe Winkler, publisher of OptionARMageddon

http://www.nakedcapitalism.com/2009/06/guest-post-what-de-leveraging.html

So much for de-leveraging...

The Fed published its latest Flow of Funds report today. One key takeaway: While total debt is growing more slowly, it is still growing. Since Q3 '08 households have cut their debt (slightly), but the federal government is borrowing so rapidly, overall debt continues to expand.

SEE LINK FOR CHARTS AND GRAPHS

By the way, the Fed only includes publicly held debt when calculating total federal government borrowings, $6.7 trillion at the end of Q1. This excludes over $4 trillion owed to the Social Security "trust fund." More importantly, it excludes $60 trillion of unfunded future liabilities for Medicare and Social Security.

The second chart puts the data into perspective. As a percentage of GDP, debt continues to expand, from 368% at the end of Q4 to 375% at the end of Q1.

It’s been said that the income statement is the past, but the balance sheet is the future. Our balance sheet is getting worse. Those who see "green shoots" believe the crisis is abating. But they don’t understand its origin: a credit bubble that, in the aggregate, continues to inflate. The equity value of our economy is going down—think the stock market and housing equity. At the same time our debt is going up. In other words, America’s leverage continues to expand.

The only way to climb out of a debt-deflationary depression is to pay down debt or to write it off. Levering up only delays the inevitable. Unfortunately Americans, and lately the Obama administration, have shown absolutely no political will to do this. Republicans decry growing deficits, but do you ever hear them enumerate cuts they would make or taxes they would raise? Clearly our plan is to keep borrowing until our lenders cut us off.

Speaking of crashing equity…

The last chart plots the amount of equity Americans have in their homes. This figure has been crashing as house prices fall while mortgage debt stays roughly constant. At the end of 2007 the figure was 49%, at the end of last year 43%. It now stands at 41.4%.

And as CR notes: "approximately 31% of households do not have a mortgage. So the 50+ million households with mortgages have far less than 41.4% equity."

[Demeter]

106. The psychology of economic forecasting by Edward Harrison

http://www.nakedcapitalism.com/2009/06/psychology-of-economic-forecasting.html

During the last generation, the economics profession has veered toward a ‘science’ model of economics and finance. The intellectual underpinnings for this development began with the Efficient Market Hypothesis (EMH) and has continued in no small measure due to what is often termed ‘University of Chicago School Economics.’ If you are looking for a good read on what is wrong with the EMH view of the world, you should get ready for Justin Fox’s “The Myth of the Rational Market” which is coming to a bookstore near you.

My own view is that many economists today are really frustrated scientists looking to ply their science and math craft in economics. In reality, economics is a social science with large influences from psychology, and the scientific view ignores this. However, the fact that psychology plays a large role in economics is something that is increasingly appreciated, as the Nobel Prize received by Daniel Kahneman attests.

So, I am not going to discuss EMH or rational markets. Rather I want to delve into the psychology of economic forecasting and why economists act as they do. Late last month, I posted an article with an attached video in which Marc Faber made the very astute comment, “it’s very tough for a forecaster who was ultra-bearish to stay bearish, because if he’s wrong he has a reputational risk.” What I believe Faber was saying is this: an economist who is proved wrong is an economist who loses credibility. This statement is at the heart of economic forecasting.

What Faber is giving voice to is the very real concern that any economic forecaster feels in making a prediction. If one is proved right, then plaudits will follow. If one gets it wrong, the Bronx cheer is what you are likely to get. This is true for macroeconomists as much as for Wall Street analysts. I will give you two examples from Wall Street to illustrate my point.

Henry Blodget: Amazon to $400

In October of 1998, Blodget predicted that Amazon’s stock would soar to $400 a share. At the time, he was a little known analyst at Oppenheimer, the same company for which Meredith Whitney worked until recently. His Amazon prediction propelled Blodget to a much higher status and attracted the attention of Merrill Lynch, the bulge bracket firm to which he moved for a huge salary. Clearly, making a bold call that comes true is a boon to a market forecaster.

Arjun Murti: Oil to $100 and then $200

Back in 2007, Arjun Murti, an oil analyst at Goldman Sachs, made a bold call that oil could rise to $100 a barrel in a ‘super-spike.’ I stress the fact that he said could because he was not predicting $100 a barrel per se, but rather he was making an analysis about the factors which could create a spike in oil prices. When oil did in fact rise to $100, many were shocked and Murti looked to be a prophet. Then he penned a piece which said the super spike could take oil to $150-$200. When oil peaked at $147 a barrel and subsequently collapsed down to $33, Murti was widely vilified in the media.

(ONE MUST ASK WHETHER THIS WAS A GOOD GUESS, OR A SIGNAL TO THE IN CROWD THAT THE FIX HAD BEEN APPLIED? AND THE SECOND TIME, WELL, DARN, THOSE PESKY CONSUMERS JUST WOULDN'T PLAY ALONG!)

In fact, if you look for his name in a search engine, you will find all manner of references to his $200 oil call as a wrong prediction that was the height of hubris. However, if you read the above linked Bloomberg article, you can see he never said oil would rise to $200 a barrel any more than he said oil will rise to $100 a barrel. In fact, he gave a range from $150-$200 which was arguably met when oil rose to $147 a barrel. Clearly, making a bold call that is ‘proved’ false is detrimental to the reputation of a market forecaster.

So, in retrospect, Marc Faber was making a statement about Nouriel Roubini, dubbed by the media as ‘Dr. Doom,’ that one can easily see has having relevance in the Arjun Murti case. The question is what impact these facts have on how forecasters act. I would argue that it constrains their forecasting more than is readily apparent, especially due to ‘personality factors’ in the forecasting community.

Herding

The first outcome of this asymmetric treatment of bold calls gone wrong and ones proved right is what is known as herding. This is a phenomenon known to be at work in bubbles and was popularised in a 19th century book called “The Madness of Crowds” by Charles Mackay. More recently, herding has been seen amongst fund managers judged according to an index benchmark and relative fund performance. But, it is also evident in how forecasters make predictions as well. No one wants to go out on a limb with a bold call only to see this prediction proved wrong. If one fails, it is better to fail conventionally. The necessary corollary of that statement is this: market forecasters and analysts play it safe by making sure their forecasts are not often far from the consensus forecast. Think of the consensus forecast as an anchor which restricts the outlook of any individual forecaster afraid of failing unconventionally.

In Roubini’s case – and this logic also applies to media darlings like Meredith Whitney – it does NOT pay to up the ante. What Faber is saying is that they have already benefitted from the bold and unconventional contrarian market call they initially made. There is little payoff and much risk from continuing on that path. A bearish analyst who misses the turn gets the stick. Just ask the original Dr. Doom, Henry Kaufman.

Personality Factors: think Mr. Spock

There is another overlooked part of forecasting which contributes to the herding of analysts. I would call this personality factor, the ‘Mr. Spock Syndrome.’ Let me explain.

In the early 1990s when I entered the Foreign Service, we were all given a personality test called the Myers-Briggs Type Indicator (you can take the test here). This test is designed to give individuals a general sense of their own particular personality proclivities and modus operandi. While the test has generated some criticism for not having enough real world statistical validation, it has been adopted by a wide range of human resource departments worldwide.

Now, when I took this test, I had no idea what the MBTI was. So, I found it quite interesting to hear what it was designed to achieve. What was more interesting was how unevenly distributed different personality types are across the population. Of the four types, two make up as much as 80-85 percent of the population, whereas the other two make up as little as 15-20 percent.

When we were asked to raise our hands and self-identify after we received the test results, two thirds of the classroom identified themselves as NTs – otherwise known as rationals (I am an NT as well). Mr. Spock, the character from Star Trek, best exemplifies the exaggerated two-dimensional version of an hyper-rational.

Given the fact that rationals make up 5-10 percent of the population, it is very unlikely that two-thirds of my thirty-odd Foreign Service colleagues were NTs by random chance. More likely is that we self-selected based on the fit between our personality and the job and based on self-selection (i.e. NT Diplomats unconsciously picking other NTs).

CONFESSION: I AM ALSO NT, HENCE NO DOUBT THE TREKKIE FAN AND MUCKING ABOUT IN SCIENCE AND ECONOMICS--DEMETER

In economic analysis much the same dynamic is at play – rationals are a natural fit for the role of stock analyst or economic forecaster. I guarantee you that you would see an equally disproportionate number of rationals in those positions were you to administer a global poll of economic forecasters (which makes me wonder if the whole ‘rational economic agent’ meme in economics is just a projection onto the broader population?).

Mr Spock doesn’t like being wrong

So, what are the personality characteristics of an NT? Opinionated and arrogant are two things that come to mind.( MOI? MAIS NON!) But, that’s being negative. There are many positive ones like pragmatic, even-tempered, inventive. One interesting characteristic is that rationals do not like to be wrong. It is like a blow to a rational’s sense of self to proved wrong. So, more than other personality types, rationals take episodes to heart like the one I described with Arjun Murti. While this might tend to make one more meticulous and precise, I believe it also makes one more cautious. Take a look at this post and you will see that I, as an NT, have unconsciously filled my article with qualifiers like “might’ and ‘could’ or ‘tend to.’ I didn’t realize this until I read the last sentence. But, clearly I am doing the same thing I am accusing other forecasters of doing: qualifying my statements in order to make it easier to weasel out of a bad call.

The easiest way to weasel out of a bad call, however, is to vote with the consensus, otherwise known as herding. Outliers are punished if they are wrong. Now I know rationals tend to be very independent minded and are, therefore, more prone to be contrarian, but I also think that the rewards and incentives in forecasting are skewed toward consensus. In my opinion, this is another reason why momentum is such a force in markets – no one is willing to stick out his neck.

I hope you find this post entertaining. I look forward to your comments – positive or negative.

[Hugin]

108. Rats, I should've saved my call for a Phrenology Weekend as commentary for this post.

It would be a complementary (if scathing) addition to what is posited here.

[Demeter]

111. Does the Administration Care About Executive Compensation?

http://baselinescenario.com/2009/06/11/does-the-administration-care-about-executive-compensation/

They certainly want you to think they do. Yesterday (6/11) was Executive Compensation Day in Washington. The Treasury Department appointed Kenneth Feinberg to oversee executive pay at seven companies that have received extensive government aid – AIG, Citigroup, Bank of America, and the car companies and their finance companies. The administration, which always seemed uneasy with the popular outrage over bonuses earlier this year, seems willing to throw the seven sinners to the wolves, while letting the bulk of the financial sector off the hook. Feinberg will only provide advice to other TARP beneficiaries, and banks that pay back TARP money will not even have to deal with that.

This, of course, solves precisely nothing. The problem with “executive compensation” – no, make that just “compensation” – in the financial sector was its structure. Huge end-of-year bonuses tied to short-term metrics, with no corresponding downside risk, motivated people to take on excessive risk in hopes of maximizing those bonuses. And the companies we need to worry about most are not the ones that are most beaten-down today, but the ones that are (relatively) the strongest and will be taking the biggest bets.

So the administration is also thinking about addressing these structural issues. Tim Geithner made a statement on compensation yesterday that lays out five reasonable-sounding principles (compensation should reward performance, compensation should be “aligned” with risk management, etc.). On closer examination, it’s remarkably short on verbs that aren’t prefaced by “should.” For example, “I met with SEC Chairwoman Mary Schapiro, Federal Reserve Governor Dan Tarullo, and top experts to examine . . .” Or, “in considering these reforms, we start with a set of broad-based principles . . .” Or, “by outlining these principles now, we begin the process of bringing compensation practices more tightly in line . . .” (Emphasis added, obviously.)

At its heart, there are only two proposals: first, “say on pay” legislation, which requires non-binding shareholder votes on executive compensation packages and, according to Geithner, “would encourage boards to ensure that compensation packages are closely aligned with the interest of shareholders;” and second, new standards for independence of board compensation committees.

If you’re wondering how a non-binding shareholder vote could possibly solve the problems with executive compensation, you’re not alone. I think “say on pay” is slightly better than nothing, because there is a chance that in some cases the additional attention will shame boards into more reasonable packages. But in general, shareholders’ ability to influence corporate governance is pretty weak. Outside shareholders, even major institutional investors, face many challenges: fragmentation of ownership, which makes it hard to build a big enough coalition; the control of information by management and the board; the usage of compensation consultants to insulate pay packages from criticism; and the tendency of small shareholders to either not vote or vote the way the board recommends. Even if dissident shareholders can muster a “no” vote, the likely outcome would be a cosmetically modified package that is simply harder to understand – or no change at all (non-binding, remember?).

Independent compensation committees are also a nice idea, but without many teeth, at least in the proposal floated yesterday. They key question is, what incentive do the compensation committee members have to really crack down on executive compensation? The proposal draws a parallel to Sarbanes-Oxley and audit committees. But audits turn out to be right or wrong, and if there is a restatement, that is deeply embarrassing to the people involved. Excessive compensation is a matter of judgment, and it’s hard to see compensation committee members ever being held personally liable for giving away too much money.

Over at The Hearing, Brett McDonnell is similarly underwhelmed, although he does suggest some additional ideas, such as allowing regulators to evaluate the effect of compensation on safety and soundness requirements.

This reluctant approach to regulating executive compensation should come as no surprise. In his press briefing the day he announced the Public-Private Investment Program, Geithner responded to a question about TARP executive compensation conditions by saying, “the comp conditions will not apply to the asset managers and investors in the program.” When the Washington Post reported on April 21 that that was not what the lawyers were saying, Treasury rushed out a new FAQ (see the April 21 FAQ) trying to assuage investors’ fears.

This looks to me like a strategic choice. The administration has decided that the economy depends on the banks, and therefore it needs to keep the existing bankers happy. Or it has decided that executive compensation is just not such an important issue, and it would rather focus on others. (What, though? The Wall Street Journal reported on Tuesday that the administration is backing off plans to consolidate regulatory agencies.) Or, more likely, both.

These are reasonable positions, even if I don’t agree with them. But they are more evidence that the financial sector of 2010 will look more like the financial sector of 2006 than anyone would have thought possible just six months ago.

By James Kwak

[Demeter]

118. "Geithner’s Plan on Pay Falls Short"

http://www.nakedcapitalism.com/2009/06/geithners-plan-on-pay-falls-short.html

Joe Nocera of the New York Times has a good piece today (6/14) on the Obama executive pay proposals, such that they are. While I have sometimes been hard on Nocera for taking positions that I have found to be a bit too forgiving to the financial services industry, today he gave an articulate rendition of a fundamental problem:

It was another one of those Timothy Geithner moments....

Looking sternly into the cameras, Mr. Geithner read a statement in which he described executive compensation as a “contributing factor” to the crisis. Then he outlined a series of tough-sounding principles, including a “re-examination” of such egregious practices as golden parachutes, a need to align compensation practices with “sound risk management” and the importance of having compensation plans that “properly measure and reward performance.”

But then, as he so often does, he proceeded to follow these tough words with actual proposals that were less than inspiring. The only legislation his department planned to propose — indeed, the only legislation he deemed necessary — were bills that called for compensation committees to be made up of independent directors, along with “say-on-pay” legislation, which would give shareholders the right to vote on a company’s pay plan. That vote, however, would not be binding....

Until the financial crisis, most people, myself included, did not make distinctions between different kinds of companies when it came to executive compensation. It was just one big problem, revolving primarily around the idea that there was something fundamentally wrong about executives taking home giant, multimillion dollar pay packages for mediocre performance or even outright failure — something, alas, that happens with annoying regularity in corporate America.

But if the near collapse of the financial system has taught us anything, it is that there should be a distinction. On the one hand, there are companies whose executives can make awful mistakes, even driving their corporations into bankruptcy, but whose actions have little or no effect on the rest of us. Most companies fall under this category.

And then there are those handful of companies — the too-big-to-fail banks and other large financial institutions that pose systemic risk — whose failure can wreak devastating havoc on the economy. For these latter companies, getting compensation right isn’t just a matter of fairness or improved corporate governance. It turns out to be critically important if we are to prevent a repeat of the calamity that has befallen us. But as difficult as it has been to overhaul executive compensation overall, it is going to be even more difficult to take the tougher measures that need to be taken with the banking system.


Yves here. As much as I support Nocera's second observation, that there are some big companies where "getting compensation right" is essential, he is incorrect in saying that the fact that many of the others pay egregiously for failure, and often still overpay for success, has "little to no effect on the rest of us."

The pay practices are part and parcel of a legitimization of a gaping disparity in incomes, and the promotion of a fantasy that certain people are endowed with skills so rarified that it merits outsized rewards even if the job is botched. Yet the companies profiled in Jim Collins' Good to Great had CEOs who paid themselves modestly, even when they shepherded their businesses through major transformations. The idea that money beyond a certain level is motivating bears far more examination than it has gotten. The evidence is strongly to the contrary, that the companies with the most lavishly paid leaders were stock market laggards.

But the excessive and highly publicized CEO pay also serves to provide a price umbrella for all sorts of other pay and fees, such as consultants, lawyers, lobbyists, even executive coaches. Even if you are a Serious Player in your field, it would be unseemly to charge more than your clients' top executives earn. But the flip side is that if you do not charge a lot for your very top professionals, you send the signal that you think you are not in their league. If you are providing services to a seven figure CEO or his board, fees of, say, $500 an hour are way too low. So high CEO pay has pulled up a lot of boats on its rising tide. Back to Nocera:

I think there is a decent chance that the compensation games will come to an end — though it won’t be by doing anything so radical as trying to cap pay, something that simply doesn’t work. (Mr. Geithner was right about that.)

Instead, it will be because boards have come under renewed pressure, thanks to the financial crisis, to control executive pay. It is also because, with the Democrats in charge, the issue is high on the agenda....

Most important, though, it is because the re-energized S.E.C., under Ms. Schapiro, is preparing a handful of new rules that will force companies to do a great deal more to spell out their compensation rationales, while making it easier for shareholders to express their displeasure if they feel boards have been too generous. In particular, the S.E.C. has begun laying the groundwork for a rule that will make it easier for shareholders to nominate directors — something that is tremendously difficult right now. Ms. Minow is among those who believe that the ability to replace incumbent directors is likely to have the biggest effect in reforming executive pay.


I wish I shared their optimism. These changes may keep pay from moving higher, but I doubt these measures will do much other than stop the worst abuses, such as big checks for obvious underperformance.

The reasons are twofold. First, even if shareholders may be able to secure some board seats, it will still take an effort. And why should they bother? As Amar Bhide pointed out in a prescient and ignored (because too offensive to the orthodoxy) Harvard Business Review article, "Efficient Markets, Deficient Governance," the US decision to have highly liquid stock markets inherently leads to lax governance. Why?

In liquid markets, shareholders cannot have sufficient information to make a truly informed decision about what stocks to buy. A company, for competitive reasons, cannot disclose the details of its strategy and market situation that an investor would like to have. It would be give competitors insight that they could use to their advantage. The only way an investor can have good enough knowledge is through a venture capital type relationship, where he is privy to a good deal of internal information and can also assess the caliber of management.

So equity investors are inevitably in a position in which they are always at least a bit, if not a lot, in the dark. That means executives can hide their mistakes for at least a while, and probably reap more in the way of rewards than they should.

If an investor becomes unhappy with how management is paying itself, it is much more sensible to sell the stock than to devote the effort to try to bring management to heel. Even with the SEC lowering the barriers, it will not be cost free for unhappy shareholders to locate and nominate their own board candidates and promote their cause to other shareholders.

The second is that even having a board member or two installed by outsiders does not assure success. It is unlikely, given staggered directors' terms in office, that shareholders could achieve a majority of outside board members and thus gain control of the compensation committee.

The irony of the current arrangement is that these fancy incentives intended to align executive pay with shareholder interests were meant to solve a principal-agent problem. That is, the concern was that CEOs would take advantage of their position and pay themselves well but not work very hard, hence they needed equity based incentives to make sure they did a good job. That view means that the CEOs were presumed to be less than trustworthy.

Yet who was in charge of recommending the compensation packages to the board? Well, outside comp consultants, engaged by the HR department, which of course means the fees are paid by the company. And even if the board hires a comp consultant, the board is nominated by management and the fees of the consultant are still paid by the company. In other words, the people whose possible abuses were supposed to be curtailed are still ultimately in charge of the pay packages. The foxes still are in charge of the henhouse, but with a few intermediaries in between to make it a tad less obvious. So it is any wonder pay skyrocketed?

[Demeter]

115. Here's a Prediction You Can Take to the Bank: Paul Volcker

Paul Volcker, Chairman of U.S. President Barack Obama’s Economic Recovery Advisory Board, said Thursday it is reasonable to expect that economic growth will resume in the U.S. late this year, but warned that a strong recovery is unlikely.

Addressing a financial forum in Beijing, the former Chairman of the U.S. Federal Reserve said that the U.S. faces “a long slog, with continuing high levels of unemployment.”

Volcker, known for successfully bringing inflation under control during his term at the Federal Reserve, said that the current economic situation “is not an environment in which inflationary pressures are at all likely for some time to come.”

In his prepared remarks, Volcker said that, although there will be no alternative to the U.S. dollar in the foreseeable future, “the ultimate logic of a globalized financial system is a world currency.”

“The theoretical premise that a system of floating exchange rates would promote swift and efficient adjustment has not been borne out in practice,” he said.

In the absence of a global currency, the dollar has provided a “workable, pragmatic approach,” he said.

Maintaining the purchasing power of the U.S. dollar is “the central responsibility of the United States,” Volcker said, adding that it is in the country’s own interests to do so.

http://blogs.wsj.com/economics/2009/06/11/volcker-strong-recovery-is-unlikely/

[Demeter]

120. Paul Krugman's fear for lost decade

http://www.guardian.co.uk/business/2009/jun/14/economics-globalrecession

As analysts and media hailed the tentative emergence of green shoots last week, Nobel Prize-winning economist Paul Krugman caused international shock with a prediction that the world economy would stagnate just as badly, and for just as long, as Japan's did in the 1990s. In an exclusive interview, he talks to Will Hutton about his anxiety for the future - and how Gordon Brown might have saved Britain from the blight that hangs over the West.

Will Hutton: You are warning that what happened to Japan could happen to the whole world. Japan's GDP at the end of this year will be no higher than it was in 1992 - 17 lost years. You are saying that this is an ongoing risk, certainly for the North Atlantic economy - maybe the world economy.

Paul Krugman: Yes. It's not that the risk of the Japan syndrome has receded very much. The risk of a full, all-out Great Depression - utter collapse of everything - has receded a lot in the past few months. But this first year of crisis has been far worse than anything that happened in Japan during the last decade, so in some sense we already have much worse than anything the Japanese went through. The risk for long stagnation is really high.

WH: So what is the heart of your pessimism? The bust banking system? A critic would say: "Hold on, Paul Krugman. Japan is a special case. It had an overblown export sector that had become too large for an American market it had saturated. The yen was very, very overvalued. And this interacted with a credit crunch and bust banking system. Its policy response was consistently behind the curve. That's not the story of the United States or the United Kingdom."

PK: The thing about Japan, as with all of these cases, is how much people claim to know what happened, without having any evidence. What we do know is that recessions normally end everywhere because the monetary authority cuts interest rates a lot, and that gets things moving. And what we know in Japan was that eventually they cut their interest rates to zero and that wasn't enough. And, so far, although we made the cuts faster than they did and cut them all the way to zero, it isn't enough. We've hit that lower bound the same as they did. Now, everything after that is more or less speculation.

For example, were the problems with the Japanese banks the core problem? There are some stories about credit rationing, but they are not overwhelming. Certainly, when we look at the Japanese recovery, there was not a great surge of business investment. There was primarily a surge of exports. But was fixing the banks central to export growth?

In their case, the problems had a lot to do with demography. That made them a natural capital exporter, from older savers, and also made it harder for them to have enough demand. They also had one hell of a bubble in the 1980s and the wreckage left behind by that bubble - in their case a highly leveraged corporate sector - was and is a drag on the economy.

The size of the shock to our systems is going to be much bigger than what happened to Japan in the 1990s. They never had a freefall in their economy - a period when GDP declined by 3%, 4%. It is by no means clear that the underlying differences in the structure of the situation are significant. What we do know is that the zero bound is real. We know that there are situations in which ordinary monetary policy loses all traction. And we know that we're in one now.

WH: So your point is that the crisis in Japan was about excess debt, excess leverage and lack of demand - reinforced by the fallout from the asset bubble collapsing. They didn't have credit contraction on anything like our scale, but even so, zero interest rates were just unable to turn the economy around.

PK: That's right, that's right.

WH: But an optimist would say that there are signs all around of the traction that you say doesn't exist is working. The stockmarkets in London and Wall Street - along with most world markets - are up a solid 20% to 25%. You've got all these improving business confidence indicators. You've got the first signs of the housing market bottoming in both the UK and the United States. This is what the optimists would tell you.

PK: But all of that points to levelling off, rather than an actual recovery. Britain's looking the best among the major European economies because it's got a PMI that's just above 50. In other words, Britain actually may have stopped contracting - that's the most positive thing one can say.

Who knows if the stockmarket makes sense or not? It was pricing in the possibility of an apocalypse a few months ago. That possibility seems to have receded, so it makes sense for the markets to come up, but that's not saying that the economy is going to be great. If you do the comparison not with where they were three months ago, but where they were two years ago, then the markets still seem awfully depressed.

I hope I'm wrong but the question you always have to ask is: where do we think that this recovery's going to come from? It's not an easy story to tell.

WH: In your lectures, you drew attention to the importance of stressed balance sheets holding back consumers and business alike in their likely spending ambitions - and thus dragging back economic activity. Is this going to be a balance-sheet-constrained recovery?

PK: It's probably true that households have been impoverished a lot by the fall of the housing and stock prices. And that it's likely that households, with all of this debt, are going to have trouble spending. And yes, the North Atlantic economy was supported quite a lot by gigantic housing booms. Here in the UK you have had the house price surge without very much construction. Economists have a well-developed theory about how balance-sheet problems can cause financial and economic crises, but we thought of it in terms of third world countries with foreign-currency debt. We didn't realise that there were lots of other ways in which that can happen.

WH: So, one way to think about it is that self-reinforcing financial crises rooted in overstretched, overborrowed companies and governments in less developed countries - like those in Argentina and Indonesia, which were amazingly destructive in the 1990s and 2000s, but localised - are now playing out in the developed world?

PK: There are really two stories. One is the Japan-type story where you run out of room to cut interest rates. And the other is the Indonesia- and Argentina-type story where everything falls apart because of balance-sheet problems.

WH: So in a nutshell your story is ...

PK: The "Nipponisation" of the world economy with a bunch of "Argentinafications" playing a role in the acute crisis. But even after those are over, we have the Nipponisation of the world economy. And that's really something.

WH: What was the heart of the Japanese problem? What was at the heart of their 17 years of going nowhere?

PK: Well, my guess is that it was that the balance-sheet problems took a very long time to resolve. And it is difficult to get enough demand in an economy where you have really very adverse demography ...

WH: So, which countries look closest to being Nipponised - combining balance-sheet problems and ageing populations?

PK: Well, the US doesn't have the same combination. But in Europe, Germany and Italy look comparable. France is better and Europe as a whole is considerably better.

WH: Germany matches Japan to an uncanny degree. You talk about the Nipponisation of the world economy: I'm not so sure. But I would talk about the Nipponisation of Europe via a German economy at its centre in the grip of the same problem - and that starts to be a global problem.

PK: Germany has huge inadequacy of domestic demand. Their economic recovery in the first seven years of this decade rested on the emergence of gigantic current account surplus.

How is it possible that Germany, which did not have a house price bubble, is having a steeper GDP fall than anyone else in the major economies?

The answer is that they depended upon exporting to the bubble regions of Europe, so they actually got side-swiped by the loss of those exports worse than the bubble regions themselves got hit.

It's Germany on a global scale that is the concern. We worry about the drag on world demand from the global savings coming out of east Asia and the Middle East, but within Europe there's a European savings glut which is coming out of Germany. And it's much bigger relative to the size of the economy.

WH: And on top there is an unique and unaddressed huge potential banking crisis. The Germans pride themselves on their three-legged banking system, but it is incredibly interlinked. The IMF warns that Germany could have to take at least $500bn of writedowns, which its banks have not begun to recognise. German banks hold a trillion dollars - maybe more - of maturing collateralised debt obligations that can only be refinanced by crystallising the losses. We've had RBS and you've had Citigroup. Germany's GDP will fall 6% this year - before the banking crisis has hit it.

PK: Yeah, that's the financial view. Its important to keep track of the financial state of the banks. But one always has to keep track of the real side of the economy, too. It is a hypothesis that the problem is essentially financial. But it is by no means a hypothesis that we know is true.

WH: So even after what we've gone through, you say it's just a hypothesis that the cause of the crisis is financial?

PK: That the cause is primarily financial. Certainly, Lehman and all of that alerted us all. And it did trigger an immediate drop in demand. But the housing bust was going to happen regardless.

The fall in business investment is at least to a large degree a response to excess capacity, which is the result of falling consumer demand and the housing bust. So we don't know.

WH: I think we know more than that. The links between bank capital, loan losses, credit availability and economic activity and asset prices have never been clearer. That was why there was a threat of Depression.

PK: Clearly, re-establishing stability in the financial markets is a necessary condition for recovery. But we're not sure it's sufficient.

WH: That's very scary.

PK: Well, that is part of the reason why I am so depressed.

WH: In one of your lecture charts you seemed to be suggesting that we're 12 months into what you think could be a 36-month period of downturn, albeit at a slower rate.

PK: Easily.

WH: It's quite shocking that you think it will be that severe.

PK: If we measure the 2001 US recession by when the labour market finally started to turn around, it was a 30-month recession. It was really 30 months in before you started to see the unemployment rate come down.

WH: In Britain, there is now a new consensus forming that the government's economic forecasts, which were roundly mocked at the time of the April budget for being wildly optimistic, could be right - that is, growth will start to resume in 2010, albeit at a very low rate.

PK: Well, the UK has achieved a lot of monetary traction in the way that no one else has through the depreciation of the pound. In effect, you've carried out a successful beggar-my-neighbour devaluation.

WH: So, the United Kingdom might actually get through this in reasonably good shape?

PK: Yeah. That's why I've been watching with an outsider's slight puzzlement, your bizarre political circus.

WH: Darling and Brown deserve more credit than they're given?

PK: If the government can hold off having an election until next year, Labour might well be able to run as "we're the people who brought Britain out of the slump".

WH: So your advice to the Labour Party is: hold steady.

PK: Probably.

WH: Probably?

PK: I don't know enough about the other aspects of politics, but I would guess that the option value is quite high that the economy might actually have turned a corner. That's unique. That's a uniquely British thing. None of the other G7 countries has anything like that.

WH: And that's a combination of our big beggar-our-neighbour devaluation, aggressive monetary policy, successfully recapitalising our banks and our fiscal policy.

PK: There hasn't been very much discretionary fiscal expansion when all's said and done.

WH: Well, there was a £20bn temporary cut in VAT.

PK: Yeah.

WH: Which is non-trivial.

PK: Non-trivial. But not much , as I understand.

WH: Well, there was bringing forward £3-4bn of capital spending. Perhaps together in a full year the stimulus was 1.5% GDP. Maybe 2% at the outside.

PK: Monetary policy has been more aggressive - though maybe less than the Fed - and the depreciation of the pound is a nice thing from a UK point of view.

WH: So you remain committed to the key role of fiscal policy?

PK: Yeah. Fiscal policies are best; certainly something to do to mitigate recession. People say that the Japanese fiscal policy on all that infrastructure was wasted. But it did help sustain the economy and avoid a collapse. Fiscal policy can certainly do that: it gives the credit sector time to rebuild its balance sheets. There's every reason to be expansive around the fiscal side now because even if you're not sure that it provides a long-term solution, avoiding catastrophe is a big thing to do.

WH: If you believe that, is Obama doing enough on fiscal policy?

PK: Well we have a stimulus which is a little over 5% of one year's GDP but some of it is not real - something that was going to happen anyway and not very stimulative. So it's really about 4% of GDP of genuine stimulus, but spread over two and a half years. So, it's actually quite a lot less than what I was arguing for.

WH: So, will it be sufficient?

PK: Well, sufficient to actually restore full employment would probably have to be 5% or more. More than we have would certainly be a good thing. It actually might happen. You know, the buzz I'm getting is that a second-round stimulus might well come on the agenda.

WH: Really? When you say "the buzz you're getting", have you been asked?

PK: Well, it's what you hear from people who talk to people who talk to people.

WH: Who would argue for that? Would it be Larry Summers ?

PK: I think Larry. I'm not sure Tim Geithner would be opposed to it. Nor would Chrissie I'm sure they would be making similar judgements. It is actually a little spooky.

WH: They're all people you know pretty well, who look at the world the same way, use the same tools and framework ...

PK: Yeah. They may be sitting where they are, having some differences. Larry's always more conventional than I am. Sometimes rightly. Sometimes wrongly. But they do operate in the same framework.

WH: How seriously do you take the argument that the growth of public debt on this scale will crowd out the spontaneous amount of growth of corporate and private debt? Is this already happening with the rise in long-term interest rates in the US?

PK: The thing about long-term interest rates is that they are a weighted average of future expected short-term interest rates. Movements in long-term rates are mostly about what people think the short rates are going to be. Look, real rates are barely up at all. What seems to have moved up is the expected rate of inflation, which is still below the Fed target. So it's more like what the markets are doing is reducing their discounting of deflationary catastrophe. WH: how do you see the politics working out in the States and in the UK now? Your praise of Gordon Brown after the banks in October were recapitalised was front-page news. Are you still as well disposed?

PK: I still think his economic policies have been pretty good. They really kind of lost their nerve on fiscal policy, but I do understand it's harder to do it here. I think the UK economy looks the best in Europe at the moment. I have no position on all of the crazy stuff. But I think the policies are intelligent. The fact of the matter is that Britain did manage to stabilise the banking situation. I'm not ecstatic, but I'm not sure I know what I could have done better.

WH: So where are you on the debate about various shape recoveries? V-shaped? L-shaped ? A W-shaped recovery?

PK: There is a possibility that we get some perk-up as the stimulus dollars start to flow and an almost mechanical bounceback in industrial production as inventories are built up. But then we slide down again. The idea that we sort of bounce along the bottom is all too easy to imagine.

WH: Is it just a story about the right dose of fiscal policy? What structural change would you advocate in the economy, to support recovery?

PK: Financial regulation. Rein in that monster. The huge increase in general private-sector leverage is at the core of how we got so vulnerable. We went for 50 years after the Great Depression without any major financial crises, and that, I think, was because we had a financial sector that didn't let people get as deeply into debt as they have now.

WH: So rein in the financial monster and give a fiscal stimulus. So you would leave the American way of doing capitalism untouched?

PK: I'm not that cosmic in this stuff. But it is true that Gordon Gekko went hand in hand with the wave of financialisation. Corporations got more brutal and fiercer.

WH: But it is all connected. Without the leverage, there would have been no Gordon Gekkos. And leverage meant that predator companies had the firepower to launch contested hostile takeovers. The only way to fend off attack, or to make the sums work after an attack, was for companies to be more brutal and fierce - often breaking the promises to staff and suppliers that kept commitment and trust.

PK: All of that is true. I have a more mundane view about what we do. I just want a stronger welfare state and a little bit more social democracy. And some restoration of the labour movement as a counterweight.

I'm not sure - maybe I'm just not thinking about it deeply enough. I guess I've got the same attitude Keynes had, which was he was looking for almost technical fixes. You're looking for ways to fix the parts that have gone wrong rather than replace the whole thing.

You know the human cost of this crisis is vastly worse in America than it is on this side of the Atlantic. So this is a good time to push for a better US social safety net too.

WH: And lastly - you've been critical about Obama. Your view now?

PK: I'm increasingly happy with him. I was unhappy; I think they could have gotten a bigger stimulus coming out the gate. But they've become more forceful. I would have been more aggressive on the banks; we'll see if we need to re-fight that battle later on.

Healthcare is looking really good. I'm getting increasingly optimistic on healthcare reform. Climate change looks like it's going to happen. So my odds that this will in fact be the kind of New Deal I was hoping for are rising. I had my scepticism, but he is smart. He's impressive. And it is such a relief to have somebody whom you can respect in the White House.
The CV

Name Paul Krugman

Born 1953, New York

Education 1974: BA, Yale University; 1977: PhD, Massachusetts Institute of Technology

Career 1982-3: senior international economist for US president Ronald Reagan's council of economic advisers; 1999: appointed professor of economics and international affairs at Princeton, having previously taught at MIT, Yale and Stanford; 1999 to present: columnist, the New York Times. Most recent books include The Conscience of a Liberal (2007) and The Return of Depression Economics and the Crisis of 2008 (2008). October 2008: awarded the Nobel prize in economic sciences, for his work on international trade and economic geography.

This article was first published on guardian.co.uk at 00.01 BST on Sunday 14 June 2009. It appeared in the Observer on Sunday 14 June 2009 on p6 of the Business news & features section. It was last updated at 10.53 BST on Sunday 14 June 2009.

[Demeter]

116. World Bank Downgrades Growth Forecasts Yet Again (And More Doubts on Chinese Data)

http://www.nakedcapitalism.com/2009/06/world-bank-downgrades-growth-forecasts.html

I am beginning to feel as if I am being gaslighted. (YOU AND ME, TOO, YVES!)

For those not familiar with the reference. Gas Light was a 1930s play in which a scheming husband keeps turning the gas lights in his house up and down, then keeps telling his wife that she is crazy when she comments on the changes. He eventually succeeds in driving her nuts. (I WAS MARRIED TO A MAN LIKE THAT, WHICH IS WHY I'M NOT MARRIED)

The continuing efforts to find the most positive spin in any data release and put it in headlines continues. I just looked at the New York Times and saw "US Recovery Could Outstrip Europe's Pace." The article is admittedly more measured, but the headline implies a recovery is on in both the US and EU, which is not yet a foregone conclusion.

However, to show that the picture is a tad more complicated, DoctoRX passed along the fact that the World Bank has downgraded its 2009 global growth forecast, from a 1.7% contraction to negative 3%. This is a big change, and from what I can tell, has NOT been picked up by the major media, when past World Bank forecast changes have been. It feels as if we have controlled media.

From the World Bank:

The world economy is set to contract this year by more than previously estimated, and poor countries will continue to be hit hard by multiple waves of economic stress, said World Bank Group President Robert B. Zoellick today.

Even with the stabilization of financial markets in many developed economies, unemployment and under-utilization of capacity continue to rise, putting downward pressure on the global economy.

According to the latest Bank estimates, the global economy will decline this year by close to 3 percent, a significant revision from a previous estimate of 1.7 percent. Most developing country economies will contract this year and face increasingly bleak prospects unless the slump in their exports, remittances, and foreign direct investment is reversed by the end of 2010.

“Although growth is expected to revive during the course of 2010, the pace of the recovery is uncertain and the poor in many developing countries will continue to be buffeted by the aftershocks,” Zoellick said ahead of the Group of Eight finance ministers meeting in Italy.


Separate but related is that some of the cheery data coming out of China does not bear close scrutiny. Yesterday, Bloomberg noted that car sales in China spiked. Today we learn that the definition of a "sale" is a shipmment from the factory, whether the car has a buyer or not. And the number of registrations, a much better measure of end purchases, is much lower that the supposed sales figures.

From MetalMiner (hat tip reader Michael):

There are some apparently contradictory numbers coming out of China at the moment. Take those car sales as an example. Our man on the ground tells us BYD, a noted Chinese car maker, reported 30,000 car sales of one model by end of last year, but the number plate agency recorded only 10,000 new cars of that model registered for use on the road. What happened to the other 20,000 are they running around without number plates? In a police state, I don’t think so. Our understanding is auto sales are recorded in China when they leave the factory, not when they are registered on the road, so dealers can build up inventory while car “sales” are rising.

Coming back to Mr. Setser in a fine analysis on the impact of a fall in China’s exports he explores the apparent dichotomy of falling electricity consumption, falling industrial production and yet rising GDP. Even Mr. Setser wasn’t able to conclusively get to the bottom of that one although his overall conclusion was that the economy was growing and it must largely be on the back of domestic consumption as exports and employment remain depressed.

These disconnects call into question our tendency to take official proclamations at face value, and we should also be careful about taking one or two months data and extrapolating that to a longer term trend. In a market so heavily influenced by state controls, a short term trend can be the distorted result of government actions rather than the more reliable measure of a sum of company actions taken over an unfettered economy. Growing China certainly is a trend, but how comprehensively across the economy and how sustainably remains to be seen.


If Setser can't reconcile the data, I'd say it needs to be taken with a handful of salt.

[Demeter]

117. Stand by me: Western banks have supported their eastern European subsidiaries—so far

http://www.economist.com/businessfinance/displayStory.cfm?STORY_ID=13829347

WHEN it comes to banking crises, “Latvia on the brink” doesn’t really cut the mustard. At worst Western banks and their subsidiaries in the country could face losses of $10 billion—about the same amount as a typical investment bank wrote off during a bad quarter in 2008. Yet the tiny Baltic state’s continuing battle to defend its currency peg cannot be dismissed: it is a reminder of the wall of bad debts faced by banks across central and eastern Europe (CEE), many of which have western European parents (see map AT LINK).

Contagion is a risk. If Latvia’s peg goes, others in the Baltics and beyond may come under pressure, making it harder for those who have borrowed in hard currencies to avoid default. A Western bank could even abandon a local subsidiary, although Mark Young of Fitch, a credit-rating agency, thinks that is pretty unlikely as it would create wider fears among depositors and counterparties about foreign parents’ resolve to stand by their CEE operations.

An obvious test-case is the three Swedish banks that dominate lending in the Baltic states. Nordea, SEB and Swedbank own local lenders and, because their loans exceed deposits by a factor of two or more, also extend funding to them. They have prepared for rising losses by issuing a combined €5 billion ($6.9 billion) through rights issues in the past six months, adding almost a fifth to their tier-one capital.

Sweden’s central bank and banking supervisor have both recently published the results of stress tests which judge that, in the words of the latter, the system can “withstand extreme pressure”. The tests look fairly conservative, assuming loss rates on loans of up to a third in the Baltics and 60% in Ukraine. Tier-one capital ratios in the worst case drop to 6%, about the same level as permitted in America’s recent stress tests. For good measure Sweden has in place funding guarantees to help big lenders borrow and has also said it will inject more capital into banks if necessary. On June 10th its central bank borrowed a further €3 billion from the European Central Bank, in order to be able “to provide liquidity assistance” to banks.

Beyond the Baltics, funding from foreign banks to subsidiaries also looks solid. Romania, Serbia and Hungary have extracted commitments from lenders to maintain their exposure. This, along with help from the IMF, has been “an incredibly stabilising factor” for the wider region, says Manfred Wimmer, chief financial officer of Erste Group, an Austrian bank with big eastern European operations.

Experts have long warned against generalising about the region. So far this advice has proven right, with big discrepancies in impairment levels between countries. In the first quarter UniCredit, an Italian bank, recognised bad debts in Ukraine and Kazakhstan equivalent to an annualised rate of about 5% of loans. Yet the number for Poland was just 0.5%, and for its CEE unit overall 1.7%. The same variety typifies the other three Western banks that are most active in the region, KBC of Belgium, and Erste and RZB of Austria.

Bad debts everywhere will soar, however. There will be “serious pressure” on provisioning, says Federico Ghizzoni, who is responsible for UniCredit’s CEE operations. Is there enough capital to absorb the losses? Taking UniCredit, KBC, Erste and RZB together, and assuming a 40% loss rate in high-risk countries like the Baltics and Ukraine and a 10% loss rate elsewhere in the CEE region, the hit would eat up about a third of their combined tier-one capital—bad, but not terminal. Again, governments are standing by, having already injected funds into KBC and the Austrian banks. UniCredit is in negotiations to secure a combined €4 billion capital injection from Italy and Austria. As for funding, these lenders look in a far better position overall than their Swedish counterparts, with a combined loan-to-deposit ratio in CEE of about 115%. RZB has a bigger funding gap but Austria has said it will guarantee up to €75 billion of its banks’ borrowings.

The response to the crisis so far, with the IMF providing credit to the neediest eastern European governments and western governments offering support to their banks in the region, seems to have worked. That still leaves banks to work through bad debts and build up their local funding levels. Mr Ghizzoni says there is now “fierce competition for deposits”. The spivvy business model of borrowing euros and Swiss francs in the wholesale markets and then ramming them down CEE customers’ throats is dead. But the commitment of most western European banks to the region is, if a little grudging, still alive.

[Demeter]

119. Most Livable Cities in the World: The U.S.? Not So Much. By Paul Kedrosky

http://paul.kedrosky.com/archives/2009/06/most_livable_ci.html








Two recent takes on the most livable cities in the world, one from The Economist and one from Monocle. The U.S.? Not so much

WELL NOW, I'VE LIVED IN FINLAND, IN HELSINKI SUBURB, BACK IN 1978. IT WS NICE--LIKE DETROIT USED TO BE--AND A WHOLE LOT COLDER! THEN THERE IS THE LANGUAGE BARRIER, THE HIGH COST OF FOOD STUFFS (SINCE IT'S TOO COLD TO GROW MUCH OF ANYTHING THERE), AND LIVING ON THE RUSSIAN BORDER WITH THE FALLOUT FROM CHERNOBYL.

THE TRUTH IS, IT DOESN'T TAKE MUCH MORE THAN DECENT PEOPLE AND DECENT PLANNING TO MAKE A DECENT CITY. KNOWING ONE'S LIMITATIONS CAN DO A LOT FOR MAXIMIZING ONE'S RETURNS.

I GUESS IT ALL DEPENDS ON WHAT ONE WANTS FROM THE CITY EXPERIENCE. BUT I AM WILLING TO THINK THAT THE CITIES IN OUR COUNTRY NOT CONSIDERED OUTRANK THESE WORLD-CLASS CITIES FOR JUST ABOUT EVERYTHING.

[Demeter]

121. The magical world of credit default swaps once again

http://blogs.ft.com/maverecon/2009/06/the-magical-world-of-credit-default-swaps-once-again/

June 14, 2009 12:36pm

To think I believed I had seen it all as regards creative uses and abuses of credit default swaps (CDS). But then came Amherst Holdings.

A credit default swap written on a security (a bond, say) is a contract that pays the owner a given amount when there is a default on that security. In the simplest case, the owner of the CDS receives from the issuer or writer of the CDS the face value of the bond that is in default. The writer of the CDS sells insurance against an event of default. The insurance premium is the price of the CDS. The buyer of the CDS buys insurance against default. If the default does not occur, the writer of the CDS wins, because he has received the insurance premia, but has not had to pay out on the insurance policy.

An obvious problem with CDS is that you do not have to have an insurable interest to purchase the insurance it provides. You have an insurable interest, as a purchaser of insurance, if the occurrence of the contingency you are insuring against would not make you better off (even when the insurance pays out). However, the CDS market is first and foremost a betting shop. You can buy CDS written on a given class of bonds, in amounts well in excess of the total face value of the bonds you own in that class. Indeed you may not own any bonds in that class and still buy CDS that pay off in the event a default occurs on bonds in that class. That is, CDS can be used not to hedge risk you already are exposed to, but to take on additional risk. CDS can be used to place pure bets.

The morality of gambling, through CDS or any other way

Betting and gambling, including lotteries, are frowned upon by many religions and by many who do not have a religious conviction. Gambling is not explicitly forbidden in the Bible, but it is a vice that goes against many biblical principles. It sits uncomfortably with the great command “love your neighbour as yourself”, it exploits the poor (gambling is regressive), it undermines the work ethic, it encourages greed and covetousness, it violates responsible stewardship of the resources one is entrusted with, it ‘leads into temptation’, and it can be highly addictive. It is also often associated with deception. Against that, ‘casting lots’ is a common way of making decisions in the Old Testament especially. The phrase ‘casting lots’ is used 70 times in the Old Testament and seven times in the New Testament (including the reference to the soldiers at the cross casting lots for Christ’s garments).

Classical Judaism shares the views on gambling found in the Hebrew Scriptures with Christianity, but also draws on more recent traditions. As I understand it, the classical Jewish tradition says that it is forbidden to make gambling your occupation, but it does not forbid a little friendly gambling every now and then. Islam prohibits gambling. It also prohibits any game or other activity which involves betting, that is, which has an element of gambling in it. The Prophet Mohammed says, ‘He who says to his friend: ‘Come, let us gamble,’ must give charity’ (in penance).

The fact that gambling, including betting and lotteries, is both addictive and regressive in its distributional impact has not stopped governments all over the world from encouraging and promoting it. It is just too useful a source of revenue to resist. Even countries like the UK that do not tax the winnings from gambling (whence the explosion of structures, like spread betting, that turn contingent financial claims into bets), do tax the profits of the gambling industry. State lotteries are ubiquitous. Indian reservations in the US, which have a form of sovereignty or extraterritoriality in certain matters, have been allowed to open casinos in states where this is not otherwise legal. All derivatives trading is, from a mathematical point of view and in economic substance, equivalent to the creation of lotteries. Sometimes these lotteries are used to hedge risk (when the purchaser of the lottery ticket has an insurable interest; other times and, I would argue, most of the time, these derivative-mediated lotteries are designed and used to take on additional risk - to gamble - generally with other people’s money. The indulgent attitude of the government towards these activities can be explained, as with conventional gambling, by the important source of government revenue that the profits from derivatives trading represent.

Moral hazard

All these religious and moral objections (including objections based on the addictive powers of gambling and its regressive distributional impact) apply even to bets or gambles where the event that is the subject of the bet or the gamble cannot be influenced by those participating in the bet or gamble. That is, in the context of betting by buying or selling CDS, it applies even if there is no moral hazard involved in the relationship established by the contract.

Traditional moral hazard occurs when the insured party (in the CDS example the purchaser of the CDS) can influence the likelihood of the insured against event occurring (in the CDS example, if the purchaser of the CDS can influence the likelihood of default on the underlying security in a way that cannot be fully reflected in the terms of the contract). There is asymmetric information in the insured-insurer relationship, and the insured party has the informational advantage - private information.

The standard economics or insurance story of moral hazard involves an informational advantage for the purchaser of the insurance. With no-fault automobile insurance and third-party coverage, I may drive less carefully. If I could take out life insurance on a third party, I might be able to expedite the demise of the insured party.

In the CDS world, the most common reported abuse of the instrument involved a party that owned both CDS and the underlying security, but had a net short position in the security. To be precise, assume I own $X worth of bonds of type j (at face value) and have purchased CDS on bond j that will pay out $Z if default occurs. If X < Z, I don’t have an insurable interest in bonds of type j: I am better off if default occurs.

Now assume that, as a bond holder, I can influence the likelihood of a default occurring. A possible scenario is where the company that issued the bond is in dire straits, but has a good enough chance of recovery and survival, that, from a social or economic efficiency perspective, it is undesirable to incur the real resource costs associated with a default. Assume the issuer of the bond has asked the holders of the bond to roll over the bonds, or to voluntarily extend their maturity. All bondholders but me have agreed. I am the holdout and the veto player. By refusing to go along with the voluntary restructuring (which, by assumption, would not be an act of default), I now can trigger a default, making a gain of $(Z-X). It’s socially inefficient; it may cause unnecessary human misery, but it is profitable and so, as homo economicus, I do it. Because of my hold-out position, I can drive the probability of default to unity, or 100 percent. This is the mother of moral hazard.

But now comes the mother-in-law of moral hazard. This time it is not the purchaser of the CDS (the insured party) who is afflicted by extreme moral hazard, but the writer of the CDS, the insurer. There is asymmetric information, but the informational advantage is with the insurer. Assume there is an amount $X of some bond of type j outstanding. Assume that the issuer of the bond is generally considered to be at significant risk of default. I now write (sell) CDS on that bond. Because there is no limit to the amount of CDS I can issue as long as there are willing takers, I can sell CDS to anyone who wants to have a flutter on the default of that bond. If I price my CDS aggressively (accept a low insurance premium per $ of bond j insured), I may be able to have a revenue from the sale of these CDS, $R, say, that exceeds the face value of the total stock of bond j outstanding. This would only happen if the total notional value of the CDS I sell (the total value they would pay out in the event of a default on bond j) is a multiple of the face value of bond j outstanding.

Having received revenue from the sale of CDS written on bond j well in excess of the face value of the entire stock of bond j outstanding, I then buy up, at a price above the prevailing market price (if necessary at face value or even above it!), the entire outstanding stock of bond j. As long as I can be sure I have the entire stock of bond j in my possession, I can be sure than no event of default will ever be declared for that bond. I, the writer of the CDS on bond j , and now also the owner of the entire outstanding stock of bond j , could simply forgive the debt I just acquired. The insurer has, ex-post, reduced the probability of default to zero. Those who bought the insurance (bought the CDS), wasted their money (their insurance premia).

Instead of buying up the entire outstanding stock of the bond directly and holding the bonds to maturity without calling a default, or forgiving the debt, I could instead, if the bond were some asset-backed security, purchase enough of the assets underlying the bond at prices in excess of their fair value to ensure that the issuer of the bond would have sufficient funds to pay off all the bond holders, should the bond be ‘called’, that is, retired prematurely. If in addition, I could make sure that the bond would indeed be called, I would again, through this financial manipulation, have reduced the probability of default on the bond to zero.

The scheme is beautiful in its simplicity, absolutely outrageous, quite unethical, deeply deceptive and duplicitous, indeed quite immoral, but apparently legal.

This in essence, is what has been reported to have happened recently, when a small Austin Texas-based brokerage , Amherst Holdings, which had sold CDS (default protection insurance) on mortgage bonds, then purchased the property loans underlying these bonds at above-market prices to prevent a default that would trigger payments to buyers of the contracts.

Some mortgage bonds can be “called,” or retired early, when the amount of loans backing the debt is reduced to certain levels by refinancing, loan repayments or defaults. The mortgage bonds targeted by Amherst fell into that category. So the mechanism through which Amherst made sure enough money would be available to the issuer of the mortgage bonds to pay the obligations due on these bonds, also caused the bonds to be called. The bonds were paid off in full, and the CDS Amherst had sold on these mortgage bonds became worthless.

Many household names in Wall Street and the City of London were at the wrong end of this transaction. Amherst has been reported as selling more than $100 million worth of CDS on $29 million of mortgage bonds outstanding - a tidy profit of at least $70 million. It certainly beats working for a living.

The problem of moral hazard on the holder’s side or on the writer’s side of the CDS market is not a market design problem that can be addressed by creating a central clearing facility and requiring all CDS to be traded on organised exchanges. Requiring writers of CDS to post collateral or, in the case of an organised exchange, requiring a variation margin or maintenance margin (a daily offsetting of profits and losses between the short and long positions on the exchange, made possible by mark-to-market and the fact that the number of long contracts has to equal the number of short contracts) would not solve the problem that both holders and writers of CDS can, under many circumstances, influence the likelihood of default on the asset the CDS are written on.

The first of the two real-world examples I referred to had the holder of the CDS (the purchaser of the default insurance protection) raise the probability of default on the underlying security to 1, that is, to 100 percent, because he also owned a small amount of the underlying security and was in a position to trigger an event of default. The second example had the writer of the CDS (the seller of the default insurance) reduce the probability of default to zero, by causing the bonds to be called after making sure that the issuer had enough money to pay off all the bond holders in full.

Both practices and anything like them are unethical and quite likely socially inefficient and harmful. The way to stop them is to destroy the incentive to issue CDS with a notional value in excess of the underlying securities these CDS are written on.

Conclusion

This post does not lead to a proposal for banning the writing and owning of CDS. Provided the purchasing party has an insurable interest, CDS are useful instruments for hedging risk. It is an argument for requiring that a claim for payment of $X under a CDS contract written on security j , when the default event has indeed occurred, is valid and enforceable only if the owner of the CDS can hand over $X worth of security j when he submits his CDS claim. The moral hazard that can afflict both sides of the CDS market is such that requiring a CDS owner to have an insurable interest seems the only reasonable response.

[Demeter]

122. Lincoln National to Take Federal Bailout Funds (not a bank!)

http://dealbook.blogs.nytimes.com/2009/06/15/lincoln-national-to-take-federal-bailout-funds/



Lincoln National, the insurance company, said it would take nearly $1 billion in federal bailout funds, issue new stock and debt, and sell its British insurance business in an effort to shore up its deteriorating capital base.

The insurer, based in Philadelphia, said in a statement Monday that it was seeking to raise about $2 billion. About $950 million of that would come from issuing preferred stock to the government through the Treasury’s Troubled Asset Relief Program, and Lincoln would become only the second insurer to take money from the TARP after Hartford Financial said last Friday that it would take $3.4 billion from the government program.

The company also said it would also sell its British insurance unit for £195 million ($319 million) in cash to Sun Life of Canada. The deal is expected to close by the third quarter of the year.

Lincoln also said it would sell $500 million in new senior debt and issue $600 million in new common stock, diluting existing shares.

“These actions supplement dividend reductions, cost cuts, and other actions previously taken to strengthen the company’s capital and liquidity, and solidify the company’s capital positions at both the subsidiary and holding company levels,” the company said in a statement.

The company said it intended to contribute approximately $1 billion of the proceeds to its principal insurance subsidiary, the Lincoln National Life Insurance Company, with the remaining $1 billion to be held at the holding company level for “general corporate purposes, including the repayment of short-term debt and investment in the company’s core businesses.”

Lincoln and other insurance companies are totaling huge losses after investments they made using their customers’ premiums during the boom times have gone sour. Many of the insurers have large exposure to commercial mortgage backed securities and commercial real estate, which are expected to take further hits in value in the coming months.

– Cyrus Sanati

[Demeter]

130. Taibbi’s Scream: Stop the political system that lets Goldman Sachs and others run roughshod over soc

INTERESTING WEBSITE! CHECK IT OUT

http://www.newdeal20.org/?p=2905


Tuesday, 07/7/2009 - 3:28 pm by Robert Johnson

Braintruster Robert Johnson, Director in the Economic Policy Initiative of the Roosevelt Institute, explores why outrage is vital to reform of the financial system.

I hold my hands in front of me to block my line of sight
It seems my eyes are growing tired of staring in the light
The more I see the more I feel the less I want to know
Because if you think to much you’ll blow your mind
You might just lose control and scream

–Lyrics to “Scream,” by Seven Nations
(Kirk McLeod)

In Matt Taibbi’s vivid and provocative new article in Rolling Stone, “The Great American Bubble Machine,” the man absolutely screams. Evoking the image in Edvard Munch’s famous Norwegian painting, Taibbi sounds the alarm to American readers as he explores the sordid story of Goldman Sachs and Co. Tracing 90 years of political and market history, Taibbi colorfully describes the firm headquartered at 85 Broad Street as: “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.”

Such evocative imagery will surely be discounted by some as hysterical or exaggerated, particularly by those whose senses are deadened by the business press or CNBC-style babble. Rather than engage in a dissection of the details, I would like to explore why Taibbi is screaming and ask why he is screaming for all of us in a way we are not seeing elsewhere in the media. In addition to screaming for us, I wonder whether he is also screaming at us. One thing is certain: he is screaming in a way that a healthy press would do in a hysterical time. Goldman Sachs’ uncontested success blurring the boundaries between market and state is symbolic of a tremendous malfunction in finance, politics and civil society. That the firm is well-managed by all measures and that some fine, well-meaning individuals work there is beside the point. Taibbi is telling us that the rules are rigged. That we are being abused.

This is a time for vivid outrage.

Taibbi’s rage is filling an emotional void. It is a reaction to what is missing after this profound speculative episode that the IMF suggests will cost over $4 trillion in losses on balance sheets and untold trillions in lost output. It is fury over a crisis that is, by any measure, the most profoundly damaging episode since the 1930s (and the Bank for International Settlements Annual Report released this week strongly suggests that the burden on stockholders is far from over).

What is it that leads to screaming? A wonderful passage in John Kenneth Galbraith’s A Short History of Financial Euphoria helps explain. Dr. Galbraith seeks to identify the common elements that recur organically in the buildup and aftermath of every financial boom-bust episode:

“The final and common feature of the speculative episode–in stock markets, real estate, art, or junk bonds–is what happens after the inevitable crash. This, invariably, will be a time of anger and recrimination and also of profoundly unsubtle introspection. The anger will fix upon the individuals who were previously most admired for their financial imagination and acuity. Some of them, having been persuaded of their own exemption from confining orthodoxy, will, as noted, have gone beyond the law, and their fall and, occasionally, their incarceration will now be viewed with righteous satisfaction.

There will also be scrutiny of the previously much-praised financial instruments and practices–paper money; implausible securities issues; insider trading; market rigging; more recently, program and index trading that have facilitated and financed the speculation. There will be talk of regulation and reform.”

Note the elements: anger, recrimination, introspection, law breaking, incarceration, regulation and reform.

Despite the fact that our news media have been filled with financial stories from Bear Stearns failure in March ‘08 to the present, the elements listed above seem neglected, muted, or in short supply (Gretchen Morgenson is the exception that proves the rule). This is disturbing, particularly given the scale of losses that the taxpayer has been forced to absorb, along with disappearing funds for future roads, bridges, healthcare, schools and a tax drag on wealth creation. It is into the void created by the tepid media coverage of this horrid and costly episode that Mr. Taibbi has screamed.

There is an age-old tension that emerges in situations like this. You can feel it yourself. We know things are not right but do not exactly know why. Finance is complex. Since the progressive era, trust in “experts” has often been suggested as the best way for society to handle such complex phenomena. We are encouraged to delegate to the likes of leading academics, the Federal Reserve, the Treasury Secretary, and financiers themselves to keep an eye on the public interest. Public officials are explicitly employed to undertake this task on behalf of society. Those in the private sector often appeal to experts, encouraging public. deference to their superior knowledge. Experts are thought to be the custodians of the nation’s health.

As theologian Reinhold Niebuhr once described in Moral Man and Immoral Society:

“The stupidity of the average man will permit the oligarch, whether economic or political, to hide his real purpose from effective control….. Since the increasing complexity of society makes it impossible to bring all those who are in charge of its intricate techniques and processes, and who are therefore in possession of social power, under complete control, it will always be necessary to rely partly upon the honesty and self-restraint of those who are not socially restrained.”

The problem now is that the experts and leaders from finance have failed us miserably. They have let us down and we know it. We do not trust in the system. No one thinks the Federal Reserve did a bang-up job in the years preceding this crisis. The failure is much more profound in the private sector, yet for the most part that failure goes unacknowledged. Even with losses and bailouts, we have to fight over bonus payments to those who feel entitled, despite the cost they have imposed on their stockholders and, more importantly, society.

What we are witnessing, as I have written elsewhere, is a perverse form of insurance pay off. Let’s call it political insurance. Ordinarily when insurance is offered, a premium is paid and, over time, the provider of insurance sets the rate on the premium so that they make a bit of money despite periodic payouts for accidents. What we have here is different. The financial sector, and other large patronage donors, spend billions of dollars on lobbyists and campaign contributions. Politicians then run their expensive election marketing campaigns with the proceeds. And finally, the contributors buy downside loss protection from the politicians and their appointees.

Who provides that downside protection? You and me. The taxpayer. The body politic. We get used by this refracted process, and our system is mislabeled as a representative democracy. And, to add insult to injury, we are forced to endure the the horror of the awful marketing campaigns of politicians using the their payoff money to protect donors with our the tax base. The media is on the take, too, collecting advertising revenue from financial companies and from political campaigns. Far be it for them to step outside this circular flow of funds that impedes our political system from incorporating feedback from evidence of its own dysfunction.

We are amidst a crisis of political legitimacy. The leaders of our complex financial firms have failed. They have failed as stewards of our nation’s future. They have failed as protectors of our public Treasury. Now, with trillions guaranteed, hundreds of billions of bailouts paid, and very little in the way of investigation, firings, or prosecution of the perpetrators, we are all being asked to calm down, move on, and stop acting like populists (a pejorative term when used by elite media or financiers). In the mean time, the perpetrators of this disaster confidently pay their political soldiers for another round of lobbying/campaign contribution money. (For more detail on the numbers and firms involved see “Sold Out: How Wall Street and Washington Betrayed America”. See also Thomas Ferguson’s fine work collected in his book, Golden Rule.)

Returning to Taibbi’s startling article, there are many reasons for the amplified language he chooses to confront us with in rendering the social experience of Goldman Sachs (an experience that is certainly not unique to that firm). Perhaps it is illumination that Goldman Sachs and the leaders of finance have failed us as stewards and experts and that makes him mad. Or it could be that he is angry at the American people for trusting the financiers and enduring this abuse with little visible reaction. Or that the Bush and Obama Administrations and Congress have shown such little interest in investigating what happened, who did wrong, or who should be fired after drawing on the public purse to the tune of several hundred billion dollars!

It is hard to know what is in a writer’s head and heart, but the Goldman Sachs piece is so intense in comparison to Taibbi’s recent offerings that I sense a message of personal revulsion. For clues to what may have triggered this revulsion, I look back to his writings when he first returned to America and the book that acquainted me with his work: Spanking the Donkey: Dispatches from the Dumb Season. The book concerns the absurd carnival of the 2004 Democratic primaries. In the introduction, Taibbi describes how he had worked in Russia as a journalist for 10 years. He details the atrocities he saw, along with his sense of sympathy and fascination for the terrible things before his eyes. In Russia, he was an observer and not an accomplice, but when he returned to the USA in 2002, Taibbi felt less detached looking at his home country: “We are a country that has a large majority that on some level knows something is terribly wrong, but can’t find any positive idea that it can follow and build upon…” He describes how he had no idea how to cover the Presidental election but found the need to develop a strategy to move ahead: “…I did not see much that suggested to me that a groundswell of change is on the way. But I do believe there is a strategy to pursue in the meantime, and that is TO REFUSED TO BE LIED TO….” On the strength of that insight, Taibbi set out to write a book about lies - how to recognize them and stop believing in them.

Taibbi’s look at Goldman Sachs illuminates what is missing in our political energy as we prepare, as he suggests in the article, to get our lunch eaten again in the energy trading market. What’s missing is a recognition that we have been violated by experts and leaders. What’s needed is a proper cleansing of social misdeed through outrage.

It causes me great pain to think that this sensitive and brilliant young writer, who had a ringside seat for the grotesque rape of the body politic in 1990s Russia by rapacious private oligarchs, is sickened by what he sees in the USA now! Let me say that again. He watched the rape of the Russian people up close and he is sickened by what is happening in the USA right now.

Maybe when you see it happen in a foreign country, tragedy can be seen as comedy. Perhaps when it happens in your own country and devastates the people you love, things take on a darker tone. Or maybe it really is as objectively bad here as his scream indicates. Or at least becoming so. Whatever your interpretation, we all owe thanks to Taibbi for screaming. He is warning us, and it will do us all some good to feel his rage and connect it to the rage that resides within each of us.

Feeling Taibbi’s outrage will help us refuse to be lied to by the experts in media, politics and finance. It will help us see through them when they pretend that they have not let us down or play the same old dysfunctional political patronage game to insure that things do not change. It will help us force them to give up some of their advantage to restore some balance and better serve the American people.

[Demeter]

131. Goldman, Barclays Using Newfangled CDOs to Offload Bad Bank Assets

http://www.nakedcapitalism.com/2009/07/goldman-barclays-using-newfangled-cdos.html


Goldman and Barclays are out touting old structured credit technology, apparently collateralized debt obligations, and claim they have been tamed and repurposed and are now virtuous.

I am skeptical of these assertions, and welcome informed reader comment. CDOs in particular were leverage on leverage vehicles, and indeed, that seems again to be the reason for turning to a variant on that theme again, to minimize equity requirements.

The amusing bit is these news structures are argued to be "transparent." If you buy that, I have a bridge I'd like to sell you.

If you have a dog's breakfast of assets, some of them tranches from other deals, and then you tranche that, what good does transparency do? It's a complicated mess to analyze. Opening the hood does not make it any more comprehensible to anyone other than an industry expert equipped with specialized software and access to sources that help him come up with default and loss probabilities. Most investors and all regulators will find them impenetrable. Which is precisely the point. I wonder if the assertion of transparency is Emperor's new clothes in action, designed to cow those who can't fully grasp the workings of these vehicles.

But the cheery sales talk is just breathtaking. You'd think it was spring 2007 all over again. Maybe that's the objective.

From the Financial Times:

Investment banks, including Goldman Sachs and Barclays Capital, are inventing schemes to reduce the capital cost of risky assets on banks’ balance sheets, in the latest sign that financial market innovation is far from dead.

The schemes, which Goldman insiders refer to as “insurance” and BarCap calls “smart securitisation”, use different mechanisms to achieve the same goal: cutting capital costs by up to half in some cases, at the same time as regulators are threatening to force banks to increase their capital requirements.


Yves here. You gotta love the attempt at rebranding established technology. Back to the story:

BarCap’s structures involve the pooling of assets from several clients into a secured financial product that can be sold on to other investors and rated by a credit rating agency, potentially reducing the capital allocated against the assets by between 10 per cent and 50 per cent.

These new mechanisms are in some respects similar to the discredited structured products, which were widely blamed for fueling the financial crisis. But the schemes’ backers argue there are two significant differences. First, they involve the securitisation of banks’ existing assets, rather than of new lending. Second, bankers argue that the new products do not disguise the transfer of risk....

However, some regulators may be wary of the invention of new pooled asset derivatives, especially if they are perceived as a way to avoid regulatory capital requirements.

Some rival bankers also view the schemes with scepticism. “This is a system of capital arbitrage,” said one senior banker at another investment bank. “The need for capital just miraculously disappears.”

BarCap has worked on portfolios worth hundreds of billions of pounds in recent months, including those of the Barclays’ parent company. Investors in the securitised products typically include the original banks, plus third parties, such as hedge funds and private equity firms, as well as BarCap itself.

Separately, Goldman is working on what bankers said was a private-sector version of the UK government’s asset protection scheme. The goal would be similar – to reduce the capital that would need to be held against the assets – although Goldman has yet to find a balance between the risks and rewards that would be attractive to investors.


Yves here. That is code for "Goldman is spinning its wheels." I'm surprised they'd noise this up with the media if they hadn't come up with a viable solution. Hhm, are we back to the MLEC problem, which no one can ever solve, that no matter how much lipstick you put on these pigs, there is an unsolvable price gap between what bank owners of the paper are willing to sell it for and what buyers are willing to pay? Back to the story:

Investment banks do not believe they can compete with the government-sponsored APS, mainly due to scale. RBS and Lloyds between them are putting £560bn ($914bn) into the scheme. Under Goldman’s idea, it would sell an insurance product to a bank with a toxic portfolio, effectively shifting the risk of the underlying assets off the balance sheet. The insurance would require far less capital to be carried against it than the original assets.

Deutsche Bank engineered a comparable structure to facilitate the dismantling of risk at failed insurer AIG, although bankers close to that transaction said without government involvement the cost of such a structure would be commercially unfeasible.


The Lex column adds:

Those clever investment bankers are at it again. It was surely only a matter of time before banks tried to apply their financial innovation skills to finding ways of profiting from the very crisis that misuse of those skills brought about...

On one level, such initiatives might be welcomed as industry practitioners try to find a market solution to their own problems, reducing the need for taxpayer-funded bail-outs. But there are dangers here. As studies of the origins of the financial crisis such as the UK’s Turner Review have concluded, one of the keys to creating a sounder banking system is increasing the quantity and quality of bank capital – which also, of course, means lower returns. Since the new schemes being developed are designed to cut the capital cost of risky assets, they potentially go against the spirit of such proposals.

[Demeter]

133. Women in the boardroom By Lucy Kellaway

http://www.ft.com/cms/s/0/4cd56602-67fb-11de-848a-00144feabdc0.html

Published: July 3 2009 23:30 | Last updated: July 3 2009 23:30

On September 4 2006, a company that is now in the FTSE 100 appointed two women to its board as non-executive directors. Since that day, the share price of that company has gone up by 18 per cent while the market has gone down by 28 per cent.

As one of those women happens to be me, I would like to argue that the first fact has brought about the second. But since being a non-exec means one has to look hard at numbers and try to be sensible about them, I feel obliged to point out that the outperformance is due to other things; the fact that two women have pitched up for about nine meetings a year has precisely nothing to do with it.

However, this outperformance makes me a part of a new statistical orthodoxy that claims to have established a definite link between women and money. In the past two weeks, this link has been thrust down my throat twice. First, at a dinner in London last week for senior working women this link was simply stated as a fact. And then, more forcefully, it was stated in a new book called Womenomics* written by two US television presenters.

The book’s central tenet is something called the “asset-to-oestrogen” ratio – the idea that companies with more senior women are more profitable. This ratio makes me feel queasy for three reasons. First, it is yucky. Second, it is ageist as women who have come out of the menopause don’t have so much oestrogen any more. Third, and most powerfully, it is total twaddle.

“Do the math,” the authors urge. Alas, I can’t to do the math – or the maths, as we call it in Britain – as I’m not a statistician. But I’ve consulted people who can and they say it is far from clear that companies with lots of senior women outperform. To prove this, you would need a huge sample – which at the moment does not exist. You would need to adjust for sector and for a thousand other things that influence profitability. And even if you could establish such a link, the case would still not be made as it might well be that the sort of companies that promote women may also be the sort that treat all employees nicely. Or the sort that are more innovative, and these things might have a greater effect on profitability than oestrogen.

This doesn’t mean I’m not in favour of having women in senior positions – women make up half the population and it seems a shame to have them so unrepresented at the top of companies.

Another thing I’m even more strongly in favour of, though, is talking about these things honestly. The senior women at the dinner the other night were all true believers and, therefore, not open to discussion. When I dared to suggest that being female had been massively to my advantage (I wouldn’t be on the board in a million years if I was a man), they looked as if they had sucked on a lemon.

In the interests of openness, last week I e-mailed fellow board members asking them what they thought. Did the other female board member and I add anything by dint of our sex, and if so what?

She and I had discussed the question in advance and agreed that we thought differently from the men – though, that was more to do with our backgrounds than our sex. Apart from that, we decided that our only oestrogen contribution was to make board dinners a little perkier.

The male directors, by contrast, seemed to set slightly more store by our femaleness. Some said that there might be some (small) motivational effect on the female staff from seeing women on the board and that it might also be (marginally) good for external PR. Others thought we approached board discussions in a slightly different way and that this was a good thing. A couple remarked that the board discussion was a bit politer and that any tendency towards testosterone-fuelled aggression was slightly tempered. And that, yes, board dinners were better than in the days when there were just eight stale males around the table.

In the same week, I addressed a group of young women managers in a largely male company and asked them some direct questions, too. Did they feel they needed senior women role models? No. Did they feel they could advance if they wanted to? Yes. Did they think it was really hard being a woman? Certainly not. Yet the thing that interested me most was that these young women freely admitted that they enjoyed using their femininity as a weapon. They viewed flirting not as a sign of weakness but one of strength.

This struck me as thrilling leap forward. When I joined the workforce, we felt that it was a sin against women to flirt, and that we all had to be the same as men. But now I wonder if this is the very beginning of a brave new post-PC world. Looking back at the e-mails that some of the male directors sent me, I see one talked about “birds on boards” – which a few years ago I might have drearily forced myself to disapprove of. Now I simply laugh.

This surely is what we should have gained after decades of discussing this issue: enough confidence to go post-PC and not to feel we have to over-egg the argument with dodgy stats or ludicrous claims about how marvellous women are.

Womenomics, which is stuffed with such claims, does say one thing that made a lot of sense to me last week: “We’ve never been hotter.” As I toiled my way back from a board meeting last Thursday, the temperature in the London Underground hit 450C.

*‘Womenomics: Write your own rules for success’ by Claire Shipman and Katty Kay (Collins Business)

[Demeter]

134. Too big to fail FAIL / PAUL KRUGMAN

http://krugman.blogs.nytimes.com/2009/06/18/too-big-to-fail-fail/

I’m a big advocate of much strengthened financial regulation. One argument I don’t buy, however, is that we should try to shrink financial institutions down to the point where nobody is too big to fail. Basically, it’s just not possible.

The point is that finance is deeply interconnected, so that even a moderately large player can take down the system if it implodes. Remember, it was Lehman — not Citi or B of A — that brought the world to the brink.

And as far as I know, there never was a time when policymakers could have viewed the collapse of a major money center bank with equanimity.

They certainly were worried about systemic risk in 1982, when I had something of a front-row seat. There were fears that the Latin debt crisis would take down one or more money center banks — Citi, or Chase, say. And policy was shaped in part by the desire to make sure that didn’t happen. Bear in mind that this was in the days before the repeal of Glass-Steagal, before finance got so big and wild; the New Deal regulations were mostly still in place. Yet even then major banks were too big to fail.

So I think of the pursuit of a world in which everyone is small enough to fail as the pursuit of a golden age that never was. Regulate and supervise, then rescue if necessary; there’s no way to make this automatic.

[Demeter]

138. One Last Selection--A Consolatory Piece

http://www.youtube.com/watch?v=dWR_qL_mxo0&eurl=http%3A%2F%2Fvideo.aol.com%2Fvideo-detail%2Fdeirdre-the-beach-boys%2F72057644033485800%2F%3Ficid%3DVIDURVMUS06&feature=player_embedded

Have a good week, just to spite the PTB, everyone! And wear sunscreen.

Somehow, with a little help from our friends, we WILL get through this. It's your duty, dammit! to quote John Adams.

Confusion, destruction and detention to the Foes.