Weekend Economists Spring into the IMF March 19-21, 2010

[Demeter]

Well, tclambert was absolutely correct. This weekend we pay homage to the Impossible Missions Force, that Other IMF, a creation of Bruce Geller that aired on CBS for 7 seasons: 1966-1973. As Wiki tells us:

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

"...It chronicled the missions of a team of secret American government agents known as the Impossible Missions Force (IMF). The leader of the team was Jim Phelps, played by Peter Graves, except in the first season, during which the leader was Dan Briggs, played by Steven Hill.

A hallmark of the series shows Phelps receiving his instructions on a tape that then self destructs, accompanied by the theme music composed by Lalo Schifrin, which is widely considered to be one of the most iconic television themes.

The series aired on the CBS network from September 1966 to March 1973. It returned to television, as a revival, for two seasons on ABC, from 1988 to 1990 and later inspired a popular trio of theatrical motion pictures starring Tom Cruise and Ving Rhames in the 1990s and 2000s, with the role of Phelps played by Jon Voight...."

I'm sure the folks at the other IMF were sniggering up their sleeves while this TV series aired. They thought they were the real thing:

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

...The International Monetary Fund was created in July 1944, originally with 45 members,<4> with a goal to stabilize exchange rates and assist the reconstruction of the world's international payment system. Countries contributed to a pool which could be borrowed from, on a temporary basis, by countries with payment imbalances (Condon, 2007). The IMF was important when it was first created because it helped the world stabilize the economic system. The IMF is still important because it works to improve the economies of its member countries.<5>

The IMF describes itself as "an organization of 186 countries (as of June 29, 2009),<6><7> working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty". With the exception of Taiwan (expelled in 1980),<8> North Korea, Cuba (left in 1964),<9> Andorra, Monaco, Liechtenstein, Tuvalu and Nauru, all UN member states participate directly in the IMF. Member states are represented on a 24-member Executive Board (five Executive Directors are appointed by the five members with the largest quotas, nineteen Executive Directors are elected by the remaining members), and all members appoint a Governor to the IMF's Board of Governors.<10>
History

The International Monetary Fund was conceived in July 1944 during the United Nations Monetary and Financial Conference. The representatives of 45 governments met in the Mount Washington Hotel in the area of Bretton Woods, New Hampshire, United States, with the delegates to the conference agreeing on a framework for international economic cooperation.<11> The IMF was formally organized on December 27, 1945, when the first 29 countries signed its Articles of Agreement. The statutory purposes of the IMF today are the same as when they were formulated in 1943 (see #Assistance and reforms)....

The death this week of Peter Graves, a long-time character actor with a high quality performance, gives us a chance to reflect on how Reality has no chance when put up against a creative imagination. RIP, Mr. Phelps.

[Demeter]

1. We Hit the Jackpot This Week: 7 Banks and It's Only 7PM

State Bank of Aurora, Aurora, Minnesota, was closed today by the Minnesota Department of Commerce, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Northern State Bank, Ashland, Wisconsin, to assume all of the deposits of State Bank of Aurora.

The sole branch of State Bank of Aurora will reopen on Monday as a branch of Northern State Bank...As of December 31, 2009, State Bank of Aurora had approximately $28.2 million in total assets and $27.8 million in total deposits. Northern State Bank will pay the FDIC a premium of 0.5 percent to assume all of the deposits of State Bank of Aurora. In addition to assuming all of the deposits, Northern State Bank agreed to purchase essentially all of the failed bank's assets.

The FDIC and Northern State Bank entered into a loss-share transaction on $21.3 million of State Bank of Aurora's assets. Northern State Bank 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 $4.2 million. Northern State Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. State Bank of Aurora is the 37th FDIC-insured institution to fail in the nation this year, and the fourth in Minnesota. The last FDIC-insured institution closed in the state was 1st American State Bank of Minnesota, Hancock, on February 5, 2010.

First Lowndes Bank, Fort Deposit, Alabama, was closed today by the Alabama Banking Department, 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, Luverne, Alabama, to assume all of the deposits of First Lowndes Bank.

The four branches of First Lowndes Bank will reopen under normal business hours beginning Saturday as branches of First Citizens Bank...As of December 31, 2009, First Lowndes Bank had approximately $137.2 million in total assets and $131.1 million in total deposits. First Citizens Bank did not pay the FDIC a premium to assume all of the deposits of First Lowndes Bank. In addition to assuming all of the deposits, First Citizens Bank agreed to purchase essentially all of the failed bank's assets.

The FDIC and First Citizens Bank entered into a loss-share transaction on $104.1 million of First Lowndes Bank's assets. First Citizens Bank 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 $38.3 million. First Citizens Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. First Lowndes Bank is the 36th FDIC-insured institution to fail in the nation this year, and the first in Alabama. The last FDIC-insured institution closed in the state was New South Federal Savings Bank, Irondale, on December 18, 2009.

Bank of Hiawassee, Hiawassee, Georgia, was closed today by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Citizens South Bank, Gastonia, North Carolina, to assume all of the deposits of Bank of Hiawassee.

The five branches of Bank of Hiawassee will reopen on Saturday as branches of Citizens South Bank. This transaction includes a branch office of Bank of Hiawassee in Blue Ridge, Georgia, operating under the business name of Bank of Blue Ridge, and the branch office in Blairsville, Georgia, operating under the name of the Bank of Blairsville...As of December 31, 2009, Bank of Hiawassee had approximately $377.8 million in total assets and $339.6 million in total deposits. Citizens South Bank will pay the FDIC a premium of one percent to assume all of the deposits of Bank of Hiawassee. In addition to assuming all of the deposits of the failed bank, Citizens South Bank agreed to purchase essentially all of the assets.

The FDIC and Citizens South Bank entered into a loss-share transaction on $232.6 million of Bank of Hiawassee's assets. Citizens South Bank 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 $137.7 million. Citizens South Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Bank of Hiawassee is the 35th FDIC-insured institution to fail in the nation this year, and the fifth in Georgia. The last FDIC-insured institution closed in the state was Appalachian Community Bank, Ellijay, earlier today.

Appalachian Community Bank, Ellijay, Georgia, was closed today by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Community & Southern Bank, Carrollton, Georgia, to assume all of the deposits of Appalachian Community Bank.

The ten branches of Appalachian Community Bank will reopen on Saturday as branches of Community & Southern Bank. This transaction also includes all of Appalachian Community Bank's branches that operated under the trade name of Gilmer County Bank.

Today's closure does not involve Appalachian Community Bank F.S.B., McCaysville, Georgia, or any of its branch locations. Appalachian Community Bank F.S.B., McCaysville will continue to operate as usual.

Depositors of Appalachian Community Bank will automatically become depositors of Community & Southern Bank...As of December 31, 2009, Appalachian Community Bank had approximately $1.01 billion in total assets and $917.6 million in total deposits. Community & Southern Bank will pay the FDIC a premium of one percent to assume all of the deposits of Appalachian Community Bank. In addition to assuming all of the deposits of the failed bank, Community & Southern Bank agreed to purchase essentially all of the assets.

The FDIC and Community & Southern Bank entered into a loss-share transaction on $798.6 million of Appalachian Community Bank's assets. Community & Southern Bank 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 $419.3 million. Community & Southern Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Appalachian Community Bank is the 34th FDIC-insured institution to fail in the nation this year, and the fourth in Georgia. The last FDIC-insured institution closed in the state was Century Security Bank, Duluth, earlier today.

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

The FDIC was unable to find another financial institution to take over the banking operations of Advanta Bank Corp. As a result, checks to 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 deposits with brokers should contact the brokers directly for more information about the status of their funds.

As of December 31, 2009, Advanta Bank Corp. had approximately $1.6 billion in total assets and $1.5 billion in total deposits. At the time of closing, the bank had an estimated $247,000 in uninsured funds. This amount is an estimate that is likely to change once the FDIC obtains additional information from the bank's customers.

Advanta Bank Corp. is the 33rd FDIC-insured institution to fail this year and the third in Utah since Centennial Bank, Ogden, was closed on March 5, 2010. The FDIC estimates the cost of the failure to its Deposit Insurance Fund to be approximately $635.6 million.

Century Security Bank, Duluth, Georgia, was closed today by the Georgia Department of Banking and Finance, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Bank of Upson, Thomaston, Georgia, to assume all of the deposits of Century Security Bank.

The two branches of Century Security Bank will reopen during normal business hours beginning on Saturday as branches of Bank of Upson...As of December 31, 2009, Century Security Bank had approximately $96.5 million in total assets and $94.0 million in total deposits. Bank of Upson did not pay the FDIC a premium for the deposits of Century Security Bank. In addition to assuming all of the deposits of the failed bank, Bank of Upson agreed to purchase essentially all of the assets.

The FDIC and Bank of Upson entered into a loss-share transaction on $81.5 million of Century Security Bank's assets. Bank of Upson 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 $29.9 million. Bank of Upson's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Century Security Bank is the 32nd FDIC-insured institution to fail in the nation this year, and the third in Georgia. The last FDIC-insured institution closed in the state was Community Bank and Trust, Cornelia, on January 29, 2010.

American National Bank, Parma, Ohio, was closed today by the Office of the Comptroller of the Currency, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with The National Bank and Trust Company, Wilmington, Ohio, to assume all of the deposits of American National Bank.

The sole branch of American National Bank will reopen on Monday as a branch of The National Bank and Trust Company...As of December 31, 2009, American National Bank had approximately $70.3 million in total assets and $66.8 million in total deposits. The National Bank and Trust Company did not pay the FDIC a premium for the deposits of American National Bank. In addition to assuming all of the deposits of the failed bank, The National Bank and Trust Company agreed to purchase essentially all of the assets.

The FDIC and The National Bank and Trust Company entered into a loss-share transaction on $49.8 million of American National Bank's assets. The National 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 $17.1 million. The National Bank and Trust Company's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. American National Bank is the 31st FDIC-insured institution to fail in the nation this year, and the first in Ohio. The last FDIC-insured institution closed in the state was AmTrust Bank, Cleveland, on December 4, 2009.

[CatholicEdHead]

20. Auora, MN, way up on the Iron Range

they must have lost their shirt with real estate financing for cabins up north (speculation).

It looks like Georgia's string of failed banks continues.

[Demeter]

23. This Weekend's Damages: $1.2821 Billion, minimum

Sigh

[Demeter]

2. The Really Hard News Got Posted to SMW This Morning

Which see:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x4312145

So tonight we dive right into the analysis, speculation, innuendo, smear and gossip. And intrigue!

http://www.youtube.com/watch?v=mWGeRgFa-hI

[Demeter]

13. MI Pilot Takes Off

http://www.youtube.com/watch?v=QhPwhv2aRZc&NR=1

[Demeter]

3. Bombay Dreams

http://dailyreckoning.com/bombay-dreams-2/

We have come to Bombay to get a good look at India – at least the part of it you can see from a 10th floor room at the Taj Mahal Hotel. Which isn’t much. The air is too dense. Still, we can make out the figures of whole families eating and sleeping on the pavement near the dock.

We have never seen families sleeping on the pavement on Regent Street…nor on 5th Avenue. New York and London are great success stories. Turning the pages here, on the other hand, we read a failure story. It is the story of a people who haven’t got much. The world turned against them, relatively, at the beginning of the Industrial Revolution. But if the world turns long enough, it comes back to where it began. To make a long story short, we’re betting on rotation.

The secret of material success is simple enough. In the beginning there is nothing. In the end, there is much. In between is all the dust and noise of a real economy. Everything and everyone moves – the dirt and raw materials…the bussers and schleppers who carry them, heat them up and hammer them into finished products…the merchants who sell them…and the consumers who use them. The money moves too.

But over time…and space…it must all balance out. For every item produced there must be a consumer. For every surplus, there must be a deficit somewhere else. And for every boom there must be a bust.

Taking a train from Washington DC to New York City, you can look out your window and see the equation fastened to a rusty bridge, over a rusty river in a city of rust. It says “Trenton Makes, the World Takes.” It is a sign that might have been hung on any one of hundreds of bridges in hundreds of different factory towns throughout America and Britain. As a bit of civic promotion, the sign is not completely fraudulent; it is only incomplete. It should have been turned around…probably in the 1970s. That was when Trenton became a taker.

For more than half a century, Trenton pumped out exports…then, it spent almost another half a century getting swamped by them. First, it enjoyed a capital investment boom…and then a capital investment bust, followed by a consumer spending boom…and then a consumer spending bust. Now the rest of the world awaits neither its output nor its orders. It is neither maker nor taker, but a dead-end slum.

Where will Trenton’s next boom come from…or when? No one knows. In the meantime, it must pay for what it already got. America’s post-WWII consumer boom came to an end in 2007. For the first time since 1946, consumer credit is falling. Americans are paying down debt.

Which leaves us looking out our hotel window, wondering…

The best form of government, said Voltaire, is democracy tempered by an occasional assassination. India’s government must be as hard as steel by now. In 1984, the Prime Minister, Indira Gandhi, was assassinated by her Sikh bodyguards. Then, in 1991, her son Rajiv Gandhi was also killed, this time by Tamil Tigers. If we were named Gandhi, we’d go into a less dangerous line of work, like being a test pilot. But Sonia Gandhi, widow of Rajiv and the daughter of an unreconstructed Italian fascist, must like excitement. She was elected president in 1998. Her son is also a politician.

Western investors needed courage to put their money in India. Six out of nine governments since 1980 have been coalitions, several including communists. In 1999, Pakistan invaded the country. In 2007 Maoist rebels attacked police and killed 50 of them. Last year, terrorists set fire to our hotel.

When activists, foreign and domestic, failed to destroy India, nature took a whack at it. A cyclone in 1999 killed 10,000 people. An earthquake in 2001 carried off 30,000. A Tsunami struck in 2004. The next year, monsoons flooded much of the country.

Indian stocks paid off anyway. US stock prices went nowhere over the last 10 years; Bombay stock prices more than tripled. Over the 30 years, from the opening of the stock market to the end of 2009, the investor had a return of 17,000%.

All over the developed world, governments are getting a death grip on their economies, taking control of vital industries and increasing the state’s share of GDP. One of India’s advantages is that its feds have been choking the economy for years; now it is becoming a model of negligence. As a percentage of GDP, India offered only perfunctory stimulus to fight the downturn of 2007-2009.

Now, China overheats. America cools down. And India grows at 7% per year without breaking a sweat.

Wage growth is flat or negative in Trenton; in India hourly earnings double every 10 years. India depends less on exports than any other major developing nation except Brazil. And only the Philippines and Indonesia have less credit as a percentage of GDP.

While much of the rest of the world did it…and then over-did it…India hasn’t done it yet. There are more autos in the US than there are licensed drivers, and two chickens in every pot; India barely has one vehicle per 100 people and barely any pot at all. This is a country where the getting has just begun.
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Outsourcing: Why the Average American Seems to be Doing Okay

http://dailyreckoning.com/outsourcing-why-the-average-american-seems-to-be-doing-okay/

We've been staying at the Taj Mahal Hotel for almost two weeks. What a great hotel. Calm. Civilized. Air-conditioned! Every day, we come back from a hard day at work and settle into a comfortable wicker chair by the pool.

We no longer have to tell the young lady what we want. She knows. Even the Hindu gods must know what to do at 7 PM. In a few minutes, she brings a drink...

Last night, to deepen our research into the real India we went to a concert hall for a jazz performance by Mike Stern and then over to the Oberoi for dinner.

"Middle-class Americans are screwed," said a dinner companion. We were dining with an NRI (Non-Resident Indian), who is a professor at an American university in California.

"I drove through Santa Clara yesterday. There were 'for sale' and 'vacancy' signs all over the place. And this is in a city that has some of the fastest-growing and most profitable businesses in the country. This is Silicon Valley...

"The numbers are a little misleading. They show the average American doing more or less okay. But the numbers are skewed by the top 1%. At the top of the pyramid, Americans are doing very well. They have savings. They have investments. They have businesses that are profitable...sometimes very profitable. And they've done well in this rally that we've had for the last year...

"But you go down the socio-economic ladder and you find pain and suffering all over the place. Businesses are learning to be more profitable...largely by not hiring Americans...

"Here in India, the per capita income is only about $1,000 a year. And that means that half the population, more than 500 million people, have less than $1,000 per year...or less than, say, $3 per day to live on.

"In the US, it's 30 to 40 times higher. But both groups speak English. Both groups can do simple tasks that don't require much training...

"So, if you're a smart US-based business, what are you going to do? You're going to outsource, if you can. You know, there are now personal assistants in India working for ordinary people in the US and Europe. They figured out that many executives - and other people, for that matter - communicate with their personal assistants via email. And most of what personal assistants do - making reservations...following up on customer service issues...tracking this and that - is also done via email. In the US you'd pay a good personal assistant maybe $50,000 a year. Instead, you pay an Indian personal assistant $3,000 per year. Maybe you don't get 100% of the service you got. But maybe you just get 50%. It's still a great deal...

"And suppose you're going to make something. And suppose you need a lot of labor to do it. Where do you go? To Detroit? Or to Delhi? In Detroit you have expensive labor that is theoretically better trained but used to not working very hard...

"The problem for India is that people are very poorly educated. They're supposed to be able to speak English, for example. But they can't. And even when they do speak English, you won't be able to understand them.

"And the infrastructure in India is notoriously bad. So, even if you can make something very inexpensively, there's no guarantee that you'll be able to deliver it.

"We're seeing American companies that are getting things made in China - because everything works better there - and then selling them in India cheaper than we can make them ourselves. This is great for the owners of the American company. But it doesn't do the working class any good."

We've been studying other people at the hotel. We watch them come and go as we eat breakfast or have a drink after work. There are a few rich couples enjoying a holiday... Some Arabs. Some Americans. Large groups of Japanese tourists...a group of middle-aged Germans... The occasional back-packer, often Australian... An older man, big...overfed and over- pleased with himself...from Milwaukee or Düsseldorf...with an elegant woman from Thailand. Eager and earnest businessmen from Europe and Japan, huddling in small groups. Teams of consultants from the US, casually dressed...confident...often a few pretty girls among them, ready to give bad advice at a high price.

There was even a large assembly of mid-level bureaucrats from the USA. They sat near us at breakfast...talking endlessly about 'dialoguing' with their Indian peers. God help anyone who takes them seriously or pays their salaries...
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Declining Dollar to the Fed: Et Tu, Bernanke?

http://dailyreckoning.com/declining-dollar-to-the-fed-et-tu-bernanke/
Prices are rising in India - pushed up by the high cost of food. Thanks partly to a disastrous government policy of encouraging the over-use of chemical fertilizer, food prices are shooting up. In a poor country, food is a bigger part of the family budget than in a rich country. India's CPI is rising at about 11%.

Flash from the TIMES of India:

A man brought his wife to Mumbai from Augangabad. He then took her to the house of someone she didn't know and told her to wait there for him to come back. But he didn't return. The wife asked the owner of the house what was going on. She was informed that she had been sold to the man for 40,000 rupees (a bit less than $1,000). Her family back in Augangabad came to her rescue. They bought her back.

A thousand dollars seems like a lot of money to pay for a wife. Especially when you consider all the expenses that come later. Food, shelter, transportation, Gucci, BMW, and so forth...

But it's just another proof that the feds are winning! They're reflating the bubble...at least to some extent.

Stocks rose again yesterday - largely on the good feelings inspired by Ben Bernanke. The US Fed chief let it be known that if the economy slips back into a slump it won't be his fault.

The Dow rose again - 45 points. Gold went up $3. Oil gushed up over $82.

That's the 22nd time in the last 27 sessions that the Dow has gone up. And it's now above its high for this rally...at its highest point in 17 months. This brings US stocks back to their levels of...

..1999! Is that progress, or what?

Emerging markets, meanwhile - at least the BRICs - are back too. They're back at 1995 levels.

Emerging economies are using this new appetite for risk to sell a record amount of debt. When the crisis came in '07, the spread in rates - between emerging market debts and US debts - widened. People knew they could count on Uncle Sam to pay up. They weren't so sure about India, Argentina and Zanzibar. So, the yields on emerging market debt rose.

But now that the feds' program of reflation seems to be working, they're going to take a flyer on emerging market bonds. They're still a little riskier than US bonds (or so buyers believe) but they have higher yields.

Here in India, for example, a portfolio of municipal and corporate bonds is paying more than 9% interest.

Hey, wait a minute...isn't the inflation rate 11%?

"Well, that's an aberration," explains an analyst. "It's caused by rising prices for food. The long-term inflation rate is only about 5% or 6%. But the real play on Indian debt is in the currency. The rupee is a relatively strong currency. India just doesn't have the debt problems that you have in America. Our bet is that you can earn 9% on the bonds and maybe another 50% as the rupee strengthens..."

The investor in Indian bonds has Ben Bernanke on his side. So does the investor in gold.

Bernanke told the world that he'll keep rates at zero for as long as it takes...

..but that's not all...

The Fed also announced that it was changing its policy. It said so in such a subtle way that most people probably missed it - including us. We only realized what it had done when we read an analysis this morning in The Financial Times.

In the past, the Fed has been "evaluating" the impact of buying up mortgages in order to support the housing (and presumably even the commercial property) market. Now, it says it "will employ its policy tools as necessary to promote economic recovery and price stability."

Monetizing private sector debt certainly promotes the hell out of something...but we doubt it really promotes either economic recovery or price stability. What it promotes is the eventual destruction of the dollar...and the US bond market. Behind the bonds stands the dollar. And behind the dollar stands the Fed. The Fed is telling us that it is ready to stab the dollar in the back in order to keep up the illusion of 'recovery.'

The Fed's $1.7 trillion bond buying program - quantitative easing - is supposed to come to an end at the end of this month. We were looking forward to seeing what happened when the biggest player in the market - a buyer - dropped out. Now it looks as though the Fed might not drop out after all.

Yes, dear reader, the US is still on the road to financial moksha (the final liberation from the cares of this world...achieved by a Hindu sect - the Jains - by starvation.)

[Demeter]

4. The IMF, the EMF and All the Worthless Money In Between By The Mogambo Guru

http://dailyreckoning.com/the-imf-the-emf-and-all-the-worthless-money-in-between/

There are those (me) who think that the International Monetary Fund (IMF) is a huge load of worthless, corrupt crap, not only because their dismal record pretty much shows that they are miserable failures, but because that is the way things always end up when someone is given power and money in huge amounts, or even in moderate amounts.

Or, it turns out, even in small amounts, as I prove each week when the kids, over whom I have absolute, awesome power right up until the exact moment when the social workers and/or cops come roaring up, bursting into the house and are literally standing between me and the whining kids to face me down, so I have to explain to them, too, how “The foul Federal Reserve is creating so unbelievably much money (so that the loathsome Obama administration can borrow and spend it) that inflation in consumer prices is going to destroy the buying power of the dollar, and that is why this week, just like last week, I don’t want to give these whining kids their paltry allowance, let them eat anything that is not on sale at the grocery store, or drive them anywhere, except maybe to a military recruiter or a bus out of town, but especially not to see their hoodlum friends!”

I suddenly realize, to my horror, that I am standing there drinking coffee out of one of my many “World’s Worst Father” coffee mugs that the kids always give me as a present for every Father’s Day, and I instantly knew that explaining the essence of the Austrian theory of economics as a rationale for being stingy and cruel by withholding money and benefits from my own kids was certainly not going to fix this mess.

So, I decided to appeal to the innate greedy investor that is in all of us, and I said, “I’m going to take this little bit of money, see, that still has some buying power left in it, although less and less each day which is why prices go up and up each day to make up for it, and I am going to add it to the little bit of money I have already accumulated and secretly squirreled away so that none of these little leeches can get their hands on it, and I realize that leeches don’t have hands, so don’t bother pointing it out to me that the metaphor is not entirely apt, but you get the gist of it, and then I am going to use the money to buy some more silver, which is so seriously under-priced that the opportunity thus afforded to the astute investor far outweighs the whining demands of, ugh, children.”

There was a kind of stunned silence in the room when I had finished, and so, eager to get the conversational ball rolling again, I said, “And anyway, the whole thing started out as just another Angry Mogambo Tirade (AMT) about, this time, the International Monetary Fund (IMF), which invented their own money, the Special Drawing Right, which had the effect of expanding the world money supply so as to prop up idiot countries that have bankrupted themselves and who mostly deserved to be destroyed, and it does so at the cost of permanent inflation in prices so that poor people, around the world, suffered more and more as prices constantly went up faster than their incomes, and who suffer a lot more than these stupid, whining kids here and their so-called ‘psychological trauma’!”

Well, it got ugly from there, it’s all over now, and there is nothing more about it except planning my revenge, court appearance dates, and attending some stupid “Good Parenting Course” being taught by some nitwit “counselor” half my age, whom I exposed in the very first class as a low-IQ loser when I asked him, “Have you told your children to buy gold, silver and oil to protect themselves against the inflationary horror caused by the Federal Reserve creating so impossibly much money so as to allow the lowlife Congress and the idiot Obama administration to deficit-spend us into the hellish oblivion that is, in two words, our future?”

He replied, real intelligent-like, “Huh?” which told me, loud and clear, that this guy was an idiot, which was soon proved when he instructed us to (get this!) “listen” to our children, like I haven’t heard them crying and whining and saying, “Gimme, gimme, gimme!” and, “I hate you!” their entire lives, seemingly every freaking minute of every freaking day of my life, sometimes even when I am – horrors! – completely sober, which makes it all much, much worse. Moron.

But as far as bad ideas like the IMF goes, it just gets worse until you are screaming, “No! No! No!” in your nightmares because TheDailyBell.com noted that the German finance minister, Wolfgang Schäuble, “floated the idea of a European Monetary Fund (EMF) to act as a lender of last resort to euro-zone countries that could not raise funds in capital markets on tolerable terms. He offered few details about how an EMF would be financed or how it would operate.”

Creating more money out of thin air, so as to increase the worlds’ money supply, to bail out more corrupt, incompetent deadbeats, at a cost of higher prices for everybody? Yikes!

See what I mean? We’re freaking doomed!

Knowing that, I wonder what the little counselor thinks about gold, silver and oil now! Hahaha! I wonder if he is saying, “Whee! This investing stuff is easy!”

[Demeter]

5. US Data Fails to Move the Markets By Chris Gaffney

http://dailyreckoning.com/us-data-fails-to-move-the-markets/

...It seems traders are willing to ignore the poor economic fundamentals of the US and continue to purchase the dollar as a ‘safe haven’. And the continued questions over the Greek bailout or non-bailout by the EU sent fear back into the markets. There was no real news on the Greek crisis overnight, and the major EU members seem to be at a stalemate on the issue. France is backing the announcement earlier this week that the EU would stand behind Greece, but Germany continues to call for Greece to ask the International Monetary Fund for help. The split has caused over a 1-cent drop in the euro (EUR) which will close the week with the largest 5-day drop since the crisis raised its ugly head in February.

The euro was the major currency story this morning on the newswires, but there were a couple of other stories that caught my eye. James Rogers, who continues to be a long-term bull on the commodity markets, announced yesterday that he is again a seller of the pound sterling (GBP). Rogers co-founded the Quantum Fund with George Soros, who made $1 billion betting against the pound in 1992. “I doubt that I will own sterling in my lifetime,” said Rogers in an interview on Bloomberg TV. He said continuing deficits in the UK will sink the sterling.

While he is jumping on the bandwagon with this call for a lower pound, he is going against the grain concerning the euro. He believes the EU should let Greece go bankrupt, and not bail them out. If this occurred, the euro ‘would go through the roof’ as investors would now look at it as a hard currency. But he says there is probably a good chance the Europeans will reach an agreement and ‘paper this crisis over’ which will probably increase the value of the euro in the short run. He continues to believe gold will go ‘much higher’ in the next decade and remains bullish in general on commodities. He also believes the Chinese economy will continue growing, and said he isn’t worried about asset ‘bubbles’ in China.

The US congress continues to push Treasury Secretary Tim Geithner to brand China as a currency manipulator, and is threatening to take measures aimed at forcing the Chinese to let their currency appreciate. Chinese Premier Wen continues to say the currency is not undervalued, and Goldman Sachs Chief Economist Jim O’Neill announced this week that he agrees. O’Neill told reporters that the currency “actually isn’t particularly undervalued anymore” and “it’s unfortunate that we have so much political angst around this. The key thing is that post-crisis, China is importing a lot.”

Goldman’s stamp of approval is big, as we all know the influence they enjoy in our nation’s capital. Other big NY banks are also warning congress against pushing China too hard. Stephen Roach captured many headlines in the financial news sections today when he said, “We should take out the baseball bat on Paul Krugman” who has been beating on congress to step up pressure on China for keeping its exchange rate unchanged versus the US dollar. Krugman has called on congress to get more aggressive with China by instituting duties and escalating a trade war.

Overall, the dollar enjoyed a bit of strength yesterday, and with no data due to be released this morning, we will probably see further increase today. Continued worries over the Greek crisis, and the possibility of sanctions against China will keep investors worried. Recent history shows these worried investors continue to be most comfortable parked in US treasuries, which will probably keep the dollar stronger for a while.

[Demeter]

6. Gold Role Reversal: Central Banks Now Net Gold Buyers By Addison Wiggin

http://dailyreckoning.com/gold-role-reversal-central-banks-now-net-gold-buyers/

The world is turning upside down when central bankers are accumulating gold and ordinary people are not.

Last year, central banks were net buyers of gold for the first time since 1988. In fact, they bought the most gold in any year since 1964. Total central bank holdings worldwide, according to the World Gold Council, grew by 425 metric tons last year.

True, that’s only 1.4% of the gold central banks already held. But it’s the trend that matters: China, India, and Russia all added to their reserves last year. And it fits into a bigger picture – growing distrust of the world’s reserve currency.

“I think we already have a gold standard…created by the marketplace,” says the inimitable Marc Faber. Not just the central banks, either: “We have the that have proliferated, and we have more and more physical buying of gold.”

At least there’s more physical buying when it comes to the ultra-wealthy who can buy huge bars of the stuff. Retail investors who buy coins? Not so much.

Sales of the popular Austrian Philharmonic gold coins have crashed 80% compared with a year ago. The numbers aren’t as dramatic in the United States, but still, sales of Gold Eagles in February fell 26% from year-ago figures.

“There’s no more upward surge in gold price to titillate buyers,” explains the Austrian mint’s veteran marketing director Kerry Tattersall. Plus, “a lot of people feel more relaxed about the economic crisis.”

Then again, maybe most of the folks who have the means to buy gold have done so already…and those who don’t are buying silver. Sales of US Silver Eagles in the first two months of 2010 are up 40% compared with the same period in 2009, according to CPM Group. Many buyers are waiting up to three weeks for delivery.

[Demeter]

7. Exchanging blows: Our Big Mac index shows the Chinese yuan is still undervalued

http://www.economist.com/daily/chartgallery/displaystory.cfm?story_id=15715184

[tclambert]

8. Where'd my railroad cars go?

On the way back from dinner tonight, we crossed the tracks where over a hundred boxcars sat idle all last year. But now they are all gone! Is this just a local fluke or are larger forces at work? I remember Tansy_Gold said the sidings near her had an unbelievable collection of idle railroad cars. Are they still there?

[Demeter]

11. Sold for Scrap?

Or second homes for those with no first home?

I dread the thoughts that creep in my head.

[tclambert]

24. Always with the negative waves, Moriarty.

Always with the negative waves.

It would take a fair effort to move all those cars. So it would seem a costly waste to move them to another location to simply continue storing them. Scrapping them would bring in some money, but would waste money if they eventually had to replace them. So I wouldn't think they'd scrap them unless they were pretty sure they would never, ever need them again.

My thoughts were more along the line of "Did they put them back in service? Has rail shipping picked up?" Maybe it is shipping season starting on the Great Lakes. But those cars sat idle all last summer.

So does anyone know a website that gives rail shipping data?

[Demeter]

26. I Call 'Em Like I See Them, Holmes

The only positive is that Spring has definitely sprung.

[Tansy_Gold]

17. I don't know what's happened to them, if anything

The cars I saw were out in far western Maricopa County (AZ) where the Southern Pacific tracks cross the (old) Agua Caliente Road. I haven't been out there for well over a year, and as it's now about 130 miles from where I live, it's not like I'm gonna run right over there and check.

It is, however, prime rock-hunting country, not too far from 4th of July Peak and the Chimney Beds, and I had hoped to make an excursion there this winter, but didn't make it.



Tansy Gold, who really already has enough rocks but always wants. . . .more

[AnneD]

59. I was going to report....

I have noticed an increase in rail road traffic around the area. We seem to be shipping lots of stuff like gravel and chemicals. The increase is noticeable.

[Hugin]

67. Ditto here in the outskirts of nowhere.

It's up two from none a few months ago.

[kickysnana]

21. Perhaps: shipping is resuming on the Great Lakes 4 days early

Ships are heading out of Duluth Harbor today.

[Demeter]

9. GDP Doesn’t do This Slump Justice By Rocky Vega

http://dailyreckoning.com/gdp-doesnt-do-this-slump-justice/

We’re all relatively familiar with Gross Domestic Product, or GDP, which measures the aggregate expenditure, or output of the economy. However, we tend to hear much less about its unloved cousin, Gross Domestic Income, or GDI, which tracks the economy’s total income.

A Federal Reserve economist, Jeremy Nalewaik, recently decided to look at the US downturn from a GDI perspective — which he determined to be more accurate — and the findings were much more negative than GDP indicates.

According to The Wall Street Journal:

“In theory, the two measures should equal one another, in practice they don’t quite, and Mr. Nalewaik argues that GDI is the better of the two…

“…He notes that GDI fell far more sharply in the teeth of the recession, dropping at a 7.3% annual rate in the fourth quarter of 2008, and 7.7% in the first quarter of 2009. GDP, in comparison, fell by 5.4% and 6.4%. Moreover, while GDP showed the economy began to grow in last year’s third quarter, GDI showed it continued to contract…

“‘he latest downturn was likely substantially worse than the current GDP… estimates show,’ he writes. ‘Output likely decelerated sooner, fell at a faster pace at the height of the downturn, and recovered less quickly than is reflected in GDP… and in conventional wisdom.’”

The article argues that GDI is a better measure because revisions of GDP tend to bring it closer to GDI, and because GDI correlates more strongly with other economic indicators. Perhaps most importantly, as Nalewaik states, if GDI looks worse than GDP… well, then it is at least more consistent with “conventional wisdom.”

Read more about the GDI in The Wall Street Journal’s coverage of how GDP understates the depth of the recession:

http://blogs.wsj.com/economics/2010/03/19/does-gdp-understate-depth-of-the-recession/

[Zenlitened]

19. Good info -- thanks. :)

[Demeter]

10. The Glut in the Mortgage Market: Self-Reinforced and Going Down By Addison Wiggin

http://dailyreckoning.com/the-glut-in-the-mortgage-market-self-reinforced-and-going-down/

The law of supply and demand is trumping the homebuyer tax credit. The glut of housing we mentioned on Tuesday is making itself evident with this news: The number of mortgage applications fell 1.9% last week. Both new purchases and refinances are down.

At this rate, Congress could repeal the homebuyer tax credit today, instead of allowing it to lapse on April 30, and no one would notice.

Adding to the housing glut: An increase in the number of foreclosed homes that banks are looking to unload. That number was actually falling much of last year, as many homeowners were suspended in limbo, waiting to find out whether they qualified for permanent modifications under the HAMP program.

Now that HAMP has proven itself a miserable failure, some of those homes are coming to market. Thus, Barclays estimates the number of foreclosed homes held by banks and mortgage investors rose 4.6% between December and January.

Foreclosures now make up one out of every five homes listed for sale across the fruited plain.

And don’t forget the “strategic default” phenomenon. Professor Luigi Zingales at the University of Chicago estimates 35% of home mortgage defaults in December were by folks who could keep up their payments, but decided it just wasn’t worth their while on an underwater property. Nine months earlier, it was only 23%.

And as more people do it, the stigma once attached to it falls away. “The risk that the number of people doing this might explode is significant,” says the professor.

At this point, the housing glut appears to be self-reinforcing. The Census Bureau reports at least 6.6 million households had at least three generations under one roof in 2009. That was a 30% increase over 2000.

One in six Americans now lives in a home with at least two adult generations. Horror of horrors. What is becoming of the American Dream!?!

[Demeter]

12. It's That Giant Sucking Sound!

http://www.youtube.com/watch?v=ANn1nUQul0U&feature=related

[DemReadingDU]

14. That's weird

A whole different twist on Impossible Mission

[Demeter]

15. Your Mission, Should You Choose to Accept It

My mission here is to empty my email inbox, which ballooned this week to 140 items. I am down to just under 100 at this point. Doesn't look like much, does it?

Well, the hard news went out this morning in SMW, and the speculative opinion pieces are not even entertaining, let alone informative. Everyone took the week off, it seems, and then the Lehman's autopsy report came out.

Perhaps that's why I am personally feeling serene. No major wild and crazy new thing has popped up. Instead, some hard evidence has nailed down facts we could only guess at. I will be supremely disappointed if indictments don't follow.

Of course, the MSM is holding its breath for the health insurance payoff bill. Frankly, my ear, I don't give a damn. I know it will do nothing for me or my children, except inflict costs we cannot bear.

On the real world beat: my snowdrops have gone to seed--their petals are browning and wilted, the ovaries swollen with probably sterile fruit. There were bugs out to pollinate, looking and acting as shocked as the rest of us at the first definable Spring in years. Now everybody else's snowdrops have just started to bloom. I have to credit mine, which popped up Feb. 1, for getting me through that horrible month.

The daffodils are showing healthy buds...maybe for Easter? Although daffs can hold a bud for a month if hey don't like the weather. There are threats of snow from the weather people. I think they just do it for kicks.

Of course, the greatest piece of news is the 800 sq. ft. of pre-finished oak flooring in the garage. A plan 12 years in the execution--ripping out the carpet and putting in real wood--is finally realizable. The guys who keep our property looking so fine have laid floors, so I don't have to extort my Brother-in-law to get it installed. I might actually see wood floors before Labor Day!

Saturday is our belated St. Patrick's Day corned beef dinner and Easter egg coloring night, so you all will have to pick up the slack until Sunday afternoon. If there's anything to report, I'll let you know then.

Have a great Spring into Spring, everybody! Remember, the difficult we do every day, the impossible takes a little longer.

[Demeter]

16. Creative quotes and quotations On Impossibility...

http://creatingminds.org/quotes/impossibility.htm

If you say ‘That’s’ impossible!’ to a creative person, it is like a red rag to a bull. They will either charge straight at you or dive off to the lab to prove you wrong. Impossible is a great block to thinking, which say ‘don’t even try’. So most don’t, until some hapless idiot goes and succeeds.


‘Probable impossibilities are to be preferred to improbable possibilities.’

— Aristotle

‘Start by doing what is necessary; then do what is possible; and suddenly you are doing the impossible.’

— St. Francis of Assisi

‘Impossibility: a word only to be found in the dictionary of fools.’

— Napoleon Bonaparte

‘Every noble work is at first impossible.’

— Thomas Carlyle

‘"There is no use in trying," said Alice. "One can’t believe impossible things."

"I dare say you haven’t had much practice," said the Queen. "When I was your age, I did it for half an hour a day. Why, sometimes I’ve believed as many as six impossible things before breakfast."‘

— Lewis Carroll

‘It is really quite amazing by what margins competent but conservative scientists and engineers can miss the mark, when they start with the preconceived idea that what they are investigating is impossible.’

— Arthur C. Clarke

‘The only way of discovering the limits of the possible is to venture a little way past them into the impossible.’

— Arthur C. Clarke

‘When a distinguished but elderly scientist states that something is possible, he is almost certainly right. When he states that something is impossible, he is very probably wrong.’

— Arthur C. Clarke

‘It’s kind of fun to do the impossible.’

— Walt Disney

‘How often have I said to you that when you have eliminated the impossible, whatever remains, however improbable, must be the truth?’

— Arthur Conan Doyle

‘I have learned to use the work "impossible" with the greatest caution.’

— Ralph Waldo Emerson

‘It is impossible to begin to learn that which one thinks one already knows.’

— Epictetus

‘It is difficult to say what is impossible, for the dream of yesterday is the hope of today and the reality of tomorrow.’

— Robert Goddard

‘In two words, impossible!’

— Samuel Goldwyn

‘It’s absolutely impossible, but it has possibilities.’

— Samuel Goldwyn

‘The impossible is often the untried.’

— Jim Goodwin

‘Those who make peaceful revolution impossible will make violent revolution inevitable.’

— John Fitzgerald Kennedy

‘Believe and act as if it were impossible to fail.’

— Charles F. Kettering

‘The Wright brothers flew right through the smoke-screen of impossibility.’

— Charles F. Kettering

‘Th’invention all admir’d, and each, how he to be th’inventor miss’d; so easy it seem’d once found, which yet unfound most would have thought impossible.’

— John Milton

‘However far modern science and technics have fallen short of their inherent possibilities, they have taught mankind at least one lesson: Nothing is impossible.’

— Lewis Mumford

‘What we need is more people who specialize in the impossible.’

— Theodore Roethke

AND THEN THAT UBIQUITOUS QUOTATION WHICH EVERYONE SEEMS TO HAVE SAID

‘The difficult is that which can be done immediately; the impossible that which takes a little longer.’

— George Santayana

“The difficult is what takes a little time; the impossible is what takes a little longer.”

Fridtjof Nansen

[snot]

22. In a related vein:

"Nothing is inevitable, except defeat for those who give up without a fight."
-- "Voyage to the Bottom of the Sea" (1961), script by Irwin Allen & Charles Bennett

[tclambert]

37. Here's one from me: "It is a saleman's job to promise the impossible, and the engineer's job to make

it happen."

[AnnieBW]

18. Oh, shit. Here come the protesters...

Must be spring. The IMF protester assholes are in DC. :yoiks:

Before you jump in my face about how I should be supporting them, I have the same attitude towards ALL protesters that descend on DC. They're seagulls. They fly in, make a lot of noise, crap all over everything, then leave, and the locals have to clean up their mess.

[Demeter]

25. Do Businesses Hate Their Workers? (Income Disparity Myths Edition)

http://www.nakedcapitalism.com/2009/11/do-businesses-hate-their-workers-income-disparity-myths-edition.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

In America, it isn’t hard to answer the question in the headline “yes.” The oft recited, “Our employees are our greatest asset” is pure Orwellian prattle; most companies treat employees as liabilities, doing everything they can to minimize labor costs, getting rid of workers whenever possible. And this now extends well up into the management ranks, with most people who are still on the corporate meal ticket assigned responsibilities that would have constituted 1.5 to two jobs a decade ago.

And before readers argue that this is a necessary response to globalization, the evidence does not support that view. If companies were simply responding to tougher competition (in this case, lower cost suppliers from overseas), you’d expect to pressure on wages AND profits. Instead, we’ve seen wage stagnation (save at the very top) with (pre bust) record profits.

If you look at past post-war expansion periods, the vast majority of GDP growth went to labor, in the form of increased hiring and higher wages. The post war average (pre the last upturn) was close to 60%; the low was 55%. The jobless recovery lived up to its billing, with under 30% of GDP gains going to workers. By contrast, the portion of GDP growth that went to profits was an all-time record.

Similarly, as any properly-trained MBA will tell you, companies can compete on other axes besides cost: convenience, product features, speed of delivery, other types of service. And US businesses have a huge advantage: physical proximity to the biggest consumer market. Offshoring and outsourcing create considerable rigidity and risk (more coordination required, which increases the odds of snafus) Some evidence supports the idea that outsourcing is a fad that US companies embraced whether or not it fully made sense. Most companies find outsourcing to be overrated as a cost saver. A former senior executive at Ethan Allen told me there was not reason for the US to cede anywhere close to as much furniture manufacturing as it did, particularly given the cost of shipping (often two ways, since much of the raw materials come from North America). But in Ethan Allen’s case, Wall Street wanted to hear they were manufacturing overseas, and they complied.

Moreover, other countries, equally exposed to globalization, have not seen a squeezing down on workers to the benefit of the top 1% to anywhere the degree the US has, nor is the international pattern consistent with globalization (or other common culprits) being the driver. The Luxembourg Income Study (LIS) group put out a working paper by Andrea Brandolini and Timothy Smeeding with some international comparisons on income inequality, titled “Inequality Patterns in Western-Type Democracies: Cross-Country Differences and Time Changes”:

National experiences vary during the last four decades and there is no one overarching common story. There was some tendency for the disposable income distribution to narrow until the mid-1970s. Then, income inequality rose sharply in the United Kingdom in the 1980s and in the United States in the 1980s and 1990s (and still continuing), but more moderately in Canada, Sweden, Finland and West Germany in the 1990s. Moreover, the timing and magnitude of the increase differed widely across nations. Inequality did not show any persistent tendency to rise in the Netherlands, France and Italy. Commonality seems to be greater for market income inequality: in five of the six countries for which we have data, we observe an increase in the 1980s and early 1990s and a substantial stability afterwards.

Changing public monetary redistribution appears to be an important determinant of the time pattern of the inequality of disposable incomes. Changes in inequality do not exhibit clear trajectories, but rather irregular movements, with more substantial changes often concentrated in rather short lapses of time. Together with the lack of a common international pattern, this suggests to look at explanations based on the joint working of multiple factors which sometimes balance out, sometimes reinforce each other, rather than to focus on explanations centered on a single cause like deindustrialization, skill-biased technological progress, or globalization. Identifying and characterizing episodes and turning points in the dynamics of inequality may reveal more fruitful than searching for overarching general tendencies.

Other factors are that changes in policy have reduced the bargaining power of workers, and to a much greater degree than most realize. For instance, MIT economists Frank Levy and Peter Temin argued that, “Institutions and norms affect the distribution of economic rewards.” The paper combines some novel analyses with a Depression-to-present-day narrative of evolving labor-business-government relationships (one nice touch is a comparison of starting salaries at Cravath versus that of average graduate degree holders to illustrate the rise of “winner take all” inequalities).

Government also gave signals through tax structures and other mechanisms of their view of the appropriate level of labor compensation. For example, when Kennedy implemented tax cuts, the Council of Economic Advisers announced wage and price guidelines that indicated that labor should share pro rata. The paper describes other ways that the government let businesses know that it expected productivity gains to be shared with workers. Again, these measures took the form of guidance rather than intervention, but also reflected prevailing ideas of fairness.

By contrast, a piece today in Firedoglake (hat tip reader John D) illustrates how much values have changed, first with a graphic, and some scathing commentary:

Friday, a group of Trade Associations ran a full-page ad in the New York Times demonstrating their loathing for the employees of their members:

Expensive new mandates on businesses will result in lost jobs, lower wages, less flexibility and higher health care costs.

Let me translate that from scary talk to plain English. Business will dump every last cent of the costs of health care on employees. No business will give up a single penny of its profits to keep its workers healthy. Anyone who wants health care has to pay for it at whatever price the insurance companies want to charge, and business will cooperate in shifting costs to workers. And there is nothing you can do about it. The profits we suck out of your labor belongs to us, and you don’t get any.

Sound a bit like class warfare? It’s not a surprising reaction when one party keeps cutting itself the an overly large slice of the pie, and then adding insult to injury through spurious rationalizations.

[Demeter]

27. Pfizer abandons site of infamous Kelo eminent domain taking

The private homes that New London, Conn., took away from Suzette Kelo and her neighbors have been torn down. Their former site is a wasteland of fields of weeds, a monument to the power of eminent domain.

But now Pfizer, the drug company whose neighboring research facility had been the original cause of the homes' seizure, has just announced that it is closing up shop in New London.

To lure those jobs to New London a decade ago, the local government promised to demolish the older residential neighborhood adjacent to the land Pfizer was buying for next-to-nothing. Suzette Kelo fought the taking to the Supreme Court, and lost. Five justices found this redevelopment met the constitutional hurdle of "public use."

Read more at the Washington Examiner: http://www.washingtonexaminer.com/opinion/blogs/beltway-confidential/Pfizer-abandons-site-of-infamous-Kelo-eminent-domain-taking-69580497.html#ixzz0iiMgPnTs

FROM NOVEMBER, BUT IT STILL BURNS. PFIZER IS ONE OF THE INFAMOUS FASCISTS POSTED LAST WEEKEND:

http://journals.democraticunderground.com/Demeter/694

[Demeter]

28. PERIODIC TABLE OF FINANCE BLOGGERS

http://slopeofhope.typepad.com/.a/6a00e009898222883301287566fb49970c-800wi

CLICK ON IMAGE TO ENLARGE

[DemReadingDU]

30. That's a lotta blogs!

I think I only read a handful of them, and that takes more time than I have
:)

[Demeter]

29. Barclays’ Remarkable Bargain (BUYING LEHMAN'S CHEAP)

http://www.nytimes.com/2009/11/10/business/10sorkin.html?_r=2&ref=business

When is a good deal too good?

That question is being whispered around Wall Street these days, a year after Lehman Brothers went bust in the biggest bankruptcy ever.

Sure, the panicked days of last autumn might seem like ancient history. After all, for much of Wall Street, the financial crisis is receding quickly, and many banks are minting money again.

And yet all these months later, heads are still being scratched over the way Barclays managed to scoop up the remains of Lehman.

Barclays, it turns out, cut itself a remarkably good deal. A recent court filing — this one free of redactions — even accuses Barclays of making off with $5 billion without anyone noticing, an amount that Lehman’s creditors seem to think should be treated as the largest theft in banking history.

In simplest terms, the creditors to Lehman’s estate — including large pension funds and hedge funds — claim that Barclays bought the American firm for $5 billion less than it was worth.

How could that possibly happen?

According to the filing, Barclays received Lehman securities valued at about $50 billion for just $45 billion in cash.

The complaint suggests more was going on here than some flubbed back-of-the-envelope math. A spokeswoman for Barclay’s declined to comment.

Some Lehman executives who negotiated that deal, the complaint asserts, knew they would receive offers to work at Barclays. One such executive, Lehman’s president, Bart McDade, was offered a compensation deal worth $37 million. This, of course, was all happening during the week that the financial world seemed about to fall off its axis. (Mr. McDade left the firm, never received the money, and some people close to Barclays said he was never offered the money.)

According to the complaint, which was brought by Lehman’s estate on behalf of its creditors and includes excerpts of depositions of crucial players, Barclays had Lehman executives undervalue its assets so that they appeared to be $5 billion lower than they really were.

At the time of the transaction, the deal was presented in bankruptcy court to Judge James Peck by Lehman’s own lawyers as a wash — meaning that Barclays was buying Lehman’s assets for their true market value.

But an e-mail message, sent at the time the deal was being negotiated, seems to suggest that some Lehman executives knew the deal represented a discount.

“Well it took all night and lots of back and forth but the deal is done and ready for the board,” Martin Kelly, a Lehman managing director wrote in his e-mail message to a colleague. “Final price did not change meaningfully approx a $5b all in economic loss versus our marks.”

Barclays was never shy about trying to do what anybody in a buyer’s market would do, which was to try to acquire Lehman assets at a discount.

Ian Lowitt, Lehman’s chief financial officer at the time and now an employee of Barclays, explained the discount in his deposition this way:

“I was aware that the — that Barclays was going to purchase a substantial block of assets for less than the amount that we had on our books to reflect a sort of bid offer that reflected both the size of the purchase, as well as inherent volatility in the market, which was significant that week.”

That explanation makes some sense. People close to Barclays say the complaint by the creditors of Lehman’s estate misconstrues what happened, and that the numbers reflected in the complaint referred to asset values at the beginning of the week when the deal was signed, not by the end of a volatile week when the deal was presented to the judge.

But if that were the case, the obvious question is why the deal was presented to the judge as a wash when it was consummated.

One answer, according to the complaint, is that Lehman’s own lawyers were kept in the dark about the discount.

The filing, which shows only excerpts of deposition testimony and may therefore be leaving out important context, says that Lehman, at the direction of Barclays, inflated its liabilities to make the deal more valuable to Barclays.

It says that Barclays, behind the scenes, never planned to make good on certain liabilities, like the $2 billion in compensation that had been set aside as part of the deal.

The agreement was “that we would assume a liability related to compensation but we didn’t agree that we would pay the whole thing out,” Barclays’ chief operating officer, Rich Ricci, said in his deposition. Again, when presented in bankruptcy court, Barclays was going to pay the $2 billion in compensation. People close to Barclays said the entire amount was paid.

All of this might seem irrelevant bickering, except that Lehman’s creditors say they are out hundreds of billions of dollars and this is a crucial piece of the financial crisis puzzle.

[Demeter]

31. PSST! WHAT THE POLICY WONKS HAVE TO SAY

http://www.levy.org/default.aspx

[Demeter]

41. Dodd calls for Lehman inquiry

http://www.ft.com/cms/s/0/c46be99c-33ad-11df-8b99-00144feabdc0.html

Chris Dodd, chairman of the Senate banking committee, has called on the Department of Justice to investigate alleged accounting wrongdoing at Lehman Brothers and prosecute any employees at the bank – or “other companies” – who might have broken the law.

In a letter to Eric Holder, attorney-general, Mr Dodd asked that the DoJ form a task force to investigate Lehman. A report from the court-appointed examiner, who analysed Lehman’s collapse, found the bank had made use of a controversial accounting technique that made its balance sheet look healthier than it was.

Mr Dodd, who on Monday begins the committee mark-up of legislation aiming to prevent a repeat of Lehman’s collapse, called for a task force to investigate Lehman and “other companies that may have engaged in similar accounting manipulation with a view to prosecution of employees or agents who contributed to any violations of the law”.

His call for a criminal inquiry comes as Ted Kaufman, a fellow Democratic senator, called for a greater focus on potential financial crimes from the DoJ and Securities and Exchange Commission.

Mr Kaufman, senator for Delaware and former chief of staff to vice-president Joe Biden, said: “The question is how much of this problem was the housing market blow-up. How much was it that there was no regulation and how much of it was fraud?” MORE AT LINK

[Demeter]

42. Lehman Brothers' golden girl, Erin Callan: through the glass ceiling – and off the glass cliff

http://www.guardian.co.uk/business/2010/mar/19/lehmans-erin-callan-glass-cliff

Lehmans' chief financial officer as it lurched towards bankruptcy, Callan was underqualified and overpromoted – but her big error was taking the job...\

(Wall Street's gender imbalance has worsened as a result of the recession, with the proportion of female executives falling.)

A hundred miles from Manhattan in the swanky beachside enclave of East Hampton, the so-called Greta Garbo of Lehman Brothers has gone to ground. The bankrupt bank's former chief financial officer, Erin Callan, lives quietly in a wood-shingled house, attends spin classes at a local gym and is dating a New York fireman.

Smart, sassy, young and charismatic, Callan was briefly the golden girl of Wall Street. In multiple television appearances, Callan adopted a plain-speaking patter in the spring of 2008 to reassure investors over the future of the 158-year-old investment bank. A fashionable figure, she seemed a refreshing change from the middle-aged men around her. The only problem was that she got things desperately, spectacularly wrong.

The daughter of a police detective, Callan, 44, has emerged as one of the most intriguing figures from Lehman's demise. She was one of four former Lehman Brothers executives chastised last week in a 2,200-page bankruptcy court report, which concluded that the bank used misleading gimmicks to bolster its balance sheet by $50bn (£25bn). The court-appointed examiner found evidence that Callan breached her duties by ignoring "ample red flags" over contentious deals known as "repo 105" to mask its financial condition.

While Lehman's chief executive, Dick Fuld, and his lieutenants have been lampooned for greed, arrogance and hubris, Callan's predicament has evoked a more complicated response from the financial media and Wall Street. There is a sense of disappointment in her but also a flickering of sympathy that, partly because of her gender, she may have been shoved into an impossible, no-win position, dubbed "the glass cliff".

"The biggest mistake Erin Callan made was to accept that job," says Vicky Ward, author of a new book on Lehman's demise, The Devil's Casino, who says Callan was the unwitting face of a poorly judged effort by Lehman to boost diversity in its top ranks. "They promoted somebody who wasn't remotely qualified and they made a big 'to do' about it."

A former tax lawyer, Callan joined Lehman in 1995 and swiftly became a high-flyer, rising to head the bank's successful division serving hedge funds. She caught the attention of Lehman's president, Joe Gregory, who was leading an aggressive company-wide effort to improve Lehman's representation of women, gay people and ethnic minorities. He handed her the bank's top finance job in December 2007, to widespread surprise.

"She didn't even have a basic accounting degree," says Ward. "To be chief financial officer, you're going to have to sign off the finances."

Within three months of her appointment, she was firefighting as a rival Wall Street bank, Bear Stearns, went bust, prompting speculators to target Lehman Brothers as the next weakest on the block. Callan adopted a risky, high-profile strategy, giving frequent fluent television interviews to assure the world that nothing was wrong. After a confident performance on a potentially perilous conference call with analysts to present Lehman's (now disputed) quarterly earnings, bond traders gave her a standing ovation. Not everybody was convinced.

Ward's book reveals that Goldman Sachs' more experienced chief financial officer, David Viniar, privately contacted her in a spirit of friendly advice, urging her to tone down her act. One of Lehman's biggest critics, Greenlight Capital hedge fund manager David Einhorn, publicly attacked her for using words such as "great"‚ "challenging", "incredible" and "strong" to describe the finances of a loss-making bank. Einhorn's bear raids contributed to the mounting alarm. In an overwhelmingly male environment, Callan's flair for fashion raised eyebrows. During an ill-judged interview with the Wall Street Journal, she disclosed that she used a personal shopper at a top Fifth Avenue department store, Bergdorf Goodman. Trading-floor banter focused on her "Björk" and "Star Trek" power outfits.

As Lehman's predicament worsened, Callan quit in June 2008, making way for a last-ditch management reshuffle by Dick Fuld. She swiftly got a job at Credit Suisse that only lasted six months before taking an extended "leave of absence", from which she never returned. She has been subpoenaed by federal authorities and she is likely to face lawsuits from investors and creditors.

Tracked down to East Hampton by Fortune magazine this week, she has kept a stony silence and her lawyer, Steven Eckhaus, declined to comment.

To those fighting for more diversity in the financial industry, Callan's rise and fall has a familiar ring. Michelle Ryan, an associate professor of psychology at Exeter University, says there can be a tendency, which she dubs the "glass cliff", to promote women as a "bold move" in moments of crisis, when all else has failed: "I do see her position as a really classic case of the glass cliff. Women often tend to occupy these dangerous leadership positions in dangerous times, when things are getting hairy. When things are going great, it's usually men who occupy these roles."

Some argue that if the banking industry contained more women, the reckless risk-taking that contributed to the financial crisis might be mitigated. However, the evidence suggests that Wall Street's gender imbalance has worsened as a result of the recession. In the US, the Financial Women's Association found that the proportion of women in executive positions slipped from 10.3% to 9.8% last year. And Catalyst, a non-profit group representing women in business, says that across the economy, female executives were three times as likely to lose their jobs during the recession."Only about one in six senior positions are held by women — it doesn't reflect the workplace and it doesn't reflect the marketplace", says Jan Cambopiano, vice-president of Catalyst. "When people think about leaders, they still think of men. They're not challenging themselves."

[Demeter]

47. SEC, Fed Alerted By Merrill of Lehman Balance Sheet Games in March 2008

http://www.nakedcapitalism.com/2010/03/sec-fed-alerted-by-merrill-of-lehman-balance-sheet-games-in-march-2008.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

So which theory is it: stunning bureaucratic incompetence, wishful thinking and denial (a better gloss on theory #1) or a cover up? Or a combination of the above?

No matter which theory or theories you subscribe to, the continuing revelations of how the SEC and perhaps more important, the New York Fed conducted themselves in the months before Lehman’s collapse paint an increasingly damning picture.

The Valukas report shows both regulators were monitoring Lehman on a day-to-day basis shortly after Bear’s failure. They recognized that it has a massive hole in its balance sheet, yet took an inertial course of action. They pressured a clearly in denial Fuld to raise capital (and Andrew Ross Sorkin’s accounts of those efforts make it clear they were likely to fail) and did not take steps towards any other remedy until the firm was on the brink of collapse (the effort to force a private sector bailout as part of a good bank/bad bank resolution).

One of the possible excuses for the failure to do more was that the officialdom did not recognize how badly impaired Lehman was until too late in the game to do much more than flail about. But that argument is undercut by a story in tonight’s Financial Times.

Merrill warned both the SEC and the Fed in March 2008 that Lehman was engaging in balance sheet window dressing of a serious enough nature for it to put pressure on Merrill (as in it was making Merrill look worse relative to the obviously impaired Lehman).

When a company under stress makes fraudulent statements about its financial condition, it is a sign of desperation, and possibly imminent collapse. The fact that Merrill, with a little digging, could see that Lehman’s assertions about its financial health were bogus says other firms were likely to figure it out sooner rather than later. That in turn meant that the Lehman was extremely vulnerable to a run. Bear was brought down in a mere ten days. Having just been through the Bear implosion, the warning should have put the authorities in emergency preparedness overdrive. Instead, they went into “Mission Accomplished” mode.

This Financial Times story provides yet more confirmation that Geithner is not fit to serve as a regulator and should resign as Treasury Secretary. But it may take Congress forcing a release of the Lehman-related e-mails and other correspondence by the New York Fed to bring about that outcome.

From the Financial Times:

Former Merrill Lynch officials said they contacted regulators about the way Lehman measured its liquidity position for competitive reasons. The Merrill officials said they were coming under pressure from their trading partners and investors, who feared that Merrill was less ­liquid then Lehman…

In the account given by the Merrill officials, the SEC, the lead regulator, and the New York Federal Reserve were given warnings about Lehman’s balance sheet calculations as far back as March 2008.

Former and current Fed officials say even in the competitive world of Wall Street, it is un­usual for rival bankers to relay such concerns to the Fed.

The former Merrill officials said they contacted the regulators after Lehman released an estimate of its liquidity position in the first quarter of 2008. Lehman touted its results to its counterparties and its investors as proof that it was sounder than some of its rivals, including Merrill, these people said…

“We started getting calls from our counterparties and investors in our debt. Since we didn’t believe the Lehman numbers and thought their calculations were aggressive, we called the regulators,” says one former Merrill banker, now at another big bank…

Merrill officials said their calculations led them to believe that Lehman included what is known as regulatory capital in its calculation of excess liquidity. Executives at other banks say that is improper…

Mr Valukas said in his report that the banks interacting with Lehman may have suspected Lehman was incorrectly calculating its liquidity. In September 2008, days before it collapsed, Lehman maintained that it had about $50bn in readily accessible funds, though at the end it had nothing like that amount.

[ozymandius]

53. "Time for the Truth" by Eliot Spitzer and William K. Black

Cross-posted from New Deal 2.0.

In December, we argued the urgent need to make public A.I.G.'s emails and "key internal accounting documents and financial models." A.I.G.'s schemes were at the center of the economic meltdown. Three months later, a year-long report by court-appointed bank examiner Anton Valukas makes it abundantly clear why such investigations are critical to the recovery of our financial system. Every time someone takes a serious look, a new scandal emerges.

The damning 2,200-page report, released last Friday, examines the reasons behind Lehman's failure in September 2008. It reveals on and off balance-sheet accounting practices the firm's managers used to deceive the public about Lehman's true financial condition. Our investigations have shown for years that accounting is the "weapon of choice" for financial deception. Valukas's findings reveal how Lehman used $50 billion in "repo" loans to fool investors into thinking that it was on sound financial footing. As our December co-author Frank Partnoy recently explained as part of a major report of the Roosevelt Institute, "Make Markets Be Markets," such abusive off-balance accounting was and is endemic. It was a major cause of the financial crisis, and it will lead to future crises.

According to emails described in the report, CEO Richard Fuld and other senior Lehman executives were aware of the games being played and yet signed off on quarterly and annual reports. Lehman's auditor Ernst & Young knew and kept quiet.

The Valukas report also exposes the dysfunctional relationship between the country's main regulatory bodies and the systemically dangerous institutions (SDIs) they are supposed to be policing. The NY Fed, the regulatory agency led by then FRBNY President Geithner, has a clear statutory mission to promote the safety and soundness of the banking system and compliance with the law. Yet it stood by while Lehman deceived the public through a scheme that FRBNY officials likened to a "three card monte routine" (p. 1470).

http://www.huffingtonpost.com/eliot-spitzer/time-for-truth-three-card_b_500867.html

---

It's a good synopsis as well as a call to action.

[Demeter]

54. Hoisted from Comments: The Lehman Whistleblower Letter

http://www.nakedcapitalism.com/2010/03/hoisted-from-comments-the-lehman-whistleblower-letter.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

I had not pointed to the letter written by Matthew Lee, the so-called Lehman whistle blower, because it seemed to add little to the main story: insider alerts senior management to a Big Problem (or in Lehman’s case, that its chicanery/incompetence was so pervasive as to be impossible for anyone within hailing distance of it to miss). The fact that there was someone who knew things did not smell right, alerted the top brass, and was ignored with prejudice (as in fired, demoted, or marginalized) is typical and disheartening.

But reader Michael C, who was involved in Sarbanes-Oxley compliance for a major bank, argues that the letter is significant, despite its failure to mention Repo 105 by name.

This was the meat of Michael Lee’s May 2008 letter: SEE LINK......

Yves here. It is important to note that Sarbanes Oxley requires the CEO and CFO to certify the published financial statements (which must adhere to SEC standards) and the adequacy of financial controls. So the issues that Lee raises point to multiple Sarbox violations.

As Michael C noted:

In his role he would be one of the key signers of the internal control assesments. His letter serves to both blow the whistle on some specific charges (i.e $5b in excess assets (?) and to formally inform mgt and the auditors that a fundamental key control (substantiation of the accounts)is compromised. This is a big deal, since the auditors, both internal and external rely on the substantiations to sign off on the overall internal control assessment. One would expect a letter like this to trigger a significant response from E+Y.

Every major GL (general ledger) account is assigned an individual ‘owner’ at the firm. That individual is responsible for certifying that the account balance is reported correctly and the balance can be substantiated.

It’s not surprising then that he didn’t mention the 105 specifically. He didn’t need to, since he’s implying that the 105 isn’t the only material issue, the entire control structure was at least ’significantly deficient’ a term that normally sets off alarms, especially with the external auditors, and demands prompt corrective action.

Yves here. One thing that continues to puzzle me is the press continuing to harp on the idea that it would be hard to succeed in a criminal case against Lehman. Huh? This letter arrived before the end of 2Q, so Lehman issued what turned out to be its final quarterly reports with this information in hand. Fuld was not one of the recipients but Callan was. The barrier that is arguably hard to surmount in a criminal case is intent, that is, that the perps knowingly did something wrong, as opposed to were merely stupid or sloppy. The Lee letter strikes me as a smoking gun for a criminal case.

And the noise in the media re the supposed difficulty of successful criminal prosecution raises a second set of issues: whose interest is served by promoting that point of view?

As Frank Partnoy has pointed out, it is true the SEC has not had much success in prosecuting complex criminal cases, but this case (cooking the books) is not as difficult as ones involving, say, derivatives. Is the failure due to the difficulty of mounting these cases, or that the SEC lacks its own ability to pursue these cases (no joke, it has to go to the DoJ) and the SEC-DoJ combination is dysfunctional?

[Demeter]

32. Goldman Sachs Subthread

You know you are getting notorious when you rate your own thread on WEE.

[Demeter]

33. Let us apologize for Goldman Sachs

http://thevillager.com/villager_338/editorial.html


Since Goldman Sachs has been a big part of the Lower Manhattan fabric for almost a century and a half, we’d like to take this opportunity to apologize to the rest of the country on behalf of our neighbor, a financial giant personifying much of what is wrong on Wall St.

Before we get to the multibillion-dollar stuff, we’d first like to apologize that the firm has not yet paid a few thousand dollars of vet bills for the five kittens born in its headquarters building nearing completion in Battery Park City. In August, after our sister publication Downtown Express reported the kittens’ discovery, Goldman offered to pay the bills and encourage its employees to adopt the “BlackBerries.”

It may be just a matter of Goldman waiting to get the vet invoices — we can’t imagine they’d stiff kittens while writing out bonus checks worth $23 billion — but the cats still need adoptive homes. (Incidentally, anyone interested in one of these adorable kittens should e-mail their rescuer, the Brotmans, at [e-mail].)

As for that headquarters, most of the money to build it, $1.6 billion, came from tax-free Liberty Bonds, a post-9/11 federal program. We’re sorry the firm was not more careful constructing the building, as a project architect was paralyzed by falling debris, and neighborhood children and a cab driver were almost hit in separate incidents.

Goldman did contribute an infinitesimal percentage of project money, $4.5 million, to help pay for a nearby library and community center. Originally, Goldman was “only” going to get $1 billion worth of tax-free bonds. But when the firm pulled out of the deal, former Governor Pataki and Mayor Bloomberg sweetened the offer in 2005 with more bonds and $150 million in incentives.

We recognize that Goldman’s wealth has many benefits in the neighborhoods around Wall St. Along with the rest of the financial industry, Goldman helps drive the city, state and national economy, but it is hard to be appreciative when its greed is so unbridled.

Under the 2005 deal with New York, Goldman is entitled to get $321 million back at the end of the year because many of the World Trade Center deadline promises will be missed. In a recent interview with the Daily News, Mayor Bloomberg said he thought the bad public relations of collecting the money will prevent the firm from exercising its rights. We hope so, but we know a few kittens who are not so sure about the firm’s P.R. savvy.

Goldman made 10 times more — not in revenue — but profits in the last three months than the $321 million it is due. While New York City and the country continue to hemorrhage jobs, the firm is paying out $23 billion in bonuses. Yes Goldman paid back with interest the $10 billion in bailout money it borrowed; but the firm also got indirect TARP funds through distressed companies, like A.I.G. Goldman and the rest of Wall St. drove us to the cliff, got bailed out by taxpayers, and now are lobbying Washington against the regulations that will prevent this risky behavior from reoccurring.

Questions continue over why Lehman Brothers, Goldman’s competitor, was allowed to fail last fall under the direction of Hank Paulson, the former Treasury secretary and Goldman C.E.O., and whether the Obama administration remains too cozy with the firm.

We do hope our longtime neighbor will start acting like a good corporate citizen, but until they do — America, please accept our apology for Goldman Sachs.

[Demeter]

34. Attention Lloyd Blankfein: The Public Purpose of Banking

http://www.nakedcapitalism.com/2009/11/attention-lloyd-blankfein-the-public-purpose-of-banking.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29


By Marshall Auerback, a fund manager and investment strategist who writes for New Deal 2.0.

It seems odd that days (NOW MONTHS) after we were told by Goldman Sachs’s CEO, Lloyd Blankfein, that bankers are doing “God’s work”, we are still having active debates about how to regulate these selfless apostles of capitalism.

The latest foray into financial reform comes from the Senate. Senator Christopher Dodd will propose creating a single U.S. regulator that would strip the Federal Reserve and Federal Deposit Insurance Corp. of bank- supervision authority, according to a report from Bloomberg. Dodd, according to the Bloomberg report, has faulted the U.S. bank regulation system, saying “it encourages charter shopping and a ‘race to the bottom’ by agencies to win oversight roles.” Bloomberg notes that “his proposal goes further than proposals by President Barack Obama and House Financial Services Committee Chairman Barney Frank to merge the OTS and OCC.”

Certainly, almost anything is an improvement over the abomination that came out of Barney Frank’s committee. But we feel that the ‘race to the regulatory bottom’ could easily be solved via a simple mechanism: If you don’t fall in line with our regulatory requirements, you’re simply denied a banking license to operate in this country. Problem solved. The United States is the biggest banking market in the world. Do you think any major bank would willingly vacate this market?

And even if the “too big to fail” behemoths decided to transplant a bunch of their operations elsewhere, the country would still be left with thousands of community banks which could fill the void and better fulfill the public purpose described by Mr Blankfein: namely, to “help companies to grow by helping them to raise capital”, rather than extracting their pound of flesh via grotesquely high financial intermediary fees, as is the case today.

We have argued before on New Deal 2.0 that the FDIC is best suited to carry on the role of chief systemic regulator, given its role as deposit insurer. That regulator has the best institutional incentives to be concerned with systemic risk and to be a vigorous regulator. It should be the least subject to regulatory capture (a pervasive problem at the Fed, which is full of quant economists who have virtually no interaction with other Fed examiners).

But WHO controls the banks is ultimately less important than HOW we control the banks’ activities. Oversight is all very nice, but at times it pays to get back to first principles. What on earth is the public purpose of these things?

Banks are set up and supported by government for the further benefit of the macro economy via providing a payments system and lending in a way that is specifically defined by regulators. Newsflash: the public purpose of banking is NOT to provide profits per se to shareholders. Rather, the provision of the ability to earn profits is only a tool used to support the attendant public purpose. Banks should only be allowed to lend directly to borrowers, and then service and keep those loans on their own balance sheets. There is no further public purpose served by selling loans or other financial assets to third parties, but there are substantial real costs to government in regulating and supervising those activities. There are severe consequences for failure to adequately regulate and supervise those secondary market activities as well.

Banks should be prohibited from engaging in any secondary market activity because it serves no public purpose and may result in severe social costs in the case of regulatory and supervisory lapses. Some argue that these areas might be profitable for the banks, but this is not a reason to extend government sponsored enterprises into those areas. Therefore, banks should not be allowed to buy (or sell) credit default insurance. The public purpose of banking as a public/private partnership is to allow the private sector to price risk, rather than have the public sector pricing risk through publicly owned banks.

If a bank instead relies on credit default insurance, then it is transferring that pricing of risk to a third party, which is counter to the public purpose of the current public/private banking system. Banks should not be allowed to engage in proprietary trading or any profit-making ventures beyond basic lending. If the public sector wants to venture out of banking for some presumed public purpose it can be done through other outlets.

If the activities of the banks are not facilitating the production and movement of real goods and services what public purpose do they serve? It is clear they have made a small number of people fabulously wealthy. It is also clear that they have damaged the prospects for disadvantaged workers in many parts of the world.

It’s more obvious to all of us now that when the system comes unstuck through the complexity of these transactions and the impossibility of correctly pricing risk, the real economies across the globe suffer. The consequences have been devastating in terms of lost employment and income and lost wealth.

All governments should sign an agreement which would make all financial transactions that cannot be shown to facilitate funding for real goods and services illegal. Simple as that. When we keep these principles at the front of the argument, we can see that what Senator Dodd and Congressman Frank are arguing about is akin to how to rearrange the deck chairs on the Titanic.

[snot]

68. Wish this, among others, were an OP I cd k&r.

[Demeter]

35. Powerful interests are trying to control the market

http://www.ft.com/cms/s/0/113092ee-ce2f-11de-a1ea-00144feabdc0.html

You can become wealthy by creating wealth or by appropriating wealth created by other people. When the appropriation of the wealth of others is illegal it is called theft or fraud. When it is legal, economists call it rent-seeking.

Rent-seeking takes many forms. On Europe’s oldest highway, the Rhine river, the castles on rocky outcrops date from the time when bandits with aristocratic titles extracted tolls from passing traffic. In poor countries the focus of political and business life is often rent-seeking rather than wealth creation. That helps explain why some countries are rich and others poor.

John Kay, columist

Rent-seeking drives the paradoxical resource curse. Oil or mineral wealth mostly reduces the population’s standard of living because it diverts effort and talent from wealth creation to rent-seeking. Sadly, foreign aid often has a similar effect.

Rent-seeking can be effected through rake-offs on government contracts, or the appropriation of state assets by oligarchs and the relatives of politicians.

But in more advanced economies, rent-seeking takes more sophisticated forms. Instead of 10 per cent on arms sales, we have 7 per cent on new issues. Rents are often extracted indirectly from consumers rather than directly from government: as in protection from competition from foreign goods and new entrants, and the clamour for the extension of intellectual property rights. Rents can also be secured through overpaid employment in overmanned government activities.

Rent-seeking is found whenever economic power is concentrated – in the state, in large private business, in groups of co-operating and colluding firms. Private concentrations of economic power tend to be self-reinforcing. This problem was widely recognised in America’s gilded age. The well-founded fear was that the new mega-rich – the Rockefellers, Carnegies, Vanderbilts – would use their wealth to enhance their political influence and grow their economic power, subverting both the market and democracy. Today it is Russia that exemplifies this problem.

But America has a new generation of rent-seekers. The modern equivalents of castles on the Rhine are first-class lounges and corporate jets. Their occupants are investment bankers and corporate executives.

Control of rent-seeking requires decentralisation of economic power. These policies involve limits on the economic role of the state; constraints on the concentration of economic power in large business; constant vigilance at the boundaries between government and industry; and a mixture of external supervision and internal norms to limit the capacity of greedy individuals in large organisations to grab corporate rents for themselves. Vigorous pursuit of these is the difference between a competitive market economy and a laisser-faire regime, and it is a large difference.

Privatisation and the breaking up of statutory monopolies has reduced rent-seeking by organised groups of public employees. But the scale of corporate rent-seeking activities by business and personal rent-seeking by senior individuals in business and finance has increased sharply.

The outcomes can be seen in the growth of Capitol Hill lobbying and the crowded restaurants of Brussels; in the structure of industries such as pharmaceuticals, media, defence equipment and, of course, financial services; and in the explosion of executive remuneration.

Because innovation is dependent on new entry it is essential to resist concentration of economic power. A stance which is pro-business must be distinguished from a stance which is pro-market. In the two decades since the fall of the Berlin Wall, that distinction has not been appreciated well enough.

The story is told of the Russian policymaker, visiting the US after the Soviet Union collapsed, who asked: “Who is in charge of the supply of bread to New York?” The bureaucrat had not learnt how markets work, and we are in danger of forgetting it. The essence of a free market economy is not that the government does not control it. It is that nobody does.

[Demeter]

36. How Banks View Loan Modifications

http://mandelman.ml-implode.com/2009/11/how-banks-view-loan-modification/

...Your bank views you calling to request that your mortgage be modified as the beginning of a process. Maybe you truly need and deserve a loan modification, but maybe not. The only way the bank will be able to tell one way or the other is by putting you through that process, and it’s not a pleasant process in the least.

Let’s say that you’re someone that has good credit, you’ve never missed a payment, and now are saying that you need your loan modified or you may lose your home to foreclosure. When you call your bank to ask about a loan modification, they’re going to tell you that they can’t talk to you until your payment is delinquent by at least 30 days.

You hang up the phone. You’re disappointed. And you now have your first decision to make: Do you let your credit score get trashed by going 30 days late on your mortgage? It’s not an easy decision. Once you head down that path it’ll be years before your credit score is back up where it’s always been, and if you need your credit to be good for other reasons, chances are you’ll decide that you no longer want a loan modification because the cost of trying to get one… sacrificing your credit score… is too high.

The bank’s process has just saved the bank quite a bit of money. Had the bank agreed to modify your loan, it would have been like throwing money away unnecessarily because you kept making your payments without them having to modify your loan.

Now, let’s say that you decide to go 30 days delinquent on your mortgage. You call back, now 30 days late, but now your bank tells you that you have to be 90 days late before you can be transferred to a negotiator. You hang up the phone. Again, you’re disappointed. Do you go 90 days late, or do you bring your loan current and forget the whole thing? Some bring their loans current, others don’t.

If you don’t bring your loan back to current status, you’re about to start receiving a series of letters and phone calls designed to make you feel ashamed, guilty and scared. And those letters will come more and more frequently, and they’ll be written using stronger and stronger terms. And chances are you’ll feel worse and worse as time goes by.

Then in 90 days, assuming you’ve gone the distance, you call the bank again. This time they’ll tell you that your credit score is now too low to qualify for a loan modification. Now you’re enraged. You stomp your feet. And then, if there’s anyway you can do it, chances are you bring your loan current and try to forget the whole idea of a loan modification. Maybe you get rid of a car payment to do it, maybe you rent out a room or take on a part-time job to generate the extra income you need, or maybe you borrow the money from a relative.

You never even bring up the whole experience to your friends or family members because you’re ashamed that it even happened. You’re ashamed that you were having trouble making the mortgage payment that you signed up for, and you’re ashamed about having gone 90 days late on your mortgage payment and almost losing your home. The whole thing becomes one of those skeletons that you hope will soon fade away in your closet of memories.

Besides, what would your friends or family members even say if you did tell them? Do you think they’d be on your side and angry at the way your bank treated you? Or would they take the view that the bank had every right to handle your situation the way they did, because after all, you signed the mortgage and agreed to make the payments… the bank has no obligation to lower your payment just because you having trouble making it. You’re lucky the bank didn’t foreclose, in the eyes of your friends or family members.

Oh, and one or two more things, while we’re at it… maybe you should have opted for a little less house and not gone quite so far out on a limb… maybe you should have spent a little less on your car too, and not used your credit cards for all those nice clothes you wear… maybe you’re just living way beyond your means. You’re probably not saving for retirement either. You’re one of THOSE irresponsible people and maybe losing your home to foreclosure would teach you a lesson.

Whew… it’s exhausting, isn’t it?

But, let’s say for a moment that you could not find a way to bring your mortgage payment current when told, when you were 90 days delinquent, that your score was now too low to qualify for a modification. Now you’re 120 days behind, and soon it’s been six months since you’ve made a payment to your bank on your loan.

By now the bank is sending you the most threatening letters imaginable. They could foreclose at any moment according to the letters, and their tone tells you that you are basically an irresponsible failure who cannot be trusted because your word means nothing. You promised to make the payment and now you’re not living up to that promise. You’re a promise breaker… a liar. How do you sleep at night? You shouldn’t even have friends, because if your friends knew what you were up to, they likely wouldn’t want to be your friend anymore.

Nonetheless, you’re now seven months late, then eight, and then nine. Now the bank is calling you almost daily, the pressure is becoming unbearable, you’re trying everything to make more money so that you can make the payment. If you do find a way to come up with the cash, you bring your mortgage payment current immediately. If you get a new job that pays more, you call your bank and start begging and explaining that everything is going to be okay… you’re working again… if they’d just please understand… you’re a good person… you’ll pay your payment every month and on time from now on… you’re sooooo sorry to have gotten behind… How about $1200 this week, and then $1200 the following week, and then $2000 by the end of the… blah, blah, blah.

You’re a babbling fool that will agree to just about anything the bank says at that moment. If the person you’re talking to at the bank acts the slightest bit nice to you, or comes off as even a little bit understanding of your situation… you gush with appreciation and feel like you want to be their BFF. Thank you, thank you, thank you, thank you, thank you, thank you… really… thank you so much. My husband thanks you, my children thank you… my dog thanks you. Yuck. It’s disgusting, really.

Or, maybe that’s not what happens. And now you’re almost eleven months late. You’re working. You could make a reasonable payment if you weren’t so far behind. You’ll never be able to pay off the arrears though, so what’s the point. You’re desperate… you’re about to give up and resign yourself to the fact that you’re going to lose your home to foreclosure. You’re trying to get used to the idea that you’ll soon be packing and calling the moving truck… its heart wrenching for anyone to watch.

Well, guess what? Depending on the specifics of your situation… whether there’s any equity in your home… how far underwater you are… how long are homes like yours and in your area remaining on the market before being sold? Things like that....

BUT WAIT--THERE'S MORE! SEE THE LINK FOR FULL DETAILS

Do you see what’s going on?

Since foreclosure is now imminent, the bank can’t threaten to ruin your credit score anymore, as it’s already ‘F’ and would be ‘G’ if scores went that low. The bank is now trying to figure out two things:

1. What is the likelihood of you being able to make the payment if the bank modifies your loan? What if they take the amount in arrears, tack it on to the back end of the loan, and reduce your monthly payment by a couple hundred a month? Would that do it? Or would you agree to the deal and then not be able to make the modified payment… and again in six months end up right back in foreclosure where you are now.

If the bank thinks that might happen, they won’t modify your loan. They’d rather foreclose now than go through this same thing next year and end up foreclosing then. Real estate values will likely be lower next year, so by waiting the bank just assures itself of a bigger loss on the property.

The cost of foreclosure to your bank is going to be 30% to 50%, or even more in the worst of instances. But that’s not the most important factor to your bank… this is all about your bank’s degree of certainty that if they modify your loan, you won’t be back in foreclosure anytime soon, and likely never. Your bank views a loan modification as pretty close to unthinkable in the first place, so it’s unquestionable that it’s a once in a lifetime thing in their eyes. You should be too embarrassed to even ask a bank to modify a loan a second time, according to your bank. It’s almost like… if that happens, you’ll probably want to change your name and move to another state. What a load of crap the banks have peddled our way all these years.

So, you see… it’s a range. In order to get your loan modified, you need to fall somewhere between “Definitely won’t default again if loan reasonably modified,” and “Will self-cure the mortgage before home is actually taken back by the bank”. Get it?

images-4

I talk to people all the time that have recently applied for a loan modification, and they always talk to me about how it will cost the bank more to foreclose on their particular house, so they expect the bank to modify the loan. But then the bank refuses, and I hear people say that they can’t understand it because the bank should do what’s in the best interests of investors. Then we start talking about how servicers make more money foreclosing, all of which is true.

The problem with this line of thinking, however, is that it fails to incorporate all the data… it’s not just a numbers game to the bank. First they need to know, if they offer you nothing, will you really end up losing the home to foreclosure, or will you let the Devil himself rent out a room to avoid that shameful outcome? Then they need to know that if they do accommodate you and provide you with a modification, chances are good that you’ll never miss a payment for the rest of your life.

[ozymandius]

38. A word about the stupidest former Fed chairman still alive today.

Explaining the Impact of Ultra-Low Rates to Greenspan

As noted last night, Alan Greenspan has blamed the crisis on a lack of regulation rather than ultra-low rates. (You can find his Brookings institute paper The Crisis here).

While the lack of regulatory enforcement — ironically, mostly notably by the Greenspan Fed — was no doubt a large part of the problem, his exoneration of ultra low rates is belied by history.

I detail all of this elsewhere; but perhaps the impact of low rates would be more easily understandable to the Maestro if we put it into numerical bullet point form:

1. Starting in January 2001, the FOMC began lowering rates, eventually to 1%. They kept rates below 2% for 36 months, and at 1% for over a year. This was unprecedented.

2. While these rates had myriad effects, lets focus on just two: The impact on Housing, and on global bond managers.

....skipping far ahead....

So while he is correct in pointing out that his own failures as a bank regulator are in part to blame, he needs to also recognize that his failures in setting monetary policy was also a major factor.

In other words, his incompetence as a regulator made his incompetence as a central banker even worse.

http://www.ritholtz.com/blog/2010/03/explaining-the-impact-of-ultra-low-rates-to-greenspan/

[Demeter]

63. Greenspan versus Reality, Part 1

http://alephblog.com/2010/03/21/greenspan-versus-reality-part-1/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheAlephBlog+%28The+Aleph+Blog%29

This article is derived from Greenspan’s latest paper. Greenspan’s comments are in italics. Mine are in normal type.

Greenspan begins his argument: The bankruptcy of Lehman Brothers in September 2008 precipitated what, in retrospect, is likely to be judged the most virulent global financial crisis ever.

Quite a statement, and one that I think is false, at least so far. The Great Depression was far worse.

Yet the ex post global saving – investment rate in 2007, overall, was only modestly higher than in 1999, suggesting that the uptrend in the saving intentions of developing economies tempered declining investment intentions in the developed world. That weakened global investment was the major determinant in the decline of global real long-term interest rates was also the conclusion of the March 2007 Bank of Canada study.5 Of course, whether it was a glut of excess intended saving or a shortfall of investment intentions, the conclusion is the same: lower real long-term interest rates.

The truth was that because central bank policy had not cleared away malinvestment, but had coddled it, when the emerging markets attempted to save more (whether privately or by government fiat), interest rates fell, because there were fewer productive places to invest.

Similarly in 2002, I expressed my concerns before the Federal Open Market Committee that “. . . our extraordinary housing boom . . . financed by very large increases in mortgage debt – cannot continue indefinitely.” It lasted until 2006. (Greenspan footnoted: Failing to anticipate the length and depth of emerging bubbles should not have come as a surprise. Though we like to pretend otherwise, policymakers, and indeed forecasters in general, are doing exceptionally well if we can get projections essentially right 70% of the time. But that means we get it wrong 30% of the time. In 18½ years at the Fed, I certainly had my share of the latter.)

Much as I appreciate Greenspan’s possible intellectual foresight in 2002, and his willingness to admit that he was sometimes wrong, I find fault in that he did not act on it. He kept rates low through 2004, and defended the provision of liquidity by saying it would continue for a considerable period of time.

Clearly with such experiences in mind, financial firms were fearful that should they retrench too soon, they would almost surely lose market share, perhaps irretrievably. Their fears were formalized by Citigroup’s Charles Prince’s now famous remark in 2007, just prior to the onset of the crisis, that “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing.”

Such was life under the Greenspan Put. Make money while liquidity is cheap. The Fed has our back, so lend to all but the worst prospects, and sell the loans as quickly as possible.

The financial firms risked being able to anticipate the onset of crisis in time to retrench. They were mistaken. They believed the then seemingly insatiable demand for their array of exotic financial products would enable them to sell large parts of their portfolios without loss. They failed to recognize that the conversion of balance sheet liquidity to effective demand is largely a function of the degree of risk aversion. That process manifests itself in periods of euphoria (risk aversion falling below its long term, trendless, average) and fear (risk aversion rising above its average). A lessening in the intensity of risk aversion creates increasingly narrow bid-asked spreads, in volume, the conventional definition of market, as distinct from balance sheet, liquidity.

In this context I define a bubble as a protracted period of falling risk aversion that translates into falling capitalization rates that decline measurably below their long term trendless averages. Falling capitalization rates propel one or more asset prices to unsustainable levels. All bubbles burst when risk aversion reaches its irreducible minimum, i.e. credit spreads approaching zero, though analysts’ ability to time the onset of deflation has proved illusive (sp).

I think Greenspan would benefit from reading my “What is Liquidity?” series. Risk aversion is a function of asset-liability matching (as he notes), but also of the degree of certainty of being able to make or meet fixed obligations.

I very much doubt that in September 2008, had financial assets been funded predominately by equity instead of debt, that the deflation of asset prices would have fostered a default contagion much beyond that of the dotcom boom. It is instructive in this regard that no hedge fund has defaulted on debt throughout the current crisis, despite very large losses that often forced fund liquidation.

Good, but your prior policies fostered debt-based finance, because recessions were never allowed to get too deep, and businessmen rationally chose to finance with cheaper tax-deductible debt, rather than expensive equity, because they concluded that the Fed would not allow big crises to happen.

Mathematical models that define risk, however, are surely superior guides to risk management than the “rule of thumb” judgments of a half century ago. To this day it is hard to find fault with the conceptual framework of our models as far as they go. Fisher Black and Myron Scholes’ elegant option pricing proof is no less valid today than a decade ago. The risk management paradigm nonetheless, harbored a fatal flaw.

I disagree. Good risk management is dumb risk management. Simple rules outperform complex ones over a full market cycle. Even Black-Scholes is open to question, given better models that reflect fatter tails. Aside from that, B-S did not materially improve on Bachelier (or actuaries that had discovered the same formula on terminable reinsurance treaties several years earlier). Black, Scholes, and Merton get too much credit for what was discovered previously.

Only modestly less of a problem was the vast, and in some cases, the virtual indecipherable complexity of a broad spectrum of financial products and markets that developed with the advent of sophisticated mathematical techniques to evaluate risk. In despair, an inordinately large part of investment management subcontracted to the “safe harbor” risk designations of the credit rating agencies. No further judgment was required of investment officers who believed they were effectively held harmless by the judgments of government sanctioned rating organizations.

Rating agencies offer opinions, not guarantees. They are a beginning for research, not an end. No one should rely on any third party when anything significant is at stake; they should analyze the situation themselves.

A decade ago, addressing that issue, I noted, “There is . . . difficult problem of risk management that central bankers confront every day, whether we explicitly acknowledge it or not: How much of the underlying risk in a financial system should be shouldered by banks and other financial institutions? “ have chosen implicitly, if not in a more overt fashion, to set capital and other reserve standards for banks to guard against outcomes that exclude those once or twice in a century crises that threaten the stability of our domestic and international financial systems.

“I do not believe any central bank explicitly makes this calculation. But we have chosen capital standards that by any stretch of the imagination cannot protect against all potential adverse loss outcomes. There is implicit in this exercise the admission that, in certain episodes, problems at commercial banks and other financial institutions, when their risk-management systems prove inadequate, will be handled by central banks. At the same time, society on the whole should require that we set this bar very high. Hundred year floods come only once every hundred years. Financial institutions should expect to look to the central bank only in extremely rare situations.”

At issue is whether the current crisis is that “hundred year flood.” At best, once in a century observations can yield results that are scarcely robust. But recent evidence suggests that what happened in the wake of the Lehman collapse is likely the most severe global financial crisis ever. In the Great Depression, of course, the collapse in economic output and rise in unemployment and destitution far exceeded the current, and to most, the prospective future state of the global economy. And of course the widespread bank failures markedly reduced short term credit availability. But short-term financial markets continued to function.

This was not a once-in-a-century event. It was produced by weak monetary policy, and weak credit policy, leading to too much private debt being created. Had the Fed done its duty, and kept monetary policy tighter for longer, we might not have come to this ugly juncture. This situation is not an accident. It could have been prevented by the Fed had it kept interest rates higher for longer.

More as this series continues…

[snot]

69. nothing showing up in italics for me.

[Demeter]

70. I know--but I thought it was clear

if you want the italics, see the link

[ozymandius]

39. Fed Told to Hand Over Friedman Documents

Lawmakers demanded documents from the Federal Reserve relating to the purchases of Goldman Sachs Group Inc. stock by Stephen Friedman, the former Goldman executive who stepped down as chairman of the Federal Reserve Bank of New York last year because of a controversy over those purchases.

Mr. Friedman's Goldman stock purchases, which occurred in December 2008 and January 2009, raised "serious questions about the integrity of the Fed's operations," Edolphus Towns, chairman of the House Committee on Oversight and Government ...

subscription required

http://online.wsj.com/article/SB10001424052748704534904575132014207535690.html?mod=WSJ_hps_LEFTWhatsNews

[Demeter]

44. TRY THIS LINK

http://online.wsj.com/article/SB10001424052748704534904575132014207535690.html

[Demeter]

40. Parenteau: The Hyperinflation Hyperventalists

http://www.nakedcapitalism.com/2010/03/parenteau-the-hyperinflation-hyperventalists.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

By Rob Parenteau, CFA, sole proprietor of MacroStrategy Edge, editor of The Richebacher Letter, and a research associate of The Levy Economics Institute who writes at New Deal 2.0

After a slugfest on fiscal deficits, I find that the question of hyperinflation now demands an answer. And here it is: fiscal deficit spending may be a necessary condition of hyperinflation, but it is hardly a sufficient condition.

Think this is yet another rant against the “deficit errorists?” Think again. Paul Krugman treated this question in his March 18th New York Times column:

Hyperinflation is actually a quite well understood phenomenon, and its causes aren’t especially controversial among economists. It’s basically about revenue: when governments can’t either raise taxes or borrow to pay for their spending, they sometimes turn to the printing press, trying to extract large amounts of seignorage – revenue from money creation. This leads to inflation, which leads people to hold down their cash holdings, which means that the printing presses have to run faster to buy the same amount of resources, and so on.

Krugman locates the source of hyperinflation in what is termed the “monetization” of fiscal deficit spending. He then attributes its perpetuation to shifts in the liquidity preferences of people — that is, the share of their portfolio that households and firms wish to hold in cash or cash like investment instruments (think Treasury bills, or money market mutual funds, for example). Krugman’s logic means that even the liberal wing, or the saltwater contingent, of the economics world has a touch of deficit errorism. We would invite Paul to take a closer look at the UBS research on public debt to GDP ratios and inflation first released last summer, reprinted in a FT Alphaville note, and discussed on Naked Capitalism. The story of inflation and fiscal deficits is more ambiguous, or at least more complex than the deficit errorists would have you believe.

Coincidentally, an investment manager friend forwarded me a letter that Ebullio Capital Management* allegedly sent to its clients after February’s investment results, which took them down nearly 96% for the year – virtually wiping out their stellar gains of the prior two years. The letter reveals that Ebullio was so ebullient about the possibility (inevitability?) of hyperinflation emerging from recent policy excesses that they bet the ranch on hyperinflation plays in the commodity corner of the investing world (metals), and lost big time. While we still have questions as to whether this is a spoof or not, there are undoubtedly people sitting around in gold wondering whether the old yellow dog is going to get up and bark again anytime soon. Although hyperinflation hyperventilation has been catching on in recent months, especially amongst the deficit errorists, gold has been dead money since late November 2009.

What gives? As a piece I wrote in the July issue of The Richebacher Letter explains, hyperinflation requires extreme conditions not just on the demand side, but on the supply side as well. A month after the Richebacher piece, Bill Mitchell published a similar conclusion. To summarize our findings: on the demand side, in order for household spending power to keep up with rising prices, household nominal incomes or credit access must be ratcheted up in synch with price hikes. Otherwise, the price hikes will not stick. Households will have to pull back less-essential spending areas to afford the same quantity of goods in essential items. So your gas, home heating oil, health care, or food bill goes up, and you cut back on your restaurant and entertainment spending, unless your paycheck also increases, or you can tap more credit. That is why hyperinflation episodes need more than just deficit spending. It is true, as Marshall Auerback and I explained in a recent New Deal 2.0 post, that fiscal deficits increase the net cash flow for the household sector as a whole. But we also usually observe some sort of escalator clauses or cost of living adjustment mechanisms built into wage contracts that allow this ratcheting up of household income pari passu with the inflation hikes. Take that element away — and it is a recurring theme in historical episodes of hyperinflation — and households cannot keep up with hyperinflation. The higher prices cannot get validated by higher consumer spending. The hyperinflation flares out.

Beyond this demand side component, which is scarcely to be found in the US wage contracts these days (although we must mention it is built into some government benefit programs like social security), there is the supply side issue. Productive capacity must be closed or abandoned in order for the hyperinflation to really rip. There is a built-in dynamic that encourages this. As the hyperinflation gets recognized, entrepreneurs eventually figure out that they would be much better off speculating in commodities (like Ebullio), buying farmland, chasing gold and other precious metals, or more generally, repositioning their portfolios and reinvesting their profits in tangible assets with relatively fixed supplies. That is, goods that are fairly nonreproducible become stores of value, as it is their prices that tend to rise most swiftly, since higher prices cannot, by definition, elicit any new supplies. Hence, those of you who lived through the ‘70s (and still remember what you were doing) will recall high net worth households were busy hoarding ancient Chinese ceramics while the middle class was chasing residential real estate, and the stock market basically went sideways.

In the case of the Weimar Republic following WWI, and Zimbabwe most recently, remember that war (civil or international), has an impeccable way of destroying productive capacity in a nation, or rerouting it to the production of war material. In the Weimar episode, the final back-breaking run up in hyperinflation accompanied the occupation by the French of the Ruhr Valley, which held a fair concentration of German production facilities. In solidarity with the workers who struck those plants in response, the Weimar Republic continued to pay the workers through fiscal measures. Cut production, but continue income flows, and you have the recipe for the kind of unresolved distributional conflict that often lies at the heart of the inflation process. Mainstream economics and popular lore refuse to see this.

Suffice it to say that hyperinflation takes a very special set of conditions. It is not, contra Paul Krugman, all about fiscal deficits, nor is it only about fiscal deficits. That is why we do not see hyperinflation breaking out all over the place on any given day, despite the fact the governments have to first create the money that you and I use to pay taxes or buy Treasury bonds (because even though we “make” money, we cannot create it, without risking a spell in jail for counterfeiting). Know your history. Try not to pass out with the hyperventilating hyperinflationistas: they are a particularly virulent wing of the deficit errorists, and they may simply leave you in a state similar to the one alleged to have been experienced by Ebullio Capital Management’s clients.

[Demeter]

46. Oh no … Bernanke is loose and those greenbacks are everywhere

http://bilbo.economicoutlook.net/blog/?p=8796

My RSS feed and E-mails have brought some shockers in the last few days from the financial markets – official bulletins from banks that don’t make any sense at all (US about to default-type arguments); hysterical Austrian school logic (from a large player in the Asian markets) and news commentary from a so-called business insider magazine. The latter should immediately close its doors and declare they are not competent to comment on matters relating to banking. Coincidentally, I also received several E-mails in the last few days asking me to comment on the particular Austrian document noted above that has been circulating within financial markets recently. I deal with that later in the post. Anyway, apart from my main research and other writing activities this blog stuff is “all in a day’s work” – Friday March 19, 2010.

Bernanke about to kill the World

Yesterday (March 18, 2010) one Michael Snyder wrote in horror that – Bernanke Wants to Eliminate Reserve Requirements Completely.

He correctly notes that the US has maintained a “fractional reserve” banking system up until now although he doesn’t realise that this is just one of the many relics that remain from the gold standard/convertible currency era that ended in 1971. Everyone will catch up eventually.

You can read about the fractional reserve system from the Federal Point page maintained by the FRNY. For example, they say:

As of December 2006, the reserve requirement was 10% on transaction deposits, and there were zero reserves required for time deposits … The transactions-account reserve requirement is applied to deposits over a two-week period: a bank’s average reserves over the period ending every other Wednesday must equal the required percentage of its average deposits in the two-week period ending the Monday sixteen days earlier. Banks receive credit in one two-week period for small amounts of excess reserves they held in the previous period; similarly, a small deficiency in one period may be made up with excess reserves in the following period. Banks that fail to meet their reserve requirements can be subject to financial penalties.

So straight-forward but totally unnecessary.

Mainstream economics textbooks think that the fractional reserve requirements provide the capacity through which the private banks can create money. The whole myth about the money multiplier is embedded in this erroneous conceptualisation of banking operations. The FRNY educational material even perpetuates this myth. They say:

If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+…=$1,000). In contrast, with a 20% reserve requirement, the banking system would be able to expand the initial $100 deposit into a maximum of $500 ($100+$80+$64+$51.20+…=$500). Thus, higher reserve requirements should result in reduced money creation and, in turn, in reduced economic activity.

This is clearer than Mankiw writes but just as wrong if it is trying to represent the way the banking system actually operates. And the FRNY knows it. If you read on they qualify to the point of rendering the last paragraph irrelevant.

After some minor technical points about which deposits count to the requirements, they say this:

Furthermore, the Federal Reserve operates in a way that permits banks to acquire the reserves they need to meet their requirements from the money market, so long as they are willing to pay the prevailing price (the federal funds rate) for borrowed reserves. Consequently, reserve requirements currently play a relatively limited role in money creation in the United States.

Read: no role.

As we have discussed many times banks seek to attract credit-worthy customers to which they can loan funds to and thereby make profit. What constitutes credit-worthiness varies over the business cycle and so lending standards become more lax at boom times as banks chase market share (this is one of Minsky’s drivers).

These loans are made independent of the banks’ reserve positions. Depending on the way the central bank accounts for commercial bank reserves, the latter will then seek funds to ensure they have the required reserves in the relevant accounting period. They can borrow from each other in the interbank market but if the system overall is short of reserves these “horizontal” transactions will not add the required reserves. In these cases, the bank will sell bonds back to the central bank or borrow outright through the device called the “discount window”. There is typically a penalty for using this source of funds as noted in the qualification above by the FRNY.

At the individual bank level, certainly the “price of reserves” will play some role in the credit department’s decision to loan funds. But the reserve position per se will not matter. So as long as the margin between the return on the loan and the rate they would have to borrow from the central bank through the discount window is sufficient, the bank will lend.

So the idea that reserve balances are required initially to “finance” bank balance sheet expansion via rising excess reserves is inapplicable. A bank’s ability to expand its balance sheet is not constrained by the quantity of reserves it holds or any fractional reserve requirements. The bank expands its balance sheet by lending. Loans create deposits which are then backed by reserves after the fact. The process of extending loans (credit) which creates new bank liabilities is unrelated to the reserve position of the bank.

The major insight is that any balance sheet expansion which leaves a bank short of the required reserves may affect the return it can expect on the loan as a consequence of the “penalty” rate the central bank might exact through the discount window. But it will never impede the bank’s capacity to effect the loan in the first place.

For further discussion on this, please read – Money multiplier and other myths
http://bilbo.economicoutlook.net/blog/?p=1623

Further, please read the following blogs – Building bank reserves will not expand credit

http://bilbo.economicoutlook.net/blog/?p=6617

and Building bank reserves is not inflationary

http://bilbo.economicoutlook.net/blog/?p=6624

– for further discussion on bank reserves.

That is all essential background for understanding the rest of the story...

[Demeter]

43. Leipzig in legal wrangle with banks over CDS

http://www.ft.com/cms/s/0/a3068292-339b-11df-9223-00144feabdc0.html

The German city of Leipzig and banks including UBS are embroiled in legal action over demands for the city to pay tens of millions of euros this week stemming from derivatives contracts.

The case is a further example of how cities have been left facing potentially damaging bills after they used complex financial instruments that have turned out to involve unforeseen levels of risk...Many German cities were users of derivatives transactions during the past decade to try to reduce interest payments or balance their books at a time of falling revenues.

Leipzig says its locally owned water company was involved in credit default swaps and collateralised debt obligations as part of a transaction with UBS, Depfa Bank and Landesbank Baden-Württemberg.

The water company, KWL, in effect insured the banks against losses on a portfolio of loans that the city says amounts to €290m ($393m).

Leipzig has refused to meet deadlines that it said fell due this week for about €84m of payments under the credit swap contract and has begun legal action.

UBS said it had begun proceedings this year in the High Court in London against KWL to uphold the contract between them.

“The parties chose to resolve all disputes in England. As this is an ongoing legal proceeding, we cannot give any further details other than confirming that UBS disputes KWL’s subsequent German claims,” UBS said.

Depfa, a unit of Hypo Real Estate, declined to comment.

Leipzig argues that the managers of the water company, who have been dismissed, entered the derivatives contract unbeknown to supervising authorities.

It is thought that Leipzig’s credit swap arrangements with UBS and others arose from seeking to restructure elements of an earlier sale and leaseback scheme to sell assets, including the water works, to US investors.

That transaction was one of dozens of “cross-border leasing” deals that German municipalities carried out in the early part of the past decade, taking advantage of varying tax treatments of leased assets in the US and Germany in the expectation of financial gain for both parties. The deals involved publicly owned buildings, transport infrastructure and utilities.

Since the crisis, some of the cities involved in these deals have faced a fresh financial burden. In some cases they had to seek extra collateral because of added counterparty risk.

[Demeter]

45. Federal Reserve Must Disclose Bank Bailout Records (Update5)

http://www.bloomberg.com/apps/news?pid=20601087&sid=a2rzjENZQV5k

The Federal Reserve Board must disclose documents identifying financial firms that might have collapsed without the largest U.S. government bailout ever, a federal appeals court said.

The U.S. Court of Appeals in Manhattan ruled today that the Fed must release records of the unprecedented $2 trillion U.S. loan program launched primarily after the 2008 collapse of Lehman Brothers Holdings Inc. The ruling upholds a decision of a lower-court judge, who in August ordered that the information be released.

The Fed had argued that disclosure of the documents threatens to stigmatize borrowers and cause them “severe and irreparable competitive injury,” discouraging banks in distress from seeking help. A three-judge panel of the appeals court rejected that argument in a unanimous decision.

The U.S. Freedom of Information Act, or FOIA, “sets forth no basis for the exemption the Board asks us to read into it,” U.S. Circuit Chief Judge Dennis Jacobs wrote in the opinion. “If the Board believes such an exemption would better serve the national interest, it should ask Congress to amend the statute.”

The opinion may not be the final word in the bid for the documents, which was launched by Bloomberg LP, the parent of Bloomberg News, with a November 2008 lawsuit. The Fed may seek a rehearing or appeal to the full appeals court and eventually petition the U.S. Supreme Court.

Right to Know

If today’s ruling is upheld or not appealed by the Fed, it will have to disclose the requested records. That may lead to “catastrophic” results, including demands for the instant disclosure of banks seeking help from the Fed, resulting in a “death sentence” for such financial institutions, said Chris Kotowski, a bank analyst at Oppenheimer & Co. in New York.

“Whenever the Fed extends funds to a bank, it should be disclosed in private to the Congressional oversight committees, but to release it to the public I think would be a horrific mistake,” Kotowski said in an interview. “It would stigmatize the banks, it would lead to all kinds of second-guessing of the Fed, and I don’t see what public purpose is served by it.”

Senator Bernie Sanders, an Independent from Vermont, said the decision was a “major victory” for U.S. taxpayers.

“This money does not belong to the Federal Reserve,” Sanders said in a statement. “It belongs to the American people, and the American people have a right to know where more than $2 trillion of their money has gone.”

MORE AT LINK

[Demeter]

48. WSJ: Business Sours on China

http://www.benzinga.com/178636/wsj-business-sours-on-china

A very interesting headline story in the Wall Street Journal, on how foreign business is increasingly wary in doing business with China. So many cross currents happening here, it is hard to even begin to touch the surface of the topic... but a lot of this should be of no surprise. There has been a reason every foreign investment in China is done by joint venture and since the time frame of foreign executives (especially of the American kind) is very different then the Chinese, what has been a 'win-win' in the near term (10-20 years) is going to potentially create some major stresses down the road. For now, multinationals have been able to shed costs (Western labor) at a rapid clip, creating massive wins for the executive class while (to gain access to the China market) being forced to share know how, technology, and the like. Eventually the Chinese are going to find these Western companies "inconvenient" to keep around....

Many dismiss any threat from this relationship because "the Chinese don't know how to innovate"... what beautiful narcissistic dogma. Give it 2 generations... already we can see on the horizon Chinese cars coming to the US market (3-5 years). Just as Hyundai was laughed at 20 years ago, so will this first wave. But check to see what auto company fared best in the past 3 years. Rinse, wash, repeat across industry after industry... as more and more manufacturing and now research & development centers sprout up across China.

These are long term trends, and on Wall Street if the tree is not directly ahead of us, we could care less. But the greater issues for economies, countries, and our dear multinationals are going to be multi faceted. In the meantime, our pathetic political class - in a move to find a fall guy to distract Americans from their inability to do a darn thing - are now creating a new villian... the Chinese.

* Five senators including Charles Schumer of New York and Lindsey Graham of South Carolina introduced legislation yesterday to make it easier for the U.S. to declare currency misalignments and take corrective action. Even if the bill stalls, it may have “ripple effects” that lead the Treasury Department to declare China a currency manipulator, William Reinsch, president of the National Foreign Trade Council, said.

* “The only way we will change them is by forcing them to change,” Schumer said. The yuan is undervalued by as much as 40 percent, which is “blatant protectionism,” Bergsten said.

Of course, just as America is neutered in many areas of the Middle East due to its addiction to oil (remember our limp response to $140 oil), it is very similarly neutered in China. Geithner almost caused an international incident in his confirmation meetings when people thought he implied China *might* be manipulating its currency. How can you strike back against your drug dealer? Who would buy all our IOUs?? Oh baby... somewhere Niall Ferguson is smoking a cigar and cackling as he watches this play out. \

Via WSJ:

* China's relationship with foreign companies is starting to sour, as tougher government policies and intensifying domestic competition combine to make one of the world's most important markets less friendly to multinationals. Interviews with executives, lawyers, and consultants with long experience in China point to developments they say are making it much harder for many foreign companies to succeed. They say the changes suggest Beijing is reassessing China's long-standing emphasis on opening its economy to foreign business—epitomized by the changes it made to join the World Trade Organization in 2001—and tilting toward promoting dominant state companies.

* Technology executives say they are highly concerned about government procurement rules issued late last year that would favor local suppliers who have "indigenous innovation." The rules, if implemented, could limit foreign access to tens of billions of dollars in contracts for computers, telecommunications gear, office equipment and other goods.

* Patent rules imposed Feb. 1 threaten to increase costs in China for foreign innovators in industries such as pharmaceuticals, and let authorities force foreign drug companies to license production to local companies at state-set prices.

* Executives in several industries say the liberalization spurred by China's WTO entry is stalling. Foreign makers of wind turbines and solar panels say they are being shut out of big renewable-energy projects. (even as much of Americ'a stimulus money - i.e. taxpayer money - for renewables is going to China) Regulatory barriers effectively cap participation in insurance: Foreign companies had just 4.7% of China's life-insurance market as of June, and 1% of its property and casualty market, according to PricewaterhouseCoopers.

* Some sectors haven't been significantly hindered. Car makers like Volkswagen AG and General Motors Co. benefited hugely from China's booming market last year. But state-run media have reported government plans to increase domestic brands' share to over 50% of passenger vehicles by 2015, from 44% last year.

* Many foreign executives say they see an upsurge in economic nationalism, accelerated by China's world-beating performance during the recession and a new disdain for Western economic management.

* Signs of nationalism are evident in the grooming of state-owned companies to dominate their industries as "national champions," often at the expense of private Chinese companies as well as foreign firms. From airlines to coal mining to dairy products, government policies are expanding the state's role.

* For many multinationals in China, today's profits follow years of investment, much of it encouraged by government policies designed to lure capital. Now, at the point when their dream of access to a giant market is becoming reality, China is so prosperous that it has less need for foreign funds. (bingo)

* Beijing has long harbored suspicions the West wants to hobble its economic rise. Analysts say that lately, such insecurities have strengthened the hand of leaders who want to limit foreign presence in the economy. While there are still proponents of openness, says Mr. Ross of WilmerHale, "there are louder voices pushing China to be more protectionist and to be more nationalist."

[Demeter]

49. IT WAS A WONDERFUL LIFE (Featured Article)

http://theburningplatform.com/blog/2010/03/18/it-was-a-wonderful-life/

“Just a minute – just a minute. Now, hold on, Mr. Potter. You’re right when you say my father was no businessman. I know that. Why he ever started this cheap, penny-ante Building and Loan, I’ll never know. But neither you nor anyone else can say anything against his character, because his whole life was – why, in the twenty-five years since he and Uncle Billy started this thing, he never once thought of himself. Isn’t that right, Uncle Billy? He didn’t save enough money to send Harry to school, let alone me. But he did help a few people get out of your slums, Mr. Potter, and what’s wrong with that? Why – here, you’re all businessmen here. Doesn’t it make them better citizens? Doesn’t it make them better customers? You – you said – what’d you say a minute ago? They had to wait and save their money before they even ought to think of a decent home. Wait? Wait for what? Until their children grow up and leave them? Until they’re so old and broken down that they… Do you know how long it takes a working man to save five thousand dollars? Just remember this, Mr. Potter, that this rabble you’re talking about… they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath? Anyway, my father didn’t think so. People were human beings to him. But to you, a warped, frustrated old man, they’re cattle. Well, in my book he died a much richer man than you’ll ever be.” – Jimmy Stewart as George Bailey in It’s a Wonderful Life

The year was 1946. It marked the inauguration of the last High in America. A Crisis had begun abruptly with the 1929 Black Tuesday stock-market crash. After a three-year financial free fall, the ensuing Great Depression prompted FDR’s New Deal social welfare programs, an enormous extension of government, and expectations for a revitalization of our national community. After the attack on Pearl Harbor, America planned, mobilized, and manufactured for conflict on a level that made possible the colossal D-Day invasion. Two years later, the Crisis mood eased with America’s unexpectedly painless demobilization. Director Frank Capra produced and directed one of the most beloved movies of all-time in 1946 – It’s a Wonderful Life. The movie is a beloved Christmas classic. It is a story of hope, redemption, belief in the goodness of man, and belief in God. If you are down in the dumps or depressed, watch this movie and your spirits will be lifted. What is less evident, but more pertinent today, is the distinction between the America that we were versus the America we could have become. The America we did not want to become was controlled and manipulated by an evil, soul-less banker. It was a dark foreboding Gomorrah-like world of bars, strip joints, casinos and tenement housing. The citizens were angry, rude and mistrustful. In the movie, George Bailey, played by Jimmy Stewart, is able to see how his small town would have turned out if he had never been born. In the real world, people and countries don’t have an opportunity to see how their decisions will affect the future. The American people and their elected leaders have made some dreadful decisions since 1946 that have drained the life out of the American Dream. God and morality have lost their meaning and importance in modern America. When the distinction between good and evil is blurred by the media and intellectuals, the degradation of society and morality leads to a downward death spiral.

The movie’s setting takes place between 1910 and Christmas Eve 1946 in the mythical town of Bedford Falls. The basis for the town was Seneca Falls, New York. The themes of the movie are good versus evil, David versus Goliath, egocentric self interest versus contributing to the greater community, good small town bankers versus bad corporate bankers, and whether one person’s life has a greater meaning. The movie opens with God hearing the many prayers for George Bailey from the townspeople of Bedford Falls on Christmas Eve 1946. He assigns Clarence, angel second class, to save George. Joseph, the head angel, reviews George’s life for Clarence. At the age of 12, George saved the life of his younger brother Harry who had fallen through the ice on a pond, with George losing the hearing in one ear. Later, as an errand boy in a pharmacy, George saved his grief-stricken boss, druggist Mr. Gower, from mistakenly filling a child’s prescription with poison.

George’s lifelong dream was to see the world. On Harry’s graduation night in 1928, George’s father, who runs the local Building & Loan had a stroke, which proved fatal. Mr. Potter, a heartless slumlord and majority shareholder in the Building and Loan, tries to persuade the board of directors to stop providing home loans for the working poor. George persuaded them to reject Potter’s proposal, but they agreed only on the condition that George himself run the Building and Loan. He selflessly gave his college money to his brother.

When Harry graduated from college, he unexpectedly brought home a wife, whose father had offered Harry an excellent job in his company. George could not deny his brother such a fine opportunity. Once more, George set aside his ambitions.

After their wedding, as George and Mary leave town for their honeymoon, they witnessed a run on the bank that left the Building and Loan in danger of collapse. Potter offered George’s clients “50 cents on the dollar,” but George and Mary quelled the panic by using the $2,000 earmarked for their honeymoon to satisfy the depositors’ needs until confidence in the Building and Loan was restored. George started up Bailey Park, an affordable housing project. Residents no longer had to pay Potter’s high rents. When World War II erupted, George was unable to enlist, due to his bad ear. Harry became a fighter pilot and was awarded the Medal of Honor for shooting down 15 enemy aircraft, including one that would have slammed into a U.S. transport ship full of troops.

On Christmas Eve, 1946, Uncle Billy was on his way to deposit $8,000 for the Building and Loan when he ran into Mr. Potter. He proudly showed Potter the front-page article about Harry receiving the Medal of Honor. Potter grabs the newspaper angrily and later discovers the money inside; he keeps it. When Uncle Billy goes to deposit the money, he finally realizes it is missing. Frantic searching fails to turn it up. In desperation, George appeals to Potter for a loan to save the company, but Potter turns him down and swears out a warrant for his arrest for bank fraud.

George, facing “scandal and bankruptcy and prison”, gets drunk to escape his woes. Driving wildly in a snowstorm, he crashes his car into a tree near a river. Completely devastated, George staggers to a bridge that spans the river, intending to commit suicide, and feeling he is “worth more dead than alive” because of a $15,000 life insurance policy. Before George can leap in, however, Clarence jumps in first and pretends to be drowning. After George rescues him, he reveals himself to be George’s guardian angel. Clarence then proceeds to show George how many lives would have been changed for the worse if George had never been born. The scene that convinces George he needs to live is seeing his younger brother’s tombstone showing 1902 – 1911...

A VERY LONG, ENGROSSING SUMMARY OF WHERE WE ARE, HOW WE GOT THERE, AND HOW TO GET BACK ON TRACK

[DemReadingDU]

57. long, but it has pictures too

Excellent article by James Quinn

[Demeter]

50. Shortcomings Exposed in Oil Data

http://online.wsj.com/article/SB10001424052748703523204575130141392493862.html

The U.S. government faces shortcomings in producing its oil-inventory data, according to internal Department of Energy documents, casting doubt on figures that affect the production and prices of the world's most important industrial commodity.

The documents, obtained through a Freedom of Information Act request, expose several errors in the Energy Information Agency's weekly oil report, including one in September that was large enough to cause a jump in oil prices, and a litany of problems with its data collection, including the use of ancient technology and out-of-date methodology, that make it nearly impossible for staff to detect errors. A weak security system also leaves the data open to being hacked or leaked, the documents show.

Moreover, problems with EIA data underscore the hazards of depending on companies or other firms to self-report data...

[Demeter]

51. Battle of the Youth Bulge

NO LINK AVAILABLE


How certain large populations of idle young men will likely change the world... for the worse

"Between 1970 and 1999, 80% of civil conflicts occurred in countries where 60% of the population or more were under the age of thirty... Today there are sixty-seven counties with youth bulges, of which sixty of them are experiencing social unrest and violence." - Council on Foreign Relations

A surge in youth population leads most nations in one of two directions: Economic boom or social bust. While much of the world is currently focused on the aging populations of powerhouse nations like the US and Japan, certain regions of the world are growing startlingly younger. Social scientists call these phenomena "youth bulges." By necessity, they take time to play out. But even in these early stages, it's easy to see what's coming...and a lot of it is pretty unsettling.

Yemen has captured American attention just a few times in the last decade. The assailants of the USS Cole were from there, and the infamous "underwear bomber" - who was trained in Yemen - tried to spoil Christmas Day 2009. In both cases, we as a nation spent the proceeding weeks tripping over ourselves...searching for answers as to how this came to be, who to blame, and how to stop it from happening again.

But, as usual, few ask "why?" That's a more stinging question, of course. One of the few easy answers is this: Yemen is overflowing with disaffected kids. An amazing 46% of the Yemeni population is under 16 years old. That's the highest youth ratio for any nation in the world outside of Africa. By comparison, only 20% of Americans occupy this demographic.

Recipe for Disaster

If there's a better model out there for youth bulges at risk, we can't find it. Yemen has been plagued with civil war for most of the last century. 45% of the population lives in poverty. Social mobility is a rarity. Barley half the population can read. Life expectancy is relatively low (60 years old for men). Only 3% of the land is arable and most of the nation suffers a constant shortage of potable water.

What little land and water is available for agriculture is mostly used for growing khat - the same amphetamine-like narcotic that helped turn Americas' brief occupation of Mogadishu into "Black Hawk Down." The drug is hugely popular in Yemen, where as much as 90% of men chew it everyday. A headline of a recent TIME article gives the addiction credence - "Is Yemen Chewing Itself to Death?"

The icing on Yemen's sheet cake of problems: The nation's one great source of income - oil, which accounts for 75% of government revenue - will likely run dry by 2020. In other words, the country has less than ten years to completely reinvent its economy.

Yet despite it all, the Yemeni population has doubled since 1975 to 22 million, now the second most populous nation in the Arab peninsula. Today, the average woman in Yemen has 6.5 children.

Why the West Should Listen Up

Does Yemen's "youth bulge" matter to the Western world? Ask the passengers of Northwest Airlines Flight 253, or seamen of the USS Cole, or all the travelers, soldiers and businesses that will be affected by subsequent policies.

Yemen's porous borders, lack of police force, predominantly Muslim population and disaffected youth are ideal breading grounds for Islamic radicalism. Yemen was second only to Saudi Arabia in the number of soldiers sourced to fight the USSR in Afghanistan in the '80s...the very group of soldiers that would one day form a group called "Al Qaeda."

Any government or business that plans on sailing through the Red Sea should take notice. Other than sailing around Africa, there is simply no way to connect the Indian Ocean and Mediterranean Sea without brushing up against Yemen. Its narrow Mandab Strait is the only way into the Red Sea and Suez Canal. Over 3.3 million barrels of oil pass through this strait every day, roughly 7% of daily global tanker loads.

Worse yet, what can be said for Yemen is hardly dissimilar from many of its Middle Eastern neighbors. At least 40% of the populations of Iraq, Afghanistan, Sudan and Oman are under 14 years old. In the whole Middle Eastern region, 65% of the population is under 30. Suffice to say many are struggling with plights themselves...food and water scarcity, peak oil, Jihadism, political instability, etc. The same goes for most of Africa, too - though few nations there wield the same kind of petrol- power or propensity for global terrorism as the Middle East.

"The 'War on Terrorism' promises to be expensive," Bill Bonner and I observed in Financial Reckoning Day seven years ago, "simply because there are so many potential terrorists to fight. Westerners constitute a decreasing minority of the global population: In 1990, they amounted to 30% of humanity; in 1993 that number had dropped to 13% and by 2025, following current trends, the percentage will fall to 10%. At the same time, the Muslim world is growing younger and increasing in numbers.

"In fact, Muslims' market share of the global population has increased dramatically throughout the twentieth century and will continue to do so until the proportion of Westerners to Muslims is inverse that of the 1900 ratio. By 1980, Muslims constituted 18% of the world's population and, in 2000, more than 20%. By 2025, they are expected to account for 30% of world population."

Thus, like the Protestant Reformation, the French Revolution, the Iranian Revolution or even the "free love" '60s here in the US - a very large, disaffected population in the Middle East is coming of age. If social and political conditions there remain the same - and we see little reason why they wouldn't - the worst from the region is likely yet to come. And if the social and political scene there deteriorates - with the help of peak oil, religious wars and constant Western intervention - darker times are practically guaranteed.

[DarrinBridges]

52. Local Candidate

I can't believe how mean and out of touch these tea bag people are.

We need more people in office that are going to stand up for the people!

I'm supporting a local candidate for Mayor in Cumberland, MD. He is progressive and embodies all of the kinds of things that we really need in our community. Can anybody help with an idea of how to raise some funds to help him run? He has a website that lets you donate online at http://electbriangrim.com/contribute.htm but I was thinking if there was a way to get a bunch of people to just donate like $10.00 it would be really helpful.

[bread_and_roses]

55. "A Ruinous Meltdown"

Just like the tape recorder:

http://www.commondreams.org/view/2010/03/20-0

A Ruinous Meltdown

by Bob Herbert

A story that is not getting nearly enough attention is the ruinous fiscal meltdown occurring in state after state, all across the country...

... "We've talked in the past about revenue declines in a recession," said Jon Shure of the Center on Budget and Policy Priorities, "but I think you have to call this one a revenue collapse. In proportional terms, there has never been a drop in state revenues like we're seeing now since people started to keep track of state revenues. We're in unchartered territory when it comes to the magnitude of the impact."

...In the first two months of this year, state and local governments across the U.S. cut 45,000 jobs. Additional layoffs are expected as states move ahead with their budgets for fiscal 2011. Increasingly these budgets, instead of helping people, are hurting them, undermining the quality of their lives, depriving them of educational opportunities, preventing them from accessing desperately needed medical care, and so on...

Bob Herbert, however, seems to think there is some "reasonable" mix of cuts and revenue enhancements that the States should be looking at.

All states have been rocked by the Great Recession. And most have tried to cope with a reasonable mix of budget cuts and tax increases, or other revenue-raising measures. Those that rely too heavily on cuts are making guaranteed investments in human misery.

However, he fails to note that the "tax increases" the states have been enacting seem to be mostly taxes on consumers or on necessary services - the burden falling on working people and the poor - including the increasing numbers of new poor - laid off workers trying to manage, say, on $405 week unemployment insurance (The current maximum weekly benefit rate in NY - obviously, if you were a school aide, for instance, you'll get a lot less) instead of a job.

He does not mention the failure of states like to NY to consider taxing Wall St. transactions (or, actually, not REBATING the transaction tax actually on the books, as I my understanding of what NY does now...yes, indeed, with the state in collapse, they collect a tax on Wall St. transactions, then immediately rebate 100% of it! There's a move afoot to keep, I think - 20%? - evidently that would solve our immediate fiscal crisis - but of course, you don't hear much about it and our current Assembly leader is from the district that includes Manhattan so it's probably dead in the water).
on edit: that Assembly leader, btw, is a Democrat.

Just looked it up - yes, it's 20% - 80% is still rebated...
http://www.abetterchoiceforny.org/

Something similar is being proposed on a national level but of course..."Treasury Secretary Timothy Geithner says the Obama administration isn't on board with the efforts."
http://www.marketwatch.com/story/liberals-continue-to-push-for-financial-trades-tax-2010-02-16
(hey! i got marketwatch in a post!)

And I'd like to ask Bob Herbert just what is a "reasonable" mix of cuts and taxes? Would that be cutting HALF the children off the child insurance program instead of ALL of them, as Arizona has done? Are half the deaths and untreated illnesses and families running from ER dunning due to no way to go to the Dr. before the baby's chest starts rattling and s/he starts wheezing and sounds like s/he's about to stop breathing any minute?

We have been crushing the poor and the working class for years by allowing wages to stagnate or decline while we raise taxes and fees on the services ordinary people use - car registrations, etc. And we wonder why they rail against "big gubm't?" All they see of government is it's burden on them, while if they have a child with special needs or an elder who needs care they are likely to be "not poor enough" to qualify for help or, if they are, have to fight for and then get shoddy and inadequate services due to budget cuts, staff reductions, etc.

We are so well and truly screwn.

[DemReadingDU]

56. The Offshored Economy Paul Craig Roberts

3/19/10 The Offshored Economy Paul Craig Roberts

In the 20th century, Detroit, Mich., symbolized American industrial might. Today it symbolizes the offshored economy. Detroit’s population has declined by half. A quarter of the city—35 square miles—is desolate with only a few houses still standing on largely abandoned streets. If the local government can get the money from Washington, urban planners are going to shrink the city and establish rural areas or green zones where neighborhoods used to be.

How does an economy recover when its economic leaders have spent more than a decade moving high productivity, high value-added middle class jobs offshore along with the Gross Domestic Product associated with them?

Some very discouraging reports have been issued this month from the Bureau of Labor Statistics. There have been record declines in both jobs and hours worked. At the end of last year, the U.S. economy had fewer jobs than at the end of 1997, twelve years ago. Hours worked at the end of last year were less than at the end of 1995, fourteen years ago. The average workweek is falling and currently stands at 33.1 hours for non-supervisory workers.

more...
http://www.informationclearinghouse.info/article25027.htm
or
http://www.vdare.com/roberts/100317_offshored_economy.htm

[Joe Chi Minh]

58. Together with the video clips, I find this song of Johnny Cash on

YouTube quite moving:

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

[Demeter]

60. Extolling the Corporate Squeeze of Workers?

http://www.nakedcapitalism.com/2010/03/extolling-the-corporate-squeeze-of-workers.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29


I don’t mean to beat up on Spencer at Angry Bear, who has provided an interesting set of comparisons on the perennial question of many investors, “Whither the stock market?”

But one section of his discussion, precisely because it is such conventional thinking, is an illustration of how the blind pursuit of “maximizing shareholder value” is not all it is cracked up to be:

The recent productivity report received much attention. But I did not see anyone point out that the spread between nonfarm corporate prices and unit labor cost was 5.25%, the widest spread on record.

This spread is the single most important variable driving corporate profit margins and implies that you should expect major positive earnings surprises.

Yves here. Translation: employers are continuing to squeeze down on workers to improve their margins. And the US has been pursuing that strategy for some time, of shifting the composition of GDP growth away from increases in worker incomes (via hiring and/or paying them more) to increases in corporate profits. The shift was dramatic in the last supposed expansion; it was called a “jobless recovery” for good reason. In every previous postwar growth period, the labor share of GDP growth was never less than 55% and had averaged not much less than 60%. In the pre-crisis expansion, it plunged to 29%.

Before some readers contend that this pattern is inherent to the “maximizing shareholder value,” let’s start with one consideration: strategies that focus on that goal actually do less well than ones that pursue broader aims. John Kay notes in a 2004 Financial Times article (sadly, no longer available on line):

Paradoxical as it sounds, goals are more likely to be achieved when pursued indirectly. So the most profitable companies are not the most profit -oriented, and the happiest people are not those who make happiness their main aim. The name of this idea? Obliquity….

Obliquity is characteristic of systems that are complex, imperfectly understood, and change their nature as we engage with them…..

Obliquity is equally relevant to our businesses and our bodies, to the management of our lives and our national economies. We do not maximise shareholder value or the length of our lives, our happiness or the gross national product, for the simple but fundamental reason that we do not know how to and never will. No one will ever be buried with the epitaph “He maximised shareholder value”. Not just because it is a less than inspiring objective, but because even with hindsight there is no way of recognising whether the objective has been achieved.

For most of the 20th century, ICI was Britain’s largest and most successful manufacturing company. In 1987, ICI described its business purpose thus: “ICI aims to be the world’s leading chemical company, serving customers internationally through the innovative and responsible application of chemistry and related science. “Through achievement of our aim, we will enhance the wealth and well-being of our shareholders, our employees, our customers and the communities which we serve and in which we operate.”….

In 1991, Hanson, the predatory UK conglomerate that had successfully acquired and reorganised sluggish British manufacturing businesses such as Ever Ready and Imperial Tobacco, bought a modest stake in ICI. While the threat to the company’s independence did not last long, the effects were galvanising. ICI restructured its operations and floated the pharmaceutical division as a separate business, Zeneca. The rump business of ICI declared a new mission statement: “Our objective is to maximise value for our shareholders by focusing on businesses where we have market leadership, a technological edge and a world competitive cost base.”….

ICI made the opposite shift – from a grand vision of the responsible application of chemistry to a narrow concentration on established, successful activities. The aim of bringing benefit to a wide range of stakeholders was replaced by the specific objective of creating shareholder value from narrowly focused operations. The company translated this into an operational strategy by disposing of the company’s interests in bulk chemicals to acquire a niche group of speciality businesses: ICI, once the main supplier of chemical products to one third of the world, was reinvented as a smells company.

The outcome was not successful in any terms, including those of creating shareholder value. The share price peaked in 1998, soon after the new strategy was announced. The decline since then has been relentless. After two successive dividend cuts the company was ejected in early 2003 from the FTSE 100 index, the transition from industrial giant to mid-cap corporation had taken only 12 years…..

Obliquity gives rise to the profit-seeking paradox: the most profitable companies are not the most profit-oriented. ICI and Boeing illustrate how a greater focus on shareholder returns was self-defeating in its own narrow terms. Comparisons of the same companies over time are mirrored in contrasts between different companies in the same industries. In their 2002 book, Built to Last: Successful Habits of Visionary Companies, Jim Collins and Jerry Porras compared outstanding companies wit adequate but less remarkable companies with similar operations….

Collins and Porras….found the same result in each case: the company that put more emphasis on profit in its declaration of objectives was the less profitable in its financial statements.

Yves again. Simple-minded profit seeking is not what it is cracked up to be. And worse, squeezing worker wages to not simply preserve, but increase profits, is destructive on an economy-wide level (note the rising gap between wages and prices disproves the canard that the wage pressure is necessary to preserve competitiveness).

US business used to operate with the idea that the returns resulting from productivity gains would be shared by workers and the company; that notion now seems as dead as the dodo. But not allowing workers to participate in improvements in corporate returns blunts overall economic growth. Companies are fattening their current bottom lines at the expense of future top line growth. But in our current climate, this strategy looks just dandy….until government stimulus starts to be withdrawn.

[Demeter]

61. THROUH THE LOOKING GLASS: Bernanke Says Large Bank Bailouts ‘Unconscionable,’ Must End

http://www.bloomberg.com/apps/news?pid=20601087&sid=aBzldmyPmc9o&pos=1

Federal Reserve Chairman Ben S. Bernanke said government bailouts of big financial companies are “unconscionable” and must be ended as part of a regulatory overhaul following the worst financial crisis since the 1930s.

“It is unconscionable that the fate of the world economy should be so closely tied to the fortunes of a relatively small number of giant financial firms,” Bernanke said yesterday in a speech in Orlando, Florida. “If we achieve nothing else in the wake of the crisis, we must ensure that we never again face such a situation.”

Congress is considering a resolution mechanism for financial firms that are so large or interconnected to other institutions that their failure could damage the financial system. A plan by Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, would allow the Federal Deposit Insurance Corp. to liquidate a large firm after a panel of bankruptcy judges determines the company is insolvent and with approval of the Fed, FDIC and Treasury Department.

The Fed chairman has faced criticism from Congress for bailouts that he said were intended to prevent a possible depression. Lawmakers including Dodd have criticized the Fed’s purchase of $29 billion of securities in March 2008 to facilitate the merger of Bear Stearns Cos. with JPMorgan Chase & Co., and loans to keep American International Group Inc. from default.

All large financial firms rather than just big banks should be subject to stronger regulation, Bernanke told bankers gathered for the Independent Community Bankers of America convention. Shareholders and creditors should not be protected from losses in any plan, he said.

Revamping Approach

The Fed is revamping its approach to supervision of large banks, using economists and quantitative analysts to help with horizontal reviews targeting risks across the financial system, Bernanke said.

“We at the Federal Reserve have been working with international colleagues to require that the most systemically critical firms increase their holdings of capital and liquidity and improve their risk management,” he said.

The Fed chief also endorsed the concept of financial firms having “living wills,” or plans on how to unwind should they become insolvent. Dodd’s proposal includes a provision that requires large, complex companies to periodically submit “funeral plans” for their quick and orderly shutdown in the event of failure.

“An idea worth exploring is to require firms to develop and maintain a so-called living will, which will help firms and regulators identify ways to simplify and untangle the firm before a crisis occurs,” Bernanke said.

No Authority

While the FDIC has the power to take over failing deposit- taking firms and wind down assets, no such authority exists for financial firms that aren’t classified as banks, such as AIG or a hedge fund with extensive links throughout the banking system.

The Fed chairman also defended the central bank’s structure, including 12 regional banks, as a useful decentralized network to monitor the financial system and economy. He said the oversight of small banks has been critical to the Fed in setting monetary policy.

“A supervisory agency that focused only on the largest banking institutions, without knowledge of community banks, would get a limited and potentially distorted picture,” he said.

Fighting Efforts

Answering questions after his speech, Bernanke urged community bankers to help keep the central bank informed about changes in finance and the economy.

“We greatly value the input and information we get from community banks all across the country,” he said. “In the current crisis, understanding commercial real estate, understanding other problems in credit markets is greatly aided by knowing what’s happening in community banks.”

John Bowman, acting director of the Office of Thrift Supervision, called yesterday for the creation of a federal agency to supervise community banks and thrifts.

“Whether a community bank holds a state charter, a national bank charter or a federal thrift charter, that institution should not be supervised by the same agency that oversees complex commercial banks,” Bowman said in a speech to the conference, according to an OTS release.

Bernanke and Fed bank presidents are fighting efforts from Congress to shrink the Fed’s role in bank supervision. Dodd proposed that the Fed’s supervisory authority include only bank holding companies with more than $50 billion in assets, while the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency would regulate other banks. A bill passed by the House of Representatives in December left the Fed’s current supervisory authority intact.

Supervisory Authority

The Fed oversees about 5,000 bank holding companies and more than 800 state member banks. The Board of Governors in Washington delegates supervisory authority to the regional Fed banks which have examiners on staff.

Smaller bankers are on the “front line” of coping with aftershocks from the financial crisis, including “high unemployment, lost incomes and wealth, home foreclosures, strained fiscal budgets,” Bernanke said.

The central bank chairman didn’t comment directly on the economy or outlook for monetary policy in his remarks.

The Fed has kept the federal funds rate target for overnight loans between banks in a range of zero to 0.25 percent since December 2008. Policy makers began using the “extended period” language in March 2009 and have repeated it at each meeting since then.

[Demeter]

62. Pools That Need Some Sun

http://www.nytimes.com/2010/03/21/business/economy/21gret.html?ref=business

LAST week, the Federal Home Loan Bank of San Francisco sued a throng of Wall Street companies that sold the agency $5.4 billion in residential mortgage-backed securities during the height of the mortgage melee. The suit, filed March 15 in state court in California, seeks the return of the $5.4 billion as well as broader financial damages.

The case also provides interesting details on what the Federal Home Loan Bank said were misrepresentations made by those companies about the loans underlying the securities it bought.

It is not surprising, given the complexity of the instruments at the heart of this credit crisis, that it will require court battles for us to learn how so many of these loans could have gone so bad. The recent examiner’s report on the Lehman Brothers failure is a fine example of the in-depth investigation required to get to the bottom of this debacle.

The defendants in the Federal Home Loan Bank case were among the biggest sellers of mortgage-backed securities back in the day; among those named are Deutsche Bank; Bear Stearns; Countrywide Securities, a division of Countrywide Financial; Credit Suisse Securities; and Merrill Lynch. The securities at the heart of the lawsuit were sold from mid-2004 into 2008 — a period that certainly encompasses those giddy, anything-goes years in the home loan business.

None of the banks would comment on the litigation.

In the complaint, the Federal Home Loan Bank recites a list of what it calls untrue or misleading statements about the mortgages in 33 securitization trusts it bought. The alleged inaccuracies involve disclosures of the mortgages’ loan-to-value ratios (a measure of a loan’s size compared with the underlying property’s value), as well as the occupancy status of the properties securing the loans. Mortgages are considered less risky if they are written against primary residences; loans on second homes or investment properties are deemed to be more of a gamble.

Finally, the complaint said, the sellers of the securities made inaccurate claims about how closely the loan originators adhered to their underwriting guidelines. For example, the Federal Home Loan Bank asserts that the companies selling these securities failed to disclose that the originators made frequent exceptions to their own lending standards.

DAVID J. GRAIS, a partner at Grais & Ellsworth, represents the plaintiff. He said the Federal Home Loan Bank is not alleging that the firms intended to mislead investors. Rather, the case is trying to determine if the firms conformed to state laws requiring accurate disclosure to investors.

“Did they or did they not correspond with the real world at the time of the sale of these securities? That is the question,” Mr. Grais said.

Time will tell which side will prevail in this suit. But in the meantime, the accusations illustrate a significant unsolved problem with securitization: a lack of transparency regarding the loans that are bundled into mortgage securities. Until sunlight shines on these loan pools, the securitization market, a hugely important financing mechanism that augments bank lending, will remain frozen and unworkable.

It goes without saying that after swallowing billions in losses in such securities, investors no longer trust what sellers say is inside them. Investors need detailed information about these loans, and that data needs to be publicly available and updated regularly.

“The goose that lays the golden eggs for Wall Street is in the information gaps created by financial innovation,” said Richard Field, managing director at TYI, which develops transparency, trading and risk management information systems. “Naturally, Wall Street opposes closing these gaps.”

But the elimination of such information gaps is necessary, Mr. Field said, if investors are to return to the securitization market and if global regulators can be expected to prevent future crises.

While United States policy makers have done little to resolve this problem, the Bank of England, Britain’s central bank, is forging ahead on it. In a “consultative paper” this month, the central bank argued for significantly increased disclosure in asset-backed securities, including mortgage pools.

The central bank is interested in this debate because it accepts such securities in exchange for providing liquidity to the banking system.

“It is the bank’s view that more comprehensive and consistent information, in a format which is easier to use, is required to allow the effective risk management of securities,” the report stated. One recommendation is to include far more data than available now.

Among the data on its wish list: information on the remaining life, balance and prepayments on a loan; data on the current valuation and loan-to-value ratios on underlying property and collateral; and interest rate details, like the current rate and reset levels. In addition, the central bank said it wants to see loan performance information like the number and value of payments in arrears and details on bankruptcy, default or foreclosure actions.

The Bank of England recommended that investor reports be provided on “at least a monthly basis” and said it was considering making such reports an eligibility requirement for securities it accepts in its transactions.

The American Securitization Forum, the advocacy group for the securitization industry, has been working for two years on disclosure recommendations it sees as necessary to restart this market. But its ideas do not go as far as the Bank of England’s.

A group of United States mortgage investors is also agitating for increased disclosures. In a soon-to-be-published working paper, the Association of Mortgage Investors outlined ways to increase transparency in these instruments.

Among its suggestions: reduce the reliance on credit rating agencies by providing detailed data on loans well before a deal is brought to market, perhaps two weeks in advance. That would allow investors to analyze the loans thoroughly, then decide whether they want to buy in.

THE investors are also urging that loan-level data offered by issuers, underwriters or loan servicers be “accompanied by an auditor attestation” verifying it has been properly aggregated and calculated. In other words, trust but verify.

Confidence in the securitization market has been crushed by the credit mess. Only greater transparency will lure investors back into these securities pools. The sooner that happens, the better.

[Joe Chi Minh]

64. A very postitive development in prospect, in the UK, relating to government-run people's

banks taking over our post-offices, which have been ruthlessly decimated across the country, regardless of the plight of its abandoned customers; particularly the rural ones.

http://www.guardian.co.uk/commentisfree/2010/mar/21/post-offices-kickstart-labours-radical-agenda

...and as for this scandalous development in France... I'm not saying anything.....

http://www.guardian.co.uk/world/2010/mar/21/right-france-nicolas-sarkozy-socialists-elections

[Demeter]

65. Sorry for the Thin Thread

There wasn't much going on--the big dumbshow over "health insurers welfare" has sucked all the attention out of the room, especially when combined with the Lehmans autopsy.

And I think I need a root canal. Hope you all have a good week.

[Joe Chi Minh]

66. A rather heart-warming story, here, about a supermarket-owner giving

most of his money away to charities:

http://www.dailymail.co.uk/news/article-1259576/Multi-millionaire-Kwiksave-founder-gives-away-400m-fortune-fulfil-promise-God.html