"This Is Not the Thread you Are Looking For" Weekend Economists March 5-7, 2010

[Demeter]

Yup. Star Wars. When all else fails, blow something up.

Lots of noise and bright flashing lights. Covers up the blood, sweat and tears of a world going quietly and desperately insane and broke.

Call me prejudiced, bu the best thing that came out of Star Wars was Harrison Ford's career. The worst thing was Ronald Reagan and the PNACers.

So where are we today? I don't know. I got so involved in dinner preparations, I forgot to look. Let's take a peek, shall we? Roll 'em!

http://www.youtube.com/watch?v=vQa31siu9KI

[Demeter]

1. Three, Count 'Em, Three Banks So Far

Waterfield Bank, Germantown, Maryland, was closed today by the Office of Thrift Supervision, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the insured depositors, the FDIC created Waterfield Bank, FA—a new depository institution chartered by the OTS and insured by the FDIC—to take over the operations of Waterfield Bank. The new institution will remain open until April 5, 2010, to allow depositors access to their insured funds and time to move accounts to other insured institutions.

The bank had one branch location. It also took deposits from customers via the Internet and 38 affinity groups.

At the time of closing, the receiver immediately transferred to Waterfield Bank, FA, all insured deposits of the failed bank, except certificates of deposits (CDs) and individual retirement accounts (IRAs). The FDIC will mail checks directly to customers with CDs and IRAs for the amount of their insured funds, on Monday morning, March 8...

As of December 31, 2009, Waterfield Bank had $155.6 million in assets and $156.4 million in deposits. At the time of closing, the amount of deposits exceeding the insurance limits totaled about $407,000. This amount is an estimate and is likely to change as the FDIC works with customers of Waterfield Bank. The uninsured deposits were not transferred to the newly chartered institution.

Depositors with more than $250,000 at Waterfield Bank should call the FDIC at [phone] to make an appointment to discuss the status of their funds. The phone number will be operational this evening until 11:00 p.m., Eastern Standard Time (EST); on Saturday from 9:00 a.m. to 9:00 p.m., EST; on Sunday from noon to 6:00 p.m., EST; and thereafter from 8:00 a.m. to 8:00 p.m., EST...

Under the FDI Act, the FDIC may create a new depository institution to ensure that depositors have continued access to their insured funds where no other bank has agreed to assume the insured deposits. This arrangement allows for uninterrupted direct deposits and automated payments from customers' accounts and allows them time to find another institution with which to do business.

The FDIC estimates that the cost to its Deposit Insurance Fund will be $51.0 million. Waterfield Bank is the 25th bank to fail in the nation this year and the first in Maryland. The last FDIC-insured institution to fail in the state was Bradford Bank, Baltimore, on August 28, 2009.


Bank of Illinois, Normal, Illinois, was closed today by the Illinois Department of Financial Professional Regulation – 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 Heartland Bank and Trust Company, Bloomington, Illinois, to assume all of the deposits of Bank of Illinois.

The two branches of Bank of Illinois will reopen on Saturday as branches of Heartland Bank and Trust Company...As of December 31, 2009, Bank of Illinois had approximately $211.7 million in total assets and $198.5 million in total deposits. Heartland Bank and Trust Company will pay the FDIC a premium of 3.61 percent to assume all of the deposits of Bank of Illinois. In addition to assuming all of the deposits of the failed bank, Heartland Bank and Trust Company agreed to purchase essentially all of the assets.

The FDIC and Heartland Bank and Trust Company entered into a loss-share transaction on $166.6 million of Bank of Illinois's assets. Heartland Bank and Trust Company will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $53.7 million. Heartland Bank and Trust Company's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Bank of Illinois is the 24th FDIC-insured institution to fail in the nation this year, and the third in Illinois. The last FDIC-insured institution closed in the state was George Washington Savings Bank, Orland Park, on February 19, 2010.


Sun American Bank, Boca Raton, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with First-Citizens Bank & Trust Company, Raleigh, North Carolina, to assume all of the deposits of Sun American Bank.

The 12 branches of Sun American Bank will reopen on Monday as branches of First-Citizens Bank & Trust Company...As of December 31, 2009, Sun American Bank had approximately $535.7 million in total assets and $443.5 million in total deposits. First-Citizens Bank & Trust Company did not pay a premium to acquire the deposits of Sun American Bank. In addition to assuming all of the deposits of the failed bank, First-Citizens Bank & Trust Company agreed to purchase essentially all of the assets.

The FDIC and First-Citizens Bank & Trust Company entered into a loss-share transaction on $433.0 million of Sun American Bank's assets. First-Citizens Bank & Trust Company will share in the losses on the asset pools covered under the loss-share agreement...The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $103.8 million. First-Citizens Bank & Trust Company's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Sun American Bank is the 23rd FDIC-insured institution to fail in the nation this year, and the fourth in Florida. The last FDIC-insured institution closed in the state was Marco Community Bank, Marco Island, on February 19, 2010.

[ozymandius]

5. One might think there are no more banks in Georgia.

I assure you this is not the case.

But just this week... for every new account opened at the local bank - for every three pounds of salt deposited, they will give you a pound of potatoes.




Just like the good ol' days.


















joke

[Demeter]

34. Another Time Zone Reports Another Bank Failed

The Federal Deposit Insurance Corporation (FDIC) approved the payout of the insured deposits of Centennial Bank, Ogden, Utah. The bank was closed today by the Utah Department of Financial Institutions, which appointed the FDIC as receiver.

The FDIC entered into an agreement with Zions First National Bank, Salt Lake City, Utah, to accept the failed bank's direct deposits from the federal government, such as Social Security and Veterans' payments.

The FDIC was unable to find another financial institution to take over the banking operations of Centennial Bank. As a result, checks to the retail depositors for their insured funds will be mailed on Monday. Brokered deposits will be wired once brokers provide the FDIC with the necessary documents to determine if any of their clients exceed the insurance limits. Customers who placed money with brokers should contact them directly for more information about the status of their funds.

As of December 31, 2009, Centennial Bank had approximately $215.2 million in total assets and $205.1 million in total deposits. At the time of closing, the bank had an estimated $1.8 million in uninsured funds. This amount is an estimate that is likely to change once the FDIC obtains additional information from these customers....

Beginning on Monday, customers of Centennial Bank with deposits exceeding $250,000 at the bank may visit the FDIC's Web page "Is My Account Fully Insured?" at https://www2.fdic.gov/drrip/afi/index.asp.

Centennial Bank is the 26th FDIC-insured institution to fail this year and the second in Utah since Barnes Banking Company, Kaysville, was closed on January 15, 2010. The FDIC estimates the cost of the failure to its Deposit Insurance Fund to be approximately $96.3 million.

[burf]

35. Add another to your list

The Federal Deposit Insurance Corporation (FDIC) approved the payout of the insured deposits of Centennial Bank, Ogden, Utah. The bank was closed today by the Utah Department of Financial Institutions, which appointed the FDIC as receiver.

The FDIC entered into an agreement with Zions First National Bank, Salt Lake City, Utah, to accept the failed bank's direct deposits from the federal government, such as Social Security and Veterans' payments.


They couldn't even bribe anyone to take this sucker!

Looks as though I was beat by a keystroke.

[Demeter]

37. It is a Travesty, Is It Not?

I'm sending my kids to Canada at the first sign of revolt

[Demeter]

42. So, Unless a Bank on Hawai'i' Golden Sands or Alaska's Archiapelago Fails

That brings our FDIC pickpocket proceeds up to a mere $304.8 Million pieces of tissue paper....

[burf]

69. But there will be a really

nice building for sale or rent in Ogden UT, probably pretty cheap!

[Demeter]

72. I Hope We See a Feature Article On this Scam

It sounds worthy of investigation.

[burf]

110. There is an article over

at Karl Denninger's Market Ticker on how the bank balance sheets are so far out of whack, which leads to the losses be worse than they are stated by the FDIC.

Link: http://market-ticker.denninger.net/archives/2049-All-You-Need-To-Know-About-Bank-Balance-Sheet-Fraud.html

I am not a big fan of old Karl, with his "go to war with China" postings and such, but he does have a point about the solvency of the banks. If the smaller banks are this bad what are the TBTF banks balance sheets really like?

Maybe its best I don't know!

[Po_d Mainiac]

112. before or after some whacko uses it as a runway? n/t

[Dr.Phool]

2. Excuse me, but I'm looking for a thread.

[Demeter]

4. Maybe It's This One?

http://www.youtube.com/watch?v=xDV-X2CQqvo&NR=1

[ozymandius]

7. Yes, we have no thread.

Might I interest you in some Albatross?

[Demeter]

3. A River of Debt (an evocative meander by)

http://dailyreckoning.com/a-river-of-debt/

Bill Bonner, reporting from Baltimore, Maryland...

As I was floating down impassible rivers
I no longer felt myself steered by the haulers...

- Arthur Rimbaud, "The Drunken Boat"

The news yesterday pushed against us like a gentle wind. Pending house sales were bad. Consumer spending was good. Unemployment was bad. Manufacturing was good.

The Dow rose 47 points. It has moved without much conviction for several weeks. It can't seem to make up its mind. We thought it had headed down decisively a few weeks ago...and then, it stabilized...and wandered about...

Gold has more sense of destiny about it. It's been in a bull market for the last 10 years...and shows no sign of wanting to do anything else. It lost $11 yesterday, but still trades at $1,132...not that far from its all-time high.

Gold is in a real bull market. As near as we can tell it is still in the developing stages. There are a few old gold bugs around. But the public is not yet talking about gold. Investors are not yet adding major positions in gold to their portfolios. Ordinary people are not yet expecting gold to go to $5,000 or $10,000 an ounce.

But the news keeps coming...the opinions...the rants...the data...and the theories...

This way and that...we begin to feel like a "drunken boat." That was the title to a poem written by a 17-year-old Frenchman named Arthur Rimbaud. It describes how we meander. We are driven by the winds...and pushed by the back-eddies... Turning our bow this way ...and then that way...

Never quite sure what direction we're going...or what to think... No one is in control...

And still, the current continues...and we keep heading downstream...carried by the great river...always moving along.

One day we're fascinated by what is going on in Japan. The next day it's China. Some days we think we might somehow muddle through...on others, we're sure something is going to blow up any minute.

But that river just keeps rolling along...and we're on it.

Where does it lead? Well, that's the point. We're not sure...

All we're sure about is that it doesn't lead where most people think. They think they see a 'recovery.' Forget it. Won't happen. We could have another speculative period...but it won't be like the Bubble Epoch of 2005-2007. Houses would have to go up 20% just to get homeowners' heads above the water. Then, maybe they could borrow and spend like it was 2005 again...but that's not going to happen. People don't have the incomes...or the credit...to bid up house prices again.

Here's a headline from The Wall Street Journal: "Employment of Adult Males at Record Low."

Where does that lead? We're not sure...but we don't think it leads to 'growth' in the US economy. Instead, it leads to bankruptcy, deflation...and maybe insurrection.

And what about the Chinese economy? Isn't that growing at breakneck speed - over 10% per year?

The trouble with breakneck speeds is that you do break your neck. China should slow down...or it's going have an accident. And if it slows down, the whole world slows down with it...

And as to that 'growth' - it's counterfeit anyway. It's not real growth...it's ersatz growth, caused by greater and greater government involvement and spending. The feds (the haulers) pretend to be in control. They want us to believe they are in control. But they are out of control themselves!

Can increasing government spending really make people more prosperous?

Show us an example!

[Demeter]

6. Zombieland By Bill Bonner

http://dailyreckoning.com/zombieland/

“The world’s largest shopping mall is almost entirely empty,” says a headline now making its way around the Internet. The mall is not one of America’s consumer emporia. It is not in the US at all. Instead, it is in the Middle Kingdom…and twice as large as the “Mall of the Americas.”

The world did not end in 2009. Two things are widely reported to have saved it – stimulus in the West and China in the East.

Harvard economist Robert Barro, writing in The Wall Street Journal, considered the effect of stimulus spending on the US economy. The US government’s 2009 program was originally expected to cost $787 billion. Now it is estimated to come in with a final price tag of $862 billion. What do you get for that kind of money, he wondered? The initial spending appears to work, since the government is spending money without raising taxes to pay for it. But the money has to come from somewhere. Tax receipts inevitably have to go up. Both spending and taxing are subject to “multipliers,” says Barro. Mr. Barro calculates that each dollar of public stimulus spending has a net cost of $1.50 in foregone private spending. A “bad deal…there’s no such thing as a free lunch,” even in fiscal stimulus, he concludes.

Stimulus spending is a net negative in the US; what about in China? The China story is largely a stimulus story too. China’s stimulus, compared to GDP, is the world’s largest ever – four times the size of America’s stimulus program.

When bank loan volume is determined by central planners you are asking for trouble. But last year, faced with a downturn in demand from their main customer, the Chinese authorities put out the word to banks – increase loans. Loan volume approximately doubled – to $1.4 trillion – the greatest increase, in GDP terms, ever – equal to a quarter of the entire national output.

Investment spending has long been an oversize part of the Chinese economy. As Americans spent too much, the Chinese invested too much in factories in order to make them things they could buy – just as the Japanese had done before them. Investment spending in China increased 200% since 2001, making it the world’s biggest buyer of raw materials – by a huge margin. Chinese output is less than 10% of the world’s total but China consumes 30% of the world’s aluminum, 40% of its copper and 47% of its steel. Where does all this stuff go? Thanks to China’s visionary central planners, it goes just where it is not needed most – into more infrastructure and output capacity. Last year, 90% of China’s growth came from this fixed investment spending.

There are about five times as many rivers in the US and five times as many cars…but China now has nearly as many bridges…three quarters as much road surface. But with easy credit, the connivance of local officials, and the blessing of the central government, it builds more.

Last year, approximately one out of every four square feet of commercial office space in Beijing were empty – about 100 million square feet of zombie space. All over town are dark buildings…the Minsheng Financial Center…concrete and glass towers on Financial Street…the China Life Plaza…the Bank of Communications.

This year, the vacancy rate will go up to 30%…possibly 50%, depending on whose estimates you believe. In Eastern Beijing, officials are doubling the size of the Central Business District, even though the vacancy rate there is above 35% already. Overall, the city will add another 13 million square feet of commercial space.

Outside Beijing, the zombies are multiplying too. Whole cities are empty. And in the suburbs of Huairou, a mock alpine village…with a 200ft clock tower…rises improbably in the industrial suburbs. Called the “Spring Legend,” its publicists must be the same people who write fortune cookie forecasts: “The air is so fresh it penetrates your heart,” says the sales pitch. You would normally dismiss such descriptions as puffery. But in China’s industrial suburbs the air is often so acidic that it might penetrate the skull too.

National politicians determine the availability of capital. Local ones have a hand in ‘investing’ it. Typically, development projects involve bankers, developers, and local politicians – much like Japan’s huge public works’ projects of the past 20 years. Local governments are deep in debt – with total local government debt equal to about a third of GDP. But they keep spending. In Huaxi, for example, they’re still planning to build the world’s second tallest building, a few feet shorter than Dubai’s pyrrhic monument. Huaxi is also the home of the New Sky Village…another project that is lost in the toxic clouds.

Property prices are still spiking up. People are still speculating. Ships with dirt and rocks still head for Chinese ports. The capital spending boom goes on.

It looks like growth. But it is zombie growth. People build bridges to nowhere rather than working for profit-making enterprises. Concrete is used to put up cities where no one lives. Savings that might have been used to start a new bank is instead used to prop up an old one.

Japan has been doing it for years. Encouraged by government miscues in the ’80s, private industry created Japan’s zombies. Then, after the bubble burst, the government kept them alive. They’ve been sucking blood from the living ever since.

[Demeter]

8. This is the thread I was looking for!

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

But the parodies are cuter!

[Demeter]

9. Losing Control of the US Debt Machine By Bill Bonner

http://dailyreckoning.com/losing-control-of-the-us-debt-machine/

“The US is insolvent,” says a report from a hedge fund. As of the third quarter of last year, the federal government had assets of $2.67 trillion and total liabilities of $14.12 trillion.

That leaves a net negative position of more than $11 trillion. By the way, this is projected to get a lot worse, fast. The feds are expected to increase their debts by about $3 trillion more over the next 2 years. Federal spending is out of control…the feds have lost control of their own budget, let alone the economy.

Typically lenders look for what they call ‘debt coverage’ – debt compared to revenue. If you take the US revenue as a whole, you find federal debt currently equal to a bit more than 80% of GDP. But that number is going up quickly. It will be over one hundred percent in just 2 or 3 years.

Well, so what? As long as you have the income to support it, you don’t worry, right? Well, let’s look at it from that angle.

Hmmm… Doesn’t look so good from that perspective either. The income tax only generates 43% of the budget. The feds get a little more from corporate and other taxes, but the deficit is enormous…from a third to a half of all expenditures.

This is not looking good. Most of the deficits do not come as emergency reactions to a financial crisis. Most of red ink is ‘structural’ – the result of programs already in place before the crisis hit. They are hard to curtail, since it requires major acts of political will to undo them. So, they tend to continue.

Which means, the US needs to borrow huge amounts of money just to continue drifting along in the style to which it has become accustomed. There is no end in sight to the deficits…no practical way to reduce them…and no way out of the debt whirlpool. Which means, financing them has got to be a losing proposition for the lenders.

Nothing new in that…

Still, we drift…we wander…we float from one bank to the other…and wonder when we will finally sink.

[Demeter]

10. I Gotta Real Bad Feeling About This (and the Wrong Movie)

http://www.youtube.com/watch?v=cOik58JxIuU&feature=channel

[ozymandius]

11. SEC Charges 'America's Prophet' With Fraud; Investors Sent $6 Million To Psychic

not The Onion

The SEC has charged Sean David Morton, a self-described "natural psychic, trained Remote Viewer, intuitive consultant, investigative reporter, and accomplished award winning director, screenwriter and film and TV producer," with securities fraud.

Morton, who is known as "America's Prophet" allegedly solicited investors through a newsletter in which he claimed, "I have called ALL the highs and lows of the market giving EXACT DATES for rises and crashes over the last 14 years."

His company is called Delphi Associates. Over 100 people sent Morton $6 million since 2006 to invest in foreign currency trading, according to the SEC.

The SEC charges that Morton and his wife allegedly "diverted at least $240,000 of investor funds" to their Prophecy Research Institute. The SEC complaint charitably refers to that as a "religious organization."

http://tpmmuckraker.talkingpointsmemo.com/2010/03/sec_charges_americas_prophet_with_fraud_investors.php?ref=fpa

[Demeter]

12. Securing Iraqi Oil Fields…for US Competitors By Addison Wiggin

http://dailyreckoning.com/securing-iraqi-oil-fields-for-us-competitors/

Iraq will pump up oil production from 2.4 million barrels a day now to 12 million barrels by 2017. That’s the promise of Prime Minister Nouri al-Maliki, who’d like to hold onto his job after elections on Sunday.

It’s not 2004 anymore. And it’s no longer in Washington’s interest to play up purple fingers in Iraqi elections. So let’s bring you up to speed on what’s been happening there since the “surge” was deemed a success:

* A bevy of suicide bombings this week went underreported in the US press. Three explosions just today killed 12 people. Chances are it’s the work of the Sunni minority, who’ve stayed quiet the last couple years because US troops paid them off to lie low – a key reason “the surge” has kept the fighting to a dull roar.
* The Sunnis are restless because the Shiite majority maneuvered recently to keep hundreds of Sunni candidates for parliament and local offices off the ballot. Of course, we were told the whole idea of “the surge” was to give Iraq’s factions breathing room to settle their differences. So much for that.

We still have 100,000 American troops in Babylon trying to make sure that non-American oil companies like BP and China National Petroleum Corp. have reasonably secure access to the giant Rumaila oil field. (ExxonMobil got a small consolation prize in the bidding.) We marvel at the spectacle.

[Demeter]

13. Closing Credits Go To:

http://www.youtube.com/watch?v=h5N6_NWtVxY&feature=related

[Demeter]

14. You Asked for it: More Details on Overpaid Federal Workers By Rocky Vega

http://dailyreckoning.com/you-asked-for-it-more-details-on-overpaid-federal-workers/

This is a hot button issue… many federal workers are going to read statistics about how a number occupations in the public sector get paid more than their private sector counterparts and they are simply not going to believe it. Clearly, it’s frustrating for both sides. An article today digs a little further into specifics and helps explain the details behind the discrepancy as well as some explanatory factors that make sense to consider.

From USA Today:

“Accountants, nurses, chemists, surveyors, cooks, clerks and janitors are among the wide range of jobs that get paid more on average in the federal government than in the private sector.

“Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.

“These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.”

Aside from the summary and description of the matter, the article links to a useful list of 40 specific job titles that shows “federal salaries exceed average private-sector pay in 83% of comparable occupations.” The table is found here. Should government jobs be better paid than industry positions? If somehow public employees are contributing more to a productive economy, then sure, it would make sense. Whether or not that is likely, or even possible, is something worth considering.

Visit USA Today’s coverage of how federal pay is ahead of private industry for more information and data to support the findings.

http://www.usatoday.com/news/nation/2010-03-04-federal-pay_N.htm

[KoKo]

15. Always look for you, Demeter...every weekend. But, you forgot..BULL MOOSE!

Party!
(Gotta go get that AVATAR)

Good Stuff, Demeter... Carry On!

http://images.google.com/imgres?imgurl=&imgrefurl=http://www.flickr.com/photos/robseattle/328836910/&usg=__PtUpbs8aW-AzsG_JYA_bl8vS1m4=&h=281&w=225&sz=32&hl=en&start=2&um=1&itbs=1&tbnid=AQY9NT2_Da8NMM:&tbnh=114&tbnw=91&prev=/images%3Fq%3DBull%2BMoose%2BParty%26um%3D1%26hl%3Den%26client%3Dfirefox-a%26sa%3DX%26rls%3Dorg.mozilla:en-US:official%26tbs%3Disch:1

[ozymandius]

16. Did you say bull?

Here's a story with Bullwinkle.

[KoKo]

39. This is the One that Got my "THRILL ON!"

[KoKo]

52. LOL's... "Mr. Big"

Oh My..."Mr. Big"...Does take one back. :D

[Demeter]

19. Is this the moose you are looking for?

[KoKo]

38. LOL's...He will do...Or...is it a "HER!"

I'm looking...looking.. I think it's a "HER!"

[Demeter]

41. I Would Ask, "How Can You Tell?"

If I weren't afraid of the answer.

[KoKo]

47. Well....it's missing a "hanging body part..."

:blush:

[Demeter]

54. We'll Need an Expert

and since I'd rather put my head in a a toilet than even THINK about Sarah Palin, we will have to see if Po_d Mainiac shows up. He's the person most likely to be able to sex a moose among us.

[Po_d Mainiac]

89. Uh....pssst....they ain't got a rack this time of the year...

The males anyway.
:hide:

[KoKo]

113. oops...thanks for that bit of science... We need al the "science" we can get these days...

given....

[Demeter]

36. Peekaboo!

They seek me here

they seek me there

those Frenchies seek me everywhere.

Am I in Heaven

or am I in Hell?

That damned, elusive Demeter.



Depends on which frame of mind I'm in, really.

[Demeter]

17. Sell Bank Stocks: The “Truth” Behind Non-Performing Loans By Eric Fry

http://dailyreckoning.com/sell-bank-stocks-the-truth-behind-non-performing-loans/

Whoever said, "Opposites attract," didn't know what they were talking about...or maybe they did know and just didn't provide all the details.

The world around us provides ample evidence that opposites do, in fact, attract...but not always toward a favorable outcome. Sometimes opposites attract like gravity attracts a crippled airliner...or like a field mouse attracts a rattlesnake...or a bare foot attracts a rusty nail...or a Rusty Nail attracts an alcoholic...or accounting chicanery attracts a gullible investor.

Accounting chicanery converts sad truths into happy stories and statistics. And no one loves a happy story more than a gullible investor. If it were not so, dear reader, Wall Street would still be an anonymous little alley in Lower Manhattan. Instead, Wall Street has enriched itself by converting sad truths into happy stories as often as possible.

Wall Street doesn't usually lie; it merely fails to tell the truth. The resulting deceptions cause their clients to suffer delusionary episodes at inopportune moments. Sometimes their clients mistake the very top of a bull market for a "deep value opportunity"; and sometimes they mistake a fraudulent earnings report for "a great growth play."

These classic investment errors are not entirely Wall Street's fault. But behind every major investment error you usually find at least one glossy research report. The Wall Street research machinery knows how to tell the kinds of happy stories that will elicit buy orders from gullible investors. And they keep telling these stories because gullible investors keep believing them.

Remember Enron? That was a happy story for many years...so was Boston Chicken...and Worldcom...and AIG...and Fannie Mae...and Lehman Bros. But these infamous disasters all featured a variety of sad truths in their financial statements, well before disaster struck their stock prices. A handful of insightful short-sellers made some money as these stocks collapsed, but gullible investors simply lost everything...or almost everything.

Accounting chicanery takes many different forms, but it always produces the identical result: deception.

Remember, we're not talking about lying; we're talking about not telling the truth. Lying is not usually legal; but not telling the truth is not usually illegal. Let's consider a bit of chicanery that is unfolding right below our noses at this very moment: Many banks across the country are reporting a drop in non-performing loans (NPLs). That's usually a sign that credit conditions are improving.

But this time around, falling NPLs sometimes has more to do with accounting games than with credit quality. Some banks are utilizing every accounting mechanism in their toolbox to move lousy loans into a loan category - any loan category - other than "NPL."

The astute minds at M3 Funds, an investment management firm specializing in bank stocks, provide this worrisome observation:

"Much of the enthusiasm in the bank sector based on perceived signs of a turning point in the credit cycle. However, in many cases, improvement in credit quality is the result of loan modifications, a financial sleight-of-hand tactic that only optically improves credit quality in the near-term.

"A modified loan appears when a bank takes an existing loan on its balance sheet (often one that is no longer paying) and alters the terms to keep the borrower from defaulting. Modifications usually take the form of an extension, temporary below-market interest rate, or an interest-only grace period. They help banks delay collateral repossession, but in doing so only push problems down the road. In past cycles, the re-default rate on modified loans was more than 50%. Despite such a high failure rate, banks utilize modifications, in part, because they instantly improve credit, as most institutions do not classify a modified loan as nonperforming.

"Nowhere was this practice more evident than in the regional bank space...SunTrust Banks (STI) reported a 2.5% decline in non-performing loans ('NPLs') for the fourth quarter, and many analysts were quick to anoint this second consecutive quarter of improvement as an inflection point in the credit cycle. Consider though, that over the past two quarters, NPLs have declined by $101mm, but modified loans increased by $716mm! Still, shares of STI increased by 20% in January, despite losing $245 million for the quarter. TCF Financial (TCB) and Zions Bancorp (ZION) reported similar trends: modest increases in NPLs coupled with dramatically higher loan modifications...

"With negative trends in commercial loan quality beginning to develop and loan modifications being used as a temporary crutch, we believe the banking sector is still facing meaningful credit losses over the upcoming years..."

Beat the rush; sell bank stocks now.

[hamerfan]

18. How do you know I was looking for a thread?

:7
But this must be the place. Like the intergalactic saloon, all the regulars are here.
If only we had more Ferengis!

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

Wait, Wall Street is full of 'em, and that was a different series anyway... Carry on....

[Demeter]

20. Dear God, Not Ferengi!

http://www.youtube.com/watch?v=N7-y-A3D5bk&NR=1

[hamerfan]

97. Err, cantina, not saloon

Here:

http://www.youtube.com/watch?v=0YSF5SfqF2o

[Demeter]

21. Underreported Money Supply may be Disguising Hyperinflation By Rocky Vega

http://dailyreckoning.com/underreported-money-supply-may-be-disguising-hyperinflation/

Is annualized M1 money supply growing at three times the rate the Federal Reserve is reporting? This is a critical question recently explored by Zero Hedge, which believes the actual growth rate of US dollars “is approaching hyperinflationary levels.”

According to Zero Hedge:

“For historical reasons unimportant to the point of this analysis, the Federal Reserve in the past has only created cash currency. However, the unprecedented changes it has engineered over the past two years have resulted in a vast amount of deposit currency being created by the Fed. Instead of purchasing paper from the banking system solely with cash currency – its traditional form of payment to ‘monetize’ assets by turning them into currency – the Federal Reserve since the start of the financial crisis has increasingly relied upon deposit currency to purchase paper.

“Regardless how the Federal Reserve pays for the paper it purchases – cash currency or deposit currency – it is creating dollar currency and perforce expanding the money supply. But the traditional definition of M1 does not accurately capture this process when the Fed uses deposit currency to pay for its purchase. In fact, it is totally excluded. Because the Federal Reserve did not create deposit currency in the past, none of the Ms take it into account.

“Consequently, the traditional definitions of the Ms are outdated because they do not capture the total quantity of dollars in circulation. Because M1 is underreported, so too is M2.

“Unprecedented Deposit Currency Creation by the Fed

“There has been an unprecedented amount of deposit currency created by the Fed over the past two years. The following chart illustrates this point. It shows the quantity of demand and checkable deposits, i.e., the amount of deposit currency, at the Federal Reserve since December 2002.



“From December 2002 until the collapse of Lehman Brothers in September 2008, the quantity of deposit currency created by the Fed averaged $11.8 billion, an amount that is relatively insignificant compared to total M1. Presently, it stands at a record high of $1,246.2 billion, which of course is highly significant.

“More to the point, none of this deposit currency is captured in the traditional definition of the Ms. The quantity of dollar currency is therefore significantly underreported…”

The full description of how the deposit currency creation process may be hiding hyperinflation is available from Zero Hedge. Visit its coverage of the underreported US dollar money supply, including a second chart, for all the details.

[Demeter]

43. Lego Star Wars Episode 2.9: The Droids Revenge

http://www.youtube.com/watch?v=MwDyj1xTXlA&NR=1

[Demeter]

22. Not-So Honest Accounting of Government Finances By Addison Wiggin

http://dailyreckoning.com/not-so-honest-accounting-of-government-finances/

Happy inauguration day! Today we begin with this little known factoid: For the first 143 years of the American Republic, presidents were inaugurated on March 4, the only day of the year that is also a command.

The date was moved up to Jan. 20 in 1932 when the activist president Franklin Delano Roosevelt couldn’t wait to wring his hands around the neck of the US economy. Roosevelt set in motion 78 years of what the economist Friedrich von Hayek called the “fatal conceit” – the arrogant belief that anyone could know enough at any one time to plan an economy.

Today, we’re paying the price. A little-noticed Treasury report that’s supposed to provide an honest accounting of the government’s finances is now being manipulated just like everything else.

The Financial Report of the United States Government applies generally accepted accounting principles to arrive at a realistic appraisal of the annual deficit. In a typical year, that’s up to twice the official number. But in fiscal 2009, the “real” number is actually lower than the official record-shattering $1.4 trillion.

Statistical watchdog John Williams laments this year’s report reflects “accounting that might be considered questionable if it were used in the private sector. The relatively ‘positive’ 2009 results reflected capitalization of much of the government’s bailout efforts, a late ‘profit’ from TARP, questionable handling of some post-fiscal year liabilities and changes in actuarial assumptions.

So hinky are the numbers, the Government Accountability Office refuses to sign off on the report. In a statement, the acting comptroller general invokes “material” questions of how the Treasury is valuing bailout-related liabilities and assets. In other words, Treasury under Tim Geithner is employing mark-to-make-believe just like the banks he used to oversee when he ran the New York Fed.

[Demeter]

23. America the Service Industry By Bill Bonner

http://dailyreckoning.com/america-the-service-industry/

Miserable cities…ghost towns…angry voters…

Market flash:

The Dow was flat yesterday. Gold rose $2. And Greece said it was making progress towards cutting its deficit.

Yesterday we looked at America’s most miserable cities. Today, let’s take a gander at its new “ghost towns.”

There are many towns and cities that are losing population…losing key industries…and probably on the verge of extinction. USA Today mentioned some of them in a cover story this Tuesday.

Ravenswood, W. Va., for example. It has 4,000 people and one major business. It’s a one-horse town, in other words, and the nag is leaving. The aluminum works are partly shuttered already, says USA Today; the rest is for sale.

What’s going to happen to Ravenswood? It could become a ghost town.

There are already dozens of towns in West Virginia that are inhabited mostly by ghosts. They’re relics of the booms and busts of the past. Mining, logging, railroads – each one created it own towns. Then, the profitable industries of the 19th and 20th century became unprofitable somewhere along the line. People left. Those who remain live among the shades.

The booms and busts of our time are simply claiming more victims. Cleveland is losing population. So is Baltimore. So are dozens of US cities.

“In the America where things are made the recession has a depression,” continues the report. “According to a new Northeastern University study, one in every six blue-collar industrial jobs have disappeared since 2007.”

And one in five adult males of prime working age is out of work. There are fewer and fewer factory towns in the US…and fewer and fewer jobs for people who work in them. And now comes word that auto sales in February fell nearly 4%. And early estimates suggest that the job report coming tomorrow will be depressing.

“Industrial workers are dinosaurs,” says one laid-off worker, now retraining to be a traveling nurse.

Hmmm… Let’s see. How does this work? No one makes anything anymore. We all become service industry workers…looking out for one another. I give you $5 for cutting my lawn. You give me $5 for cutting your hair. Neither of us has a penny more. How then do we afford to buy anything?

“An industrial town makes products that bring wealth into a community; a post-industrial ghost town as a zero-sum economy – people in marginal jobs ‘serving and paying each other,’” says USA Today.

Services don’t make people wealthier. They may make them more comfortable. But real prosperity requires real stuff – food, cars, tables, light bulbs, iPads.

Of course, you could offer services to people who make these things. A small nation, such as Singapore, for example, could earn a living by offering financial services. A Caribbean island could offer vacations. But what can a great nation like the US offer? It can’t get by on services. And it can’t support half its population on welfare, unemployment and food stamps. It needs manufacturing…it needs to make things…and sell them.

Why doesn’t it do that already? How come so many people are out of work? How come men can find jobs?

Ooh la la…too many questions. But when was the last time you heard a mother proudly announce that her son was going into manufacturing? Or that he was learning to be a machinist? When was the last time you saw a major factory under construction? When was the last time you picked up something in a shop, turned it over and found “Made in America” stamped on the underside?

[Demeter]

24. Germans to Greeks: Sell the Acropolis, Parthenon, and Your Aegean Islands By Rocky Vega

http://dailyreckoning.com/germans-to-greeks-sell-the-acropolis-parthenon-and-your-aegean-islands/

The rhetoric is heating up between the Germans and Greeks. In the latest episode, two German politicians told Germany’s bestselling Bild newspaper that Greece should set about selling assets to work down its debt, including publicly-owned uninhabited islands, and national historical treasures like the Acropolis and the Parthenon.

From the Guardian:

“Alongside austerity measures such as cuts to public sector pay and a freeze on state pensions, why not sell a few uninhabited islands or ancient artefacts, asked Josef Schlarmann, a senior member of Angela Merkel’s Christian Democrats, and Frank Schaeffler, a finance policy expert in the Free Democrats.

“The Acropolis and the Parthenon could also fall under the hammer, along with temptingly idyllic Aegean islands still under state ownership, in a rush to keep bankruptcy at bay.

“‘Those in insolvency have to sell everything they have to pay their creditors,” Schlarmann told Bild newspaper. “Greece owns buildings, companies and uninhabited islands, which could all be used for debt redemption.’”

Naturally, the whole matter got Greeks up at arms about the idea of boycotting German products, including the nation’s consumer federation. You can read more about the developments at the Guardian’s coverage of how, according to German MPs, Greece should sell their islands to keep bankruptcy at bay.

[Demeter]

25. More Weird Notions

http://www.youtube.com/watch?v=tg259hiRpEs&feature=related

[Demeter]

26. China Dumping US Debt Could be Great for America By Rocky Vega

http://dailyreckoning.com/china-dumping-us-debt-could-be-great-for-america/

Providing the world’s reserve currency has its privileges. Not the least of which is the continued willingness of foreigners to soak up the massive amounts of debt issued by the US despite the nation’s continued debasement of the dollar.

Yet, what if the foreign nations stopped buying? We’ve certainly heard of the calamity that should result from China cutting the US off, but perhaps we shouldn’t be so certain that’s the case.

Let’s suppose for a minute that it’s not. Mike Cosgrove investigates an eye-opening upside of a US without a market for its debt.

From Investor’s Business Daily:

“The Chinese and Japanese are our friends for two reasons: (1) Their net purchases help keep bond yields low, and (2) Chinese warnings about not buying more Treasuries or in fact selling Treasuries can send shock waves through capital markets.

“Congress and the Obama administration don’t seem overly concerned with huge federal deficits. But the administration does understand the crisis that would be created in capital markets were the Chinese to become net Treasury sellers, even for a short period of time.

“The Chinese can act as a constraint on the reckless federal spending of Congress and the administration. In fact, the Chinese may be the only realistic constraint in 2010…

“…The Chinese can lecture the administration about excessive federal outlays, but nothing would be more effective than dumping Treasuries, even for a short time. Such action would panic investors, and as a result the administration may well agree to constrain spending to placate the Chinese.”

In the scenario Cosgrove plays out, China has the potential to act like a caring relative who, familiar with the Alcoholics Anonymous process, is ready to perform an intervention. It’s hardly a painless process, but perhaps the US debt market needs to hit rock bottom before the administration will walk the road to recovery.

You can read more about Cosgrove’s theory in an Investors.com editorial on why the Chinese can’t dump our debt too soon:

http://www.investors.com/NewsAndAnalysis/Article.aspx?id=522831

[Demeter]

27. I See Dead People---All the Time!

http://www.youtube.com/watch?v=3S2auEHR4rg&feature=related

[Demeter]

28. Mark Fiore Reaches the Logical Conclusion:

http://www.markfiore.com/political-cartoons/watch-health-care-reform-animation-falling-mark-fiore-cartoon

[Demeter]

29. "Real" Unemployment Could Surge to 25%, Portfolio Manager Says

http://finance.yahoo.com/tech-ticker/%22real%22-unemployment-could-surge-to-25-portfolio-manager-says-435911.html?tickers=^dji,^gspc,dia,spy,man,LCCMX,KELYA

VIDEO AT LINK

With Wednesday's ADP report and Thursday's jobless claims data laying the groundwork for Friday's unemployment report, there's an intense focus on jobs from Wall Street to Washington D.C. and beyond.

But there's really only one jobs figure that matters, says John Lekas, senior portfolio manager for the $320 million Leader Short-Term Bond Fund: The U-6 or "real" unemployment number.

U6 is more important than the headline unemployment rate because it includes both the unemployed and "underemployed" workers faced with reduced hours who "still can't pay their bills," Lekas tells Aaron in the accompanying clip. "I think that's a more representative number."

More jobs weakness ahead. More bearish than most, Lekas sees the headline unemployment rate rising to 10% in February and climbing to 15% or 16% by mid-year. Even more dire, he sees the "real" unemployment figure surging to 25%.

Lekas says companies still are focused on cutting costs and jobs to protect their top and bottom lines. Plus, an in-house compilation of household data shows Americans are under water, with unpaid bills and expenses outpacing income by hundreds of dollars a month. That should keep consumer spending down, which means less sales for companies and, thus, less incentive for them to add to payrolls.

[Demeter]

30. Grocery Store Wars (2005)

http://www.youtube.com/watch?v=hVrIyEu6h_E

[Demeter]

31. Senate rejects $250 checks for elderly

http://news.yahoo.com/s/nm/20100304/pl_nm/us_usa_congress_elderly

A measure to give some 57 million elderly people, veterans and persons with disabilities a $250 check was rejected by the Senate on Wednesday, a setback for the powerful seniors' lobby.

President Barack Obama has called for Congress to approve the payments to make up for their benefits not increasing this year, but the Senate defeated it 50 to 47.

The payments would have added $13 billion to a $108 billion job-creation package pending in the Senate.

Congress approved payments last year as part of the $862 billion stimulus package.

Social Security payments for the elderly and disabled will stay flat this year for the first time since 1975 because they are tied to consumer prices, which decreased amid the worst economic recession in 70 years.

That follows a year in which payments rose by 5.8 percent, largely due to a spike in gasoline prices.

"It is wrong to turn our backs on seniors in this moment of economic difficulty," said Independent Senator Bernie Sanders, who sponsored the amendment.

But Republican Senator Judd Gregg pointed out that the bill would defeat the purpose of indexing Social Security payments to inflation.

"The law says it shouldn't be given," Gregg said.

At least 10 Democrats agreed with Gregg and joined 40 Republicans to defeat the proposal.

[Demeter]

32. Kill Vader - CG Star Wars / Kill Bill Parody

http://www.youtube.com/watch?v=QD9-tFTifY8

[Tansy_Gold]

76. And what would they do with that $250???? Give it to China???

Jobs, you morons.

Bring the jobs back to America. Cut the profits of the plutocrats. Tax the fucking rich.



Oh, hell, why do I even bother? It won't happen. The world will be destroyed by some crying rich person who claims he deserved more and there wasn't any "more" left.


Fuck 'em. Fuck 'em all.




Tansy Gold

[Demeter]

83. See Michael Moore's Interview

It is real hope--a plan and the muscle to back it up.

[Tansy_Gold]

90. The Dems would never listen to Mikey.

I would, if I were President :evilgrin:

In the meantime, I'll give him a listen as soon as I get through this week-end.



Tansy Gold, who is so far getting along well with her mother. . . . .

[Demeter]

95. Hope You Like the Theme

and those are Ewoks, not Big Mouses

[Tansy_Gold]

106. I loved Star Wars, at least episodes IV, V, and VI

Never saw any of the others. Classic "hero's journey" mythic stuff.

Obama should take lessons from George Lucas.




TG

[Demeter]

33. Fed’s Fisher Calls for Accord to Break Up Big Firms

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a9_wZHNh62z8

Federal Reserve Bank of Dallas President Richard Fisher called for an international pact to break up banks whose collapse would threaten the financial system, a position that goes beyond other Fed officials.

“The disagreeable but sound thing to do” for firms regarded as “too big to fail” would be to “dismantle them over time into institutions that can be prudently managed and regulated across borders,” Fisher said in a speech at the Council on Foreign Relations in New York.

The Obama administration has proposed limiting banks’ proprietary trading, while Fed Chairman Ben S. Bernanke is among officials who have called for a law to wind down failing financial firms. Such a move may still confer a “government- sponsored advantage” on the companies, Fisher said.

“Given the danger these institutions pose to spreading debilitating viruses throughout the financial world, my preference is for a more prophylactic approach: an international accord to break up these institutions into ones of more manageable size,” said Fisher, 60. “If we have to do this unilaterally, we should.”

Fisher, a former fund manager and deputy trade representative who often speaks on international issues, said his views “may be slightly radical.” The Dallas Fed president doesn’t play a direct role in talks on financial regulation. The main officials involved in international talks involving major central banks are typically the Fed’s chairman and vice chairman and the president of the New York Fed.

Regional Fed Banks

Fisher didn’t identify firms he would target for breaking up. The largest U.S. bank holding companies include Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Wells Fargo & Co. Those firms are supervised by Fed regional banks based in New York, San Francisco and Richmond, Virginia.

Fisher may find support from central bankers elsewhere. In a proposal immediately ruled out by the U.K. government, Bank of England Governor Mervyn King said in October that investment banks should be separated from operations that take deposits from consumers and manage payment systems. Swiss National Bank Chairman Philipp Hildebrand indicated in June, when he was vice chairman, that officials should be prepared to break up some banks if necessary.

Group of 20 policy makers have focused on drawing up so- called living wills, which would outline how banks and their international operations would be wound down in a crisis.

Fisher’s stance aligns him closer to lawmakers including Representative Paul Kanjorski, a Pennsylvania Democrat who last year proposed letting the U.S. dismantle large firms, and Senator Bernard Sanders, a Vermont independent and self-declared socialist, who said in July that “if an institution is too big to fail, the institution is too big to exist.”

Kanjorski Plan

Kanjorski’s plan was passed by the House in December as part of financial-overhaul legislation. The Senate Banking Committee may soon begin debating its own version of regulatory changes. Its chairman, Connecticut Democrat Christopher Dodd, has said the government should have the power to break apart large firms “as a very last resort.”

In a speech footnote, Fisher said he doesn’t speak for anyone else at the central bank, “a disclaimer that is usually readily apparent in my case but is nonetheless de rigueur.”

The 10 largest U.S. banks’ share of the industry’s assets has increased to 60 percent in 2009 from 44 percent in 2000 and about 25 percent in 1990, Fisher said.

“The existing rules and oversight are not up to the acute regulatory challenge imposed by the biggest banks,” Fisher said. “Because of their deep and wide connections to other banks and financial institutions, a few really big banks can send tidal waves of troubles through the financial system if they falter.”

‘Slack’ in System

Fisher, who joined the Dallas Fed as its chief in 2005, told reporters after his speech that interest rates are likely to stay low for an “extended period,” echoing a phrase from Federal Open Market Committee’s last statement, because “there’s so much slack in the system.”

“I don’t see the case right now that we’re likely to change our interest-rate regime in terms of the fed funds rate,” he said, referring to the benchmark interest rate for overnight loans among banks. Inflation isn’t likely to pose a significant threat for the “foreseeable future.”

In his speech, Fisher echoed comments by other Fed officials who have said the central bank must retain bank- supervision powers to carry out its functions for setting interest rates and serving as the lender of last resort.

‘Misguided’ Proposals

Proposals in Congress to strip the Fed of some or all of its regulatory authority are “misguided,” he said. “It is simply impossible to properly evaluate the health of a potentially troubled borrower with information generated by another agency,” Fisher said.

He also reiterated opposition to a proposed law that would open the Fed to audits of interest-rate decisions, saying it would lead to political interference.

[bread_and_roses]

40. I think we're in "The Empire Strikes Back" episode

I love Star Wars - the first two, that is. After that, they got progressively worse. Although the final confrontation on the "hell" planet was quite spectacular visually. I'm afraid my movie-goer self is only about fourteen.

Our Luke (episode IV - the campaign) transmuted instantly into Annikin enthralled by the Evil Emperor and his minions (Rahm et al)

http://www.huffingtonpost.com/simon-johnson/does-the-obama-administra_b_487342.html

Does the Obama Administration Even Want to Win in November?

Increasingly, senior administration officials shrug when you mention the November mid-term elections. "We did all we could," and "it's not our fault" is the line; their point being that if jobs (miraculously at this point) come back quickly, the Democrats have a fighting chance -- but not otherwise....

... But ever so quietly, you get the impression the Obama team itself is not so very unhappy -- they know the jobs will come back by 2012, they feel that Republican control of the House will just energize the Democratic base, and no one will be able to blame the White House for getting nothing done from 2010 on.

Increasingly, what comes to my mind is not the Star Wars music but a line from a poem - I forget which one right now, I drove 200 miles today and am tired -

"this is the way the world ends
this is the way the world ends
this is the way the world ends
not with a bang but a whimper"

[Demeter]

44. The Hollow Men T. S. Eliot

http://poetry.poetryx.com/poems/784/

[bread_and_roses]

66. Now ain't that title perfect? Though I regret quoting Eliot

Somewhere years and years ago I read of his politics and racism - I try to avoid celebrating him in any way, and truth be told, I am much too simple to be much of a fan of his poetry. But one cannot deny the power in some of his work - images and lines that sear the brain.

And that single word - hollow - think how apt. Our Hollow Men, posturing and preening on the screens of our endless electronic eyes....our Hollow Men, a facade of gravitas like a costume over a lumpen shape formed of straw and twigs, paraded out for our pacification while their Hollow Puppet-Masters try to fill themselves up with the sustenance of the entire world.

[Demeter]

73. Sometimes Art Comes Out of Great Suffering

and I feel that such people are suffering an incurable illness of the spirit.

[Demeter]

46. We've Been in "Empire Strikes Back" Since at Least 1963

or basically all my life....

[bread_and_roses]

77. yep...though my date might be a little later, same era for sure

My own marker for the event - or in this case events - that precipitated the Empire gathering its forces for an all-out assault was the tumult of the mid-'60s to early 70s, when TPTB saw what happens when education was cheap enough to take a whole lot of working class and poor kids to college. Can't have that.

Evidently they could - albeit grudgingly - live with high union density and decent wages and a substantial middle-class as long as it did not challenge the status quo in any deep or fundamental way - as long as those wages were going to purchase ever-more products and services, and "public goods" like education and roads were put to the service of creating ever-more compliant consumers.

Challenging those fundamentals was the last straw, and they brought out the full arsenal of carrots and sticks. My generation caved and sold out, and here we are.

[Demeter]

82. I Picked JFK's Assassination

Because they had to take out the leaders then they could take out the young--demoralize them.

[Demeter]

45. Michael Moore: There's Going to Be a Second Crash (And Glenn Beck Can F--k Off)

http://www.huffingtonpost.com/cenk-uygur/michael-moore-theres-goin_b_483508.html

...You know, I tell you, these Democrats are disgusting. Wimps and wusses and weasels. You know, get some spine. This is why I have to admire the Republicans. They at least stand for something. They at least have the courage of their convictions. They get elected to office, they come into town, and they go "Get outta my way, there's a new sheriff in town. This is the way we're doing things. Get outta here." And then they do it. You know. I mean what they do is crazy. But dammit, they are good at it. We should take a page out of their book....



"Weird Al" Yankovic - Yoda (lego style)

http://www.youtube.com/watch?v=xMpDHEVaI1k&feature=related

[Demeter]

48. Getting Rid of Hope and Faith By Robert Jensen

http://www.informationclearinghouse.info/article24918.htm

After a recent talk about the struggle for social justice and the threats to the ecosystem, a student lingered, waiting to talk to me alone, as if he had something to confess.

“I feel so overwhelmed,” he finally said, wondering aloud if political organizing could really make a difference. The young man said he often felt depressed, not about the circumstances of his own life but about the possibilities for change. Finally, he looked at me and asked, “Once you see what’s happening -- I mean really see it -- how are you supposed to act like everything is going to be OK?”

I hear such concerns often, from young and older people alike. Perhaps the questions are rationalizations for political inaction for some people, attempts to persuade themselves that there’s no reason to join left/progressive movements. But most of the people I meet who struggle with this question are activists, engaged in all kinds of worthy projects. They aren’t looking for a reason to drop out but are trying to face honestly the state of the world. They want to stay engaged but recognize the depth of multiple crises -- economic, political, cultural, and ecological.

Some organizers respond to such concerns with upbeat assurances that if we just get more people on board and work a little bit harder, the problems will be solved -- if not tomorrow, certainly within some reasonable period of time. I used to say things like that, but now I think it’s more honest, and potentially effective, to acknowledge how massive the obstacles that need to be overcome really are. We must not only recognize that the world’s resources (are) distributed in a profoundly unjust way and the systems in which we live are fundamentally unsustainable ecologically, but also understand there’s no guarantee that this state of affairs can be reversed or even substantially slowed down. There are, in fact, lots of reasons to suspect that many of our fundamental problems have no solutions, at least no solutions in any framework we currently understand.

Some have challenged me: Why give in to such despair? My response: If honest emotional responses based on rational assessments lead committed activists to feel despair, why try to bury that? It’s better to grapple with those emotions and assessments than to respond with empty platitudes.

The damage to the ecosystem may mean that a large-scale human presence on the planet cannot continue much longer. The obsession with self-interest cultivated by capitalism may be so deeply woven into the fabric of contemporary identity that real solidarity in affluent societies is no longer possible. The deskilling and dependency that comes with a high-energy/high-technology society has eroded crucial traditional skills. Mass-media corporations have eroticized violence and commodified intimacy at an unprecedented level, globally.

None of this is crazy apocalypticism, but rather a sober assessment of the reality around us. Rather than deny the despair that flows from that assessment, we need to find a way to deal with it.

When I got home from that speaking engagement, I re-read an interview I conducted with lifelong radical activist Abe Osheroff, who was the subject of a documentary film I produced. His reflections on these subjects, excerpted below, have helped me struggle with my own despair. In my conversations with Osheroff, he never looked away from these difficult subjects, and he also never abandoned his commitment to politics, right up to his death at the age of 92.

Robert Jensen: I’ve heard you use the term “long-distance runner” before. Is that the key -- the notion that we have to be in it for the long haul and not expect things to change dramatically all at once?

Abe Osheroff: Not the long haul -- the endless haul.

RJ: What’s the difference between long and endless?

AO: Oh yeah, there’s a difference. We will never win the fight. We will influence the players. We may be able to make life better in many ways. We will blunt the shit that the government and the corporations throw at us. But we’ll always be coping with things. My view is that there’s no destination for the train I’m on. No destination, just a direction. No final station on that train. There’s no final destination, no socialist society where we will all be able to sit back and have a wonderful life. Bullshit!

RJ: No utopias.

AO: Nowhere near utopia. In fact, we’ll never get completely out of hell. But we can make some progress. In my lifetime, with all of its limitations, the movement has achieved some incredible things. Forty-some years ago it was still possible to hang a black person in Holmes County, Mississippi, and not get arrested. Right where I worked, the year previous, they hung a black person in public, with half of the fucking county eating box lunches and watching it. We’ve come a long way, in many ways. Women? Whatever the limitations they face, women have made a lot of progress in this country. Gay people? They have had their defeats, their ups and downs, but with successes, too. On all these things, at times the train breaks down, somebody fucks up the tracks, but it’ll get back on the track and go on. There’s no way in the world you can stop it.

In this country, one of the biggest problems we have as leftists is that there are so many strong reasons for not being an activist, in the sense that it’s possible for people -- even if they’re mediocre, but if they’re aggressive enough -- to make a good life in this country. It’s the easiest country in the world to become a millionaire. On the plus side, it’s also the easiest country to be a radical. The potential penalties are very small. I have put in less than six months jail time in a whole lifetime of radical activism in this country. I would have been dead 30 times over in 20 countries I can think of.

RJ: So, we have this affluent country in which it’s easy to avoid political engagement and obligation and most people are afraid of any risk. It’s also a country in which people -- whatever their politics -- are used to instant gratification. Then you come along and talk about a direction, not a destination, and the endless haul. Do you find it hard to ask people to be hopeful?

AO: I talk to people about getting rid of hope and faith. And the strange effect of it is that it makes them more hopeful. I don’t deprive them of that if that’s what they need at that stage of their development. But personally, I’m not hopeful because I think hope is a kind of religion, and religions don’t work. If you’re hopeful you’re going to suffer disappointments, whether it’s politics or your personal life. You can care about things, you can want things to happen, you can work to make things happen without being hopeful. The way I guarantee not being too disappointed is to not put too much hope onto things.

Take this conversation between you and me, for example. Sure, I hope that we’ll get something out of it. I want something to come out of it because I don’t have a lot of energy these days and I’m careful about how I spend it. But if this interaction were a total waste, I wouldn’t be upset very much. All that said, sometimes I wish I could be more hopeful. Sometimes I miss that.

RJ: Why is that?

AO: Because hope is comfortable. Because sometimes the way I think makes me very lonely, a kind of intellectual loneliness.

RJ: I use these terms differently. I make a distinction, as have others over the years, between optimism and hope. I’m not optimistic. If you ask me whether I think that U.S. economy is going to be fundamentally fairer in a year, I would say no. I’m not optimistic about that, because it’s a question of rational assessment, and things seem to be going the other way in the short term. But I think there’s a way to use the term “hope” that taps into our belief that -- in that endless haul you talk about -- humans have the capacity to be decent. I suppose it’s about having reasonable expectations, which is what you are talking about. I’m just using different words, perhaps.

AO: Yea, it may be a difference in how we use the same terms. Sometimes people I deal with describe me as cynical. I tell them, “Where do you come up with that shit? Cynicism normally leads to inactivity. I’m 14 times more active than you are. You don’t do shit, and you’re labeling me cynical? If anybody’s fucking cynical, it’s you.” Those people have yielded to society’s bullshit, and I think I’ve refused to yield. I’m not optimistic, and I’m not pessimistic. I’m none of those things. I’m me -- learning, exploring, and, fortunately, along the way I discovered a way of living that is very gratifying. Let’s start with that. I live a gratifying life. I ask people if they want to live one. If they do, I’ll tell them some ideas on how it can be done.

The documentary “Abe Osheroff: One foot in the grave, the other still dancing,” has just been released by the Media Education Foundation at a special price of $19.95. To order, go to http://www.abeosheroffmovie.com/.

Robert Jensen is a journalism professor at the University of Texas at Austin and board member of the Third Coast Activist Resource Center http://thirdcoastactivist.org. His latest book is Getting Off: Pornography and the End of Masculinity (South End Press, 2007). Jensen is also the author of The Heart of Whiteness: Race, Racism, and White Privilege and Citizens of the Empire: The Struggle to Claim Our Humanity (both from City Lights Books); and Writing Dissent: Taking Radical Ideas from the Margins to the Mainstream (Peter Lang). He can be reached at [e-mail] and his articles can be found online at http://uts.cc.utexas.edu/~rjensen/index.html.

[Demeter]

49. That Was a Man With Balls

http://www.youtube.com/watch?v=o6Itv1iGSn0&feature=PlayList&p=0418F4CADEC5CD30&index=0&playnext=1

[Demeter]

50. We Need Bigger Deficits. Or we're toast By Mike Whitney

http://www.informationclearinghouse.info/article24919.htm

Barack Obama must choose between high unemployment or large fiscal deficits. It's one or the other. If he chooses to increase government spending and provide a second round of stimulus; unemployment will fall, the output gap will narrow, business confidence will strengthen, and the economy will continue on the path of recovery. If he refuses to provide more stimulus; unemployment will hover around 10 percent, credit will continue to contract, confidence will flag, and the economy will underperform for years to come. And--surprise, surprise--the deficits will balloon anyway, because household deleveraging is going to continue regardless of what the administration does. That will slow consumer spending and reduce tax revenues which will only add to the budget shortfall. So, it's not a matter of whether we will have deficits or not. We will, no matter what. The question is whether we'll suck-it-up and do what needs to be done (by investing in our future and putting people back to work) or follow some monkish austerity program which will only make matters worse.

The media has played a big role in fueling deficit hysteria. It's all part of a well-funded public relations campaign aimed at putting the government on a starvation diet. The long-term goal is to privatize public assets, crush the labor movement, and dismantle the social safety net. A recent article in counterpunch by author Ellen Brown exposes some of the people behind the "fiscal responsibility" movement and shows that what they really want is to divert Social Security benefits into a "mandatory savings tax" that would be automatically withdrawn from workers paychecks into an "investment pool" that Wall Street bankers would manage. Nice, eh? The banksters would rather skip the niggling task of fleecing their victims themselves and, instead, have the remittances posted directly to their accounts. It's more efficient that way. Here's an excerpt from Brown's article:

"When billionaires pledge a billion dollars to educate people to the evils of something, it is always good to peer closely at what they are up to. Hedge fund magnate Peter G. Peterson was formerly Chairman of the Council on Foreign Relations and head of the New York Federal Reserve. He is now senior chairman of Blackstone Group... Peterson is also founder of the Peter Peterson Foundation, which has adopted the cause of imposing “fiscal responsibility” on Congress. He hired David M. Walker, former head of the Government Accounting Office, to spearhead a massive campaign to reduce the runaway federal debt, which the Peterson/Walker team blames on reckless government and consumer spending. The Foundation funded the movie “I.O.U.S.A.” to amass popular support for their cause, which largely revolves around dismantling Social Security and Medicare benefits as a way to cut costs and return to “fiscal responsibility. " (Ellen Brown, "IMF-style Austerity comes to America", counterpunch)

To summarize, deficit hysteria is a hoax concocted by far-right demagogues who are trying to advance their socially-destructive agenda for their own personal gain. Fortunately, the opposition has mounted an impressive counter-attack and refuted many of the spurious claims made by the deficit worrywarts. New York Times columnist Paul Krugman has done a particularly good job of educating the public on the issue and analyzing the movement's supporters. Here's a clip from his article titled "Fiscal scare Tactics":

"To me ...the sudden outbreak of deficit hysteria brings back memories of the groupthink that took hold during the run-up to the Iraq war. Now, as then, dubious allegations, not backed by hard evidence, are being reported as if they have been established beyond a shadow of a doubt. Now, as then, much of the political and media establishments have bought into the notion that we must take drastic action quickly, even though there hasn’t been any new information to justify this sudden urgency. Now, as then, those who challenge the prevailing narrative, no matter how strong their case and no matter how solid their background, are being marginalized.

True, there is a longer-term budget problem. ....But there’s no reason to panic about budget prospects for the next few years, or even for the next decade (because) interest payments on federal debt; according to the projections, a decade from now they’ll have risen to 3.5 percent of G.D.P. How scary is that? It’s about the same as interest costs under the first President Bush.

Thanks to deficit hysteria, Washington now has its priorities all wrong: all the talk is about how to shave a few billion dollars off government spending, while there’s hardly any willingness to tackle mass unemployment. Policy is headed in the wrong direction — and millions of Americans will pay the price." (Paul Krugman, "Fiscal Scare Tactics" New York Times)

The basic problem is not hard to grasp; the private sector (us) cannot save unless the public sector (the government) runs a deficit. The surpluses of the Clinton era were produced by private sectors deficits. In other words, the buildup of household debt during the late 1990s and early 2000s, (remember all that debt-fueled consumption?) allowed the federal government to run a surplus. Now that the bubble has burst, the process has switched into reverse. Consumers are no longer able to spent at pre-crisis levels because the value of their main assets--their homes and their retirements funds--has dropped precipitously. Thus, households will have to cut back on their spending and either pay-down their debts or set more money aside to repair their balance sheets. The slowdown in spending, along with the reduction in bank lending and consumer credit, will push the economy back into recession unless the government steps up its spending and increases the deficits. So far, Obama's fiscal stimulus has performed as well as can be expected by reducing the output gap and increasing employment by roughly 2 percent. But the original stimulus ($787 billion) was not nearly large enough to fill the capital-hole created by the financial meltdown. We need another jolt. Also, the effects of the stimulus will begin to diminish in the second half of 2010. That's why economists are so concerned, because without additional stimulus, more slack will build-up in the system and a large portion of the workforce will remain jobless. .


US households sustained humongous losses during the recession; nearly $12 trillion has been slashed from home equity and personal savings in the last two years. Millions of baby boomers, who believed they had sufficient savings for retirement, now must either put off their retirement and work longer, or cut back sharply on spending to pad the nest-egg. The process of deleveraging typically lasts for 6 to 7 years following a financial crisis according to McKinsey Global Institute. Unfortunately, recent data show that US households have barely begun the process. Their debt-to-disposable income ratio is still extremely high and must return to its historic trend. That means they will not be able to spend as freely as they did before. As private spending slows, businesses will be forced to reduce inventory, lay off workers, and curtail investment. (There's no need to reinvest when the system is already saturated with overcapacity.) When consumers can't spend, and businesses have no incentive to invest; the economy nosedives. The government can either boost stimulus to make up for the loss in activity or cut spending and risk another recession.

Traditionally, liberals have aligned themselves with progressive economic theory (Keynes) which recommends running large fiscal deficits during downturns. Past experience indicates this is the most effective approach, although the strategy does have its critics. Many of those same critics, however, believe that the United States is at risk of a sovereign default, which is a ridiculous idea that demonstrates a basic lack of understanding about the monetary system. When a nation pays its debts in its own currency, like the US, it can inflate its currency, but not default. This is just more demagoguery from deficit hawks similar to their nonsensical blather about looming hyperinflation. That won't happen either. In fact, in the short term the biggest danger is disinflation leading to outright deflation. Now that the Fed is winding down its lending facilities and ending quantitative easing (QE) and Obama's stimulus is dissipating; the signs of contraction are becoming more and more apparent. Consumer credit is shrinking, M3 is dropping, unemployment remains stubbornly high, and as this graph from Krugman illustrates, core inflation is falling fast. (which, in effect, raises real interest rates.) http://krugman.blogs.nytimes.com/2010/03/02/disinflation-in-recessions/

What does it all mean? It means the Fed has backed itself into a corner and may have to resume its bond-purchasing program to pump more liquidity into the financial system to avoid a downward spiral. We are not out of the deflationary woods yet. Not by a long-shot.

So we need more stimulus and we need it now. Unfortunately, the deficit hawks have persuaded a narrow majority of the people that, what the economy really needs, is a systemwide debt-purge that will drive down assets prices, increase defaults, and send blood running out into the streets. "Liquidate everything!" Somehow this claptrap has even caught fire with people on the left. It makes the prospect of a double dip recession even more likely.


BE CAREFUL WHAT YOU WISH FOR...

But there are pitfalls to budget surpluses as economist Randall Wray points out in his article "The Federal Budget is NOT like a Household Budget" on New Deal 2.0:

"The US federal government is 221 years old, if we date its birth to the adoption of the Constitution....With one brief exception, the federal government has been in debt every year since 1776. In January 1835, for the first and only time in U.S. history, the public debt was retired, and a budget surplus was maintained for the next two years in order to accumulate what Treasury Secretary Levi Woodbury called “a fund to meet future deficits.” In 1837 the economy collapsed into a deep depression that drove the budget into deficit, and the federal government has been in debt ever since. Since 1776 there have been exactly seven periods of substantial budget surpluses and significant reduction of the debt. From 1817 to 1821 the national debt fell by 29 percent; from 1823 to 1836 it was eliminated (Jackson’s efforts); from 1852 to 1857 it fell by 59 percent, from 1867 to 1873 by 27 percent, from 1880 to 1893 by more than 50 percent, and from 1920 to 1930 by about a third. Of course, the last time we ran a budget surplus was during the Clinton years. I do not know any household that has been able to run budget deficits for approximately 190 out of the past 230-odd years, and to accumulate debt virtually nonstop since 1837.

The United States has also experienced six periods of depression. The depressions began in 1819, 1837, 1857, 1873, 1893, and 1929. (Do you see any pattern? Take a look at the dates listed above.) With the exception of the Clinton surpluses, EVERY SIGNIFICANT REDUCTION OF THE OUTSTANDING DEBT HAS BEEN FOLLOWED BY A DEPRESSION, and every depression has been preceded by significant debt reduction....our less serious downturns have almost always been preceded by reductions of federal budget deficits. I don’t know of any case of a national depression caused by a household budget surplus." (Randall Wray, "The Federal Budget is NOT like a Household Budget: Here’s Why", New deal 2.0)

Repeat: The seven periods of budget surpluses in the US were followed by six Depressions. Will this be the seventh? It depends on whether sanity prevails and Obama pushes another stimulus package through congress. Otherwise, we're toast.

[Demeter]

51. Goodnight, all you Padawans---Bedtime!

See you tomorrow--if it isn't repo'ed before we wake.

[DemReadingDU]

53. Charlie rose interviews Elizabeth Warren

3/4/10 Charlie rose interviews Elizabeth Warren

appx 21 minutes
http://www.charlierose.com/view/interview/10895#

[DemReadingDU]

109. Partial Transcript at ZeroHedge - Elizabeth Warren

3/6/10 Elizabeth Warren Discusses The Global "Enron": From Wall Street To Greece And Back
Charlie Rose

partial transcript and embedded video
http://www.zerohedge.com/article/elizabeth-warren-discusses-global-enron-wall-street-greece-and-back

[Demeter]

55. More consumers file for bankruptcy protection

http://www.usatoday.com/money/economy/2010-03-03-bankruptcy03_ST_N.htm

The economic recovery effort has not slowed consumer bankruptcy filings. They surged 14% in February compared with a year earlier, according to the American Bankruptcy Institute.

The 111,693 cases filed last month also represented a 9% increase from January, the report said.

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"The debt-stress overhang from years of consumer spending has a more acute impact now because of troubling economic times," says Samuel Gerdano, American Bankruptcy Institute executive director.

And that financial distress is driving more Americans to file for Chapter 7 bankruptcy, which — if approved — allows a court to discharge most unsecured consumer debt, including credit card bills.

When a stricter bankruptcy law took effect in 2005, a major goal was to require more families to rely on Chapter 13 bankruptcy, which requires filers with regular income to repay debts in full, or in part, over several years.

Yet the number of Chapter 13 filings decreased 3% last month from January, the American Bankruptcy Institute says.

"People generally file for Chapter 13 to try to save a home," says Robert Lawless, professor of law at the University of Illinois.

Before the housing crisis, financially strapped consumers could often avoid bankruptcy by tapping the rising value of their homes and taking out home equity loans. "People have borrowed money to avoid filing for bankruptcy," says Lawless. "When consumer credit tightens up, as we've seen, that does increase the (bankruptcy) filing rate."

Business bankruptcy filings are rising, too. In February, there were 6,557 business filings, compared with 6,390 a year earlier, according to Automated Access to Court Electronic Records.

Gerdano expects that trend to continue, but he notes that business bankruptcies represent fewer than 10% of total filings.

Last year, there were 1.47 million bankruptcy filings, up 32% from 2008, according to data released by the Administrative Office of the U.S. Courts on Tuesday. Chapter 7 filings rose 41% in 2009, while Chapter 13 filings were up just 12%.

The bankruptcy rate has risen each year since the law was changed in 2005. "We are already on a faster pace in 2010 than we were a year ago," Gerdano says. "Consumer filings will likely surpass 1.5 million filings this year."

[Demeter]

56. Mass Layoffs Increase in January

http://blogs.wsj.com/economics/2010/02/23/mass-layoff-increase-in-january/?blog_id=8&post_id=9132

The number of people let go in mass layoffs rose in January after four straight months of declines.

Employers laid-off 182,261 workers, seasonally adjusted, in 1,761 mass layoff events last month, the Labor Department said Tuesday. A mass layoff is when a single employer terminates at least 50 people.

Manufacturing employers laid off 104,846 workers in mass layoffs in January, not adjusted for seasonal variations, and construction companies terminated 24,148 workers.

The upside is that the mass layoffs picture still looks better than it did a year ago. The number of mass layoff events was nearly 23% lower than the same month a year ago. And the number of people fired as part of those layoffs was down nearly 28%.

The improvement in the past year has been widespread. Sixteen of the 19 private industry sectors the Labor Department tracks experienced a decline in the number of people terminated in mass layoffs.

[Demeter]

57. Postal Service to shed another 30,000 jobs

http://money.cnn.com/2010/03/02/news/economy/postal_service_jobs/index.htm?section=money_news_economy

The U.S. Postal Service said on Tuesday that it would reduce its workforce by another 30,000 positions and slash overtime this year in an effort to reduce costs.

Together these staffing reductions will result in cost savings equivalent to eliminating 50,000 full-time positions, according to Chief Financial Officer Joseph Corbett.

Corbett said the agency expects 30,000 employees to retire during fiscal year 2010, which ends Sept. 30, 2010. More positions will be eliminated as other employees resign and those positions are not filled.

"We expect that we will be able to get to the right staffing levels through natural attrition," he told CNNMoney.com.

The USPS, which is not permitted to lay off employees, is currently under a nationwide hiring freeze. It has eliminated jobs in the past by offering early retirement packages and through attrition. It cut a whopping 40,000 positions this way in fiscal 2009 alone.

The USPS has shed more than 100,000 jobs in the last five years. It currently has about 600,000 full-time employees, down from about 705,000 full-time workers in fiscal year 2005.
$238B loss for U.S. postal service

The agency has seen the volume of mail that it processes plummet in recent years, crushing revenue.

Mail volume dropped by 25 billion pieces in fiscal year 2009, an "unprecedented" 13% decline compared to the year before, according to the USPS. In the same time period, operating revenues dropped 9.1% to $68.1 billion.

[Demeter]

58. 15,000 S.F. workers face layoffs, shorter weeks

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/03/02/BA471C9UVR.DTL&tsp=1

More than 15,000 San Francisco city workers across all departments will receive layoff notices Friday, and most of them will have the option of being rehired to work a shorter week, Mayor Gavin Newsom said Tuesday.

Newsom's controversial plan to help reduce the city's $522 million budget deficit for the 2010-11 fiscal year would shift the majority of the city's 26,000 workers from a 40-hour week to 37 1/2 hours, cutting their paychecks by 6.25 percent.

The plan is expected to save $100 million - half in the city's general operating fund and half in money-generating departments including the port and airport - but is being decried by unions and some supervisors as a slap at the rank and file.

They also pointed to the mayor's inability to promise that the move would spare future layoffs. Newsom said not all workers who receive layoff notices Friday will be rehired but refused to specify how many that may be.

The mayor insisted, though, that it's a smart way to spare several thousand layoffs and ensure that workers retain jobs as the city faces its biggest budget deficit. The move to a shortened workweek would not affect employees' health benefits, vacation or sick time.

"This is a pro-job alternative," Newsom said. "We can keep people employed and keep their health benefits."

He announced the idea last month and said he was open to cost-saving alternatives from unions. But Tuesday, he said he didn't receive any and needed to move forward because his budget proposal is due to the board on June 1.

"I have not gotten any better ideas, and so it is my intent to go forward this Friday," Newsom said....

Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2010/03/02/BA471C9UVR.DTL&tsp=1#ixzz0hOlRaPZr

[Demeter]

59. 'Buy farmland and gold,' advises Dr Doom

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article7035913.ece

The world’s most powerful investors have been advised to buy farmland, stock up on gold and prepare for a “dirty war” by Marc Faber, the notoriously bearish market pundit, who predicted the 1987 stock market crash.

The bleak warning of social and financial meltdown was delivered today in Tokyo at a gathering of 700 pension and sovereign wealth fund managers.

Dr Faber, who advised his audience to pull out of American stocks one week before the 1987 crash and was among a handful who predicted the more recent financial crisis, vies with the Nouriel Roubini, the economist, as a rival claimant for the nickname Dr Doom.

Speaking today, Dr Faber said that investors, who control billions of dollars of assets, should start considering the effects of more disruptive events than mere market volatility.

“The next war will be a dirty war,” he told fund managers: "What are you going to do when your mobile phone gets shut down or the internet stops working or the city water supplies get poisoned?”

His investment advice, which was the first keynote speech of CLSA’s annual investment forum in Tokyo, included a suggestion that fund managers buy houses in the countryside because it was more likely that violence, biological attack and other acts of a “dirty war” would happen in cities.

He also said that they should consider holding part of their wealth in the form of precious metals “because they can be carried”.

One London-based hedge fund manager described Mr Faber’s address as “excellent, chilling stuff: good at putting you off lunch, but not something I can tell clients asking me about quarterly returns at the end of March”.

Dr Faber did offer a few more traditional investment tips, although their theme fitted his general mode of pessimism.

In Asia, particularly, he said, stock pickers should play on future food and water shortages by buying into companies with exposure to agriculture and water treatment technologies.

One of Dr Faber’s darker scenarios involves growing military tension between China and the United States over access to limited oil resources.

Today the US has a considerable advantage over China because it has free access to oceans on both coasts, and has potential energy suppliers to the north and south in Canada and Mexico.

It also commands an 11-strong fleet of aircraft carriers that could, if necessary, secure supply routes in a conflict situation.

China and emerging Asia, meanwhile, face the uncertainty of supplies that must travel from the Middle East through winding sea lanes and the Malacca bottleneck.

American military presence in Central Asia, Dr Faber said, may add to the level of concern in Beijing.

“When I tell people to prepare themselves for a dirty war, they ask me: “America against whom?” I tell them that for sure they will find someone.”

At the heart of Dr Faber’s argument is a fundamentally gloomy view on the US economy and its capacity to service a growing mountain of debt.

His belief, fund managers were told, is that the US is going to go bankrupt.

Under President Obama, he said, the country’s annual fiscal deficit will not drop below $1 trillion and could rise beyond that figure.

Arch bears have predicted that US debt repayments could hit 35 per cent of tax revenues within ten years.

Dr Faber believes that the ratio could easily hit 50 per cent in the same time frame.

[Demeter]

60. More Likely, The Whole World Will Gang Up on US

which will foolishly insist on "protecting" Goldman Sachs from retribution...



http://www.youtube.com/watch?v=Tn_95hdy6Nw

[bread_and_roses]

75. The "heart" of Dr. Faber's view seems to me a hell of a lot darker than debt worries

Who are these people who look at predictions of cities erupting into violence and water shortages and a need for portable, tangible "wealth" and then say "At the heart of Dr Faber’s argument is a fundamentally gloomy view on the US economy and its capacity to service a growing mountain of debt."

Last I knew, water shortages are not caused by "debt" they are caused by ecological disasters and the rapacious plundering of the Commons by Profiteers via "privatization." When that gets intolerable for the ragged masses, they erupt, thus violence and a need to escape FRSP termination of the Overlords.

That these "Hollow Men" listen to such predictions and come away fretting about "debt" - essentially an artificial construct of an artificial construct - speaks volumes.

[Demeter]

84. It's a form of Denial

When you anesthetize yourself with highfalutin, pretty words and abstract concepts to conceal from yourself, let alone others, how awful it's gonna be.

[Demeter]

61. From New York to Liberia: Vulture Funds Preying on African Debt

Investigative journalist Greg Palast traveled to the West African country of Liberia to investigate how vulture funds have been operating there and why Liberia lost a $20 million case against two vulture funds in a British court.

VIDEO AT LINK

http://www.informationclearinghouse.info/article24909.htm

[Demeter]

62. Filmmaker Michael Moore on Capitalism: A Love Story

From Middle America to the halls of power in Washington to the global financial epicenter in Manhattan, Moore takes filmgoers into uncharted territory as he tries to get to the heart of the matter. VIDEO INTERVIEW AT LINK:

http://www.informationclearinghouse.info/article24902.htm

[Demeter]

65. Congressman Ron Paul : The Assassinations of Americans

http://www.youtube.com/watch?v=uGktTws2bK0&feature=player_embedded

[Greyhound]

108. "confessions" & "Economic Hit Man" explain this game as well.

And it's coming here...

[Demeter]

63. Economists: Another Financial Crisis on the Way

http://www.informationclearinghouse.info/article24903.htm

Even as many Americans still struggle to recover from the country's worst economic downturn since the Great Depression, another crisis -- one that will be even worse than the current one -- is looming, according to a new report from a group of leading economists, financiers, and former federal regulators.

In the report, the panel, that includes Rob Johnson of the United Nations Commission of Experts on Finance and bailout watchdog Elizabeth Warren, warns that financial regulatory reform measures proposed by the Obama administration and Congress must be beefed up to prevent banks from continuing to engage in high risk investing that precipitated the near collapse of the U.S. economy in 2008.

The report warns that the country is now immersed in a "doomsday cycle" wherein banks use borrowed money to take massive risks in an attempt to pay big dividends to shareholders and big bonuses to management -- and when the risks go wrong, the banks receive taxpayer bailouts from the government.

"Risk-taking at banks," the report cautions, "will soon be larger than ever."

Without more stringent reforms, "another crisis -- a bigger crisis that weakens both our financial sector and our larger economy -- is more than predictable, it is inevitable," Johnson says in the report, commissioned by the nonpartisan Roosevelt Institute.

The institute's chief economist, Nobel Prize-winner Joseph Stiglitz, calls the report "an important point of departure for a debate on where we are on the road to regulatory reform."

The report blasts some of Washington's key players. Johnson writes, "Our government leaders have shown little capacity to fix the flaws in our market system." Two other panelists, Simon Johnson, a professor at MIT, and Peter Boone of the Centre for Economic Performance, voiced similar criticisms.

Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner "oversaw policy as the bubble was inflating," write Johnson and Boone, and "these same men are now designing our 'rescue.'"

The study says that "In 2008-09, we came remarkably close to another Great Depression. Next time we may not be so 'lucky.' The threat of the doomsday cycle remains strong and growing," they say. "What will happen when the next shock hits? We may be nearing the stage where the answer will be -- just as it was in the Great Depression -- a calamitous global collapse."

The panelists call for major banks to maintain liquid capital of at least 15 to 25 percent of their assets, the enactment of stiffer consequences for executives of bailout recipients and for government officials to start breaking up firms that grow too big.

In the report, Elizabeth Warren, who was chair of the Congressional Oversight Panel, reiterates her calls for an independent agency to protect consumers from abusive Wall Street practices.

"While manufacturers have developed iPods and flat-screen televisions, the financial industry has perfected the art of offering mortgages, credit cards and check overdrafts laden with hidden terms that obscure price and risk," Warren writes. "Good products are mixed with dangerous products, and consumers are left on their own to try to sort out which is which. The consequences can be disastrous."

Frank Partnoy, a panelist from the University of San Diego, claims that "the balance sheets of most Wall Street banks are fiction." Another panelist, Raj Date of the Cambridge Winter Center for Financial Institutions Policy, argues that government-backed mortgage giants Fannie Mae and Freddie Mac have become "needlessly complex and irretrievably flawed" and should be eliminated. The report also calls for greater competition among credit rating agencies and increased regulation of the derivatives market, including requiring that credit-default swaps be traded on regulated exchanges.

With the Senate Banking Committee, led by Chris Dodd, D-Conn., poised to unveil its financial regulatory reform proposal sometime in the next week, the report calls on Congress to enact reforms strong enough to prevent another meltdown.

"Sen. Dick Durbin once said the banks 'owned' the Senate," says Johnson. "The next few weeks will determine whether or not that statement is true."

[Demeter]

64. Obama's Budget Revealed: Money for Wars & Weapons, While More Face Joblessness & Hunger

http://www.informationclearinghouse.info/article24907.htm

The latest federal budget opens the American public to yet more pain, while shielding the military and the rest of the national security establishment from the same.

March 03, 2010 "Tomdispatch" - Mar. 02, 2010 - - Send up a flare! The 2011 federal budget has sprung some leaks in the midst of a storm. Not sure there's enough money for life rafts! Forget women and children first!

Buffeted by economic hard times, the 2,585-page, $3.8 trillion document is already taking on water, though this won’t be obvious to you if you’re reading the mainstream media. Let’s start with the absolute basics: 59% of the budget’s spending is dedicated to mandatory programs like Medicaid, Medicare, Unemployment Insurance, Social Security, and now Pell Grants; 34% is to be spent on “discretionary programs,” including education, transportation, housing, and the military; 7% will be used to service the national debt.

A serious look at this budget document reveals some “leaks” -- two in actual spending practices and two in the basic assumptions that undergird the budget itself. Ship-shape as it may look on the surface, this is a budget perilously close to an iceberg, and it’s not clear whether the captain of the ship will heed the obvious warning signs.

Whose Security Is This Anyway?

In his State of the Union Address, given several days before the 2011 budget was released, President Obama announced a three-year freeze on “non-security discretionary spending.” This was meant as a gesture toward paying down the looming national debt, but it should also be considered an early warning sign for leak number one. After all, the president exempted all national-security-related spending from the cutting process. Practically speaking, according to the National Priorities Project (NPP), national security spending makes up about 67% of that discretionary 34% slice of the budget. In 2011, that will include an as-yet-untouchable $737 billion for the Pentagon alone.

Within the context of the total budget, then, so-called non-security discretionary spending represents a mere 11% of proposed 2011 spending. In other words, Obama’s present plans to chip away at the debt involve leaving 89% of the budget untouched. Only the $370 billion going to myriad domestic social programs will be on the chopping block.

What's in that $370 billion? Well, for starters, programs that focus on the environment, energy, and science. In the 2011 budget, these categories combined are projected to receive $79 billion or 6% of total domestic discretionary spending. Though each of these areas could actually use a significant boost in funds, that’s obviously not in the cards -- and this will translate into less money at the state level. New York, for example, is projected to receive $247 million in home energy assistance for low-income folks, down more than $230 million from 2010. These funds mean an energy safety net for our communities, and also warmth and jobs in a cold winter, which looks like “security” to most of us, no matter what our captain says.

Asking for disproportionate cuts and efficiencies in programs in only 11% percent of the overall budget might perhaps be slightly easier to stomach if military spending wasn’t allowed relatively free rein in 2011 (and thereafter). The NPP estimates, in fact, that aggregated increases in military spending over the next decade will exceed $500 billion, drowning twice-over the projected $250 billion in non-security discretionary savings from the president’s cuts over the same time period. Consider this visible unwillingness to control military-related spending leak two in our budgetary Titanic.

By now, danger flags should be going up in profusion because the second leak is so familiar, so George W. Bush. With each new bit of information, in fact, it sounds more and more like the same old song, the last guy's tune. It’s clear that, as soon as the stimulus bump wears off later this year, we're in danger of falling back into exactly the same more-money-for-the-military, less-federal-aid-to-the-states rut we’ve been in for years, despite strong statements from both President Obama and Defense Secretary Robert Gates decrying Pentagon waste.

And speaking of waste, the Department of Defense is currently carrying weapons-program cost overruns for 96 of its major weapons programs totaling $295 billion, which alone are guaranteed to wipe out any proposed savings from President Obama's non-security discretionary freeze, with $45 billion to spare. That's only to be expected, since neither the Pentagon nor any of the armed services have ever been able to pass a proper audit. Ever.

If they had, what would have become of the C-17, the Air Force's giant cargo plane? With a price tag now approaching $330 million per plane and a total program cost of well over $65 billion, the C-17, produced by weapons-maker Boeing, has miraculously evaded every attempt to squash it. In fact, Congress even included $2.5 billion in the 2010 budget for ten C-17s that the Pentagon hadn’t requested.

Keep in mind that $2.5 billion is a lot of money, especially when cuts to domestic spending are threatened. It could, for instance, provide an estimated 141,681 children and adults with health care for one year and pay the salaries of 6,138 public safety officers, 4,649 music and art teachers, and 4,568 elementary school teachers for that same year. Having done that, it could still fund 22,610 scholarships for university students, provide 46,130 students the maximum Pell Grant of $5,550 for the college of their choice, allow for the building of 1,877 affordable housing units, and provide 382,879 homes with renewable electricity -- again for that same year -- and enough money would be left over to carve out 29,630 free Head Start places for kids. That’s for ten giant transport planes that the military isn’t even asking for.

Domestic-spending freeze proponents demand that our $13 trillion national debt, accumulated over seven decades, be turned back starting now. Critics of Obama’s freeze remind us that, while the C-17 flourishes, cutting into that domestic 11% is like trying to get blood from a stone. They argue that what we need in recessionary times is an infusion of strategic domestic spending. They tend to cite Mark Zandi, chief economist for Moody’s Economy.com, who has noted that, for every dollar in stimulus aid directed toward the states, $1.40 returns to the economy, while every dollar invested in infrastructure spending yields $1.60.

Freeze critics are acutely aware that, by December 31, 2010, most of the American Recovery and Reinvestment Act (ARRA), that Obama stimulus package, will expire and states will face a remarkably bleak future. By then, they will also have spent the bulk of their education-relief funds, even as they grapple with a projected 48-state 2011 budget gap of $180 billion. Last year, despite the infusion of stimulus money, the same 48 states were already experiencing significant budget gaps and so cut a cumulative $194 billion or 28% of their total 2010 budgets.

Having already imposed deep program cuts, governors in almost every state will have to make even more excruciating choices before July 1st, the beginning of their next fiscal year. In Massachusetts, officials are considering eliminating funding for a program providing housing vouchers to homeless families. California is facing $1.5 billion in reductions to kindergarten through 12th grade education and community college funding, while New York State may have to reduce payments to health-care providers by $400 million.

On the eve of the annual gathering of governors in Washington D.C., Ray Scheppach, executive director of the National Governors Association, told a Washington Post columnist that he anticipates states needing to do far more than just institute program cuts, layoffs, and benefit cuts. Governors will have to permanently sell off assets like roads and office buildings, or implement a host of other previously “off-limits” changes.

Afloat in an Ever Harsher World

Having looked at two obvious leaks in the upper hull of our budgetary ship of state, it’s time to move deep underwater and examine the weak spots in two of the basic assumptions that undergird the new budget. The first deals with an issue on everyone's mind: unemployment.

The 2011 budget numbers are based on a crucial projection: just where the unemployment rate will be in 2012. Revenues available at the federal and state levels will depend, in part, on how many people go back to work and once again begin paying taxes on their wages. For the pending and projected federal budgets to have a shot at panning out, unemployment must decline, as the budget predicts it will, from the present official rate of 9.7% to 8.5% by 2012. That doesn’t sound like much of a drop, especially when Americans are in job pain. But there's a strong likelihood that even this goal is unattainable.

In reality, the U.S. needs to generate an estimated 1.5 million new jobs each year simply to keep pace with the arrival of newcomers on the job market. That’s before we talk about knocking down the present staggering unemployment rate. In this case, however, one set of budget projections (that three-year domestic spending freeze) might work against the other (that modest decline in unemployment). Fewer federal stimulus dollars will be available to offset onrushing shortfall disasters at the state budgetary level, which means a potential drop in jobs. And, thanks to that domestic freeze, more pain is in the offing, with fewer services available, for those out of work. Even if the new Senate jobs bill makes it to the president's desk, it’s unlikely to go far enough to make a real difference. All of this means that an 8.5% unemployment rate in two years is, at best, an optimistic projection.

Even if that figure were hit, however, Americans still wouldn’t be celebrating, in budgetary terms or otherwise. At 8.5%, we’re only back to an unemployment rate not seen in more than a quarter of a century, and keep in mind that a one-dimensional unemployment figure can’t begin to capture the complexity of what the Bureau of Labor Statistics describes as “alternate measures of labor underutilization.” In other words, it doesn’t count everyone who is underemployed, employed only part-time, or discouraged and so considered out of the job market. At 16.5% as of January 2010, this measure tells a very different story.

Nor does that 8.5% figure capture the disproportionately terrible employment situation faced by young people or people of color who are distinctly over-represented on the unemployment rolls. And if you happen to live in certain metropolitan areas, 50% of you can kiss your chances of a quick recovery goodbye. According to the projections of a U.S. Conference of Mayors study titled U.S. Metro Economics, Dayton, Ohio, is not expected to see a significant employment bounce until 2015; Hartford, Connecticut, not until 2018, and Detroit, Michigan, not until after 2039.

As Atlantic magazine Deputy Managing Editor Don Peck noted recently, it will be a long time before we dig ourselves out of this current job crisis. “We are living through a slow motion catastrophe,” he writes, “one that could stain our culture and weaken our nation for many, many years to come.”

That projected 8.5% figure and all the projected freezes and cuts that go with it, don’t begin to address this reality. Think of that as leak three.

Then, consider this little tidbit from the 2011 budget, hardly noted or discussed in the news, even though it has the potential to punch a hole in the budgetary hull: the document projects a zero percent cost of living adjustment (COLA) for Food Stamps through 2019.

To understand just what this means, it’s necessary to step back for a moment. According to the U.S. Department of Agriculture (USDA), food stamp usage is remarkably widespread and growing. Thirty-six million Americans, including one out of every four children, are currently on Food Stamps. An estimated monthly Food Stamp benefit for a family of four is $321 (approximately 89 cents per person per meal), which already falls significantly short of what the USDA considers a “thrifty” family's grocery receipts, estimated at roughly $513 per month.

If the COLA for food stamps is frozen over the next eight years, NPP analysts project a 19% erosion in the buying power of those stamps due to inflation. This means that, by the end of 2019, a similar family of four, eating at exactly the same level, would be paying $611 a month for its food, or $100 more, while still receiving that same $321.

In other words, if the 2011 budget and its projections proceed as planned, a great many Americans will be hungrier and still jobless in a harsher, meaner world, while what budgetary savings are achieved on the backs of the poorest Americans will be gobbled up by wars, weapons, and other “security” needs. Ordinary Americans will largely be left in a sink or swim world and the waters will be very, very cold.

Tell the radio operator. It’s none too soon. Start sending out the signals. SOS… SOS… SOS…



Jo Comerford is the executive director of the National Priorities Project. Previously, she served as director of programs at the Food Bank of Western Massachusetts and directed the American Friends Service Committee's justice and peace-related community organizing efforts in western Massachusetts.

[Demeter]

67. The Bosses Tighten Down

http://dilbert.com/dyn_file/str_strip/83825/gif/strip.print/

[Demeter]

68. Dodge Taxes Legally... Become Treasury Secretary

http://dailyreckoning.com/dodge-taxes-legally-become-treasury-secretary/

If you don't want to pay capital gains taxes, work for the President...or have lots and lots of kids.

In the biggest stock sale of his life, former Treasury Secretary Hank Paulson didn't pay one dollar of capital gains tax. Nearly $500 million worth of Goldman Sachs shares - a profit of hundreds of millions of dollars - and not a red cent went to the IRS. Paulson's Treasury predecessors Robert Rubin and Paul O'Neil enjoyed a similar tax dodge themselves...as did many other familiar Washingtonians over the last 20 years, like Donald Rumsfeld and Donald Evans.

You could enjoy the shade of this shelter too. All it takes is the President's blessing.

President George H. W. Bush is the originator of this refuge for the political elite. His Ethics and Reform Act of 1989 - ironically - was a soft-core crackdown on abuse of privilege in government...no more honoraria for federal employees (except Senators, of course), post- employment restrictions on Congressmen, increased financial disclosure and so on. But the Act also introduced Section 1043 of the Internal Revenue Code, a tax shelter available to those that need it the least.

Under the guise of not wanting to "discourage able citizens from entering public service," Section 1043 is an alteration of the government's conflict of interest rules. Before 1043, executive appointees (mostly high-up cabinet members and judges) had to sell positions in certain companies to combat conflict of interest - like say, a former Goldman Sachs CEO-turned Treasury Secretary with millions of GS shares. After Sec. 1043, the appointee gets a one-time rollover. Upon their appointment, he or she can transfer their shares to a blind trust, a broad market fund or into treasury bonds. They'll have to pay taxes on the position one day, but not immediately after the sale... like the rest of us.

So if you were Hank Paulson, sitting on 3.23 million shares of Goldman Sachs in 2006, the chance to defer tens of millions of dollars of taxes was a pretty sweet deal. Paulson, along with almost every executive appointee (and their spouses and kids!), have been granted a tax shelter that is totally unattainable for the everyday investor. Section 1043 goes beyond leveling the playing field for public servants. In fact, it incentivizes service. It puts appointed officials on a higher playing field than their constituents.

Many investors will, if they haven't already, experience a moment where they're desperate for a free pass out of one investment and into another. Imagine getting willed a million shares of Enron in 1999, or being on the verge of retirement in 2007. Your editor had shares of PNC passed down in his family for decades... Dad took a notable tax hit when he sold before the credit crisis. Too bad he wasn't Secretary of the Treasury. He could have rolled those shares of PNC into a money market fund - largely what Hank Paulson did - and enjoyed income on subsequent gains BEFORE being taxed on the original investment.

(All of this underscores the oddity of the US capital gains tax. It's not a tax on gains, but a tax on transactions. What does an investor truly "gain" from moving out of one position and into another? The capital gains tax should only be exacted when an investor truly cashes out of a position. Otherwise, it's tax on changing your mind. It's a tax on diversification and rebalancing. In other words, the government is giving you incentive to "buy and hold," a principle that has been just terrific for American mainstay stocks like GM, Bank of America or General Electric.)

So what's a humble investor to do?

If you really feel like wasting your time, write your Congressman. Otherwise, maximize the potential of our absurdly complicated tax code. It's damn hard, if not illegal, to get a pass on capital gains tax the way Hank Paulson did. But you can take the edge off.

One of the most popular - and legal - ways is giving appreciated stock to your child. Each child can get a "gift" of up to $13,000 a year from each parent, tax free. Unless you've got a very entrepreneurial kid, he or she is probably in the lowest tax bracket. So you can give them the stock and they can sell it at a much lower tax rate.

There are other, more complicated ways, too - some of which involve forming corporations or trusts. Charitable remainder trusts, for example, produce tax benefits, while also providing funds for charitable endeavors. Of course the money won't belong to you anymore, but at least you would have the chance to finance the charities of your choosing, rather than the pork-barrel projects of the government's choosing.

Either way, don't just sit back and assume that paying the full tax is the fair consequence of investment success. You're in this mess to make money for you and the people you care about. Hank Paulson and his executive branch buddies found a shortcut - so should you.

My understanding of American tax law is far from comprehensive. Think of it like skydiving... I'm comfortable explaining the basics, but you wouldn't want me packing your parachute. If you want to minimize your capital gains taxes, find a good accountant.

[Demeter]

70. Arrest Warrant Issued For JPMorgan Chase CEO Jamie Dimon

http://consumerist.com/2010/03/arrest-warrant-issued-for-jpmorgan-chase-ceo-jamie-dimon.html

Last week, JP Morgan Chase CEO Jamie Dimon was a wanted man in the city of Atlanta. The city solicitor issued a warrant for his arrest.

Turns out there was a vacant property in the city where thousands of tires were being dumped illegally. After an investigation, the city determined that Chase has "an ownership interest" in the property.

Then, nobody from Chase showed up in municipal court the week prior to respond to the illegal dumping charges. So Atlanta figured out a really great way of getting attention and city solicitor Raines Carter put out the warrant for the CEO of the superbank.

"We have filed a citation against this entity and it is our intention to prosecute this entity in court for that violation," Carter told CBS Atlanta. "It is certainly our intention for to be aware of this because we want something done about this as soon as possible."

JP Morgan Chase ended up getting the warranted revoked and says that the property title shows that they don't own the property. Atlanta, however, says that the company is not off the hook.

"We have a very serious code violation down here," Carter told the NY Post.

[Demeter]

71. Where Will You Run To, Sinner Man?

http://www.youtube.com/watch?v=H6_BWNzThJY

[Po_d Mainiac]

92. Holy shit, JPM really does have junk on their books!! n/t

[Demeter]

74. Complexity is the handmaiden of deception By Edward Harrison

http://www.nakedcapitalism.com/2010/03/complexity-is-the-handmaiden-of-deception.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

See article at link--it's long, it's graphic, and it's worth it!

[bread_and_roses]

78. "Like Bush, Obama Moves to Bury Bad Economic Data"

This has probably already been posted sometime at SMW, but I am catching up, so just in case:

http://openleft.com/diary/17665/like-bush-obama-moves-to-bury-bad-economic-data

David Sirota :: Like Bush, Obama Moves to Bury Bad Economic Data

U.S. Drops Report On Mass Layoffs;
Data Helped States Track Patterns of Industrial Demise

By Kirstin Downey
Washington Post Staff Writer
January 2, 2003

Citing a shortage of money, the Bureau of Labor Statistics will stop publishing information about factory closings across the country, a decision that some state officials and labor leaders are protesting.

The monthly Labor Department analysis, known as the Mass Layoffs Statistics report, detailed where workplaces with more than 50 employees closed and what kinds of workers were affected.

Luckily, because of progressive pressure and public outcry, this Bush move was overturned by Congress. But now, the same kind of thing is back. According to today's Washington Post, it looks like the Obama administration is reprising the same scheme:

Obama administration plans to close International Labor Comparisons office

By Alec MacGillis
Wednesday, March 3, 2010

Like a scorekeeper for the world, a tiny unit within the Bureau of Labor Statistics tracks globalization's winners and losers, and the results are not always pretty for the United States. Manufacturing jobs here, for example, have fallen faster since 1979 than in Canada, Germany or Japan. Compensation for those jobs dropped here in 2008 but jumped in South Korea and Australia. Soon, however, Americans may be spared the demoralization in these numbers: The White House wants to shutter the unit that produces them.

In his State of the Union address, of course, Obama called for a massive expansion of the NAFTA trade model into Colombia, South Korea and Panama. So you can bet this announcement by the White House is no accident - it's preemptive.

Apparently, no matter which party is in power, when bad news hits, the response is bury the news - don't address the actual problem.

Unbelievable, except of course all too.

[Demeter]

85. I Love the Harmony

http://www.youtube.com/watch?v=lk5_OSsawz4

[Demeter]

79. Fed Vice-Chairman Kohn to Retire (A Scathing Analysis of the Event and the Result)

http://jessescrossroadscafe.blogspot.com/2010/03/fed-vice-chairman-kohn-to-retire.html

I do not think this is anything like a 'principled resignation' from the Fed which we had seen when Larry Meyer and Jerry Jordan resigned. Meyer was a noted inflation hawk, and Jordan was probably the closest thing to an Austrian economist at the Fed. These resignations occurred in 2002, just before Greenspan began to spear-head the monetary reflation that led to the housing bubble and this latest financial crisis.

After all, Don Kohn has been at the Fed since 1970, although he only joined the Board of Governors in 2002. He is certainly in line for retirement.

As you may recall, Mr. Jordan has occasionally raised his voice in outrage at some of the dicier Fed dealings since then, such as the trading in Goldman stock by the Chairman of the NY Fed, Turbo Timmy's boss, while they were in the process of providing them billions of dollars in public assistance.

By October 26, 2009, Mr. Friedman’s paper profits on the shady trade were $5.4 million, reported Bloomberg News. “It’s an outrage,” said Jerry Jordan, former president of the Cleveland Fed. “He needed to either resign from the Fed board or from Goldman and proceed to sell his stock.” Bloomberg News comments: “suspicions that the fix was in for Goldman Sachs have been fanned by the firm’s political connections.”Wall Street Bailout: History's Largest Theft? - Oct. 28, 2009

Don Kohn has always struck me as more of a 'company man,' coming from the Alan Blinder school of Public Service:

"The last duty of a central banker is to tell the truth to the public."

He tended to pander to Wall Street, and was among the first to attempt to try and take moral hazard off the table as a consideration in bailing out the big banks. Citizen Kohn

It will be interesting to see what kind of a truthteller Mr. Obama will nominate to take his place. Christina Romer's name has been mentioned. Janet Yellen is being groomed for something. With Kohn's departure, Ben remains the only macro-economist, with the remainder of the Governors from the banking profession. This certainly seems to disqualify Mr. Geithner, who is neither economist nor commercial banker, but a kind of bureaucrat.

If it is Timmy, I may not be able to hold down solid food for a few days. I wonder if Larry Summers would take second place. If so, watch your back Ben. If not any of them, then a Chicago crony would be likely. Rahm? Yikes!

A more obscure economist perhaps? Obama is said to be looking for an inflation 'dove.' Brad DeLong has previously stated on his blog that Alan Greenspan never made a policy decision which which he disagreed. Krugman carries more weight, and is also a dove, and certainly his own man.

It is a shame that Robert Reich has no place in this Democratic Administration. He would have been a better Treasury Secretary than Timmy, but again, perhaps less pliable for the banks. My own choice for Governor at least would be a maverick like Janet Tavakoli or Yves Smith. It would be nice to have someone on the board who understands the more innovative aspects of the financial markets from a practical perspective. And of course the meetings would probably be much more interesting given their willingness and ability to ask the right questions.

And we can only wonder what new financial patent medicines wrapped in black boxes that Zimbabwe Ben may have in his cabinet of curiousities.

Reuters
Fed Vice Chairman Kohn to leave in late June
By Mark Felsenthal
March 1, 2010

WASHINGTON, March 1 (Reuters) - Federal Reserve Vice Chairman Donald Kohn, a 40-year veteran of the U.S. central bank, will step down in late June, giving President Barack Obama a chance to reshape the institution.

In a letter to Obama released on Monday, Kohn, who has served as the Fed's No. 2 since June 2006, said he will depart when his current term as vice chairman expires on June 23.

"The Federal Reserve and the country owe a tremendous debt of gratitude to Don Kohn for his invaluable contributions over 40 years of public service," Fed Chairman Ben Bernanke said in a statement.

Kohn, 67, began his career at the Kansas City Federal Reserve Bank in 1970 and rose through the ranks to become one of the more influential vice chairmen in the central bank's history.

He has served on the Fed's Board of Governors since August 2002.

His departure would leave three seats vacant on the normally seven-person Fed board in Washington, giving Obama broad latitude to shape the Fed at a time lawmakers are considering lessening its power after the most damaging financial crisis in generations.

Members of the Fed board are nominated by the president, but subject to confirmation by the U.S. Senate.

Among possible replacements, the president may be considering Christina Romer, a prominent economist who currently heads the White House Council of Economic Advisers.

Another possibility might be Fed Governor Daniel Tarullo, a lawyer and expert on banking regulation appointed by Obama, who could shepherd the bank into a greater focus on financial oversight and consumer protections. (Editing by Chizu Nomiyama)

[Demeter]

80. Citizen Kohn

http://jessescrossroadscafe.blogspot.com/2007/11/citizen-kohn.html

US equity markets just had the largest two day rally in the last four years. The trigger for this rally, besides the happy coincidence of a surfeit of hot money, lots of short sellers, and end of month motivation was an interesting speech by the Federal Reserve vice-chairman Don Kohn to the Council on Foreign Relations this morning.

As you may recall, Mr. Kohn is the second most powerful member of the board, and only he and the chairman, Mr. Bernanke, are allowed to make speeches that may signal changes in Fed policy. What you may not know is that he is also the consummate Fed long term insider:

Dr. Kohn is a veteran of the Federal Reserve System. Before becoming a member of the Board, he served on its staff as Adviser to the Board for Monetary Policy (2001-02), Secretary of the Federal Open Market Committee (1987-2002), Director of the Division of Monetary Affairs (1987-2001), and Deputy Staff Director for Monetary and Financial Policy (1983-87). He also held several positions in the Board's Division of Research and Statistics: Associate Director (1981-83), Chief of Capital Markets (1978-81), and Economist (1975-78). Dr. Kohn began his career as a Financial Economist at the Federal Reserve Bank of Kansas City (1970-75).

There is a consensus among informed observers that Vice Chair Kohn signaled, contrary to the pronouncements of several lesser Fed lights in recent days, a fresh persuasion of the Fed to cut the Fed Funds rate this December 11, because of a deterioration in the capital markets and the real economy.

Is that all there is? A likely 25 basis point cut in the target Fed funds rate in December triggers one of the most powerful rallies in US equities this decade? Is a simple 25 basis point cut good for all that?

Well, we don't think as naively and simply as all that. Its the end of month, there was about a solid two days of float on short side at daily volumes, and the Fed and Treasury have been spooning out liquidity like K Street lobbyists handing out donations during election season.

Still, this is an exceptionally powerful rally. There has been no real 'good news' excepting a tsunami of excess dollars may be coming back at us from overseas, as witnessed by Abu Dhabi doing something more useful with their dollar reserves than letting them depreciate.

No. Its got to be more than that. So we did the unlikely thing among most investors and financial pundits these days, and in addition to sound bytes and commentary from the Babel-Babes of Bubblevision, we looked for a copy of the text of Mr. Kohn's speech, and actually read it.

Here to us seems to be a somewhat overlooked portion of his speech, in terms of what commentary we have seen so far. From the text of his speech:

Moral Hazard

Central banks seek to promote financial stability while avoiding the creation of moral hazard. People should bear the consequences of their decisions about lending, borrowing, and managing their portfolios, both when those decisions turn out to be wise and when they turn out to be ill advised. At the same time, however, in my view, when the decisions do go poorly, innocent bystanders should not have to bear the cost.

In general, I think those dual objectives--promoting financial stability and avoiding the creation of moral hazard--are best reconciled by central banks' focusing on the macroeconomic objectives of price stability and maximum employment. Asset prices will eventually find levels consistent with the economy producing at its potential, consumer prices remaining stable, and interest rates reflecting productivity and thrift.

Such a strategy would not forestall the correction of asset prices that are out of line with fundamentals or prevent investors from sustaining significant losses. Losses were evident early in this decade in the case of many high-tech stocks, and they are in store for houses purchased at unsustainable prices and for mortgages made on the assumption that house prices would rise indefinitely.

To be sure, lowering interest rates to keep the economy on an even keel when adverse financial market developments occur will reduce the penalty incurred by some people who exercised poor judgment. But these people are still bearing the costs of their decisions and we should not hold the economy hostage to teach a small segment of the population a lesson."


THAT was the heart of the signal, the change in policy that Mr. Kohn was embracing on behalf of the Fed. Moral hazard is not an issue when bailing out the banks of Wall Street, for the simple reason that innocent bystanders might be harmed in the process. A noble sentiment indeed. The banks, however repugnant, depraved, and venal they might become, are just too big to fail.

"But these people are still bearing the costs of their decisions..."

What costs? We won't go into a lengthy diatribe on the huge numbers of insiders who are most assuredly NOT being hurt one little bit in this wild West sideshow of a financial market, light on regulation and long on collusion. In fact we are absolutely appalled at what Wall Street has become. And we are sure that, given a little input from some of the innocent public on the chat boards we frequent, suitable punishments for that small segment of the population which harms us can easily be devised without holding the entire economy hostage.

What Mr. Kohn seems to be proposing is that, once again, as Mr. Greenspan before him so often concluded, the risk and penalties to be sustained by malinvestment and corruption are best handled by spreading them out from the few to the many, from the insiders to the public, from those who produce nothing to the broader public, which struggles to just keep going forward as best they can, in one of the great transfers of wealth in modern history.

Won't work you say? Well, of course it won't work!

The punch line, and what so few realize, is that the bankers are not trying to fix anything. The fixes were put in place after the Crash of 1929 and the Great Depression. Fixes, such as the Glass-Steagall Act. They are just trying to prolong the games as it is, which the Wall Street banking community paid good money to get, spending hundreds of millions of dollars in lobbying money to create over the period of almost twenty years.

Frontline: The Wall Street Fix - The Long Demise of Glass-Steagall

A relatively small percentage of the population can twist and corrupt the financial system, destroying the lives of hundreds of thousands of their fellow citizens, because its profitable, and because they simply do not care about the damage they do to others. The dirty little secret is that capitalism, like any other form of social structure, requires policing, regulation, laws, and enforcement to prevent the predations of sociopaths and con men, no matter what weapons they may choose to employ.

[Demeter]

81. Text of Vice-chairman Kohn's Address to the Council on Foreign Relations Nov. 28, 2007

http://www.federalreserve.gov/newsevents/speech/kohn20071128a.htm

[Demeter]

86. WHITE PAPER: Roosevelt Institute: Make Markets Be Markets

http://makemarketsbemarkets.org/report/MakeMarketsBeMarkets.pdf

[Demeter]

88. Not till they’ve nothing left to lose? CRITIQUE OF ABOVE

http://blogs.reuters.com/rolfe-winkler/2010/03/04/not-till-theyve-nothing-left-to-lose/

Those calling for financial reform aren’t being upfront about its costs, making it impossible to achieve. This was again evident at the Roosevelt Institute’s otherwise very good conference at Time Warner Center yesterday.

First the good. The purpose of the gathering was to galvanize support for deeper reforms than lawmakers have proposed. Roosevelt’s Chief Economist Rob Johnson and his murderer’s row of thinkers — including Simon Johnson, Elizabeth Warren, Frank Partnoy, Rick Carnell, Josh Rosner and others — presented a very good white paper outlining how best to clean up the financial system. Other attendees were George Soros, Brooksley Born, Jim Chanos, Joe Stiglitz. Even Eliot Spitzer showed up.

When it comes to reform, they all argued, nibbling around the edges ain’t gonna cut it.

Banks need more capital, Fannie and Freddie need to be wound down, banks’ risky activities must be corralled, tax incentives that encourage borrowing must be done away with. Most importantly, perhaps, we need to end the cycle by which the financial system lends too much and too easily only to be bailed out by a compliant Fed when things go wrong.

Throughout there was much indignation as to why such sensible reforms haven’t been enacted. Wall Street’s lobby machine got most of the blame, the rest went to “the people” for their perceived lack of outrage. But of course people are mad, and though the lobby machine is strong, it’s not the real obstacle to reform.

We are.

We don’t really want it. More to the point, people care more about their jobs than they do about reform.

What the reforms in paragraph 4 all have in common is that they reduce the availability of debt finance. That’s smart because our chief economic problem is that we’ve too much of the stuff.

But said another way, the reforms reduce credit. Like a lot. And that means deep and prolonged recession. Crucially, it means higher unemployment.

Just for instance, try to imagine winding down Fannie and Freddie. Doing so means housing finance — all of it — goes away. The economic implications are so dire no one is even contemplating how to do it, even though all know it must be done.

Yet the most vocal supporters of financial reform, which should properly be called “lending reform,” also whine that banks and the government aren’t lending enough!

We can’t have it both ways.

Real reform means cutting lending, it means more jobs will be lost. And Americans aren’t yet willing to make that trade, no matter how mad they are about bailouts.

Today we got a new report out of CBO, which may kill the highly sensible bank tax proposed by the Obama administration with the following sentence:

The fee would probably lower the total supply of credit in the financial system to a slight degree. It would also probably slightly decrease the availability of credit for small businesses.

Despite the “slight” qualifier and comments elsewhere that the fee would help level the playing field for small banks, the loss of any credit whatsoever for “small businesses” is something Congress hasn’t been able to stomach.

——–

A reason we got substantive financial reform in the mid ’30s is that folks had nothing left to lose. Real output fell 30% peak to trough during the Great Depression.

During last year’s recession, output fell just 3%. If you compare debt levels today with those leading up to the Depression — and consider that de-leveraging is the proximate cause of the decline — we’ve much further to fall.

That’s not to suggest that reform isn’t necessary. It absolutely is. But it will cost jobs and output. The speakers at Roosevelt Institute’s conference did a disservice to their audience by not discussing these costs. Some even suggested the credit engine can magically be made to run at close to full speed even as it’s in the shop for repairs.

Luckily, Roosevelt is led by the very capable Johnson, who has no illusions about the costs of bank reform. He acknowledges that financial fixes will reduce lending and output, but speaks about the need to control the velocity of that decline.

The test of his leadership, and of Roosevelt’s relevance, will be whether they can convince America to put up with any decline at all. The last thing we want is a rerun of the Depression. A great set of banking rules came out of it, but only after the economy collapsed into a smoldering pile of rubble allowing us the freedom to start from scratch.

We want proactive, not reactive reform. But it won’t happen unless voters and Congress are convinced to prioritize it over credit creation and, yes, jobs.

[Demeter]

87. Senator Bunning’s Universe by Paul Krugman

http://www.nytimes.com/2010/03/05/opinion/05krugman.html



So the Bunning blockade is over. For days, Senator Jim Bunning of Kentucky exploited Senate rules to block a one-month extension of unemployment benefits. In the end, he gave in, although not soon enough to prevent an interruption of payments to around 100,000 workers.

But while the blockade is over, its lessons remain. Some of those lessons involve the spectacular dysfunctionality of the Senate. What I want to focus on right now, however, is the incredible gap that has opened up between the parties. Today, Democrats and Republicans live in different universes, both intellectually and morally.

Take the question of helping the unemployed in the middle of a deep slump. What Democrats believe is what textbook economics says: that when the economy is deeply depressed, extending unemployment benefits not only helps those in need, it also reduces unemployment. That’s because the economy’s problem right now is lack of sufficient demand, and cash-strapped unemployed workers are likely to spend their benefits. In fact, the Congressional Budget Office says that aid to the unemployed is one of the most effective forms of economic stimulus, as measured by jobs created per dollar of outlay.

But that’s not how Republicans see it. Here’s what Senator Jon Kyl of Arizona, the second-ranking Republican in the Senate, had to say when defending Mr. Bunning’s position (although not joining his blockade): unemployment relief “doesn’t create new jobs. In fact, if anything, continuing to pay people unemployment compensation is a disincentive for them to seek new work.”

In Mr. Kyl’s view, then, what we really need to worry about right now — with more than five unemployed workers for every job opening, and long-term unemployment at its highest level since the Great Depression — is whether we’re reducing the incentive of the unemployed to find jobs. To me, that’s a bizarre point of view — but then, I don’t live in Mr. Kyl’s universe.

And the difference between the two universes isn’t just intellectual, it’s also moral.

Bill Clinton famously told a suffering constituent, “I feel your pain.” But the thing is, he did and does — while many other politicians clearly don’t. Or perhaps it would be fairer to say that the parties feel the pain of different people.

During the debate over unemployment benefits, Senator Jeff Merkley, a Democrat of Oregon, made a plea for action on behalf of those in need. In response, Mr. Bunning blurted out an expletive. That was undignified — but not that different, in substance, from the position of leading Republicans.

Consider, in particular, the position that Mr. Kyl has taken on a proposed bill that would extend unemployment benefits and health insurance subsidies for the jobless for the rest of the year. Republicans will block that bill, said Mr. Kyl, unless they get a “path forward fairly soon” on the estate tax.

Now, the House has already passed a bill that, by exempting the assets of couples up to $7 million, would leave 99.75 percent of estates tax-free. But that doesn’t seem to be enough for Mr. Kyl; he’s willing to hold up desperately needed aid to the unemployed on behalf of the remaining 0.25 percent. That’s a very clear statement of priorities.

So, as I said, the parties now live in different universes, both intellectually and morally. We can ask how that happened; there, too, the parties live in different worlds. Republicans would say that it’s because Democrats have moved sharply left: a Republican National Committee fund-raising plan acquired by Politico suggests motivating donors by promising to “save the country from trending toward socialism.” I’d say that it’s because Republicans have moved hard to the right, furiously rejecting ideas they used to support. Indeed, the Obama health care plan strongly resembles past G.O.P. plans. But again, I don’t live in their universe.

More important, however, what are the implications of this total divergence in views?

The answer, of course, is thatbipartisanship is now a foolish dream. How can the parties agree on policy when they have utterly different visions of how the economy works, when one party feels for the unemployed, while the other weeps over affluent victims of the “death tax”?

Which brings us to the central political issue right now: health care reform. If Congress enacts reform in the next few weeks — and the odds are growing that it will — it will do so without any Republican votes. Some people will decry this, insisting that President Obama should have tried harder to gain bipartisan support. But that isn’t going to happen, on health care or anything else, for years to come.

Someday, somehow, we as a nation will once again find ourselves living on the same planet. But for now, we aren’t. And that’s just the way it is.

I DON'T KNOW, PAUL. I HAVE MY DOUBTS THAT THE MENTALLY AND MORALLY INSANE WILL CONVERGE WITH REALITY EVER.

[Demeter]

91. Hey, no one made people buy these cars! By Edward Harrison

http://www.nakedcapitalism.com/2010/03/hey-no-one-made-people-buy-these-cars.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

If you’re wondering where these ridiculous, hare-brained comments are coming from, then watch this video and listen to Rick Santelli speak about predatory lending. The only one who acquits herself in this segment is Janet Tavakoli. Bill Isaac, a former FDIC head – the guy talking about regulation as if commercial banks are already subject to strong regulatory enforcement – must be smoking something (and it’s not Lucky Strikes). This guy was a regulator?

VIDEO AT LINK



The Taibbi piece “Santelli on Predatory Lending: ‘You can’t cheat an honest man’” gets to the innuendo behind these nonsensical statements by Santelli spoofed in the comic up top. It’s statements like these – and their obvious racial and class overtones – that are ultimately going to be fatal to the Tea Party movement.

I will say this: there is certainly a kernel of truth in what Santelli says. In most cases of mortgage fraud, the borrowers and the lenders acted together. I’m talking about fraud here now – not predatory lending and consumer protection, which is what CNBC was ostensibly discussing. That is because, when it was apparent the financing could not work using full documentation, they cheated and used no docs or a teaser rate. Pain for a borrower came in not reading or understanding that the teaser rate would re-adjust to a level only affordable for someone who qualified for the full documentation loan. Remember, these loans were designed for the self-employed who had the income but not the documentation.

As far as the lender goes, there was certainly enormous pressure internally to do these deals – however fraudulent or uneconomic. My comments from December go to the mentality:

All of the business is going to Bradford and Bingley and you are getting stuffed. I guarantee you shareholders won’t like that. As an executive, you better find the holy grail of prudent but profitable lending or follow Bradford and Bingley on the road to easy money. Otherwise, you will be out of a job.

Eventually, even the prudent relax their standards too – that’s how risky behaviour drives out good when risk is rewarded.

We see this now in insider accounts from Washington Mutual. See Reckless strategies doomed WaMu from the Seattle Times and A Giant Downfall from Portfolio.com.

So, this is not about personal responsibility at all. It’s about lying aka fraud. And, unlike Bill Isaac, who believes enforcement was never a problem at commercial banks, I am still waiting for the prosecutions of mortgage fraud at banks and non-banks – which is still ongoing.

Update: I now see Felix Salmon has posted on AIG’s mortgage lending arm and how they charged blacks more for broker’s fees. Of course this was settled with a slap on the wrists. And you still think there wasn’t predatory lending?

[Demeter]

93. Santelli on Predatory Lending: ‘You can’t cheat an honest man’

http://trueslant.com/matttaibbi/2010/03/03/santelli-on-predatory-lending-you-cant-cheat-an-honest-man/

Look at about the 5-minute mark of this video — Janet Tavakoli debating Rick Santelli about predatory lending. You basically have a whole panel of CNBC goons pooh-poohing the idea that predatory lending took place, setting up the inevitable revisionist history that the 2008 crash was caused by individual homeowners borrowing beyond their means.

My favorite part of this comes roughly at the six-minute mark. Tavakoli has just deftly explained how a lot of the predatory practices worked — people with limited financial literacy were presented with long and complicated mortgage deals, and told they would have a fixed payment in perpetuity or a guaranteed re-finance, or were nailed by fraudulent appraisals. Then she mentioned the big one, the fact that investment banks then took all these mortgages and with eyes wide open securitized them and sold them off as worthy investments to suckers on the other end of the chain.

While she’s saying all this stuff, Santelli, who is one of the fathers of the Tea Party movement, is shaking his head furiously, video-scoffing at everything she’s saying. When he finally does get a chance to speak, this is what he says:

Here’s my problem with this. It takes two to tango. You can’t cheat an honest man.

You can’t cheat an honest man? What the fuck does that mean?

This whole scene sort of encapsulates what’s wrong with the Tea Party movement. The movement, and let’s admit this, has some of its roots in legitimate grievances about government waste and some not-entirely-inaccurate observations about what’s left of the American welfare state. Of course what resonates most with the suburban whites who mostly make up the Tea Party are stories about minorities and immigrants using section 8 housing, food stamps, Medicaid, TANF and other programs, with the Obama stimulus being for them a symbol of this ongoing government largess. The heat of the Tea Party movement comes from the racial frustrations that actually exist out there, in the real world outside New York and LA, as urban expansion and immigration increasingly throw white and nonwhite communities together, with white Tea Party types more and more often blowing gaskets over increased crime rates, declining school standards, and mislaid or wasted tax revenue.

That this perception that minorities are the prime or sole consumers of government entitlement programs is absurdly inaccurate — white people, for instance, are overwhelmingly the largest nonelderly recipients of Medicaid, making up 42.8% of the program’s rolls nationwide, compared to 22.2% for blacks and 27.9% for Hispanics — is beside the point. The point is that the Tea Party is built largely on this narrative of “personal responsibility,” where the central demons are unwed black and Hispanic mothers and absent black and Hispanic fathers, who are, let’s face it, not uncommon characters in the American melodrama.

Which is another subject for another time, but let’s just say this: the Tea Party movement contains a lot of people who are far more impressed by what they can see with their own eyes than with what, for instance, they read about. I’ve been to Tea Party events where global warming was dismissed by speakers who, without irony, pointed to the fact that there was snow on the ground outside. And while very few people have ever actually seen a CDO manager or a Countrywide executive, or were aware if it when they saw them, the Tea Party folks sure as hell have seen who their neighbors in foreclosure are.

The Fox/CNBC types have very cannily latched on this narrative to rewrite the history of the financial crisis. They know that Tea Partiers will go for any narrative that puts blame on poor (and especially poor minority) homeowners, because the idea of poor blacks and Hispanics borrowing beyond their means fits seamlessly with their world view. But this is a situation where poor minorities were really incidental to a much larger fraud scheme that culminated in a welfare program — the bank bailouts — that dwarfs the entire “entitlement” infrastructure. But the millions of people who are actually in the Tea Party movement seem to have absolutely no idea that their so-called leaders, the Santellis of their world, are shilling for tax cheats and crooks and welfare bums of the sort they would despise (perhaps even more than their black and Hispanic neighbors), if they could actually see them.

But thanks to people like these CNBC goons, they don’t see them, and probably won’t. The further we get from the crisis, the muddier all of this stuff is going to get.

p.s. I seem to be getting a lot of mail from Ron Paul supporters about this, claiming that I’m overlooking the early Ron Paul tea parties and suppressing his message. I actually like Ron Paul and have said nothing but nice things about him. I talk to people in his office regularly. But the Ron Paul tea parties and these post Feb-2009 Tea Parties are two different things. Certainly the current Tea Partiers see it that way. While these folks may have lifted some of the Paulian themes, they’re just physically different people. They’re mainstream Palin supporters, and the reason I find them ridiculous is because I was covering these people while the bailouts were happening and remember what was actually on their minds back then. Does anyone remember what the cause of the day was when the AIG bailout took place? It was the uproar from Palin supporters about Obama’s “lipstick on a pig” comment.

The reason I’ve always respected the Ron Paul people is that, even though I don’t always agree with them, they’re intellectually consistent and motivated by actual policy issues. These Teabagger types on the other hand are just a giant herd of video sheep being jerked around by snickering DC-New York types, who are very skillfully playing on their cultural paranoia and their economic and racial frustrations. When they were told to flip out about Obama’s “lipstick” comment, they did. When they were told to flip out about the bailouts, they did. I’m not saying that some of these people weren’t frustrated about the bailouts, to the extent that they even knew about them, before Obama got elected. But they did not coalesce into a mass movement against them until part II of the bailout was passed under Obama’s watch, and one should note also that their keynote speaker in Nashville a few weeks ago, Palin, was a bailout supporter.

The Paul people were upset about deficit spending and Fed corruption throughout and ardently opposed Bush’s policies throughout his presidency. These Teabaggers did not. They were the people inside the rope-lines at McCain and Romney and Rudy events, complaining about “those people” consuming social services money, while the Paul people with their protest placards were physically barred from coming near the events. I must have seen that dynamic a dozen times during the campaign. So to all those Paul people, I hear you. I’m not trying to say you weren’t on these issues beforehand. What I’m saying is, this new Tea Party thing, it’s different from your protests, not necessarily because the message is so different, but because of two things. One, it was inspired by major-network media figures. Two, the people at the protests are overwhelmingly different people. They’re dupes; the Paul movement is more like a real grass-roots organization.

[Demeter]

94. Dance Off with the Star Wars Stars 2008

http://www.youtube.com/watch?v=UkTQwP2gFxU

[Demeter]

96. Obama's No F.D.R. -- Nor Does He Have F.D.R.'s Majority

http://www.fivethirtyeight.com/2010/03/obamas-no-fdr-nor-does-he-have-fdrs.html

Every time I read an article like this from the Weekly Standard's Fred Barnes:

Is Obama the new FDR? The answer is no.

If Franklin Delano Roosevelt were president today <...> liberal health care reform would have been enacted already. <...>

The reason is tied to what is probably the greatest difference between FDR and Obama. Roosevelt took command of Washington. Obama hasn’t. “FDR became the father of the modern presidency by moving the Chief Executive to the center of the American political universe,” John Yoo writes in his new book on presidential power, Crisis and Command. “Roosevelt’s revolution radically shifted the balance of power among the three branches of government.” <...>

FDR seized legislative authority. The bills that Congress passed in his first 100 days and beyond were produced by the Roosevelt administration and ratified reflexively by Congress.

...I wonder why there's no mention of this:



When F.D.R. took over the Presidency in 1933, the Democrats controlled 64 percent of the Senate seats and 73 percent (!) of the House seats, counting independents who were sympathetic to the party. And those numbers only increased over the next couple of midterms -- during their peak during 1937-38, the Demorats actually controlled about 80 percent (!) of the seats in both chambers. Obama, by contrast, came into his term with 59 percent majorities in both chambers. That's not much to complain about by the standards of recent Presidencies, but is nevertheless a long way from where F.D.R. stood during his first two terms, or for that matter where L.B.J.'s numbers were during the 1965-66 period, when the bulk of the Great Society programs were implemented.

F.D.R. and L.B.J. might have been great cleanup hitters -- and you'll get no argument from me that Obama's aptitude at shepherding his agenda through Congress has been mixed, at best. But they basically spent the first several years of their Presidencies playing in the Congressional equivalent of Coors Field. Considering how dramatic the impact of the loss of just one Senate seat has been on both the perception and the reality of Obama's agenda, that needs to be kept in mind when drawing the comparison.

[Demeter]

98. Clash Over 'Too Big to Fail'

http://online.wsj.com/article/SB10001424052748704187204575101511215418730.html?mod=WSJ_latestheadlines

Panel Spars With Treasury's Allison on Bank Aid; Pandit Says Citi Healthy

There is no U.S. government guarantee to protect the largest financial firms, a Treasury Department official said, as a congressional watchdog criticized the $45 billion in government aid provided to Citigroup Inc.

Herbert Allison, who oversees the Treasury's $700 billion financial-rescue plan, disagreed with members of a congressional oversight panel that some financial firms benefit from the assumption that the government would step in to prevent their failure.

"There is no too-big-to-fail guarantee on the part of the U.S. government," Mr. Allison said.

Elizabeth Warren, who chairs the five-member Congressional Oversight Panel, said it was clear that financial markets do assume the guarantee exists, pointing to a recent ratings-company report that specifically noted the government's role in backing Citigroup.

"The market clearly perceives that there is a too-big-to-fail guarantee," Ms. Warren said. "That gives Citi an advantage in raising capital. ... That is very valuable to Citi."

Panel members locked horns with Mr. Allison over his reluctance to answer some questions, primarily regarding the health of Citigroup when the government injected capital into the bank in late 2008. Panel member Damon Silvers, pressing Mr. Allison on whether the bank was at risk of failure at the height of the financial crisis, said it was "extraordinary that it is not possible to have a straightforward conversation."

Citigroup CEO Vikram Pandit testifies that Citigroup is now sustainable and financially-sound.

SEE VIDEO AT LINK, IF YOU MUST


"I do not understand why it is that the United States government cannot admit what everyone in the world knows, which is that in that week that Citigroup was a failing institution," Mr. Silvers said.

Mr. Allison did acknowledge that many banks, including Citigroup, "were on the brink of failure had the system had not been underpinned" by government actions.

The U.S. government currently holds a $25 billion stake in Citigroup after the bank partially repaid the taxpayer assistance last year. Mr. Allison said the Treasury intends to dispose of its current investment in the bank "as rapidly" as possible over the next year. Pressed by the panel, he also said the U.S. government has no plans to invest any more money in the bank.

Citigroup Chief Executive Vikram Pandit, also appearing before the panel, said the bank owes a "large debt of gratitude" to taxpayers for aiding the firm.

"Taxpayers still hold 27% of our common stock, and we look forward to helping them make money on that investment," Mr. Pandit said.

Mr. Pandit echoed Mr. Allison, saying the bank has no plans to request more government funds. When asked whether the bank or any of its businesses are currently insolvent, he said "no." He said the company is currently "well capitalized" and would pass the government-ordered stress tests if they were run again today.

In response to panel questions, he also said that Citigroup's transaction-processing and trust business wasn't a factor in the government's rescue of the firm. The global transactions-services business helps move money around the world for big companies and governments, including the transfer of aid to foreign countries. Asked whether the unit came up during discussions when the Treasury was deciding about providing aid to the bank, Mr. Pandit said he didn't recall making such a statement to government officials.

He also embraced some of the Obama administration's top regulatory overhaul proposals, including new protections for consumers and limits on banks' ability to engage in proprietary trading.

"Banks should not be speculating with banks' capital," Mr. Pandit said, reiterating that such trading is not a big part of Citigroup's business.

On consumer protection, both Mr. Pandit and Ms. Warren separately acknowledged that many on Capitol Hill are moving away from the idea of a stand-alone agency. Mr. Pandit said the design of a new consumer protection entity "could be looked at in various ways," while Ms. Warren said the key is that a new consumer regulator can't have its decisions vetoed by other agencies.

"The question is less about geography and more about whether it is genuinely independent," said Ms. Warren. "There is no point in building a battleship that was designed to sink."

[Demeter]

99. PLAYING PETER?

And Jesus saith unto him, Verily I say unto thee, That this day, even in this night, before the cock crow twice, thou shalt deny me thrice.

[Demeter]

100. Adam Smith and the Role of Government

http://economistsview.typepad.com/economistsview/2010/03/adam-smith-and-the-role-of-government.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View+%28EconomistsView%29%29

Gavin Kennedy continues his battle to eradicate misconceptions about Adam Smith: (SEE NEXT POST FOR REFERENCE)

What Adam Smith Actually Identified as the Appropriate Roles for 18-century Governments, by Gavin Kennedy: Andrew B. Busch writes (3 March) in the CNBC Guest Blog:

...“The father of modern economics supported a limited role for government. Mark Skousen writes in "The Making of Modern Economics", Adam Smith believed that, "Government should limit its activities to administer justice, enforcing private property rights, and defending the nation against aggression." The point is that the farther a government gets away from this limited role, the more that government strays from the ideal path... How this issue is handled will decide whether the country can more closely follow Adam Smith's prescription for growth and wealth creation or move farther away from it.”

Jacob Viner addressed the laissez-faire attribution to Adam Smith in 1928...

Here is a list of appropriate activities for government, which goes way, way beyond Mark Skousen’s extremely limited – and vague – 'ideal' government. That ... he goes on to attribute his ‘ideal’ list to Adam Smith ... is not alright. In fact, its downright deceitful, for which there is no excuse of ignorance (before attributing the limited ideal to Adam Smith we assume, as scholars must, that Skousen read Wealth Of Nations and noted what Smith actually identified as the appropriate roles of government in the mid-18th century).

But even if Skousen was in a hurry and without time to check through Smith’s two-volume tome..., he, surely, was familiar with Viner’s 1928 essay...?

No? Shame.

Here is a list extracted from Wealth Of Nations:

* the Navigation Acts, blessed by Smith under the assertion that ‘defence, however, is of much more importance than opulence’ (WN464);
* Sterling marks on plate and stamps on linen and woollen cloth (WN138–9);
* enforcement of contracts by a system of justice (WN720);
* wages to be paid in money, not goods;
* regulations of paper money in banking (WN437);
* obligations to build party walls to prevent the spread of fire (WN324);
* rights of farmers to send farm produce to the best market (except ‘only in the most urgent necessity’) (WN539);
* ‘Premiums and other encouragements to advance the linen and woollen industries’ (TMS185);
* ‘Police’, or preservation of the ‘cleanliness of roads, streets, and to prevent the bad effects of corruption and putrifying substances’;
* ensuring the ‘cheapness or plenty ’ (LJ6; 331);
* patrols by town guards and fire fighters to watch for hazardous accidents (LJ331–2);
* erecting and maintaining certain public works and public institutions intended to facilitate commerce (roads, bridges, canals and harbours) (WN723);
* coinage and the mint (WN478; 1724);
* post office (WN724);
* regulation of institutions, such as company structures (joint- stock companies, co-partneries, regulated companies and so on) (WN731–58);
* temporary monopolies, including copyright and patents, of fixed duration (WN754);
* education of youth (‘village schools’, curriculum design and so on) (WN758–89);
* education of people of all ages (tythes or land tax) (WN788);
* encouragement of ‘the frequency and gaiety of publick diversions’(WN796);
* the prevention of ‘leprosy or any other loathsome and offensive disease’ from spreading among the population (WN787–88);
* encouragement of martial exercises (WN786);
* registration of mortgages for land, houses and boats over two tons (WN861, 863);
* government restrictions on interest for borrowing (usury laws) to overcome investor ‘stupidity’ (WN356–7);
* laws against banks issuing low-denomination promissory notes (WN324);
* natural liberty may be breached if individuals ‘endanger the security of the whole society’ (WN324);
* limiting ‘free exportation of corn’ only ‘in cases of the most urgent necessity’ (‘dearth’ turning into ‘famine’) (WN539); and
* moderate export taxes on wool exports for government revenue (WN879).

"Viner concluded, unsurprisingly, that ‘Adam Smith was not a doctrinaire advocate of laissez-faire’.

That needed to write this 150 years after Wealth of Nations to remind 20th-century readers conclusively that it contained detailed and specific evidence of advocacy of breaches of laissez-faire, popularly attributed to him, suggests that a substantial drift away from important elements of Smith’s legacy had taken place among early-20th-century economists.

How could Smith be so closely linked with laissez-faire policies when he so clearly and explicitly was not?” ...

[Demeter]

101. Adam Smith's Lost Legacy

http://adamsmithslostlegacy.com/2010/03/what-adam-smith-actually-identified-as.html

[Demeter]

102. Guest Post: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism

http://jessescrossroadscafe.blogspot.com/2010/03/guest-post-econned-book-review.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29


"...exposes the mechanism by which one market operator set out to profit from the credit boom, and even more, from the bust...it’s an eye-popping story of vandalism-for-profit."


Richard Smith, a London-based capital markets information technology manager, was kind enough to provide an advance copy of his review for the book ECONned: How Unenlightened Self Interest Undermined Democracy and Corrupted Capitalism by Yves Smith, the author of the well-known financial blog Naked Capitalism.

Mr. Smith (real name, and no relation to Yves) helped in the proofing of the copy and fact searches, so he was already well familiar with the text. Perhaps this makes him a not entirely dispassionate source, given the regard that even copy editors can obtain for their associated works. But I thought it was a very nice summary of many of the salient points, and that you would enjoy having the opportunity to read it.

I intend to read the book in order to both learn something, and to be entertained as well. I love reading accounts of this period of time that are both authoritative and well-written, and understandable by the non-expert. Given the author's performance on her blog, and her detailed industry knowledge and experience, it looks to be a 'must read' for those following the financial crisis and its associated developments.

Reading ECONned
By Richard Smith

The Financial Crisis of 2007-2009 (no-one’s settled on a name yet; we are still too close to the action, and that end date might still need some discreet pushes to the right) has naturally set off a book publishing frenzy. With the first wave of instant histories now spent (the startlingly fast-out-of-the-blocks chronicle “Bailout Nation”, the elephantine “Too Big To Fail” etc, etc), we are now getting a second wave of books, whose authors have had time to dig deeper and reflect more on how we got into this mess. Yves Smith’s offering is the first integrated account of the root causes of the financial crisis, and a compelling one.

For Smith, it turns out to be a matter of bad economic theory, self-serving ideology, and, under cover, plain old rapacity. The author gives us a brisk historical sweep through what sounds like deeply unpromising, but, as it turns out, surprisingly engaging terrain: post- war economic theory, the evolution of the financial services industry and its regulation since the 1970s, modern financial instruments, and the Crisis itself. It’s been a long time a-comin’, this Crisis. It all culminates in a whodunit account of the mechanisms that brought the crisis to its acute phase; an account that respects the complexities, yet grips like a vice. But first of all, it’s about the way a single phrase, “free markets”, was turned into a justification for profoundly destructive behaviour.

Yves Smith (got it yet?) points out that there was always more to Adam Smith’s account of the free market than its modern reduction allows:

“Smith also pointed out that self-interested actions frequently led to injustice or even ruin. He fiercely criticized both how employers colluded with each other to keep wages low, as well as the “savage injustice” that European mercantilist interests had “commit with impunity” in colonies in Asia and the Americas.”

Yves shows us that little has changed since Adam’s day (last chance!). Running through the book, we will find ever more glaring contrasts between the official slogans: “invisible hand”, “free market” and so on, and what is really going on: scams, rip-offs, increasingly brazen looting. This is sanctioned, in an unwelcome display of bipartisanship, by intellectually bankrupt and venal politicians of all hues.

Chapter 1 is a sort of prelude, a first salvo at officially sanctioned economic theory, highlighting the absurd complacency of mainstream economists’ happy talk in the run up to the Crisis, pointing to just a few of the not insignificant number of people who saw the train coming down the tracks; and giving the lie, of course, to all those claims that its arrival was unpredictable. Officialdom does not get off lightly either: deserved prominence is given to some worthless good cheer emanating circa 2006 from the glossy but clueless Timothy Geithner, then Chairman of the New York Fed, and now, God help us all, US Treasury Secretary. As British Prime Minister Disraeli remarked of another talentless office-holder from an earlier era, “If a traveller were informed that such a man was the leader of the House of Commons, he might begin to comprehend how the Egyptians worshipped an insect.”

Next we are into the meat of the economic theory (Chapters 2-4). Smith briskly takes a sledgehammer to any number of plaster saints cluttering up the edifice of modern economics:

“assumptions that are patently ridiculous: that individuals are rational and utility-maximizing (which has become such a slippery notion as to be meaningless), that buyers and sellers have perfect information, that there are no transaction costs, that capital flows freely”

And then…papers with cooked figures, economists oblivious to speculative factors driving oil prices, travesty versions of Keynes’s ideas that airbrush out its most characteristic features in the name of mathematical tractability.

And then…any number of grand-sounding theoretical constructs: the Arrow-Debreu theorem, the Dynamic Stochastic General Equilibrium model, the Black-Scholes option model, Value at Risk, CAPM, the Gaussian copula, that only work under blatantly unrealistic assumptions that go by high falutin’ names – equilibrium, ergodicity, and so on.

The outcome of this pseudo-scientific botching is an imposing corpus of pretentious quackery that somehow elevates unregulated “free markets” into the sole mechanism for distribution of the spoils of economic activity. We are supposed to believe that by some alchemical process, maximum indulgence of human greed results in maximum prosperity for all. That’s unfair to alchemy: compared with the threadbare scientific underpinnings of this economic dogma, alchemy is a model of rigor. One skeptical insider:

“The result of all this is that we now understand almost less of how actual markets work than did Adam Smith…”

The disdain for actually checking the predictions is disastrous. One skeptic quoted by Smith:

“even though every organ of 1960’s-era orthodoxy is mortally wounded, the entire body strides vigorously forward. That is a prime reason why, despite the labors of so many clever and right-thinking economic theorists, we are in this mess.”

Smith’s coup de grace is the human factor, something else from which economists mostly avert their eyes:

“If people will be foolish, lazy, or cheat, the certainty, the scientific mantle is nothing but the emperor’s new clothes.”

Hitch the spurious certainty that the “free market” defined in its most extreme form knows best, first to the neo-liberal creed (Chapter 4), and then to policy recommendations (this cozying up of economists and politicians is covered in Chapter 5), and you have a prescription for officially sanctioned thievery on an epic scale.

And lo, that is exactly what happened. If Chapters 1 to 5 give us the theory, 6 to 9 give us the practice.

If for some reason you thought the Crisis was anything brand new, Smith has some vivid older examples of the folly, laziness and cheating of modern financial markets. Unfortunately the long-term lessons to be learned from these episodes seem to have accrued to investment banks – they cover their tracks a little better, these days; and they know that the more you stick to unregulated business, the less likely it is that you will have to answer charges in court.

Of course, the failure to rein in abuses years ago set the stage for the Crisis. Over at Morgan Stanley in 1994 they were busy stitching up Mexican banks with swaps that would blow up in the banks’ faces if the peso declined 20%. Smith quotes Partnoy’s account:

“The banks were already at their legal borrowing limits, but the Cetes swaps permitted them to evade these rules by entering into deals that were the economic equivalent but did not have to be disclosed to regulators or the public at large…Once the banks were bloated and could not eat another bite, it would be easy to bat them down. Then, at the appropriate moment one little nudge would cause the entire obese Mexican banking system to topple like Humpty Dumpty.”

The swaps duly blew up and crippled the banks. There was nothing “illegal” about any of this. It is of course instructive to contrast the pious predictions of the rickety theoretical framework delineated in Chapters 1-5 with the dreary reality of this Mexico episode. Oh, and draw a parallel between the modus operandi of MS in 1994 and the current Greek debt crisis, with particular attention to the role of Goldman Sachs. There is nothing new under the sun.

In the balance of Chapter 6, Smith sets out the relationship between deregulation, structural change in the financial services industry, and an accelerating trend towards MS-style predatory behaviour. By 2000 or so, we are in our modern world: investment banking partnerships, relationship banking, and Glass-Steagall are out; publicly quoted investment banks, one-off deal-driven business, and combined commercial banking and investment banking are in; and the unregulated OTC markets are growing ever larger.

Unfortunately, as Chapter 7 shows us, this new structure has one huge perverse incentive built into it, encapsulated here in a paper of Akerlof and Schiller from 1994:

“Bankruptcy for profit will occur if poor accounting, lax regulation, or low penalties for abuse give owners an incentive to pay themselves more than their firms are worth and then default on their debt obligations.”

This is “looting”. Survey the wreckage of Bear Stearns, Lehman, Fannie and Freddie, AIG, and the large-scale taxpayer support still flowing into the near wrecks of BoA/ML and Citigroup. Then consider the massive level of bonus payments to the management and employees of those firms prior to their demise. That was looting. And in early 2010, of course, with the support of the taxpayer more or less formalized for large firms, the surviving firms have the opportunity to carry out still more looting. And as they have witnessed, as a strategy, it works really well, for them. Expect more looting.

Preparing the grand finale of Chapter 9, Chapter 8 moves another piece of the puzzle into place; that piece is asset booms, and the risk it leads to. The mechanism is simple enough – secured lending against assets that have had a speculative price boom looks like great business, to the simple-minded, while prices are on the way up – more and more credit is available, which funds more and more asset purchases. But of course there is an inevitable day of reckoning when an asset price bust, triggered by some shock or other, exposes the no-longer-secured debts. Well we all know that, from countless historical examples. As you might also expect by now, traditional neoclassical economics has nothing whatever to say about such lethal feedback loops. The boom was boosted, Smith suggests, by international capital flows (still controversial, that) and by the notorious Greenspan Put (pretty much conventional wisdom now, judging by the destination of the recent Dynamite Prize award).

And now we are ready for Chapter 9, where all the malign forces described in the rest of the book converge into one mighty foul-up. Exhibit One is the Shadow Banking System, whose components are: securitization, whereby loans turn into assets; repos, whereby assets are used as security for loans (note that we are now into the dangerous territory sketched out in Chapter 8); and finally, Credit Default Swaps, which guarantee the quality of the loans underlying the assets, and thus the resilience of the repo market; and everything in the garden is lovely. There are still other elements of the shadow banking system: the notorious conduits (a zoo of abbreviations: SPEs, OBS vehicles, SIVs, CDOs); the money market funds. These are all just thinly capitalized banks, totally dependent on capital markets to fund their activities.

But it’s really the description of mid-Noughties repo that made the light bulbs go on for me. Via the repo market, real banks came to resemble shadow banks, more and more; and their fortunes became intertwined; which was very dangerous. In the good old days, repos were a respectable mechanism for managing liquidity by securing lending against high class assets – Treasuries; the highest quality assets of all. But various new myths meant that there was a ready way to satisfy the massive demand for short term funding driven by the rise of hedge funds and OTC derivative trading during the Noughties.

Myth 1: the false security of the Credit Default Swap, which simply substituted the creditworthiness of the swap seller for the creditworthiness of the debt issuer; myth 2: the credit rating bought from agencies by the debt peddlers; myth 3: the “haircut”, propagated by the Basel II regulations, by which all manner of securities could be deemed suitable collateral for repos, subject only to a finger in the air discount, the ‘haircut’.

The BIS (originators of Basel II) cleared its throat discreetly in 2001, warning that a collateral shortage would cause

“appreciable substitution into collateral having relatively higher issuer and liquidity risk.”

…but no-one was listening. Estimates are hard to come by, but the claim that the Shadow Banking System was just as big as the regulated one by 2006 seems plausible: that’s $10 Trillion in old fashioned deposit based banking and the same again in Shadow Banking. But note: you would have to put pretty wide error bars on that number; the whole Shadow Banking System was unregulated, quite invisible to outsiders.

Its fragile structure did catch the eye of the looters, though. Chapter 9 exposes the mechanism by which one market operator set out to profit from the credit boom, and even more, from the bust. I’m afraid you will have to buy your own copy of the book to get the full details. Suffice it to say that it’s an eye-popping story of vandalism-for-profit, with elements wholly familiar from earlier chapters: it’s the Mexico story and others, all over again; but lots bigger. The lazy or hurried may prefer Appendix 2 as a short form summary, but it’s worth reading Chapter 9 to get the full flavour.

It is illuminating indeed to see the events of September ’08 and after as a near-cataclysmic run not so much on traditional banks as on the shadow banking system, as the Credit Default Swaps turned out to have been written by companies that couldn’t honor their promises, the loans turned out to be of dreadful quality, panicked investors pulled their money from the repo market, and there was a monstrous loss of liquid funding, with the undercapitalization of the banks hideously exposed.

Repo is at the very core of the near-collapse of the financial system. It is very striking that there have been few efforts to reregulate repo – of course, the low quality repo market packed up altogether during the crash, so maybe it’s completely invisible again to those bind and amnesiac powers that be. Partly, this sudden disappearance was the result of a buyers’ strike (still seemingly in force at the end of February 2010 – “fool me once”, they must be thinking out there); partly, though, the result of the Fed’s frantic efforts to plug the huge funding gap that had suddenly (and one suspects wholly unexpectedly) appeared. Yes, well, that’s the sort of nasty surprise you get when you don’t exercise oversight. Will the whole precarious mechanism all come back again when the Fed’s programs are finally terminated and the yield curve slope is no longer such an obliging source of riskless profit? One hopes not, but fears it will be so.

We know the immediate consequences of the Crisis; by the miracle of doublethink, the most vocal free market advocates suddenly endorsed epic government intervention, in the name of…ahem…free markets. After the nerve tingling highlights of Chapter 9, the most sobering part of the book is Chapter 10, in which the dismal prospects for reform are discussed. Yves had this part written up, as I recall, by September of last year. With the bonus mill now in full swing again, significant actors in the run-up to the catastrophe still firmly ensconced, bank lobbyists all over Congress, and timid reform proposals further diluted or derailed, it is pretty hard to demur from the author’s prescient gloom of six months ago.

For those with a little fire in their bellies, ECONned ought to be a trigger for whatever form of protest is countenanced by their politics. Go on, have a read: and then, do what you can to help put a stop to some very dangerous nonsense, before it’s too late.

Disclosure: The reviewer was a collaborator of the author; he’s read successive versions of some chapters half a dozen times in the last six months, and is not only alive to tell the tale, but remarkably, continued to enjoy perusing the successively tweaked versions. So, be advised – this may not be an entirely impartial review.

[Demeter]

103. What happened to the global economy and what we can do about it Toxic Finance By James Kwak

The Baseline Scenario

http://baselinescenario.com/2010/03/04/toxic-finance/

The first generation of financial crisis books was largely blow-by-blow, behind-the-scenes accounts, like David Wessel’s In Fed We Trust and Andrew Ross Sorkin’s Too Big to Fail — long on characters, events, and dramatic suspense (or at least as much dramatic suspense as you can have when writing about something that unfolded on the front pages of the newspaper), but relatively short on analysis. There were also more analytical books, like Justin Fox’s The Myth of the Rational Market and John Cassidy’s How Markets Fail, which seem like books about free market economics that later turned out to be about the crisis. But one thing this crop had in common is that, for the most part, they ended with the near-collapse of the financial system.

The current generation of books is not just about the crisis and what caused it, but also about the response to the crisis, and what went wrong — that is, why the large banks are bigger, more powerful, and more concentrated than ever before and why the unemployment rate is still languishing around 10%. Joseph Stiglitz’s Freefall (which I haven’t finished reading) falls into this category, focusing more on the governmental responses of 2008-2009 than on the causes of the crisis. So does Yves Smith’s ECONned, which just came out this week. (I have the early version that the publisher sent to Simon a while back.)

Unsurprisingly for readers of naked capitalism, ECONned stands out for its treatment of the complex securities and especially the trading strategies that helped inflate the bubble and exacerbate the crisis. I’ve been reading about this stuff for a long time now, and there was still a lot I learned, particularly from Chapter 9, “The Heart of Darkness,” which describes how trading in CDOs built out of mortgage-backed securities drove mortgage lending, and not the other way around. In the conventional account, unscrupulous lenders and investment banks were the creators of those toxic assets; in Smith’s account, at the peak in 2006, it was traders who were shorting the housing market who provided the equity that funded all those subprime mortgages.

But there’s another point that Smith makes that I found particularly memorable. She tells the fictional story of XCrop, a new, bioengineered food that is nutritionally complete and cheap to produce — a solution to malnutrition and obesity all in one. But twenty years after becoming popular, and after having become the mainstay of the food system (replacing today’s current staples), XCrop is found to have serious harmful effects on human health. Shifting back to today’s foods would be healthier, but it would be difficult and expensive.

Recent financial technology, Smith says, is like XCrop. The point she is making is that our policy objective should not be to get us back to the good old days of cheap mortgages and widespread securitization as quickly as possible so we can return to the outsized consumption of the past decade. We need to have a healthier financial system, and to get there we have to give up the wonder food that turned out to be so harmful to the economy. Instead, however, Smith argues that much of the government has been captured by the financial services industry — the inventors and manufacturers of XCrop. And so, at the end of the day, and despite the central role that free market economic orthodoxy played in producing the crisis, the problem we face is ultimately one of politics.

[Demeter]

104. China’s Wen May Struggle to Meet 3% Inflation Target (Update1)

http://www.bloomberg.com/apps/news?pid=20601087&sid=atFu3r9TjhQY&pos=2

Premier Wen Jiabao may struggle to keep inflation at his 2010 target of about 3 percent, after banks flooded the Chinese financial system with money to drive the nation’s economic rebound.

Inflation may peak at 4.4 percent during the year, according to the median forecast of 14 economists surveyed after Wen gave the goal in a speech to lawmakers in Beijing yesterday.

“Three percent is a fairly aggressive target and it suggests that the government will need interest-rate increases and price controls to achieve it,” said Ma Jun, a Hong Kong- based chief China economist at Deutsche Bank AG.

China will need to raise benchmark interest rates as early as this month to curb inflation expectations and prevent the interest on bank deposits being outstripped by price gains, according to Standard Chartered Bank. Wen pledged to counter property speculation and “keep price levels stable” as he affirmed a moderately loose monetary policy in his annual report to lawmakers yesterday.

The full-year inflation rate may be 3.4 percent, the survey of economists showed. Price pressures include higher commodity costs, resource-price reforms, and the spillover from last year’s rapid credit growth, the National Development and Reform Commission said in a report to the National People’s Congress yesterday.

‘Dynamic Adjustment’

A reporter at a press briefing in Beijing today asked central bank Governor Zhou Xiaochuan what tightening measures would be used to meet the inflation target. Zhou said it was very difficult to forecast economic indicators at the start of the year and monetary policies would need “dynamic adjustment.”

“Premier Wen’s report has also specially stressed the need to keep policy flexible,” Zhou said. The central banker also said China needed to be “very cautious” in timing its exit from special policies, including for the yuan, adopted to counter the financial crisis. The Chinese currency has been effectively pegged to the dollar since July 2008.

The People’s Bank of China has twice this year raised lenders’ reserve requirements, draining cash out of the financial system to reduce the risk that the world’s fastest- growing major economy will overheat.

Wen warned yesterday of excessive property-price gains and “latent risk” in China’s banks after a record 9.59 trillion yuan ($1.4 trillion) of lending last year. His speech was similar to a U.S. State of the Union address.

Fiscal Stimulus

The premier indicated no roll-back in the fiscal stimulus that spurred a rebound, targeting a budget deficit of 1.05 trillion yuan, or 2.8 percent of gross domestic product, to help sustain economic recovery. The ratio is similar to last year’s, according to the Ministry of Finance, with the projected deficit including 200 billion yuan of local-government bonds.

“The domestic economy still faces some prominent problems,” including excess capacity in manufacturing and weak support for rural-income growth, and the global recovery is still fragile, Wen said. The government “must not interpret the economic turnaround as a fundamental improvement in the economic situation,” he added.

China’s growth quickened to 10.7 percent in the fourth quarter, the fastest pace since 2007. The premier affirmed a target of 8 percent growth for 2010, the same goal that the government has set and surpassed in each of the past five years, and a “basically stable” currency.

Growth Model

To sustain long-term growth, China is trying to rebalance the economy toward consumption and away from investment and infrastructure spending. As part of that drive, the government pledged yesterday to raise health and social-security outlays by more than 8 percent in 2010 and expand pensions. Transportation spending will be cut 2.7 percent.

Wen affirmed a target of reducing new loans by 22 percent to 7.5 trillion yuan this year after property prices climbed the most in 21 months in January.

Executives from Industrial & Commercial Bank of China Ltd., the world’s largest lender by market value, and Bank of China Ltd., told reporters at the congress yesterday that they will slow lending this year. In January, new loans were more than in the previous three months combined, fueling concern that the government may have difficulty reining in credit.

‘Decisive’ Action

Su Ning, a deputy central bank governor, yesterday promised “decisive” action to ensure the loan target is met. The bank has asked lenders to set aside more money as reserves twice this year, while keeping benchmark interest rates unchanged since Dec. 2007. The key one-year lending rate is 5.31 percent, while the deposit rate is 2.25 percent.

Consumer prices may have climbed 2.5 percent in February from a year earlier, according to the median forecast in a Bloomberg News survey of 29 economists. The figure, which may have been distorted by the Chinese Lunar New Year holiday, is due to be announced on March 11.

The Shanghai Composite Index closed 0.3 percent higher yesterday, after a decline of about 13 percent from last year’s August high on concern that monetary tightening will slow growth and cut profits.

Wen’s report contained “very small steps toward a structural adjustment of the economy towards greater consumption,” said Glenn Maguire, chief Asia-Pacific economist at Societe Generale SA in Hong Kong.

[Demeter]

105. William White Chairman of the Economic and Development Review Committee of the OECD, Paris

http://www.24framesdigital.com/rbi/webcast/120210/session3/william_white.html

VIDEO SPEECH

[Demeter]

107. Nothing Like John Williams to Get the Blood and Body Moving!

The brass, the percussion, the soaring phrases, the rising pitch, the whole ball of wax! Hope you are enjoying it as much as I am.

This thread is getting long. When I return, I will open up a new thread and link back. But in the meanwhile....


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

http://www.youtube.com/watch?v=oY3aljAO7qU

[Demeter]

111. The Weekend Continues--Follow the Link!

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x522638