Put Them All Together They Spell "W-E-E-K-E-N-D" May 7-9, 2010

[Demeter]

Happy Mother's Day to all our most productive members of society! Without mothers, there wouldn't BE any society. Somedays, that seems like a really good idea. Other days, it looks like where we are heading...

Am I ambivalent? Maybe, maybe not.

All I can think is: where is Lloyd Blankfein's mother and why has she fallen down on the job? She ought to be laying the guilt on him like there was no tomorrow, doing the Jewish mother routine (which all mothers know, but some excel).

So, the market is closed and we have 65 blissful hours to mop up the blood, sweat and tears; make sense of it all, and try to plan for next week's coping demands.

So take an hour or two out, and celebrate your mother, if you still have one living, or raise a toast to her memory if not.


http://www.youtube.com/watch?v=bhcA4Ry65FU

http://www.youtube.com/watch?v=A9BMcA8-4zo

M is for the million things she gives me
O means only that she's soft to hold
T for the things she tries to teach me
H is for her heart of purest gold
E for her eyes with love light shining
R means right and right she'll always be

Put them all together they spell Mother,
A word that means the world to me.

[Demeter]

1. GOLDEN OLDIE:The Subsurface World of Inflation, Cannibalism and the Plight of the Squeezees

I THOUGHT IT MIGHT BE USEFUL TO REVIEW THE RECORD--

The Invisible M3 and Plumping Up the Economy
The Subsurface World of Inflation, Cannibalism
and the Plight of the Squeezees
by Zbignew Zingh
www.dissidentvoice.org
May 5, 2006

http://www.informationclearinghouse.info/article25355.htm

In March 2006,with practically no explanation, the federal government stopped reporting on M3, the broadest measure of the money supply in the U.S. economy. <1>

The most important "asset" in the 21st Century is not cash, gold, real estate, guns or even petroleum, but Information. "Knowledge" trumps everything. That is why, for example, the telecommunications industry is right now in the process of buying up Congress so that it can finish off "network neutrality" and, eventually, strangle your access to knowledge and information on websites like this one. <2>

Thus, when the federal government suddenly withdraws a well-established multi-trillion dollar measure of the economy's health, skeptical minds wonder if, yet again, the Government's penchant for secrecy is intended to keep us ordinary citizen types from seeing what it is up to. What the Administration is likely "up to" is flooding the economy with billions and billions of digitally created "cheap" dollars. The massive influx of money will juice the stock markets, plump up the economy and, of course, create price inflation. <3>

Other than starting a war (or a series of small wars) <4> and the huge government spending on weapons and military infrastructure that war entails, the next-favorite capitalist means of rescuing an economy on life-support is to increase the money supply and stoke inflation. <5> Sometimes, as in the present circumstances, the situation is so desperate that a government may feel the need to start a "perpetual war" and to massively increase the money supply at the same time.

Big Business and the financial sector really could care less about rising prices and the cost of living. That is why when the government reports that "core inflation" is "tame", it has teased out all the data relevant to individuals who live by wages, that is, such "irrelevant" and "volatile" data as the cost of energy, food and housing. Big business and the financial sector could care less whether the costs of energy, food and housing literally determine how, and whether, the majority of us live or die.

The only inflation factor that Big Business and the financial sector really care about is Wages, that is your wages. If prices rise, but your wages, relative to your cost of living, remain static, then "inflation" only bites you, dude. The bite taken out of your hide translates into someone else's profit-meal ticket. Thus, when prices rise but wages do not, it is as though a portion of workers' wages is being ripped off. On the other hand, if your wages rise commensurate with the increase in the real cost of living, then the increase in the costs of goods and services goes back into your wages. In that circumstance, money inflation does not give the owner class anything extra to bite into.

Not coincidentally, inflating the money supply (and consequently devaluing the dollar) will also allow the U.S. government to stealthily default on its own debt issues. Because of the dollar's reserve status, we pay for our imports from countries like China, in dollars. The merchants deposit these dollars in their countries' central banks, or exchange them for their local currency. The central banks often turn around and purchase U.S. treasury bills and bonds. By inflating the dollar, the U.S. government will pay back less on both principal and interest. This is also why mortgages benefit the debtor during inflation. Therefore, if, 1) by no longer reporting on M3, the Federal Reserve can increase M3 by more than the previous track record of a hefty 8.22% per year, and 2) the Administration masks the true increase in the cost of living, thus freezing or forcing down wages, then 3) it can engineer an increase in the profitability of corporations, and an apparent growth in the economy . . . all at workers' expense, of course.

Why would the Treasury and the Federal Reserve Bank want to do this? The answer is that the Collective We are in deep economic and environmental doo-doo. Somewhere in the supercomputers at the US Treasury or Federal Reserve, they have run an economic simulation which has analyzed the various humongous hairballs that 21st Century human beings have coughed up: a) Global Warming (or, better characterized as Global Weather Weirding because as the oceans warm and the ice caps melt, various parts of the globe's weather will change in different ways), b) overall natural resource depletion, c) pandemics caused by industrial food production (like bird flu), d) health and environmental problems caused by industrial pollution and foolhardy uses of mercury, pesticides, plastics, fluoride, cell phones, etc., e) radiation exposure due to DU weapons, nuclear armaments, nuclear power generation waste and Chernobyl-like accidents, and f) the peaking of easy light, sweet oil production such that petroleum extraction and refining will become progressively more energy intensive for every bit of energy you can get out of a barrel of oil.

When the Treasury and the Federal Reserve Board (and the Pentagon, too) ran their computer simulations, they came up with the TINA (There Is No Alternative) answer of inflating M3 to keep the global economy chugging. This is the only remedy that Free Enterprise/Open Market "cultists" (like those who populate America's power centers) could accept even though, paradoxically, the world and American economies have been totally and deliberately stage-managed since the end of the Second World War. However, even the TINA answer of inflating M3 is ultimately precarious, and hence the steep, steep rise in gold prices.

Gold bugs, however, are equally deceived by its luster, for gold has little intrinsic value. Gold is mostly an anxiety index, a psychological measure of economic insecurity. When, as now, people with "money" feel stressed and anxious, they put their chips on precious metals. However, gold, like all money, is also based on faith in the system and the ability to exchange the stuff for something else of value. Faith in glittering gold often interferes with the realistic perception that money, including gold, is just a confidence game. The Federal Reserve's own handbook on the money supply (which they no longer make publicly available) states:

What, then, makes these instruments -- checks, paper money, and coins -- acceptable at face value in payment of all debts and for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets and for real goods and services whenever they choose to do so.

We really are a faith-based world, but not in the religious sense that Mister Bush intends it. The "faith" in the currency comes from the implicit confidence in the societal stability that will allow future exchanges using the currency. In as much as military might is the ultimate enforcer of that stability, military might is the ultimate guarantor of any form of money. Nevertheless, as we saw during the U.S. Army's slow motion meltdown during the Vietnam War, and as the retired generals are beginning to gnaw their knuckles about today, the stability of the military might itself depend on the stability of the larger society and society's confidence in itself.

Thus, if the Government tries to use intimidation, force and military oppression, at home and abroad, to maintain the "stability" of domestic and world systems (gee whiz, has Mister Bush tried to do any of that???), then it inevitably undermines the confidence of society in itself and in its own institutions... which, in turn, further undermines faith in the economy and the monetary system. As the repeated application of intimidation, force and military oppression continue to undermine social confidence, then Leaders usually look for other means to artificially pump up "faith", such as hyping religion as a metaphysical way to buttress "confidence" in an otherwise disintegrating world. That is historically what Leaders have always done and are doing today.

The process of disintegration can occur like water torture over many years, or it can fail catastrophically. Which brings us right back to TINA and why the Administration has stopped reporting on M3. By obscuring M3, the feds can sneakily inflate the economy, and indirectly, fizz up the stock markets (the stock markets being yet another confidence game which will reach maximum bubble dimensions just in time for the mid-term November elections, fancy that!).

What the ownership class and its leaders will not suffer, however, is this simple truth: the best guarantee of confidence in the stability of the economy is simply to allow people to live well and to prevent or alleviate as much human suffering as possible. Alas, permitting the Many to live well necessarily means that they must have more material benefits, which, in turn, means that those who have more material benefits now are not going to give up any part of their stash to allow everyone else to do better. Thus, are the Powerful Ones and the Owners hoisted on their own petards, and, once again, the resort to TINA and the non-solution of the obliteration of data about M3.

So let us return to the stealthy inflation that is engendered by not reporting on M3 and the accompanying petrification of wages. Unfortunately, wage earners everywhere will bear inflation on their shoulders because wages, specifically your wages, are, practically speaking, frozen whenever the Government pronounces that "core inflation" is "tame". If inflation is reported to be "tame", then real wages will not rise in sync with rising real prices. When the Administration and its media lapdogs thus report that you should be assuaged because "core inflation is tame", they are deliberately deceiving all the Little People of the world because all that is really tame is your wages and your own paycheck! The profits, the difference between the rise in prices for essential goods and services and your stagnant wages, will fatten the large corporations and overseas debt will be reduced with the payment of inflated, less valuable dollars. All the while your real well-being and security will become progressively more tenuous. Of course, this undermines societal confidence and erodes faith in the economy and in money. And so the economic death spiral continues.

Once an economy has "matured" (as it has in the United States) and once there is no more free lunch like that afforded by cheap and abundant hydrocarbon fuels, then capitalism (which is great for producing consumer goods and advancing "technology", but hardly worth anything for improving the overall lot and well-being of the masses) reverts back to what it really is: an economic form of cannibalism. Capitalism either eats surplus Labor or, if surplus energy is available, it consumes energy. When there ain't no more surplus energy to consume, then Labor has to eat less so that Owners can continue to eat more; and when the "food" runs out, Owners will start to eat Labor alive. Ultimately, in truly straitened times, the Owners end up eating one another. That's why, when the economy starts to splutter, capitalists, resolutely united against the rest of us, still eyeball one another as a victim to devour. It's that economic Donner Family Bar-B-Que that the Administration is desperately trying to forestall by surreptitiously shooting up digital growth hormones into the economy's sclerotic arteries.

Real income for working people has actually been trending downward over the years. In inflation-adjusted terms, on average, working men and women are actually making less money than in the 1970s and our quality of life is going down. The demise of union pension funds, the under-funding of public schools, the deterioration of public health programs, the curtailment of library hours and the cutting of worker salaries all contribute to the general decay in the standard of living. What we need to appreciate is how the economic and financial shenanigans of the Administration, such as its recent elimination of reporting on M3 data, are deliberate steps toward unraveling the, albeit minimal, progress made since WWII by the Northern Hemisphere's middle and working classes, all in the cause of preserving profit for the ownership class.

So here's the bottom line. Capitalism's "Profit" has to come from somewhere. During the last century or so, it largely came from the extraordinary energy that could be derived from the easy extraction and refinement of cheap and readily available hydrocarbon fuels. Meanwhile, the environment and the world's climate are undergoing a meltdown. Just as petroleum is becoming less available, less easy to extract and more costly to refine, the environment is turning to dog poop and the weather is becoming ever more weird, all interfering with the pursuit of PROFIT. As profit gets squeezed in its traditional venues, Capitalism demands that profit come from somewhere, namely by squeezing it out of something... or getting that profitable pound of flesh from someone else. <6>

The Administration has nominated all of us as the "Squeezees". In the Administration's mind, dismantling all of the remaining social services and safety nets, and gradually reducing the majority of us to medieval peonage (and, eventually, human hamburger), is a noble and necessary suicide mission to rescue capitalism. It won't work in the long run, of course, but meanwhile we've all been volunteered for the mission.

Zbignew Zingh can be reached at: [e-mail]. This article is CopyLeft, and free to distribute, reprint, repost, sing at a recital, spray paint, scribble in a toilet stall, etc. to your heart's content, with proper author citation. Find out more about Copyleft and read other great articles at: www.ersarts.com. copyleft 2006

ENDNOTES

1) M3 is the aggregate of M0, M1 and M2, the total money supply, plus the total of all commercial and industrial loans that are financed by large denomination Certificates of Deposit and Eurodollars (essentially, the amount of dollars held outside of the control of the Federal Reserve, in European banks, or other central banks.). M0 is the total of all physical money; M1 is M0 plus the amount of money in checking and bank demand accounts; M2 is the total of M0 + M1 plus savings accounts, money market accounts and CD up to $100K. M3 includes such mysterious accounts as those huge and possibly unstable hedge funds and derivatives that the major money institutions use to try to spread the risk of their clients' low quality and highly speculative investments. M3 may total more than 3-4 trillion dollars in excess of M2. Obviously, M3 dwarfs the actual amount of physical dollar bills and coins that are in circulation.

2) The Electronic Frontier Foundation's website is a good place to learn about this issue. The problem starts with some major ISPs and the back-bone telecommunication companies trying to implement a "fee" for sending e-mail, and will graduate to charging different rates for "prioritizing" the delivery of your e-mail and creating a tiered system for the delivery of web content based on ability to pay. In short, your "friends" in Congress and in the telecommunications industry, even as you read this, are colluding and working on legislation to strangle the Internet and curtail your access to alternative information websites like this one.

3) Money is created all the time by the Federal Reserve Board and by the banks. A loan creates money, as does the sale of government bonds as do numerous other complicated financial instruments created in years past to expand and protect "money" without public scrutiny or control.

4) The never-ending "War on Terror" of the post 9.11 era, like the 50-year "Cold War", is intended by Republicans and Democrats alike to create a permanent "war economy" that creates wealth", keeps capitalism sputtering along and maintains the status quo domestically and worldwide. The fact that a lot of people die in the process of preserving economic interests is viewed by technocrats and the political sociopaths who pass for "leaders" as just so much "collateral damage". In the geopolitical and economic chessboard, the pawns -- like in Vietnam, Serbia, Haiti, Rwanda, Chile, Iran, Iraq and the NYC Twin Towers -- are always sacrificed for the "good" of the game and the preservation of the capital playing pieces.

5) Inflation is created by monetary policy. It is the cause of, not the effect of an increase in "prices" or wages.

6) This is why all those deepwater wells, heavy oil and Canadian shale oil deposits won't relieve rising hydrocarbon prices. The energy return on the phenomenal investment necessary to extract and process these deposits will be passed on in the form of phenomenal increases in prices.

[Demeter]

2. Do you think the FDIC gets Mother's Day Weekend Off?

Stay tuned for developments (it's far too early right now).

[Demeter]

13. HERE WE GO! Starting Off With 2 Failed Banks This Evening

The Bank of Bonifay, Bonifay, Florida, was closed today by the Florida Office of Financial Regulation, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with First Federal Bank of Florida, Lake City, Florida, to assume all of the deposits of The Bank of Bonifay.

The five branches of The Bank of Bonifay will reopen on Monday as branches of First Federal Bank of Florida...As of March 31, 2010, The Bank of Bonifay had approximately $242.9 million in total assets and $230.2 million in total deposits. First Federal Bank of Florida did not pay the FDIC a premium for the deposits of The Bank of Bonifay. In addition, First Federal Bank of Florida will purchase approximately $78.1 million of The Bank of Bonifay's assets, consisting of cash and cash equivalents. The FDIC will retain the remaining assets for later disposition.

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $78.7 million. First Federal Bank of Florida's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. The Bank of Bonifay is the 65th FDIC-insured institution to fail in the nation this year, and the tenth in Florida. The last FDIC-insured institution closed in the state was Riverside National Bank of Florida, Fort Pierce, on April 16, 2010.


Access Bank, Champlin, 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 PrinsBank, Prinsburg, Minnesota, to assume all of the deposits of Access Bank.

The two branches of Access Bank will reopen during normal business hours beginning on Saturday as branches of PrinsBank...As of March 31, 2010, Access Bank had approximately $32.0 million in total assets and $32.0 million in total deposits. PrinsBank will pay the FDIC a premium of 0.02 percent to assume all of the deposits of Access Bank. In addition to assuming all of the deposits of the failed bank, PrinsBank agreed to purchase essentially all of the assets...

The FDIC estimates that the cost to the Deposit Insurance Fund (DIF) will be $5.5 million. PrinsBank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Access Bank is the 66th FDIC-insured institution to fail in the nation this year, and the fifth in Minnesota. The last FDIC-insured institution closed in the state was State Bank of Aurora, Aurora, on March 19, 2010.

[Demeter]

32. Two More Banks At 8 PM

Towne Bank of Arizona, Mesa, Arizona, was closed today by the Arizona Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Commerce Bank of Arizona, Tucson, Arizona, to assume all of the deposits of Towne Bank of Arizona.

The sole branch of Towne Bank of Arizona will reopen on Monday as a branch of Commerce Bank of Arizona...As of March 31, 2010, Towne Bank of Arizona had approximately $120.2 million in total assets and $113.2 million in total deposits. Commerce Bank of Arizona will pay the FDIC a premium of 0.3 percent to assume all of the deposits of Towne Bank of Arizona. In addition to assuming all of the deposits of the failed bank, Commerce Bank of Arizona agreed to purchase essentially all of the assets.

The FDIC and Commerce Bank of Arizona entered into a loss-share transaction on $80.1 million of Towne Bank of Arizona's assets. Commerce Bank of Arizona 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 $41.8 million. Commerce Bank of Arizona's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. Towne Bank of Arizona is the 67th FDIC-insured institution to fail in the nation this year, and the second in Arizona. The last FDIC-insured institution closed in the state was Desert Hills Bank, Phoenix, on March 26, 2010.


1st Pacific Bank of California, San Diego, California, was closed today by the California Department of Financial Institutions, which appointed the Federal Deposit Insurance Corporation (FDIC) as receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with City National Bank, Los Angeles, California, to assume all of the deposits of 1st Pacific Bank of California.

The six branches of 1st Pacific Bank of California will reopen on Monday as branches of City National Bank...As of March 31, 2010, 1st Pacific Bank of California had approximately $335.8 million in total assets and $291.2 million in total deposits. City National Bank will pay the FDIC a premium of 1.62 percent to assume all of the deposits of 1st Pacific Bank of California. In addition to assuming all of the deposits of the failed bank, City National Bank agreed to purchase essentially all of the assets.

The FDIC and City National Bank entered into a loss-share transaction on $275.7 million of 1st Pacific Bank of California's assets. City National 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 $87.7 million. City National Bank's acquisition of all the deposits was the "least costly" resolution for the FDIC's DIF compared to all alternatives. 1st Pacific Bank of California is the 68th FDIC-insured institution to fail in the nation this year, and the fifth in California. The last FDIC-insured institution closed in the state was Innovative Bank, Oakland, on April 16, 2010.

[Demeter]

44. Min. Est. Damages: $213.7 million

[Demeter]

3. The Big Burp Summary Analysis

Wild day on Wall Street leaves electronic exchanges under scrutiny

http://www.washingtonpost.com/wp-dyn/content/article/2010/05/06/AR2010050601464_2.html?nav=hcmoduletmv&sid=ST2010050606287

..."How did this happen? You've got to ask the SEC," said Ted Weisberg, president of Seaport Securities and a trader for more than 40 years. "The bottom line is the government created a trading mechanism with a lot of different marketplaces. Now they probably have 40 or 50 different venues where stocks trade. I don't know what their rules are. The public doesn't understand. This is another perfect example of the government changing the ground rules and we end up with unintended consequences."

The SEC declined to respond to those comments, saying in a statement that it would "review the unusual trading activity that took place briefly this afternoon."

"We are also working with the exchanges to take appropriate steps to protect investors pursuant to market rules," the statement said.

In 2007, the SEC put in place new rules for how stocks are traded, led by then-Chairman Christopher Cox. The goal was to give investors more control over how their trades were executed and to guarantee the best price when they buy stocks.

When the NYSE received an order for a stock, for instance, the rules required the exchange to route the order to the platform offering the best price.

The new SEC rules toppled the dominance of the NYSE. Trading of its own listed stocks dropped from 85 percent to 21 percent, said James Angel, a professor at Georgetown University's McDonough School of Business.

As a result, a single entity can no longer put a stop to panicked selling. The markets Thursday were a preview of what happens when other trading venues take over, he said.

"We are dangerously unprotected from a real-time meltdown," Angel said...

Stocks Tumble as Debt Woes Spur Electronic Rout; Euro Climbs

http://www.bloomberg.com/apps/news?pid=20601103&sid=azryYMcqKWQ4

...The rout briefly erased more than $1 trillion in U.S. market value as the Dow Jones Industrial Average fell almost 1,000 points, a 9.2 percent plunge that was the biggest intraday percentage loss since 1987 and largest point drop ever, before paring declines. Japan’s Nikkei 225 Index tumbled 3.5 percent as of 2:47 p.m. in Tokyo and the MSCI Asia Pacific Index slumped 1.9 percent.

Standard & Poor’s 500 Index futures fell 0.4 percent, having earlier gained 0.7 percent, and the euro strengthened 2 percent against the yen after Japanese Finance Minister Naoto Kan said the Group of Seven plans to hold a conference call to discuss the Greek debt crisis...

The U.S. Securities and Exchange Commission and the Commodity Futures Trading Commission said in a joint statement that they will examine “unusual trading” that contributed to the plunge and two people with direct knowledge of the matter said regulators plan to examine whether securities professionals triggered the selloff or exploited the turmoil for profit.

The Nasdaq OMX Group Inc. said it will cancel trades of stocks that moved more than 60 percent. While the first half of the Dow average’s plunge probably reflected normal trading, the selloff snowballed because of computerized orders sent to venues with no investors willing to match them, Larry Leibowitz, the chief operating officer of NYSE Euronext, said in an interview on Bloomberg Television...

Surge of Computer Selling After Apparent Glitch Sends Stocks Plunging

http://www.nytimes.com/2010/05/07/business/economy/07trade.html?ref=business

...In recent years, what is known as high-frequency trading — rapid automated buying and selling — has taken off and now accounts for 50 to 75 percent of daily trading volume. At the same time, new electronic exchanges have taken over much of the volume that used to be handled by the New York Stock Exchange.

In fact, more than 60 percent of trading in stocks listed on the New York Stock Exchange takes place on separate computerized exchanges...One official said they identified “a huge, anomalous, unexplained surge in selling, it looks like in Chicago,” about 2:45 p.m. The source remained unknown, but that jolt apparently set off trading based on computer algorithms, which in turn rippled across indexes and spiraled out of control...

AHA! A RAHMBO CONNECTION! CONSPIRACY THEORISTS ALERT!!

[Demeter]

29. Bill Bonner On the Market Dip "Mistake"

http://dailyreckoning.com/on-the-market-dip-mistake/

The Dow got whacked hard yesterday. It was down a few hundred points. And then, somehow, the computer programs triggered the sell signal from hell. It lost another 500 points in just a few minutes.

Then, the computers must have reconsidered. They went into buy mode.

All very strange...

Was it just a mistake? Something weird? Was it a genuine panic...and a phony bounce? Or a phony panic and a genuine bounce? The story last night was that the sell-off was a mistake...that someone hit the wrong button and added a zero. We don't believe it. Traders must add zeros by mistake all the time. This is the first time it triggered a 998-point drop. As for the recovery, it's suspicious too...maybe some kind of automatic reaction - perhaps from 'buy the dip' program trading, maybe from the mysterious "plunge protection" machinery of the US government.

We don't know. But what this tells us is what we've been telling you: this is a dangerous market. It is no place for widows, orphans, nuns, priests, republicans, democrats, window-washers, bungee jumpers...

..it's a good market for gamblers. And if you were long the VIX yesterday, you made a killing.

Everyone else got killed.

But it was fun for us. You see, you start out life full of expectations and confidence. Then, you become more cautious. Then, you become more realistic. And then, you become discouraged and hopeless. Finally, after you've given up all hope of ever making the world a better place, you become amused by it; you realize that there's no reason to change it. It's funny enough the way it is.

That's the way we felt yesterday, watching the market go wild in the afternoon.

"Hey, Dad...you seem to be enjoying this," said Jules. "But you must be losing money along with everyone else."

"Maybe...but it's worth it."

We don't own US stocks. But we have some from emerging market shares. They went down with everything else. And we wouldn't be surprised if they went down a lot more.

Why?

..Because China is going to blow up. It's on a 'treadmill to hell,' says short-seller Jim Chanos.

..Because the US economy is not really recovering. The latest numbers show retail spending sinking again. Bankruptcies are rising. Housing and unemployment remain in the dumps...

..Because the US stock market has been in a decline - in real terms - since January 2000. This move to the downside won't really end until stocks are cheap again.

..Because there's more bad new coming from Europe too...keep reading...

[Demeter]

4. Keeping the Fed HonestWhy is the Fed Reserve so afraid of openness & accountability? Eliot Spitzer

http://slate.com/id/2253236?wpisrc=xs_wp_0002

ACTUALLY, I THINK YESTERDAY GAVE US A PRETTY GOOD IDEA WHY...


...Yes, we have learned a lot in the last year about the private "shadow banking system" that helped bring down our economy. Yet no entity was more central to the failure of regulation that helped to create this crisis, nor more central to keeping solvent the banks that enabled it, than the Fed. Through guarantees, equity investments, debt purchases and other methods, the Fed probably spent upward of $1 trillion to resuscitate the banking system. Remarkably, at a time when "transparency" is the favorite word of all reform prescriptions, what still remains unclear, a year after the massive bailouts, is who got how much.

Given the vast sums involved and the unusual nature of the Fed's activities, especially in contrast to its historical (and more prosaic) role of controlling monetary policy, there have been calls for greater transparency at the Fed. One proposal, which varies in the details depending on who's advancing it, would essentially extend the authority of the Government Accountability Office to cover the Fed. In essence, the GAO would be able to audit the Fed.

There are many reasons to require greater transparency at the Fed. One is its conflict-ridden governance structure. Another is the tangled web of contradictions surrounding the AIG bailout. Last, and most important, is that the Fed over the course of this crisis has demonstrated that its influence goes far beyond the issue of monetary policy.

In monetary policy—controlling the supply of money—the Fed is constrained by reasonably well-understood policy levers that have a macro impact, and its decisions are rather evident in short order. Now, in contrast, the Fed is engaging in fiscal policy—spending money—and in fact has become the single largest fiscal actor in the U.S. economy, dispensing hundreds of billions of dollars to private parties. In doing so, the Fed is picking winners and losers. Why Goldman but not Lehman? Why guarantee the debt of some companies but not others?

The Fed has enormous discretion in its decisions. It is entirely appropriate to demand that they be carried out with greater transparency and be subject to greater oversight.

Not surprisingly, the Fed and Treasury Secretary Tim Geithner are pushing back. Put aside for a moment Geithner's apparent conflict of interest here (any oversight would presumably examine many of his decisions as president of the New York Fed). Take him at his word, which is that subjecting the Fed to any oversight would create a risk of politicization and a loss of integrity and independence. The reality, of course, is just the opposite. The very fact that the actions of the Fed are shrouded in secrecy is what has created the impression that politics have played a part in its decisions. The old maxim that sunlight is the best disinfectant is no less true for the Fed than it is for any other public entity....

[Demeter]

67. Congratulations! Rep. Alan Grayson: You Own the Red Roof Inn, Thanks to the Fed

http://www.youtube.com/watch?v=pE3oiKuU8UI

I suppose he's married, and too young, besides...but I could go for Grayson! The man has style!

[Demeter]

5. (SOVEREIGN) Wealth funds 'fail to act on principles'

http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article7118710.ece

Self regulation of the $3,000 billion sovereign wealth fund industry has largely failed, with only half of the funds complying with new rules that govern their behaviour.

The Carnegie Endowment for International Peace, a think-tank, has found that the average compliance rating among the funds for their own code of conduct is only 51 per cent.

The so-called Santiago Principles were drawn up 18 months ago amid widespread fear in Western markets that the funds were being used as a tool of foreign policy by governments in the Gulf, Russia and China.

However, only four funds are close to complying with the rules outlined in the principles and all four are Western-owned.

Iran’s Oil Stabilisation Fund has zero compliance, according to Carnegie. The Libyan Investment Authority has complied with about 15 per cent of the requirements, while Kuwait Investment Authority, which owns a 7.6 per cent stake in Daimler, the carmaker, is 40 per cent compliant.

The Abu Dhabi Investment Authority, the world’s largest sovereign wealth fund with assets estimated at more than $700 billion, is only 50 per cent compliant, despite being an early proponent of the principles. The rules require funds to disclose their legal framework, ownership, policy purpose, governance structures and risk management frameworks.

There was criticism when the rules were agreed that they did not require funds to reveal how large they were or what they were investing in.

Sven Behrendt, the report’s author, said the principles had been necessary because sovereign funds were “perceived to support their governments’ distinct foreign and national policy agendas through economic means, unwittingly injecting considerable fuzziness into international affairs”.

[Demeter]

6. The chaos after Greece's rescue Coming to a city near you?

http://www.economist.com/opinion/displaystory.cfm?story_id=16059958

IF THERE was ever a week to be depressed about the euro, this was it. After an age of dithering, Europe’s politicians cobble together a colossal rescue package for Greece, worth some €110 billion ($145 billion), nearly three times the level discussed only three weeks ago—and behold the results: carnage on the streets of Athens, where three people lost their lives, and no respite in the markets. Not only have yields on short-term Greek bonds soared once again, but other euro members that the plan was supposed to wall off are under pressure, with Portugal and Ireland hit particularly hard. Stockmarkets around the world have slumped as investors fret about the financial stability of a region that makes up almost a quarter of the world economy.

Many Europeans fear that they have seen a fragment of their future: contagion spreading from one indebted country to the next, the breakdown of social order as public-sector jobs are cut, years of political indecision and the inevitable ousting (or withdrawal) of countries from the euro. And why not? If a bail-out worth nearly half of Greek GDP fails to command support on the streets of Athens or in the markets, it is tempting to say that the game is up.

Tempting but wrong. Europe faces all sorts of social and political problems, which may or may not manifest themselves, but its current dilemma is rooted in basic economics. From this perspective, neither violence nor jitters in financial markets are proof that the Greek rescue and the Europeans’ broader strategy for dealing with their debt crisis have failed. Lamentably, street riots, even violent ones, are an all-too-frequent part of Greek political life. And financial markets do sometimes react too sceptically to rescue strategies. In February 2009 they slumped when Tim Geithner, America’s treasury secretary, announced a plan to stress-test banks, fearing his proposals were inadequate for dealing with the banks’ problems. With hindsight, the decision proved a psychological turning-point.

Three reasons to run for the hills

So nothing is set. But an awful lot depends on what Europe’s leaders do now. The new improved Greek rescue has less in common with the Geithner plan than with the first Greek rescue, whose inadequacy started the spiral downwards. There is the same shortage of political courage, not just in Greece and other weak euro-zone members, but also in Germany. And there is the same attempt to paper over contradictions. These need to be dealt with.

Despite its massive price tag, investors are unconvinced by the bail-out strategy for three separate (and hardly irrational) reasons. First, they fret that the promised €110 billion will not materialise because of continued political opposition in Germany or because the Greeks will not live up to the austerity promises they have made. Second, investors, like German voters, are nervous that, no matter how hard the Greeks try, their country will still be all but bust in three years’ time: the debts are just too big and will have to be rescheduled. Third, and most important, they worry that others, especially Ireland, Portugal and Spain, are in uncomfortably similar boats, facing a future of economic stagnation and spiralling debt.

The first worry is exaggerated—at least in the short term. There seems little doubt that Europe’s governments will cough up. Even in Germany, parliamentary approval of the rescue package now seems likely. Equally, the Greek government has more chance of passing its wage- and pension-cuts than the street protests might suggest (see article). It has a strong parliamentary majority and surprisingly high poll ratings.

But if you look beyond the next few weeks, the fear that something will go wrong later is all too realistic. The list of reforms that the Greeks have signed up to is brutal: the tax cuts and spending measures are worth some 11% of GDP in three years, and structural reforms, such as freeing up a rigid labour market and busting cartels, may prove even less popular. If sceptical Germans want an excuse to pull the plug on Greece’s rescue, they will surely find it. And the numbers for Greece are grim: even if one assumes three years of austerity, the country’s debt burden will have risen to 140% of GDP. Greece will still be perilously close to insolvency. It will surely need more help—either an open-ended rollover of the official loans or some kind of debt rescheduling.

This is the contradiction in the rescue plan. EU governments and the IMF refuse to discuss the possibility of an eventual rescheduling of Greek debt for fear that it would spark uncontrolled contagion. In fact, the logic may increasingly be the opposite. By refusing to admit that Greece faces an obvious solvency problem, whereas Spain, Portugal and Ireland do not, Europe’s policymakers have made it harder to draw a clear distinction between Greece and the rest. As a result contagion has intensified (see article).
Change this—and you change everything

That is the dynamic that must be changed. One priority is more zealous action by Portugal, Spain and others to prove that, although they suffer from some of the same ailments, they are not Greece. Portugal, which has a big deficit and low growth, needs to announce a stronger, bolder fiscal package. Both it and Spain need to speed up competitiveness-enhancing structural reforms, especially freeing up their labour markets. At the same time, the rest of the euro zone must do its part to ensure that this huge internal adjustment succeeds. The ECB must prevent an overall slide into deflation. Germany should cut taxes and do more to boost domestic demand.

Still more urgent, arguably, is a mechanism for supplying the zone’s weaker economies with cash if panic accelerates. One route would be for them to apply for precautionary funds from the IMF. Euro-zone governments could create inter-governmental credit lines. Or the European Central Bank could step in, buying government bonds in the secondary market. None of these solutions is exactly costless. But any is preferable to the implosion of the euro zone. The nightmare vision of Athens being repeated around the continent should not happen; but averting it will require more bravery and honesty than Europe’s leaders have shown so far.

[Demeter]

7. Who's the Real Beneficiary of the Greek Bailout?

http://online.barrons.com/article/SB127314126101987423.html?mod=djembdr_h

AS THE EUROPEAN DEBT CRISIS turned deadly Wednesday, the effects appeared to spread increasingly from the sovereign debtors to their creditors, the banks. And that is the contagion feared most by the financial markets, and the one the €110 billion bailout for Greece from the European Union and the International Monetary Fund ultimately seeks to contain.

The cost to insure government securities of the worst-indebted nations of Europe soared Wednesday in the credit-default swaps market, and the CDS of major banks increased in tandem. Greek CDS wound up at 843 basis points, within shouting distance of Argentina at 931 basis points and Venezuela at 983 basis points, according to CMA Datavision. (Each basis point represents a $1,000 in premiums to insure $10 million in debt for five years.)

Meantime, Portugal's CDS meanwhile widened sharply by 70 basis points, or 20%, to 414 basis points, while Italy CDS widened 24 basis points, 15%, to 187 basis points. Banks in those respective countries had similar moves, with Banco Espirito Santo at wider than 500 basis points while Unipol Gruppo Finanziario hit 184 basis points for its subordinated debt. Spain's biggest banks, Santander and BBVA, moved out past 200 basis points.

U.S. banks' CDS also widened out with "significant activity," reports Otis C. Casey III of Markit, a credit-derivatives data provider. Goldman Sachs (ticker: GS) widened 11 basis points, to 180 basis points. (Meanwhile, the other most-hated company on the planet, BP (BP) had the biggest widening in percentage terms, by 27%, or 17 basis points to 79 basis points, Wednesday after Moody's changed its outlook on the oil company's credit to negative because of its potential liability for the massive spill in the Gulf of Mexico.)

"This is not as simple a contagion of sovereigns to financials (linked via holding government debt, ratings arbitrage via Basel II and capital exposure)," writes Tim Backshall, chief credit strategist at Credit Derivatives Research. "It is a systemically bad situation for EU growth as fiscal austerity is critical everywhere."

Beyond the esoteric world of derivatives, the stresses are beginning to appear in the European money markets, with a widening between overnight and three-month repurchase agreement rations, Backshall also notes.

"It is quite clear (even as the says they will take any old junk as collateral) that there is a growing risk aversion to carrying collateral on repo for anything other than very short-term. This should have the hairs on the back of your neck rising a little and we suggest that as this chatter came out, the market started its down leg this afternoon with financials leading down," he comments.

Banks, as much as sovereign debtors, are the ones at risk in the crisis. And it would appear banks are the ones the authorities really aim to rescue.

That's the inference that Joan McCullough of East Shore Partners draws from the call by Axel Weber a member of the ECB council and president of the Bundesbank for German legislators to support the deal, not as a bailout of Greece but "as a stabilization of the euro." (The currency without a country plunged to a 14-month low under $1.29 Wednesday as the photos of firebombs in the Athens riots beamed around the world.)

This notion of "stabilization" has a not-so-noble precedent. In Joan's own inimitable words:

"Rewind to 1994. Mexican Peso default and devaluation. Rubin dug around in his bag of tricks and came up with the Exchange Stabilization Fund. Which most did not even know existed. Until that moment. The purpose of the ESF per FDR who established it, is to stabilize the US dollar. So Rubin put forth an explanation demonstrating that in supporting the Peso, in a roundabout way, we would be supporting the U.S. dollar. Bang. Zoom. They raided the ESF … and 'stabilized' the Peso. Which was bullschmitt. As everyone knew that the money was goin' south of the border to bail out those huge U.S. funds who had gotten caught long Mexican debt and were trapped as it were. Thus, the true bail-out was of U.S. investment funds. Period.

"Well, it's the same with the IMF/EMU bailout. As it is quite obvious that the not-so-hidden agenda is to support the exposure of the foreign banks to Greek sovereign debt. Because Greece itself is disposable, don't kid yourselves. But the damage to the German and French banks, just to name one bunch of greedy dopes, would be of such an extent, they believe, as to destabilize the whole area with the euro taking the brunt."

The ECB holds its regular policy meeting Thursday, as luck would have it, in Portugal. What ECB President Trichet may come up with the deal with the growing European bank funding problems will be the highlight of his chat with the press after the confab. Stay tuned.

[Demeter]

8. G7 ministers to hold crisis conference

http://www.google.com/hostednews/afp/article/ALeqM5ge2Qu3_rJ6ffqJ2JTy3s8c_QhI7g

Group of Seven finance ministers plan to hold a conference call Friday on the Greek debt crisis, Japan's Finance Minister Naoto Kan was quoted as saying by Dow Jones Newswires.

Kan said he did not think the G7 would jointly intervene to buy the euro, which has been sliding against major currencies amid fears of contagion from the sovereign debt crisis, the report said.

"I don't think the talk will proceed along the lines" of reaching an agreement to intervene to buy the euro, Kan said at a regular news conference. "I don't think there will be a request for intervention."

[Demeter]

9. TREASURIES-Fall in Asia on news G7 to discuss Greece

http://www.reuters.com/article/idUSTOE64603D20100507

U.S. Treasuries inched down in Asia on Friday as traders trimmed long positions after news that the Group of Seven's finance ministers will later in the day discuss efforts to get aid to debt-stricken Greece.

Bonds

* Treasury Secretary Timothy Geithner is expected to talk with his fellow finance ministers in a conference call to get an update about the agreement between the International Monetary Fund and the European Union on aid for Greece, a Treasury spokesman said on Thursday.

* The news sparked profit-taking a day after fears that Greece's debt problems could develop into a wider sovereign credit crisis led to a massive rally in Treasuries while prompting investors to dump risker assets such as shares.

* Traders said, however, that Friday's slip in Treasuries would be temporary as safe-haven demand for the debt is unlikely to fall until authorities find a complete solution for Greece's debt woes, the main focal point in global financial markets at the moment...

[Demeter]

30. Say You Want a Revolution? by Bill Bonner

http://dailyreckoning.com/say-you-want-a-revolution/

"People of Europe: Rise Up," says their banner.

Greek communists are usually a reliable bastion of error and darkness. Their ideas are appalling. Their proposals are absurd. The only thing they are not wrong about is their opinion of the ruling classes - whom they regard as morons.

But this time it's different. Leftist mobs, now throwing missiles at policemen in Athens, have the high ground. They just need to work on their aim.

The latest dollop of financial grease was announced two weeks ago. At a cost of 110 billion euros, Europe will pretend to protect Greece from its creditors and the Hellenes will pretend to put their financial affairs in order. Instead, the Greek affair will slide into a larger crisis. As we explained last week, all of modern macro-finance can be understood as an attempt to push problems into the future and onto people who were not to blame for causing them. Now we see the formula at work in Europe.

Greeks borrowed money they couldn't reasonably expect to pay back. Foreign bankers - largely French and German - hoped to earn outsized yields by taking a risk on Greek debt. A just ruler would let them all collapse, and give them the boot on the way down. Instead, the knaves enjoyed their loot. And, under the terms of the bailout, the fools are supposed to get their money after all; it will be squeezed out of taxpayers all over Europe.

The plans of the ruling classes are not merely unjust. They are unworkable. Over the next three years, Greece will add $50 billion in deficits, stabilizing the debt at 150% of GDP. It will also need to come up with $70 billion to pay off debt that matures over the next two years. That is more than the amount offered in the bailout. Which means, Greece will have to borrow more money as early as next year, probably triggering another crisis. Plus, there are the other weak sisters and spendthrift brothers in the European family. Bailing them all out could cost as much as 1 trillion euros.

But the real problem is much deeper. It is philosophical as well as mathematical. Too much debt, like too much dying, is not a transitional state. It's a final state. And once the soul has left the body, there is no point in trying to keep the husk alive. Similarly, when a debt cannot be repaid, there's no use pretending. When you cannot keep up with the interest on a debt, it is added to the principle. The debt grows, becoming evermore unmanageable. It's better to admit the error as soon as possible and start organizing the details of your financial funeral.

At present, the Greeks owe an amount about equal to 120% of GDP. Thanks to the bailout, it is scheduled to go up. The plan on the table stops the debt growth only after it has increased by another 30% of GDP.

There is the problem right there. Today, the poor Greeks stagger. What is going to happen when they have an even heavier load? The meddlers hallucinate that they'll get up, smash a plate and dance a mazurka. They even imagine that lenders - who required as much as 18% yield on 2-year notes when Zorba was still on his feet - will ask for only a fraction of that after his back has been broken.

Let us make believe that this were possible. Say, Greece is able to borrow in the future at just 8% interest. At 150% of GDP, this puts the annual cost of interest (assuming all the debt were at 8%) at about 12% of GDP. In other words, 1 out of every 8 euros of output would have to be put to the task of paying the carrying cost of accumulated debt. Greece only collects about 5% of GDP in income tax revenues - not even half of what is needed to pay the interest. It's supposed to collect another 4% in taxes. Already, as much as 30% of the Greek economy has gone 'black' to escape taxation; imagine how crowded it gets underground when taxpayers realize that every penny they pay in income tax is used to protect foreign bankers from their foolish speculations. And imagine what happens when, instead of adding 10% to GDP by borrowing, the Greeks subtract 10% to pay back the debt.

Last week, schools, airports, hospitals and other services in Greece were shut down. A riot drew blood. Fifty-one percent of the Greeks said they will not go along with the austerity program. The others will turn against it once they see how it works. They were used to having their cake and eating it too. Now, they will neither have it nor eat it.

Rise up, ye Greeks! You have nothing to lose but the chains of debt! This is what revolutions are for.

[Demeter]

56. Auerback/Mosler: Greece CAN Go it Alone

http://www.nakedcapitalism.com/2010/05/greece-can-go-it-alone.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

By Marshall Auerback, a fund manager and investment strategist and Warren Mosler, a fund manager and co-founder and Distinguished Research Associate of The Center for Full Employment And Price Stability at the University of Missouri in Kansas City.

Greece can successfully issue and place new debt at low interest rates. The trick is to insert a provision stating that in the event of default, the bearer on demand can use those defaulted securities to pay Greek government taxes. This makes it immediately obvious to investors that those new securities are ‘money good’ and will ultimately redeem for face value for as long as the Greek government levies and enforces taxes. This would not only allow Greece to fund itself at low interest rates, but it would also serve as an example for the rest of the euro zone, and thereby ease the funding pressures on the entire region.

We recognize, of course, that this proposal would also introduce a ‘moral hazard’ issue. This newly found funding freedom, if abused, could be highly inflationary and further weaken the euro. In fact, the reason the ECB is prohibited from buying national government debt is to allow ‘market discipline’ to limit member nation fiscal expansion by the threat of default. When that threat is removed, bad behavior is rewarded, as the country that deficit spends the most wins, in an accelerating and inflationary race to the bottom.
It is comparable to a situation where a nation like the US, for example, did not have national insurance regulation. In this kind of circumstance, the individual states got into a race to the bottom, where the state with the laxest standards stood to attract the most insurance companies, forcing each State to either lower standards or see its tax base flee. And it tends to end badly with AIG style collapses.

Additionally, the ECB or the Economic Council of Finance Ministers (ECOFIN) effectively loses the means to enforce their austerity demands and keep them from being reversed once it’s known they’ve taken the position that it’s too risky to let any one nation fail.

What Europe’s policy makers would like to do is find a way to isolate Greece and mitigate the contagion effect, while maintaining the market discipline that comes from the member nations being the credit sensitive entities they are today; hence, the mooted “shock and awe” proposals now being leaked, which did engender an 8% jump in the Greek stock market on Thursday.

But these proposals don’t really get to the nub of the problem. Any major package weakens the others who have to fund it in the market place, because the other member nations are also revenue dependent, credit sensitive entities. Much like the US States, they do not control central bank operations, and must have good funds in their accounts or their checks will bounce.

The euro zone nations are all still in a bind, and their mandated austerity measures mean they don’t keep up with a world recovery. And Greek financial restructuring that reduces outstanding debt reduces outstanding euro financial assets, strengthening the euro, and further weakening output and employment, while at the same time the legitimization of restructuring risk weakens the credit worthiness of all the member nations.

It does not appear that the markets have fully discounted the ramifications of a Greek default. If you use a Chapter 11 bankruptcy analogy, large parts of the country would be shut down and the “company” (i.e. Greece Inc) could spend only its tax revenues. But the implied spending cuts represent a further substantial cut in aggregate demand and decreased revenues, in a most un-virtuous spiral that ends only with an increase in exports or privation driven revolt.

The ability of Greece to use the funds from the rescue package as a means to extinguish Greek state liabilities would improve their financial ratios and stave off financial collapse, at least on a short term basis, with the side effect of a downward spiral in output and employment, while the sovereign risk concerns are concurrently transmitted to Spain, Portugal, Ireland, Italy, and beyond. Those sovereign difficulties also morph into a full-scale private banking crisis which can quickly extend to bank runs at the branch level.

Our suggestion will rescue Greece and the entire euro zone from the dangers of national government insolvencies, and turn the euro zone policy maker’s attention 180 degrees, back to their traditional role of containing the potential moral hazard issue of excessive deficit spending by the national governments through the Stability and Growth Pact. If the member states ultimately decide that the Stability and Growth Pact ratios need to be changed, that’s their decision. But the SGP represents the euro zone’s “national budget”, precisely designed to prevent the hyperinflationary outcome that the “race to the bottom” could potentially create. At the very least, our proposal will mitigate the deflationary impact of markets disciplining credit sensitive national governments and halting the potential spread of global financial contagion, without being inflationary

[DemReadingDU]

71. NPR: Greece Bailout May Not Stop Financial Contagion

5/8/10 NPR: Greece Bailout May Not Stop Financial Contagion
Europe has approved a $140 billion bailout deal for Greece. But markets have very little faith in the aid package, or the show of European unity. Investors are worried that a financial contagion is spreading throughout the continent. Host Scott Simon learns more from NPR's Jim Zarroli in Brussels.
appx 5 minutes
http://www.npr.org/templates/story/story.php?storyId=126630816

[Demeter]

10. Volatile Week on Wall Street Ends With Another Slide

http://www.nytimes.com/2010/05/08/business/08markets.html?hp

Turbulence continued to rock the equity markets on Friday, as Wall Street closed out one of its most volatile weeks since the financial crisis of 2008.

Financial market regulators said late Friday that they had not yet determined the cause of the sudden decline in stock prices that occurred on Thursday afternoon, while acknowledging that the sharp drop, which rattled investors worldwide, “is inconsistent with the effective functioning of our capital markets.”

The major indexes gyrated on Friday before closing down sharply on continued fears that the Greek debt crisis would spread and lingering questions about Thursday’s sudden plunge. It was a culmination of a week in which the Dow lost about 5.7 percent, the Standard & Poor’s 500-stock index fell about 6.3 percent, and the Nasdaq almost 8 percent.

On the day, the Dow Jones industrial average was down 140.72 points, or 1.34 percent, to 10,379.60, while the S.&P. declined 17.28 points, or 1.53 percent, to 1,110.87. The Nasdaq declined 54 points, or 2.33 percent, to 2,265.64. European indexes closed sharply lower.

Trading was heavy throughout the day and the declines were across the board, led by technology and industrial shares. Apple’s shares fell 4.8 percent — Nokia said Friday that it had added the iPad to a patent lawsuit against Apple. Microsoft, Cisco and Hewlett-Packard all dropped more than 3 percent.

Gold rose sharply as risk-averse investors turn to it as a haven. Oil prices dropped to just about $75 a barrel...

[DemReadingDU]

11. Can the Federal Reserve provide a quick fix to tame Europe’s growing financial crisis?

5/7/10 A Closer Look at Europe and the Fed’s Central Bank Swap Program
Can the Federal Reserve provide a quick fix to tame Europe’s growing financial crisis?

Can the Federal Reserve provide a quick fix to tame Europe’s growing financial crisis? Probably not. But it might be able to help if conditions in Europe worsen.

The Fed is considering whether to reopen a lending program put in place during the financial crisis in which it shipped dollars overseas through foreign central banks like the European Central Bank, Swiss National Bank and Bank of England. The central banks, in turn, lent the dollars out to banks in their home countries in need of dollar funding. It was aimed at preventing further financial contagion.

The Fed has felt that it is premature to reopen this program — which was shut down in February as the financial crisis appeared to wane — because it wasn’t clear that foreign banks were in need of dollar funds. Still, trading floors on Wall Street are abuzz with anticipation today that the Fed might use the program again as Europe’s problems take on a more global dimension.

Reopening the program would come at a cost for the Fed. Critics in Congress could be against the program because of the perception that the U.S. would be coming to the rescue of Greece and other struggling European nations. The Fed is already being pushed on Capitol Hill to be open to more scrutiny than it wants on the details of its international transactions. The international lending lines are known among central bankers as swaps.

Fed officials believe the swap program was one of its most successful interventions aimed at stemming a global crisis, when many banks overseas became strained for dollar funding. In their normal course of business, they borrowed dollars in short-term lending markets and used those dollars to finance holdings of long-term U.S. dollar assets, like Treasury or mortgage bonds. When those markets dried up, the swap lines helped to prevent overseas bank funding crises in 2008.

Fed officials see the swaps as a low-risk program, because its counterparties in these loans are foreign central banks, and not private banks. At a crescendo in the crisis in December 2008, the Fed had shipped $583 billion overseas in the form of these swaps.

Strains in short-term funding markets are starting to show up again, but they’re nowhere near as severe as they were after Lehman Brothers collapsed in September 2008, so it’s not clear that the program is warranted.

One example of this strain shows up in the London interbank offered rate, or Libor, a short-term international lending rate. Libor has risen from 0.31% in mid-April to 0.43% on Friday. Another sign of stress is that it is 0.18 percentage points above the expected federal funds rate — the Fed’s benchmark lending rate — up from 0.09 percentage points over the past three months. When that spread gets larger, it’s a sign of banks’ skittishness about lending to other banks.

“There is definitely stress,” says Louis Crandall, a money market analyst at Wrightson ICAP LLC, a money market broker. He adds that some borrowers in money markets are beginning to take shorter-term loans from lenders because of fears among lenders about being exposed for too long.

Still, Mr. Crandall notes, the stress in money markets isn’t nearly as severe as it was during the worst of the financial crisis. Back then, he notes, Libor rates were well over 3 percentage points above the expected fed funds rate, compared to less than a quarter of a percentage point today. The wide spread back then was a sign of extreme wariness in short-term money markets about lending even for short periods.

As they watched European turmoil unfold in the past few days, Fed officials weren’t convinced that funding problems were severe enough in short-term money markets to warrant U.S. involvement. That could change if conditions worsen.

Still, the swaps wouldn’t be a cure-all if they’re reinstated. They only help relieve short-term funding pressures on banks that need dollars. They don’t help banks that need other funding currencies, like euros. And they don’t resolve worries about bigger issues, such as the risk that Greece or other countries might default on their debt, or the inability of banks to unload illiquid holdings of European sovereign debt.

Mr. Crandall said a Fed swap program would only be useful if it was instated as part of a broader European package to calm financial market worries. Two senior Fed officials will be in Basel, Switzerland this weekend for a regularly scheduled meeting of global central bankers — New York Fed President Bill Dudley and Fed Vice Chairman Donald Kohn.

http://blogs.wsj.com/economics/2010/05/07/a-closer-look-at-europe-and-the-feds-central-bank-swap-program/

[DemReadingDU]

12. The Agenda For Emergency Economic Strategy Discussions This Weekend

5/7/10 The Agenda For Emergency Economic Strategy Discussions This Weekend
By Peter Boone and Simon Johnson

Europe needs a new recovery plan, bigger and broader than anything put together so far. This weekend is the perfect time to put such a plan together. But be wary of committing official resources too early in this market downdraft – smart policymakers will calmly let the markets fall further, in order to benefit from the rebound potential.

In the last few days, bond markets have decided that the deflationary adjustments – cutting wages and prices — needed in large parts of the eurozone are not politically feasible. The deflationary spiral that will come with fiscal cuts causes political turmoil and reduces revenues – that in turn makes it ever harder to service debt; see Greece this week. Eurozone countries running large budget deficits with substantial outstanding public debt are finding they are cut off from credit markets as a result. This is a solvency issue, not a liquidity issue.

But do not rush into this gap. If the European Central Bank (ECB) were to start buying Spanish debt today, for example, they would find an abundance of sellers because the bonds are fundamentally overvalued.

There is a good rule for foreign exchange intervention: you intervene to buy a currency at a time when you think you can really shift events – i.e., when the exchange rate has fallen more than really makes sense and shorting the currency has become overly fashionable. In that way you cause traders with short positions to lose a considerable amount of money, and you draw in real buyers who want to own the assets because they are inexpensive and can now see an end to the declines.

We are not yet at that point in the bond markets for weaker eurozone countries or in the foreign exchange market for euro.

Start with bonds: Greece clearly must end up restructuring its debt. The IMF program makes that obvious – how can Greece make a total of 19% of GDP in cuts, only to end with 149% of GDP in debt, and a perpetual bill to pay German, French, and other foreign holders roughly 10% of income each year just to cover interest?

more...
http://baselinescenario.com/2010/05/07/the-agenda-for-emergency-economic-strategy-discussions-this-weekend/

[Demeter]

14. U.S. wasn't ready for bank crisis, response slow

http://uk.reuters.com/article/idUKTRE64545N20100506

The United States was unprepared for the 2007-2008 financial crisis, underestimated its seriousness and lagged in coming to grips with the damage, past and current Treasury chiefs said on Thursday.

STILL FIGHTING THE LAST BATTLE, TIMMY?

Treasury Secretary Timothy Geithner told a commission investigating the causes of the crisis that it was vital now to tighten regulation of financial firms but not stop banks from taking prudent risks on behalf of customers.

In an apparent reference to a bid by some Senate Democrats to make banks spin off some derivatives trade, he said it doesn't make the economy safer to take risk-hedging activities outside of banks that offer the service to customers.

The commission is the latest hearing to rake over the aftermath of the crisis, as the battle over how to prevent a repeat heats up in the Senate ahead of November elections.

There was little of the political rancour though in more than four hours of polite questioning of Geithner and his predecessor, former Goldman Sachs chief executive Henry Paulson, and Thursday's session broke little new ground.

Both men conceded the state of readiness before the subprime mortgage-induced crisis hit was woeful.

Paulson said he was aware when he took office in mid-2006 that the potential for financial trouble was high but was taken by surprise by the severity of it.

"What wasn't clear to me..was the scale and degree of the problem," the gravel-voiced former Goldman Sachs head told the Financial Crisis Inquiry Commission.

"There wasn't a plan in place when I arrived, I think we put a plan in place," he said. The Bush administration persuaded Congress to set up the $700 billion (471 billion pound) fund to bail out major banks, a controversial move that angered U.S. taxpayers.

PROFITS BRED COMPLACENY

Geithner, who took over Treasury in early 2009 after serving in the powerful position of New York Federal Reserve Bank president, said there had been widespread complacency in the financial system that left participants and regulators thinking they could weather any storm.

"Financial crises are caused by the unwillingness of people to think the unthinkable...that mistake was pervasive across the system," Geithner said, adding it needs to be corrected and the mistakes of the past underline that necessity.

"If the government had moved more quickly to put in place better-designed constraints on risk-taking that captured where there was risk, the crisis could have been less severe and if the government had moved more quickly to deal with the damage this would have been less severe," he said.

Paulson said he thought most of his own mistakes were ones of communication, especially about the need for bank bailouts.

"I was never able to explain to the American people why these rescues were for them and not for Wall Street," he said. "I sure wish I'd communicated better a lot of the time."

While all financial forms need to be brought under tougher regulation as part of a broader regulatory overhaul, Geithner cautioned against preventing banks from engaging in some risk-taking on behalf of customers.

"We cannot make the economy safe by taking functions central to the business of banking, functions necessary to help raise capital for businesses and help businesses hedge risk, and move them outside banks," he said.

CAN'T TURN CLOCK BACK

Democrats are battling staunch Republican resistance and a blizzard of amendments to their Wall Street reform.

A central issue in the bill now in the Senate is whether to rein in banks' trading in some financial instruments to curb risk. Both Geithner and Paulson agreed it was necessary to regulate trading of derivatives more closely, and to put more of the trading on central exchanges.

Much of recent public anger over the crisis has focussed on Paulson's former employer, Goldman Sachs, which is being sued by the Securities and Exchange Commission over allegations it hid information from investors in transactions involving a hedge fund had bet on assets losing value.

Paulson said he had not been intimately aware of the derivative products at the centre of the case, but defended banks' rights to "short" securities as long as clients are given appropriate information.

Geithner said reform proposals, if approved, would stiffen regulation and make the system safer by subjecting all financial firms to stronger capital levels.

"A company like AIG or Lehman Brothers will not be able to escape consolidated supervision by virtue of its corporate form, and will have to operate on a level playing-field

with large commercial banks and traditionally regulated financial institutions," he said.


WHERE'S THAT VIOLIN? :nopity:

[Demeter]

15. Mother's Day

http://en.wikipedia.org/wiki/Mother%27s_Day

The modern Mother's Day is celebrated on various days in many parts of the world, most commonly in May, though also in March, as a day to honour mothers and motherhood. In the UK and Ireland it follows the old traditions of Mothering Sunday.

Historical antecedents

Lamberts thought this day emerged from a custom of mother worship in ancient Greece, which kept a festival to Cybele, a great mother of Greek gods.{Encyclopædia Britannica|(1959)Vol.15,p. 849} This festival was held around the Vernal Equinox around Asia Minor and eventually in Rome itself from the Ides of March (15 March) to 18 March.

The ancient Romans also had another holiday, Matronalia, that was dedicated to Juno, though mothers were usually given gifts on this day.

In Europe there were several long standing traditions where a specific Sunday was set aside to honor motherhood and mothers such as Mothering Sunday. Mothering Sunday celebrations are part of the liturgical calendar in several Christian denominations, including Anglicans, and in the Catholic calendar is marked as Laetare Sunday, the fourth Sunday in Lent to honour the Virgin Mary and your "mother" church (the main church of the area). Historians think that children who served in houses were given a day off on that date so they could visit their families. The children would pick wild flowers along the way to place them on the church or to give them to their mothers as gifts.<2>

International Women's Day was celebrated for the first time in 28 February 1909, in the US,<3> by which time Anna Jarvis had already begun her national campaign in the US. It is now celebrated in many countries on March 8.

The "Mother's Day Proclamation" by Julia Ward Howe was one of the early calls to celebrate Mother's Day in the United States. Written in 1870, Howe's Mother's Day Proclamation was a pacifist reaction to the carnage of the American Civil War and the Franco-Prussian War. The Proclamation was tied to Howe's feminist belief that women had a responsibility to shape their societies at the political level...

http://www.youtube.com/watch?v=CEnwgi4E69w

[Demeter]

16. Wells Fargo mortgage lending practices probed

http://www.marketwatch.com/story/wells-fargo-mortgage-lending-practices-probed-2010-05-07

...The bank is currently the focus of several lawsuits alleging it steered customers into more costly mortgage products and that documents contained misleading statements. Wells Fargo said it is cooperating fully with the investigations.

[Demeter]

17. FAQ: The FCC's plan to reclassify broadband

http://news.cnet.com/8301-30686_3-20004392-266.html

The Federal Communications Commission released detailed plans Thursday to ensure that it has authority to craft new rules to keep the Internet open.

Figuring out exactly what the FCC is proposing and how it will affect the industry and consumers is confusing. The procedure the FCC has chosen to shore up its authority is complicated and requires some legal gymnastics. To get the skinny on what's being proposed check out this FAQ below:

What exactly did the FCC do on Thursday?

SEE LINK TO FIND OUT

[girl gone mad]

18. Adding one here that deserves to be read:

From http://jessescrossroadscafe.blogspot.com/2010/05/plunge-1000-point-drop-on-dow-driven-by.html">Jesse's Cafe:

PLUNGE! 1987 Style Sudden Drop in US Stocks Driven by Program Trading and a Ponzi Market Structure

US equities were gripped by panic selling as the Dow plunged almost 1,000 points driven by a cascade of 100 share high frequency program trading, estimated to have been about 80% of volume. Gold rocketed higher to $1,210.

The stock exchange circuit breakers do not effectively apply after 2:30 PM NY time unless the market declines over 20% and they close the exchange for the day.

A bit of a detail perhaps, but it serves to enhance the convenient artificiality of today's market break.

This is highly reminiscent of the 1987 crash driven by a flawed market structure based on automated trading and bad theories.

The entire stock market rally which we have seen this year off the February lows resembles a low volume Ponzi scheme, and formed a huge air pocket under prices.

This US equity rally was driven by technically oriented buying from the Banks and the hedge funds. There was and still is a lack of legitimate institutional buying at these price levels. This was machine driven speculation enabled by the lack of reform in a system riddled with corruption, from the bottom to the top.

This is yet another indication that the US regulatory and market oversight organizations, especially the SEC and CFTC, continue to be disconnected from and remarkably ineffective in their responsibilities in guarding the public against gross market abuse, price manipulation, and insiders playing games with cheap money supplied by the NY Fed.

And as you might expect, the anchors on financial television are trying to excuse and blame the sell off on a 'fat finger' order that caused Procter and Gamble to drop 20 points in 45 seconds. Or a typist inputting an order to sell 16 million e-mini SP futures, and typing "B" instead of "M." Oops. Crashed the free world.

http://jessescrossroadscafe.blogspot.com/2010/05/plunge-1000-point-drop-on-dow-driven-by.html">more... (go read it!)

[Demeter]

21. Mama Said There'll Be Days Like This

http://www.youtube.com/watch?v=ns1exm8Y5r4


Just had to filch the photo that went with Jesse's Article!




http://2.bp.blogspot.com/_H2DePAZe2gA/S-Mc-GFY-UI/AAAAAAAAMtw/9sgK3CmFmnE/s400/bad_economics.bmp

[Po_d Mainiac]

34. ya fergut the 4th monkey

Do now evil

A bit of thought (and a sewer for a brain) needed for the visual
:hide:

[Po_d Mainiac]

27. Maybe "God" was speaking

Through one of his flying monkeys :evilgrin:

[Demeter]

19. How ‘Hard to Fathom’ Derivatives Rule Emerged in U.S. Senate

http://www.businessweek.com/news/2010-05-06/how-hard-to-fathom-derivatives-rule-emerged-in-u-s-senate.html

Of all the new rules for Wall Street being considered by Congress, few have the potential impact of a derivatives plan that emerged from nowhere and, to the surprise of its authors, has so far survived the debate.

The provision in the U.S. Senate’s regulatory overhaul bill would require Goldman Sachs Group Inc., JPMorgan Chase & Co. and about a dozen other lenders that dominate the $605 trillion over-the-counter derivatives market to wall off swaps trading from their commercial banking operations.

The firms argue that the rule would disrupt the economy and make it difficult for them to continue in the business. Others expressing opposition include Federal Reserve Chairman Ben S. Bernanke, Treasury Secretary Timothy Geithner, and senators from both parties including Banking Committee Chairman Christopher Dodd, author of the overall bill. Still, in a sign of the toxic political climate facing banks, Democrats and administration officials have been reluctant to cut it from the legislation.

Regulators “have come out in a really unusual way and said, and I’m paraphrasing here, that this is a really, really stupid idea,” Senator Judd Gregg, a New Hampshire Republican, said in a recent floor speech. “Where this idea came from is hard to fathom because on the face it makes absolutely no sense. Yet for some reason it has found its way into this bill.”...

PLEASE IGNORE JUDD GREGG--ALL THE SMART PEOPLE DO. JUST DON'T TURN YOUR BACK ON HIM....

[Demeter]

20. UPDATE 2-France, Germany take aim at ratings agencies

http://www.reuters.com/article/idUSLDE6451JA20100506

French President Nicolas Sarkozy and German Chancellor Angela Merkel took aim at major ratings agencies on Thursday, saying the European Union should look carefully at whether they had worsened the Greek debt crisis.

"The decision by a ratings agency to downgrade the rating of Greece even before the programme of the authorities and the amount of the support plan were known prompts us to consider the role of the ratings agencies in the spreading of crises," the leaders wrote in a joint letter to European Council president Herman Van Rompuy.

The remarks are the latest in a series of criticisms aimed at the big ratings agencies -- Moody's (MCO.N), Standard and Poor's (MHP.N) and Fitch (LBCP.PA) -- for their role in the financial crisis.

Merkel and Sarkozy said a review of the sector should be launched and proposals should be considered to "reinforce competition in the market for rating credit."

They also said the European Commission should conduct a "critical review of the sense of using agency ratings in European regulations."

In particular, the role of ratings in determining how much capital a bank must set aside to cover risks, should also be reduced, the letter said....

[Po_d Mainiac]

23. The Senate hearings this week

proved that it would not require a "smart bomb" to hit them. (in udder words, little aim required) :evilgrin:

[Po_d Mainiac]

22. So the WSJ reports that the CFTC is looking at gold/silver trading limits

apply and voila instant surge in price as the manipulators head for their bunkers

sorry no link (the WSJ under Rumpburp Murdink requires a subscription now)...when the SEC posts the announcement I'll get a link up

If you think that by holding the ETF's on GLD or SLV you own the metal, please do some serious research. The "custodial institutions," supposedly holding the bullion, are the same Goodfellows that have been holding back on the KY during their backside thrusts. JMP DB, etc. .....http://solari.com/archive/Precious_Metals_Puzzle_Palace/.....

YMMV

And again a special TY to our gracious host for the WEE...A lot of time to make this an informative thread...Happy Mother's Day!


Demeter...U sure you don't want that miniature working model of a FRSP? It's hand crafted (don'tchuknow)

[Demeter]

24. It's Lovely, But

I have to move all the furniture, rip out the two layers of carpet, lay the wood floor and somehow get this all done before the snow flies so I can park in the garage again, with as little paid help as possible.

Ask me next year. Make sauerkraut with it in the meanwhile....?

It's been pouring, and every time it opens up, my head explodes with pain. We are also under a tornado watch until 10 pm.

I had to turn the heat back on--it's supposed to freeze this weekend.

whine, whine, whine. The Younger kid was kind enough to bring some chocolate for the suffering, at least.

[Po_d Mainiac]

28. I hear ya

I have food in the ground, and if you folks in the Central States don't turn up the thermostat and open your doors, we will get a hard freeze up heeyah.

Have 40 bricks on the woodstove getting toasty....gonna be checking temps from midnight on for the next few nights <groan>

[Tansy_Gold]

76. We may have hit 100 today

Or at least close to it.

Sorry.

[Demeter]

25. Goldman board in line of fire

Goldman Sachs’ board is expected to come under fire at the bank’s annual investor meeting, with shareholders likely to question its directors’ independence from management and oversight role before recent troubles
Read more >>
http://link.ft.com/r/3JFELL/WLOWIN/XBAN6/C59OFE/KESOVF/UP/t

[Demeter]

39. What Any Goldman Settlement Might Entail

http://dealbook.blogs.nytimes.com/2010/05/06/what-any-goldman-settlement-might-entail/?ref=business

only the first round--the SEC case.

[Demeter]

50. WSJ: “Senate’s Goldman Probe Shows Toxic Magnification”

http://seminal.firedoglake.com/diary/44870


My guess is that someone at Goldman (or the SEC, or someone very familiar with the incredible complexity of these transactions) gave this to the Senate staffers.

Among other issues, this work is critical for unmasking the lie that the Community Reinvestment Act (CRA) caused the Banking failure by forcing banks to make loans to poor communities.

"Wall Street Banks Repackaged Same Risky Bonds into Numerous Securities, Spreading the Pain Across Multiple CDOs"

Even at its peak, subprime lending accounted for a relatively small portion of overall mortgage lending. Yet losses from these mortgages caused deep damage to the financial system.

Now, documents released by Senate investigators last week provide clues in understanding why the losses were so severe. The documents show how Wall Street banks packaged and repackaged the same risky bonds into securities that ultimately helped magnify the impact of defaulting subprime mortgages on the financial system.

In one case, a $38 million subprime-mortgage bond created in June 2006 ended up in more than 30 debt pools and ultimately caused roughly $280 million in losses to investors by the time the bond’s principal was wiped out in 2008, according to data reviewed by The Wall Street Journal….

In effect, the documents said, Wall Street was "copying and pasting" what turned out to be the worst-performing securities of the mortgage boom. Such activity helped multiply opportunities for hedge funds and traders who wanted to short the housing market, but magnified the losses of those on the other side of the trades. To short a trade, in this instance, is to bet the housing market will turn down.

"There was a limited number of similar bonds," said Darrell Duffie, a finance professor and derivatives authority at Stanford University. "So they are likely to show up in multiple deals."

…..

An important moment in the housing cycle came in January 2006, a year before the downturn of the housing market had crystallized. That month, a consortium of banks, including Goldman and Deutsche Bank AG, with the help of a London data firm, launched an index, known as the ABX, which served as a proxy for subprime loans.

For the first time, banks and hedge funds had an indicator of the prices of subprime-mortgage securities, and a somewhat active market to buy and sell credit protection against housing-market losses. ….

By late 2006, Goldman had a large bullish position on the ABX, because it had taken the other side of bearish bets by hedge-fund clients, according to the Senate documents. Subsequent deals would help reverse that position.

One mortgage bond, Soundview Home Loan Trust 2006-OPT5 M8, was a component of the ABX and showed up in more than 30 CDOs.

The Soundview deal in June 2006 bundled together roughly $3.1 billion in subprime home loans made by Option One Mortgage Corp. to 15,746 individuals across the country, with a high concentration in California and Florida, two states that were among the worst hit by the housing downturn. The securities from the deal were sold in slices with different credit ratings, interest rates and risk levels.

One slice of the Soundview bonds, called "M8," began making its way through Wall Street. About $38 million of the "M8" bond was issued, and it stood to lose money if roughly 5% of the loans in the pool were wiped out by losses.

In July 2006, the Soundview deal was picked by Wall Street banks to be one component of the ABX, and the Soundview M8 bond also was replicated in multiple CDOs. They included Hudson Mezzanine Funding 2006-1, a Goldman-arranged CDO, which took on a $15 million exposure to the Soundview M8 bond in late 2006, according to documents released last week by the Senate panel.

Hudson represented Goldman’s bearish view on housing. According to the Senate inquiry, Goldman used the CDO to protect itself against losses by the $2 billion of assets referenced in the pool. Among the assets was $1.2 billion in bullish bets on bonds underpinning the ABX indexes. Goldman was the buyer of protection from Hudson, meaning that the bank had a bearish position on the same bonds.

The Soundview M8 bond appeared again in a CDO called Abacus 2007-AC1, the mortgage deal at the center of the Securities and Exchange Commission’s civil-fraud lawsuit against Goldman. ….

Some Goldman employees appeared to be aware that the Soundview M8 bond was shaky by early 2007. In an April 2007 email, a Goldman employee included it in a list of what he called "dirty ‘06 originations," referring to the period in which lending standards loosened. By that time, about 8% of the loans in the Soundview pool already were at least 60 days past due……

In all, more than $280 million of bullish positions on the Soundview M8 bond were in at least 30 CDOs underwritten by various banks, according to data reviewed by the Journal. As defaults among the subprime loans backing the deal mounted in 2007, the M8 bond’s value fell. Its entire $38 million face amount eventually was wiped out….

Another benefit of the Wall Street Journal publishing this is that it confirms that Goldman Sachs is "fair game." This makes it easier for the SEC and DoJ to conduct aggressive investigations.

Warren Buffett cannot be happy. He just spent his weekend defending his $5 billion dollar investment in Goldman to Berkshire Hathaway investors.

http://online.wsj.com/article/SB10001424052748703969204575220300651236446.html

[Tansy_Gold]

77. Does this mean, in simple terms, that GS was taking their cue

from The Producers?

Did they sell the same $38M in bonds several times over, then ask US to pay off on it?



Tansy Gold

[Demeter]

79. "It's Still the Same Old Story

http://www.youtube.com/watch?v=duMUG6XwwQ0

[Demeter]

61. Did Goldman's Ex-Mortgage Guru Lie Under Oath?

http://motherjones.com/politics/2010/04/daniel-sparks-goldman-sachs-hearing

Daniel Sparks told Congress he didn't expect a group of financial products to fail. Internal documents suggest he knew otherwise.

— By Andy Kroll

Thu Apr. 29, 2010 3:00 AM PDT

During Tuesday's 10-hour grilling of past and present Goldman Sachs executives and traders before a Senate subcommittee, the questioning frequently centered on four mortgage-related products the company had sold to investors as the subprime market was about to implode. At one point, an indignant Sen. Jon Tester (D-Mont.) said, "Every one of these looks like a wreck waiting to happen." And he asked Daniel Sparks, the former head of Goldman's mortgage department, how he "in good faith" could peddle these mortgage-related products to clients when it was clear the mortgage market was close to complete collapse—and when Goldman itself had begun "shorting," or betting against, this very same market. Sparks—whose overall evasiveness drew the ire of Senate investigations subcommittee chair Carl Levin (D-Mich.) and other lawmakers—replied: "At the time we did those deals, we expected those deals to perform." Numerous documents released by the subcommittee, however, indicate that Sparks, who left Goldman in the spring of 2008, and his former employer knew otherwise. And his testimony raises a serious question: whether he lied to Congress under oath.

The four doomed deals were put together or sold between December 2006 and late April 2007. Each involved an exotic product called a synthetic collateralized debt obligation (CDO), made up not of mortgage-backed bonds but instruments that merely referenced and reacted to the performance of a set of mortgage bonds. Each would become a spectacular failure, mostly winding up in junk status and rendered nearly worthless. One of these deals was Abacus, which is the focus of the Securities and Exchange Commission's (SEC) billion-dollar fraud case against Goldman and company vice president Fabrice Tourre. That suit alleges that the firm deliberately created and sold what amounted to a ticking time bomb—a subprime mortgage-based product that was designed to go bust—and didn't tell investors that a hedge fund trader betting against Abacus had influenced the product's creation.

As it was making those deals, Goldman was taking a far more negative view of the mortgage markets. So the issue is, what did Sparks know and when did he know it? More precisely, did he—could he—really expect these deals to do well when Goldman was peddling them to customers?

In 2006, delinquencies in risky mortgages spiked in the US, and the outlook for the subprime market grew bleaker. Beginning in 2007, Goldman began shorting the mortgage markets. One Goldman trader, Joshua Birnbaum, stated in a 2007 performance self-evaluation that Goldman should not only "get close to home," or balance its long and short bets, but "get VERY short," a strategy he said he shared with Sparks. Goldman's chief financial officer, David Viniar, likewise mentioned in an email the firm's "big short" of the mortgage markets. And in an October 2007 letter to the SEC, the firm said, "During most of 2007, we maintained a net short sub-prime position and therefore stood to benefit from declining prices in the mortgage market." It follows, then, that any deal or product hinging on the fate of the mortgage markets, like the four deals Sparks was questioned about, was likely to fail miserably.

Internal documents show Sparks himself knew and often wrote about the firm's negative view of the mortgage markets and mortgage-related products:

* Sparks was among the recipients of an October 30, 2006, email concerning a $2 billion deal called Hudson Mezzanine 2006-1. One of the four products cited during the hearing, this synthetic CDO was downgraded to junk status less than 18 months later. That email shows that Goldman bought all $2 billion worth of protection against Hudson’s failure—meaning that even as the firm helped design the deal for sale to investors, it was betting on and stood to gain from Hudson's demise, which ultimately happened.
* In an email dated February 8, 2007, Sparks wrote: "Subprime environment—bad and getting worse. Everyday is a major fight for some aspect of the business (think whack-a-mole)."
* In a February 21, 2007, email, he wrote: "Bad news everywhere. Novastar (another subprime originator) bad earnings and 1/3 of market cap gone immediately. Wells laying off 300+ subprime staff and home price appreciation data showed for first time lower prices on homes over year broad based."
* In a March 1, 2007, email, Sparks noted that the subprime market was in "disarray" and it had become "clear that many people should not have been given loans." In a section of the email subtitled "Who is feeling the pain," he added, "CDOs"—that is, the product that Sen. Tester referred to during the hearing and that Sparks said he believed would perform.
* In a March 3, 2007, email containing notes from an earlier call, Sparks wrote: "Things we need to do…Focus on any exposures to originators," presumably to avoid losses, as many subprime players were flirting with collapse at the time. He went on to write, "For traders…Don't add risk…Get out of everything."
* According to the minutes of a March 7, 2007, meeting of Goldman's risk committee, Sparks delivered the following prognosis of the subprime mortgage market: "Game Over—accelerating meltdown for subprime lenders such as Fremont and New Century." He was so skeptical of the subprime industry that he told the risk committee, chaired by CFO Viniar, that the firm's mortgage operation "is currently closing down every subprime exposure possible." Meanwhile, Goldman wouldn't close its Abacus deal until the following month.
* In a March 7, 2007, email, Fabrice Tourre wrote, "According to Sparks, that business is totally dead, and the poor little subprime borrowers will not last so long!!!"
* In a March 10, 2007, email to a Goldman colleague, Sparks outlined a handful of positions against the mortgage markets that his own department had taken: "...getting short CDS on RMBS and CDOs, getting short the super-senior BBB- and BBB index, and getting short AAA index as overall protection."

Sparks was right. In late December 2006, soon after Goldman's top brass decided the firm quickly needed to short the market, subprime lender Ownit Mortgage Solutions filed for bankruptcy protection. In February 2007, British bank HSBC warned of staggering losses in its subprime portfolio, and on April 2, 2007, as Goldman was shorting the mortgage markets—yet still selling its investors synthetic CDOs based on these doomed mortgages—subprime originator and servicer New Century went belly-up. Not long after, the major rating agencies downgraded huge swaths of mortgage bonds, all but freezing the subprime market and the demand for CDOs.

There's no doubt that Sparks knew the mortgage markets were in deep trouble, and that any CDOs linked to mortgage bonds were also imperiled. Given his firm's position and his own emails and internal Goldman communications, Sparks' testimony seems as dubious as the mortgage-backed securities his division sold to investors.

[Demeter]

26. One Perennially Overlooked Labor Market

POSITION:
Mother, Mom, Mama, Mommy

JOB DESCRIPTION:
Long term, team players needed, for challenging permanent work in an, often chaotic environment. Candidates must possess excellent communication and organizational skills and be willing to work variable hours, which will include evenings and weekends and frequent 24 hour shifts on call. Some overnight travel required, including trips to primitive camping sites on rainy weekends and endless sports tournaments in far away cities. Travel expenses not reimbursed. Extensive courier duties also required.

RESPONSIBILITIES:
The rest of your life. Must be willing to be hated, at least temporarily, until someone needs $5. Must be willing to bite tongue repeatedly. Also, must possess the physical stamina of a pack mule and be able to go from zero to 60 mph in three seconds flat in case, this time, the screams from the backyard are not someone just crying wolf. Must be willing to face stimulating technical challenges, such as small gadget repair, mysteriously sluggish toilets and stuck zippers. Must screen phone calls, maintain calendars and coordinate production of multiple homework projects. Must have ability to plan and organize social gatherings for clients of all ages and mental outlooks. Must be willing to be indispensable one minute, an embarrassment the next. Must handle assembly and product safety testing of a half million cheap, plastic toys, and battery operated devices. Must always hope for the best but be prepared for the worst. Must assume final, complete accountability for the quality of the end product. Responsibilities also include floor maintenance and janitorial work throughout the facility.

POSSIBILITY FOR ADVANCEMENT & PROMOTION:
Virtually none. Your job is to remain in the same position for years, without complaining, constantly retraining and updating your skills, so that those in your charge can ultimately surpass you

PREVIOUS EXPERIENCE:
None required unfortunately. On-the-job training offered on a continually exhausting basis.

WAGES AND COMPENSATION:
Get this! You pay them! Offering frequent raises and bonuses. A balloon payment is due when they turn 18 because of the assumption that college will help them become financially independent. When you die, you give them whatever is left. The oddest thing about this reverse-salary scheme is that you actually enjoy it and then wish you could only do more.

BENEFITS:
While no health or dental insurance, no pension, no tuition reimbursement, no paid holidays and no stock options are offered; this job supplies limitless opportunities for personal growth and free hugs for life if you play your cards right.


http://www.youtube.com/watch?v=jvsGfnVCpy8&feature=related

[Po_d Mainiac]

33. A lot of truth

As a confirmed (former) troglodyte, who now does the housework, this is real work. Had I known it was this bad, I'da started another business after selling the last one.

Geezum, and I'm just mucking up for two...the kids moved out years ago.....

PS....And they ain't movin back....one of their bedrooms turned into an oversized (inside) outhouse.

[Demeter]

60. And One in Dire Need of Rehab

Retraining and Rehabilitation of Financial Sector Employees May Be a Daunting Task

http://jessescrossroadscafe.blogspot.com/2010/05/retraining-and-education-of-fire-sector.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+JessesCafeAmericain+%28Jesse%27s+Caf%C3%A9+Am%C3%A9ricain%29&utm_content=Google+Reader


"Even knaves may be made good for something."

Jean-Jacques Rousseau


According to the email below there is some concern among employees in the financial services sector about their future employment prospects if reform legislation should be enacted, and some tentative, but perhaps unrealistic plans, of coping with it if it happens are expressed.

I can always use a little help around the kitchen and the yard, cleaning up and minor repairs, and I would gladly pay a fair wage based on effort, moderated by experience and capability. My son and helper is leaving for university soon to begin his studies in engineering, which is the manipulation of real things for practical purposes with benefit to the customer. So it might be unfamiliar to you. And I am not getting any younger.

By the way, since most of the suburban teaching jobs are filled, have you considered going back to school to learn to be a Registered Nurse? There will be plenty of openings in nursing homes and hospices, and your selfless dedication to hard and sometimes distasteful work will be most useful and appreciated.

I suspect there will be a lot of cheap labor available from dislocated FIRE sector workers in the years to come, as well as from those serving out community service judgements. At least the highways will be cleaned of litter. Perhaps exposure to the common people and honest labor will do them some good.

I am a little concerned that this type of person probably has little or no practical skills, but they do claim to bring high energy and a willing spirit, so it could be put to work on the cleaning up of America and Europe, and the rebuilding of their infrastructure. They make themselves sound like teachers, firefighters, policemen, or even soldiers, but there are dimensions of duty and honor and self-sacrifice and service to others in those callings far beyond any monetary recompense of which they probably have little experience or even a vaguely realistic expectation.

His or her description of what it is like to teach elementary school is good for a laugh. Someone is in for a rude awakening.

All things considered, we can surmise that there is no excess of common sense in their portfolio, or an ability to listen well and learn about things which they think they know, but really do not understand at all. That speaks to the main question which is, 'are they educable' or will they be prone to recidivism?

I find it hard to believe, however, that this letter is anything but a hoax. But considering the imputed source of these sentiments is the "derivative of a human being," it could be genuine. I am a bit undecided, but will allow for it.

So grab a pair of gloves, my boy, and I will be glad to teach you how to prune a tree and clear some brush. But although you might be willing to do it more cheaply, don't expect to displace the little girls of their job of walking the dog to earn money to purchase new dollies. They can be more ruthless and determined than the most hardened union boss. And the nine year old tells me she is still the strongest person in her class, but boasts of it less of late, owing to a nascent attraction to a classmate known only as 'Will.' But you might be able to help them with the clean up.

And if you should happen to play any card or board games with them, I warn you beforehand, they cheat, obviously, clumsily and shamelessly, to win, with a somewhat cavalier regard for the written rules. Ah, but I forget, that has long been your raison d'etre, your hallmark, and a particular area of specialization and expertise.

Time, life and a benevolent and orderly society tend to teach children to be better, to be human, essere umano. But apparently it does not always at first succeed, and must try, try again.

[Demeter]

31. "Governments can't go broke." Walter Wriston, Chairman of Citibank

dailyreckoning.com

Financial history is full of government bankruptcies. The first modern nation to go broke was Spain - which did so 4 times in the 16th century.

The book by Ken Rogoff and Carmen Reinhardt has a nice list of these state bankruptcies. You'll see there are dozens of them. Some countries seem to be bankrupt all the time. Greece, for example. According to Rogoff and Reinhardt, Greece has been in default about every other year since it gained its independence in the 1820s.

And I'll offer you a prediction, before this decade is over...or perhaps the next one...dozens of countries will go broke, including the United States of America.

I don't mean they will close down and go out of business. But they will default on their debts - either by ceasing payment, by forced restructuring, or by intentional inflation.

How do I know that? Well, I don't. It's just a guess. And it's a guess that comes from reading history...not from doing mathematics.

Generally, as I told an audience in India, we seem to be at some major inflation point. I call this period the Great Correction, because it appears that there are several things that are in the process...or perhaps only the very beginning...of being corrected.

1. There is the 50+ year credit expansion - centered in the US...largely a product of the modern, numbers-oriented way of looking at economics
2. There is the bull market in stocks, begun in 1982...correction began in 2000 and still is not fully realized. That bull market too owed a lot to modern financial thinking
3. There is the 28-year-old bull market in bonds, which apparently came to an end in the fall of 2008...but has not yet been completed. Again, this was made possible and sustained by the financial ideas of the mid- 20th century
4. There is even a 400-year boom in Anglo-Saxon culture - backed by military and economic force - which may be beginning a correction too. And it wouldn't surprise you to know that these new, modern financial theories are almost entirely the product of Anglo-Saxon academics...

All of these things are connected. The common thread is the 5th thing that needs to be corrected...and the thing I'm going to focus on here today. It's the rise of a body of thought concerning the way the world works - at least the world of money - which began in England and then was developed in the United States...

..on Friday, I called it "Fab Finance" after the Frenchman who got charged with fraud by the SEC. The idea is to put together slimy packages of debt and sell them to people who don't know what's in them. "Lumps for Chumps," you might call it.

Poor Fabulous Fab got stuck in the hot seat, but he was only following the logical development of a whole body of thinking that dates back almost 100 years....

..and which now seems to be leading the world to something much bigger and much more dangerous than just blowing up a few hedge funds and German banks...

Now, practically all the world's countries are using Fab Finance. They're gradually absorbing all the world's financial risks and putting them on the public accounts...ultimately backed by the full faith and credit of the United States of America.

This year, governments around the globe will issue $4.5 trillion in debt - three times the average over the last 5 years. About $2 trillion of that will be issued by the US.

What's more, there is NO EXIT from this debt build up. Only about 10% of these deficits is really caused by the financial downturn. Most of it is structural. That is, it is the result of programs that have been in place for years...

These programs just grow and grow...year after year...until they become unsupportable. And most of these programs are sold as Fab Finance...they transfer small, individual risks onto the balance sheet of the whole country.

In fact, if you had to sum up the entire effect of Fab Finance - the whole body of ideas and theories of modern, anglo-saxon economics in the 20th century - you could say that they took small problems and turned them into big ones.

Instead of running the risk that a few people will retire without sufficient funds, we now face the risk that the whole country will run out of money.

Instead of taking the risk that some people will not be able to afford health care, we now run the risk that the whole nation will be bankrupted by public health care costs.

Instead of allowing a few badly managed financial institutions to go under, the feds have put the entire credit of the United States of America at risk.

And in Europe, we see the same thing. Instead of allowing tiny little Greece to go bust, the Europeans are spreading the risks out all over the Eurozone.

I'm sure other speakers will talk about this, so I won't go into details. It's the most important economic event of our time. After a huge run up in debt in the private sector, now the public sector is having a go at it...and rolling it up into bigger and heavier balls.

And what happens when the government spends too much and borrows too much? History tells us what happened in the past. Philosophy tells us what should happen. Governments go broke. Always have. Always will.

But I'd like to share with you a headline from The Washington Post on Wednesday. The Post is the paper the politicians and bureaucrats read. So you can imagine how penetrating its insights are.

Well, the headline that made me laugh was this:

"Task force to tackle National Debt."

Not many things are certain in this life. But I can guarantee you that the bipartisan task force will not get close enough to the National Debt to read the number on its jersey, let alone tackle it.

The Great Depression convinced economists that they needed to be more activist. Now, our economy is responding to economic activism. And it will be destroyed by these modern ideas...and then, and only then, will new ideas arise.

We're going to see a correction...a regression to the mean of a number of things...including the way people think.

It is not normal to think you can spend your way out of debt.

It's not normal to think you can consume capital and get richer.

It's not normal to believe that central economic planning will make the world a better place. The Soviets proved that central planning doesn't work. We got to see that experiment. But instead of learning from it...we seem destined to repeat it.

[Demeter]

35. A Little Elvis Might Help

http://www.youtube.com/watch?v=mua1j9e7aoM

[Tansy_Gold]

80. Isn't this basically what SMW has been saying all along?

Why I woke up at 3:30 in the morning, I have no idea. I'm usually up around 4:30, but this is ridiculous. On Sunday? On Mother's Day for cryin' out loud?

Anyway.

I'm a big-picture kind of person. I tend to see the interconnectedness of things, and I am frequently pointing to one book in particular when people ask for explanations as to why things are the way they are -- Kevin Phillips' "The Cousins' Wars." Because what Phillips does with this book is not just retell the stories of the events of the English Civil War of he 1640s, the American War of Independence of the 1770s, and the American Civil war of the 1860s, but brings into the picture many of the social institutions that lay behind and underneath that long continuing clash of civilizations.

"The Cousins' Wars" was written before the GWB badministration, but it fortuitously laid the foundation for Phillips' subsequent works "Wealth and Democracy," "American Theocracy," and "Bad Money."

What this dailyreckoning piece leaves out -- and I couldn't find the piece on their website, so a link would be helpful -- is that it's not just an Anglo-american economic and military force that has dominated global politics for 400 years. Behind that is a theological premise that drives the insanity: "And dominate the earth." Dominate, control, bend to your will, enslave.

Lloyd Blankfein touched on this -- he admits he's doing God's work. Wealth as a sign of God's grace is a powerful motivator. And faith that God will get us out of our own messes gives some people the clear conscience to do things that they really wouldn't do otherwise, like pulling the cork out of the oil barrel at the bottom of the ocean or making more atomic bombs than needed to blow up the entire planet.

The Founding Fathers had it right -- get religion out of politics because it's a very, very dangerous mix. They failed. The French tried it and the Soviets tried it, and failed. But the worse failures are those governments that have embraced religion as the foundation of their politics -- Saudi Arabia, Iran, Israel.

No one seems to want to explore this -- even DU segregates discussions of religion to a dungeon forum, along with the Israel/Palestine/Islam discussions -- and yet it seems so obvious to me that here is where the source of the "problems" lies. (Not to be confused with "the Troubles" in Northern Ireland, which are also related to religion.)

At the risk of getting my post pulled, I'd like to offer an addendum to the above post -- that the root cause of today's current global economic (and political and social) crises is Reformation Protestant Christianity. Until "the economists" are willing to look at the role this institution has played in the big picture, the crises will continue, and no 'correction' will suffice.



Tansy Gold, mother

[Demeter]

84. Sometimes Dailyreckoning only puts it in their email newsletter

and it doesn't get to the archives. This may be the case here--I do try to include citations on everything.

I am having this dream-nightmare (honest to goddess) of rewriting A Christmas Carol for Barack Obama, featuring the grandmothers he never had--American colored, Jewish, Iranian, and maybe an authentic African one, enslaved in 1696.
They would all give him a big piece of their minds--a collective consciousness and conscience, which he, like many an American male, seems to be profoundly lacking.

If you knew how little time and energy I have for this, and how much I need a dream of my own, you would realize how mad this dream makes me. Why should I have to lecture the President of the United States as a proxy for all the wise women who raised this nation's generations?

I left out the Latinas, as I figure Sonya can do that. It's her job to do so.

Yup, there aren't enough motherly women in this government. Not enough women at all. There's a few females in suits, but they are as bad as the men in suits.

[Tansy_Gold]

87. "A mother's work is never done."

:hug: to you, Demeter, so well cyber-named.

I once started a booosh version of A Christmas Carol, then realized he was beyond redemption. Obama, maybe not.

I just googled to see if there is any access to Robert Briffault's 1927 3-volume opus "The Mothers" online. I did find a copy for sale, $450AU, so well out of my reach. I have a photocopy, made from the edition in a college library when I had virtually unlimited access to a copier. There is an abridged version, but why settle? I skimmed through most of it but never had time to really read the whole thing, and it would be nice if it were online, but it's not.

And so in searching for that, I stumbled across this

http://outcastsuperstar.blogspot.com/2010/04/briffaults-law.html

and thought it might be interesting to follow up but at the moment I don't have the time.



Tansy Gold

[Demeter]

88. This article shows that the guy has half a clue--but only the wrong half

nowhere in there does he discuss what kind of human being a man should be who wants to stay married--other than a control freak. I can see why he wouldn't be married for any length of time. He has no intention of a marriage of equals, and complete contempt for women as a class. One would HAVE to be a brainless, resourceless bimbo to put up with this--Born Yesterday comes to mind.

That's so sad. Talk about inhuman relations. He tries to buy a woman, and finds out she's really not for sale--but some women can be rented, and others can be fooled for a time. But a partnership, like that shared by Founding Mother and Father, Abagail and John Adams, that is a wholly foreign concept to modern Man.

I provide homemaking services to a very elderly Hindu couple. He's 91, she's 85. They've been married over 60 years. They give and take. They are loyal. It's a two way street, like my parents and grandparents and great-grandparents were.

And I feel a very fool for falling for a charming psychopath, thus ensuring that my children are fatherless for all but the first few years of their lives. But you never know how the worm will turn, until a big enough crisis hits. And The Kid, with her severe disability, was a really big test. It would take a really big man to love and care for such a child. I picked a Straw Man.

A man who thinks women and children are furniture, to be left out on the curb when shabby, worn out, inconvenient or out of fashion, is a man who deserves everything that's coming to him.

Dammit, I'm crying. I haven't cried over this since I signed the decree in the judge's chambers.


Men who think it's all about money will have no love, ever. They can't take what they can't appreciate, nor return it.

[Tansy_Gold]

92. Damn, I'm sorry, Demeter

Last thing I wanted to do was make you cry.

:hug:


The charming psychopath. The charming spoiled brat. The charming hasn't-got-a-clue. Throw into that mix a woman who has been raised from the cradle to believe that marriage, at any cost, is the sole measure of a woman's worth and you have a recipe for many disasters.



And you're correct -- the jerk who wrote that (I should have read more than the first couple paragraphs) never examined the underlying principle of "hypergamy," which is that in 90% of cases (rough estimate) women do not, at the time of marriage, have either the wealth or the earning power of the men they associate with. Therefore, hypergamy is a requirement for survival. The jerkiness comes in as soon as he says they have no intention of working. Even according to Briffault's law, if women had the means and opportunity to support themselves, they would never need the "benefit" of a man.

And I write this knowing full well that there are men -- fathers, husbands, ex-husbands, boyfriends, grandfathers-to-be -- who will read it and who will, I hope, understand that my comments are not meant to be mercenary or derogatory, but rather supporting of your comments, Demeter, that the best relationship is one founded on mutual respect and economic equality. (Which does mean each partner has to make the same salary but rather that the work of each, whether for wages or keeping the home, has value to the common good of the relationship.)

We long ago lost sight of that economic value within the "nuclear" family, and it became all about $$$$. One day of flowers don't quite make up for it.



TG

[Demeter]

93. You Are Very Wise, My Friend

I hate to think which Black Hole I would be in without the people on this thread.

Do you think John and Abigail came back as Samuel and Olivia Clemens, and then again as George and Gracie Burns?

Why can I count on three fingers publicly verifiable marriages of equality, love and respect?

[Tansy_Gold]

95. Because not all of them are of public figures

And not all of them are perfect.

Joanne Woodward and Paul Newman?

Eleanor and Franklin Roosevelt?

Even Hillary and Bill Clinton??? (The BF would say that one is mutual political whoring, but I'm not so sure.)

Franni and Al Franken?

Rosalyn and Jimmy Carter?

Elizabeth Barrett and Robert Browning?

Harriet Taylor and John Stuart Mill?



I dunno. I think they are rare, and most of them are ultimately compromises because they must endure in a real world rather than an ideal one.

[Demeter]

36. Mogambo Guru Does the Alan Fandango (Oooh, that's Gotta Smart!)

http://dailyreckoning.com/us-deficit-spending-greenspan-and-the-government-giveaway/

...my whole debating style seems to have fallen into the predictable rut of relentlessly tracing all problems back to the foul Alan Greenspan, former chairman of the Federal Reserve 1987-2006, who is directly responsible for creating all the Unbelievably Much Money (UMM) that financed the now-busting booms in stocks, and the now-busting booms in bonds, and the now-busting booms in houses, and the now-busting booms in collectibles, and the (unfortunately) continuing booms in growth of government, the continuing booms in government-provided services, the continuing boom in accumulating debt, and the horrifying continuing booms in astounding, terrifying, suicidal amounts of deficit-spending, making Alan Greenspan solely, and directly, responsible for the inevitable catastrophic, ruinous busts.

Of course, by this time you are saying, “Bah! The same old Tired Mogambo Tirade (TMT)!” thus – thus! – declaring by your own words that it is imperative that we drag Greenspan’s lying, filthy butt out of whatever fetid sewer he is cowering and deliver a punishment of such inhumane, prolonged cruelty that it makes an indelible-and-timeless example of him, so much so that even Hannibal Lector will cry out in pity, “No more!” so that current and future Federal Reserve morons may be instructed, and perhaps other central banks around the world, who are every bit as loathsome as the Federal Reserve, if not more, would be, too.

Usually, mouths drop open in horror when I say this kind of vicious, bloodthirsty thing and pretty soon some quack doctor is “adjusting” my medication regimen, but in my own defense, as a cost-benefit ratio, it is logically imperative that we torture the hell out of Alan Greenspan because the pain suffered by this one man would be insignificant to the immense joyful benefit that would accrue to billions and billions and billions of people due to the immense economic pleasures of having a stable money supply, zero inflation, and where the economy grows blissfully without the use of more money because the costs of producing goods and services gently fall due to productivity increases, which automatically produces a higher standard of living to everyone, especially to the poor.

And isn’t “helping the poor” what all governments always want to do?

Unfortunately, you know by the way my lips curl into a cruel grimace that something nasty and cynical is coming, and you were right, in that the tragic, pathetic plight of the truly poor – thanks to the Federal Reserve creating more and more money – is to suffer a constantly lower and lower standard of living, meaning that, every day of their poor, miserable lives, they get literally poorer and poorer.

This happens because the buying power of the precious little bit of money that the poor can muster is constantly falling because so much new money is being created to “help the poor” by the government spending more money (created by the Federal Reserve), and all of this new money makes prices for everything constantly go up for everyone, even the poor people who are getting the new government money, who will (theoretically) remain at a mere standstill by offsetting the higher prices with their higher government transfer payments, but which makes the huge remaining population poorer, dragging down the middle class towards poverty and tragically further impoverishing the uncompensated-poor! Gaaahhh!

This is the real tragedy of the Whole Stinking Mess (WSM), which is just another euphemism for The Evil Federal Government (TEFG), which is just another acronym for The Idiotic Democratic Party (TIDP), which is the political party of laughable morons who actually think that the purity of their big-hearted compassion, their dreams of “economic justice” and all of the rest of their best intentions will cause the Iron Laws Of Economics (ILOE) to make an exemption in their case. Hahahaha! Democrats! Ya gotta laugh! And I do!

The funnier-yet-sadder thing is that now, after seeing how well this stupid government-giveaway crap works in elections, the Republicans have been doing it for decades, too! Hahaha! Morons all! Hahaha!

Happily, the Tea Party has sprung from the ashes of such an intellectual swamp, who I thought would be most sympathetic to my plan to, you know, never again allow banks to create extra money to finance weird, government-centric distortions in the economy and inflation in prices, by viciously persecuting Alan Greenspan as a, you know, warning.

And, as an afterthought, maybe display his bleached bones outside of the Federal Reserve in Washington, DC as a “visual aid”! Hahaha!

Well, I am still waiting for their reply to my request for an endorsement, and in the meantime I tried to interest the folks at Prudentbear.com into backing my candidacy for Emperor of the United States, which would give me the Raw, Unchained Power (RUP) to order the Federal Reserve to not increase the money supply.

I am sorry to say that Prudentbear.com is ignoring my Mogambo Plan Of Vengeance (MPOV) and my candidacy for Emperor, but had, instead, on their site, a quote of John Kenneth Galbraith’s from his book A Short History of Financial Euphoria, which validates, I think, my assertion that “there is nothing new under the economic sun.”

Mr. Galbraith said, “Financial operations do not lend themselves to innovation. What is recurrently so described and celebrated is, without exception, a small variation on an established design . . . The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.”...

[Demeter]

37. One Can't Help But Feel Better After That

Incredibly raunchy rendition--beware! You have been warned

http://www.youtube.com/watch?v=zD156wvOvSg

[Demeter]

38. "Oil"iphant

http://imgsrv.gocomics.com/dim/?fh=b1c1a8784a7de7405cb3da05bd906a49&w=750.0

http://imgsrv.gocomics.com/dim/?fh=00022c6a122e897b8057e902432c83cd&w=750.0

[Hugin]

47. That guy had better be careful smoking stogies on the beach now days...

Or then again, maybe, if he were to ignite the damn thing the flames could act as a signal fire warning off any possible incoming INTELLIGENT extraterrestrial life forms.

[Demeter]

40. Surveillance Over the Federal Reserve: On the Sanders Amendment to the Dodd Senate Financial Regulat

http://delong.typepad.com/sdj/2010/05/the-state-of-the-federal-reserve-on-the-sanders-amendment-to-the-financial-regulation-bill.html


Surveillance Over the Federal Reserve: On the Sanders Amendment to the Dodd Senate Financial Regulation Bill

This afternoon, if I am correctly informed, President Obama is going to come out in opposition to Vermont Senator Bernie Sanders's amendment to the Senate financial regulation bill calling for the GAO to regularly audit the Federal Reserve's conduct of monetary policy.

My left-wing friends are not surprised but are, once again, disappointed. "Doesn't Obama know who his friends are?" they ask, with the answer being: "No." "Doesn't Obama recognize that Federal Reserve governance and policymaking is badly broken?" they ask, with the answer once again being: "No." Has Obama made any proposals to improve Federal Reserve governance and policymaking?" they ask, and the answer is: "No." "Of the five seats on the Federal Reserve Board of seven that he has had the opportunity to fill," they say, "Obama filled one early with Dan Tarullo, filled the chairmanship by reappointing Ben Bernanke--a dedicated public servant and excellent monetary economist and policymaker but certainly no Democrat, and has simply left the other seats empty, two of them for more than a year (although he did six days ago announce names of candidates whom he would nominate, although he has not yet nominated them). Doesn't this extraordinary lack of concern for the issue and lack of action on what is in the president's power indicate an extraordinary dropping of the baton on Federal Reserve issues? Hasn't he forfeited his authority to set out the Democratic Party's position on these issues, and shouldn't we be very grateful than somebody--in this case, Bernie Sanders--is picking up the baton and running with it?"

And when they put it that way, I cannot say "no" to anything they say.

And I have no doubt that Federal Reserve governance and policymaking is broken. Ben Bernanke ought to be in the center of opinion when the Federal Open Market Committee deliberates--not on its left wing. A large number of votes on the FOMC are held by people whose background and expertise is, at best, orthogonal to the skills needed to make monetary policy in the twenty-first century. The Federal Reserve suffers from problems of values and problems of analysis. The problem of values is that a great many of those making policy do not take the Federal Reserve's dual mandate seriously--that they are tremendously upset at the thought that inflation might rise above 2% per year in some future scenarios but utterly unconcerned with the fact that unemployment is kissing 10% and projected to decline only very slowly. The biggest example of the problem of analysis is the failure of the Federal Reserve in the mid-2000s to understand just how vulnerable our economy had become to a run on the shadow banking system and just how overleveraged and overexposed to tail risk shadow banks' portfolios had become. It's not that I am saying I should have the job: I didn't understand these things either. But I did not have regulatory oversight authority to dig into the workings of big banks to figure out what was going on.

Bernie Sanders wants to move Federal Reserve governance and policymaking in a positive direction by removing a 1978 restriction on the GAO's ability to audit the Federal Reserve. At the moment a 1978 law prohibits the GAO from looking at (i) deliberations and actions on monetary policy matters by the Federal Reserve Board, (ii) communications related to monetary policy by Federal Reserve staff and policymakers, and (iii) transactions executing decisions of the FOMC. He would remove these restrictions on what the GAO can investigate, and require the Federal Reserve to publish what banks have borrowed and are borrowing from it, and on what terms.

The Federal Reserve's opposition to the Sanders amendment appears to have three parts:

* The Federal Reserve does not want to have its elbow joggled by the Congress or the GAO.
* The Federal Reserve does not want members of congress routinely hunting through transcripts searching for quotes that they can take out of context and use for destructive purposes. Currently members of congress have to do real work to accomplish this, and the Federal Reserve wants to keep it that way.
* The Federal Reserve is worried that if the GAO begins to routinely audit monetary policy, the quality of its own internal deliberations will suffer. People will keep quiet rather than discuss things that they think might be damaging to their reputations if taken out of context. And people will keep quiet rather than discuss things that they think might be damaging to their reputations if taken in context--things that they don't want public but that are nevertheless shaping their thinking and decision-making. In any policymaking process, you want the considerations that are actually shaping people's views and actions out on the table where they can be discussed, examined, evaluated, and judged, rather than kept in the back of people's minds unchallenged because whatever they say now will show up in six months in the next GAO report. It is the executive privilege argument--only the "executive" in this case is the Federal Reserve Board and the FOMC.

If I can summarize the Federal Reserve's position, it is that detailed scrutiny of its internal processes and thoughts is something that should be left to rare after-the-fact investigations that attempt to understand crucial moments and decisions, and that having the Federal Reserve have to all the time live naked inside a glass house would have a chilling effect on the quality of its work.

Bernie Sanders's position, on the other hand, is that the Federal Reserve clearly missed some big things in the mid-2000s, and more eyes on the issues might have helped. If the GAO had been asking why Chairman Alan Greenspan was so unconcerned with issues of housing finance that were clearly distressing and perplexing Governor Ned Gramlich and if the Federal Reserve had been forced to answer more pointed questions more directly, perhaps mistakes could have been avoided.

If I thought the Federal Reserve were working reasonably well--that what we have here is a problem of analysis, a failure to take one of many potential sources of risk seriously enough--it would be easy. I find myself flashing back to the last time I saw Tim Geithner in the flesh, in... I think it was... the summer of 2005. Two now-senior members of the Obama administration and I were peppering him with questions about the stability of the U.S. financial system: What would happen if foreign central banks suddenly stopped buying dollar assets? Did JPMorganChase have control of its derivatives book? Would Lehman Brothers survive a sudden 25% fall in the value of the dollar, or had underlings written enough out-of-the-money puts and other derivatives on foreign exchange that a five-sigma move in the dollar would bankrupt it? And Geithner convinced me, at least, that he and the Federal Reserve Bank of New York were on the case: properly conducting their mission of surveillance over banks' positions in the foreign exchange derivatives market and ready with contingency plans to deal with a dollar-centered global foreign exchange crisis should one occur.

Only that was not the crisis we had...

I really wish that we had been peppering him with questions about the rating agencies and mortgage-backed CDOs and about whether firms that claimed to be following the originate-and-distribute model really were distributing. I know that I said often in 2005 and 2006 that subprime and the housing bubble were not a big threat to cause a financial crisis and a deep recession because "the banks are not holding onto these loans but are instead selling them off--it's not as though leveraged financial institutions are holding these things; a real-estate crash would probably have small macroeconomic effects just as the dot-com crash did." It would have been nice if somebody inside the Fed had back then been doing the legwork to establish that I was wrong...

If I thought the Federal Reserve were working reasonably well then the appropriate response is not an expanded regular GAO audit but instead an expanded Humphrey-Hawkins process: to throw more resources both from Congress and from the Federal Reserve into a greatly expanded "risks and contingency plans" section of the Federal Reserve's Humphrey-Hawkins documents.

But my problem is that I do not think that the Federal Reserve is working reasonably well. I do not think that the dominant views of monetary policy in the FOMC right now are informed by American values and a reality-based assessment of the state of the economy. That a good many of the people speaking and voting in the FOMC are the wrong people to do so did not matter (much) when the Federal Reserve was dominated by the incredibly charismatic (yes, I mean that) philosopher-central banker-princes of William McChesney Martin, Arthur Burns, Paul Volcker, and Alan Greenspan, but it matters now.

So I am willing to defer to President Obama's judgment that the Federal Reserve's desire for a modicum of central banker privilege is worth respecting, and that the Sanders amendment is the wrong treatment for the disease. I am willing to do so, in large part, because I think the problems are not those that detailed routine investigations of staff communications would solve: the staff of the Federal Reserve do, it seems to me, overwhelmingly have a reality-based vision of the economy, conduct thorough and appropriate analyses of risks and scenarios, and understand the Federal Reserve's dual mandate.

But I ask President Obama: What is your alternative? What is your alternate plan for improving the quality of Federal Reserve decisions--for getting policymakers who properly understand the state of the economy and who believe in the Federal Reserve's dual mandate? It's very hard to beat something--even a bad something--with nothing. And you have had... eighteen months, with only the appointment of Dan Tarullo and the reappointment of Ben Bernanke to show for it.

[Demeter]

41. Plan for Congressional Audits of Fed Dies in Senate

http://online.wsj.com/article/SB10001424052748704370704575228164133105390.html?mod=WSJ_hps_LEFTWhatsNews

[Demeter]

42. The Fed Thumbs Its Nose at the Public By Yves Smith and Tom Adams

http://www.nakedcapitalism.com/2010/05/the-fed-thumbs-its-nose-at-the-public.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

The Fed and its friends and enablers in power, most recently Rahm Emanuel, are fighting tooth and nail to beat back the Audit the Fed amendments to pending financial reform legislation.

That’s unfortunate and misguided. Even a cursory inspection of the Fed’s disclosures of its extraordinary rescue operations shows them to have been made only under duress, and then to be incomplete and deliberately unhelpful.

The reason this matters, is that, contrary to the Fed’s claims of independence, it has been operating as an extra-legal off balance sheet entity of the Treasury, circumventing normal Constitutionally-stipulated budget processes. And rather than make adjustments in its practices to reflect its enlarged and now overtly political role, the Fed has instead been engaging in cynical, blatant misrepresentation, giving lip service to the idea of greater transparency in public, while fighting disclosure tooth and nail.

Since the Fed has entered into an openly political stance (and this dates back to Greenspan) and cannot be relied upon to make truthful and complete disclosures, the only recourse is to put it on a much shorter leash, which includes greater scrutiny, including third party validation. The Fed has brought on the audit demands via the unabashed and repeated abuse of its privileged role.

The case study is its Maiden Lane disclosures. Readers may recall that the original Maiden Lane was a new entity formed to hold dodgy Bear Stearns assets, a backstop to induce JP Morgan to take the balance of the failed investment bank. JPM took a thin first loss position; the bulk of the capital came via a loan from the Fed, which means the Fed would lose money if losses exceeded the JP Morgan slice, which was a mere $1.15 billion out of $30 billion. Even though the backdoor subsidy to JP Morgan elicited a great deal of criticism, even from the normally taciturn Paul Volcker, the Fed was apparently so pleased with this idea that it used the same approach with AIG. The central bank created Maiden Lane II to hold dubious AIG mortgage assets, and Maiden Lane III for CDOs (alert readers may recall that Maiden Lane III was part of the mechanism that the New York Fed used to take various dealers that had credit default swap exposures to the Fed out at 100 cents on the dollar). All these vehicles are managed by BlackRock.

The Fed, aided and abetted by BlackRock, has long been publishing rosy valuations of the assets of the various Maiden Lane vehicles. Accuracy of valuation matters for a host of reasons. First, the public has a right to know how large the various government subsidies to the banking industry are, irrespective of Fed and Treasury efforts to camouflage them. Second, losses on the Fed’s accumulation of dreck may well rise to the level that it will require Treasury (meaning taxpayer) recapitalization of the Fed (the central bank can in theory “print” its way out of any shortfall, but as former central banker, now Citigroup chief economist Willem Buiter has pointed out, the Fed’s anti inflation mandate puts limits on how far it can go down that path). Third, this willingness to bend facts reveals troublingly cavalier attitude from a bank regulator. If the Fed thinks fudging its own marks is OK, it is likely to be unduly tolerant of truth-bending by the institutions it supervises.

Our own look at Maiden Lane III at the end of last year suggested the valuations were too high, but without more disclosure, we couldn’t reach any hard and fast conclusions. The Fed seems to be raising artful dodging to an art form, engaging in the form of disclosure when it fact is it simply providing impressive-looking data that is virtually useless from an analytical perspective....

In 2009 the LLC changed its classification of Non performing / Nonaccrual loans to include loans with payments past due greater than 90 days or when the LLC has doubts about the future performance of the loan assets. The prior year presentation disclosed all loans greater than 60 days past due. This change in presentation was made to conform with industry standards and did not have a material effect on the LLC’s consolidated financial statements.

Hhhm. It might be nice to see how Maiden Lane is carrying particular impaired assets. A recent Wall Street Journal story tells us a lot of hotels are in trouble right now. In particular, Red Roof Inns has had delinquencies since last June, plenty of time for it to be picked up in the 1/29/10 transaction level reports just released....

The Fed is engaging in same practices that caused the crisis: failure to make timely disclosures, obfuscation, use of off balance sheet vehicles to distance itself from losses. This posture alone should disqualify the central bank from assuming a greater regulatory role.

The Fed and Treasury’s three card monte operation is anti-democratic and possibly illegal, and to add insult to injury, voters are treated as if they have no right to know when they are ultimately footing the bill. The Fed’s persistent stonewalling and deep seated hostility toward the public provide ample proof of the need for an audit.

[Demeter]

43. The Fed Must Be Audited Because It Has Taken Numerous Actions Which Are Far Beyond Its Authorized Po

http://www.nakedcapitalism.com/2010/05/guest-post-the-fed-must-be-audited-because-it-has-taken-numerous-actions-which-are-far-beyond-its-authorized-powers.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Guest Post: The Fed Must Be Audited Because It Has Taken Numerous Actions Which Are Far Beyond Its Authorized Powers

→ Washington’s Blog

In March 2004, when Alan Greenspan was Fed chairman, he suppressed the opinions of those Fed officials who knew that there was a housing bubble.

Congressman Alan Grayson points out that – because the Fed unilaterally decided to hand out half a trillion to foreigners without any Congressional oversight, and that Bernanke testified that he didn’t know who got the loot – the Fed must be subject to an audit.

Yves Smith and Tom Adams – in analyzing the Fed’s lack of full disclosures regarding its extraordinary rescue operations – conclude:

Even a cursory inspection of the Fed’s disclosures of its extraordinary rescue operations shows them to have been made only under duress, and then to be incomplete and deliberately unhelpful.

The reason this matters, is that, contrary to the Fed’s claims of independence, it has been operating as an extra-legal off balance sheet entity of the Treasury, ircumventing normal Constitutionally-stipulated budget processes. And rather than make adjustments in its practices to reflect its enlarged and now overtly political role, the Fed has instead been engaging in cynical, blatant misrepresentation, giving lip service to the idea of greater transparency in pubic, while fighting disclosure tooth and nail.

Since the Fed has entered into an openly political stance (and this dates back to Greenspan) and cannot be relied upon to make truthful and complete disclosures, the only recourse is to put it on a much shorter leash, which includes greater scrutiny, including third party validation. The Fed has brought on the audit demands via the unabashed and repeated abuse of its privileged role.

***

The Fed seems awfully keen to steer clear of the fate that befell Lehman. Lehman was grossly and verifiably misvaluing some investments, namely Archstone and SunCal, that confirmed doubts about the veracity of its accounting. If you can’t check any particular valuations, it’s a lot harder to ask difficult questions. And unlike Lehman, the Fed can continue to account to no one.

The Fed is engaging in same practices that caused the crisis: failure to make timely disclosures, obfuscation, use of off balance sheet vehicles to distance itself from losses. This posture alone should disqualify the central bank from assuming a greater regulatory role.

The Fed and Treasury’s three card monte operation is anti-democratic and possibly illegal, and to add insult to injury, voters are treated as if they have no right to know when they are ultimately footing the bill. The Fed’s persistent stonewalling and deep seated hostility toward the public provide ample proof of the need for an audit.

The Fed argues that an audit would interfere with its monetary policy decisions. That is incorrect for at least two reasons.

Initially, the bills to audit the Fed specifically provide that no outside agency will interfere with the Fed’s monetary policy decisions.

More importantly, decisions about what toxic assets should be accepted by the Fed as collateral, how such assets should be valued, and who bailout funds should be given to are wholly separate from the Fed’s core monetary policy decision: raising or lowering interest rates.

Adjustment of interest rates has been the primary lever the Fed has applied to the economy since it’s formation in 1913.

The Fed has also recently started using a radical new tool: replacing the money multiplier with interest payments for excess reserves deposited with the Fed. Personally, I strongly disagree with this as a policy tool because I believe that – in the name of preventing inflation – the Fed is guaranteeing prolonged deflation and the lack of a sustainable recovery. However, this is arguably an exercise of core monetary policy by the Fed.

But funneling hundreds of billions to foreign nations and foreign banks, accepting worthless junk from the too big to fails and marking it at unrealistic valuations, and doing the other things which the Fed has been doing recently are not core monetary functions. Congress never authorized these actions when they passed the Federal Reserve Act.

Therefore, the Fed’s actions must be made transparent and subject to the light of day.

[Demeter]

51. Senate Financial Bill Misguided, Some Academics Say

http://www.nytimes.com/2010/05/03/business/economy/03crisis.html?ref=business



As Democrats close in on their goal of overhauling the nation’s financial regulations, several prominent experts say that the legislation does not even address the right problems, leaving the financial system vulnerable to another major crisis.

Some point to specific issues left largely untouched, like the instability of capital markets that provide money for lenders, or the government’s role in the housing market, including the future of the housing finance companies Fannie Mae and Freddie Mac.

Others simply argue that it is premature to pass sweeping legislation while so much about the crisis remains unclear and so many inquiries are in progress.

“Until we understand what the causes were, we may be implementing ineffective and even counterproductive reforms,” said Andrew W. Lo, a finance professor at the Massachusetts Institute of Technology. “I understand the need for action. I understand the need for something to be done. But what I expect from political leaders is for them to demonstrate leadership in telling the public that we need to proceed about this in a much more deliberate and rational and thoughtful way.”

Senate Republicans echoed some of these concerns as they delayed debate on the legislation last week. Democrats agree that significant issues remain to be addressed. But they say that the government must press forward in responding to the problems that already are clear.

The bill, which was introduced by Christopher J. Dodd, chairman of the Senate Banking Committee, would extend oversight to a wider range of financial institutions and activities. It would create a new agency to protect borrowers from abuse by lenders, including mortgage and credit card companies. And it seeks to ensure that troubled companies, however large, can be liquidated at no cost to taxpayers.

A diverse group of critics, however, say the legislation focuses on the precipitators of the recent crisis, like abusive mortgage lending, rather than the mechanisms by which the crisis spread.

Gary B. Gorton, a finance professor at Yale, said the financial system would remain vulnerable to panics because the legislation would not improve the reliability of the markets where lenders get money, by issuing short-term debt called commercial paper or loans called repurchase agreements or “repos.”

The recent crisis began as investors nervous about mounting subprime mortgage losses started demanding higher returns, then withholding money altogether. The government is now moving to prevent abusive mortgage lending, but Mr. Gorton said investors could just as easily be spooked by something else.

The flight of investors is the modern version of a bank run, in which depositors line up to withdraw their money. The banking industry was plagued by runs until the government introduced deposit insurance during the Great Depression. Professor Gorton said the industry had now entered a new era of instability.

“It is unfortunate if we end up repeating history,” Professor Gorton said. “It’s basically tragic that we can’t understand the importance of this issue.”

Treasury Secretary Timothy F. Geithner agreed in April testimony before the House Financial Services Committee that “more work remains to be done in this area,” but he said that regulators could address the issue without legislation. The government plans to require lenders to hold larger reserves against unexpected losses and to require that they keep money on hand to meet short-term needs.

David A. Skeel Jr., a corporate law professor at the University of Pennsylvania, said it would be a mistake for Congress to leave the drafting of these standards to the discretion of regulators.

“Regulators working right now will be tough,” Professor Skeel said. “But we know from history that as soon as this legislative moment passes, the ball is going to shift back into Wall Street’s court. As soon as the crisis passes, what inevitably happens is that the people that are paying the most attention are the banks.”

A second group of critics say the government helped to seed the crisis through its efforts to increase home ownership, including the role of Fannie Mae and Freddie Mac in buying mortgage loans to make more money available for lending. The companies are now owned by the government after incurring enormous losses on loans that borrowers could not afford to repay.

Lawrence J. White, a finance professor at New York University, said it made no sense to overhaul financial regulation without addressing the future of federal housing policy. He said he was trying to find the strongest possible words to describe the omission of Fannie Mae and Freddie Mac from the legislation.

“It’s outrageous,” he finally said.

Republicans have repeatedly criticized the administration for advancing legislation that does not address the companies’ future. The Obama administration says drafting a new housing policy is on its agenda for next year.

Other critics warn that the proposed legislation would insert the government deeply into the financial markets, creating new distortions and seeding future crises. They say the focus of financial reform should instead be on increased transparency.

Andrew Redleaf and Richard Vigilante, hedge fund managers who started warning investors in 2006 that a housing crisis was inevitable, proposed a minimalist version of reform in their recent book “Panic.” They want to require all financial institutions, including investment banks and hedge funds like their own, to disclose, at least once a week, every position in tradable securities.

“The Dodd bill is almost entirely irrelevant,” Mr. Vigilante said in a telephone interview. “All it does is strengthen what we’ve had for years,” a system that depends on judgments made by regulators behind closed doors.

Proponents of the legislation say that it significantly expands transparency, for example by requiring many derivatives contracts to trade in public view. But they say that the government also needs to expand the scope of its oversight because the worst excesses that led to the crisis began and flourished at nonbank financial institutions that were not subject to federal regulation.

The most basic critique comes from Professor Lo and others who say that Congress is moving too quickly. The origins of the crisis remain a subject of intense controversy. Investigations continue to unearth surprising information. The Financial Crisis Inquiry Commission, a bipartisan panel created by Congress, is not scheduled to report until December. Why not wait, they ask, until the targets are clearer?

Phil Angelides, the chairman of the inquiry commission and a Democrat, says that the problems raised by the crisis will not be solved in one stroke and that he supports the Democratic push to begin the process soon.

But the critics point to the words of Nicholas F. Brady, a former Treasury secretary who led the bipartisan investigation into the 1987 stock market crash: “You can’t fix what you can’t explain.”

[Demeter]

45. Bedtime!

Can anybody find some more Mother's Day stuff? Pictures of mother and child horses, or some such? The more schmalz, the better.

I've run out of music, too.

There's no end of bad news, so come back in the morning for more!

[bread_and_roses]

46. "With Dog on Your Side"

... this is totally off-topic but given the week just past, and knowing we have other dog lovers here, I decided to post it anyway; it lifted my somewhat battered spirits:

http://www.commondreams.org/further/2010/05/07-1

With Dog on Your Side

by Jon Queally

This dog has been appearing at street rallies and protests in Greece for nearly two years. He has been spotted amid exploding tear gas canisters, confronting riot police, and from all reports has shown enormous solidarity by always siding with the protesters. The Guardian has an amazing slide show here. Forget 'austerity packages,' please, and give this dog a low-interest bone and a full pension.

The slide show is worth a look - rather extraordinary, this dog. Perhaps Abbie Hoffman has come back, and just can't resist the action.

random thoughts - I'm beyond tired...

I was sure "they'd" get the Market back up today; obviously, I was wrong.

For any of us who thought "Disaster Capitalism" was about "somewhere else" and "can't happen here..." ....well, think again. Certainly, if you live in NY, where there is an all-out assault on public workers (the last large, really powerful union bloc), we're seeing it in action. And in Greece.

Yesterday, I nearly wrecked the car when Sylvia Pugoli, reporting from Greece, referred to workers pensions, wages, etc. as "privileges." "Privileges" from just whom, Sylvia? And do you consider your own wages and retirement a "privilege" granted rather than something you worked for, goddess forfend a RIGHT? I guess only the Banksters have rights.

[Dr.Phool]

57. Is that cool, or what?

[Demeter]

48. Berkshire's book value climbs 5.8% in first quarter

http://www.marketwatch.com/story/berkshires-book-value-rose-58-in-first-quarter-2010-05-07?siteid=YAHOOB

Berkshire Hathaway Inc. reported a 5.8% increase in its book value during the first quarter as the insurance-focused conglomerate run by Warren Buffett benefited from a recovery in markets and the economy.

In a regulatory filing late Friday, Berkshire said its book value was $89,374 per Class A share at the end of March. That was up 5.8% from the end of 2009...Book value, which measures the company's assets minus liabilities, is Buffett's preferred yardstick for Berkshire's performance. Book value dropped almost 10% in 2008 -- the worst performance in 44 years. Last year, it rebounded by 19.8%, the best performance in six years, as equity and credit markets recovered from the financial crisis.

"It looks like Berkshire's vast array of businesses are beginning to show signs of recovery, which investors could take as a proxy for some improvement in the overall economy as well," said Justin Fuller, editor of Web site Buffettologist.com and a partner at Midway Capital Research & Management LLC...

[Demeter]

49. Bubble of methane triggered rig blast

http://news.yahoo.com/s/ap/20100508/ap_on_bi_ge/us_gulf_oil_spill

lots of detail

[Dr.Phool]

58. A giant Earth fart.

Mother Earth has no manners.

John McCain sponsors legislation to inject Beano into all underwater wells, sez "It works for me".

[Hugin]

66. "swoosh, boom, run"

"What we had learned when I worked as a drill rig laborer was swoosh, boom, run," Bea said. "The swoosh is the gas, boom is the explosion and run is what you better be doing."

I wonder if the Big Fart in the Speculation Markets counts as a Blow-Out, too? Sure had the first two elements... A Swoosh and a Boom. However, there doesn't seem to be anywhere to run.

[Demeter]

68. There Hasn't Been Anywhere to Run since Reagan Appointed Greenspan

I'm not even sure if Australia is safe anymore. The best haven today is Norway--but if they lose their supply lines for food, they are screwed, too.

[Demeter]

52. Junk Bond Sales Set Record as Investors Waver: Credit Markets

http://www.bloomberg.com/apps/news?pid=20601087&sid=aOWIvAiRJ3LQ&pos=4

Companies sold $33.7 billion of junk bonds in April, a record for the month, with borrowers rushing to issue before investors pull back from the riskiest securities.

Moody’s Investors Service says issuance may rise 10 percent this year, while investment-grade sales drop 7 percent. OnCure Holdings Inc., a manager of radiation oncology treatment centers, and American Petroleum Tankers LLC, an affiliate of Blackstone Group LP, are among companies planning to sell high- yield bonds.

While issuance soars and cash streams into the market, yields on speculative-grade debt rose last week relative to government bonds for the first time since the period ended Feb. 26, according to Bank of America Merrill Lynch index data. The rise underscores concern that Europe’s growing fiscal crisis and an investigation into Goldman Sachs Group Inc. may slow the economy.

“Companies are trying to come in before the market dries up,” said Kingman Penniman, president of KDP Investment Advisors, a high-yield research firm in Montpelier, Vermont. “It’s an issuers’ market.”

The extra yield investors demand to own company debt instead of Treasuries rose 6 basis points last week to 149 basis points, or 1.49 percentage points, unchanged from the end of March and down from 176 basis points at the end of last year, Bank of America Merrill Lynch data show. Based on the 8,540 bonds worldwide in the index, yields fell to 3.925 percent from 3.949 percent on April 23.

Greek Rescue

Junk spreads widened 17 basis points to 561 basis points, after ending March at 584 basis points. Yields rose to 8.29 percent.

Euro ministers agreed to a 110 billion-euro ($146 billion) rescue package for Greece to prevent a default and stop the crisis spreading. The first payment will be made before Greece’s next bond redemption on May 19, Luxembourg’s Jean-Claude Juncker said after chairing a meeting in Brussels yesterday.

The European Central Bank said today it will accept all Greek government debt as collateral when lending to banks, indefinitely suspending minimum credit-rating thresholds to support the bailout. Greek bonds rose, with the two-year note at the lowest level in a week...

[Demeter]

53. IS CHINA’S RECOVERY A FRAUD?

http://theburningplatform.com/blog/2010/05/02/is-chinas-recovery-a-fraud-featured-article/#comments

The China growth miracle has resumed its vertical trajectory. We know this because the Chinese government says it’s so. And, of course, governments never massage economic numbers for public consumption, right?

If you believe the data, China’s GDP has tripled since 2000, with annual growth rates ranging from 8% to 13% over that time frame.

While we can’t be entirely sure about the numbers, we are sure that China produced while America consumed, and that while China saved, America borrowed. This is the formula that made the world go round until September 2008, when the wheels came off the worldwide financial system.

In the first quarter of 2009, China’s GDP fell to an annualized 6.1%, the lowest since 1999. In an attempt to reboot the economy, the Chinese government unleashed a colossal $586 billion stimulus package, equal to 14% of GDP.

That stimulus appeared to have the desired effect, with Chinese GDP growth ramping back up to 10.7% in the fourth quarter, allowing the country to exit 2009 with a reported 8.7% growth rate.

China’s Reported Recovery

There is no disputing that China has achieved tremendous economic progress over the last four decades. China’s GDP in 1970 was $92 billion. Today, it is $4.9 trillion, a 5,326% increase in 29 years. They now command the third largest economy in the world and will surpass Japan as the second largest economy on the planet within the next two years. Remarkable for a totalitarian regime operating a command-and-control economy that, among other actions, can order banks to make loans without consideration for whether the loan has a chance of being repaid.

Pundits and the mainstream media have bought the China miracle hook, line, and sinker. They speak of China in the same revered tones they worshipped Japan in 1988. Back then, the “experts” concluded Japan was unstoppable. Japan’s miracle economy proceeded to implode under the weight of bad debt and malinvestment, leading to a 20-year downturn that continues today.

Of course, history has shown us that centrally planned economies appear to be strong from a distance but eventually rot from within. The malinvestment created by the economic cronyism inherent in such a system is almost certain to lead to collapse (e.g., Soviet Union circa 1989, United States on or about 2015).

Even so, the figures reported by China are remarkable, with capital investments soaring over the last decade. The real question is, were these investments made wisely or have billions been squandered on worthless plants, equipment, and infrastructure? If the latter, then the excessive overcapacity will likely prove the pin that pops the Chinese bubble.

To answer the question on overcapacity, it is important to first understand the nature of the China miracle. It is quite simple.

The Chinese Miracle

The average Chinese factory worker earns $3,544 per year. In comparison, the average U.S. production worker makes $32,320. The Chinese have tied their currency to the U.S. dollar, so as the dollar has fallen, Chinese goods have become cheaper to the rest of the world.

The Chinese have leveraged their cost advantages to aggressively compete for market share, in quick order becoming the manufacturer for the world. From just $250 billion in 2000, Chinese exports have grown to over $1.5 trillion today....MORE AT LINK

[Demeter]

54. Iceland’s special investigation: The plot thickens BY Thorvaldur Gylfason

http://www.voxeu.org/index.php?q=node/4965

What brought down Iceland’s banks? This column examines the revelations from the latest report from the Icelandic parliament, raising the possibility that the collapse of Iceland’s three largest banks is the result of “control fraud” where shareholders stole from their own bank in the same way as those convicted of looting from the American saving and loan banks in the late 1980s.

The recently published nine-volume, 2,400-page report from the Icelandic Parliament‘s Special Investigation Commission (SIC, appropriately pronounced sick) is not an attempt at whitewash as many had feared. Those fears arose from the government’s unwillingness to appoint an international commission of enquiry as proposed by Professor Robert Aliber (see Aliber and Zoega, forthcoming) and others, including myself. Rather, the report confirms, and documents in detail, what many of us thought we already knew (Gylfason et al., 2010, Ch. 7). The report states: “Explanations for the collapse of Glitnir..., Kaupthing …, and Landsbanki … are first and foremost to be found in their rapid expansion and their subsequent size when they tumbled in October 2008.“ Further, the report states (see the report’s English version Special Investigation Commission 2010):

* “The largest owners of all the big banks had abnormally easy access to credit at the banks they owned, apparently in their capacity as owners. ... in all of the banks, their principal owners were among the largest borrowers.”
* “When the bank collapsed, its outstanding loans to Baugur and affiliated companies amounted to ... 70% of the bank’s equity base.”
* “When Landsbanki collapsed, Björgólfur Thor Björgólfsson and companies affiliated to him were the bank’s largest debtors. Björgólfur Guðmundsson was the bank’s third largest debtor. In total, their obligations to the bank ... higher than Landsbanki Group’s equity.”
* “During a hearing, an owner of one of the banks , who also had been a board member of the bank , said he believed that the bank “had been very happy to have as a borrower”.” (I am not making this up.)
* “The operations of the Icelandic banks were, in many ways, characterised by their maximising the interests of the larger shareholders, who managed the banks, rather than running solid banks with the interests of all shareholders in mind, where due responsibility was demonstrated towards their creditors.”
* “In 2008 the banks were buyers on average in 45% of cases of automatically matched trades in their own shares. In comparison they were sellers in less than 2% of cases of automatically matched trades during the same period. ... all the banks in this manner attempted to elicit abnormal demand for their own shares.”
* “At the beginning of 2006, ... all the prerequisites for a financial crisis were in place.”
* “It has been established that until just before the collapse of the banks there was little discussion within the Icelandic government of the bank’s standing and of the liquidity crisis which began towards the end of summer 2007.”
* “When the ministers intended to improve the image of the banking system by partaking in public discussions, mainly abroad, it was done without any assessment of the financial capability of the state to come to the banks’ assistance and without information being available on the cost of a possible financial shock.”
* “… when the banks collapsed there was no joint governmental contingency plan available.”
* “In a letter to the Investigation Commission, Stefan Ingves, Governor of the Central Bank of Sweden, makes it clear that unclear ownership, along with the banks’ rapid balance sheet growth had led to a dangerous situation and that the Icelandic government did neither seem to fully grasp nor understand how to deal with it.”

The report concludes by identifying three former ministers and three former central bank governors as well as the erstwhile director of the Financial Supervision Authority who “showed neglect” in the exercise in their duties.
Control fraud?

The language of the SIC report is guarded. It uses the gentle word “neglect” to refer to what might more accurately be called gross dereliction of duties. Let us not forget what happened on the authorities’ watch. Not only did Iceland’s three main banks accounting for 85% of the country’s banking system collapse within a week, but much of the remaining 15% of the banking system went the same way as did other important concerns that had to be propped up at taxpayers’ expense. Assets equivalent to seven times Iceland’s GDP went up in smoke, including foreign creditors’ claims equivalent to five times GDP. Foreign shareholders and some foreign depositors also took a hit. Icelandic residents lost the equivalent of two times GDP. No other country has ever caused such damage relative to its own size, at least not in peacetime.
At this stage it must be left to the reader and ultimately to the courts to determine whether the facts reported by the SIC suggest that the Icelandic banks were brought down by control fraud as defined by Black (2005) or by their “their rapid expansion and their subsequent size” per se. If the banks were looted by their owners with the assistance of politicians, there would be no mystery about how they did it: they would have used the same methods as the convicted criminals who looted the American saving and loan banks in the late 1980s. More than 1,000 elite white-collar criminals (not counting tellers and minor players) were convicted of felonies arising from the S&L debacle. Their methods are described in Akerlof and Romer (1993) and Black (2005).
Smörgasbord of the shareholders

The SIC chose to focus its attention on the role and responsibility of the government in the events leading to the crash and to steer around the question of the banks’ “possible criminal conduct.” Even so, the report clearly states that the banks broke laws. The Danish bank director Jørn Astrup Hansen writes (vol. 2, p. 313, my translation): “The banks not only broke the law but they also exceeded their own limits, or moved the limits as needed.”
Mr. Hansen goes on to add (pp. 317-318): “Three relatively large banks could easily have serviced even the largest firms in the country without breaking the most important rule of the banking legislation stipulating that the individual loan obligations must not exceed 25% of the bank’s risk capital. … The Icelandic banks broke this rule. … All three banks applied especially unhealthy methods involving loans to finance purchases of their own equities with the equities themselves as sole collateral. The method and scope of such loans to finance purchases of the banks’ own equities after October 2007 became such that they must be presumed to have constituted a violation of the law. … The five largest shareholders in the banks were also their five largest customers. Largest by far! As if that were not enough, they also sat on the banks’ boards or had representatives there. This arrangement seemed, to say the least, dubious. The danger of favouritism and self-dealing looms large.”
More gold, anyone?

The SIC was granted full access to the records of the banks. Thus, it was able to report that, of 63 Members of Parliament, ten owed the failed banks €1 million or more each at the pre-crash exchange rate of the króna; their personal debts range from €1 million to €40 million. The average debt of the ten MPs, including the leader of the Independence Party, his deputy, and five other party comrades, was €9 million. (This is not a misprint.) The Independence Party has been in government 90% of the time since 1944. Most of these loans were heads-I-win-tails-you lose as they were granted mostly to finance equity purchases with the equities themselves as sole collateral. Besides, the banks and affiliated companies had paid the political parties and candidates large sums before the crash.

Further, to understand what happened in Iceland, it helps to know the following (some of this information is not included in the SIC report, but has been reported in the Icelandic press):

* Two Icelandic brothers who produced TV dinners for export became bank shareholders, and went on to buy themselves a yacht that used to belong to Giorgio Armani.
* Another bank owner bought himself a penthouse in Manhattan, but – this is actually in the SIC report – the bank “forgot” to ask for collateral.
* At a small dinner party for favoured bank clients on the Riviera, where Tina Turner stood for the music, the main course was sprinkled with – you couldn’t possibly have guessed this one – gold flakes.
* And then there was the dinner party in Reykjavik where singer George Michael had been scheduled to land on the glass roof in a roaring helicopter, but to the great embarrassment of the bank’s director of entertainment the plan fell through.
* One of the bank owners, the afore-mentioned Mr. Guðmundsson, declared bankruptcy in 2009 to the tune of $750 million, of which $500 million is owed to the bank he owned and directed. Not even Texas has seen a personal bankruptcy of such proportions.

What happens next?

The SIC has referred a number of cases or issues to the Special Prosecutor’s Office where an independent assessment will be made as to whether charges will be brought against the bankers and the four civil servants. Parliament will decide whether to press charges against the ministers; if it does, it must convene Landsdómur, a special court designed to determine whether ministers have broken the law. If Landsdómur is convened, as appears likely, it will be the first time in the 66-year history of the republic. If some or all suspects are found guilty, the constitution permits the President of Iceland to pardon the bankers and the public officials, but a presidential pardon of ministers found guilty by Landsdómur would have to be affirmed by Parliament. We are not in Kansas anymore.
References

Akerlof, George A, and Paul M Romer (1993), “Looting: The Economic Underworld of Bankruptcy for Profit“, Brookings Papers on Economic Activity 2:1-73.
Aliber, Robert Z, and Gylfi Zoega (eds.) (forthcoming), Preludes to the Icelandic Financial Crisis, Palgrave, London.
Black, William K (2005), The Best Way to Rob a Bank Is to Own One: How Corporate Executives and Politicians Looted the S&L Industry, University of Texas Press, Austin, Texas.
Gylfason, Thorvaldur, Bengt Holmström, Sixten Korkman, Hans Tson Söderström, and Vesa Vihriälä (2010), Nordics in Global Crisis, The Research Institute of the Finnish Economy (ETLA), Helsinki, Finland.
Special Investigation Commission (SIC) (2010), “Report of the Special Investigation Commission (SIC)”, report delivered to Althingi, the Icelandic Parliament, on 12 April.


This article may be reproduced with appropriate attribution.

[Robbien]

104. Iceland's audit actually proved that the rich families stole the money from the banks

and they may decide to press charges?

The investigation wasn't just fluff but actually pointed fingers?

Well, how about that.

[Demeter]

110. Nice to find a working society

Icelandic isn't too far removed from Swedish that I couldn't pick it up. Volcanic heated hot springs might make up for the winters...yes, it's beginning to look like a possible destination.

[Tansy_Gold]

117. "Assets equivalent to seven times Iceland’s GDP went up in smoke"

If they were real, genuine, tangible assets, they didn't go up in smoke. Someone has them.

If they're WEREN'T reeal, genuine, tangible assets, someone has exchange the phoney for the real and shouldn't be bailed out.


Frankly, it's as simple as that.

End of discussion.




Tansy Gold

[Demeter]

55. Video interview William K Black in Iceland MUST WATCH!!!

http://dagskra.ruv.is/sjonvarpid/4472562/2010/05/02/2/

EXTREMELY IMPORTANT--BILL BLACK EXPLAINS ALL

ICELAND IS JUST A FEW YEARS AHEAD OF US IN THE FRAUD-BUSTING BUSINESS

BILL BLACK SHOULD BE TREASURY SECRETARY.

[bread_and_roses]

59. Americans embrace their own serfdom, wish it on others

You have got to scan through the replies in this thread:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=103x534438#top

Only takes a minute - but to boil it down:

The Greek workers are over-indulged and deserve the drastic cuts in pay/pensions/etc. demanded by "rescue" program. We work till we drop, why shouldn't they? They have to pay the piper for their wastrel ways. "You can't spend more than you take in" - this from Americans, ROFL.

The triumph of propaganda here is total. Those of us still fighting it may as well be the ragged prophet of the cartoons, with our "end is near" signs, ignored by the passers-by.

[Tansy_Gold]

78. Fortunately, there were a few who saw the truth

But there are still too many who are happy jolly slaves American workers.


:grr:


Tansy Gold

[DemReadingDU]

62. Gerald Celente on The Dow Collapse

If you think the economy is in recovery, don't watch.


5/6/10 Gerald Celente on The Dow Collapse
appx 7 minutes
http://www.youtube.com/watch?v=GcbifKU06h4

[DemReadingDU]

65. Gerald Celente on Greece Riots

This is just the beginning. As more money is used for more bailouts, the same things going on in Greece will go global. It can't be stopped.

5/5/10 Gerald Celente on Greece Riots
appx 7 minutes
http://www.youtube.com/watch?v=DlnOv-tVpYw

[DemReadingDU]

63. The Run on the Shadow Liquidity System

5/7/10 The Run on the Shadow Liquidity System
Paul Kedrosky

Back in 2008 when banks and the like were busily going to zero the phrase that captured much of what was going on best was that it was a "run" on the shadow banking system. By that it was meant that, for the first time, the non-bank banks -- sell-side firms, creators of CDOs, and the like -- who were busily creating credit outside the traditional banking system finally had a run on them. Rather than, however, depositors en masse withdrawing their deposits, which is the way a run worked in traditional banking (or did until we had deposit insurance), the run on the shadow banking system involved the withdrawal of overnight funding via the repo market. The result, however, was the same, with shadow banks quickly having insolvency crises, with unhappy results for Lehman, Bear, and others that we all saw.

Something similar happened yesterday, albeit in the shadow liquidity system. As most will know, liquidity is, like so many things in financial life, something you can choke on as long as you don't want any. So long as there is nothing awry in U.S. markets the depth of liquidity -- the amount of stock, currency, futures, etc. you can trade without materially moving the price -- is impressive, almost certainly the best in the world.

That isn't magic, of course. Liquidity is a function of various things working fairly smoothly together, including other investors, market-makers, and, yes, technical algorithms scraping fractions of pennies as things change hands. Together, all these actors create that liquidity that everyone wants, and, for the most part, that everyone takes for granted.

Largely unnoticed, however, at least among non-professional investors, the provision of liquidity has changed immensely in recent years. It is more fickle, less predictable, and more prone to disappearing suddenly, like snow sublimating straight to vapor during a spring heat wave. Why? Because traditional providers of liquidity, market-makers and other participants, are not standing so ready to make the other side of the market. There are fewer traders prepared to make a market for the sake of market health. This is partly because they can, but mostly because of what has happened with high-frequency trading, algorithms, and the like, which increasingly jump into the trading queue in front of and around orders, creating some liquidity, but also peeling pennies for themselves, frustrating market participants and heretofore liquidity providers, but in the course of normal business generally accepted as a price that gets paid to the market's battle bots.

But all of this changes market microstructure in insidiously destabilizing ways. For the first time we have large providers of this shadow liquidity, algorithms and high-frequency sorts, that individually account for large percentages of daily trading activity, and, at the same time, that can be turned off with a switch, or at an algorithmic whim. As a result, in market crises, when liquidity was always hardest to find, it now doesn't just become hard to find, it disappears altogether, like water rushing out sight via a trapdoor to hell. Old-style market-makers are standing aside as panicky orders pour in, and they look straight at shadow liquidity providers and say, "No thanks. You battle bots take it". And, they don't.

http://paul.kedrosky.com/archives/2010/05/run_on_the_shad.html

[Demeter]

64. GM: Repaying Taxpayers With Their Own Cash

http://www.nytimes.com/2010/05/02/business/02gret.html?ref=business

Truth seekers the nation over, therefore, are indebted to Senator Charles E. Grassley, Republican of Iowa, who in recent days uncovered what he called a government-enabled “TARP money shuffle.” It relates to General Motors, which on April 21 paid the balance of its $6.7 billion loan under the Troubled Asset Relief Program.

G.M. trumpeted its escape from the program as evidence that it had turned the corner in its operations. “G.M. is able to repay the taxpayers in full, with interest, ahead of schedule, because more customers are buying vehicles like the Chevrolet Malibu and Buick LaCrosse,” boasted Edward E. Whitacre Jr., its chief executive.

G.M. also crowed about its loan repayment in a national television ad and the United States Treasury also marked the moment with a press release: “We are encouraged that G.M. has repaid its debt well ahead of schedule and confident that the company is on a strong path to viability,” said Timothy F. Geithner, the Treasury secretary.

Taxpayers are naturally eager for news about bailout repayments. But what neither G.M. nor the Treasury disclosed was that the company simply used other funds held by the Treasury to pay off its original loan.

Neil M. Barofsky, the inspector general overseeing the troubled asset program, revealed this detail when he spoke before the Senate Finance Committee on April 20.

“So it’s good news in that they’re reducing their debt,” Mr. Barofsky said of G.M. But he went on to note that G.M. was using other taxpayer money to make the loan repayment, according to the transcript of his testimony.

Armed with this information, Mr. Grassley fired off a letter to Mr. Geithner on April 22, asking for details of the transaction. “I am concerned ... that this announcement is not what it seems,” he wrote. “In fact, it appears to be nothing more than an elaborate TARP money shuffle.”

Mr. Grassley heard back from the Treasury last Tuesday. Herbert M. Allison Jr., assistant secretary for financial stability, confirmed that the money G.M. used to repay its bailout loan had come from a taxpayer-financed escrow account held for the automaker at the Treasury.

Emphasizing that the cash in the account was “the property of G.M.,” Mr. Allison said that the department had approved the company’s use of the money to retire the original debt because it was “consistent with Treasury’s goal of recovering funds for the taxpayer and exiting TARP investments as soon as practicable.”

It’s certainly understandable that G.M. would want to spin its repayment as proof of improving operations. But Mr. Grassley said he was troubled that the Treasury went along with the public relations campaign and didn’t spell out how the loan was retired.

“The public would know nothing about the TARP escrow money being the source of the supposed repayment from simply watching G.M.’s TV commercials or reading Treasury’s press release,” Mr. Grassley said in a speech on the Senate floor last Wednesday, saying that “many billions” of federal dollars remained invested in G.M.

“Much of it will never be repaid,” Mr. Grassley added. “The Congressional Budget Office estimates that taxpayers will lose around $30 billion on G.M.”

(Taxpayers still own $2.1 billion in preferred stock of G.M. and almost 61 percent of its common equity.)

Greg Martin, a G.M. spokesman, said the company had made no misrepresentations about its repayment. “The bottom line is, our strong business performance has put us in the position that we don’t need these funds,” he said, referring to the cash in the escrow account. “G.M. is performing much better than anyone expected and that does represent a significant milestone for the company.”

And Ron Bloom, senior adviser to Mr. Geithner, bristled at Mr. Grassley’s criticism. “The Treasury Department has tried to be as straight as humanly possible,” he said in an interview. “We have never not been clear about exactly what we paid, exactly the terms of the investment. I’m finding it hard to find anyone obfuscating about this.”

Of course, there is much joy in Mudville when a recipient of government aid repays its obligations. And it is also natural that the administration is keenly interested in reassuring taxpayers that losses on their bailout billions will be smaller than expected. Still, employing spin and selective disclosure is no way to raise taxpayers’ trust in our nation’s leadership.

In an interview, Mr. Grassley said the Treasury had stopped “denying” that G.M. used federal funds to repay its TARP loan, but the fact that Treasury hadn’t been upfront about it still troubled him.

“It emphasizes how misleading Treasury was and how misleading G.M. is as well,” said Mr. Grassley. “I hope Treasury learns its lesson, and that is: Tell it like it is, and if you tell it like it is you don’t get egg on your face.”

[Dr.Phool]

69. Sunshine Skyway Bridge Disaster, May 9, 1980

http://www.tampabay.com/specials/2010/reports/sunshine-skyway-bridge-collapse/

[Dr.Phool]

70. Floridians running out of unemployment benefits

http://www.tampabay.com/news/business/floridians-running-out-of-unemployment-benefits/1093486

Datriel Chisom's job search is approaching the three-year mark.

For months, he's been striking out at job fairs and interviews for warehouse and hotel jobs. His lifeline for most of that time: unemployment insurance benefits of $141 a week, which ran out almost two months ago.

The 34-year-old St. Petersburg resident worries about how he'll pay his share of a mortgage split among four people. "I just don't know," he said, shaking his head. "Bills are coming up so fast. What happens if I can't find something?"

It's a question thousands of jobless Floridians are asking themselves. Or will soon.

Already, more than 140,000 people statewide have fallen off the unemployment insurance rolls during this recession before landing a new job. Goldman Sachs has projected that nationwide the unemployed will soon start losing benefits at a pace of more than 400,000 a month.
-----------------------------------------------------------------

[DemReadingDU]

72. NPR: The Moms Who Gave Voice To Our NPR Personalities

5/8/10 The Moms Who Gave Voice To Our NPR Personalities

Listen to seven stores at this link
http://www.npr.org/templates/story/story.php?storyId=126538725

[reggie the dog]

73. my kid is 2, my wife just left me

she aint getting a damn thing for mothers day because that would mean me buying something, or spending my dwindiling time with my kid making her something... in turn i expect nothing for fathers day....

[Demeter]

74. She's Not Your Mother, So Don't Fret

I am sorry for your loss. I hope that you find some peace and happiness for yourself, that you can share with your child.

[reggie the dog]

75. playing with my daughter helps me

but it is rough, i am in france becuase my ex is french, and she wont sign the papers to get us nationalty for my daughter..... oh the joys of international divorce.....

[DemReadingDU]

81. Happy Mothers Day to all the moms!

[DemReadingDU]

82. Michael Lewis interviewed by BBC Carrie Gracie

Heard this on the radio this morning...

Michael Lewis was a bond trader in New York and London in the 1980s and wrote Liar's Poker about the giant egos that ruled Wall Street. Now he's revisited the banking world in the wake of the 2008 financial crash and has written a book about the few outsiders who saw what was to come and bet against the sub-prime mortgage business. Michael Lewis tells Carrie Gracie that this time he's optimistic that the financial world will be reformed.

http://www.bbc.co.uk/programmes/p007dvhr

[Demeter]

86. Another Excellent Find!

I feel like I'm getting my mother's day presents today!

[DemReadingDU]

83. David Letterman - Brian Williams on Wall Street's Free Fall & Greece

I just forward this video to my family and friends...

5/6/10 On the David Letterman Show, he and Brian Williams discuss the stock market freefall and Greece riots. I think these are the first TV media, who everyone knows, to discuss the impending dangers to the world (that includes the U.S.). Watch it, appx 3 minutes. Watch it again, let their words sink in.

http://www.youtube.com/watch?v=SRNrl-858qA

[Demeter]

85. The Clown Reminds Me of Bush

The serious guy reminds me of everyone we feature here.

That was a study in contrasts. Thanks for the post.

[DemReadingDU]

89. yeh, but everyone recognizes those 2 names

and it's really important for J6P to hear what they are discussing. Even spouse rolls his eyes when I start talking about all the debt in the world and there isn't any money, riots, etc. It makes a big impression on him to hear these same words spoken on TV by recognizable TV media. Then he knows that what I've been talking about, is really true.

[Demeter]

91. Too Bad Obama Doesn't Talk About This

Instead, he makes jokes about Goldman Sachs: they make money whether you laugh or not. Or dropping predator drones on the Jonas Brothers.

The wrong President. We was taken.

[Demeter]

90. Is Your Senator a Bankster? By Dylan Ratigan

http://www.ritholtz.com/blog/2010/05/is-your-senator-a-bankster/

The one main benefit to the financial reform effort so far is that it helps further do away with the false paradigms of “left” or “right” and “Democrat” or “Republican” – fewer and fewer people are falling for those lies anymore. Try to get an ideological conservative to explain why Republicans love spending and so eagerly give welfare to banks. Try to get your local liberal to explain why it was a good idea to make backroom deals with abhorrent corporations and drill, baby, drill. Heck, even try to get a Tea Partier to explain choosing bailout-lover Sarah Palin to keynote their convention, especially when that movement once had at least some pre-astroturf roots in protesting government giveaways.

What we have now is a group of politicians with shifting alliances on a case-by-case basis to the special interests who fund them. And currently, the most damaging one to our nation is the rise of the Bankster Party. Thankfully, we can now better identify its members.

Anyone who voted for the Kaufman-Brown SAFE amendment deserves to be considered a member of the “People’s Party”, at least for today. And while I may not agree, I am also OK with someone voting no on Kaufman-Brown if they voted no on the bailout in the first place. That at least shows a consistent ideology and we wouldn’t need to break up the banks into smaller parts if our leaders had the will to let them fail.

But there is a special place for those who have the audacity to do something as incredibly un-American as voting to provide unencumbered welfare for rich bankers and then subsequently do absolutely nothing to fix the problem. And that special place (for now) is in what we should call from this point forward the “Bankster Party”. Allow me to present to you its current members:

BANKSTER PARTY
Daniel Akaka (B-HI)
Lamar Alexander (B-TN)
Max Baucus (B-MT)
Evan Bayh (B-IN)
Michael F. Bennet (B-CO)
Christopher S. Bond (B-MO)
Richard Burr (B-NC)
Thomas R. Carper (B-DE)
Saxby Chambliss (B-GA)
Susan M. Collins (B-ME)
Kent Conrad (B-ND)
Bob Corker (B-TN)
John Cornyn (B-TX)
Christopher J. Dodd (B-CT)
Dianne Feinstein (B-CA)
Lindsey Graham (B-SC)
Chuck Grassley (B-IA)
Judd Gregg (B-NH)
Orrin G. Hatch (B-UT)
Kay Bailey Hutchinson (B-TX)
Daniel K. Inouye (B-HI)
Johnny Isakson (B-GA)
John F. Kerry (B-MA)
Amy Klobuchar (B-MN)
Herb Kohl (B-WI)
Jon Kyl (B-AZ)
Frank R. Lautenberg (B-NJ)
Joseph Lieberman (B-CT)
John McCain (B-AZ)
Claire McCaskill (B-MO)
Mitch McConnell (B-KY)
Robert Menendez (B-NJ)
Lisa Murkowski (B-AK)
Bill Nelson (B-FL)
Jack Reed (B-RI)
Charles Schumer (B-NY)
Olympia Snowe (B-ME)
John Thune (B-SD)
Mark Udall (B-CO)
George Voinovich (B-OH)
Mark Warner (B-VA)

PEOPLE’S PARTY
Mark Begich (P-AK)
Jeff Bingaman (P-NM)
Barbara Boxer (P-CA)
Sherrod Brown (P-OH)
Roland Burris (P-IL)
Maria Cantwell (P-WA)
Bejamin Cardin (P-MD)
Robert Casey Jr. (P-PA)
Tom Coburn (P-OK)
Byron Dorgan (P-ND)
Richard Durbin (P-IL)
John Ensign (P-NV)
Russell Feingold (P-WI)
Al Franken (P-MN)
Tom Harkin (P-IA)
Edward Kaufman (P-DE)
Patrick Leahy (P-VT)
Carl Levin (P-MI)
Blanche Lincoln (P-AR)
Jeff Merkley (P-OR)
Lisa Mikulski (P-MD)
Patty Murray (P-WA)
Mark Pryor (P-AR)
Harry Reid (P-NV)
John D. Rockefeller IV (P-WV)
Bernard Sanders (P-VT)
Richard Shelby (P-AL)
Arlen Specter (P-PA)
Debbie Stabenow (P-MI)
Tom Udall (P-NM)
Jim Webb (P-VA)
Sheldon Whitehouse (P-RI)
Ron Wyden (P-OR)

[Demeter]

94. Joel Bowman, reporting from Taipei, Taiwan...for Daily Reckoning

If you just arrived home after a weeklong vacation and are only now checking in on the financial news, you might want to reconsider unpacking your bags. Instead, grab a change of underwear, a fresh swimsuit, another tube of toothpaste, and head right back out the door. The market you left a week ago, where deluded optimism veiled an unpalatable, yet immovable, economic reality, is beginning to melt like wax in the sun.

Let’s start with the opening act: Greece.

Athenians went into Molotov-mode on Monday after details of the austerity measures required to secure a €110 billion bailout from the IMF and euro-neighbors came to light. Around 100,000 disgruntled workers thronged the streets of the nation’s capital, shouting “let the plutocracy pay” and hurling projectiles at police forces. No doubt you’ve seen the carnage on television, so we won’t rehash the theatrics here. Instead, we defer to a couple of gentlemen who have been warning of exactly this scenario for some time now.

Rob Parenteau, the mind behind The Richebächer Letter, was on hand with some characteristically insightful commentary for BNN News on Thursday. If you missed the interview, you can catch it in full here:

http://watch.bnn.ca/clip298914#clip298914

The “slam dunk” bet, according to Rob, is to go short the euro. He reckons, by the time all is said and done, the beleaguered currency will fall to parity with the greenback, a 20-30% decline from here. He also sees shorting Eurozone banks as a viable way to play the “contagion vector.”

As you might expect, the cost of hedging against European bank defaults spiked amid all the market turmoil. The Markit iTraxx Financial Index, which measures credit-default swaps on 25 banks and insurers, soared as much as 40 basis points, according to data from JPMorgan Chase & Co. The index closed at 212 basis points on Friday as swaps on Greece, Portugal, Spain and Italy neared or eclipsed all-time highs.

When the Europeans first interlinked arms, binding themselves to a common currency, they also bound themselves to a common fate. The weakest members, forever prone to overspend and underperform, were always going to rely on the stronger nations to support their high-life indulgences. This is hardly surprising. To err is human, after all. And, erring as we do, humans tend to organize larger and larger institutions to err on our behalf. Alas, this only leads to larger and larger problems, the likes of which we are only just beginning to see.

“The plans of the ruling classes are not merely unjust,” observed Bill, further unpacking the numbers in Friday’s Reckoning:

http://dailyreckoning.com/say-you-want-a-revolution/

“They are unworkable. Over the next three years, Greece will add $50 billion in deficits, stabilizing the debt at 150% of GDP. It will also need to come up with $70 billion to pay off debt that matures over the next two years. That is more than the amount offered in the bailout. Which means, Greece will have to borrow more money as early as next year, probably triggering another crisis. Plus, there are the other weak sisters and spendthrift brothers in the European family. Bailing them all out could cost as much as 1 trillion euros.”

Alarmingly, however, Europe may not even be the most worrying harbinger for investors. While Athens was aflame, the Chinese quietly announced a slowdown in their manufacturing activity. This comes in quick-step after a series of measures by the “people's” government to rein in speculative pressures in the runaway housing market and the potential for hazardous levels of inflation.

The PBOC banned loans for third homes and raised mortgage rates and down-payment requirements for second-home purchases last weekend. According to some reports, prices rose 11.7% across 70 cities in March from a year earlier, the most since data began in 2005.

Andy Xie, formerly chief Asia economist at Morgan Stanley, sees China’s real estate market as 100% overvalued and likens the situation there to that of the Japanese property bubble of the 1980s-90s. His concerns echo those of a Mr. Jim Chanos, who says the Middle Kingdom’s economy is “on a treadmill to hell.”

The fire in the inferno, according to Mr. Xie, is long term, artificially depressed interest rates and an oversupply of money. According to Xie’s figures, the broad, M2 money supply in China rose from 11.76 trillion yuan in 1999 to an incredible 60.62 trillion in December of 2009. The 415% rise correlates roughly with a 453% rise in Beijing property prices observed over the same period.

To put things in perspective for a moment, China’s economy, with an annual GDP of some $4.35 trillion, is roughly twelve times larger than Greece’s (≈ $360 billion). While it is true that the implications of a Greek default extend well beyond her own borders, is the same not also true for even a minor hiccup in China? What might a meaningful correction for the world’s biggest exporter look like, we wonder? And, on the flipside, what might it spell for countries that rely heavily on supplying her voracious appetite with the raw materials for growth, like...say...Australia?

All that being said, it’s incredibly difficult to get a read on exactly what’s going on behind the Great Wall, which is why a group of your editors are headed to Beijing very shortly to take a look of their own. Watch this space for details...

One thing is for certain, though; the actions of the past week weighed heavily on global markets. In the largest weekly sell-off since 2008, European stocks fell to fresh 7-month lows. The MSCI Asia Pacific Index posted its steepest weekly decline since February of last year, ending down 5.9% by Friday’s close. And in the US, the Dow was off nearly 6% over five tumultuous sessions. The broader S&P 500 fell even further, while the NASDAQ got whacked for almost 8%. So dramatic were the drops that it is almost acceptable to question the “recovery” in polite society again.

Year-to-date stock market returns may have slipped into negative territory this week, but we wouldn’t worry too much, fellow reckoner. All is not lost. Not by a long shot. In other words, there ought to be plenty of opportunities for markets to sink further in the months ahead.

Our suggestion? Go long gold, go long volatility...and go on a long holiday.

[Demeter]

96. Expert Recommends Killing Oil-Soaked Birds

http://www.spiegel.de/international/world/0,1518,693359,00.html

A German biologist says that efforts to clean oil-drenched birds in the Gulf of Mexico are in vain. For the birds' sake, it would be faster and less painful if animal-rescue workers put them under, she says. Studies and other experts back her up.

"Kill, don't clean," is the recommendation of a German animal biologist, who this week said that massive efforts to clean oil-soaked birds in Gulf of Mexico won't do much to stop a near certain and painful death for the creatures.

Despite the short-term success in cleaning the birds and releasing them back into the wild, few, if any, have a chance of surviving, says Silvia Gaus, a biologist at the Wattenmeer National Park along the North Sea in the German state of Schleswig-Holstein.

"According to serious studies, the middle-term survival rate of oil-soaked birds is under 1 percent," Gaus says. "We, therefore, oppose cleaning birds."

[Dr.Phool]

105. What solution should we come up with, for bone-headed biologists?

She is in Germany after all.

[Demeter]

111. This isn't the first I've heard of these statistics

Birds are flighty creatures (pardon the pun) not as resilient as sturdier animals. The shock, especially for water birds, plus the odds that the damn things would go get recontaminated before the spill was cleaned up, spell doom.

[Demeter]

97. Rig firm’s $270m profit from deadly spill (BP's Profit Making Explosion)

http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article7120655.ece

THE owner of the oil rig that exploded in the Gulf of Mexico, killing 11 people and causing a giant slick, has made a $270m (£182m) profit from insurance payouts for the disaster.

The revelation by Transocean, the world’s biggest offshore driller, will add to the political storm over the disaster. The company was hired by BP to drill the well.

The “accounting gain” arose because the $560m insurance policy Transocean took out on its Deepwater Horizon rig was greater than the value of the rig itself. Transocean has already received a cash payment of $401m with the rest due in the next few weeks.

The windfall, revealed in a conference call with analysts, will more than cover the $200m that Transocean expects to pay to survivors and their families and for higher insurance costs.

Congressional hearings begin this week. Lamar McKay, chairman of BP’s American arm, Steve Newman, Transocean’s chief executive, and managers of several other companies involved in the drilling will testify.

The total cost of the clean-up and compensation could reach $30 billion, according to some estimates. Transocean said that virtually all of that must be covered by BP and two smaller partners, Anadarko Petroleum and Mitsui of Japan.

In a stock exchange filing, Transocean said that BP was contractually obliged to take “full responsibility for and defend, release and indemnify us from any loss, expense, claim, fine, penalty or liability for pollution or contamination”. Newman added: “Our industry has a long history of contract sanctity and we expect BP to honour that.”

BP said the leaking well in the Gulf of Mexico could be contained this week. The giant box lowered over it this weekend must first be connected to an oil-treatment barge by a 5,000ft pipe.

[Robbien]

106. "We expect BP to honour that"

They are walking away with a profit and expect BP to defend them.

Okay.

And since when does an insurance company ever pay more than an asset is worth? Something is fishy here too.

[Demeter]

112. It's a BFEE Special

with extra Cheney.

[Robbien]

115. What's really pissing me off about this

is that BP is do little or nothing about coastal pollution control. People all over the five states are sitting on their thumbs pleading with BP to accept their help. I can understand BP not accepting the help if it would interfere with their rescue efforts. But no BP rescue efforts are in sight. They are only paying attention to the gushing oil site and pouring chemicals in the water.

Each of the five states have their own oil booms to stop leaks from getting to their shores, but BP is not accepting states' help either.

There are articles coming out this weekend about how irritated states are right now
Florida counties find oil bureaucracy daunting
http://www.miamiherald.com/2010/05/09/1620794/florida-counties-find-oil-bureaucracy.html
Irked by BP Gulf of Mexico twons mull Plan B to halt oil spill
http://www.csmonitor.com/USA/2010/0502/Irked-by-BP-Gulf-of-Mexico-towns-mull-Plan-B-to-halt-oil-spill

Since BP was the company used to clean up the Exxon Valdez spill and the people are still dealing with oily waters up there today, it appears BP has no operations to clean up oil spills.


Hope you are having a great Mother's Day Demeter. And thanks so much for all the WEEs.

[Demeter]

118. Thanks, Robbien!

[Tansy_Gold]

120. "Lead, Follow, or. . . .

GET THE FUCK OUTTA THE WAY.

When is this gonna be on the nightly news?

When is someone gonna stand up, Iacocca-like, to these oiligarchs and tell them enough is enough? You either clean up the fucking mess you made or you are out. O-U-T. Three strikes, go to the dugout, sit down and shut up.



Tansy Gold, who will not look at the dog pictures because this can't have a good ending.

[Demeter]

98. The "Mother's Day Proclamation" by Julia Ward Howe

http://en.wikipedia.org/wiki/Mother%27s_Day_Proclamation


Arise, then, women of this day!
Arise, all women who have hearts,
Whether our baptism be of water or of tears!

Say firmly:
"We will not have great questions decided by irrelevant agencies,
Our husbands will not come to us, reeking with carnage, for caresses and applause.
Our sons shall not be taken from us to unlearn
All that we have been able to teach them of charity, mercy and patience.
We, the women of one country, will be too tender of those of another country
To allow our sons to be trained to injure theirs."

From the bosom of the devastated Earth a voice goes up with our own.
It says: "Disarm! Disarm! The sword of murder is not the balance of justice."
Blood does not wipe out dishonor, nor violence indicate possession.
As men have often forsaken the plough and the anvil at the summons of war,
Let women now leave all that may be left of home for a great and earnest day of counsel.

Let them meet first, as women, to bewail and commemorate the dead.
Let them solemnly take counsel with each other as to the means
Whereby the great human family can live in peace,
Each bearing after his own time the sacred impress, not of Caesar,
But of God.

In the name of womanhood and humanity, I earnestly ask
That a general congress of women without limit of nationality
May be appointed and held at someplace deemed most convenient
And at the earliest period consistent with its objects,
To promote the alliance of the different nationalities,
The amicable settlement of international questions,
The great and general interests of peace.

[Demeter]

99. El-Erian on a critical weekend for Europe and the economy

http://ftalphaville.ft.com/blog/2010/05/08/224356/guest-post-el-erian-on-a-critical-weekend-for-europe-and-the-economy/


This is a critical weekend for Europe (and the global economy), with governments shifting to a “whatever it takes” mode as they scramble to regain control of the situation, Pimco’s chief executive Mohamed El-Erian writes for FT Alphaville.

Yesterday night’s important news out of Europe points to renewed efforts to rescue Greece and safeguard the Euro. The news will undoubtedly be accompanied by additional announcements out of Brussels and Berlin, as well as Washington DC. In the process, the stakes are getting even bigger…for Greece, Europe and the global economy.

As the announcements multiply, it is even more important to be clear about the key question. This is best summarized by a simple, and disturbing image, that a friend alerted me to:

With Greece (as well as Portugal and some other countries) now visibly drowning in a sea of debt, the question is whether the rescuer (EU/IMF) can pull off the rescue or, instead, get pulled down with all parties drowning.

(COROLLARY QUESTION: WHICH SIDE'S LOSING WOULD BE BEST FOR WE THE PEOPLE TO WIN?)

So far, the attempts at rescue-including last Sunday’s dramatic EUR 110 billion announcement-have have been incomplete with respect to both design and implementation. They were thus viewed as insufficient and not credible by analysts and markets. As a result, the Greek crisis morphed in the following days into something much more sinister for Europe and the global economy.

This explains this weekend’s shift in the EU to a “whatever it takes” mindset. We are seeing evidence of a significant step-up in crisis management. Yet the question is not whether a step-up is required-it clearly is. The question is whether the strengthened rescue attempt will prove sufficient.

Has the rescuer been bolstered enough to pull out the drowning parties, or will the latest rescuer be pulled down too?

It is too early to make this call with a sufficient degree of foundation and conviction. At the very minimum, we have to wait for tomorrow’s operational details.

Even with this critical uncertainty, we should not under-estimate the historical relevance of what is happening this weekend; and the stakes for Europe and the global economy are huge.

If this rescue attempt does not work, there will be a material acceleration in the process of change to Europe’s economic, financial, and institutional landscape; and the reality of the debt explosion in industrial economies will become even more of a destabilizing factor for the world economy.

Mohamed El-Erian is CEO and co-CIO of PIMCO

WOULD IT NOT BE A WHOLE LOT BETTER TO BREAK THE CHAINS OF DEBT BY REPUDIATING THE BANKSTERS AND LEAVING THEM HANGING OUT TO DRY? WHY SHOULD THE BANKSTERS BE MADE WHOLE? DO THEY EAT, RAISE CHILDREN, ETC?

[Demeter]

100. Ignoring the Elephant in the Bailout By GRETCHEN MORGENSON

http://www.nytimes.com/2010/05/09/business/09gret.html?ref=business

IF you blinked, you might have missed the ugly first-quarter report last week from Freddie Mac, the mortgage finance giant that, along with its sister Fannie Mae, soldiers on as one of the financial world’s biggest wards of the state.

Freddie — already propped up with $52 billion in taxpayer funds used to rescue the company from its own mistakes — recorded a loss of $6.7 billion and said it would require an additional $10.6 billion from taxpayers to shore up its financial position.

The news caused nary a ripple in the placid Washington scene. Perhaps that’s because many lawmakers, especially those who once assured us that Fannie and Freddie would never cost taxpayers a dime, hope that their constituents don’t notice the burgeoning money pit these mortgage monsters represent. Some $130 billion in federal money had already been larded on both companies before Freddie’s latest request.

But taxpayers should examine Freddie’s first-quarter numbers not only because the losses are our responsibility. Since they also include details on Freddie’s delinquent mortgages, the company’s sales of foreclosed properties and losses on those sales, the results provide a telling snapshot of the current state of the housing market.

That picture isn’t pretty. Serious delinquencies in Freddie’s single-family conventional loan portfolio — those more than 90 days late — came in at 4.13 percent, up from 2.41 percent for the period a year earlier. Delinquencies in the company’s Alt-A book, one step up from subprime loans, totaled 12.84 percent, while delinquencies on interest-only mortgages were 18.5 percent. Delinquencies on its small portfolio of option-adjustable rate loans totaled 19.8 percent.

The company’s inventory of foreclosed properties rose from 29,145 units at the end of March 2009 to almost 54,000 units this year. Perhaps most troubling, Freddie’s nonperforming assets almost doubled, rising to $115 billion from $62 billion.

When Freddie sells properties, either before or after foreclosure, it generates losses of 39 percent, on average.

There is a bright spot: new delinquencies were fewer in number than in the quarter ended Dec. 31.

Freddie Mac said the main reason for its disastrous quarter was an accounting change that required it to bring back onto its books $1.5 trillion in assets and liabilities that it had been keeping off of its balance sheet.

NONE of the grim numbers at Freddie are surprising, really, given that it and Fannie have pretty much been the only games in town of late for anyone interested in getting a mortgage. The problem for taxpayers, of course, is that the company’s future doesn’t look much different from its recent past.

Indeed, Freddie warned that its credit losses were likely to continue rising throughout 2010. Among the reasons for this dour outlook was the substantial number of borrowers in Freddie’s portfolio that currently owe more on their mortgages than their homes are worth.

Even as its business suffers through a sour real estate market, Freddie must pay hefty cash dividends on the preferred stock the government holds. After it receives the additional $10.6 billion it needs from taxpayers, dividends owed to Treasury will total $6.2 billion a year. This amount, the company said, “exceeds our annual historical earnings in most periods.”

In spite of these difficulties, Freddie and Fannie are nowhere to be seen in the various financial reform efforts under discussion on Capitol Hill. Timothy F. Geithner, the Treasury secretary, offered a vague comment to Congress last March, that after some unspecified reform effort someday in the future, the companies “will not exist in the same form as they did in the past.”

Fannie and Freddie, lest you’ve forgotten, have been longstanding kingpins in the housing market, buying mortgages from banks that issue them so the banks could turn around and lend even more. After both companies overindulged in the lucrative but riskier end of home loans, they nearly collapsed, prompting the federal rescue. Since then, the government has continued to use the firms as mortgage buyers of last resort, to help stabilize a housing market that is still deeply troubled.

To some, the current silence on what to do about Freddie and Fannie is deafening — as is the lack of chatter about Freddie’s disastrous report last week.

“I don’t understand why people are not talking about it,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington, referring to Freddie’s losses. “It seems to me the most fundamental question is, have they on an ongoing basis been paying too much for loans even since they went into conservatorship?”

Michael L. Cosgrove, a Freddie spokesman, declined to discuss what the company pays for the mortgages it buys. “We are supporting the market by providing liquidity,” he said. “And we have longstanding relationships with all the major mortgage lenders across the country. We’re in the business of buying loans, and we are one of the few sources of liquidity available.”

But Mr. Baker’s question gets to the heart of the conflicting roles that Freddie and Fannie are being asked to play today. On the one hand, the companies are charged with supporting the mortgage market by buying loans from banks and other lenders. At the same time, they must work to minimize credit losses to make sure the billions that taxpayers have poured into the firms don’t disappear.

Freddie acknowledged these dueling goals in its quarterly report. “Certain changes to our business objectives and strategies are designed to provide support for the mortgage market in a manner that serves our public mission and other nonfinancial objectives, but may not contribute to profitability,” it noted. Freddie said that its regulator, the Federal Housing Finance Agency, has advised it that “minimizing our credit losses is our central goal and that we will be limited to continuing our existing core business activities and taking actions necessary to advance the goals of the conservatorship.”

Mr. Baker’s concern that Freddie may be racking up losses by overpaying for mortgages derives from his suspicion that the government might be encouraging it to do so as a way to bolster the operations of mortgage lenders.

That would make Fannie’s and Freddie’s mortgage-buying yet another backdoor bailout of the nation’s banks, Mr. Baker said, and could explain the government’s reluctance to include them in the reform efforts now being so hotly debated in Washington.

“If they are deliberately paying too much for mortgages to support the banks,” Mr. Baker said, “the government wants them to be in a position to keep doing that, and that would mean not doing anything about their status until further down the road.”

It’s no surprise that the government doesn’t want to acknowledge the soaring taxpayer costs associated with these mortgage zombies. The truth about Fannie and Freddie has always been hard to come by in Washington, and huge piles of money seem to circulate silently around both firms.

REMEMBER last Christmas Eve? That’s when the Treasury quietly decided to remove the $400 billion limit on federal borrowings available to Fannie and Freddie through 2012.

That stealth move didn’t engender much confidence in either the companies or their government guardian.

But because taxpayers own Freddie and Fannie, we should know more about their buying habits, as Mr. Baker points out. Unfortunately, if the government’s past actions are any indication of what we can expect, then don’t hold your breath waiting for the facts.

[Demeter]

101. NY Post: Feds Launch Criminal and Civil Probes Into JP Morgan’s Silver Trades

Fiat justitia ruat caelum.

Let justice be done, though the heaven's fall.


Gray's Economy

http://mgray12.wordpress.com/2010/05/07/feds-probe-jp-morgans-silver-trades/

Feds Probe JP Morgan’s Silver Trades
By Michael Gray
Deputy Sunday Business Editor, NY Post

Federal regulators have launched both a criminal and civil investigation against JP Morgan Chase for its trading activity in precious metals market.

The Commodities Futures Trade Commission is looking into civil charges and the Department of Justice’s Antitrust Division are handling the criminal probe, according to sources who did not wish to be identified due to the sensitive nature of the information.

See More information in tomorrow's New York Post Sunday Business section:

http://www.nypost.com/p/news/business/feds_probing_jpmorgan_trades_in_gZzMvWBqOJpB55M7Rh9vwM

[Demeter]

102. Goldman to 'sue for peace' on Abacus charges

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/7697467/Goldman-to-sue-for-peace-on-Abacus-charges.html

Goldman Sachs is to "sue for peace" in the fraud trial bought by the Securities Exchange Commission and offer to admit to a lesser charge of negligence if the main charges are dropped.


By Kamal Ahmed and James Quinn
Published: 10:23PM BST 08 May 2010

The Sunday Telegraph can reveal that the US investment bank has already opened an informal negotiating channel with the SEC over the charges which focus on a sub-prime mortgage financial vehicle called Abacus.

As part of the move on negligence, Goldman will insist that there will be no admission of wrong-doing but that it will be willing to pay a financial penalty for poor processes, for example.

The SEC claims that Fabrice Tourre, a Goldman banker, mislead investors in the Abacus vehicle. He is accused of not telling long investors in the deal, ACA Management and the German bank IKB, that Paulson, the hedge fund run by John Paulson, had taken a short position, betting that house prices would fall.

Goldman has denied the charges, saying they are wrong both in fact and law.

A senior figure close to the bank said that Goldman would never "win a battle" against the regulator and so the bank had to find a resolution. The source also revealed that Tim Geithner, the Treasury Secretary, and the Federal Reserve also wanted to see a solution to the dispute. The bank has seen millions of dollars wiped off its value following the charges after investors became concerned about the impact of a drawn out criminal process.

In the next fortnight Goldman will file its defence documents with the SEC which the insider said would build a robust case against the main charges. The documents will make no mention of the negligence issue.

Once that document is filed, Goldman's lawyers will then have an opportunity to see the SEC's case against them through the process of discovery. It is hoped that during that process a deal can be done.

The move is part of Goldman's detoxification strategy as it attempts to head off aggressive attacks on the banks from politicians and pressure groups.

The bank is now also considering appointing a handful of outsiders to its new high-profile ethics and standards committee, which will be charged with cleansing the bank's reputation.

The investment bank is contemplating drawing up a short-list of well-known company directors from outside the world of banking plus public figures who might be an asset to its newly announced "business standards committee". The appointees would be advisers to the bank, but would not join its board.

The purpose of the committee, which Lloyd Blankfein, the chairman and ceo of Goldman, announced on Friday at Goldman's annual meeting, is to rigorously examine what the bank should and should not be doing in its day-to-day business, taking into account its existing business principles. Part of its remit will be to question and assess what the public might make of certain practices, after Mr Blankfein admitted on Friday "that there is a disconnect between how we as a firm view ourselves and how the broader public perceives our role and activities in the market". Mr Blankfein hopes that the committment to change will help to clean Goldman's image.

Although a final decision has yet to be made on the exact make-up of the panel, senior Goldman sources said that Mr Blankfein, the bank’s chairman, wants the committee to be up and running within weeks rather than months.

Meanwhile, details of how the committee will actually operate continue to emerge.

The Sunday Telegraph understands that the committee will be at board level – slightly similar in structure to its three existing board committees, which focus on pay, appointments and auditing – and will be chaired by one of Goldman’s non-executive directors.

Possible contenders for the chairmanship are understood to include Lee Scott, the former chief executive of Wal-Mart, and Lakshmi Mittal, head of ArcelorMittal, both of whom are existing Goldman non-executives.

None of the bank’s senior management will sit on the committee. One of the business standards committees’ main roles will be to scrutinise the work of the existing business practices committee, which is chaired by Michael Sherwood, the Goldman vice-chairman who co-runs its operations in Europe, and meets every 10 days.

The business practice committee is made up of 20 senior bankers from across the business, and is meant to assess every element of Goldman’s day-to-day operations.

But the new committee will go one step farther – and make recommendations to the full board as to whether the bank should be involved in certain products.

“The idea is to make sure that what we’re doing is legal and honest and understandable,” said a Goldman source with knowledge of Mr Blankfein’s intentions.

A spokesman declined to comment on the committee’s likely make-up.

I SAY: NO DEAL! TAKE THEM DOWN--GOD KNOWS WHEN ANOTHER OPPORTUNITY WILL ARISE.

[Demeter]

103. What's the "We" Jazz, Thomas Friedman?

http://www.cepr.net/index.php/blogs/beat-the-press/whats-the-qweq-jazz-thomas-friedman/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+beat_the_press+%28Beat+the+Press%29

You get paid a really big premium for ignorance at the NYT, just ask Thomas Friedman who undoubtedly gets paid more than 99 percent of his generation. Thomas Friedman likes to tout the fact that there are still good paying jobs for people without skills in every column he writes.

He's in top form today, getting just almost everything wrong about the current economic situation as he tells readers: "My generation, 'The Baby Boomers,' turned out to be what the writer Kurt Andersen called 'The Grasshopper Generation.' We’ve eaten through all that abundance like hungry locusts."

Of course those who know anything about the economy know that the vast majority of baby boomers have not fared especially well. In the years before the baby boomers entered the workforce wages for most workers rose consistently between 1-2 percent a year, after adjusting for inflation. However wages began to stagnate in the mid-70s, when the oldest baby boomers were in their mid-twenties and the youngest were not yet teenagers. Baby boomers entered this labor market and most saw very little gain in living standards relative to what their parents had. Many had to go heavily into debt to buy and hold a home, to send their kids through college or to cover the cost of a serious illness.

There were gains in living standards during the last three decades, but they overwhelmingly went to the people at the top. This included the Wall Street crew, corporate executives, highly educated professionals, like doctors and lawyers, and elite columnists like Mr. Friedman. This was not an accident. These people designed economic policies that were intended to redistribute income upward. The government became openly hostile to unions. It pushed trade policies that made our factory workers compete with low-paid workers in Mexico and China while leaving our doctors and lawyers largely protected from the same sort of competition. The government also deregulated sectors like airlines, telecommunications, and trucking that offered good paying jobs for millions of workers without college degrees. The result of these and other deliberate policies was to ensure that most of the gains from productive growth went to those at the top rather than the vast majority of baby boomers.

Now the baby boom cohort is retiring. The vast majority have next to nothing to support themselves other than their Social Security. The vast majority of baby boomers do not have the defined benefit pensions that their parents did. They never had much money in 401(k) accounts and they lost much of what they did have in the stock crashes of 2000-2002 and 2008. More importantly, they lost most of their home equity, the major source of wealth for most families, with the collapse of the housing bubble.

We can blame the average auto worker, shoe salesperson and school teacher for not being smarter about the macroeconomy than Robert Rubin, Alan Greenspan, and other managers of economic policy, but the fact is that they made the mistake of listening to these people. They thought that stock prices and house prices would just keep rising forever. Sure, this was stupid, but Rubin, Greenspan and the rest were supposed to be really smart people, and it was their job to know the economy. Too bad Thomas Friedman was never smart enough to notice either the stock bubble or the housing bubble and to warn his readers.

Instead, Thomas Friedman wants to lecture us all about how we have been living too lavishly. We have to give up our Social Security and Medicare and accept lower living standards. This would be laughable except for the immense political power and the hundreds of billions of dollars that stand behind Friedman's agenda.

At the moment, the concern about deficits is painfully absurd. If only Friedman could learn the most elementary economics he would know that the economy's problem right now is too little spending, not too much. He probably hasn't noticed, but the unemployment rate is almost 10.0 percent. If we got frugal now, then the unemployment rate would go still higher -- of course that probably would not matter where Mr. Friedman lives.

Over the long-term we do face a problem with our broken health care system. This is the cause of our projected long-term budget problems. Of course fixing our health care system would hurt the health insurance industry, the pharmaceutical companies and highly paid medical specialists, so that is not on Mr. Friedman's agenda. Instead, he wants to tell school teachers and auto workers (both current and retired) that they have to tighten their belts. And, he gets paid big bucks for this.

[Dr.Phool]

107. Friedman was smart enough to marry into wealth.

I can still remember when a high school education could get you a job that paid you enough to save up a 20% down payment for a house. In a single income family. And if you worked some overtime, save up enough for the kids college.

Maybe by locusts, he's referring to the people I went to high school with, who ran off to Kent State, so they could get a draft deferment. They were all studying some shit called "Business". Then when they got out they took jobs doing what that business education taught them. Cut costs, and screw the very unions that put them through college. Now, there's a locust for you.

[Tansy_Gold]

121. My blood pressure went up 10 points just reading ABOUT Mr. Friedman

I couldn't take it directly without a stroke, I'm sure.

WHAT A FUCKING ASSHOLE????????!!!!!!!!!!!!!!!!!




Tansy Gold, in a mood

[Demeter]

108. Further Thoughts on Thursday's "Episode"

The timing of this Black Swan event--outside of the hours that stop-trading limits are set--is suspicious. Either the computers know when to go because some human programmed them to take advantage of the window, or it was a random event.

Since nothing in this market has been random for years now, it seems unlikely that this wasn't a carefully planned and executed episode of financial terrorism and attempted theft. On the other hand, there's so many computers, so manymarkets, that it seems a random event is plausible.

Perhaps the most telling part is the oil market, the gold and silver markets, and the currency markets all going off in parallel, or near enough. That also points to human tampering with the functioning of the markets. No one has come forth with a credible claim that all these disparate markets are daisy-chained together through some master trading computer.

Demeter isn't a Sherlock nor a Mycroft, but she knows when she smells a rat. It's like Hamelin town around here these days...

http://www.love-poems.me.uk/browning_robert_pied_piper_of_hamelin_s.htm


Rats!
They fought the dogs, and killed the cats,
And bit the babies in the cradles,
And ate the cheeses out of the vats,
And licked the soup from the cook's own ladles,
Split open the kegs of salted sprats,
Made nests inside men's Sunday hats,
And even spoiled the women's chats,
By drowning their speaking
With shrieking and squeaking
In fifty different sharps and flats.

At last the people in a body
To the Town Hall came flocking:
"'Tis clear," cried they, "our Mayor's a noddy;
And as for our Corporation—shocking
To think we buy gowns lined with ermine
For dolts that can't or won't determine
What's best to rid us of our vermin!
You hope, because you're old and obese,
To find in the furry civic robe ease?
Rouse up, Sirs! Give your brains a racking
To find the remedy we're lacking,
Or, sure as fate, we'll send you packing!"
At this the Mayor and Corporation
Quaked with a mighty consternation.

An hour they sate in council,
At length the Mayor broke silence:
"For a guilder I'd my ermine gown sell;
I wish I were a mile hence!
It's easy to bid one rack one's brain—
I'm sure my poor head aches again
I've scratched it so, and all in vain.
Oh for a trap, a trap, a trap!"
Just as he said this, what should hap
At the chamber door but a gentle tap?
"Bless us," cried the Mayor, "what's that?"
(With the Corporation as he sat,
Looking little though wondrous fat;
Nor brighter was his eye, nor moister
Than a too-long-opened oyster,
Save when at noon his paunch grew mutinous
For a plate of turtle green and glutinous)
"Only a scraping of shoes on the mat?
Anything like the sound of a rat
Makes my heart go pit-a-pat!"

"Come in!"—the Mayor cried, looking bigger:
And in did come the strangest figure!
His queer long coat from heel to head
Was half of yellow and half of red;
And he himself was tall and thin,
With sharp blue eyes, each like a pin,
And light loose hair, yet swarthy skin,
No tuft on cheek nor beard on chin,
But lips where smiles went out and in—
There was no guessing his kith and kin!
And nobody could enough admire
The tall man and his quaint attire:
Quoth one: "It's as my great-grandsire,
Starting up at the Trump of Doom's tone,
Had walked this way from his painted tombstone!"

He advanced to the council-table:
And, "Please your honours," said he, "I'm able,
By means of a secret charm, to draw
All creatures living beneath the sun,
That creep or swim or fly or run,
After me so as you never saw!
And I chiefly use my charm
On creatures that do people harm,
The mole and toad and newt and viper;
And people call me the Pied Piper."
(And here they noticed round his neck
A scarf of red and yellow stripe,
To match with his coat of the selfsame cheque;
And at the scarf's end hung a pipe;
And his fingers, they noticed, were ever straying
As if impatient to be playing
Upon this pipe, as low it dangled
Over his vesture so old-fangled.)
"Yet," said he, "poor piper as I am,
In Tartary I freed the Cham,
Last June, from his huge swarms of gnats;
I eased in Asia the Nizam
Of a monstrous brood of vampire-bats;
And, as for what your brain bewilders,
If I can rid your town of rats
Will you give me a thousand guilders?"
"One? fifty thousand!"—was the exclamation
Of the astonished Mayor and Corporation.

[Demeter]

109. And We All Know How That One Ended

If not, do read it to yourself and your children!


Rats top invasive mammals table

http://news.bbc.co.uk/2/hi/science_and_environment/10100907.stm

...The brown rat (Rattus norvegicus) is found across Europe in all habitats except high mountain ranges. It was believed to have been introduced in the 18th Century as maritime traffic increased.

Once introduced into an area, there is a recorded fall in other small rodent species, as well as marine and land bird species. The main economic impact is the result of damaged crops and food stores, and damage to people's homes...

[Demeter]

113. The Emperors Strike Back Yves Smith of naked capitalism

http://www.nakedcapitalism.com/2010/05/the-emperors-strike-back.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

The defenders of the economic orthodoxy have gotten much more shrill of late. In a perverse way, this is probably a positive sign: they might be feeling a tad worried that they are starting to lose their hold over consensus reality. But given how quick various media outlets are to pick up and amplify their messages, it would be more than a tad premature to say that the prevailing belief system is threatened.

It may be sample bias, but I’ve noticed two patterns. The first is a sharp uptick in criticism of “populism” or better yet, “populist anger”, which then serves as the basis for arguing that efforts to rein in the financial services industry are overdone. Now usually there is a wrapper around it, like “mistakes were made” or another not-very-convincing bit of crowd pleasing pablum to acknowledge that maybe some change might be warranted, but nothing approaching what those enraged savages want.

Second is a new meme, that of arguing that Congress is really at fault, that they (or “the regulators”) failed to curb excesses in the financial services industry (and you will no doubt see similar arguments surface regarding the Horizon Deepwater disaster). This is a staple of the sort of thing you see from Cato and the American Enterprise Institute, and once in a while gets picked up by the MSM, but we’ve had a positive outburst in the last few weeks (it seems to have coincided with the SEC and Senate salvos against Goldman. The furious pushback seems to result from the panicked recognition that if a firm that gives as much and is as well connected as Goldman is not able to “insure” its way out of trouble, then no one in the executive suite can rest easy).

Notice that arguments one and two are contradictory. The first presupposes that not much more in the way of regulation/oversight is in order (otherwise, those horrid populists might have a legitimate axe to grind) while the second is a tacit admission that tougher rules are needed, but endeavors to shift the blame away from the industry and on to regulators, and more recently, Congress. And ironically, the argument then becomes, “well they botched it, didn’t they, so it’s silly to let them have a second go at it.” That’s simply disingenuous. “Congress” is not static; its membership turns over, its party weights change, its posture adapts to changed moods and conditions. Similarly, the people in regulatory agencies change over time, and they can be emboldened or neutered by their leaders.

To widen the frame further, there has been a concerted forty year push by business interests to deregulate (this is not a mere assertion; I have an entire chapter on this, extensively footnoted, in ECONNED). If you succeed in carrying out the vision of Grover Norquist, to make government so small that you can “drown it in a bathtub”, it won’t be able to rein in private sector interests of any size. That push resulted in reducing both the number of rules and the effectiveness of oversight.

Let’s give a little example: Arthur Levitt at the SEC. I have no way of knowing for sure, but Levitt bears all the hallmarks of an appointee who was expected to give the industry a free pass: he was a former industry exec from a second tier firm and had headed the American Stock Exchange (importantly, he was the first SEC head in a very long time who had not been a lawyer).

Now Levitt was willing to give the industry its head as far as big institutional customers were concerned. In the wake of large scale derivatives losses in 1994 (bigger in aggregate than the 1987 crash), he beat back meaningful regulations, and similarly sided with Greenspan, Rubin, and Summers to ride Brooksley Born out of town on a rail when she tried to regulate credit default swaps. But Levitt was very serious about trying to protect the retail investor. His not very aggressive initiatives were beaten back by Congress, particularly Joe Lieberman (the Senator from Hedgistan). Their big threat was to cut the SEC’s budget, which meant reduced enforcement. So even if he won (sticking to exercising his authority under existing legislation), he’d lose (being denied the budget to do his job, and running the risk of having the SEC’s scope cut back by new legislation).

Now before some readers chime in, “But see, it really was Congress’ fault”, ahem, you need to widen the frame. Regulation, until the banking industry blew up the global economy, was a dirty word. It wasn’t all that long ago that being a senior regulator was prestigious, if not terribly well paid, and most did it for its own sake, not as a stepping stone to big ticket private sector jobs. The line that was sold very effectively, was that regulation simply reduced efficiency and impeded innovation, if we got rid of those pesky rules, the economy could grow faster and we’d all be better off.

Now the bit about regulation impeding innovation is actually false (regulation can spur innovation, as it has with mandates to improve fuel efficiency; moreover, the companies that fought for deregulation were the big boys who had never had had a track record of being innovative; further in the 1970s, they tried talking up an “innovation gap” which did not exist, as in the data actually proved the reverse regarding US innovation; the Carter administration tacitly admitted that by talking up a “perceived innovation gap”). So the real question, that was pushed aside, was, “what is the right balance between safety and efficiency?” There might indeed be cases in which regulations were misguided and called for excessive levels of safety, or were simply bureaucratic and outdated. But the fight to pull down all regulations, willy nilly, left industry to its own devices in a lot of areas as far as safety was concerned. We are now reaping the bitter harvest of taking an idea that might have had some merit well beyond its point of maximum advantage.

But let’s return to the “populism” attack, which sticks in my craw. It’s a not-very-subtle way of denying the legitimacy of the populace’s anger. The taxpayers have just been the victims of the greatest looting of the public purse, and the perps have the nerve to lecture them about their anger?

Two sightings illustrate the arrogance. One is an Financial Times comment “A boot on the throat is no way to do business,” by David Rothkopf. Some key bits:

Admittedly, business is not exactly blameless here. Mistakes have been made. Really big ones. But to respond to the culture of excess and recklessness on Wall Street with a culture of regulatory excess and recklessness in Washington is hardly the answer.

Yves here. This is an insulting straw man argument. Regulatory excesses and recklessness? We have “reform” regulation that is so watered down that it will do perilous little to avert future crises. But corporate leaders have gotten so used to getting everything they ask for that even pesky restrictions are fought tooth and nail. Next bit:

At a time when the business and economic challenges facing the US are dauntingly complex, what is really needed is a dose of humility. That is particularly the case when there are barely a handful of US senators who have even a basic understanding of the markets they seek to regulate. In such an environment, adversarial relationships are in no one’s interest.

Yves here. Humility? Spare me. The ones who OUGHT to be humble, as in begging for forgiveness, are the executives and producers who created such havoc. Instead, they’ve refused to make any pro-active suggestions; worse, they thumbed their noses at the taxpayers who rescued them at colossal cost by paying themselves record compensation in 2009. The right response to that is most assuredly NOT humility; it’s a swift and hard kick in the ass.

I could go on, but you get the drift. Readers with strong stomachs are encouraged to read this piece in its entirety. Its arrogance and dishonesty is striking.

The other sighting was similarly troubling, but in a more subtle way. Jeff Immelt, GE’s CEO, has closed ranks with the banksters. This isn’t surprising, given that GE is heavily a financial services company and would have been in extremely hot water had it not availed itself of some of the rescue programs on offer during the crisis. His remarks, per the Financial Times:

Goldman Sachs has been a partner for GE for a long time. We trust them, they have done great work for us … damning Wall Street isn’t good for the American economy….People need to tone down the rhetoric around financial services and stop the populism and act like adults.

Yves here. The finger-shaking at supposed children is overbearing and authoritarian, and amounts to a blanket refusal to deal with the substance of the bill of particulars against the financial services industry. But the part of his formula that is more revealing is his argument that the interests of Wall Street and “the economy” are aligned, and everyone needs to shut up and get with the program, since hurting the economy will be very bad for them.

But this is bogus. The economy we now have has increasingly shunted the benefits of production to the top 1%. In the 1960s, it was accepted that increases in productivity would be shared between corporations and workers. No more. We’ve seen a persistent gap rise between wage growth and productivity growth, so the gains in employee output have been siphoned off to the managerial elite and investors.

So these populists, despite the hectoring, aren’t stupid or emotional. Quite the reverse. They’ve been snookered by the system one time too many, and have had enough. Primates as well as people are willing to take losses to punish cheaters, and this is deeply rooted, instinctive behavior for a good reason: you need some measure of fairness for societies to function.

It’s the people at the top of the food chain who are wildly misguided. They seem to think if they posture well enough in public, they can restore the order that served them so well. But the hoi polloi understand better that the old paradigm is broken and are demanding new approaches. Ignoring and demeaning their demands isn’t sage and sober; its reckless and wanton. It will take a continued show of resolve to penetrate the orthodoxy’s defenses.

[Demeter]

114. Cut the Partisan Hooey … BOTH the Private Sector AND the Government are to Blame for the Financial C

http://www.nakedcapitalism.com/2010/05/guest-post-cut-the-partisan-hooey-both-the-private-sector-and-the-government-are-to-blame-for-the-financial-crisis.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Partisan GOP hacks say the financial crisis was caused by too much regulation, and government interference in the markets.

But Glass-Steagall was repealed, derivatives were left unregulated, and the regulators were watching porn instead of preventing fraud. Giant banks, hedge funds and other fat cat private players knowingly gamed the market and committed fraud in more ways than can be listed in a single post.

And remember, even the “father of economics” – Adam Smith – didn’t believe in completely unfettered free markets.

On the other hand, partisan Democratic party hacks say that bad corporations caused the crisis, and that if more power is given to Summers, Bernanke, Geithner and the other governmental honchos, they’ll fix everything.

But Summers, Bernanke, Geithner and the other meatheads largely caused the crisis through their actions. And as Simon Johnson points out, the government created the mega-giants, and they are not the product of free market competition.

As I pointed out in February 2009, government fraud is pervasive:

In case you believe that there are only “a couple of bad apples” in the United States, here is an off-the-top-of-my-head list of corruption by leading pillars of American society:

* Senior military officials stole approximately $125 billion dollars out of Iraq reconstruction funds, dwarfing Madoff’s $50 billion Ponzi scheme (in turn, the looting which is now occurring under the bailout/stimulus programs will far surpass $150 billion)

* Texas billionaire Robert Stanford ran a multi-billion dollar fraud scheme of his own

* Senior judges in Pennsylvania have pleaded guilty to falsely convicting and imprisoning hundreds of youths (they got kickbacks from the prisons).

* The government-endorsed ratings agencies which were supposed to accurately rate the credit-worthiness of companies and nations committed massive fraud

There are hundreds of similar stories of corruption which have come out recently.

But surely government employees would have done something to stop such corruption if had known about it, right?

Well, actually:

* Whistleblowers alerted the government about the looting of Iraq reconstruction funds, but nothing was done

* A whistleblower “gift-wrapped and delivered” the Madoff scandal to the SEC, but they refused to take action

* The Treasury department allowed banks to “cook their books”

* The Pennsylvania Supreme Court refused to hear a case regarding the corrupt judges. A month later, only after the judges confessed to criminal wrongdoing, did the Supreme Court change its mind and take any interest

* Instead of insisting on accurate books, the government encouraged fraudulent bookkeeping. For example, as of 2006:

“President George W. Bush has bestowed on his intelligence czar … broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations.”

* The government knew about mortgage fraud a long time ago. For example, the FBI warned of an “epidemic” of mortgage fraud in 2004. However, the FBI, DOJ and other government agencies then stood down and did nothing.

These are just some of the many examples of the government aiding and abetting corruption.

A lot has come out since then about Geithner, Bernanke, and other officials.
Indeed, government employees are mainly using their time in office to feather their own nests, rather than to do anything constructive.

So let’s cut the partisan hooey.

Both the fat cat players and the government are to blame for the financial crisis, and we need to rein in corruption and fraud in both.

MULTIPLE SUPPORTING LINKS AT ORIGINAL SITE.

[Demeter]

116. Another Nail in the “Hoocoodanode” Defense By Richard Smith, a London-based capital markets IT spec

http://www.nakedcapitalism.com/2010/05/richard-smith-another-nail-in-the-hoocoodanode-defense-circa-april-2007.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Here’s someone with his head screwed on, back in April 2007, who proves singlehandedly that “hoocoodanode” was no defense for failing to anticipate the implosion of the shadow banking system (more on this prescient analyst in due course):

For several years now, we have marvelled at the capacity of credit markets to accommodate ever more ludicrous developments: mortgages to insolvent arsonists, a leveraged buyout of “the world’s ‘crappiest’ steel company

Ooh, and look – he has Iceland, Greece (already) and CDS in his sights:

…sovereign spreads that don’t care whether you are Che Guevara or Maggie Thatcher, AAA rated Icelandic banks, derivative market growth rates that make your eyes water …

and Greenspan, and other cheerleaders:

We have heard such developments rationalised away with equally ludicrous new paradigms, and repeatedly been reassured that even if there are risks, credit market innovation has allowed risk to be dispersed more healthily around the system.

and opacity:

Despite our scepticism, it has been very difficult to penetrate the technical innovations of these more opaque markets to pinpoint what the frailty of the mechanics might be.

[Demeter]

119. That's About as Much Doom and Gloom As I Can Stand

Carry on if you haven't reached your limit yet.

Me, I'm going to get braced for Monday's mad merry-go-round. It ought to be a scream.