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Financial Skeptic Bulletin, September 2009

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There are no markets anymore, just interventions


[Sep 15, 2009] Economist warns of double-dip recession

The world has not tackled the problems at the heart of the economic downturn and is likely to slip back into recession, according to one of the few mainstream economists who predicted the financial crisis.

Speaking at the Sibos conference in Hong Kong on Monday, William White, the highly-respected former chief economist at the Bank for International Settlements, also warned that government actions to help the economy in the short run may be sowing the seeds for future crises.

“Are we going into a W[-shaped recession]? Almost certainly. Are we going into an L? I would not be in the slightest bit surprised,” he said, referring to the risks of a so-called double-dip recession or a protracted stagnation like Japan suffered in the 1990s.

“The only thing that would really surprise me is a rapid and sustainable recovery from the position we’re in.”

The comments from Mr White, who ran the economic department at the central banks’ bank from 1995 to 2008, carry weight because he was one of the few senior figures to predict the financial crisis in the years before it struck.

Mr White repeatedly warned of dangerous imbalances in the global financial system as far back as 2003 and – breaking a great taboo in central banking circles at the time – he dared to challenge Alan Greenspan, then chairman of the Federal Reserve, over his policy of persistent cheap money.

On Monday Mr White questioned how sustainable the signs of life in the global economy would prove to be once governments and central banks started to withdraw their unprecedented stimulus measures. “The green shoots are certainly out there – the question is what kind of fertiliser is being used on them,” he said.


[Sep 29, 2009] The Banking System Is Insolvent by Karl Denninger in

Approach used is OK, but calculations are suspect. The value of USA subprime mortgages was estimated at $1.3 trillion. If all of them went bust and recovery is 40% then total losses are 560 billions. Some of them were already occurred. Amherst estimates this “shadow inventory” at around 7m housing units, with 1 million potentially avoiding foreclosure. That's about 480 billions. 
In any case citing Amherst Sees 7m Foreclosures Poised to Distress House Prices “We are concerned that, in light of this housing overhang, the stabilization we have seen in home prices the last few months is temporary”

Following up on the quick mention now that I have a story to cite from Amherst:

Cure rates for these distressed loans remain low. Amherst noted a near 0% cure rate of all loans in foreclosure, 0.8% for 90 plus days delinquent, 4.4% for 60 days delinquent and 26.5% for 30-day delinquencies. All told, Amherst expects 12.42% of units (from the 13.54% of properties delinquent and in foreclosure) to eventually liquidate.

Let's put some numbers on this.

There are roughly 125 million single-family homes in the US.

Of those, roughly 30% have no mortgage on them at all.  This leaves 87.5 million single-family homes with mortgages.

Let us assume the average outstanding balance is $200,000 across the entire set and will take a 40% loss severity.  This is less than S&P has estimated for subprime loans and only assumes a roughly 20% market deficiency in the home price (the rest is from legal, rehabilitation and marketing expenses.)

These numbers are, with a high degree of confidence (90%+) low - that is, losses will exceed these estimates, perhaps dramatically so.  It is, for example, quite reasonable to believe that due to the concentration of defaults in higher-priced areas (e.g. California and Florida) that the average outstanding balance could be close to double that $200,000 value and the loss due to negative equity higher.

From this we can develop a "cocktail napkin" view of the losses to be taken in home mortgages for single-family homes (remember, this does not include condos, apartment buildings and similar "commercial" paper.)

$200,000 X 40% = $80,000 loss per foreclosure.

87.5 million homes with mortgages X 12.42% = 10,867,500 foreclosures.

x    80,000

or $869 billion in losses remaining in single-family mortgages alone.

What if the average outstanding is higher and negative equity greater than 20% (which is likely)?  Losses will almost certainly be well north of a trillion dollars.

The entire banking system and likely The Fed, given the quantity of Fannie and Freddie paper it has been and is "eating", is insolvent.  These facts are why the government is lying - they're well-aware of the near-zero cure rates and know that these facts mean that the banking industry has nowhere near sufficient capital to withstand these losses without folding like a paper cup getting stomped on by an elephant.

(Remember that these numbers do not include any commercial real estate losses and we have found that banks are frequently over-stating their claimed values for these loans by 50% or more - as was seen with Colonial.)

It gets better.  The FDIC has a negative balance both in its fund balance and the reserve ratio projected for the end of the quarter, which is, big surprise, tomorrow. Oh, and there is this pesky problem that the FDIC has - contrary to its mandate - been issuing bond guarantees for banks, so if and when that banking insolvency is recognized the FDIC will implode into a gravity well also, since it is on the hook for the entire deficiency of those bonds that were issued with its "guarantee" should they default.

Care to argue with the math folks?

[Sep 29, 2009] Too Expensive and Ready To Collapse - U.S. Stocks, Bonds and China  by Simon Maierhofer

Yahoo! Finance

A company's earnings are what makes a stock cheap or expensive. High earnings validate a higher price and vice versa. Earnings for the S&P 500 are the lowest they've ever been. That's why the price earnings ratio (based on reported earnings) has shot all the way up to 144 for the second quarter of 2009.

The P/E ratio for financials (NYSEArca: XLF - News) is even higher than the S&P's. In fact, financials are the second most overvalued industry sector, despite continuous concerns about banks' health.

P/E ratios above 25 are commonly viewed as a signal that stocks are due for a correction. Now imagine what a P/E ratio of 144 signals. We'll talk more about the crystal ball like features of P/E ratios in a moment.

Bonds, the 'other stock'

Corporations have different options to raise money. Issuing bonds and stocks are two of them. Bonds are perceived to be safer as they are not subject to the stock market's ups and downs.

Nevertheless, a liquidity crunch of the underlying company would severely hurt bond holders. To illustrate, General Motors, the world's largest auto maker was hit hard by this economic downturn. Stock holders lost more than 95% of their money invested in GM. Bond holders lost up to 80 cents on the dollar.

The year 2008 provided a glimpse of what can happen with corporate bonds. Within a few days in October 2008, the iShares iBoxx $ Investment Grade Corporate Bond Fund (NYSEArca: LQD - News) fell nearly 20%. The iShares iBoxx $ High Yield Corporate Bond Fund (NYSEArca: HYG - News) dropped 25%. Lower quality junk bonds did even worse.

[Sep 29, 2009] Anemic Job Creation During The "Schumpeterian Depression"

My friend "BC" writes:

During Schumpeterian Depressions, large, cash-rich firms dominate and push increasing scale and standardization, whereas small firms suffer from a lack of capital and a reluctance by banks to lend.

This trend should persist well into the next decade, as deflationary depressions and the associated demographic cycle reduces business start-up activities, and this time around Venture Capital activity.

Also, younger workers of a peak demographic cohort lack the capital and longevity in the occupational structure to have made sufficient contacts and gotten access to capital and equipment in order to reach the necessary critical mass of experience, reputation, and problem solving one demonstrates sometime in their mid- to late 20s to early to mid-30s.

Thus, we are not likely to see a new wave of incremental innovation and new capital formation and business start ups until no earlier than the mid-to-late '10s to early '20s. In the meantime, mass cross-industry consolidation, R&D moving inside large firms, spin-offs, firings, wealth consumption, and shifting composition of household spending led by Boomers in late life will combine to slow growth for years to come.

Moreover it is questionable as to whether China and India can buck the larger demographic and Schumpeterian-curve trends, as they have come to rely so heavily upon US supranational firms' Foreign Direct Investment in plants, equipment, trade credits, and intellectual property. The growth of US and Japanese firms' FDI will likely continue to decelerate with "trade" for years to come.
For more on Schumpeterian Depressions, please see Creative Destruction.

Conferate Helvetiker:

Our great "offshore believing" CIO has to make large cuts in the IT budget in the coming years. All departments have been forced to implement matrix organization (many already had). Our section has had to make the change as well, and starting Oct 1, I am in the "backend pool" with about 40 people from several projects.

They also eliminated 1-2 layers within the section, and numerous team and project leaders are now in the same pools competing with their ex-underlings.

Clearly, they are expecting to cut 10% at least through attrition and competition.

Worse for me is that they are probably going to transfer us to one of the open-office floor plans where they have stacked rows of desks together with about 100 people per office with no partitions and windows that don't open. Currently I share an office with 4 others in an older building with windows that open. With swine-flu season approaching this transfer would be horrible...


On topic: another problem for small businesses is getting paid. In Spain, local administrations (towns, not states) owe 3 billion euros to suppliers, many of them small. The govt has supplied a line of credit but the administrations are not tapping it for fear of falling further into debt. They're also threatening suppliers who get stroppy with giving them no more business....

[Sep 29, 2009] G-20 Summit - We've Seen This Movie Before

“The bigger the grouping, the harder it is to get consensus,” said Adams, managing director of the Lindsey Group, a Washington-based economic advisory firm. “You can’t have the agenda taken over by the favorite hobby horses of each country.”

[Sep 29, 2009] Mish's Global Economic Trend Analysis

Reflections on "The Last Bear Standing"

Bill Bonner is one of my favorite columnists. On Friday he was discussing The Last Bear.

As they say on Wall Street, a rally ends when the last bear gives up. An old friend had been a source of inspiration for tech bears for many years. He suddenly saw the light and gave up in 1999. Shares he had formerly scorned – often dotcoms with no revenue and no business plans – were suddenly added to his own portfolio. This also heralded a big change – the end of the tech bubble. Tech stocks collapsed. Most disappeared. Then, Stephen Roach became vaguely bullish in 2007, after a long period of doubt and misgivings.

Now it is Jim Grant who has changed his mind. A generation of investors has gotten used to Grant’s ‘doom is nigh’ warnings. Now, he says, it’s a boom that is nigh.

What is remarkable about the Grant conversion is that his vision gives off so little heat and light. His WSJ article shillyshallies around; rehearses the history of previous recessions and comes to rest in front of a flickering match: “The deeper the slump, the zippier the recovery.”

But facts are survivors. They will tell whatever tale their interrogators want to hear. As for opinions, after six months of a stock market rally, the once half empty glass has become half full. We predicted it ourselves. But we’ll let Robert Prechter say, ‘I told you so.’ Even before the rally began, Prechter foretold its story:

“Regardless of extent, it should generate feelings of optimism. At its peak, the President’s popularity will be higher, the government will be taking credit for successfully bailing out the economy, the fed will appear to have saved the banking system and investors will be convinced that the bear market is behind us.”

As to Mr. Obama’s popularity, Prechter was wrong. But 4 out of 5 ain’t bad.

What will happen next, we don’t know. But if we turn bullish on this economy and urge you to buy stocks, it will surely be time to sell them.

Enjoy your weekend,

Bill Bonner
The Daily Reckoning

john says:Yesterday, 2:23:09 PM“you could have pointed out the decrease in M2, that fact seems to be left out of a lot of the inflationist arguments.

Back2Bat :

Yawn! So the government/Fed can pump up the stock market. If only the economy was just a matter of throwing a few levers at the Fed or Treasury. Money is an almost absurdly easy part of the economy but the Fed makes such a big to-do about it. (Yes, we do seem to trumpet out own self-importance, don't we?) The fact is: The Fed goes around trying to fix problems it caused. No Fed at all would have a far better track record since IT COULD DO NO HARM.

The economy is both fragile and robust, kinda like a body. But is has a huge stinking cancer in it called the Fed.


Margaret Thatcher said it best. “The problem with socialism is that you eventually run out of other people’s money.” And, that may be what is happening right now. The Fed cannot print its paper money fast enough. The realism is beginning to set in.


The problem with socialism, man exploits man. Under capitalism, the opposite happens.

...i forget who said it


I am extremely bearish on the dollar. It is backed by nothing but exponentially growing debt.

I love it when some talk about going back to gold standard. Or; it is Nixon's fault. The truth is we never had a gold standard. We just perceived one. People thought they could exchange their FRN's for gold. As soon as the truth was exposed; bye bye gold standard. ...some standard...ehhh

The dollar is backed by guns--economics; markets; standards; technical analysis is all secondary.


I'm in the bear camp: fair value on the S&P is somewhere under 500, maybe even 200, and we'll get there. The dollar should soar soon, leaving everyone but Mish and other E-wavers flabbergasted. Even gold and silver could fall a lot more than most suspect ($7 and $600?), since there has been such a rush to own them for several years now, reaching a fever pitch over inflation fears lately.

2010 could make 2008 look like a dry run.

black swan:

I smell another Vietnam. I believe Obama will throw another 40,000 troops into Afghanistan. He can't even define our "mission" there. Here's the tally: 300,000 troops and contractors in Iraq, 68,000 already in Afghanistan, and, with another 40,000, that will give us over 400,000 U.S. bodies over there. Vietnam peaked at 500,000.

If Obama is bullied by the war mongering neocons into expanding these wars, he could be the next LBJ, running up the domestic budget into the stratosphere and sending hundreds of thousands of troops into a never ending war without funding. If he wants to commit our country to this, I think he should be on the front line in his Commander and Chief uniform. We better hope we don't have any non-elective wars in the mean time. At least there will be fewer troops left to police the American people. Obama is going to be hated by both the left and the right.

black swan:

Confederate Hevetiker says.

"Bravo Swan. In your "corporatist" colored glasses, you have defined Obama's foreign policy actions in the middle east in terms of being bullied by "neocons". I am coming to the conclusion that you suffer from paranoid delusions."

Since I've yet to see you come up with any correct conclusions, I'll take your post as a testament to my sanity. You might, however, research LBJ and what prompted him to expand the Vietnam War. If you take off those neocon glasses, you might even see some historical parallels to Obama's situation. While you are at it, please tell me how this country is better off because of its involvement in the Iraq war, a war in which we have lost over 5,000 US citizens, gained the wrath of much of the rest of the world, gave the power in Iraq to the Shiites (a great favor to Iran), opened the country up to the Wahhabis, and open up a tab of trillions of dollars to pay for this war with money we don't have. Then clearly outline what you see as the objectives of the Afghanistan war. How will the USA gain from expanding it? I can't wait to see your analysis.


Treasuries are in rally mode and this should continue for some time (as crazy as that is). Does that equate to a higher $? Maybe, but who cares? It is still just fiat. In the interim, a boon to my portfolio since I have limited choices for 'investment'.

[Sep 28, 2009] Global Equity Strategy: Taking the Bait … S&P 500 Upgrade by Jason Todd, Gerard Minack

Morgan Stanley

We have upgraded our 2009 and 2010 earnings estimates to $55 and $70 (from $51 and $62, respectively), and this implies a year-end 2009 fair value of 1050. 

We still think that equities will trade in a broad range for an extended period. 

The current rally is typical of what follows major bear markets and is not, in our view, the start of a new multiyear bull market.  However, we now think the rally can run for longer than we previously expected.

[Sep 28, 2009] Bank chiefs owe a personal debt to taxpayers

Few could argue with Barack Obama last week when the US president said Wall Street owed a debt of gratitude to taxpayers. Some of America’s largest banks would not have survived without the trillions of dollars the government used to shore up the financial sector. Less remarked upon, however, is the personal windfall executives of the bailed-out institutions received as a result of Washington’s largesse.

... ... ...

But a year later, we still have no good answer as to why the other chief executives were permitted to benefit from the government’s largesse while Mr Fuld could not.

[Sep 28, 2009] Tax trades to share the costs of the crisis

A small levy on financial market transactions would generate vast sums and show Main Street that Wall Street is sharing the pain of reconstruction, writes Peer Steinbrück

[Sep 28, 2009]  Alan Grayson

This is a high quality version of the Financial Services Subcommittee on Oversight and Investigations hearing of May 5, 2009. Rep. Alan Grayson asks the Federal Reserve Inspector General about the...

[Sep 27, 2009] Obama promises change; Spitzer asks what has really changed one year later

Is Washington Politburo rearranging chairs on the deck of Titanic much like its Soviet Politburo functionaries did. Is Obama an American variant of Gorbachov's theme.
Sep 21, 2009 | Brendan's Trading Blog

One year after modern day's largest market collapse, what has really changed? In my opinion, very little.

I think an interesting part of humans' psychology is to write things off once they no longer seem to effect us.  A prime example of this is the wrong doing that took place on Wall Street, in banks, and various other financial institutions across the country.  The markets have improved dramatically, economic numbers are improving, and Americans are getting back into the normal grind.  Because of this, I think the demand for change and reform has quieted down to a f*aint murmur, and I question what changes if any will come in the months and years ahead to prevent this type of financial collapse from occurring again

[Sep 27, 2009] Links to this post

We call it excessive consumption, but in reality this was by and large the consequence of housing boom and exorbitant rise of  healthcare and education costs.

Twenty-Cent Paradigms

The United States' dependence on foreign purchases of Treasury bonds means that no issue that affects the deficit is solely "domestic." The US has an interest in China's health care system, too, as it contributes to the high savings rate that fuels China's side of the current account imbalance. Scheiber writes:

The Chinese save such freakish amounts because consumer credit is scarce, insurance is rudimentary, and their social infrastructure is threadbare. They must often pay for houses in cash, and for medical procedures out of pocket.

Update (8/20): Ilian Mihov suggests (with evidence) that healthcare and education costs played a key role in the rise of US consumption.

[Sep 27, 2009] The Economy is a Lie, Too by Paul Craig Roberts

Americans cannot get any truth out of their government about anything, the economy included. Americans are being driven into the ground economically, with one million school children now homeless, while Federal Reserve chairman Ben Bernanke announces that the recession is over.

The spin that masquerades as news is becoming more delusional. Consumer spending is 70% of the US economy. It is the driving force, and it has been shut down. Except for the super rich, there has been no growth in consumer incomes in the 21st century. Statistician John Williams of reports that real household income has never recovered its pre-2001 peak.

The US economy has been kept going by substituting growth in consumer debt for growth in consumer income. Federal Reserve chairman Alan Greenspan encouraged consumer debt with low interest rates. The low interest rates pushed up home prices, enabling Americans to refinance their homes and spend the equity. Credit cards were maxed out in expectations of rising real estate and equity values to pay the accumulated debt. The binge was halted when the real estate and equity bubbles burst.

As consumers no longer can expand their indebtedness and their incomes are not rising, there is no basis for a growing consumer economy. Indeed, statistics indicate that consumers are paying down debt in their efforts to survive financially. In an economy in which the consumer is the driving force, that is bad news.

The banks, now investment banks thanks to greed-driven deregulation that repealed the learned lessons of the past, were even more reckless than consumers and took speculative leverage to new heights. At the urging of Larry Summers and Goldman Sachs’ CEO Henry Paulson, the Securities and Exchange Commission and the Bush administration went along with removing restrictions on debt leverage.

When the bubble burst, the extraordinary leverage threatened the financial system with collapse. The US Treasury and the Federal Reserve stepped forward with no one knows how many trillions of dollars to “save the financial system,” which, of course, meant to save the greed-driven financial institutions that had caused the economic crisis that dispossessed ordinary Americans of half of their life savings.

The consumer has been chastened, but not the banks. Refreshed with the TARP $700 billion and the Federal Reserve’s expanded balance sheet, banks are again behaving like hedge funds. Leveraged speculation is producing another bubble with the current stock market rally, which is not a sign of economic recovery but is the final savaging of Americans’ wealth by a few investment banks and their Washington friends. Goldman Sachs, rolling in profits, announced six figure bonuses to employees.

The rest of America is suffering terribly.

The unemployment rate, as reported, is a fiction and has been since the Clinton administration. The unemployment rate does not include jobless Americans who have been unemployed for more than a year and have given up on finding work. The reported 10% unemployment rate is understated by the millions of Americans who are suffering long-term unemployment and are no longer counted as unemployed. As each month passes, unemployed Americans drop off the unemployment role due to nothing except the passing of time.

The inflation rate, especially “core inflation,” is another fiction. “Core inflation” does not include food and energy, two of Americans’ biggest budget items. The Consumer Price Index (CPI) assumes, ever since the Boskin Commission during the Clinton administration, that if prices of items go up consumers substitute cheaper items. This is certainly the case, but this way of measuring inflation means that the CPI is no longer comparable to past years, because the basket of goods in the index is variable.

The Boskin Commission’s CPI, by lowering the measured rate of inflation, raises the real GDP growth rate. The result of the statistical manipulation is an understated inflation rate, thus eroding the real value of Social Security income, and an overstated growth rate. Statistical manipulation cloaks a declining standard of living.

In bygone days of American prosperity, American incomes rose with productivity. It was the real growth in American incomes that propelled the US economy.

In today’s America, the only incomes that rise are in the financial sector that risks the country’s future on excessive leverage and in the corporate world that substitutes foreign for American labor. Under the compensation rules and emphasis on shareholder earnings that hold sway in the US today, corporate executives maximize earnings and their compensation by minimizing the employment of Americans.

Try to find some acknowledgement of this in the “mainstream media,” or among economists, who suck up to the offshoring corporations for grants.

The worst part of the decline is yet to come. Bank failures and home foreclosures are yet to peak. The commercial real estate bust is yet to hit. The dollar crisis is building. When it hits, interest rates will rise dramatically as the US struggles to finance its massive budget and trade deficits while the rest of the world tries to escape a depreciating dollar.

Since the spring of this year, the value of the US dollar has collapsed against every currency except those pegged to it. The Swiss franc has risen 14% against the dollar. Every hard currency from the Canadian dollar to the Euro and UK pound has risen at least 13 % against the US dollar since April 2009. The Japanese yen is not far behind, and the Brazilian real has risen 25% against the almighty US dollar. Even the Russian ruble has risen 13% against the US dollar.

What sort of recovery is it when the safest investment is to bet against the US dollar?

The American household of my day, in which the husband worked and the wife provided household services and raised the children, scarcely exists today. Most, if not all, members of a household have to work in order to pay the bills. However, the jobs are disappearing, even the part-time ones.

If measured according to the methodology used when I was Assistant Secretary of the Treasury, the unemployment rate today in the US is above 20%. Moreover, there is no obvious way of reducing it. There are no factories, with work forces temporarily laid off by high interest rates, waiting for a lower interest rate policy to call their workforces back into production.

The work has been moved abroad. In the bygone days of American prosperity, CEOs were inculcated with the view that they had equal responsibilities to customers, employees, and shareholders. This view has been exterminated. Pushed by Wall Street and the threat of takeovers promising “enhanced shareholder value,” and incentivized by “performance pay,” CEOs use every means to substitute cheaper foreign employees for Americans. Despite 20% unemployment and cum laude engineering graduates who cannot find jobs or even job interviews, Congress continues to support 65,000 annual H-1B work visas for foreigners.

In the midst of the highest unemployment since the Great Depression what kind of a fool do you need to be to think that there is a shortage of qualified US workers?

Paul Craig Roberts was Assistant Secretary of the Treasury in the Reagan administration. He is coauthor of The Tyranny of Good Intentions. This fall CounterPunch/AK Press will publish Robert's War of the Worlds: How the Economy Was Lost. He can be reached at:


The public purse is fueling a rally that has to pop at some point


GreenAB said:

thanks TPC.

i was just searching the web and i found this story about an interview JR allegedly gave in 2005.

here´s the short story:

Funds Manager Predicts Global Economic Collapse


There was an interview on CNBC of the renowned funds manager Julian Robertson. He is one of the greatest of the old-timers. 53 years on the Street. He manages the Robertson group of funds. They used to call him, still do call him `Never Been Wrong` Robertson. He has predicted every economic cycle, every debacle, every bull market, and every bear market.

Of course, he`s a very old man now. But his reputation on the Street is like nothing you could imagine. When the segment of his interview was through, his comments alone took the Dow Jones down 50 points. Just on his comments alone. That`s how powerful this man`s reputation is.

Robertson was actually a teary-eyed, an old man. When Ron Insana asked him about his predictions, he said that he`s worried about the speculative bubble in housing and the fact that more than 1/4 of all consumer spending is now sustained by that bubble, plus the fact that 20 million citizens could lose their homes in a collapse of the speculative bubble in housing, and that the Fed and, indeed, central banks worldwide would act in concert out of desperation to reinflate the global economy in the process, creating an inflationary spiral unheralded in the economic history of the planet.

Insana then asks, “Where does it end?” And he said, “Utter global collapse.” Not simply economic collapse; complete disintegration of all infrastructure and of all public structures of governments. Utter, utter collapse. That the end is collapse of simply epic proportion.

In 10 years time, he said, whoever is still alive on the planet will be effectively starting again.

and here the even darker, very depressing long version (”detention compunds”):

can anybody verify the truth of these articles. did JR really say this on cnbc tv to Ron Insana?

google is only linking to gold bug/conspiracy sites who themselves are referring to an article written by Al Martin.

Michael Mross, a german journalist (working for CNBC) wrote about it too in october 2008.
the article includes a thumbnail showing JR on streetsigns (dow indicates 2005).
but wsj obviously deleted the video.

if true the MSM should have a collective interest to hide this interview.

[Sep 27, 2009] Dissident Voice In Obama We Trust

It's naive to expect that Obama will fight for labor. Still he is much better option them McCain. How about "audacity of sell-off" ?  ;-)

Why does big labor “trust” Obama, or the Democratic Party, except by default (not the worst defense)? Where’s the New Deal for non-auto workforces, or poor people outside New Orleans, or millions of hurting Main Streeters. Is $75 billion budgeted for foreclosure relief enough? Cash for Clunkers succeeded, but whether such costly subsidies simply enable staggering dinosaurs – or delay the worst – remains to be seen. Check out Obama broken promises; the president didn’t end income tax for seniors making less than $50K, toughen rules against revolving lobbyist doors, create a $3K new job tax credit, or allow penalty-free hardship withdrawals from retirement accounts.

Over a trillion dollars for bankers and brokers, ungodly billions more for unpopular, failing wars – and small change for workers (modest tax cuts, health benefits for needy children). In short, average Americans feel besieged because they are besieged.

So far, this president and his party (it’s never just about Obama) are hitting under .200, timidly battling for their own agenda. Is this shocking from a low-achiever, ex-junior senator close to Big Ag (ethanol producers), coal and nuclear energy, softer on health care and more hawkish on Afghanistan in primaries than Hillary? Obama the ambitious politician won statewide office thanks to the Chicago machine, then brashly ran for Congress (and got thumped), before lucking out when his GOP Senate foe imploded. Notably, the president rode one premature anti-war comment into effective anti-Iraq rhetoric, wrote an elegant, cagey manifesto, The Audacity of Hope, gave a great ’04 Convention speech, and leaned right in Democratic primaries. No complaints or excuses, folks: what we got is what we saw, if we looked behind his glitzy, brilliant campaign.


I’ve been soliciting Obama loyalists – and readers – to stick up for the president. I don’t relish bashing incipient greatness. After all, I could be wrong. Yet my simple question, “What has Obama done that delights you?” has gone unanswered. Was the question tricky, too hard? All excuse low performance with inherited quagmires from Bush-Cheney’s Age of Cronyism, Ineptitude and Demagoguery (that’s A.C.I.D., burning from the inside). I concede birth calamities, but how does more of the same produce hope or change? Does Obama deserve lots of leeway because the problems are great? Isn’t the opposite more logical: the worse the conditions, the greater the pain, the more the hue and cry, then the greater the opportunity to renovate capitalism? Opportunity makes for greatness, not the other way around.

If Wall Street crashed from rotten, high-risk eggs in too few baskets, doesn’t further concentration into still fewer hands invite depression? When the predatory status quo turns into unregulated quo vadis (literally, “who goes there”?), won’t a great president defy, not subsidize establishment disasters? FDR was excoriated for taking on big banks and big business. Obama caves to budding monopolies in finance, colludes with Big Pharma, even props up corrupt governments in broken, no-win states instead of cutting counterproductive militarism. A third straight administration in denial, refusing to confront failed schemes and systems, is no improvement, nothing that deserves our hard-won trust.

[Sep 27, 2009] Dissident Voice The Great Fed-Financed Dollar Decline and Stock Market Rally of 2009

"Presently, there is a vacuum in international affairs coming from the decline in the moral and economic stature of the United States. It is a vacuum because no other country or organization has the credibility, legitimacy and capability to fill the gap. This is particularly true in monetary and financial affairs. Add to that the illegal war of aggression that the Bush-Cheney launched against Iraq, a country that had not attacked the United States, and the lack of financial confidence in the USA is reinforced by a lack of political confidence." The US took massive amounts of wealth from the developing world and blew it. That means that in the future wealth will no longer be flowing into the US, but out. The old system has collapsed...

...The U.S. is presently in that predicament. The U.S. Fed and Treasury have abandoned the U.S. dollar and the large international banks have depressed it further at the same time they fill their coffers. That is why we can say that, besides the profitable carry currency trade that banks and other operators employ to dump the U.S. dollar on foreign exchange markets, this currency will remain under pressure for as long as the spread of short-term interest rates favors other currencies and as long as the spread of expected inflation rates and of expected economic growth remain stable. Paradoxically, longer-term interest rates have only increased marginally. This is because banks and other Fed borrowers, when they do not leave their low interest-paying excess reserves dormant at the Fed, can buy risk-free Treasury bonds. This has the consequence of depressing longer-term interest rates and of boosting stock market prices, even as inflation expectations are on the rise.

What is to be understood is that the weak dollar is the direct consequence of the Fed’s extraordinary cheap money policy. To summarize, the average American household is being hit from all sides with this policy. First, if it is a net creditor (as most retirees are), its savings are earning paltry returns (most likely negative after inflation and taxes). Second, the U.S. dollar keeps falling in value, raising the cost of traveling abroad and of everything that is imported. Third, real incomes fall with rising prices as the purchasing power of stable or declining money incomes contracts. Fourth, the exploding public debt will translate sooner or later into higher taxes, thus reducing private disposable incomes. All in all, the standard of living of most people falls.

Don’t get me wrong. I do not question the need to inject liquidity into the banking system after the onset of the financial crisis in August 2007. What I question is the way this was done and how the public interest was sacrificed in favor of narrow private interests. Indeed it was done in the worst possible social way, with private gains and social costs. They (the Bush and Obama administrations) recapitalized the banks to the benefit of a small class of bankers, while taxing the entire population in a multitude of ways to finance the public subsidy.

There were other ways to attain the same end without taxing the many for the benefit of a few. The U.S. Treasury and the U.S. Fed, both under the Bush administration and the Obama administration discarded these solutions. That’s where the scandal lies. But since it is likely that only a handful of senators and congressmen understand what has happened, I would not be too confident in expecting that there would ever be a public investigation of the scandal, beginning with Congress auditing the Federal Reserve’s subsidized banking loans to large banks and its lack of needed regulatory activities. Kudos, however, to the Manhattan Chief U.S. District Court Judge who has ordered the Fed to make public its lending records.

Similarly, at least, some timid steps are being taken in the U.S. and in Europe to impose some limits or restrictions on the discretionary and exorbitant bankers’ bonuses. This comes a bit late, and we shall see if this is merely some political window-dressing to deflect criticism or if it is a structural step to curb oligopolistic and abusive banking practices.

Rodrigue Tremblay is a Canadian economist who lives in Montreal; he can be reached at: Check Dr. Tremblay's coming book The Code for Global Ethics. Read other articles by Rodrigue, or visit Rodrigue's website.

[Sep 26, 2009] Banking Back From the Brink -

Extending and pretending -- the way banks work with loans on the books.

[Sep 26, 2009] A law to tame wild bankers Paul Collier Comment is free

Bankslaughter n. The crime of driving a bank out of business by making excessively risky investments

The Guardian

Deregulation of the banks was built on two intellectual pillars. One was that regulation was not necessary because banks would self-regulate in order to protect their reputation. Please stop laughing. The other was that regulation would not work because regulators would always be one step behind the bankers. And unfortunately we cannot laugh this one off. Indeed, the technical problems facing regulation are now compounded by political impediments. Green shoots, lobbying by the banks, and turf wars among the regulators have eroded the momentum for action. So if banks cannot effectively be regulated by the authorities, what can be done?

The Turner review came up with two solutions. One is radically to raise the capital requirements of banks so that shareholders have something to lose if management goes wrong. The other is to change incentive payments for managers so bonuses depend on the past three years of performance. The increase in capital requirements makes sense. But the three-year rule is weak. The inherent problem facing shareholders is that incentive payments cannot go negative. However much damage a manager inflicts, wiping out both shareholders and depositors, the consequences cannot be remotely commensurate. As a result, even bonuses with a three-year lag bias the system towards risk-taking. If you thought big bonuses were history you have missed BAB, the new banking mnemonic: yes, Bonuses Are Back.


Collier ignores the fact that it has now been revealed that Wells-Fargo deliberately initiated a scheme to overlend to people with the goal of foreclosure. It wasnt just carelessness. It was deliberate and premeditated policy. What's worse is that Wells Fargo was not alone; it is just the group that has at this time been most investigated. It is likely that all of the major banks were involved in similar scams.

I disagree with Collier's base assumptions. I don't think the reason these people wont be tried and imprisoned is not because of the difficulty of getting a conviction. This may be a factor if a drive to punish fraud were launched. The real problem is that Brown and Obama have no intention of launching such an investigation or taking such action. On the contrary, they are doing their utmost to protect the bankers, and will only occasionally throw the grossest offender, like Madoff, to the wolves.

Obama's justice department has the colossal impudence to expect Americans to believe that Madoff operated entirely alone. They wont act because they know the fraudsters can be numbered in their thousands, and they have a system to protect. They want to restart the same engine that stalled. They arent going to reform anything.

[Sep 26, 2009] Japan Abandons America Columns by the Philadelphia Church of God by Robert Morley

If Japanese stop buying bonds, that's a national catastrophe for the USA.
 September 22, 2009 |

The USS America is sinking—and Japan is getting off while it can.

For over 50 years, one party ruled Japan virtually uninterrupted. During that time, Japan remained a loyal ally and supporter of U.S. policy. This month, a historic event took place.

Japan has new leadership. In a landslide victory, a new party has done the seemingly impossible. A new freshman class of leaders now governs the Land of the Rising Sun. The effects are already rippling across the Pacific toward America.

Yukio Hatoyama is Japan’s new leader. He officially took office last Wednesday, and he is already threatening to split with the United States.

Hatoyama blames America for the global economic crisis and says that the U.S. is responsible for “the destruction of human dignity.” He campaigned on protecting traditional Japanese economic activities and reducing U.S.-led globalization.

During the run-up to the election, Hatoyama’s finance minister told the bbc he was worried about the future value of the dollar, and that if his party were elected in the upcoming national elections, it would refuse to purchase any more U.S. treasuries unless they were denominated in Japanese yen.

Japan is the world’s second-largest economy. It is also America’s second-most-important creditor. The U.S. government owes Japan over $724 billion! The only nation America owes more money to is China ($800 billion). The U.S. also imports $140 billion worth of goods from Japan each year.

If Japan were to follow through with its threat to only lend in yen, the dollar would probably fall hard. What would that mean? America gets more expensive consumer goods, higher unemployment, and currency inflation. If other nations like China follow suit, we would be looking at a currency crisis—Zimbabwe-style.

The new government in Japan has also pledged to diversify its foreign currency reserves away from the dollar. This means that at some point, it will need to dramatically reduce how much money it lends to America. America is planning to borrow record amounts over the next couple of years, so something isn’t adding up here. Where will the money come from?

“The financial crisis has suggested to many that the era of U.S. unilateralism may come to an end,” Hatoyama wrote in an August 26 New York Times article titled “A New Path for Japan.” “It has also raised doubts about the permanence of the dollar as the key global currency.”

But Hatoyama isn’t just charting a separate economic course for Japan. His campaign also promised a more “independent” foreign policy from Washington, and closer relations with Japan’s Asian neighbors.

More alarming for American policymakers, Hatoyama has authorized a wide-ranging review of the U.S. military presence on Japanese soil. He is reexamining the agreement that permits U.S. warships to dock at Japanese ports, and has said Japan should take a second look at why it is spending billions to house and transfer U.S. troops between its islands. Hatoyama has also moved to quickly end Japan’s fueling support for the U.S. naval anti-terrorism efforts in Afghanistan and Pakistan.

On Wednesday, an even bigger torpedo hit. Both U.S. and Japanese officials confirmed that discussions were underway to remove all U.S. fighter aircraft from Japan.

So many alarm bells have been clanging in Washington that the Australian reports the U.S. administration has requested “immediate clarifying discussions” on just how far Japan wants to take the disengagement. But there may not be too much America can do if Japan is intent on reducing America’s presence in Japanese territory. Regarding the U.S.-Japan security relationship, Richard Armitage, former U.S. deputy secretary of state, said: “If the government of Japan asked us to change things, we’d argue, we’d kick and scream, but ultimately we’d have to do it.”

Japan is a major platform for American power projection. Losing it would be devastating to U.S. security.

Japan is America’s most important forward base in the Pacific. It is an unsinkable aircraft carrier from which American task forces can operate to secure the flow of trade and resources across the Pacific.

At a time when China is increasingly challenging American authority in the East and South China Sea, when North Korea is brandishing nuclear weapons, and Islamic terrorism is on the upswing in the Philippines and Southeast Asia, America can ill afford to lose Japanese military and logistical support.

But it is losing it.

In his New York Times article, Prime Minister Hatoyama asked, “How should Japan maintain its political and economic independence and protect its national interest when caught between the United States, which is fighting to retain its position as the world’s dominant power, and China, which is seeking ways to become dominant?” (emphasis mine throughout).

Being allied with America has become a problem for Japan.

The new prime minister is no doubt asking himself: How do I protect Japan’s interests? The distant Americans sit 5,500 miles across the Pacific Ocean. One billion Chinese could fly to Tokyo for breakfast, Taiwan for lunch, and back home for kung pao dinner before America’s fastest jets could make it much past Hawaii.

In the same article, Hatoyama answered his own question: “[W]e must not forget our identity as a nation located in Asia,” he said. “I believe that the East Asian region, which is showing increasing vitality, must be recognized as Japan’s basic sphere of being.”

“I also feel that as a result of the failure of the Iraq war and the financial crisis, the era of U.S.-led globalism is coming to an end ….” Hatoyama even said that Japan must “spare no effort to build the permanent security frameworks” essential to creating a new anti-dollar regional Asian currency shared by China, Japan, South Korea, Taiwan and Hong Kong.

Hatoyama doesn’t just think America’s economy and power are fading fast, he’s publishing it in the New York Times! He sees Japan’s future as being with Asia. And he’s right.

There is a bold movement occurring in Asia. Old animosities are being forgotten, or resolved. “I believe that regional integration and collective security is the path we should follow,” Hatoyama reiterated. Only “by moving toward greater integration” can Asia’s problems be solved, he said.

This movement toward greater Asian cooperation will soon speed up drastically. Not only do the facts prove it, biblical prophecy forecasts it. A major military alliance between Russia, China and Japan is about to be locked in. (Read about this specific prophecy in Russia and China in Prophecy.)

Prime Minister Hatoyama may be the most pro-Asian Japanese prime minister yet. He has pledged to ignore Japan’s World War ii shrine that honors the country’s war dead, to avoid offending Korea. His only son is attending a prestigious Russian engineering university. And he is the first Japanese prime minister to receive election coverage by any Chinese print media—and it was front-page news in the Communist Party’s People’s Daily. Also, for the first time, a Chinese television station provided live coverage of the election that saw Hatoyama take power.

Japan’s new policy is focused on Asia—and winning friends on the Asian continent.

America is about to lose its Japanese ally. “The U.S. has been critical of new trends in Japan, but we are not a colony of Washington and we should be able to say what we want,” said Makoto Watanabe, a professor of media and communication at Hokkaido Bunkyo University in Japan. “[W]hile under previous governments Japan had become a yes-man to the U.S., this suggests to me that healthy change is taking place.”

But that change will not be healthy—especially for America.

The Bible describes a time when America will be besieged by its former trade partners. This siege, warned about in Deuteronomy 28:52, is both economic and military in nature. “And he shall besiege thee in all thy gates, until thy high and fenced walls come down, wherein thou trustedst, throughout all thy land: and he shall besiege thee in all thy gates throughout all thy land, which the Lord thy God hath given thee.”

America is about to be blockaded. For this to occur, Japan would need to take a radical turn from its recent historical political and economic persuasions.

It is radically turning. Today we are witnessing a dramatic fulfillment of this prophecy. America is about to become perilously isolated. The nation with the single largest merchant fleet in the world will turn its back on an economically waterlogged America. And America, without its most important military bases in Asia, will be one step closer to being pushed right out of the Asia Pacific altogether.

America’s ship of state is sinking. Japan’s lifeboat has already left.

[Sep 26, 2009] Obama economic policy

As a person who voted for Mr. Obama for President, you can’t imagine how disappointed–no, disgusted–I am with his policies since he was elected.

He is ALL TALK, and NO WALK. In fact, his smiling face is all talk all day, everyday–incessant and insincere. Yet he has not delivered on a single “change you can believe in” promise he made during his campaign.

He has folded (like a limp shirt) to financial lobbies (including his in-house lobby, Larry Summers) on critical economic matters, he doesn’t know what he wants in the way of healthcare insurance–as long as he can put his name on a piece of legislation, and his backpedaling so fast on his commitment to Afghanistan (”the good war”) that I’m surprised his own feet haven’t hit him in the face.

Next time, I’ll just vote for a Republican, who I know will be a supply-side booster of big business, further cut taxes while increasing spending–mostly needlessly on defense (& adding to our debt), and will screw the little guy and less fortunate while smiling ear to ear and saying, “Ain’t America great–the land of opportunity!” At least I’ll know it’s a lie from the getgo. So much for Obama’s hypocrisy!


Your comment very much reminds me of something Martin Luther King once wrote:

It may well be that the greatest tragedy of this period of social transition is not the glaring noisiness of the so-called bad people, but the appalling silence of the so-called good people. It may be that our generation will have to repent not only for the diabolical actions and vitriolic words of the children of darkness, but also for the crippling fears and tragic apathy of the children of light.

with all due respect, how could have *not* seen this coming…?
Anonymous Jones
I would like to leave a calm and measured response to Lilguy, but the sentiment behind his comment is so infuriating and disgusting that I simply cannot. What semi-experienced human being in his right mind should have rightfully expected Obama to be a savior? You honestly expected a politician to sacrifice himself for *your* good? Does this not seem idiotic when I phrase it this way?

Listen, don’t expect anyone to sacrifice himself or herself for you. It’s not a rational expectation. This is the perhaps the most insidious problem with our society (our “obese and happy” society): the mass and contradictory delusion that each individual has that he or she can have exactly the world he or she wants without doing any work or making any sacrifice to make it happen. I am surrounded by these people every day, and it sickens me.

You expect Obama to effect change when no one in this country is really sacrificing or clamoring for change? The only people in this country making noise are the birthers and the town hall screamers. Where are the protests? Where are the marches from Selma? They don’t exist. Where are the sit-ins and the Kent State shootings? They don’t exist. Where are the people actually *doing* something to demand financial reform? They don’t exist. All we have are some people writing blog posts and other people leaving comments to that post. Wow. That’s powerful. I would be really frightened right now if I were in power.

And your so-elegant-solution to this problem is to switch parties? Do you not realize that this is exactly how the oligarchs want you to act? Switch parties every few terms but don’t actually do something to change the system?

Great. Move from the party that is making things worse to the party that is making things worse more rapidly. And then next decade, switch back. Problem solved!

Obama is not going to sacrifice his own career for your good. Pretty much no politician is going to do something like that. He’s working for the people who are going to advance his career: the oligarchs. That’s just the way it is. Get used to it. No one is going to make the world the way you want it unless you *force* them to do so.

I’m sorry you feel cheated, and I’m sorry you’re hurt. But for just a few moments, examine the possibility that that’s on *you* rather than blaming someone else.

If all you do is go into a voting booth every few years, nothing will change. So honestly, with all due respect, either do something real or stop complaining.

[Sep 26, 2009] Obama caves to pressure on consumer financial protection

If Obama is like Clinton is just a person without any real Party affiliation who just cling to Presidency that changes substantially the prognosis for the financial sector and the economy as a whole.   "Obama is increasingly looking like a guy who can’t crack heads and get things done -- a well-meaning, well-spoken amateur who is in over his head. Such men are oft times dangerous."

naked capitalism

I said my piece in June. Serious reform is not going to be forthcoming – not on healthcare or in financial services. Am I wrong here?  After all, Paul Volcker is singing another tune. Please tell me how you see this.


The evidence remains at 100% in one direction: Any attempts at piecemeal “reform” will be gutted or otherwise fail completely. The existing political class is irredeemably corrupted and cowardly. Any attempts at Change through that political class are foredoomed. Anyone who doesn’t understand this is by now willfully blindered.

Gonzalo Lira:

Obama is like Clinton: He’s more interested in being popular and conserving his political capital than in actually doing what’s necessary, or what’s right.

Ironically, the imbecile Bush understood in a way Obama does not --  that you get political capital by spending it — which is why W. was able to pursue so many (misguided) policies successfully.

The Obama presidency is shaping up to be like Jimmy Carter’s.

But What do I Know? :

I’m more salty than saltwater, I think :>) For the record, I think that Steve Keen is on to something with his suggestion that both the saltwater and freshwater people are wrong regarding the creation of money–that loans are demanded and made and then money is created to provide them (I hope I’m not mischaracterising.)

My point is not so much that “the government” should or should not do something concerning the economy–merely pointing out that the totemistic belief that recession is followed by expansion prevents those in charge from taking the actions that would allow recession to be followed by meaningful expansion. The business cycle doesn’t just happen on its own; it occurs because economic actors do things that seem right at the time without reference to some longer frame of “history.” For instance, part of the destructive part of the business cycle is the elimination of some producers and the dimunition of competition, which allows for the remaining producers to recover and thrive. If, however, one takes the view that “things will get better naturally” and the productive capacity and ownership is not culled, then no one will thrive but rather just exist in some kind of twilight stasis (see Japan). So the government intervention which is aimed at staving off price declines is also going to prevent a healthy rebound.

To put it in a sports metaphor–there won’t be a rebound if the shooter doesn’t fail.

I hope I’m not being callous about the destruction that failure causes–I’m not even going to make a sweeping judgment that letting things fail is a better path. All I am saying is that you can’t expect a vigorous rebound without a nasty fall.

I agree that reform does not necessarily have anything to do with the business cycle. However, in our government today, no substantive changes are made without the impetus of a crisis (real or manufactured). That is why, in practical terms, real reform will not occur without a period of crisis. I believe the AA people call it hitting bottom.


Then I think you would also support the notion that real reform seldom (never?) originates in government at all. Rather it comes from the grassroots; individuals and businesses that see they are being destroyed, and turn to government for relief or for broad protections against institutionalized theft of various kinds.

So failure in your usage is felt far down on the ladder, and the pain has to make its way back up to reach the ears of those who run things.

Now let me ask you something; right now (since maybe 1995) who is running things? It would not be remotely cynical to say that the financial giants are running things. Does anyone seriously think they give a fetid dingo kidney about pain below? Or will lend an ear?

Thus I suspect the normal cycle of fixing things via reform is dead and buried. I cannot think of even a complicated way (forget anything simple at this point) to reverse this. It remains for some sort of apocalyptic event to come along and essentially wipe out the entire structure to level (literally and figuratively) the field enough for anything meaningful to proceed from this point.

Democracy is vulnerable to being taken over by oligarchs. Its natural defense against this is self-immolation.

[Sep 26, 2009] The ‘QE’ stockmarket effect by Izabella Kaminska

It looks like QE is an indirect cause of equities rally.
May 07, 2009 | FT Alphaville

On paper, the Fed and Bank of England initiated quantitative easing policies to try and keep long-term yields down and to boost the level of aggregate banking sector reserves so as to encourage bank lending. So far, QE appears to be having variable success in achieving these two objectives.

As Stephen Lewis at Monument Securities writes on Thursday, in the UK the 10-year benchmark yield has now risen above the level where it stood when QE was announced. On the banking sector reserves front, meanwhile, there isn’t really enough monetary data for the period since QE began to judge.

But, as  Lewis also points out, QE may be having another, perhaps less expected, but nonetheless still very welcome effect - on equities.  As he explains (our emphasis):

Possibly, the chief impact of QE will come through the equity market.  If ‘other financial institutions’ see their bank deposits increasing, they may be inclined to commit some of these funds to equity investment. 

Since QE was initiated, the UK equity market has enjoyed a sharp rally.  The Federal Reserve’s purchases of Treasuries may be having a similar effect on US equities.  If equity prices are rising, and equity finance is becoming cheaper for companies, this would be a welcome result for UK policymakers. The MPC’s question regarding what happens to capital market values when QE ceases might still be pertinent.  However, it might properly relate to equity prices rather than to gilt yields.  

[Sep 25, 2009] This bank-engineered equity rally by Tracy Alloway

QE instigated rally or classic "pump and dump" ?  The increase in T1 capital has probably fed through to the increased holding of equities. They are complimentary, not contradictory.


Sep 24, 2009 | FT Alphaville

...banks may have been using their bailout money — and no doubt some of their quantitative easing-gained liquidity — to buy equities, thereby fuelling the summer rally. The danger, they say, is that this is a relatively “thin” rally — and one which is vulnerable if banks suddenly decide to pull out and crystallise their gains.

... ... ...

“The banks have every right to use the money they borrow in any way they choose. But it would be good to know how much of the bailout money has been used to buy equities. Clearly, someone has been buying, and given that it hasn’t been ordinary investors and the institutions that does just leave the banks.

The banks’ balance sheets will certainly have benefited from their equity holdings. If they could sell these investments into a rising market then they would be in a better position to repay their debts. But there will be a problem if the public and institutions do not join the rally and the banks have to sell equities into a vacuum.”

As Moonraker notes at the start of the press release, there will also be a problem if small and/or institutional investors join the rally, only to find banks suddenly retreat from the stock market — a possibility which bank-slayer analyst Meredith Whitney warned of earlier this year.

We should also note that much of that bailout money has not necessarily been used to buy equities, but to boost banks’ capital — core Tier 1, for instance, is now at a five year high according to Barclays Capital.

Nevertheless, as Moonraker highlight, questions will remain about just who is buying this rally and by how much?


wasn't pension fund reflation part of the plan - turning it into a public-private partnership engineered rally of sorts following a ppp engineered crash - not that either party would the means or requirement to share information about what they are doing.

"...Two bills – one pending in the House and another in the Senate – would require the collection and funneling of TARP funding data into a single database to track where the money goes. Many say [TARP] tracking has been woefully inadequate..."

"...(TARP).. has been used to bail out banks and other financial institutions... which laid off tech workers while it paid bonuses ..."

"..."True transparency and true accountability require the integration of continuous data from multiple sources into a centralized, immediately accessible database... This type of technology is what the best companies in every industry, including financial institutions, have been embracing for years..."..."

Tracy Alloway:

From March:

"Pushing more reserves into the system (via QE) therefore is meant to have two effects: Firstly, it encourages gilt holders to try and offload the cash they receive from selling gilts, pushing up the prices of other assets. Secondly it encourages banks to lend as they try to re-establish their target ratio of reserves to their balance sheet."

Also, as I noted in my first line, this is the first investment "firm" I've seen that's so explicitly said this. If other people know of others do share.

@Lemmy - I'm sure that's right to an extent, but banks have also been boosting their capital by buying back their debt, etc. which is a bit different.


I don't really understand the penultimate paragraph. The increase in T1 capital has probably fed through to the increased holding of equities. They are complimentary, not contradictory.


Seems to me lots of people have suspicions about prop desks, but I suspect they are only part of the story.

Correlations between equities and treasuries suggest to me a big part of the rally is funded through US buying of agency debt and I would also look at bank lending in China. That prop desks have taken advantage of this seems highly likely.

Certain HFT strategies and day trading have combined with these to over emphasize equity movements. Can we expect currency carry trades to pick up where QE leaves of is the question?

[Sep 25, 2009] Following the Footsteps of Japan

If Bernanke was such as wizard, why is the US in such miserable shape?


well it is probably harder to see timmy or bernie posing as a pimp or a hooker. OTOH, if they just went in as hookers, they'd at least be shown professional peer courtesy :)


Faber doesn't even really agree that Japan has been going through serious deflation. In his latest interview , he says that equity prices, golf club memberships and real estate prices went down in Japan after 1989 but that it still costs $250 to get a taxi from the airport even today. He says "we did not have across-the-board consumer price declines in Japan" and that deflation has resulted in only 1 or 2% declines in prices.

His argument seems to be that Japanese inflating had no effect other than to add liquidity. As today in the U.S., where attempts at inflating have resulted in speculative activities in the stock market which do not generate any real economic improvement or jobs.

The inflationists have lately been saying that a currency decline, resulting in higher consumer prices, equals "inflation".


Most gold stocks are junk and little better than REITs. They dilute like crazy, stuff money into the pockets of insiders, and somehow make the same amount of money year after year (if they make any money) no matter what the price of gold.

A gold mine is hole in the ground with a liar at the entrance.

Leo Chen:

Once upon a time, we wanted to be The Best In The World. And after WWII, we did become The Best. We were also The Richest.

Then some unfortunate things happened; like we invested our Youth and our Treasury in the Vietnam War. We discovered that we were seriously constrained by the availability of oil. We went for EZ Credit in a big, big way.

We decoupled being Being Rich from Being The Best. And that was a fatal -- not just a serious -- mistake.

[Sep 24, 2009] Trumka, A.F.L.-C.I.O. Chief, Leads Rally Against Wall Street -

Mr. Trumka repeated his view that the nation was composed of two economies: the financial economy and the real economy. “Our real economy needs a financial system that will support it, not a high-risk system that only supports itself and the wiliest speculators,” he said. “That means strict oversight of banks and other financial institutions that nearly drove our economy off a cliff.”

He likened the financial system to a public trust, resembling an electric power grid that the overall economy needed to work well.

“It can’t be left unregulated,” he said, “because people get hurt and the system crashes.”

“We’re advocating for new regulations to make sure the financial sector is the servant to the real economy, and not its master,” he said.

[Sep 24, 2009] Britain’s Top Financial Regulator Takes On Banks

Adair Turner’s central thesis is that banking has assumed an outsize role in economic life... It's time "to demand more accountability from our financial system — from Wall Street — from Masters of the Universe who speculate in phony instruments rather than invest in the real economy.”
Banks “need to be willing, like the regulator, to recognize that there are some profitable activities so unlikely to have a social benefit, direct or indirect, that they should voluntarily walk away from them,” Mr. Turner told the group. When the dinner broke up and the crowd spilled out into the foyer, many bankers shook their heads.

Mr. Turner’s critique of modern finance is turning heads on both sides of the Atlantic. His central thesis — that banking has assumed an outsize role in economic life — is anathema to many of his establishment peers. And his proposed tax, known as a “Tobin tax,” after James Tobin, the economist, strikes many of them as downright dangerous. Such a tax would siphon jobs and business from the City, his detractors say.

Labour and Conservative politicians seem to have finally found a point on which they agree: The City is vital to Britain, and imposing the kind of tax that Mr. Turner suggests would threaten London’s status as a premier financial center.

But to Mr. Turner, the point has been less about his proposal — a pragmatist, he realizes that there is little chance such a tax would win international support — than the reaction to it. The uproar shows that the “quasi-religious” dogma of finance — that the markets are always right and that governments should let money flow freely around the world — is as ingrained as ever, he said. But now more than ever, given the events of the past year, regulators must challenge such notions, he said.

“We have begun to accept this idea that liquidity is the new God,” Mr. Turner said in an interview earlier this month.

“The ideology of efficient markets became deeply embedded within the regulatory community,” he continued. “And if you are of the belief that we have to challenge this, then you can’t help not to make speeches about it.”

[Sep 23, 2009] FOMC Statement- Slow MBS Purchases

The key question: "Can you fool enough of the people enough of the time to get to where you want the system to go ?"


Well, that was a huge surprise. Should be good for +200 on the Dow.


Nemo, why do you hate America?

Fed statements are like Viagra to gold.

They Shoot Horses Dont They:

The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.


 "After the collapse in several years, will condoms be a tradeable commodity?"

New or used?


From Faber's blog:

"The future will be a total disaster, with a collapse of our capitalistic system as we know it today, wars, massive government debt defaults and the impoverishment of large segments of Western society,"

Marc Faber, The Gloom, Boom & Doom Report, September 2009


Businesses are still cutting back on fixed investment and staffing, though at a slower pace; they continue to make progress in bringing inventory stocks into better alignment with sales.

Seems odd, what with the sole economic recovery story relying on a massive production gain to increase absolute inventories

some investor guy:

NEW YORK, Sept 23 (Reuters) - The head of the International Monetary Fund on Wednesday warned social instability, even war, would increase as unemployment and hardship rises in countries still reeling from the global economic crisis."
IMF chief warns of increased social instability


Hi doomers! Just back from Australia-- economic conditions could not be more different from USA. Recession very mild there. Necessities very expensive (after adjusting for USD drop)-- food, clothing, housing all very high. Wages seem higher, too. It's like a different world.

Black Star Ranch:

 .......the Committee anticipates that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will support a strengthening of economic growth and a gradual return to higher levels of resource utilization in a context of price stability

.....They are idiots. Sorry, I call BullShit! None of them have stepped into a supermarket and looked into the eyes of the shoppers in at least 10+ years. They are living the life of the ignorant insulated elite. I have an "Ex" like that - high GS rated over 20-year careerist who wouldn't know a bargain in canned chili or top ramon to save her soul.

Where do they think this so-called recovery is coming from. Is everyone all of a sudden going to hire a pool service? Is everyone going to buy a dozen more cellphones? Is everyone going to buy three new cars? J6P has NO MONEY!

Wake the Hell Up, Bureaucrats - We DON'T NEED Credit! We DON'T NEED any more stinking loans - Most just need a damned job producing/making something - oh wait.....we don't do that here anymore either.........I forgot, sorry.........disregard what I just said.....It's hopeless!


Black Star Ranch (profile) wrote on Wed, 9/23/2009 - 2:14 pm

Wake the Hell Up, Bureaucrats - We DON'T NEED Credit! We DON'T NEED any more stinking loans - Most just need a damned job producing/making something - oh wait.....we don't do that here anymore either.........I forgot, sorry.........disregard what I just said.....It's hopeless!

The bitter irony is that while we DO NOT need more loans, we DO need the high-paying, specialized jobs they produce. If not for the fact that our country is beyond flat-ass broke, we could emerge as the investment banker of the world... but we have no capital and bought geegaws and status symbols with our surplus instead. Karma's a bitch, and if she's not someone else will take the job.

the rat catcher:

"Growth" at what price? This is not the type of growth that is good for the US in the short term and, of course, not in the long term since it is growth by government spending. It's just a new twist on the SOS Ponzi theme "spending our way to prosperity". You can fool some of the people all the time, but not all of the people all the time.

Juvenal Delinquent:

It's interesting...

The high and mighty financially are going to go from being the cat's meow, to being pariahs in just a few years time.

And because they were always oh so visible, everybody knows what they look like~

Can't run, can't hide.


Mercedes-Benz Financial is offering a $1.08 billion prime retail auto loan-backed deal, according to a person familiar with the matter.

The deal, called MBART 2009-1, has four tranches and will be eligible for cheap funding under the Federal Reserve's Term Asset-Backed Securities Loan Facility, or TALF.

The central bank's program is credited with restarting the securitization market, where consumer loan-backed deals are bundled into bonds that are sold to investors, helping ease the flow of credit in the economy and lowering the cost of borrowing for consumers.

Joint leads on the deal are JPMorgan and Barclays Capital. *

Fed seems to think we all need a new S-Class, Jamie does too! it's all good.

Juvenal Delinquent:

The last batch of high-paying corporate jobs are working for the arms merchants, and it increasingly looks like we are going to say adios to Afghanistan sooner than later, which means the MIC has to downsize as well...

[Sep 23, 2009] Assessing the Odds of a Double Dip Recession

"global economy seems to be stabilizing at a level that is 'unacceptably poor' "
September 18, 2009 | Mish's Global Economic Trend Analysis

Unemployment in the United States will peak only in early 2011 because of a slow and painful recovery from the global economic crisis, Nobel Prize-winning economist Paul Krugman said on Wednesday. He said the global economy seems to be stabilizing at a level that is "unacceptably poor" and added it is possible that the recession will be a double-dip one.

[Sep 23, 2009] Unemployment rate and Fed rate hikes.

Of course real unemployment is already approaching 20%.
Calculated Risk

Unless inflation picks up significantly (unlikely in the near term with so much slack in the system), it is unlikely that the Fed will increase the Fed's Fund rate until sometime after the unemployment rate peaks.

Following the peak unemployment rate in 2003 of 6.3%, the Fed waited a year to raise rates. The unemployment rate had fallen to 5.6% in June 2004 before the Fed raised rates.

Although there are other considerations, since the unemployment rate will probably continue to increase into 2010, I don't expect the Fed to raise rates until late in 2010 at the earliest - and more likely sometime in 2011.

[Sep 23, 2009] "Buy The Dip" Mentality Fully Entrenched

During sucker rally, stocks are just are moving higher and higher in sucker chain. The guy who hold them at the end (just before the crush) is the ultimate sucker ;-). "But otherwise the message from the insiders is rather sobering: They are selling a whole lot more of their companies' stock than they are buying"

Sideline Cash Myth

Anyone advising clients to "buy the dip" based on sideline cash shows a fundamental lack of knowledge about how markets work.

For every buyer of securities there is a seller except at IPO time, secondary offerings, etc. Thus, it is virtually impossible for money to come into the market in normal day-to-day trading transactions.

For example: If one firm invests $100,000 in equities, then another firm will be selling $100,000 in securities. The end result of the transaction is "sideline cash" moves from firm A to firm B.

Furthermore, because of monetary printing, one should expect the amount of "sideline cash" to rise over time. Sideline cash is higher than it was 10 years ago and will be higher 10 years from now barring a huge number of IPOs or secondary offerings that would suck up some of that sideline cash or a period of heavy monetary draining by the Fed.

... ... ...

Insiders Sell Hand Over Fist

Meanwhile, as retail investors and fund managers chase a rally running on extreme sentiment, Corporate insiders continue to increase the pace of their selling.:

The bravest face you can put on corporate-insider behavior right now is to point out that they're often early -- anticipating market moves by as much as 12 months in advance.

But otherwise the message from the insiders is rather sobering: They are selling a whole lot more of their companies' stock than they are buying. The net difference is even larger than it was two months ago, when I noted that insiders were already selling at a greater pace than at any time since the top of the bull market in the fall of 2007. [[See Insiders Are Selling - July 28, 2009]

Consider the latest data from the Vickers Weekly Insider Report, published by Argus Research. For the week ended last Friday, according to Vickers, insiders sold 6.31 shares for every one than they bought. The comparable ratio two months ago was 4.16-to-1, and at the March lows the ratio was 0.34-to-1.

As Vickers editor David Coleman puts it in the latest issue of his newsletter: "Given the dramatic decline in our sell/buy ratios over a relatively short period of time and the robust rally we have seen in the broad market averages, we expect the overall markets to trade flat to downward in the intermediate term -- and with increasing volatility. Overall insider sentiment is bearish by nearly all metrics we track."

[Sep 23, 2009] The Pinocchio Recovery

Market Talk

I can see this rally running through October, because the Fed is still underwriting the stock market, through the bond-buying programs, and money managers are still chasing returns, and likely will through their October fiscal years end. The Fed will still be buying MBS through year-end, but winding it down.

Washington’s hope is that the stimulus will eventually give way to a natural momentum that will pull the economy out of recession (and no matter what the President or Fed Chairman or anybody says, right now at least, we are officially still in a recession.)

But if that momentum doesn’t build on its own, if those props disappear, and at the same time holiday sales come in weak, well, that could spell trouble. Another thing to keep an eye on, of course, will be corporate profits. They should start looking better given easy comparisons to last year, but the market is building in a lot of upside there.

But maybe it’s just me.

Selected comments

dean jackson

Basically agree. However, the level of inventory is not the issue so much as the ratio of inventory to sales also published by Census. It has been coming down although not yet to pre-recession levels. And if we are importing everything from underwear to IPods, I not sure how restocking boost the economy. Having said that, imports are slow. This website does a nice job of showing what is coming through the ports of LA and Long Beach. It is back to 2003 levels for imports.

[Sep 22, 2009] Prepare for a wild ride - the WWW-shaped economic recovery

FT Alphaville

From Stuart Thomson, economist at Ignis Asset Management:

“This week’s G20 meeting will maintain the flood of public sector liquidity into the global markets.  Warren Buffett maintains that it is only when the tide goes out do you find out who isn’t wearing swimming trunks. G20 liquidity has provided Speedos for all and the rising tide will lift all asset markets over the next four to six months.  However the aging industrialised economies have a massive overhang of consumer and financial sector debt that will once again be revealed once this tide of liquidity recedes in the New Year, which will leave their economies floundering in the shallows.

“There are two major implications for this rising liquidity tide. First, consensus expectations are under-estimating global growth potential over the next couple of quarters. Stimulus will lift US activity well beyond consensus expectations in the third quarter and this momentum is likely to carry over into fourth and first quarter growth. This is the sweet spot for the global economy, but heavy lifting of the public sector multipliers cannot be maintained indefinitely. The second quarter US flow of funds data provided a stark reminder of the scale of consumer and banking deleveraging that must be undertaken over the next few years.

Higher than expected near-term growth does not eliminate the WWW-shaped outlook for the global economy over the next decade, it merely emphasises that the Great Moderation is history and that economic and financial market volatility will remain at excessive levels over this period.  This makes liquidity-driven strategies over the next six months equivalent to picking up tacks ahead of the steam roller. The key factors for this week is how tough G20 leaders are prepared to be on banking capital requirements, more better-than- expected economic data and the temporary risks to overbought risk appetite.”

[Sep 21, 2009] The Real Problem with the Economy Is That It Doesn't Need You Anymore by Hank Williams

Oil depletion might take care of that problem: too many people too few jobs, at lease parcially...
Sep 21, 2009 | Yahoo! Finance(The Business Insider)

Roughly speaking the world's economy has always worked as a giant pass-along-game between the planet’s citizens. Person A needed stuff from person B and person B needed stuff from person C and person C needed stuff from person A. So everyone needed everybody. It has been a kind of giant circle of needs.

But as a smaller and smaller number of people are needed to make the basic things that people need for survival, from food to energy, to clothing and housing, the less likely it is that some people will be needed at all.

When you read in the press the oft-quoted concept that “those jobs aren’t coming back” this “reduction of need” is what underlies all of it. Technology has reduced the need for labor. And the labor that *is* needed can’t be done in more developed nations because there are people elsewhere who will happily provide that labor less expensively.

In the long term, technology is almost certainly the solution to the problem. When we create devices that individuals will be able to own that will be able to produce everything that we need, the solution will be at hand. This is *not* science fiction. We are starting to see that happen with energy with things like rooftop solar panels and less expensive wind turbines. We are nowhere near where we need to be, but it is obvious that eventually everyone will be able to produce his or her own energy.

The same will be true for clothing, where personal devices will be able to make our clothing in our homes on demand. Food will be commoditized in a similar way, making it possible to have the basic necessities of life with a few low cost source materials.

The problem is that we are in this awful in-between phase of our planet's productivity curve. Technology has vastly reduced the number of workers and resources that are required to make what the planet needs. This means that a small number of people, the people in control of the creation of goods, get the benefit of the increased productivity. When we get to the end of this curve and everyone can, in essence, be their own manufacturer, things will be good again. But until we can ride this curve to its natural stopping point, there will be much suffering, as the jobs that technology kills are not replaced.

The political implications of this are staggering. Clearly, more and more jobs will move from more developed nations to countries like China, and it is difficult to see how, as this process continues, the United States retains its leadership position. In fact, it seems entirely possible that the U.S. will exchange places with less well-developed nations. Yes, there will certainly be fabulously wealthy people in the US, because many US companies will own these highly productive businesses. Unfortunately, that wealth will be held by a very small number of people. And their operations will need to employ very few people.

In short you will have a few very wealthy folks, and a much larger majority that will just not be needed for the most important things that the country needs to do.

I don’t know what the short-term solution to this problem is. In fact, I fear there may not be one. But it is clear that what I am describing has already started and there is little we can do to stop it. GDP will increase as demand for labor **decreases**! How is that for the ultimate economist's oxymoron?

[Sep 22, 2009]  Deep Market Thoughts – Ready…Aim…Chase!!

Howard Lindzon

If you are managing your own money or have a broker managing it for you, it’s the one piece of advice worth sharing confidently…don’t chase.

The stock market is an opportunity machine. In March, few thought the market would see ONE up day. I read somewhere that we had an all-time record of 8-9 up days in a row for the S&P at one point last week. You get the drift…

The stock setups from the long side are thick. It looks like they will remain that way for a while – so don’t chase.

The armchair economists are talking V-Shape, U shaped, Double dip…asshats all of them. None of them warned of the cliff shaped drop we saw in the market and if they did, they were 4 years early. The few that timed it, missed the 60 percent rally. My pal Joe had a great post last week called ‘Bubblicious’.

The economists and fear mongers don’t see the markets for the opportunity machine it is. They don’t see the 5-10,000 ideas a day being passed around on StockTwits

[Sep 22, 2009] HSBC bids farewell to dollar supremacy - Telegraph

[Sep 21, 2009] More Taxes, Anyone?

Like organized crime and prostitution financial sector is probably unavoidable ;-)

How can anyone justify the immense expenditure of public money to support the continued existence of a financial system that is based on little more than gambling?

The Cynical Economist:
Danish culture and society is very different than ours in US. The hard life surviving the natures fury in that part of the world made them bond and carry for each other. Here we have the law of the jungle. The most corrupt you are the bigger your chances to survive.

We need to change our culture of corruption and go back of being a republic again. Society choosing representatives from the people for the people

What we have now is oligarchy. Those oligarchs would make everything possible to stay on top of us even by oppressing us. Throughout history oligarchies have been tyrannical , being completely reliant on public servitude to exist. Don't we see it right now?

Until we change the system back, the amount of taxes you pay would not matter. The oligarchs will always pocket the money, without any positive results for the society as a whole.
Think who benefited from the bailout and the stimulus money? I would love to be a bank owner or owner of road re pavement company with ties to politicians.
Thats one of the reasons the bailouts and stimulus don't work.

Nothing has changed in a positive way from a year. Politicians and corrupt businesses are swapping money from each others pockets on the expense of the middle class

[Sep 21, 2009] Federal Reserve Accounts For 50% Of Q2 Treasury Purchases

The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed's $164 billion in Q2 Treasury purchasesdwarfs the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. In fact, the Fed was a greater factor in UST demand than all three traditional players combined: Foreigners, Households and Primary Dealers, which amounted to a $158 billion in net Q2 purchases.

[Sep 21, 2009] Financial Sense Newshour Expert ~ Marc Faber ~ 02-14-2009Another Case for Inflation

[Sep 21, 2009] Market Observation - Brian Pretti 09.18.2009

September 18, 2009 |

At least as of now, the numbers above tell us to work under the "jobless recovery" scenario when anticipating both economic and financial market themes and outcomes ahead. I’ll leave you with one last tangential comment to ponder that is really fodder for another discussion. I’ve seen many a Street “seer” these days become convinced a “jobless recovery” does indeed lie ahead. But what seems striking is the complacency with which this conclusion is being drawn and used to support investment conclusions. As I see it, the “jobless recovery” post the 2001 recession had one key characteristic – an incredible expansion in household leverage. It was this almost maniacal leverage explosion that both compensated for lack of job growth and drove the economic recovery itself. So if we look ahead and assume a jobless outcome in current post recession experience, will households lever up again to compensate for lack of jobs and wage growth?

Not a chance. Not this time. It’s just a good thing the government will do it for them, right? That is a good thing, isn’t it?

[Sep 21, 2009] San Francisco $30 Billion Option ARM Time Bomb

Calculated Risk

From Carolyn Said at the San Francisco Chronicle: $30 billion home loan time bomb set for 2010

"People think option ARMs (will be) a national crisis," he said. "That's not really true. It's just in higher-cost areas like California where you see their prevalence."
First American shows more than 54,000 option ARMs issued here with a value of about $30.9 billion. Fitch shows more than 47,000 option ARMs here with a value of about $28 billion. Both say their data underestimate the totals.
Fitch said 94 percent of borrowers elected to make minimum payments only.
Unlike subprime loans, which were more commonly used for entry-level homes, option ARMs started out with high balances. In the five-county San Francisco area, option ARMs average about $584,000 and were used to buy homes averaging $823,000, according to an analysis of First American data.

That means they'll spawn foreclosures among upper-end homes.

Option ARMs were used as affordability products in mid-to-high priced areas of bubble states like California. Now most of the borrowers are significantly underwater, and this will lead to more foreclosures, and falling prices, in the mid-to-high end areas.

Juvenal Delinquent:

It's interesting how we value money.

8 years ago when Enron ripped off California to the tune of $30 Billion, it seemed like all the money in the world, but i'm kind of underwhelmed by that amount today.

[Sep 21, 2009] Lessons to Be Learned From Dow 36,000 By Barry Ritholtz

September 20th, 2009 | The Big Picture

“This book will convince you of the single most important fact about stocks at the dawn of the twenty-first century: They are cheap….If you are worried about missing the market’s big move upward, you will discover that it is not too late. Stocks are now in the midst of a one-time-only rise to much higher ground–to the neighborhood of 36,000 on the Dow Jones industrial average.”

-Glassman and Hassett, introduction, Dow 36,000

Call it the audacity of cluelessness: Let us congratulate James K. Glassman and Kevin Hassett, the authors of the incredibly money losing advice in their book Dow 36,000, on their 10 year anniversary.

But rather than merely engage in schadenfreude, let’s see what lessons we can learn from their errors. Here is what I can deduce as valuable lessons from the foolishness in their book:

1. Every Bull market is followed by a Bear market.

2. Buy & Hold is fine during a secular bull market; it is ruinous during a secular bear market;

3. Returns are a function of Risk: The greater return you seek, the more risk you must be willing to accept;

4. Valuation matters a great deal;

5. “Risk” as it is defined means that sometimes, you lose. Big.

6. The business cycle still exists, and recessions will occur regularly;

7. Markets are subject to bouts of emotional extremes. They are after all, just crowds of humans, where at times logic does not prevail.

8. Capital preservation is just as important as performance. Returns become irrelevant if during the inevitable downturn you lose all your money.

9. Extrapolating the current trend to infinity (or zero) is foolhardy;

10. Politics and investing make for terrible bedfellows.

There are always lessons to be learned from each turn of the wheel in the market. I find its much less expensive to learn them from other people’s mistakes, rather than my own . . .

Barry Ritholtz:

Perhaps even more astonishing is that these two authors continue to work in fields that rely on their judgment and analytical abilities:

Glassman served in the Bush administration as undersecretary of state for public diplomacy, “leading U.S. efforts against terrorist ideologies.” (That ought to help you sleep at night).

And Hassett still dispenses money-losing advice at, where his political views tinge everything he writes with a sublime absurdity. Hassett is currently director of economic policy studies at AEI, so you can pretty much toss out anything those guys say about the economy.

Hassett was also John McCain’s chief economic adviser in the 2000 presidential primaries, and subsequently served as an economic adviser to the 2004 Bush campaign, and to the 2008 McCain campaign. (Perhaps this helps to explain Bush’s economic performance).

Bruce in Tn:

11. Investing depends on liquidity. When liquidity starts to dry up globally, it is time to head for the exits. Likewise, when infusions of liquidity are forthcoming, it is time to reconsider equities. The business cycle and the investment cycle are merely the opera, and the audience viewing the unfolding drama.

12. ...There are frequent times when it makes sense to leave the equity markets, at least as an investor. If one has a trader’s mentality and nerves, then betting against the long market may make sense, but at any rate there are times one would not wish to bet on increasing equity values.

4. Valuation matters a great deal. However, in times of interest rate manipulation, valuation extremes may occur. In these times, market timing makes sense. However, since market timing has been drilled into us to be more evil than pornography, let us now say that it is good to be “nimble” in all markets…

I agree wholeheartedly with your post, Barry. And thanks for the site.


[Sep 21, 2009] Henry Blodget vs. Ken Fisher We Need More Debt

Mish's Global Economic Trend Analysis

Just because someone has ridiculous views does not make them contrarian. For example, the flat-earth society view is hardly contrarian, nor does it merit consideration.

...Whether or not Fisher is nuts boils down to how much he is talking his book. Let's put this in perspective. When you are managing $35 billion, you can never say sell. Think about what it would do to stock prices.

Thus Ken Fisher will always be perpetually bullish. Moreover, it does not matter to Fisher whether stocks are going up in real (inflation adjusted) terms or not, he just wants them to go up. He does not care how or why.

black swan:

Just listened to Marc Faber say that by 2018, the US entitlement funding problem, which is now at $63 trillion, will be so large that the USG will have no other option other than to default. This kind of flies in the face of Ken Fisher's idea that the US needs to increase debt. Faber also said that if deflationists actually believed in what they were saying, they would be purchasing 30 year bonds on leverage, going long the USD and short the stock market. Faber insists that much of this created money, that the Fed is supplying banks with, has to lead to inflation somewhere. He says it is presently reinflating the stock market and the commodities market. Mish, I have to say that since you predicted a stronger dollar a couple of months ago, the dollar has been getting a lot weaker.


One cannot look at too short or too long a timeframe. Faber is correct about the long term problems. But the same logic applies to Japan. And in my opinion will matter in Japan first.

The short-term move in the dollar is too short a timeframe.

Bear in mind I am not a huge dollar bull. My thesis was the the dollar would trade in a broad range for quite a long time.

I just happen to be bullish on it at this moment.

In regards to treasuries, the bull market is nearly over. Indeed it could be over. But as in Japan, that does not mean rates cannot stay low for a long time.

His comment about what deflationists should be doing is disingenuous.

Indeed hyperinflationists should have been buying houses and real estate hand over fist 3 - 5 years ago. Those who did have been wiped out.

Finally, deflationists know better than to use leverage.



Wall Street needs someone to take that view. People have an aversion to debt to begin with. It has been overcome quite spectacularly in the US because the rulers have devised a debt based monetary system, which could not function absent a ready willingness to incur debt.

Since the system will not function without ever increasing debt loads, more debt has to be advocated. That's all Fisher is doing.

It's not so much that he's "nuts" as that he is pathetic, and pathological. That the limits of indebtedness have been reached is so obvious it should scarcely be discussed anymore. The only real question is what to do now that we can't borrow. And since the "system" requires borrowing, which is now impossible, the system must be abolished.

But Fisher and Wall Street ARE the system. Abolishing the system means abolishing their privileged position in it. Of course, they're going to fight THAT.

As I always say, the solution is the opposite: eliminate debt. All of it. Make money a commodity, not a promise. Then bye-bye to Wall Street and big government and high taxes. Mr. Fisher and Mr. Bernanke can go get real jobs. Like everyone else. Oh, my.


Perhaps Mr Fisher has the foresight to recognize that in a future chronic deflationary environment money managers produce very little value. In the absence of current ultra-accomodative credit policies (as well as the credit bubbles we've come to consider normal) the financial markets will lose the underlying driver for hot new investments. Investors may as well put their savings into savings accounts. Mr Fisher would then be out of a job.

black swan:

From Suzanne on

"Legal" Fraud
Complaint Rating: 86 % with 14 votes
Company information: Fisher Investments / Ken Fisher / Fisher Investmen United States

"This firm's sales people promised that Ken Fisher and his staff would be able to see the bear market coming and that they would get defensive with my investment dollars when it happened. They have virtually stolen hard earned money from me and from thousands of investors.

They take your money, take their 1% plus per year, and do nothing for this fee that can't be done with a group of low cost ETFs or mutual funds.

They are very smart, their sales people are incredibly slick, and are counting on the greater fool theory.


[Sep 20, 2009] The giant sucking sound of US private sector credit contraction by Stacy-Marie Ishmael

Sep 18, 2009 |  FT Alphaville


BNP Paribas analyst Julia Coronado highlighted an overlooked and significant aspect of the Fed’s latest flow of funds report, that of private sector deleveraging.

As she put it in a note released on Friday (emphasis FT Alphaville’s):

Private sector deleveraging accelerated fairly dramatically in Q2, even as financial market conditions were showing material improvement. Private sector credit contracted by $2.32 trn at an annul rate after shrinking $1.84trn in Q1. This is an unprecedented event in the postwar period and highlights the fragility of the recent recovery. It is therefore not surprising that markets ignored a spate of good economic data with falling jobless claims, rising housing starts, and an upside surprise on the Philly Fed manufacturing index. Stocks were down modestly and bond markets continue to be well supported.

This is important because, according to Ms Coronado, “it is difficult to see how lasting growth or inflation could take hold in an economy where the private sector continues to deleverage.” Accordingly:

A number of FOMC members have continued to stress tight credit market conditions and deleveraging as reasons to not be overconfident in the economic outlook. We agree, and think the focus on the Fed’s expanded balance sheet and talk about possible early exits from the credit easing policies is misplaced.

The deleveraging therefore has important implications for Fed policy and the outlook for the US housing market, Ms Coronado said:

Indeed the vital role of policy and potential need for further credit easing from the Fed is clear from looking at residential mortgage credit. The only sector providing credit is the Agency MBS market, all other banking and private securitization markets are still contracting sharply (see chart below). Moreover the Fed has purchased more than the total net issuance over H1 2009. To the degree the housing market has stabilized, it is the direct result of the vast stimulus being provided by policy. While the corporate bond market has shown robust improvement, most other segments of the credit market are very fragile and the banking sector is contracting; the commercial banking sector shrank by $631bn in Q2, and savings institutions contracted by $560bn. It is hard to imagine the Fed pulling the plug on the market realizing the greatest benefits from its efforts, particularly when fundamental questions about the structure of the GSEs and the future federal role in mortgage finance are unresolved.

[Sep 20, 2009] Real estate slump isn't over, exec says - By Roger Showley

September 18, 2009 | (Union-Tribune)

Federal Reserve Chairman Ben Bernanke may think the recession is over, but the head of the nation's largest real estate services firm says the slump has two or three years to go in his industry.

John C. Cushman III, chairman of Cushman & Wakefield, told an audience at the Burnham-Moores Center for Real Estate yesterday that the commercial real estate industry faces $5 trillion in mortgage refinancing problems over the next decade. Improved leasing, sales and construction conditions are unlikely until 2011 or 2012, he said.

“You have to make a very clear distinction between the general economy and commercial real estate,” Cushman said in a wide-ranging chat, moderated by his San Diego managing director, Stath J. Karras.

“I think we have a ways to go,” Cushman said, starting with an end to job losses that have nearly erased all the gains from 2003 to 2007.

Although housing seems to be bottoming out, Cushman said he was worried about $1 trillion in loans coming due on commercial properties by the end of next year and $400 billion annually for the next decade.

... ... ...

In answer to one question, he agreed that higher inflation and interest rates are inevitable in the near future.

[Sep 20, 2009] Regulating compensation in the banking sector by James Hamilton

September 18, 2009 | Econbrowser

Today's Wall Street Journal reports:

Policies that set the pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve as part of a far-reaching proposal to rein in risk-taking at financial institutions.

The Fed's plan would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks' corporate boards and executives.

Under the proposal, the Fed could reject any compensation policies it believes encourage bank employees-- from chief executives, to traders, to loan officers-- to take too much risk. Bureaucrats wouldn't set the pay of individuals, but would review and, if necessary, amend each bank's salary and bonus policies to make sure they don't create harmful incentives.

One of the key questions for understanding the causes of our current problems is the following. Suppose that in 2005, the individuals who were putting together securities derived from subprime and alt-A mortgage loans could have known, with perfect foresight, events that were going to unfold in 2008. Would they have still done the same things they did in 2005? My concern is that, for many individuals, the answer might be "yes", insofar as they were richly rewarded personally in 2005 for making exactly the decisions they did. It was other parties (namely you and me) who later down the road were forced to absorb the downside of their gambles. Capitalism functions well when individuals are rewarded for making socially productive decisions. It is a disaster when individuals are rewarded for making socially destructive decisions. For this reason, I am quite supportive of the broad idea of the above proposal.

I would nevertheless raise an important cautionary note: whenever one introduces more regulations, one is simultaneously creating enormous pressure for those being regulated to try to take over the regulatory process. I would urge the Federal Reserve to be thinking carefully not just about details of the economically desirable incentive structure for bank managers, but also to attach equal importance to protecting the Federal Reserve itself from regulatory capture. Here are some general objectives which they might want to keep in mind.

Openness and transparency. Details of all regulations should always be extremely transparent and public, with high-profile communication of any proposed changes. I was unable to locate a public release of the specifics of the Fed's proposal, but gather that the WSJ story was based on off-the-record statements from "people familiar with the matter". I think one of the best disinfectants for preventing regulatory capture is to keep as bright a light as possible shining on all details of the regulatory process.

Simplicity and uniformity. The goal here is to be very clear about the basic principles we're trying to implement and make sure they're applied broadly, fairly, and consistently. Although the Fed is used to thinking in terms of preserving its discretion, it's important that these regulations be implemented in a transparently uniform way.

I see this is as an important step to take. But it's also very important for the Fed to realize they're walking into a minefield.




I think the issuse goes deeper than executive compensation at banks. The public company corporate structure seems to have evolved such that the owners of a company, its shareholders, no longer control the company via its board of directors. This has allowed its executive group to effectively hijack control and, in the worst case scenario, use that power to transfer the wealth of the company to themselves.


Cedric Regula

I just looked up what some professions make, lest we forget any point of reference.

Surgeon - $200K
Doctor - Primary Care $160K
Lawyer - $120K
CEO - $160K (this much average in those outside the S&P 500)
Engineering, Sales and IT managers - around $120K

I think the best thing that could happen is financial "Stars" leave the cushy Big 20 "banks" and start up their own hedge fund and wow us with their stuff. They can attract their own capital and prove their worth to their clients.

Then we would have banks doing banking and money management doing that, and I think that would go a long way to solving the problems using market forces. I think the only reason mutual funds pay as much as they do is because large integrated banking is paying way too much for "Stars". With banks government ties, low cost of funding, and subsequent huge trading volume, banks have found a gold mine, and will pay anything to exploit it. It wasn't like this when we had Glass-Steagall.

So all we need to do is close the public trough and make this like work again.


GK: How anyone can think that capping the pay of a location-neutral, high-paying profession does not simply make those same jobs leave for an unregulated place, is beyond me.

And I would say goodbye and good riddance. In what way have they contributed anything of value to society. They have destroyed trillions of dollars of wealth and put millions of innocent people out of work.

When you have a segment of business that produces nothing of value but sucks out 40% of all corporate profits, you are talking about a frictional cost of doing business that far exceeds anything attributable to taxes, torts, government regulation or any other frictional effect. The financial industry is not in the business of efficiently allocating capital. They are in the business of extracting a "tax" on every transaction they can generate whether that transaction is of value or not. The very fact that their profits and salaries are so enormous and constantly increasing indicates that there is a market failure. An efficient market should drive down salaries and profits.


I have never bought the argument that our entire financial services industry will pick up and leave if they can't have the multi-million dollar bonuses anymore. I also question the value of the activity that even results in said bonuses in the first place. The financial services industry is a facilitator of transactions. It is not a generator of wealth at the end of the day. All gains in wealth must be tied to productivity increases. Anything else is just ephemeral. You show me the net benefits from having the financial services industry we have as it is currently constituted. I don't see improving macroeconomic performance correlated with ever more obscene levels of compensation. As a matter of fact, the economic performance of 2002-2007 was sub par at best.


The issues discussed above boil down, in essence, to how to design control systems that will cause financial markets to provide the outputs that society needs, without violent fluctuations of boom and bust.

I think it would behoove those interested in these issues to study how the control systems that regulate complex chemical process plants are designed.

Those who take the time to do that will learn that in practice all control is based on feedback loops, and that when long lags and dead times (pure delays) are present in those loops, one can get good control only if one can accurately predict the final effect of control actions. If one cannot accurately predict the effects, the only alternative to sluggish response is violent oscillation.

It is clear from the writings of most economists that they do not understand the inherent limitations of feedback control systems. It's implicit in their arguments that they believe the Fed and/or government can keep the economy running smoothly just by twiddling the various knobs at their disposal while observing the effects.

But is that really so?

Let's do some gedanken experiments with some systems all can understand.

If you're standing at your kitchen sink, where the valves are inches from the faucet's water outlet, then once all the cold water has been flushed out of the pipe from your water heater, you can adjust the water flow to your desired temperature quickly with aggressive manipulations of the valves, and compensate rapidly if there is any fluctuation in the water pressure (e.g., if you're in home where someone flushing a toilet upsets the water pressure at your sink).

If you're in your shower, where the outlet is several feet from the valves, you can't be so aggressive in your control actions, or you'll alternately scald and freeze yourself. And in some showers, you know that when you hear the toilet in the other bathroom flush, you'd better step to the side at once, because there's just no way you can adjust the valve quickly and precisely enough to avoid scalding -- except maybe by turning the hot off so fast you freeze.

Now imagine you have a summer getaway cabin on a mountain lake, to which you escape on a muggy August Friday evening, and soaked with sweat after unloading your car step into the shower to find the drain plugged. If the setting were sufficiently private, you might in this case decide to jury-rig an outdoor shower with a garden hose running from the shower head out the bathroom window, duck-taping a broom handle to the shower faucet handle to adjust flow and temperature. But with the very long pure delay through the hose between valves and outlet, how well would you be able to control the temperature? Would there be any way you could avoid being scalded or frozen in the toilet-flush scenario?

Quite fundamentally, no. The system is inherently vulnerable to upsets (toilet-flush pressure bumps), and any attempt to deal with them by aggressive control actions is going to send the system into oscillation between too-hot and too-cold -- the only way to get to the desired temperature is to make gradual adjustments and wait long enough for change to work its way through the hose, and if external upsets are too frequent, the system will never stabilize.

In all too many ways, the systems we want to control in the economy have long lags and dead times and present control problems much more like those of the jury-rigged outdoor shower than those of the kitchen sink. The knob-twiddling in which the Fed and others are now engaged is more likely to result in continued oscillation between scalding and freezing than a nice warm shower.

Cedric Regula


The way we do it with electronic servo controls is we make a Bode Plot of the system to model whether the system is stable or not. Then you crank up servo gain as high as you can before going into instability.

Here's how, so maybe the Fed's economists can implement a model for the economy. Just kidding.

(Of course this system has only one feedback loop. Also, velocity of money transactions, as a variable and unknown gain would make this problematic.)



Your comment about reminds me of your remark earlier this week that confusion in economics is often a political ploy.

You well understand that the Obama adminstration is not proposing price and wage controls. You well understand that they are not even proposing wage controls. You well understand that they are proposing controls on the incentives for risk-taking in wage contracts.

Who did you say that you work for again?


That's right, Cedric. As I'm sure you saw, in my lay-oriented exposition, aggressiveness of control action is the equivalent of "servo gain". It's distressingly clear that many economists just don't understand that a system's time-domain response sets an absolute limit on how aggressively you can act without tipping it into instability, and that for some systems that may force you to set the servo gain so low that the best you can get is very sloppy and sluggish control.

[Sep 20, 2009] Jesse's Café Américain

We remain guardedly 'optimistic' on the markets for next year ONLY because of the Fed's and Treasury's willingness to continue to debase the dollar to cover the massive unrealized losses in the banks' portfolios, even as they return to manipulating markets in business as usual.

Inflation is good for financial assets, and we think another bubble is in the cards, at least for now given Obama's unwillingness to reform, unless some exogenous event or actor intervenes. The other troubling thing is the lack of vigor in the real economy. The stagnation in median real wages is strangling the middle class. There can be no resurgent economy without them.

As much of an outlier it might seem, it is possible that Bernanke and the Treasury might lead the US into a stagnation similar to Japan, but with stagflation, because of their policy errors driven by the distorting demands of an outsized and corrupting financial sector.

Wall Street is throwing buckets of money at Washington to fight even a moderate reform such as a financial 'consumer protection agency.' These fellows will never quit, until they are stopped. And it does not appear that Obama and his cronies have the traction or the fortitude to get the job done.

Until the banks are restrained, and the financial system is reformed, and balance is restored to the economy, there will be no sustained recovery.

[Sep 20, 2009] Wells Fargo’s Commercial Portfolio is a ticking time bomb

September 17, 2009 | Bank-Implode!

Given that a specific number for CDS exposure is not yet tenable, it’s hard to say how many billions are at risk.  Yet most market players who follow this bank said when those CMBS de-lever and the derivatives come due, it will be a problem for which Wells is absolutely not adequately capitalized.

[Sep 20, 2009] Wells’ Commercial Real Estate “Ticking Time Bomb” And Coming CRE Woes « naked capitalism

Commercial RE Appraiser:

This is hilarious, or sad, not sure which. Since 2001, Wells, BofA and the like lowered their underwriting criteria so far that they were getting the cheapest & lowest quality appraisals for commercial RE as fast as possible. They literally did not want a decent valuation and information on the properties they were writing loans on. We all assumed they were selling the crappy loans down the river to some unsuspecting fool investor who had no idea how shoddy the underwriting had become, but to see now that they guaranteed all those loans with CDS? Unbelievable. We are at the tip of the iceberg for commercial RE woes and everyone is playing the extend and pretend game…sounds like Japan all over again.

[Sep 20, 2009] Interview with Bob Hirsch - The Stonewalling of Peak Oil ASPO-USA Association for the Study of Peak Oil and Gas

Robert L. Hirsch is the lead author of a seminal report–Peaking of World Oil Production: Impacts, Mitigation & Risk Management—written for the US Dept. of Energy’s National Energy Technology Laboratory (DOE, NETL) and released in early 2005. He has remained very active with respect to his concerns about peak oil. ASPO-USA’s Steve Andrews tracked him down last week and posed some questions about the report, then and now. Bob will be a presenter at the ASPO-USA conference in Denver next month (October 11-13).

Question: What have been your primary areas of focus during your energy career?

Hirsch: I started out in nuclear power. Then I did fusion research and later managed the government fusion program. I spent a lot of time with renewables over the years, including managing the federal renewables program. From there I went to the oil industry where I managed long range refining research and then synthetic fuels. Later I managed upstream research and development—exploration and production of oil and gas. Still later, I spent time in the electric power industry—all aspects of electric power. And then I got into energy studies and have been doing them for a number of years with Rand, SAIC, and now MISI. That’s it from the work standpoint; from another standpoint I’ve been involved with the National Academies [of Science] in energy studies since 1979 and have been involved in almost every aspect of energy through the Academies, either as a committee participant or as Chairman of their Board on Energy and Environmental Systems.

Question: When did you first learn about the peak oil issue?

Hirsch: I learned about peak oil after I got out of the oil industry, because there was essentially no talk about it when I was involved. In the early 2000s I did a study for the DOE dealing with long range energy R&D planning. One of the six drivers that I came up with was peak oil; I had never really thought about it prior to that. It’s kind of a “tar baby”; once you get your hands into it, you can’t get your hands off of it. When oil production goes into decline, it’s going to be a defining issue for humanity. So I’ve been involved for six or seven years in analyzing oil peaking and its mitigation.

Question: How did the 2005 peak oil study for DOE’s NETL come about?

Hirsch: It was basically my creation. I was working with DOE NETL at the time, and they gave me a great deal of leeway to look into important subjects. I felt that peak oil was extremely important, so I did some study on my own and then proposed to NETL that I do a much larger study, with Roger Bezdek and Bob Wendling, who are extremely capable guys, who I had worked with along the way, and who were very pragmatic about energy and the real world. NETL accepted. I already was under contract, and they added Roger and Bob.
We coordinated closely with NETL as we did the study, so they had input and knew what was coming. But when they saw the final report, it shocked them, even though they could see what was coming. This is nothing negative about people at NETL, but when you’re thinking about other things most of the time, bad news creeping up on you doesn’t necessarily capture your attention immediately.

When the report was done, management at NETL really didn’t know what to do with it because it was so shocking and the implications were so significant. Finally, the director decided that she would sign off on it because she was retiring and couldn’t be hurt, or so I was told. The report didn’t get widely publicized. It somehow was picked up by a high school someplace in California; eventually NETL put it on their website. The problem for people at NETL—and these are really good people—was that they were under a good deal of pressure to not be the bearers of bad news.

Question: Under pressure from whom?

Hirsch: From people in the hierarchy of the DOE. This was true in both Republican and Democrat administrations. There is, I think, ample evidence, and some people in DOE have gone so far as to say it specifically, that people in the hierarchy of DOE, under both administrations, understood that there was a problem and suppressed work in the area. Under President Bush, we were not only able to do the first study but also a follow-on study that looked at mitigation economics. After that, visibility apparently got so high that NETL was told to stop any further work on peak oil.

Yes, that was terrible. And it was strictly politics and political appointees—I have no idea how far up in either administration (the current one and previous one) these issues went or now go. People in the Clinton administration had talked about peak oil, including President Clinton and Vice President Gore, and the same thing is true in the Bush administration, and the same is true, to the best of my knowledge, in the Obama administration.

The peak oil story is definitely a bad news story. There’s just no way to sugar-coat it, other than maybe to do what I’ve done on occasion and that is to say that by 2050 we’ll have it right and we will have come through the peak oil recession—quite probably a very deep recession. At some point we’ll come out of this because we’re human beings, and we just don’t give up. And I have faith in people ultimately. But it’s a bad news story and anybody’s who’s going to stand up and talk about the bad news story and is in a position of responsibility in the government needs to then follow immediately and say “here’s what we’re going to do about it,” and no one seems prepared to do that.

Peak oil is a bigger issue than health care, than federal budget deficits, and so forth. We’re talking about something that, to take a middle of the road position—not the Armageddon extreme and not the la-la optimism of some people—is going to be extremely damaging to the U.S. and world economies for a very long period of time. There are no quick fixes.

Question: How do you describe your key take-away from your 2005 study?

Hirsch: What we did was to look at a world-wide crash program of mitigation. We were interested in the very best that was humanly possible. That was the limiting case. There are lots of reasons why, under the best of conditions, things can’t and won’t go as fast as we assumed. We knew at the outset that the energy system was enormous and that the amount of oil-product-consuming end-use equipment was enormous. We knew it could not be changed quickly, and that in a number of cases, there was nothing to change it to – no alternative to liquid fuels. We also knew that energy efficiency could make a big difference, but we were surprised to learn that improving vehicle fuel economy would take much longer than we had imagined prior to doing our analysis. We found that because the decline rate in world oil production was going to be in multiple percents per year, it was going to take a very long time for mitigation to catch up to the decline in world oil production. Basically, the best we found was that starting a worldwide crash program 20 years before the problem hits avoid serious problems. If you started 10 years before-hand, you are in a lot of trouble; and if you wait to the last minute until the problem is obvious, then you’re in deep trouble for much longer than a decade. As it turns out, we no longer have the 10 or 20 years that were two of our scenarios.

Question: What was the immediate feedback from people outside of the government?

Hirsch: We briefed it to all kinds of audiences, including people in the hierarchy and at the committee level at the National Academies. We gave talks to technical and lay audiences, and have been doing so for years now. We’ve also published shorter versions in various media. Probably the biggest response we’ve received was disbelief—“this can’t happen.” And then there are number of people who agree, either quickly or after some reflection, that the reasoning is sound, both in terms of world oil production as well as mitigation. There are always some people who reject peak oil out of hand and, in fact, go on the counterattack and argue against it. I suspect that the kinds of reactions that I just described are what many people in the peak oil community have run up against.

Question: What was your impression of the National Academy of Sciences’ October 2005 workshop on peak oil? What do you think that accomplished?

Hirsch: It was useful because we attracted a cross-section of thinking, and there was some open discussion. But the discussions were nowhere near satisfying. People basically stated their positions, and there was no debate as to what was real and not real and what the evidence was and how solid it was. But that’s the character of an Academy’s workshop; they are set up, and for good reason, for people to present positions with the idea of educating and, possibly beyond that, lead to a more detailed Academy study. The Academies don’t take positions without doing detailed analysis and putting the subsequent study through a very careful review process. I think that approach has served the Academies well. But in this particular case, with governments wanting to shush up any open discussion of peak oil, there was no follow-on.

Question: At the time you published your paper, I would characterize you as being intentionally neutral about the timing of peak oil so that readers wouldn’t get stuck on that issue. Since the study was published, how has your view of the timing of peak oil evolved?

Hirsch: To begin with, I knew enough about oil production and the uncertainties and unknowns to feel, when I got into the subject, that I could not make a reasoned judgment early on. So I spent a number of years listening to what other people had to say, studying their analyses, and looking at what was happening in the real world before I came to a conclusion for myself. It wasn’t a matter of politics. It was the fact that this problem is enormously complicated, and there are lots of unknowns. For me, at least, I wasn’t about to take a position on timing without having a lot of evidence that would support my position. And so it wasn’t until about a year-and-a-half or two years ago that I began to home in on the likely timing of the decline of world oil production being sometime within the next five years.
Question: Given where we are today, if you were made energy czar, what policy initiatives would you pursue?

Hirsch: If I was involved in the government at a high level, I would argue very strongly to the president that he needs to take national and international leadership on the problem. He should do some homework to be sure that he hears what the issues are — do it quietly — and then stand up and say, “world and country, we’ve got a very serious problem and here is what my administration is going to do about it.” That’s what I would argue for because somebody has to stand up and say the emperor has no clothes. That’s going to be very difficult because people don’t like to hear bad news, and this is terrible news, and as it sinks in, markets will drop and there will be an immediate recessionary reaction, because people will realize that this is such a horrendous problem that having a positive outlook on employment and the economy is just simply unrealistic.

Question: Given where our leadership at the top is today, what should “peak oil concernists”—a phrase I think you coined back at the 2005 NAS workshop—do that they aren’t doing today?

Hirsch: I wish I knew. This is a bad news subject under any circumstances but its “badder news” in the midst of a recession. My approach is to present and argue facts and realities and try to clarify confusion. I don’t think it does any good, and it’s not my style, to argue that the world is coming to an end, to argue Armageddon. But that’s my position. Other people feel that Armageddon is indeed likely. That’s their right. I’m afraid that, no matter what any of us do, we’re not going to get the public’s attention until oil prices jump way back up again and people feel pain. That happened last year; the issue was getting more and more attention as oil prices went up because 1) people were hurting, and 2) people knew something was wrong. People’s focus and attention these days is on recessionary issues, and they don’t want new bad news added to the bad news they’re already dealing with. I wish I could be optimistic and say that there is a magic wand of some sort, but if there is I don’t know what it is.

Question: Any final thought?

Hirsch: I’ve tried to think outside the box in terms of how we get the message out and get people’s attention. I found nothing that I could do that I’m not already doing, except write a book, which we’ve just started. But other people have other thoughts, opportunities, and connections, so I would urge them to conceive of ways to rationally and reasonably get more decision-makers involved in 1) recognizing the problem and 2) helping to elevate it to the highest levels of government, so serious action can begin.

[Sep 19, 2009] Fund Times PIMCO's Big Cash Haul

Yahoo! Finance

Fund firms are well on their way to erasing the $251 billion in outflows they experienced in the second half of 2008, according to Morningstar fund flow data. This year, through Aug. 31, 2009, investors have poured more than $226 billion into U.S. open-end funds. In August, $54 billion flowed into U.S. open-end funds, making it the single biggest month of inflows since February 2007.

Investors are still giving equity funds the cold shoulder, said Morningstar editorial director Sonya Morris. Fixed-income funds have received the majority of inflows this year. About 60% of August's flows went into taxable-bond funds, and muni funds soaked up another 20%.

The biggest beneficiary of these trends is PIMCO. Its PIMCO Total Return (NASDAQ:PTTRX - News) is the top-selling fund of the year. August inflows of $5.5 billion pushed the fund to a jaw-dropping $177.5 billion in net assets, Morningstar data show. To put that figure into context, PIMCO Total Return alone now represents 13% of the entire taxable-bond mutual fund universe. And it's almost twice as big as the second-largest mutual fund, Vanguard Total Stock Market (NASDAQ:VTSMX - News). PIMCO Total Return is up 11.65% for the year through Sept. 15 versus the Barclays Capital Aggregate Index, which is up 4.9% during that period.

[Sep 19, 2009] Junk Bonds Are Still Lurking

Junk behavior is really very strange, as if it is manipulated like stock market...

Seeking Alpha

Let me guess - record levels of junk bond defaults are positive for the economy going forward?

NEW YORK (Reuters) - About 40 percent of all U.S. junk bonds outstanding in late 2008 will likely default by 2013 as government aid measures end and a wall of corporate debt comes due, Bank of America Merrill Lynch said on Thursday.

By contrast, the cumulative five-year default rate was about 30 percent in the last two default cycles, Bank of America said in a report.

But the real damning part of analysis isn't the front-line - it's the last paragraph:

Many so-called distressed debt exchanges are only postponing defaults and will also contribute to the second wave, the bank said. In a distressed debt exchange, companies buy back debt at steep discounts, usually replacing it with longer-maturity debt. About 40 percent of distressed debt exchanges typically default anyway within three years, the bank said.

No, really? You mean that we can't "extend and pretend" and actually fix anything? It's all a game to try to claim that something that has blown up really hasn't blown up?

Yes, that is what the bank said - this is nothing other than a thinly-disguised game - yet another means of gaming the accounting (which should be illegal, but heh, we don't bother prosecuting stuff like that, right?)

The better question is this: If the economy is healing, if demand is improving, if corporations have seen the bottom and business conditions are in fact improving as final demand is rising, then why are defaults going up?

Debt defaults when the cash flow is inadequate to meet service requirements. But cash flow is a "high frequency" thing - it rises immediately when final demand increases.

So what is this, along with the default rates on credit cards and FHA mortgages telling you?

The claims of final demand improvement are in fact false.

[Sep 19, 2009] Assessing the Odds of a Double Dip Recession

Sep 18, 2009 | Mish's Global Economic Trend Analysis

I believe without continued stimulus the economy will slide back into recession, and would do so later even with additional stimulus, even if the Fed does not step on the brakes.

...Note that it takes somewhere between 120K and 150K jobs before unemployment starts heading down.So Dueker's chart, if accurate, portrays a bleak economic forecast.

However, let's be optimistic and assume that unemployment starts falling at 100K jobs added per month. Even then, unemployment will not drop until August 2011 at a minimum, and it will still be above 10% at that time!

...Economist Paul Kasriel points out various headwinds in The Shoals of Depression Have Been Avoided, but the Economy Still Faces Strong Headwinds. Nonetheless, Kasriel concludes a double dip is unlikely

...Inquiring minds might be interested in my Interview With Paul Kasriel in December of 2006, in which he laid out the case of a Japanese style deflation in the US, regardless of what Bernanke might do.

...I seldom agree with Krugman (even more so on solutions to problems), but I happen to think Krugman has it right when he says U.S. unemployment not to peak until 2011.

...The recovery will be slow, not only because of the global nature of the problem, but more importantly because the debt overhang on consumers and banks is enormous.

...In this recession, assuming one believes it has ended now, unemployment is likely to keep rising for another 18 months. Yes I know that unemployment is supposed to be a "lagging indicator" but "lag" does not do justice to what happened in 2001 or what I think is likely for 2007-2011.

One key difference between the last two recessions is consumers barely stopped spending in 2001 but in 2009, consumers are tapped out, unemployment is a whopping 4 points higher, and credit is shut off.

More importantly, consumers attitudes towards debt have changed. Greenspan had the wind of consumption at his back. Bernanke is on the backside of Peak Credit with a breeze of frugality blowing briskly in his face.

Given we are following the path of Japan, the economy is likely to slip in and out of recession or at least flirt with it a number of times over a period of several years as described in Case for an "L" Shaped Recession.

No matter what one calls the recovery (or lack thereof), Krugman has the right idea when he says the "recovery is likely to feel like a continuing recession." That to me is an "L".

Leo Chen:

“There is no silver lining in this "post-recession" cloud. But there is an even more ominous cloud behind it:

The Buddhist_Investor said: This does not matter - the Big Banks will not let the "market" drop. I was bearish until it occurred to me that elevated stock prices are just part of the bailout/recovery plan. This is the only way to explain the sudden reversal in the stock market in March, the disproportionate rise of stock prices relative to the economy and earnings, and the lack of any significant correction in spite of continued underlying bad news.

Leo Chen:

Except for small downturns to make it look realistic, there will be no significant correction because the Big Banks will prevent it. In return for the fed/gov’t bailout goodies, the Big Banks were required to start moving the stock market up in March and then keep it up.

Now after establishing huge positions after filling in the crater during March lows, all they have to do is fill in the pot holes to lure more investors in and keep the market moving up. They can start cashing out when the herd starts jumping in to prevent an obvious bubble, but not enough to trigger a sell off. This is also their restitution for screwing the middle class, and it helps prevent substantial market reform and regulation since negative public sentiment is subsiding.

The Librarian:

If the charade is still in place by mid-February I am inclined to agree with your analysis no matter how self-defeating this appears to be.

Denninger has analyzed the inflation of the indexes through sequential trading of Fannie, Freddie and BoA. I believe he is correct.

The money trail here is comparable to the blood flowing to a woodtick attached to your own arm. You can only remove the tick by removing a sizeable chunk of your own skin. There would be some pain, for sure.

That's what we have now, unfortunately. If the current fundamentals no longer reflect actual trading realities, it's time to completely throw away the old playbooks.


Not to mention, they will get to sell of (over the years) millions of homes which were attained at rick-bottom prices. IF your theory is correct, the banks LOVE the idea of homeowners walking away from their mortgages. It then lets the banks rake in all the equity gains in the future, instead of the homeowner.

If what you say is correct, now is the best time ever to go massively in debt and buy assets.. stock, RE, commodities, etc.. right?

Leo Chen:

Consumers become more confident as their net worth recovers, which also helps housing prices reducing the accumulation of toxic assets by the Big Banks.

It is all a big show - the stock market is more of a propoganda machine now.

Thus, even though the bears have the best argument based on economic data, the stock market is still guaranteed to go up - the recovery plan is based on it. So you might as well buy some long-leveraged ETFs and ride the wave.


What are the chances of removing the Mortgage interest deduction from personal income tax (fraudulant as it be) and what will that do to home prices? As somebody realizes they is no tax revenue they may consider it.


I think that has zero chace of happening anytime soon. There is some talk about phasing it out for high-income, jumbo-loan situations, but even that is very iffy. In reality, every single lobby (home depot, builders, investors, RE agents, the rich) will all be against this, and the only support group would be government spending watchdogs. And with the USG now clearly making its own money, the need to change code is based on politics and not financial need.

black swan:

I do not believe that there will be a "W" recession, because I believe that we are in a depression, and not a recession, with no end in site. Forget the manipulated GDP stats. With real unemployment at Great Depression levels, with foreclosures exceeding Great Depression levels, and with no new employment engine in sight, this economy is going nowhere other than down. Conditions that indicate that the US is coming out of the depression will be increased tax revenues (without raising tax rates), more non-government jobs being created than lost, more retail stores being opened rather than being closed and corporate profits through growth rather than through cutbacks.

Forget what the Government tells you about the economy. The Government tells lies to push Wall Street paper profits. Believe only what you can see with your own eyes. The Government and Bernanke tell us that the economy is recovering, our daily lives tell us a different story.


At this point in the game you really have to go to Nobel lengths to convince yourself that the economy is going to recover. This is of course all nonsense. The fiat debt machine has stopped running. That means the economy and the markets are dead. Simple as that. We are now at the next Wile E Cyote moment......

black swan:

There is only one thing propping up the US stock market, and if Paul Volcker had his way, that prop would be removed and the market would crash. No wonder Summers is keeping him in the closet. However, Volcker opened the closet door long enough to have said this:

“I do not think it reasonable that public money --taxpayer money -- be indirectly available to support risk-prone capital market activities simply because they are housed within a commercial banking organization,” Volcker said.

Since January, Volcker has advocated that regulators should prohibit financial companies whose collapse would pose a risk to the economy -- those considered “too big to fail” -- from engaging in certain types of trading and investing activities. The administration wants stricter oversight for such companies and tighter capital and liquidity requirements.

“Extensive participation in the impersonal, transaction- oriented capital market does not seem to me an intrinsic part of commercial banking,” Volcker said. “Substantial involvement in heavily leveraged finance and heavy proprietary trading almost inevitably entails risks.”

“I want to question any presumption that the federal safety net, and financial support, will be extended beyond the traditional commercial banking community,”

Dr Evil :

“Bombillo - Bernanke has done nothing other than transfer private losses to your children. This is still a huge confidence game. Bernanke cannot change the value of all these paper "assets". They are all still worth nearly nothing. He is just good at moving the deck chairs around and hiding what he can.

In the end the markets will have the last laugh. If the fed were all powerful the great depression, 2000-2003, 2007-2009 crashes wouldn't have happened. They wouldn't have let it. But they did.

This depression has just started. Lets see where we are in 6 mo's. I am betting the DOW will have broken it's March lows by then

Confederate Helvetiker:

Black Swan, Dr. Evil: I'm going to play the devil's advocate here.

Is it not possible that through the synchronized worldwide QE and through the promised flawlessly executed removal of excess liquidity down the road, that Paulson/Bernanke/Geintner could transfer part of these mal-investments to the Fed/Treasuries balance sheet and in a onetime massive and stinky inflationary fart expel the rest of them from the economic body?

We would then pick up pretty closely to where we left off, with a the dollar devalued, a higher debt level, and higher unemployment?

black swan says:

Confederate Helvetiker, first of all, there is no liguidity to remove. There is only growing debt and imaginary bank reserves. Secondly, after your "inflationary fart", the dollar collapses and the USG defaults.

Confederate Helvetiker:

First of all, there is no liguidity to remove.

All this POMO and TARP and PPIP have pumped liquidity into the banks. So there must be some liquidity, even if they went back and deposited it with the fed.

But if they can get inflationary expectations, keep interest rates near 0, and add a "boom town" psychology on wall street (just watch Cramer on CNBC), then a lot of liquidity will flow back into the markets (which is happening before our eyes) even to the point that there starts to be a market for the septic CDS's that would nominally be bearing 20% interest.

I agree, this all falls apart if the dollar collapses. All the other CB's are desperate to prevent this, and they will be desperate to prevent their currencies from rising too much on the dollar, so she may just live long enough, at least until the next crisis. Hence we will see gold go up against all the other currencies as well, to allow for the gas to pass.

“Dr Evil,

without borrowers borrowing and lenders lending. That means borrowers have to have income. That means they have to have jobs. That means there has to be a driver for those jobs.

Getting borrowers borrowing is psychology. Convince them that their dollars will be worth less in the future, and that the housing boat is booming once again and is leaving the dock, throw in a little more excitement (cash for clunkers, $8000 credit), and they just might do it.

Banks have to be solvent and want to lend. They have to have viable borrowers to lend to.

Fannie, Freddie and FHA are filling this gap. Stock market boom is reducing leverage. Fed has bought a lot of their crap. 0% short term interest rates are making 20% returns of the first tranches look appealing. Throw in some Fed guarantees, and the shit will fly off of the shovel.

Economic activity cannot increase without an expansion in credit under the current monetary system. However since debt servicing loads are so high there is no longer a functioning engine to expand credit.

There's a sucker born every minute! The boomers are desperate to achieve/regain net worth, plus there is the threat of inflation and the constant crowing of CNBC. I can see it coming: "Wanna build your retirement? How about a 20% US guaranteed return on this A-tranche CDS?" Yes, this is inflationary but that just adds pressure for panic'd boomers to DO SOMETHING. As the watch the dow rise, the fear that they are missing out just might be the ticket.

Much of this debt will have to be defaulted on which will continue the collapse of credit. Until this debt is purged from the system growth will be impossible.

If there is fear of 50% inflation (Bernanke will assure us it is only short term) then that house that was $500K in 2007, may only be worth $200K now, but if it looks like inflation may take it to $800K in 4 years you have nothing to lose except your cash if you put don't put it somewhere. The question is where?

One thing is sure, the fed and treasury will try like hell to keep you from putting it into gold.


@Confederate Helvetiker, Black Swan, Dr Evil, Tin Hat et al:

Kudos for this high-level debate. Sometimes, the comments section deteriorates into ideological drivel and mud-slinging, and I despair. But this kind of classy exchange really makes one think, and keeps the board worth reading


Economic activity cannot increase without an expansion in credit under the current monetary system. However since debt servicing loads are so high there is no longer a functioning engine to expand credit."

Very good point, the first part of which I agree with and the second part of which I half agree with. It's obvious that private sector de-leveraging can be countered by public sector re-leveraging, see the latest flow of funds to see this in action. This in itself cannot increase money supply, but it can prevent a decline for some time. Further, the US debt is only 28% foreign owned. As the current account deficit declines and domestic private saving increases, there is a source of new fundnig for gov borrowing right there, which will be tapped if there are no other options.

Secondly as @confed notes money supply is only half the story. The other half is veolocity. The last 30 years was all about supply expansion - hence the inflation targetting method. Upcoming (now the supply channel is broken) is veolocity expansion, to be managed by targetting reserves.

Why do you think the fed wanted the ability to pay interest on reserves?


Reymund Bautista:

We'll see how long the government and the large banks can keep this charade going once all alt-a and option arms reset in 2010 and 2011. There will be another credit default swap implosion and there is going to be bank bail out part 2. I wonder how much more in debt the US will be by 2012.


Excellent post (you don't need me to say so :-)).

There is a CNN poll that finds 86% of those polled believe the economy is in recession.

I do not understand why people like the President and Bernanke insist on saying the recession has ended. All this does is creater even more cynicism among an already cynical populace.

Dr Evil :

“@Confederate - "If there is fear of 50% inflation (Bernanke will assure us it is only short term) then that house that was $500K in 2007, may only be worth $200K now, but if it looks like inflation may take it to $800K in 4 years you have nothing to lose except your cash if you put don't put it somewhere. The question is where? "

Didn't we already go down this road over the last couple decades? I agree, much is psychological but over the long haul I don't think the gov/fed will have control over mass psychology just as they didn't from Oct 07 to March 09 or even now. If they did the crash of DOW 14k to 6.5k wouldn't have happened. On a secular level mood has shifted and there is nothing the gov/fed can do to stop it.

Soon the largest bear market rally since the GD will end as the mood turns down again......


Double dip or no double dip, the mess has not been cleaned up.

The continued financial fraud and monetary/fiscal manipulation is distorting the correction of excesses. My gut still feels there is a final washout coming. Something just isn't right.


Your daily brainwashing begins with National Propaganda Radio, which is enough for anybody.

Who backed up the trucks last March when the market was at its low of 6500 or less?

Large institutional investors?

I dunno and I don't care.

What an excellent dupe. Scare the bejesus out of small investors by creating some scam about needing 700 billion dollars, then reap rewards later on down the line.

Congress, like the good lap dogs that they are, went along like sheep being lead by the Judas Goat.

I guess that kind of stuff works when it is all as crooked as a dog's hind leg.

It'll all happen again and everybody will wonder why all over again.

Creates more ennui than anything else.

James Cole:

How many of these models are taking into account the Debt burden governments and consumers are under? Graphs of debt show the present situation is unprecedented.

I assume the graphs also assume constant government spending at federal, state and local levels. Can that continue? How many who call end of recession and no double dip ever called the recession in the first place? Zero most likely.

What makes them believable this go around? We are bound to rebound on an almost unlimited spending of future revenue that has taken place. The forecasters believe in their souls that that spending will continue for eternity. Debt, credit contraction, unemployment, House price deflation. But wait, the Fed juiced the friggen stock market! All is well. Let's see five years down the road! When the US has borrowed another 6-7 trillion!

So we can go back to where we were? Debt fuels the economy? Wake up. Total debt in the US dropped this quarter over last, that even with the massive government borrowing?! Debt has to come out of the system, no one has the income to service it anyways. Credit is coming back? Not yet it ain't.


For there to be a double dip, you have to come out of the downturn. How can anybody say we have come out of the downturn when unemployment is increasing and the consumer accounts for 70% of the economy?

Sounds to me that TPB are looking to change sentiment by proclaiming that the worst is over, and it's a great time to start buying again.

CauseAnd Effect:

I think even Summers came out and said that we'll have chronically high unemployment for a number of years to come. The big question is about interest rates. Without more stimuli, how can the party continue? And rising rates would hamper the stimuli-economy we now have.

black swan:

Haven't done the numbers and don't know if it's true, but here it is:

I guess I must be on the wrong page--

A vehicle at 15 mpg and 12,000 miles per year uses 800 gallons a year of gasoline.

A vehicle at 25 mpg and 12,000 miles per year uses 480 gallons a year.

So, the average clunker transaction will reduce US gasoline consumption by 320 gallons per year.

They claim 700,000 vehicles, so that's 224 million gallons / year.

That equates to a bit over 5 million barrels of oil.

5 million barrels of oil is about 25% of one day’s US consumption.

And, 5 million barrels of oil costs about $350 million dollars at $75/bbl.

So, we all contributed to the spending of $3 billion to save $350 million!

How good a deal was that?

I’m sure they’ll do a great job with health care though.

Dr Evil:

Very good piece.......

Bailout Lies Threaten Your Savings
by Daniel Amerman

Tin Hat:

More sinking sounds?

From Bloomberg:

It’s the U.S.’s turn to flood the world with cheap funding and the risks of this going wrong are huge.

The carry trade has never been a proud part of Japan’s post-bubble years. Officials in Tokyo rarely talk about the yen’s role in funding risky or highly leveraged bets on markets from Zimbabwe to New Zealand. Japan never set out to become a giant automated teller machine for speculators.

It was a side effect of policies aimed at ending deflation.

Now imagine what might happen if the world’s reserve currency became its most shorted.
DXY at 76.38

[Sep 17, 2009] Stock Market Rally: Shenanigans Abounding

September 16, 2009 | Jesse's Café Américain
This is just an opinion, and it could be wrong, as all opinions may be.

To be long US equities at this point seems risky, bordering on reckless, for anything but a daytrade. And there is plenty of that going on.

The US markets in general have every mark of a maturing Ponzi scheme in the steady run ups on weakness, and the ramps into the close with the selling after hours on weak volumes.

But why?

Thursday is option expiration, a quadruple witch as we recall. September is one of the big ones, often setting up declines in the month of October. Further, we have Rosh Hoshanah beginning at sundown on Friday September 18. As the saying goes, Sell Rosh HaShana and Buy Yom Kippur.

The government is anxious to encourage 'confidence' to the extent of skewing the statistics to create hope in the public, the consumers. The banks are flush with liquidity, but really have no place to put it but for a minimal return at Treasury, or in some hot money trades.

Where is Goldman Sachs business revenue and profit coming from now? How much real investment banking is being done? How much M&A activity and IPOs are there to sustain it at this size, unscathed by the recent market downturns?

Obama and his team have NO credibility for reform on Wall Street after their handling of Goldman Sachs and the AIG payouts. We hear that Goldman had shopped the idea of those derivatives to them, became their biggest customer, and then managed the 100 cents on the dollar payouts from the government even as AIG became hopelessly insolvent.

Bonds, stocks, metals, sugar, cocoa, and oil are all moving higher, while the dollar sinks. Is the dollar funding a new carry trade?

The markets are increasingly the flavor of choice, and if the markets do not show a way, they will make one. Volatility is a screaming buy. Put vertical spreads are remarkably cheap.

Be careful. October looks to be the stormiest of months, if we hold out until then. The market is overdue for a correction, which can be up to 20%. Given the distance we have come on thin volume, what may make this correction shocking is the speed with which it will come.

Watch the VIX.

We remain guardedly 'optimistic' on the markets for next year ONLY because of the Fed's and Treasury's willingness to continue to debase the dollar to cover the massive unrealized losses in the banks' portfolios, even as they return to manipulating markets in business as usual.

Inflation is good for financial assets, and we think another bubble is in the cards, at least for now given Obama's unwillingness to reform, unless some exogenous event or actor intervenes. The other troubling thing is the lack of vigor in the real economy. The stagnation in median real wages is strangling the middle class. There can be no resurgent economy without them.

As much of an outlier it might seem, it is possible that Bernanke and the Treasury might lead the US into a stagnation similar to Japan, but with stagflation, because of their policy errors driven by the distorting demands of an outsized and corrupting financial sector.

Wall Street is throwing buckets of money at Washington to fight even a moderate reform such as a financial 'consumer protection agency.' These fellows will never quit, until they are stopped. And it does not appear that Obama and his cronies have the traction or the fortitude to get the job done.

Until the banks are restrained, and the financial system is reformed, and balance is restored to the economy, there will be no sustained recovery.

[Sep 17, 2009] "Great Benefit is like a Giant Slot Machine that never pays off" by reader RDan

“Great Benefit is like a Giant Slot Machine that never pays off”. The RainMaker, John Grisham

Private Healthcare Insurance companies paid off for those from whom they can profit. The rest of us who are costly because of age, disorders, or illness are bound to find ourselves without private insurance and too young or high in income for government insurance. Private healthcare insurance is not insurance, it is speculation, a gamble upon your health and the returns from your premium. Those who have healthcare insurance are those insured by the government.

“This builds into another favorite Grisham premise -- that the idea that the courts are jammed with nuisance lawsuits is backward. Average people haven't a clue as to their rights because the law has become as removed and alien as another planet, Grisham suggests.” “Grisham Is Back In Court”

The push to reform medical malpractice laws focuses on lawsuits being the cause for higher insurance costs for doctors, driving doctors out of practice, and as a major contributor to overall healthcare cost. In the past, I have answered on the question of medical malpractice lawsuits and the impact on healthcare costs. Not having a degree in law, I can not answer for the legality of lawsuits; but, I can continue to point out the insignificance of medical malpractice lawsuit cost on the overall healthcare cost. I will add, it would make sense to modify medical malpractice law if people did not have to pay out $thousands to care for themselves or someone else who has suffered temporary or permanent debilitating injury as a result of a doctor, hospital, corporation, or medical practice’s negligence. If universal healthcare were in place, the need for a major component of malpractice law suits, awards for hospitalization or nursing care, could potentially be nullified. Today without such a plan in place, it is inconceivable to eliminate the only manner in which an individual can recoup expenses from a hospital, a corporation, or a doctor’s practice/business when nothing exists to take care of the victim.

“Because it’s (tort reform) a red herring. It’s become a talking point for those who want to obstruct change. But [tort reform] doesn’t accomplish the goal of bringing down costs.”
It is claimed the vast number of malpractice lawsuits drive up healthcare costs at a rate of 10 - 15% per year. The reality with malpractice suits is an increase in the cost of healthcare of ~1.5% or ~ $31 billion (2007) against a $2 trillion healthcare economy. What is driving up the cost of healthcare and healthcare insurance are overhead and administrative costs, an aging population, chronic illness, a growing population of people with poor life style habits, fragmentation of the industry, technological advances, poor planning, and the wealth of the populace who have more disposable income.

Comments on how doctors are practicing increased defensive medicine because of potentially being sued are not as true as some would have us believe. What has been found are doctors practicing medicine consistent within the standards and practices of the region in which the doctors are located. A 1996 Florida study did find a potential 5-7% increase in costs as a result of Florida’s doctors practicing defense healthcare with regard to heart disease. After a few years, the same authors rechecked the percentages and found the potential cost increases dropped to 2.5 – 3.5% with this drop coming about after managed healthcare came into being.

As are the plaintiffs bringing medical malpractice lawsuits, lawsuits are an easy target to vilify. It gives most people and critics vision of $millions in “sugar plums” being unjustly awarded for little or no reason. Medical malpractice lawsuits are the poster child for the rising costs of healthcare and insurance even when they have little impact. In any case, the elimination of malpractice suits will do little to slow the rising cost of healthcare or insurance and as Prof Baker points out a “red herring used to obstruct change.” Many states already have caps on malpractice awards ranging from $250,000 to $500,000 for pain and suffering and these caps do not index for inflation. The visions of $millions being recouped do not exist for most plaintiffs.

In the period of 1991 – 2005 82% of malpractice rewards went to injuries such as death (~32%), significant permanent injury (~19%), major permanent injury (~19%), and quadriplegic, brain, and lifelong care (~13%). The average medical malpractice award in 1991 was ~$281,000 and grew to ~$486,000 in 2005. When adjusted for inflation, the average for 2005 decreases to ~$260,000 or a decrease of ~8% in the size of malpractice awards when compared to 1991. The false premise of being awarded $millions typically does not happen. ~2.4% of payments in 2005 were > $1 million and ½ of 1% were > $1 million over the 1991-2005 period. A botched nose job causing emotional injury was < than 1% of awards (~$12,000) while awards for insignificant injury were < than ½ of 1% (< $10,000) of the total in 2005. Sizeable awards do not happen the way the critics describe as judges will reduce awards and attorneys flat out will not take them. Again, overall there is little evidence of runaway juries or litigious plaintiffs. (“The Medical Tort Reform Debate” 2007) Targeting Malpractice Lawsuits for healthcare reform will not solve the issue of healthcare cost and is a waste of time.

Read More on ""Great Benefit is like a Giant Slot Machine that never pays off""

Comments (18)|

Selected Comments


As a former plaintiff's PI lawyer who did some medical malpractice, I have been waiting for 20 years for someone in the media to articulate this argument for a public health care option -  it, not tort reform, could drive down the cost of medical malpractice. 

Meaningful discipline of doctors who make mistakes, better processes for avoiding them in the first place, and a reliable system that would provide the continuing care that victims need, might drive down the cost of health. 

Tort reform is a right-wing snow job. Repubs want tort reform so they limit the amount that plaintiff lawyers make, because plaintiff lawyers are a big source of campaign funds for Democrats.  But neither side serves the cause of good public policy and the welfare of the general public.

As for rising costs because of rising demand, has anyone even mentioned the exclusivity of medical education in this country, the huge costs - med school grads with debt of $150,000 and more, etc., etc.  Doctors in some European countries can still go to medical school without paying tuition.


Tort-reform has worked in lowering medmal premiums when looked at in states that are adjacent to each other, such as Illinois, which doesn't have it, and Indiana which does where Indiana medmal premiums are significantly lower.     
If medmal insurance was such a profitable business, why did the market share leader (St. Paul) completely exit the market in 2002?    
If medmal was as legitimate as presented in the original post, the frequency of claims by medical specialty should be fairly equal.  Instead, certain specialties seem to attract the doctors (in the eyes of defenders of current tort system) that are most likely to commit malpractice - as measured by claim frequency.    
The average medical malpractice award in 1991 was ~$281,000 and grew to ~$486,000 in 2005. When adjusted for inflation, the average for 2005 decreases to ~$260,000 or a decrease of ~8% in the size of malpractice awards when compared to 1991. 
The nominal increase was 3.7% a year.  The only way to get a decline in real terms is to assume that the "adjust[ment] for inflation" is greater than 3.7%.  CPI increased 2.4% over the same period.

John Kenneth Galbraith´s "The Great Crash"

Having started reading John Kenneth Galbraith´s "The Great Crash: 1929" I cannot help but make a few observations. An old and esteemed professor of mine used to tell us that what was important in critical reading and writing was to answer these three questions: "What does it say? What does it mean? What difference does it make?" Today I can only address the first of these questions, saving the rest for later, hopefully. But back to the first chapter of "The Great Crash."

"[F]or a generation Democrats have been warning that to elect Republicans is to invite another disaster like that of 1929. The defeat of the Democratic candidate in 1952 was widely attributed to the unfortunate appearance at the polls of too many youths who knew only by hearsay of the horrors of those days."

"Historians and novelists always have known that tragedy wonderfully reveals the nature of man. But, while they have made rich use of war, revolution, and poverty, they have been singularly neglectful of financial panics. And one can relish the varied idiocy of human action during a panic to the full, for, while it is a time of great tragedy, nothing is being lost but money."

"On the whole, the greater the earlier reputation for omniscience, the more serene the previous idiocy, the greater the foolishness now exposed. Things that in other times were concealed by a heavy facade of dignity now stood exposed, for the panic suddenly, almost obscenely, snatched this facade away."

"No one was responsible for the great Wall Street crash. No one engineered the speculation that preceded it. Both were the product of the free choice and decisions of hundreds of thousands of individuals. The latter were not led to the slaughter. They were impelled to it by the seminal lunacy which has always seized people who are seized in turn with the notion that they can become very rich."

"It has long been my feeling that the lessons of economics that reside in economic history are important and that history provides an interesting and even fascinating window on economic knowledge."

"Finally, a good knowledge of what happened in 1929 remains our best safeguard against the recurrence of the more unhappy events of those days. Since 1929 we have enacted numerous laws designed to make securities speculation more honest and, it is hoped, more readily restrained."

"The signal feature of the mass escape from reality that occurred in 1929 and before - and which has characterized every previous speculative outburst from the South Sea Bubble to the Florida land boom - was that it carried Authority with it. Governments were either bemused as were the speculators or they deemed it unwise to be sane at a time when sanity exposed one to ridicule, condemnation for spoiling the game, or the threat of severe political retribution."
The relevance and parallels to the current crisis should be obvious.

[Sep 17, 2009] J.M.Keynes on The Long Term Problem of Full Employment

"We picked increased consumption to leisure and kept on working ourselves to death in a neverending rat´s race to keep up with the Joneses and driven by manufactured wants. What exactly is it about the 8 hour work day that is sacrosanct?"
September 15, 2009 |

This has been posted again and again by the good folks at econospeak and I will do my part to try to disseminate the "memo."


J.M. Keynes (May 1943):

1. It seems to be agreed today that the maintenance of a satisfactory level of employment depends on keeping total expenditure (consumption plus investment) at the optimum figure, namely that which generates a volume of incomes corresponding to what is earned by all sections of the community when employment is at the desired level.

2. At any given level and distribution of incomes the social habits and opportunities of the community, influenced (as it may be) by the form and weight of taxation and other deliberate policies and propaganda, lead them to spend a certain proportion of these incomes and to save the balance.

3. The problem of maintaining full employment is, therefore, the problem of ensuring that the scale of investment should be equal to the savings which may be expected to emerge under the above various influences when employment, and therefore incomes, are at the desired level. Let us call this the indicated level of savings.

4. After the war there are likely to ensure [sic] three phases-
(i) when the inducement to invest is likely to lead, if unchecked, to a volume of investment greater than the indicated level of savings in the absence of rationing and other controls;
(ii) when the urgently necessary investment is no longer greater than the indicated level of savings in conditions of freedom, but it still capable of being adjusted to the indicated level by deliberately encouraging or expediting less urgent, but nevertheless useful, investment;
(iii) when investment demand is so far saturated that it cannot be brought up to the indicated level of savings without embarking upon wasteful and unnecessary enterprises.

5. It is impossible to predict with any pretence to accuracy what the indicated level of savings after the war is likely to be in the absence of rationing. We have no experience of a community such as ours in the conditions assumed, with incomes and employment steadily at or near the optimum level over a period and with the distribution of incomes such as it is likely to be after the war. It is, however, safe to say that in the earliest years investment urgently necessary will be in excess of the indicated level of savings. To be a little more precise the former (at the present level of prices) is likely to exceed £m1000 in these years and the indicated level of savings to fall short of this.

6. In the first phase, therefore, equilibrium will have to be brought about by limiting on the one hand the volume of investment by suitable controls, and on the other hand the volume of consumption by rationing and the like. Otherwise a tendency to inflation will set in. It will probably be desirable to allow consumption priority over investment except to the extent that the latter is exceptionally urgent, and, therefore, to ease off rationing and other restrictions on consumption before easing off controls and licences for investment. It will be a ticklish business to maintain the two sets of controls at precisely the right tension and will require a sensitive touch and the method of trial and error operating through small changes.

7. Perhaps this first phase might last five years,-but it is anybody's guess. Sooner or later it should be possible to abandon both types of control entirely (apart from controls on foreign lending). We then enter the second phase, which is the main point of emphasis in the paper of the Economic Section. If two-thirds or three-quarters of total investment is carried out or can be influenced by public or semi-public bodies, a long-term programme of a stable character should be capable of reducing the potential range of fluctuation to much narrower limits than formerly, when a smaller volume of investment was under public control and when even this part tended to follow, rather than correct, fluctuations of investment in the strictly private sector of the economy. Moreover the proportion of investment represented by the balance of trade, which is not easily brought under short-term control, may be smaller than before. The main task should be to prevent large fluctuations by a stable long-term programme. If this is successful it should not be too difficult to offset small fluctuations by expediting or retarding some items in this long-term programme.

8. I do not believe that it is useful to try to predict the scale of this long-term programme. It will depend on the social habits and propensities of a community with a distribution of taxed income significantly different from any of which we have experience, on the nature of the tax system and on the practices and conventions of business. But perhaps one can say that it is unlikely to be less than 7 per cent or more than 20 per cent of the net national income, except under new influences, deliberate or accidental, which are not yet in sight.

9. It is still more difficult to predict the length of the second, than of the first, phase. But one might expect it to last another five or ten years and to pass insensibly into the third phase.

10. As the third phase comes into sight; the problem stressed by Sir H. Henderson begins to be pressing. It becomes necessary to encourage wise consumption and discourage saving,-and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours.

11. Various means will be open to us with the onset of this golden age. The object will be slowly to change social practices and habits so as to reduce the indicated level of saving. Eventually depreciation funds should be almost sufficient to provide all the gross investment that is required.

12. Emphasis should be placed primarily on measures to maintain a steady level of employment and thus to prevent fluctuations. If a large fluctuation is allowed to occur, it will be difficult to find adequate offsetting measures of sufficiently quick action. This can only be done through flexible methods by means of trial and error on the basis of experience, which has still to be gained. If the authorities know quite clearly what they are trying to do and are given sufficient powers, reasonable success in the performance of the task should not be too difficult.

13. I doubt if much is to be hoped from proposals to offset unforeseen short-period fluctuations in investment by stimulating short-period changes in consumption. But I see very great attractions and practical advantage in Mr Meade's proposal for varying social security contributions according to the state of employment.

14. The second and third phases are still academic. Is it necessary at the present time for Ministers to go beyond the first phase in preparing administrative measures? The main problems of the first phase appear to be covered by various memoranda already in course of preparation. insofar as it is useful to look ahead, I agree with Sir H. Henderson that we should be aiming at a steady long-period trend towards a reduction in the scale of net investment and an increase in the scale of consumption (or, alternatively, of leisure) but the saturation of investment is far from being in sight to-day The immediate task is the establishment and the adjustment of a double system of control and of sensitive, flexible means for gradually relaxing these controls in the light of day-by-day experience

I would conclude by two quotations from Sir H. Henderson's paper, which seem to me to embody much wisdom.

"Opponents of Socialism are on strong ground when they argue that the State would be unlikely in practice to run complicated industries more efficiency than they are run at present. Socialists are on strong ground when they argue that reliance on supply and demand, and the forces of market competition, as the mainspring of our economic system, produces most unsatisfactory results. Might we not conceivably find a modus vivendi for the next decade or so in an arrangement under which the State would fill the vacant post of entrepreneur-in-chief, while not interfering with the ownership or management of particular businesses, or rather only doing so on the merits of the case and not at the behests of dogma?

"We are more likely to succeed in maintaining employment if we do not make this our sole, or even our first, aim. Perhaps employment, like happiness, will come most readily when it is not sought for its own sake. The real problem is to use our productive powers to secure the greatest human welfare. Let us start then with the human welfare, and consider what is most needed to increase it. The needs will change from tune to time, they may shift, for example, from capital goods to consumers' goods and to services. Let us think in terms of organising and directing our productive resources, so as to meet these changing needs, and we shall be less likely to waste them."
There is some serious food for thought here, especially that it "becomes necessary to encourage wise consumption and discourage saving,-and to absorb some part of the unwanted surplus by increased leisure, more holidays (which are a wonderfully good way of getting rid of money) and shorter hours." But this train has left the station. We picked increased consumption to leisure and kept on working ourselves to death in a neverending rat´s race to keep up with the Joneses and driven by manufactured wants. What exactly is it about the 8 hour work day that is sacrosanct? Why does the conventional wisdom insist on equating happ but with no player or group of players able to bail out the US of Bananamerica.

And of course, it will all be a “complete surprise and shock, something no one could have predicted”.

Rally on, lemmings — the direction is upward.

Cvienne, will you be taking on any serfs at your plantation?


I thought Andy Xie’s “big down in earlier 2010″ sounded good but fresh voices who weren’t perma bearish have the spotlight now. What do you think HairyWang, is there another big down?


My point? at 1,200 (assuming we get there), your 10% ‘correction’ is going to end up being an AVALANCHE… After all, who wants to make 10% when you’re used to 50% or 60%… The PATH OF LEAST RESISTANCE at 1200 will be to annihilate equities…


September 15th, 2009 at 9:52 pm
Some things to add:

1) No one can predict the future, so when you say this or that “will” happen, that means you are misperceiving the risk and the nature of “reality”. If you think the money pumping guarantees anything, you are wrong. It makes a certain outcome much more probable, not “a given”…

2) After massive declines, it is common for equities to rally massively. In order for another decline to unfold, this has to happen in order to shift the sentiment to a position where people become sure of the rally, thus creating the context for another decline.

3) Even when the S&P was 700, it was possible to look at a long term chart and guess that their was a high probability that there would be a rebound of the price into the declining moving averages at around 1100. That initial fall was too far too fast and the prices were so far blow their moving averages that a mean reversion such as what we are seeing was highly likely. The surprise was not that the market rallied hard, it was that their was no real substantial pullback on the way up.

4) In 1982, the DJIA was 1000. In 2007, the DJIA was 14,000. Yet, the overall prosperity and the purchasing power of the dollar has decreased markedly. The moves we have made and are making in equities are nominal gains… The SP500 can go to 3000, that doesn’t mean things are necessarily getting any better.

5) I have a question for H Wang… I know you consider this unlikely but what happens if we rally into the 1200 area on the S&P500 and then we start declining. When do you sell? Lets say we retrace to 1050, which would then be acting as support. We hold support. Then after a small bounce to 1100, we breakdown. Do you sell at 1000? Do you sell at 950? How about 850? or 750? Can you be wrong? And, where would we have to get to on the S&P500 for you to admit that you were wrong? Assuming, of course that the market does not continue to behave as you suspect it will…


but i am glad barry has atleast given the name of the stocks he is long…

of course if the market reverses…he will say his stops took him out.

one thing i have learnt watching the market: smart people make more money by selling advice/products/services than trying to use their advice with their own money .

i still remember doug kass was buying financials in dec 08.

and of course how can i forget barry’s own “bear market rally” is expected any day/week. I did not know bear market rallies may go 50% higher or more.

whats working right now which was a big unknown in Feb/march …govt taking over the private loss into its own balance sheet(couple of trillions…and i can show you profits in future).

if anyone in the world really beleives they can time the market….i would love to pay money to subcribe for some real time advice….if they can make even 6% return in a year, they will be billionaires due to the subscription fee…..but its not going to happen…..since nobody can understand a market which has a margin of error of 50% (it can go down or up 50% with fundamentals remaning the same)

[Sep 16, 2009] energy shares boost market

 MSN Money


I just did some research based on exhaustion of unemployment benefits based on info from Lance Robert's radio program Street Talk Live.  When you factor in the expiration of unemployment benefits and add in the current unemployment rate you get a 16% national average unemployment rate.

Non Auto related retail sales were actually up 1.1% and this can be attributed to replace of basic goods and back to school. The cost of goods and oil prices are going up again based on all this GOOD NEWS.

Sounds like Ben the Rat is trying to pad the markets to get back all the money he lost last year before the market goes south next month.  Other reports show there is a lot of insider selling of corporate stocks and buying of corporate bonds.

 The only recovery we are going to see is when the government scales back on spending, small businesses are helped to create jobs and wages return to where the cost of living is.

We need a complete change in our elected officials starting in 2010.  Vote everyone out up for re-election and start over.  Until our politicians understand they work for us and are not in their elected seats to fill their pockets nothing will change in this economy.

[Sep 16, 2009] For all Obama's talk of overhaul, the US has failed to wind in Wall Street Joseph Stiglitz Comment is free The Guardian

What went wrong? Have the right lessons been learned? Could it happen again? The anniversary of the Lehman Brothers' bankruptcy and the freezing of the credit markets that followed is an occasion for reflection. I fear that our collective response has been mistaken and inadequate – that we may just have made matters worse.

The financial sector would like us to believe that if only the Federal Reserve and the Treasury had leapt to the rescue of Lehmans all would have been fine. Sheer nonsense. Lehmans was not a cause but a consequence: a consequence of flawed lending practices, and of inadequate oversight by regulators.

Financial markets had lent on the basis of a bubble – a bubble in large part of their making. They had incentive structures that encouraged excessive risk-taking and shortsighted behaviour. And that was no accident. It was the fruit of vigorous lobbying, which strived equally hard to prevent regulation of changes in the financial structure, new products like credit default swaps – which, while supposedly designed to manage risk, actually created it – and ingenious devices to exploit poor and uninformed borrowers and investors. The sector may not have made good economic investments, but its political investments paid off handsomely.

Lehmans was allowed to fail, we were told at the time, because its failure did not pose systemic risk. The systemic consequences its failure entailed, of course, were used as an excuse for the massive bailouts for the banks. Thus the Lehmans example became at best a scare tactic; at worst it became an excuse, a tool, to extract as much as possible for the banks and the bankers that brought the world to the brink of economic ruin.

Had more thought gone into how to deal with Lehmans, the Treasury and Fed might have realised that it played an important role in the shadow banking system, and that it was important to protect the integrity of the shadow system which had come to play such an important role in the US and global financial payments system. But many of Lehmans' activities had no systemic importance. The administration could have found a path between the false dichotomy of abandonment or bailout. That would have protected the payments system, providing the minimum amount of taxpayer money. Shareholders and long-term bondholders would have been wiped out before any public money had to be put in.

Bailing out the US banks need not have meant bailing out the bankers, their shareholders, and bondholders. We could have kept the banks as ongoing institutions, even if we had played by the ordinary rules of capitalism which say that when a firm can't meet its obligations to creditors, the shareholders lose everything.

Unquestionably we should not have allowed banks to become so big and so intertwined that their failure would cause a crisis. But the Obama administration has created a new concept: institutions too big to be resolved, too big for capital markets to provide the necessary discipline. The perverse incentives for excessive risk-taking at taxpayers' expense are even worse with the too-big-to-be-resolved banks than they are at the too-big-to-fail institutions. We have signed a blank cheque on the public purse. We have not circumscribed their gambling – indeed, they have access to funds from the Fed at close to zero interest rates, and it appears that "trading profits" have (besides "accounting" changes) become the major source of returns.

Last night Barack Obama defended his administration's response to the financial crisis, but the reality is that a year on from Lehmans' collapse, it has failed to take adequate steps to restrict institutions' size, their risk-taking, and their interconnectedness. Indeed, it has allowed the big banks to become even bigger – just as it has failed to stem the flow of profligate executive bonuses. Obama's call on Wall Street yesterday to support "the most ambitious overhaul of the financial system since the Great Depression" is welcome – but the devil, as ever, will be in the detail.

There remain many institutions willing and able to engage in gambling, trading and speculation. There is no justification for this to be done by institutions underwritten by the public. The implicit guarantee distorts the market, providing them a competitive advantage and giving rise to a dynamic of ever-increasing size and concentration. Only their own managerial competence, demonstrated amply by a few institutions, provides a check on the whole process.

The Lehmans episode demonstrates that incompetence has a price. That there would be serious problems in our financial institutions was apparent since early 2007, with the bursting of the bubble. Self-deception led those who had allowed the bubble to develop, who had looked the other way as bad lending practices became routine, to think that the problems were niche or temporary. But after the fall of Bear Stearns, with rumours that Lehmans was next, the Fed and the Treasury should have done a serious job of figuring out how to manage an orderly shutdown of a large, complex institution; and if they determined that they lacked adequate legal authority, they should have requested it.

They appear, remarkably, to have been repeatedly caught off-guard. They claim in the exigency of the moment they were doing the best they could. There was no time for thought. And that explains how they veered from one solution to another: after saying that they did not want to bail out Lehmans because of a concern about moral hazard, they extended the government's safety net further than it had ever been. Bear Stearns extended it to investment banks, and AIG to all financial institutions. Perhaps they were doing the best they could at the time; but that is no excuse for not having anticipated the problems and been better prepared.

Lehman Brothers was a symptom of a dysfunctional financial system and regulatory failure. It should have taught us that preventing problems is easier, and certainly less costly, than dealing with them when they become virtually intractable.


 "Lehmans was allowed to fail, we were told at the time, because its failure did not pose systemic risk."

Are you sure that the real reason it was allowed to fail isn't simply that it was pushed into failure by the clique of Goldman Sachs people running the show at the Fed and Treasury? How convenient to get rid of one of their major rivals, while bailing out AIG a couple of days later. Of course, it's completely coincidental that AIG owed Goldman Sachs in the region of $14 billion, and that Paulson (Treasury Secretary) stood to lose several million dollars in stock options...

I increasingly agree with the Chinese that the way forward os to remove the USD as the main reserve currency and replace it with SDRs. That change of itself would require the US to balance its current account and live within its means.

A change to bank accounting rules is also well overdue. Vastly more conservative valuation of assets is required.

The time has long past when the world can justify supporting what has become little more than a parasite nation, and that is just what the US has become. It needs to clean up its act, as does the UK.


Stiglitz is restating the obvious. That is not going to solve anything. How about some random exemplary punishments? That would fix it at least for a while. The problem today is that nobody is afraid of Obama or his talk. We need some well publicized perp walks.

All of these financial guys have something that can be investigated and charged and almost any of them can be picked up at random. Pick a few, make it into a spectacle, charge them, give it some publicity - and watch everybody else behave overnight. These guys are pussies, they have no stomach for courts, they are golf-playing a-holes who bath in smelly soaps and mostly dream of taking as much $ as they can and getting away to some tropical island. They run at first sign of actual trouble.

Power only matters when it is exercised. Obamas and Browns seem to be paralyzed by fear. It should be the other way around. Or they just demonstrate that they might be selected by the "people", but they know who they work for.

Today the calculus is totally onesided; there is no downside to behaving in a totally self-serving way. It would be easy to fix, even Bushites went after Enron (unwillingly), what kind of amoebas are running the Western world that they can't understand how power is exercised?


We have signed a blank cheque on the public purse. We have not circumscribed their gambling – indeed, they have access to funds from the Fed at close to zero interest rates, and it appears that "trading profits" have (besides "accounting" changes) become the major source of returns.

with respect, "we" have done nothing of the sort, unless you're talking to the banking class who finance & OWN the mouthpiece called "elected" governments.

the looting of nationstates continues as per agenda.

over in amrrkkka, a woman with the banking leeches on her back has decided to fight back:

Minch said that regular folks will continue getting "bent over" by the government and the global financial industry unless consumers take a stand.

"Tea parties and letters to representatives hasn't done squat," she said. "We need to form a cyber revolution."

she's created a video and a letter to Bank of America's CEO:

"If you would like to collect payment for this account, it will be necessary for you to view my video and then contact me with your response," she wrote. "The video will take less than 5 minutes of your time, which I know must be extremely valuable because of the gargantuan amount of money you are paid."

really, all that's left is to REALISE what is actually going down, and dis-engage from the system that is designed to screw you.


The US is a country which has been living beyond its means for years. That's why it has a persistent balance of payments problem, and the projected US government deficit for the next two years reported exceeds the total value of world savings. Funnily enough, the US government has been in China recently, talking to the #1 creditor about life, the universe and how they propose to pay their bills.

The US now needs to remember that it is the world's largest debtor, and as Kenneth Rogoff has observed before, it's no longer the master of its own fate.
There are quite a few straws in the wind here, and for America the signs are all bad.

The FT has been reporting for some time that the Bank of China is keen to replace the USD with SDRs (possibly redefined; as I expect would be the voting at the IMF – the #1 creditor will be wanting a very big say in the future, and that seems entirely reasonable) as the world's major reserve currency. For the US that would mean they would have to balance the national accounts for the first time for many years. That would be traumatic.

The Asia Times reported some months ago now that the Chinese have been lending money to central Asian governments (in USD) to develop their oil fields. Repayment was in oil at a specified rate.

The NY Times reported some weeks ago that China had sold down its holdings in long term Treasuries, and now had very few holding where the maturities were more than one year off; they are protecting themselves against possible US inflation.

Not so long ago the FT reported that the Chinese are now embarking on a process of investing their reserves in western businesses. The first purchase was a large tranche of shares in Diageo. There have been several more deals lined up since then.

The pattern is clear: the US economy isn't seen as having a good long term future.

The point here is that this profligate behaviour is going to damage all American's prospects, I'd be very frightened if I lived there and couldn't leave.



"It is a good thing that Obama has not restricted banks. They work fine"

Is that your CIA analysis or you have a pipe line to the god of economics, through the Bush megalomaniac, compulsive-obsessive, sociopath, his divine religious mandate, being the messenger of his god, dictates from master Karl Rove, Limbaugh, Glen Beck and the rest of the like minded conservative republicans, their perversity of inequality, rights of their / your kind. Or you just received hefty bonus, as an incentive to keep churning out the usual crap.

Here here folks the man says that the banks are doing a fine job ?


Well of course not. Obama may talk tough in speeches but he knows where his bread is buttered. He and most members of Congress receive campaign contributions from the major shareholders of these banks. The US government will do whatever Wall Street tells them to do. That's what they're paid for.

Stephen Mihm, a history professor at the University of Georgia and author of "A Nation of Counterfeiters" has a very interesting article, about an unorthodox economist, in the Boston Globe which ends thus:

Minsky, however, argued for a "bubble-up" approach, sending money to the poor and unskilled first. The government - or what he liked to call "Big Government" - should become the "employer of last resort," he said, offering a job to anyone who wanted one at a set minimum wage. It would be paid to workers who would supply child care, clean streets, and provide services that would give taxpayers a visible return on their dollars. In being available to everyone, it would be even more ambitious than the New Deal, sharply reducing the welfare rolls by guaranteeing a job for anyone who was able to work. Such a program would not only help the poor and unskilled, he believed, but would put a floor beneath everyone else's wages too, preventing salaries of more skilled workers from falling too precipitously, and sending benefits up the socioeconomic ladder.

While economists may be acknowledging some of Minsky's points on financial instability, it's safe to say that even liberal policymakers are still a long way from thinking about such an expanded role for the American government. If nothing else, an expensive full-employment program would veer far too close to socialism for the comfort of politicians. For his part, Wray thinks that the critics are apt to misunderstand Minsky. "He saw these ideas as perfectly consistent with capitalism," says Wray. "They would make capitalism better."

But not perfect. Indeed, if there's anything to be drawn from Minsky's collected work, it's that perfection, like stability and equilibrium, are mirages. Minsky did not share his profession's quaint belief that everything could be reduced to a tidy model, or a pat theory. His was a kind of existential economics: capitalism, like life itself, is difficult, even tragic. "There is no simple answer to the problems of our capitalism," wrote Minsky. "There is no solution that can be transformed into a catchy phrase and carried on banners."


You're assuming that the Adminstration says "jump" and everyone just takes off. Things just don't work that way, especially in the US.

It may appear that things are like that if the interests of the government and the banks coincide ("more deregulation?" -- but of course!) but you can bet that any attempt to go the other way is going to be a serious fight.

Look at the problem with health care. We've got a situation where an industry has become unsustainable, its not doing its job properly which is resulting in problems for many and quite significant costs to the public purse. Tinkering with the system -- for that's all the Administration is proposing to do -- has unleashed a firestorm as well funded special interests use every means at their disposal to delay, disrupt and destroy. The banking system's the same. We all know its got problems. We all know why its got these problems and we all know its got to be fixed because its costing us all a lot of money. But once again any attempt to tinker will unleash a firestorm.

(Astute observers will notice that the people who are mobilized as part of this effort are often the beneficiaries of the things they're protesting about -- they are, in effect, being persuaded to lobby against their own interests. This shows you just how difficult effecting change is.)

(Astute observers will also notice that the people chosen to organize and administer any overhaul are insiders so they'll want just enough of a change to get the system running nicely but not enough to prevent it from developing its next dubious scheme.)

These industries aren't going to have it all their way despite their lobbying efforts and general obstructiveness. Wall St. -- the "Financial Services Industry" -- is a dead duck as far as many people are concerned. So while they may want to securitize life insurance (the latest wheeze for converting real value into paper of dubious value) there's absolutely no way that I, for one, would put any money their way. The game's over.


Prevention is better than Cure.

Regulate now, e.g like gravity - externally, systemicaly, not in-house.

Ignore the nonsense of laissez-faire and Randianism 'Objectivism'.

20x salary differentials between the top and the bottom.


It is now clear that crony capitalism will again win both in the US and the UK.
No new regulations will be put in place. The major change is that in
the future banksters can be certain that if their gambling results in major
losses then the public will foot the bill.

The big question is what should have been done. Here are a few suggestions:

1. At the bottom of the pyramid scheme was the liar loans. Prosecute
everybody involved in this massive fraud.

2. Make naked Credit Default Swaps illegal.

3. Regulate the rest of the CDSs as normal insurance.

4. Make naked short selling illegal.

5. Set strict limits on leverage in the financial industry. Lehman had an insane leverage of 44.

6. The rating agencies which are paid by the companies they rate have completely failed. Perhaps it is time to create public independent rating agencies.

7. Separate investment and commercial banking i.e. repeal the Gramm-Leach-Bliley Act.

8. Split up financial companies that are "too large to fail" by new stringent anti-trust legislation.

9. Close down off-shore taxhavens.

10. Stop high-frequency trading.

11. Tax speculation much harder by for example a Tobin tax.

12. Do not allow pension funds to invest in hedge funds or complicated securities.

13. Outlaw financial instruments that have no value to society. For example the
new ideas of using life insurance instead of subprime in derivatives.

14. Keep interest rates high enough to prevent new bubbles to form.

15. Stop allowing rich foreigner to live in the UK without paying taxes.

16. Change the "tax breaks for the rich" to "tax increases for the rich" in the US.

Any other suggestions ?


This time and during the G20 protests, I was not in favour of the lampost solution for bankers, as I thought they were merely obeying orders, and in fact, given the dog-eat-dog rules of the market, that they were only using their fiscal alchemy as a form of self-defence. In the same way that any other arms race demands wholehearted participation.

Now it seems that they were just taking the piss. So when the next attack on RBS comes there will be flames and lots of them.


It would seem to me that all the words and discussions about this just fail to really cast any light on the problem.

The reality is that there is a "managerial elite". This elite which in other times used to be refered to as "captains of industry", is a class unto itself.

This elite plus the politicians govern and manage for the sole benefit of themselves.
There are not two sides to this.

Either they know what they are doing or they are incompetent.

That they are not incompetent is evidenced by the fact that the members of this class are all infinitely better off than the overwhelming majority of the population. In other words they have succeeded in obtaining their objective in life: economic superiority over the majority of mankind.

Doesn't any of the readers realise that in the Soviet Union for example about 5% of the population enjoyed extraordinary perks and privilige, roughly about the same percentage of the population that enjoys extraordinary perks and priviliges in the developed capitalsit economies of the west.

It is a situation that cannot be changed simply because political entities are far too large to govern in a democratic many. Real equality can only be maintained in small social groups that do not exceed ten million people.

One has only to read the entries in these CIF columns to realise that if writers here do not understand the problem change on a national or international scale is highly improbable.


So let me get this straight...

Since the late 70s Chicago economists, the IMF, the US Treasury, bankers and a variety of UK & US politicians have all conspired to de-regulate financial markets, under the pretense that markets work best with as little Government intervention as possible, ultimately resulting in greater equality through the 'trickle down effect'.

Over the past two decades alone it has been shown that wealth in Britain has moved from the poor and the middle classes to the upper classes; the wealth disparity in Britain is the largest it has been since before WW2.

In these past 3 decades we have seen a variety of banking & economic crises': Saving & Loans, Enron, the 'Shock Therapy' of the Eastern European countries, the Asian economic crises and so on.

After the collapse of Lehmans money was borrowed on an unprecedented scale to prop up a system that has been repeatedly observed to have serious flaws.

Here today one year on, despite literally billions of pounds being used to shore up the system, steps are not being taken by our politicians to ensure that this disaster does not happen again. This is criminal negligence, there is no other term for it. In whose interests are our politicians working? Because it is not ours.

The money borrowed to prop up the entire financial system will be re-paid by the taxpayer (you & your children), over the next half a century or so. This re-payment will be felt by the UK taxpayer (you & your children), in the form of bigger class sizes, longer hospital waiting lists, less equipment for our troops, overcrowded prisons etc.

Without exaggeration, this is in fact the greatest shift of public (your) money to private hands in the history of the world. The very richest have stolen from the mouths of you & your children to support a system that has been repeatedly shown to have grave and serious flaws, with potentially devastating effects for our entire civilization.

And I wonder why the hell we are not in the streets about this?


Most of international world trade is conducted in US dollars, thus there is a huge float in limbo held by the banks.

Are there too many dollars in circulation or too few?

Probably there are now more dollars outside the US than inside.

However, the creation of new dollars as debt, ultimately controlled by the Federal Reserve, which is a consortium of private banks.

The term Wall Street used to mean the share trading casino at that location. Here again you swap dollars for other pieces of paper issued by listed corporations. Originally Wall Street brokers raised money from shareholders to expand a business. These days asset stripping, takeovers and firing redundant workers seems to be the foremost activity in an effort to raise share prices to inflate the compensation packages of CEOs rather than the community in general.

This has resulted in concentration of wealth in fewer and fewer hands who now control the media propaganda, elections and therefore legislation. Where does it end ?


"This has resulted in concentration of wealth in fewer and fewer hands who now control the media propaganda, elections and therefore legislation. Where does it end ?.."

A factual truth. The "continuation" seems a "fascist democracy", small wonder people would rather have the opposite of the same coin as in Venezuela or Russia .

What people believed to be "free liberal democracies" were lies that collapsed just like the soviet empire.

Capitalism showing its true colours when it has no longer any ideological competitor and capitalism , private or state, rhymes with economic fascism.

Fascism has no end , it seems to die somewhere, then it re-merges elsewhere with full control of half of the world´s "defense" expenses and "financial" trouble....

The eternal return .

[Sep 16, 2009] "The Tobin Tax Lives Again"

The beauty of a Tobin tax is that it would discourage short-term speculation without having much adverse effect on long-term international investment decisions. Consider, for example, a tax of 0.25 percent applied to all cross-border financial transactions. Such a tax would instantaneously kill the intra-day trading that takes place in pursuit of profit margins much smaller than this, as well as the longer-term trades designed to exploit minute differentials across markets. Economic activity of this kind is of doubtful social value, yet it eats up real resources in terms of human talent, computing power, and debt. So we should not mourn the demise of such trading practices. Meanwhile, investors with longer time horizons going after significant returns would not be much deterred by the tax. So capital would still move in the right direction over the longer term. ...

kharris says...

Robbie has written --

"What the Tobin tax does not do is help with longer-term misalignments in financial markets."

This statement sums up this tax as an unnecessary burden, and while it may shake up the day traders it still does not fix anything. --

That must truly be in the eye of the beholder, because I sure don't see it. If the tax were meant to limit longer-term misalignments, then the initial quote might support the conclusion that the tax is not useful. That is not, however, the goal of a Tobin tax. If your refrigerator is not up to the task of cooking a cake, that doesn't mean the frig is an unnecessary burden. It means you need an oven.

The problem with a Tobin tax is also not that it is hard to collect within a country's borders. Assuming one is not a fan of the very sort of trading the Tobin tax is meant to kill off, then the weakness of a Tobin tax is that activity will move off shore, to any location that does not impose the tax. North Korea could become a center of finance, if only in some narrow, legalistic sense.

A Tobin tax must be universal, or it will fail. So the question that proponents of the tax face is how they can make the tax universal.

Corban says...

@Robbie: The Tobin Tax realigns individual incentives to be more in line with increasing long-term value. Instead of profiting from the rapid slushing of increasingly dirty water, it redistributes efforts towards real transmutation. It doesn't solve a moral issue so much as an engineering one: less fluff, more stuff.

spencer says...

One of the things to remember in evaluating a "Tobin Tax" in the US stock market is to look at what happen to the stock trading commissions since the big bang on wall street in the mid-1970s. Since deregulation stock commission have fallen to a very small fraction of what they were in the old regulated market. This is one of the reasons that trading has expanded so much over the last few decades. In the old days high commission would have made many of the current trading strategies unprofitable.

In many way a Tobin Tax would take US stock market trading back to what it was prior to 1975.

Devin says...

"raising a big chunk of revenue for favored causes - foreign aid, vaccines, green technologies, you name it."

Hey here's an idea, how about these revenues collected from speculative trading activity be used to pay for...the bailouts necessitated by speculative trading activity. Taxing Wall St to pay for Sudanese aid seems like a non-starter, but taxing Wall St to pay for the aid given to Wall St seems like a pretty rational proposal.

M.G. in Progress says...

The Tobin Tax has never died and I also ( supported its introduction as a way to solve the financial crisis. If you are an economist against taxation just call it management fee...If you are an environmentalist just assume that some financial products are toxic, they pollute so just apply the "polluter pays principle". If you believe in market efficiency just change religion and think to a way to collect revenue in an optimal and efficient way. If you are afraid that your finance business could go elsewhere by introducing a small tax you overestimate the attractiveness of tax heavens and should try to imagine if really billions of billions of transactions could be made only in one place...They will pay the Tobin Tax migrating, then to go where? Everybody in Channel Islands or Bermudas or just London? Concentration of transactions would be great instead...Let's be serious economist the Tobin Tax is one of the few taxes making economic sense, simple, respectful of equity and ethics. That's why it has not yet been introduced by a majority of governments and it's unfortunately likely not yet been considered seriously. President Obama are you listening? If you decide to introduce it EU will be with you...We can balance the budget...

[Sep 16, 2009] The Continuing Disaster of Wall Street, One Year Later

September 13, 2009 | Robert Reich's Blog

Let's be clear: The Street today is up to the same tricks it was playing before its near-death experience. Derivatives, derivatives of derivatives, fancy-dance trading schemes, high-risk bets. “Our model really never changed, we’ve said very consistently that our business model remained the same,” says Goldman Sach's chief financial officer.

The only difference now is that the Street's biggest banks know for sure they'll be bailed out by the federal government if their bets turn sour -- which means even bigger bets and bigger bucks.

Meanwhile, the banks' gigantic pile of non-performing loans is also growing bigger, as more and more jobless Americans can't pay their mortgages, credit card bills, and car loans. So forget any new lending to Main Street. Small businesses still can't get loans. Even credit-worthy borrowers are having a hard time getting new mortgages.

The mega-bailout of Wall Street accomplished little. The only big winners have been top bank executives and traders, whose pay packages are once again in the stratosphere. Banks have been so eager to lure and keep top deal makers and traders they've even revived the practice of offering ironclad, multimillion-dollar payments – guaranteed no matter how the employee performs. Goldman Sachs is on course to hand out bonuses that could rival its record pre-meltdown paydays. In the second quarter this year it posted its fattest quarterly profit in its 140-year history, and earmarked $11.4 billion to compensate its happy campers. Which translates into about $770,000 per Goldman employee on average, just about what they earned at height of boom. Of course, top executives and traders will pocket much more.

[Sep 16, 2009] A Vote for Bonds Over U.S. Stocks - Interview with David Rosenberg

DAVID ROSENBERG, WHO LEFT MERRILL LYNCH IN May after many years to become chief economist and strategist at asset manager Gluskin Sheff & Associates in Toronto, doesn't consider himself bearish, just realistic. The 48-year-old Ottawa native maintains that the U.S. has too much debt, and that it will take years to repair the nation's public and private balance sheets. In the meantime, he says, the economic recovery will be listless, despite the $787 billion federal stimulus package, which he likens to "patching up a leaking boat."

Rosenberg isn't entirely gloomy, however, finding opportunity in bonds

[Sep 15, 2009] BofA Execs to Face Civil Charges

“The parties’ submissions, when carefully read, leave the distinct impression that the proposed consent judgment was a contrivance designed to provide the SEC with the façade of enforcement and the management of the bank with a quick resolution of an embarrassing inquiry.”

[Sep 15, 2009] Fed's Yellen- The Outlook for Recovery

Bond Girl

I'm not a crazy doomer or anything, but it does strike me that the government has just arranged a fake-out in economic activity with all these cutesy programs, so anything along the lines of "we'll see an uptick, but downside risks continue" is a pretty safe thing to say. And it sounds better than "holy crap, we're just living from one jolt to the next."

In the Sep 2009 issue of The Atlantic there's a gripping preview of the case against BOA regarding the Merrill 'purchase'. The Fed and Treasury also come across as duplicious interventionists, as might be expected.

On December 5, the shareholders of Bank of America approved the deal, as did the shareholders of Merrill Lynch. No information about Merrill’s growing losses was provided to Bank of America’s shareholders before the vote, as several members of Congress noted at a June hearing to investigate the merger.

Lewis “had an easy out before the shareholder vote,” a senior Wall Street mergers-and-acquisitions banker, who was also trained as a Wall Street lawyer, told me. “He could easily have disclosed to his shareholders that ‘We have done two months of due diligence now, and look at the 600 things we’ve found.’ I’ve always wondered how could it be that they did not disclose to the world what they knew before December 5.”

Some observers say Lewis’s failure to disclose to his shareholders the extent of the problems at Merrill before the shareholder vote may have constituted securities fraud: a violation of the Securities and Exchange Commission’s rule 10b-5, which prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security. “He committed classic securities fraud,” the senior Wall Street mergers banker says flatly. “He had a material knowledge of a material event in the middle of a shareholder vote.”

[Sep 14, 2009] NY Times Lehman Post Mortem- The Power of Denial

naked capitalism

There is a not bad piece at the New York Times on the fates of various ex-Lehman employees a year after the collapse.

The story vividly if unwittingly illustrates the old saying that fish rot from the head.

Selected comments

if a man’s bonuses depends on him NOT seeing something, he will not see


I never worked on the sell side, but I do think they are being blamed disproportionately here. In buying low and selling high, with some repackaging if necessary, the dealers did pretty much what they are supposed to do. The real villains are the buy side managers who bought risky “product” with other peoples’ money, either without understanding it properly, or worse, knowing the risks but reassuring their clients while keeping their fingers crossed, and claiming the performance fee for “active management” discretion. And not without responsibility are the millions of ordinary investors looking for more return on their investments without really accepting the risk (as in money market funds) while begrudging paying on their own liabilities. But, as a rich minority, the bankers are an easy target.


Rebel Economist,

Your argument to exculpate the former Lehman employees is two-pronged.

In the first prong, you impugn the motives of those who accuse them. The implication is that, if those motives can be shown to be impure, that somehow makes the transgressions disappear.

George Orwell deconstructs this line of argument in his essay “Looking Back on the Spanish War.” In that conflict he observes that the Republicans and the Fascists, without a scintilla of doubt, both committed atrocities.“ But, what impressed me then, and has impressed me ever since,” he muses, “is that atrocities are believed in or disbelieved in solely on the grounds of political predilection.”

“The truth, it is felt, becomes untruth when your enemy utters it,” he surmises.

He then goes on to point out the fallacy in this sort of thinking:

But the truth about atrocities is far worse than that they are lied about and made into propaganda. The truth is that they happen… These things really happened, that is the thing to keep one’s eye on. They happened even though Lord Halifax said they happened. The raping and butchering in Chinese cities, Jewish professors flung into cesspools, the machine-gunning of refugees along the Spanish roads—they all happened, and they did not happen any the less because the “Daily Telegraph” has suddenly found out about them…

The second prong of your defense of the Lehman bunch is to argue that they were just hapless, blameless observers to all this. “The real villains,” you tell us, “are the buy side managers.”

It was perhaps Martin Luther King, Jr. who inveighed most adamantly against this sort of morality. “[I]t is as much a moral obligation to refuse to cooperate with evil as it is to cooperate with good,” he tells us. “Noncooperation with evil is as much a moral obligation as the cooperation with good.”

But it is Errol Morris in “Bamboozling Ourselves” who gives us a compelling example of where this brand of morality leads.

On May 10, 1940, the Nazis marched into and occupied Holland. The Nazis first began a program to identify the Jews which finally ended in, as Morris explains, “the rounding up of Jews, their imprisonment at various transit camps, principally Westerbork, and ultimately, their deportation by train to the extermination camps in the east.”

“But there is a larger point to be made,” Morris continues, “about Dutch complicity in the Holocaust and their collaboration with the Nazis. The Dutch were among the worst.”

The role the Dutch played is probably nowhere made more poignant than a photograph Morris includes in his essay. As Morris explains:

From the pictures around it, it seemed to be a photograph of Jews being rounded up by the Nazis. Dutch gentiles are walking along the sidewalk. It all looks so neat and orderly. Do they know what’s happening? Do we know what’s happening? Am I imagining things? Am I looking at the picture with the hindsight of 60-plus years of historical knowledge?

I asked a friend, the Dutch Holocaust historian Robert-Jan van Pelt, to look at the book and translate the text referring back to the photograph. Here is his translation: “A photo of a roundup (razzia) of Jews was made by Jack Dudok van Heel. Dudok van Heel was in contact with Fritz Kahlenberg in the group ‘The Hidden Camera.’ On a sunny spring day he photographed a calm roundup, as calm as silent churchgoers strolling to Mass on a sunny Sunday morning. The photograph was taken from the window of his in-laws’ house on the corner of the Albrecht Durerstraat and the Euterpestraat.”

The text ends with: “Dudok van Heel recalls with absolute certainty that the scene was a razzia of Jews.”

(the photo can be seen here )

All told, Morris says, “the Dutch were part of the Nazi apparatus that sent over 100,000 Dutch Jews to their deaths in Auschwitz and Sobibor, approximately 3/4 of their Jewish population.”

The defense you use, RebelEconomist, to defend the Lehman bunch is the same that Louis de Jong, a Jewish-Dutch historian, used after the war to defend the Dutch. “In De Jong’s account,” Morris explains, “the elements of German deception are enumerated, but the Dutch are almost absent. There are only the Germans (the villains) and the Jews (the victims).”

To drive home the point that there were moral alternatives to collaboration with the Nazis, Morris goes on to recount the plight of several who chose to resist the Nazis and to help the Jews. The price they paid, however, was extremely high. I found the story of the arrest and execution of the artist, art historian, and critic Willem Arondeus especially moving:

On March 27, 1943, Van der Veen, Arondeus and a few friends raided the (Bevolkingsregister) Municipal Registry of Amsterdam, setting the building and its files on fire. The fire partially destroyed census records (used to prove Jewish ancestry). Arondeus was arrested, sentenced to death and on July 1, 1943, executed. On the evening of his execution he asked a visitor to tell the world that “homosexuals are no less courageous than other people.”

[Sep 14, 2009] Guest Post- “The Fed has never believed in sunshine as a disinfectant”

Perhaps that’s why Martin Zweig said, “Don’t fight the Fed.” They just might get it right, someday.

  fresno dan:

“The tragedy for all of us would be if the Fed’s and the Treasury’s and the Congress’s reverence for people who make a lot of money left us unprotected against some sudden revelation of the truth that becomes obvious only in hindsight, that a lot of them don’t know what they’re doing.”

I don’t mind people making zillions. If someone cured cancer, they should get all the money in the world. But what steams me so much is that these guys were no smarter than me - when the crap shacks in my neighborhood were going for 300K, it was just obvious that something was all out of whack. But instead of humility, we get more equations and impregnable prose.

john bougearel:

From Ferdinand Pecora, 1939 Wall Street Under Oath: Bitterly hostile was WS to the enactment of the regulatory legislation…Had there been full disclosure of what was being done in furtherance of these schemes,they could not have long survived the fierce light of public city and criticism. Legal chicanery and pitch darkness were the banker’s stoutest allies.” (excerpted from my book (Riding the Storm Out)

The parallels of banking behaviors in the 1930s to today are uncanny. The Fed is appealing the Bloomberg case which is seeking to have the Fed reveal which banks they have lent more than $1 trillion dollars of public money to in this crisis under the freedom of information act. After all, the public should have a right to know how their money is being allocated or misallocated.

Then too, how many toxic crappy WS products are being repackaged and sold to investors yet again in furtherance of the same schemes that got the financial system into so much trouble requiring trillions of public monies to dole their criminal asses out.

[Sep 14, 2009] The Consumer Credit Game Is OVER

Looks like 401K money started flowing into risky assets again. Reminds me Keyes saying that market can remain irrational longer than one can remain solvent. As Paul B. Farrell aptly noted "Yes, folks, America loves talent, wants to be a millionaire, loves to destroy stuff, and then to rebuild. Cars, jobs, careers, retirement portfolios, the economy, the stock market. " I would add dollar to the list.
September 10. 2009 | The Market Ticker

There is no more borrowing capacity among consumers as a group.  Contraction of this magnitude and rate-of-change is NOT occurring by choice; consumers are being forced to either pay down or default debt they cannot afford to carry.  It is no longer possible to expand outstanding consumer credit - that is, we cannot "pull forward demand" any longer, as the consumer's per-capita income, even with short-term interest rates at ZERO, is insufficient to support further credit issuance.

The Greenspan gambit to avoid a "Kondratiev Winter" has failed.

Mr. Greenspan is said to have once remarked during the 00-03 market implosion that this was indeed exactly what he was trying to prevent, strongly implying that he was well-aware of where we were in the credit cycle (that is, he had the up-to-2000 version of the above chart and understood it) and that should he fail the results would be catastrophic.

I cannot verify that conversation took place (and I've tried), but it does make sense - after all, Greenspan may be many things, but stupid isn't one of them.

... Finally, the insane ramp in Federal Borrowing has resulted in a precipitous decline in the value of the dollar - a decline that is now threatening to become disorderly.

...the consumer's balance sheet and health is deteriorating fast as consumers simply are unable to afford their existing debts, say much less taking on any new ones. There is zero evidence of stabilization in this regard, irrespective of Geithner's claims to the contrary.

[Sep 14, 2009] Recovery – or Not – in Words and Pictures

"i have to wonder if it can really be called a recovery" Recovery for whom ? For banksters, for gamblers or for workers ? "the people who are benefiting from the upswing are the same ones that never felt actual pain from the fall."

with 6 comments

First, the pictures. Paul Swartz of the Council on Foreign Relations has a new version of his charts on the current recession in historical perspective, which I first linked to in June. The overall impression? We are still considerably worse off today than in other postwar recessions at this point (21 months in), although some indicators appear to be bottoming out.

Now the words. Edward Harrison of Credit Writedowns has a guest post at naked capitalism presenting the arguments for a robust recovery and for no recovery at all. He cites Joseph Stiglitz for the proposition that statistical GDP growth isn’t everything, and extends the point to argue that  you can have “low-quality” GDP growth if that growth is financed by debt without corresponding investment. When you happen to control the world’s reserve currency you can do this for quite some time, and there’s no saying we can’t do it for a while longer. So one possibility Harrison foresees is a reasonable growth fueled by cheap money, yet no change to some of our underlying economic problems, including a financial sector with a put option from the federal government.

Selected comments


One of Karl Denninger’s major points is that consumer credit is declining, and with no additional credit available to the consumer, consumer spending ( 70% of GDP) cannot grow. From that point of view the private sector cannot sustain any basis from which to grow.

The argument there is a recovery once that is some grow growth is an illusion. Consumer spending has fallen drastically, and cannot grow in our credit situation. Major sectors of the private sector are moribund. Real unemployment considering the sorta self employed and underemployed is somewhere between 16 – 20% percent and growing . Minor GDP growth means those numbers and those sectors will continue to deteriorate.

Wealth in this deteriorating situation is contracting rapidly , because the return on many investments right now is negative,( all too often really negative) and it is questionable with the declining credit available whether many businesses and investments continuing to function can function much longer. It is from this wealth that funding for the monumental government deficits and future growth must come. The burn rate of our cumulative wealth and capital is several times our savings rate and is unsustainable. Peter ( the government) can only borrow from Paul ( private capital) for only so long before everthing goes belly up and chaos ensues, particularly so since the foreign funding of our debt jig is up.

Public sector priming of the pump spending may make the GDP numbers look better for a while, but the underlying economy is still declining and is in real scary shape.


Don’t forget to mention that most taxes are on income and gains. This makes government deficits larger than they look, since their “income” won’t be what it normally is.

The question is when will taxes start increasing, not if they will. It’ll be sad but interesting to see how they manage to extract every red cent out of the middle class and pass it to the oligarchs.

Are we living a new version of the Great Depression or Fall of the Roman Empire?

Ted K

But what if we do have a “recovery”? What difference does it make? I think at the end of 2010 a VERY POSITIVE scenario gives you somewhere between 2-3% annual growth. We’re not going to come roaring back at 5%. I don’t think we’re going to fall much more if we get the proper bank regulations in place.

So I see a REALISTIC scenario somewhere between 1% to 1.5% growth January 2011 onward. Is it a recovery??? You can call an apple an orange and you can say an orange is an apple, it is what it is and it tastes the same. You can call a college a university, or a university a college, the quality of the teaching at that specific place is the same. You want to call 1.5% growth a “Recovery”, fine by me.

[Sep 14, 2009] OECD- Global Recession Over

Sep 12, 2009 | CalculatedRisk

Although there is clear improvement in many countries, the recovery will probably be very choppy and sluggish. And the OECD agrees that unemployment will continue to rise into 2010:

Despite early signs that an economic recovery may be in sight, unemployment is likely to continue rising into 2010.

[Sep 13, 2009] Perpetuating excess consumption by Edward Harrison

 August 6, 2009 | Credit Writedowns

This comes from David Rosenberg:

Perpetuating the spending and borrowing cycle
We couldn’t believe this when we saw this quote from the U.S. Transportation Secretary (Ray Lahood) in yesterday’s NYT (page B3) on the "Cash for Clunkers" program: "There obviously is a real pent-up demand in America … people love to buy cars, and we’ve given them the incentive to do that. I think the last thing that any politician wants to do is cut off the opportunity for somebody who’s going to be able to get a rebate from the government to buy a new vehicle."

Are you kidding me? If there is pent-up demand for autos why do we need a rebate? If there are 20% more vehicles than there are licensed drivers, why the need to perpetuate this cycle of overspending? Why is it a politician’s job to create incentives to spend? Shouldn’t they be focusing their attention on health, education, defense, infrastructure, public safety, job skills and productivity growth (and perhaps the youth unemployment rate of around 20%)? We’re not exactly espousing an Ayn Rand libertarian view but at a time when the deficit is running at 13% of GDP, at what point is enough? These rebates are not manna from heaven – it’s a future tax liability to hasten a decision that the auto buyer would have made in any event.

Call this another data point demonstrating the desire to return to excess consumption and the asset-based economy of the bubble years.

Sentiment Review

I think the key to understanding of the markets today is understanding the problem of "luck of trust". Trust disappeared and that means that liquidity needs to be provided by manipulators themselves. It cannot last forever. As one commenter noted "maybe we’ll be able to read this chart in another few years as the early signs of the decline of a stock ownership mindset amongst individuals as the primary tool to build wealth."  It will be more and more difficult for smart money sells assets to the idiots at the top and buys them back at the bottom, despite the fact that this process has successfully repeated every 3-6 yrs as long as I have been alive.

My partner Kevin Lane is fond of saying “Stock price direction is a function of several factors; valuation, future expectations, sentiment and liquidity.”

That last component, liquidity, seems to be most dominant lately since buying power (or lack thereof) determines if stocks go up or down.

dead hobo

at 11:52 am
You forget to mention the hundreds of billions of dollars in liquidity being pumped into the world markets by the Fed. $300b alone was a direct injection with a couple maybe $10b left to inject. Compare this little outlier to prior slumps and you see why magic charts are not relevant.


at 12:03 pm
dead hobo has a point…
…but the one that puzzles and “frightens” me is that when you look at PEs (Shiller’s data or S&P’s back to 1936) instead of betting the ranch on future expectations (we know how good those are) they are still wildly high above historical norms. Here’s a chart of S&P’s numbers comparing the average from 1936-1990 to differences from the average:

Might be worth your time to consider – at these valuations where’s the value and the return? And if we’re in the economic doldrums for the next decade triple-down on that question.

at 12:05 pm

Well if “sentiment” reached it’s last low in November 2002 (coinciding with the October 2002 lows), within 5 months, there was almost a 100% correction of that low in sentiment.

After the “mini-bull” started in 2003 (which I still classify as a bear rally off the 2000 highs), there was not even a 10% correction for a long time. But that was a time where Greenie had rates low, growth in the economy was somewhat organic because of China, ROW, the GREAT AMERICAN HOME ATM PHENOMENON, and full employment.

The present rally has had barely a 5% correction thus far…

So unless one thinks that it’s 2003 again and we’re poised for growth…The only “growth” I see is in debt… So as long as Ben, Timmy, & O keep spending money for 30 years in one or two fiscal quarters, I suppose the charade can continue…

dead hobo
at 12:06 pm
BR considered:

With investors “all in” there is no buying power left in the aggregate to push stocks higher. The opposite occurs at bottoms: Investors become so pessimistic about the future they move large amounts of cash to the sidelines.

Since so much liquidity is Fed induced, with the happy assistance of China and other central banks that are using a firehose full of cash to save the world, why do you believe that the investor is already not completely in. By “in” I mean already in as far as they plan to get. The stock market is clearly an asset bubble. Basically, the sales pitch above is considering and promoting the wisdom of joining in and building a new and better asset bubble in stocks. This one is probably different.

Sorry, but my stash will only chase asset bubbles after they pop, since this much liquidity will make it a sure thing for it to blow a new, replacement asset bubble. Putting cash in today is just gaming on when the next pop will happen. To me, that’s not investing. Neither is jumping in after the explosion, but it is more of a sure thing. I’ll just wait.
at 12:12 pm
I’m with hobo. I have NO intention of going “all in” at this point or any time in the near future, and I’m guessing that many more feel the same way. Too many have been burned badly by the prior two bullshit bubbles to believe in these games anymore, or maybe I’m giving We the Sheeple too much credit? I don’t think so. I think that until trust & confidence return to the markets and the system, we will continue to see some things that bear little resemble to past time periods. I may be wrong though. We shall see.
at 12:41 pm
“Cash on sideline” fallacy again? Is it always true that for each trade there is a buyer AND a seller—the buyer parts with an exact amount of cash as what the seller receives, no?

As dh pointed out, the are more “digital dollar” was pumped into the world via outright Treasury buying and RBS buying from Fed. These is truly “addition cash” getting to the sideline of all financial asset market, be it oil, stock, gold, bond.

I did a quick calculation some time ago on the “stock money market allocation”. The change of the “cash” allocation ratio, from low (stock index high) to high (stock index bottom), is caused mostly by the change of stock-index-level while “cash on the sideline := money parked in money market fund in brokage accounts” remains largely unchanged.
at 12:51 pm
“Typically investors talk their positioning and under investment breeds statements of caution.”

Not in my experience, Barry. People often HEDGE their financial capital by taking vocal positions in opposition of their investment positions. If markets move against their positions, they SOUND smart but are poorer. If markets move in the direction of their positions, they SOUND stupid but are richer.

You’re a good example, Barry. Most of your posts are bearishly skewed, but every now and then you slide a comment about your investment positioning, which is aggressively long. I’m in exactly the same boat. I am aggressively long, but I am exceedingly bearish and ready to reverse course at any moment.

It behooves us to remember that what people say, and what people do, often do not align.

Also, in reference to cash on the sidelines, I urge you to check out:

[Sep 11, 2009] Junk Bond Defaults Worst Since Great Depression. So Why Is The Market Rallying

"It seems to me that credit markets are usually "smarter" than equity markets.. it probably makes a lot of sense to follow them. "

black swan:

Today's junk bond game is a game of chicken. Those who play are sure enough about their manipulative skills, that they believe that they will be agile enough to jump out of the moving car before that Thelma and Louise moment. It's not clear who the players are, but if I'm a big bank, receiving interest free money from the Fed, and receiving it in exchange for toxic waste, worth maybe a dime on the dollar but being traded to the Fed at face value, why not maximize my yield with junk bonds or by driving up the prices of junk stocks, like AIG, Fannie and Fredie? I've got to believe that even junk bonds are Government and Fed driven


Adding more fuel to the fire:
Economix - New York Times Blog
September 10, 2009, 11:52 am
A Decade With No Income Gains
By David Leonhardt

The typical American household made less money last year than the typical household made a full decade ago.

To me, that's the big news from the Census Bureau's annual report on income, poverty and health insurance, which was released this morning. Median household fell to $50,303 last year, from $52,163 in 2007. In 1998, median income was $51,295. All these numbers are adjusted for inflation.

In the four decades that the Census Bureau has been tracking household income, there has never before been a full decade in which median income failed to rise. (The previous record was seven years, ending in 1985.) Other Census data suggest that it also never happened between the late 1940s and the late 1960s. So it doesn't seem to have happened since at least the 1930s.

And the streak probably won't end in 2009, either. Unemployment has been rising all year, which is a strong sign income will fall.

What's going on here? It's a combination of two trends. One, economic growth in the current decade has been slower than in any decade since before World War II. Two, inequality has risen sharply, so much of the bounty from our growth has gone to a relatively small slice of the population.

Catherine Rampell has more details on the Census report, including some good charts.

civil-disobedience :

I wonder if it is possible for the Fed to control/inflate the Stock Market, Treasury Bond Market, and the Corporate Bond Market. All at the same time? Does not seem possible or likely.

I have heard knowledgeable people say that the FED could never control Medium to Long dated Treasuries, and yet they appear to be doing exactly that. I am having a hard time believing 30 year Treasury yields going down, considering the massive supply coming on the market thru end of this year. I mean the size of the supply are pretty well known, & expected to be huge. Who is buying 30 year debt? And yet, yields stay low.

Not only are they having to fund $1.75T deficits, they also have to re-issue a steady stream of maturing bonds coming due each month.

So is this just a case of all fiat currencies being printed in such massive numbers, and QE done in all currencies? Wouldn't this show up on CB balance sheet? I mean the FED balance sheet has grown from $800B to over $2T, but this does not seem big enough.

What is really going on besides global printing? Is that all there is?

Jojo says:

There was also this story on bonds about a week ago:
September 3, 2009
Ominous Signals From Bonds Data

The worst is over. At least until about a week ago, that was what most investors seemed to be thinking. Prices and hopes were rising with almost every statistical release and earnings report. But one important market has been stuck in a gloomier mood.

Government bond yields have fallen significantly in the last month or so: to 3.4 percent, from 3.9 percent, on 10-year notes in the United States; to 3.2 percent, from 3.7 percent, in the euro zone; and to 3.6 percent, from 4 percent, in Britain. That sort of decline sits uneasily with rising economic optimism.

Why? There are several theories.

One is the expectation of deflation or something like it. Japanese consumer prices are the same now as they were in 1993, when its financial bubble had fully burst. Even if future Western gross domestic product growth proves stronger than it has been in Japan -- an annual rate of 0.6 percent from 1993 to before the latest recession -- financial pressure could keep retail prices from rising. In that environment, a risk-free interest rate of 3 to 4 percent doesn't sound too bad.

Another explanation is more mechanical. Thanks to the "nearly free money" programs of central banks around the world, including some purchases of government-backed securities, there may be more buying power in the markets than can be absorbed by a record supply of new government debt, forcing prices up and yields down.

Finally, there is the dark future theory. Bond buyers may think investors in other markets, principally the stock exchanges, have misread the economic data. What looks like a recovery could actually be an inventory correction that will be followed by another recession. Therefore, government bonds would represent a safe haven.

Whatever is actually moving bond investors to push down yields, one thing is clear. If they are right, the world's financial woes are unlikely to be over. Either flat consumer prices or a new recession would make more loans go bad, straining bank and government balance sheets. Conversely, if excess money is piling up, the funds could easily push up other prices, creating another asset price bubble or a bout of uncomfortable inflation.

The bond market may be hard to read, but none of its signals look to be telling a happy story.

Leo Chen:

Doug Noland's Commentary and weekly watch is, as always, an interesting read:

Noland concludes as follows:

There is the appearance that government intervention throughout the mortgage marketplace provides a free lunch: households, once again, enjoy access to plentiful cheap mortgage credit, while there's no impact to the cost of federal borrowings. Why would anyone in their right mind even contemplate an Exit - especially when things remain so fragile? Why not wait a year or two or a few ...

Yet I would argue that there is a huge and festering (latent) cost to Washington's mortgage operations. At some point along the way - and you can count on it being a rather inconvenient juncture for the markets and economy - Creditworthiness will become a hot issue.

The market will finally demand Higher Yields for Treasuries, agencies, and GSE MBS - and will surely be less than enamored with our Currency. MBS backed by today's artificially low mortgages will come back to bite.

When the market turns against "federal" debt obligations, you can count on the market really, really turning sour on mortgage risk. That will mark the point when years of government market interventions and distortions come home to roost. [As Noland points out earlier in his piece, we are talking about finally bankrupting our banking system, including the governments participation in that "successful" effort.


It took 3 years to get to the bottom during the great depression. This time the bubble lasted 3 times as long as the one of the 20's. Most investors have never lived secular bear markets. They only know bubble economics.

It's going to take a while to clean up the system, but it will happen eventually... IMO


There are probably somewhat fewer participants willing or able to play the yield curve anymore. There is just too much uncertainty, especially medium- and long-term, about currencies right now...if that continues, won't that finish off the trade?

With this kind of stress in the markets, and with the flattening of the yield curve combined with relentless pressure on the equity bulls (notice they are beginning to discount both good and bad news?), this rally ought to be over. But it isn't and to me it seems the pressure is showing up in low volumes and volatility.

Bay of Pigs:

By Richard Russell
Dow Theory Letters
Wednesday, September 9, 2009

As the great Bob Dylan song goes, "There's a battle outside, and it's raging, it will soon shake your windows and rattle your walls, for the times are a'changin'."

The battle is obvious -- it's the primary forces of overproduction and deflation vs. the Fed's obsession ("whatever it takes") to fight deflation and to produce asset inflation.

The one signal for rising inflation that the world understands is rising gold. The central banks do not want to see the gold signal, which tells the world that inflation is in command.

What the Fed really wants is asset inflation in housing. Housing is collateral for almost everything in the nation, and the Fed and Treasury are frantic to get housing prices heading higher.

Yesterday most assets got the message. Oil was higher, the base metals were higher, the stock market was higher, but gold (pressured by forces we know not from where) failed to close at the highly significant number of $1,000 an ounce or better. Incredibly, after being as high as $1,009 during yesterday's session, gold closed at $999.80 -- just 20 cents below $1,000.

Coincidence? Mistake? Random chance?

Hardly. Tto me it was obvious that the Fed did not want to see the following headline in the newspapers: "Gold closes above $1,000."

Whatever it takes, it seems, will be utilized to hold the only constitutional money down.

When a can is placed on a stove burner, the pressure builds up inside the can. At some point, we know not exactly when, the can will explode and the pressure will be released. That, I believe, is where gold is.

You can threaten gold with forthcoming central bank sales. You can sell gold in quantity. You can smother gold with short sales. But the primary trend of gold will win out. It will be expressed today, in a month, or in 2010. The trick for us is to hold onto our position -- don't trade it, don't move in and out with it, don't hold so much of it that you get the heebie jeebies every time it dips $10.

The primary trend of gold is up. We're riding the bull. The bull will try to shake us off his back. We'll hang on.

The word is that China wants to load up on gold while diversifying out of its huge position in dollar-denominated securities (T-bonds). China's problem is how to accumulate gold secretly without driving the price up. This has led to what is now called "the China gold put." Every time gold backs off, China is in there to scoop up what is offered.

On top of that, China is urging its over-1 billion population to buy gold and silver.

Finally, China is now the world's biggest miner of gold. China, in its patient way, is preparing for the future. The future that China sees is a world without fiat currency or a world in which its own renminbi is the world's reserve currency.


It seems to me that credit markets are usually "smarter" than equity markets.. it probably makes a lot of sense to follow them.

CauseAnd Effect:

Gold may be holding 1000, but in relative strength it is no higher than a month ago. The fundementals behind this market are as weak as they've ever been and debt is still at all-time highs. I've almost given up hope of a huge correction...which means we're close.


how much of this "junk bond yield collapse" is due to the Federal Reserve?


oliver wendell douglas:

We constantly hear from reliable sources (not government or bankers) that the markets are not acting in a logical manner. We had a similar thing happen in the grain markets last summer. For example, corn was selling for over $7 per bushel last summer. Yesterday, cash corn was $3.10 per bushel on the local market.

Last summer no one could figure out why corn prices were so high. They maintained that level long enough that some people even stated we had entered a "new plateau" for corn and grain prices in the USA and that the day of cheap grain was over. Another bubble bites the dust.

Looks like we have bubbles again in the stock and bond markets. Just smaller bubbles than before but they still are bubbles. They will burst again and those who can least afford it will be hurt the most. It is going to get to the point you would have better odds of winning in Vegas than you do in the stock and bond markets.

Dr Evil :

Today is a somber day. A day to remember 3000 of our countrymen who died on the alter of the NWO.

The recent, under oath testimony of a true patriot, Sibel Edmonds (former FBI translator) adds even more weight to the already massive body of evidence showing 9/11 as the inside job that it was.

From her testimony we learn that:

FBI translator Sibel Edmonds, was dismissed and gagged by the D.O.J. after she revealed that the government had foreknowledge of plans to attack American cities using planes as bombs as early as April 2001. In July of ‘09, Mrs. Edmonds broke the Federal gag order and went public to reveal that Osama Bin Laden, Al Qaeda and the Taliban were all working for and with the C.I.A. up until the day of 9/11.

The under-oath, detailed allegations include bribery, blackmail, espionage and infiltration of the U.S. government of, and by current and former members of the U.S. Congress, high-ranking State and Defense Department officials and agents of the government of Turkey. The broad criminal conspiracy is said to have resulted in, among other things, the sale of nuclear weapons technology to black market interests including Pakistan, Iran, North Korea, Libya and others.

In this first break-down article, we'll look at the answers given by Edmonds during her deposition in regard to bribery and blackmail of current and former members of the U.S. Congress, including Dennis Hastert (R-IL), Bob Livingston (R-LA), Dan Burton (R-IN), Roy Blunt (R-MO), Stephen Solarz (D-NY), Tom Lantos (D-CA, deceased) and an unnamed, currently-serving, married Democratic Congresswoman said to have been video-taped in a Lesbian affair by Turkish agents for blackmail purposes.

In further breakdown articles, we'll look at her disclosures concerning top State and Defense Department officials including Douglas Feith, Paul Wolfowitz and, perhaps most notably, the former Deputy Undersecretary of State, Marc Grossman, the third-highest ranking official in the State Department. Also, details on the theft of nuclear weapons technology; disclosures on Valerie Plame Wilson's CIA front company Brewster-Jennings; items related to U.S. knowledge of 9/11 and al-Qaeda prior to September 11, 2001; infiltration of the FBI translation department and more.

Jim,MtnViewCA,USA :

Another point of view.

. RE: Debunking 9/11 Myths: Introduction to PM Expanded Investigation
"And every American is entitled to ask hard questions. But there is a world of difference between believing that our government should have known what was coming and claiming that someone did know and deliberately did nothing" This statement is right on the Popular Mechanics web site.

But the government did know something! The CIA knew these attacks were coming, and knew the names of three of the al Qaeda terrorists who would take part in these attacks, and hid these names for 21 months from the FBI criminal investigators. They deliberately blocked this information from going to the FBI on at least 12 separate occasions. They continued to hide these names after April 2001, when the CIA clearly knew a huge al Qaeda attack was about to occur inside of the US that would kill thousands. They even continued to hide these names when they knew for sure that Khalid al-Mihdhar and Nawaf al-Hazmi were going to directly take part in these attacks. While the 9/11 Commission said they could never understand why the CIA had not connected these al Qaeda terrorists to the warning of this huge al Qaeda attack, it was possible to find email between CIA managers in July 2001, that said that Mihdhar and by association Hazmi will be found at the location of the next big al Qaeda attack. When the same CIA manager that wrote that email was told on August 22, 2001 that both Mihdhar and Hazmi were inside of the US he, and his CIA-CTC managers who had received his email in July, and in fact the entire CIA hierarchy all knew immediately that these al Qaeda terrorists were inside of the US in order to take part in this huge al Qaeda attack, and yet they continued to kept this information secret from the FBI. They never even raised any alarm! What is worse the CIA then deliberately sabotaged the only FBI investigation of Mihdhar and Hazmi that could have found them in time stop the attacks on 9/11, by continuing to hide the photograph of Khallad Bin Attash taken at the Kuala Lumpur al Qaeda planning meeting, a photograph that the FBI investigators, who wanted to start a search for Mihdhar could have used to prove Mihdhar had taken part in the planning of the Cole bombing. Without that photograph, a FBI IOS agent at FBI headquaters, who had been working with the CIA to block CIA information from going to the FBI investigators, was able to block these criminal FBI investigators from having any part in the investigation and search for Mihdhar. It is now clear that the CIA knew by doing this, the FBI would then be unable to find Mihdhar and Hazmi in time, and that thousands of Americans would perish in this huge al Qaeda attack. All of this information, which is now located right in the governments own records on 9/11 is detailed in a new book, "Prior Knowledge of 9/11", on web site


Sibel is a goddess but...we did NOT lose "3000" (+/-) citizens on Neocon Christmas Day. Around 1000 were foreign nationals including Europeans, Asians, Middle Easterners, etc.

Just sayin'...because Sibel IS a goddess who needs to be heard.

Social Vandal :

Until someone can explain to me why Building 7 fell like a cheap hotel in Vegas (straight down, all floors at the same rate, no pause) then I consider it the smoking gun of 9/11 and the absolute proof it was an inside job.

The owner of Building 7, a Mr. Silverstein, told the press, before it came down, that "The FDNY was going to pull the building".

Oh, can somebody SOMEBODY please provide me with ANY picture of plane parts at the Pentagon or in that shallow, sterile, clear field in Pennsylvania where some plane feel out of the sky? Please just ONE photo? You can't? Hmmmmmmm.

Can you tell me why Building 7 is not mentioned, at all , in President Bush'. 9/11 report? Why did Bush order no comments on Building 7 in the report?

And one more question. Can any of you engineers tell me how a personal cell phone works at 30,000 feet? (hint: they don't)

black swan:

History repeats again and again:

"As the boom developed, the big men became more and more omnipotent in the popular or at least the speculative view... the big men decided to put the market up, and even some serious scholars have been inclined to think that a concerted move catalyzed this upsurge." J. K. Galbraith, The Great Crash of 1929.

[Sep 10, 2009] And So It Begins (Debtor's Revolt)

Grapes of Wrath ? Now compare that to "The S.E.C. said in a federal court filing that the settlement was “fair” and “reasonable” and that it had lacked enough evidence to charge individuals at the bank [of America] with misleading shareholders about the $3.6 billion in bonuses paid to Merrill employees. If this become a real mass  movement  they might have the banksters on the run ;-).

Without comment..... none necessary - she's spot-on, in my opinion, and if you, through no fault of your own (you're NOT a deadbeat) have had this happen to you, then I fully support doing exactly what she is - tell 'em to get stuffed.

Do realize that civil disobedience has consequences, but it also brings a huge breath of fresh air into your life!

I have been contacted by a couple of people who claim that various institutions have mis-reported accounts as "over limit" when they are not, or who have cut lines to the outstanding balance without notice, waited for one more charge to go through (which they honored), reported that account "over limit" and then used that as justification to jack interest rates to a "penalty" rate.

I am assembling evidence for an "expose-style" report on this practice.

If you have proof of such shenanigans and are willing to provide it to me please contact me through the email links at the bottom of this page.

Selected comments for Naked Capitalism

[Sep 10, 2009] How Bad Will Unemployment Get, And What Can We Do About It By George Washington

naked capitalism

Paul Craig Roberts [6] - former Assistant Secretary of the Treasury and former editor of the Wall Street Journal - and economist John Williams both said in December 2008 that - if the unemployment rate was calculated as it was during the Great Depression - the December 2008 unemployment figure would actually have been 17.5%.

Williams says [7] that unemployment figures for July 2009 rose to 20.6% [8].

According to an article [9] summarizing the projections of former International Monetary Fund Chief Economist and Harvard University Economics Professor Kenneth Rogoff and University of Maryland Economics Professor Carmen Reinhart, U-6 unemployment could rise to 22% within the next 4 years or so.

[Sep 10, 2009] Why Do Consumers Accept Debit Card Abuse

Surprisingly overdraft fees are a huge profit center for the banks.
naked capitalism
..banks charge particularly aggressive over-limit fees on debit cards. From the New York Times:

This year alone, banks are expected to bring in $27 billion by covering overdrafts on checking accounts, typically on debit card purchases or checks that exceed a customer’s balance.

In fact, banks now make more covering overdrafts than they do on penalty fees from credit cards.

...That is because 45% of the nation’s banks and credit unions collect more from overdraft services than they make in profits

[Sep 10, 2009] Depression Debate - Is this a Depression

Mish's Global Economic Trend Analysis

Point blank there is no official definition of the word.

I think one needs to look at a number of factors including GDP, unemployment numbers, duration of unemployment, consumer spending, asset prices, housing prices, consumer prices, treasury yields, wages, consumer spending, bank failures, foreclosures, etc, to make a reasonable determination.

Here's the deal.

U-6 does not count recent graduates looking for a job but living at home in search of one. It also does not count self-employed real estate agents who have not made a sale in a year. However it does count all the "self-employed" selling trinkets on Ebay making $200 a month or less. I do not have totals for that, but structural unemployment plus structural underemployment is likely North of 20%.

One does not see any of that that in the first chart. Nor does one see falling wages, the likelihood of Structurally High Unemployment For A Decade, massive bank failures, Food-Stamps Reach 33.8 Million in April, 5th Consecutive Monthly Record, or the ongoing commercial real estate bust with One Sixth Of All Construction Loans In Trouble.

These are characteristics of a depression, not a recession. It's time to stop pretending otherwise.


David Rosenberg very widely read, and he called it a depression today:

"The U.S. economy is actually 9.4 million jobs short of being anywhere remotely close to being fully employed, which is why any inflation that can somehow be created by the Fed is simply going to be unsustainable noise along a fundamental downtrend in pricing power. After last Friday’s report, we have now lost 6.9 million positions that have been cut during this recession and we have to count in the additional 2.5 million jobs that need to be created — but never were — just to absorb the new entrants into the labour market. The ‘real’ unemployment rate is now 16.8%, so to suggest that this down-cycle was anything but a depression is basically a misrepresentation of the facts."

He also used the other d-word:

"For the first time in the post-WWII era, we have deflation in credit, wages and rents."

Snow Dog:

Those Depression era folks might laugh, but they never knew what a credit card was back in 1932.

Wages have been stagnant for thirty years in the U.S. What's so hard to see? Millions of unemployed people striving to gain employment in order to earn 1977 style wages. Welcome to the new reality.

Dr Evil:

This is a real simple post Mish. You cannot compare apples to oranges. Unemployment calculated correctly is at least 16%. I cannot take any article seriously (Mr Ritholtz) if they are going to start off lying about the numbers. I do not care what the "official" numbers say. They are lies. What good does a lie do me???? I cannot base anything in reality on lies.

Bottom line, we are in the 3rd inning of this unfolding depression (there I said it) and the unemployment looks worse than the great depression at the same point in time.

I get tired of people believing the delusions of government......

black swan:

How can we be in a depression? Where are the bread lines? Where are the homeless?

There are no breadlines because the Government gives one out of every nine US citizens food stamps. Otherwise there would be long bread lines. There were no food stamps during the Great Depression.

Oregon's welfare rolls have grown 27% in May from a year earlier; South Carolina's climbed 23% and California's 10% between March 2009 and March 2008. 14.2% of all Florida residents are on welfare. Without welfare, all these people would be out on the street.

2.3% of US citizens are in prisons and another 2.3% are in public housing. Prison is the new public housing. If this were the Great Depression, most people like these would be out on the street (maybe your street).

Without the Paulson plan, the biggest banks in the country would have crashed. Two of the big automakers would have gone titzup, the country's second largest insurance company along with them. Without the Government creating money out of thin air, the Great Depression might start to look like a pretty favorable outcome. We better hope the rest of the world keeps thinking our monopoly money is actually worth something.


The present condition is “THE GREAT RECESSION” which may become “THE GREATEST RECESSION”. My Mom remembers the Great Depression as a time when banks foreclosed on people’s homes and threw them out, when there was no money in the bank even if your statement said so. She remembers the soup lines in the city. Jobs could be had picking beans or spinach during the season and potatoes. Potatoes were the basic staple. Lard and mustard sandwiches were common for lunch. One chicken could serve 6 people for dinner and the remains used for chicken soup. A treat was one orange in the stocking at Christmas. No electricity, water from a well and heat from the wood burning stove. At night, a brick placed on the wood stove during the day provided some warmth under the blanket.

There were no fat people and anyone capable of working was happy with any type of pay for any type of work.

There was no Social Security, food stamps or jobless benefits. People were resourceful.

This time is different. It is likely to get worse. Deflation and debt destruction could become that antiseptic “cleansing” that economists like to talk about. But it’s a HEADWIND RECESSION now (Tropical storm variety) with a potential for category 1, 2 or 3 but unlikely 4 or 5.

Nailbender :

@vert galant-A depression? I don't agree. It's a compression. The Great Compression. The engineering redistribution and concentration of wealth in a few hands.

That is a great description of what is occurring.


Ten percent of the US population was not on antidepressants during the first Depression.


Depression" itself was a euphemism for "panic." The wordsmiths of the day thought that it didn't sound so bad, like a smooth dip in the road. After the '30s turned out to be really bad, they needed another word, so "recession" came into use. Recession lacks the same connotation as depression because all of the recessions turned out to be rather mild, but the term was invented to mean the same thing.

James Cole:

Grapes of Wrath it is not, but then the original great depression did not kick into full gear for some time. It's early days yet, keep your hats on because we are only getting warmed up. In 1929 America was an Industrial and farming giant, filled with potential. A look at America's World War Two production levels of arms and food make pretty clear what an economic super power the USA was. Does anyone want to call today's USA an Industrial giant and a powerhouse of latent economic potential. Lets see. So far the US Government has issued enough debt to float a fleet of Battle Ships, and we haven't even seen the coming debt issuance needed to get through the next five years.
It is a depression, but only if you take a long term view. We are imploding like Britain empire did before us. War, economic stagnation, futile political leaders, an outsourced labor force and an open ended credit card with unpayable debt. The Grapes of Wrath will get here, just give it time for unemployment compensation to run out, states to be too broke to pay welfare and a growing population with zero job prospects. Early days yet, the worst is on the way. But hey, we are rebuilding Iraq, that's a major plus for us all.

black swan :

The official US unemployment rate now stands at 16.8%. It is official if we are to measure it against the unemployment rates of the Great Depression, because, during the 1930s, there was no special rate for those who were applying for and collecting unemployment insurance. There was no unemployment insurance.

Anyway, today's unemployment rate is higher than the unemployment rate that had been reached in over half the years of the Great Depression. Here are the unemployment rates of the Great Depression:

1929 - 3.2 percent
1930 - 8.7 percent
1931 - 15.9 percent
1932 - 23.6 percent
1933 - 24.9 percent (the highest during the Great Depression)
1934 - 21.7 percent
1935 - 20.1 percent
1936 - 16.9 percent
1937 - 14.3 percent
1938 - 19.0 percent

If you are looking for unemployment as one of the markers for a depression, look no farther than today's US unemployment rate.

black swan:

Unemployment was a lagging indicator during the Great Depression. It lagged right into WWII. Without WWII, who knows how much longer it would have lagged There were 16 million US troops serving during WWII. Today we have a little over 1.2 million troops serving. In August the USG told us that 14.9 million US citizens were unemployed. A big war sure can come in handy for lowering the unemployment rate.


No doubt in my mind war is the end game. Destroy the system and start over.


No doubt in my mind war is the end game."

"War is the health of the state."

Nope, war is a friend to the banksters.

No More Fed:

vert galant, Nailbender, MyCountryIsDestroyed, & TJFXH.

I believe that Michael Hudson calls it "neofeudalism".

[Sep 9, 2009] Online Asian news and current affairs by Peter Morici

"Total losses will exceed 7 million jobs before the hemorrhaging ends. "
Sep 4, 2009 Asia Times

With productivity growing at least 2% a year and the working aged population increasing 1% a year, GDP growth must exceed 3% to bring down unemployment.

...Regional banks are now laboring under the weight of commercial real estate failures. Unable to effectively access money center capital markets, regional banks are short on funds to lend to small and medium sized businesses.

Consequently, as the economy expands, businesses will struggle to find enough capital, and the trade deficits will create a shortage of demand for US goods and services and new layoffs will begin once the stimulus spending ends.

President Obama's near-term energy policies address mostly the more efficient use of domestic coal and natural gas and alternative energy sources to generate electricity, and will do little to quickly reduce oil imports. Increased mileage standards for cars and trucks will not have a meaningful impact on the value of oil imports for several years.

[Sep 9, 2009] Possible October surprises by Martin Hutchinson

Sep 9, 2009 |  Asia Times

The recent modest decline in Treasury bond yields conceals an increasingly unstable bubble, and it is only a question of time before that bubble bursts. Given the current predilections of the world's central bankers, it is likely that when the T-bond bubble bursts, they will rush to the printing presses, the Fed buying Treasuries in a frantic attempt to stabilize the bond market. In all but the shortest term, that is unlikely to work; it will cause a spiraling increase in gold, oil and other commodities prices that will make it clear to the doziest Federal Open Market Committee member that the punchbowl has been drained dry and the party of monetary profligacy must end.

October 2009 is unlikely to produce another banking crisis. It may very well, however, produce a crisis of confidence in the Treasury bond market, followed by an economic relapse as interest rates are forced upwards and high commodity prices reduce purchasing power in those Western countries that are heavy net consumers of commodities.

If October 2009 fails to produce a full-scale T-bond rout, it will not be long delayed thereafter; the resurgence in consumer price inflation caused by continually rising commodity prices will eventually cause even central bankers to demand higher yields.

Either way, the flood of money that has poured into commodities, bonds and the stock market cannot prop them up for much longer. Like previous such floods, it must eventually reverse, and its reversal will cause yet another round of bankruptcies and unexpected disasters. The "Great Moderation" of which Federal Reserve chairman Ben Bernanke spoke so lovingly before the present unpleasantness was always a myth. In reality, the flood of easy money from 1995 caused a succession of bubbles, each one more devastating than the last once it burst. Monetary policy since 1995 has been wholly immoderate, expanding the St Louis Fed's broad measure of money, MZM, by 8.7% annually since spring 1995, 82% faster than the 4.7% annual rise in nominal GDP. Its long-term results have been and will continue to be equally immoderate.

The laws of economics have not been repealed. It is indeed not possible to run a huge fiscal deficit without destabilizing the bond market; attempting to finesse the problem by creating excessive money simply causes spiraling commodities prices and subsequent inflation. Equally, an over-stimulative monetary policy will find an outlet either in consumer prices or in asset prices, though it may take a considerable time to do so.

Apart from instability, the long-term costs of excessively cheap money are beginning to be seen in the US economy itself. By allowing money to remain so cheap for so long, and by running incessant payments deficits, the United States has surrendered the advantage of its superior long-established capital base, narrowing its capital cost advantage over emerging markets and exporting that capital to countries with less profligate approaches.

Huge budget deficits, themselves worsening the trade deficit, merely export yet more US capital to the surplus nations. That makes it inevitable that the years ahead, in which the United States will no longer enjoy a capital advantage over its lower-wage competitors, will see highly unpleasant declines in US living standards.

Job losses within the US in the current downturn are steeper than in any previous recession, even though the output decline is only equivalent to those of 1973-75 and 1981-82. Income differentials have widened unpleasantly, as the working class jobs in manufacturing are outsourced to Asia while the cheap money has created a parasitic and unpleasant class of financial manipulators at the top of the distribution. Only a decade of sound money and sound budgets will rectify these problems, and halt the decline in US living standards. Needless to say, we are a very long way from even the start of such a decade.

There really are no free lunches in this world.

[Sep 8, 2009] We are all Japanese now

Asia Times

To be very clear, this article isn't about economic data or valuations. I still believe that economic data will flatter to disappoint and that stock market valuations will be dented in the fourth quarter.

My base case expectation for the S&P 500 by the first quarter of next year is 750 to 850. Make of it what you will (and all my usual disclaimers about using your common sense when trying to act on the words of a pseudonymous commentator such as myself applies to a larger degree here).

That said, the more important question does beckon - is it too late to save capitalism for future generations? After mulling the question for a while, I have to conclude that the act of saving capitalists from 2007 to now as done by the United States and Europe has essentially doomed capitalism itself, its place taken over by the smoky world of Japanese capitalism, where it isn't what you know but rather who you know that counts.

[Sep 7, 2009] 40% of Working Age Californians Jobless

The headline statistic, which comes out of a study by the non-partisan California Budget Project, in isolation sounds worse than it is (which is not to say that this factoid is good, mind you). Labor force participation before the downturn was in the 66%ish range, so this is a meaningful decline (assuming California levels are similar to the US overall.

From the San Francisco Chronicle (hat tip reader John D):

A report released Sunday says two of five working-age Californians do not have a job, underscoring the challenges in one of the toughest job markets in decades. A new study has found that the last time employment levels among this group were this low was February 1977.

By comparison, the current national unemployment rate of 9.7% is the worst since 1983.

But the current situation is worse that that “2 out of 5″ figure indicates. The study reported that only 57.5% of working age Californians have a job. The Golden State has the fourth highest unemployment rate in the US. And those who have jobs are on average not doing as well as they once did:

Adding to the woes of workers, the report says, those who still have jobs are bringing home less money, the result of stagnant wages that haven’t kept pace with inflation and cutbacks in the number of hours worked per week.

Happy Labor Day.

[Sep 7, 2009] How Many Rabbits Are Left In The Hat

Unemployment is unacceptably high. No conditions for increased private demand exists.  Hotels, retail are next shoes to drop...
Mish's Global Economic Trend Analysis

Dave Rosenberg was rabbits and hats in Friday's Lunch With Dave, NOT LABOUR’S DAY.

First, employment in this survey showed a plunge of 392,000, but that number was flattered by a surge in self-employment (whether these newly minted consultants were making any money is another story) as wage & salary workers (the ones that work at companies, big and small) plunged 637,000 — the largest decline since March (when the stock market was testing its lows for the cycle).

As an aside, the Bureau of Labor Statistics also publishes a number from the Household survey that is comparable to the nonfarm survey (dubbed the population and payroll-adjusted Household number), and on this basis, employment sank — brace yourself — by over 1 million, which is unprecedented.

We shall see if the nattering nabobs of positivity discuss that particularly statistic in their post-payroll assessments; we are not exactly holding our breath.


What caught my eye was the rapid increase in part time jobs.

What is happening is that employers do not want to hand out benefits like health insurance, vacation, sick leave, maternity leave, holidays, or retirement.

Part of this stinginess may be due to the increase in minimum wage, or simply wage deflation. You can pay someone the same wage, but by cutting benefits, you deflate his packet. Another reason may be the new minimum wage law.


The problem is debt. Until the debt is paid down (impossible) or written off, the economy is going to be stuck in overcapacity in relation to depressed demand.

Nor will the government's taking private debt on its books fix the problem, either, at least without destroying the dollar. Nor can this much debt just be inflated away without raising interest rates and stifling growth.

The other problem is that if debt is liquidated too quickly , it will deeply depress GDP and hugely increase unemployment for awhile, leading to domestic problems, and a lot of international creditors will be burned badly, with the expected consequences going forward.

So there is no graceful solution to this mess. Enjoy your holidays.


So there is no graceful solution to this mess. "

So true.. We put this event in motion when we chose to create a credit society. As long as the charade could be sustained and growth in population could create the illusion of economic health, all was well. The minute the debt burden and asset value bubble burst, the underlying system itself collapsed.

We would all be so much better off had we never installed leverage into our society via credit, but that's the path we chose. Now we pay the price.

I really see only one way to offer a CHANCE of getting back on the right track and thought Obama's administration was going to do it: invest in infrastructure, new tech, energy, etc. in such a way to create sustainable, growing industries.

Instead we just threw money out the window.


There have been many animated assaults, on this and other boards, toward the SOBs that have been "exporting" US jobs. A friend and client of mine, around 1997, came to me exasperated that his pencil manufacturing business could no longer compete against low cost Asian competitors and that he was facing the prospect of losing an 80 year old family business. His only recourse was to close his plants in the US and move the equipment and production to China and Thailand. This he did in 2000, costing about 1100 jobs here with the closings. Only in this way was he able to stave off insolvency. Is there someone here that would have handled this differently? There is great naiveté about this issue of off shoring and our manufacturing demise. Substantive jobs are leaving this country for reasons other than unvarnished greed.


“I don't think people see the 'tax' that corporations and globalists already extract in myriad ways. Much more in the aggregate than safety net bennies. A million examples abound: the poisonous drywall is but one good example. Is anyone tracking the true cost of that? Of course not; we pretend that is a "fair" price to pay for the "free" market.

Just Shoot Me:

You all think media is controlled, by whom? I'm new to all of this and want to know more.

Here's an article about how the msm works. 

vert galant:

JustShootMe, thanks for an excellent article. Brandon, you could also read Chomsky's "Manufacturing Consent" and see the film version with the same title.

Finally, consider these quotes that suggests the direct intervention of powerful interests:

"The CIA controls anyone of any importance in the media." William Colby, former director of the CIA

"You can get journalists for less than the price of a good call-girl, $200 dollars a month." A agent of the CIA explaining how easy it is to get journalists to print the CIA's articles, in "Katherine the Great," by Deborah Davis, Sheridan Press, 1991.


Bombillo: your description of the pencil manufacturer's competitive problems can be connected to a global system that is based on "free" but not fair trade. Your client was being forced to compete with cheap imports that had a cost advantage based on a limitless supply of low cost labor. The abolition of tariffs and duties (free trade) leaves a country's industrial base wide open to imports from developing regions which have significantly lower price levels in their labor markets. The latter also have lower regulatory costs (which has made China the most polluted country on earth.)

When this type of phenomenon reaches the extreme degree it now has structural unemployment, high trade deficits and a deteriorating industrial base are inevitable for countries like the U.S.A. The thing to recognize is that the relaxed import regulations that leads to this unending flood of cheap imports is the end result of flawed public policy. Such policy was the outcome of the influence of large, powerful corporate interests that have little if any concern for the real welfare of the average citizen and his/her country. The resulting policies that favor these large corporate interests do not really create an atmosphere of liberalized trade. Instead, it produces a set of rights for these corporate interests that run counter to the greater welfare of all countries involved in this process.

Your client's decision to go to offshore production was a sad but inevitable consequence of public policies over which he had little or no control.


All the destruction to our economic base, "masked" with cheap/easy credit.



Could it be that "competitive advantage", was never anything more than a specific business not bearing the full cost of social responsibility? The most ruthless and socially negligent win the sales war.

[Sep 7, 2009] Keeping Us There By Michael Panzner

Onlooker from Troy:

A rising market act as an incredible anesthetic (opium, even) on the folks that count in making anything happen.

It’s got all (most, at least) those folks in D.C., NY and the media convinced that things are on the mend and maybe really didn’t even go so wrong after all (they’re very conflicted right now). How could the markets be reacting like this if things weren’t getting better? (they think to themselves)

That and the intense lobbying efforts to protect the status quo – and we get nothing.

And it’s not bad enough for mobs in the street yet, so that won’t spark anything.

Same old, same old.

constantnormal Says:

@Pat G. 11:28 pm
“… any ideas on how a viable third party could be created?”

I think a necessary condition is for the American public to be bubbling into riots across the country — otherwise they will be pacified by empty promises, the same formula that has worked for over two hundred years.
From such turmoil, people will emerge with sufficient charisma and leadership skills to take advantage of the situation. From there, the internet has already shown itself to be a viable means of end runs around the usual lobbyist controls over mainstream media.

Not that I said nothing about the potential new leaders being good or bad — almost certainly most will be raving ideologues with a God complex. Review the French Revolution for examples of how badly an uncontrolled populist revolution can go.

But as Confucius said, “When the Pupil is ready, the Master will appear.” It remains to be seen what sort of lesson we’re going to learn.

call me ahab:

from jesse’s americain’ cafe- well worth reading-

“Do they think that the world does not see their corruption, their greedy, devious nature when it is not masked by a captive media, and is not repelled by it?

In 2005 we forecast this very outcome, that Wall Street and their cronies would push their schemes beyond all reason, like drunk drivers or addicts who cannot quit, until they create a cathartic, catastrophic event which will cause someone to finally take away their keys at the last.

That time is approaching. No one can predict exactly when, but it is there. Make sure you are wearing your seat belts.”

“There is precious treasure and oil in the house of the wise, but a fool consumes all that he has and saves none.” Proverbs 21:20″

[Sep 7, 2009] Michael Moore declares all-out war on capitalism Money & Company

This is a Labor Day theme (actually other countries celebrate it on May 1). OK, capitalism might be evil, but what's better ? The devil we know...
Los Angeles Times

From Reuters in Venice today:

Capitalism is evil. That is the conclusion U.S. documentary maker Michael Moore comes to in his latest movie "Capitalism: A Love Story," which premieres at the Venice Film Festival Sunday.

 Blending his trademark humor with tragic individual stories, archive footage and publicity stunts, the 55-year-old launches an all-out attack on the capitalist system, arguing that it benefits the rich and condemns millions to poverty.

"Capitalism is an evil, and you cannot regulate evil," the two-hour movie concludes. "You have to eliminate it and replace it with something that is good for all people and that something is democracy."

Moore’s long-awaited film, which will open in L.A. and New York on Sept. 23 and nationwide on Oct. 2, is in part his post-mortem on the global financial system crash that began a year ago this month with the collapse of brokerage Lehman Bros.

But the film takes on much more than the usual cast of blood-sucking bankers to make the case against capitalism, delving into unrewarded worker productivity, vultures who make their living off foreclosed homes and horror stories from a privately owned juvenile correctional facility in Pennsylvania.

Time magazine’s Mary Corliss writes from Venice:

"Capitalism: A Love Story" does not quite measure up to Moore's "Sicko" in its cumulative power, and it is unlikely to equal "Fahrenheit 9/11" in political impact. In many ways, though, this is Moore's magnum opus: the grandest statement of his career-long belief that big business is screwing the hard-working little guy while government connives in the atrocity.

As he loudly tried to confront General Motors CEO Roger Smith in "Roger & Me" in 1989, and pleaded through a bull horn to get officials at Guantanamo to give medical treatment to surviving victims of "9/11," so in "Capitalism" he attempts to make a citizen's arrest of AIG executives, and puts tape around the New York Stock Exchange building, declaring it a crime scene.

But Corliss also questions whether Moore’s call for a grass-roots revolution can make it past the theater exit door:

At the end Moore says, "I refuse to live in a country like this -- and I'm not leaving." But this call to arms demands more than a ringleader; it requires a ring, an engaged citizenry who are mad enough not to take it any more. That's unlikely to happen.

[Sep 6, 2009] Train Wrecks Looming

Mr. Walker's own speeches are vivid and clear. "We have four deficits: a budget deficit, a savings deficit, a value-of-the-dollar deficit and a leadership deficit," he tells one group. "We are treating the symptoms of those deficits, but not the disease."

Mr. Walker identifies the disease as having a basic cause: "Washington is totally out of touch and out of control," he sighs. "There is political courage there, but there is far more political careerism and people dodging real solutions." He identifies entrenched incumbency as a real obstacle to change. "Members of Congress ensure they have gerrymandered seats where they pick the voters rather than the voters picking them and then they pass out money to special interests who then make sure they have so much money that no one can easily challenge them," he laments. He believes gerrymandering should be curbed and term limits imposed if for no other reason than to inject some new blood into the system. On campaign finance, he supports a narrow constitutional amendment that would bar congressional candidates from accepting contributions from people who can't vote for them: "If people can't vote in a district not their own, should we allow them to spend unlimited money on behalf of someone across the country?"

Recognizing those reforms aren't "imminent," Mr. Walker wants Congress to create a "fiscal future commission" that would hold hearings all over America to move towards a consensus on reform. It would then present Congress with a "grand bargain" on entitlement and budget-control reforms. Its recommendations would be guaranteed a vote in Congress and be subject to only limited amendments. I note that critics have called such a commission an end-run around the normal legislative process. He demurred, saying that Congress would still have to approve any recommendations in an up-or-down vote—much like the successful base-closing commission created by GOP Rep. Dick Armey in the 1980s.

What kind of reforms would Mr. Walker hope the commission would endorse? He suggests giving presidents the power to make line-item cuts in budgets that would then require a majority vote in Congress to override. He would also want private-sector accounting standards extended to pensions, health programs and environmental costs. "Social Security reform is a layup, much easier than Medicare," he told me. He believes gradual increases in the retirement age, a modest change in cost-of-living payments and raising the cap on income subject to payroll taxes would solve its long-term problems.

Medicare is a much bigger challenge, exacerbated by the addition of a drug entitlement component in 2003, pushed through a Republican Congress by the Bush administration. "The true costs of that were hidden from both Congress and the people," Mr. Walker says sternly. "The real liability is some $8 trillion."

That brings us to the issue of taxes. Wouldn't any "grand bargain" involve significant tax increases that would only hurt the ability of the economy to grow? "Taxes are going up, for reasons of math, demographics and the fact that elements of the population that want more government are more politically active," he insists. "The key will be to have tax reform that simplifies the system and keeps marginal rates as low as possible. The longer people resist addressing both sides of the fiscal equation the deeper the hole will get."

I steer towards the fiscal direction of the Obama administration. He says his stimulus bill was sold as something it wasn't: "A number of people had agendas other than stimulus, and they shaped the package."

As for health care, Mr. Walker says he had hopes for comprehensive health-care reform earlier this year and met with most of the major players to fashion a compromise. "President Obama got the sequence wrong by advocating expanding coverage before we've proven our ability to control costs," he says. "If we don't get our fiscal house in order, but create new obligations we'll have a Thelma and Louise moment where we go over the cliff." Mr. Walker's preferred solution is a plan that combines universal coverage for all Americans with an overall limit on the federal government's annual health expenditures. His description reminds me of the unicorn—a marvelous creature we all wish existed but is not likely to ever be seen on this earth.

As I prepare to go, Mr. Walker returns to the theme of economic education. Poor schools often produce young people with few tools to help them realize the extent of the fiscal trap their generation is going to fall into.

One way the Peterson Foundation wants to change that is to bring big numbers down to earth so people can comprehend them. "Our $56 trillion in unfunded obligations amount to $483,000 per household. That's 10 times the median household income—so it's as if everyone had a second or third mortgage on a house equal to 10 times their income but no house they can lay claim to." As for this year's likely deficit of $1.8 trillion, Mr. Walker suggests its size be conveyed thusly: "A deficit that large is $3.4 million a minute, $200 million an hour, $5 billion a day," he says. That does indeed put things into perspective.

Faltering Construction Loans = More Bad News for Banks By Barry Ritholtz

September 6th, 2009 | The Big Picture

“On the commercial side, I think we are fairly early in the down cycle.”

-Matthew Anderson, a partner in Foresight Analytics

Floyd Norris explains the potential dollars involved in further CRE distress:

“EVEN as the economy may be starting to recover, banks across the country are confronting a worsening outlook for their construction loans, an area that boomed for much of the decade.

Reports filed by banks with the Federal Deposit Insurance Corporation indicate that at the end of June about one-sixth of all construction loans were in trouble. With more than half a trillion dollars in such loans outstanding, that represents a source of major losses for banks.”

I would challenge the notion that we are truly in a real recovery. We are still int he “less bad” phase, with most gains due to government intervention, not an organic recovery.

Norris continues:

“At the end of June, $291 billion in [commercial] loans were outstanding, down only a few billion from the peak reached earlier this year. . . . Foresight Analytics estimates that 10.4 percent of commercial construction loans are troubled, but expects that to increase as the year goes on.

The definition of troubled loans used in the accompanying charts includes loans that are at least 30 days past due, as well as those on which the bank identified problems that led it to stop assuming that interest on the loans would be paid.”

Those folks who believe the “all clear” whistle has sounded may find themselves in unpleasant circumstances in a few short quarters . . .


Another columnist who does not have a clue how the real world works. CRE is the next big profit center for the banks. The government will cover the losses, of which the banks will write down a very big portion of them, and then buy them back for pennies, and put them on there balance sheets for quarters and then be able too borrow five dollars against them for them too go invest in other things while the properties sit and detiorate until they are written off as worthless after they have gotten a big tax break. CRE will most likely safe the economy, they have yet to be given the luxury of once twice three times leverage that creates real wealth and more jobs………someone will have too demo them in five years.



“No, actually, I think there won’t be *any* sort of sustainable economic recovery if we *don’t* spend now to fix our long term economic problems…

…We need to borrow heavily now to patch what Reagan, Bush, Clinton and Bush destroyed. Debt is only a symptom of the fact that the American economy has become a giant leech instead of the productive force it once was in the world.”

I think you and your administration are delusional, if you believe the US-economy can grow itself out of the mountain of debt and avoid major defaulting of debtors, massive losses on the side of creditors, debt deflation, and severe economic crisis in the process.

Do you really believe the US-economy will ever show annual growth rates of 15 to 20% or more (have you tried a little bit math?), that would be needed to have enough income to divert to pay of government debt of 100% of GDP or more that will be reached in the not so far future, and 300% of private debt to GDP where the private debt levels are now?

However, I suspect you are desperate. Neither you, nor the Obama-administraion know what else to do. You don’t know any solution to it. Therefore, you put all the empty slogans about “investing in the future” out here. And you feel threatened by the rest of the world.

Peter Schiff on the Surge in Gold; Jesse Weighs in on Inflation and Deflation

See Price Demand and Money Supply As They Relate to Inflation and Deflation You might also take a look at Some Common Fallacies About Inflation and Deflation.

Inflation and Deflation are not linear, that is, not straightforward and simple economic functions with a few variables, except at the tails of probability where the power of the extreme crushes the equation into simplicity by overwhelming other factors into insignificance. You print enough dollars, and consumer demand matters much less as an input to inflation.

Approaching the future with one dimensional game plans can be quite risky. But for some reason gold, and to a less extent silver, always appear to work to some degree in the solution mix, hence their continuing rally despite the best efforts of the powers that be to talk them down. As Bernard Baruch famously observed, "Gold has 'worked' down from Alexander's time... When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory."

The lack of coherent financial reform from the Obama Administration, and their ludicrous proposal to create a 'super-regulator' in the privately owned Federal Reserve, after a landslide victory in an election based on change and reform, is an outcome almost too bizarre to be believable. Unless, that is, you accept that Obama and those around him are either incredibly naive or corrupt. We suspect that as in all things it is some of both.

By the way, in case you missed it, Charlie Rangel, in charge of Ways and Means and the major proponent of a new military draft, is being investigated as another tax cheat among the Democratic leadership.

Do these people take us for imbeciles? Do they think that the world does not see their corruption, their greedy, devious nature when it is not masked by a captive media, and is not repelled by it?

In 2005 we forecast this very outcome, that Wall Street and their cronies would push their schemes beyond all reason, like drunk drivers or addicts who cannot quit, until they create a cathartic, catastrophic event which will cause someone to finally take away their keys at the last.

That time is approaching. No one can predict exactly when, but it is there. Make sure you are wearing your seat belts.

"There is precious treasure and oil in the house of the wise, but a fool consumes all that he has and saves none." Proverbs 21:20

U.S. Markets Flash Strong Warning Signals -- Seeking Alpha

"The dilemma in the current economic/banking system; it REQUIRES exponential growth, within a finite environment!"

A host of the technical indicators I use have been flashing warning signals but this market is being driven by historically unique forces, including massive deficits and prodigious liquidity injections, or is being supported by the machinations of the Fed. In either case, what in the past were useful tools are being compromised, if not castrated, in the current setting.

The market is clearly overbought and has risen to unsustainable levels. It was first better than expected earnings, then it was the growth of China, after that it was about improvements in housing and other reports, next it was we sold a few more cars through the clunker program and now, finally, we are starting to take stock of things and look at the fundamentals. They have remained unchanged and over the long-run these cannot be abrogated by either liquidity or complicity.

I see striking parallels between the present and the Depression and the Japanese market of 1989 and do not believe either fiscal or monetary policies offer sustainable remedial action; the adrenal glands of the economy are shot and we have become habituated to liquidity much as someone who eats too much refined sugar and becomes insulin tolerant, requiring ever more insulin from the pancreas to stabilize blood sugar levels; we have reach the point where ever increasing amount of liquidity is required to effect a given economic outcome.

And unchecked fiscal spending is not an option because sooner or later we run the risk of some combination of currency debasement, deflation with higher commodity prices, higher interest rates and reduced investor appetites for Treasuries. A more profound question is whether the stock market has sufficiently grasped the nature of the post-crisis model of capitalism the world is moving towards. Governments will be exercising greater control over the management and levels of profit in banking, the motor industry and elsewhere. Regulation will increase, as will taxes. And the populist backlash against bank bonuses threatens to spill over into a wider resentment of profits and wealth creation.

I wrote yesterday today that banking on China to lead us out of the current morass is a risky bet and, stateside, we have structural underemployment, a trend toward higher savings, excess capacity, ominous fiscal imbalances, severe state and local budget imbalances, reduced final demand and an artificially supported banking system poised to take a round of hits from CRE in its various forms.

Further, we do not have an environment in which to nurture innovation and risk taking; a solid investment environment depends on a strong and stable currency, restrained federal spending, less harmful legislation, dependable contract law, limits on taxation and countercyclical capital regulation.

Will 'Self-Preservation' Work After Decades of Fiscal Suicide -- Seeking Alpha

with 70% of the U.S. economy dependent on consumption (and thus 70% of the jobs, as well), as Americans make necessary reductions in their debt-levels this reduced spending will inevitably cause the loss of vast numbers of jobs in the retail sector. Therefore, someone reducing their personal debts to help improve their financial picture may very well contribute to their own loss of employment (and financial ruin) in doing so.

As for the retailers themselves, they have already noted this “generational shift” in U.S. consumer behavior (see “The Death of the U.S. Consumer Economy”). With the U.S. retail sector having an absurd amount of excess capacity given the long-term decline in spending which has just begun, these companies have little flexibility.

They are planning on dramatically reducing the number of retail outlets they operate in favor of shifting to more “online retailing” - the only segment of the retail sector which has not been devastated by declining sales (apart from Wal-Mart (WMT)). This inevitably means vast numbers of lay-offs for U.S. retailers.

The problem with this strategy is that every lay-off eliminates one more consumer still able to consume at close to previous levels. Thus, the more that retailers scale-back into online sales to cut costs, the more they reduce the spending power of the consumers who support their businesses. This is a self-reinforcing downward spiral – which the U.S. government has not even begun to address.

Indeed, with their knee-jerk response to the crises which are occurring on various fronts, on a regular basis, the U.S. government often hurts one group when it tries to help another. It's “Cash-for-Clunkers” program had an immediate (if temporary) positive impact for U.S. automakers.

However, getting the most-indebted people on the planet to go further into debt – to purchase a “big-ticket” item like a car has some very powerful, negative consequences. To start with, the consumer dollars which went into these automobile purchases immediately reduced the amount of spending these same consumers are doing with all the rest of the American retailers.

Meanwhile, many of these car-buyers will end up defaulting on their car loans, adding to the grossly excessive supply of used cars in the U.S. market. And, as even the “experts” acknowledge, many of the cars purchased today will directly subtract from purchases which would have been made in 2010. Thus, while Ford (F) boldly announced plans to increase production, a Cash-for-Clunkers “hangover” is already guaranteed to negatively impact these companies next year.

Furthermore, “Cash-for-Clunkers” is already seeing reduced demand from Americans, despite the fact the U.S. government just tripled the amount of money they are throwing at this problem. There simply are not that many Americans ready/willing/able to indulge in the purchase of a new automobile right now.

Worse, Americans will be making payments on these new cars for years, meaning that the money which disappeared from general retail spending in July is gone. While manufacturing automobiles requires a lot of labour (and thus jobs), retail sales of cars is not very labour-intensive compared to many other forms of consumer spending. Thus, this small, one-time boost to the U.S. manufacturing sector has a significantly negative long-term impact on the entire U.S. retail sector.

As has been widely reported, U.S. banks are cutting credit-limits, reducing lending, and “tightening the screws” further on Americans by increasing the size of minimum payments on credit card balances. Putting aside the fact that only complete idiots carry significant credit card balances, these efforts at “self-preservation” hurt everyone – including the banks themselves.

Reducing credit to a consumer economy which is addicted to credit obviously has negative repercussions – part of the same vicious circle described earlier. With U.S. consumers forced to spend less through the dramatic reduction in available credit, this reduced spending means large numbers of job-losses, with those losing their jobs becoming the most likely candidates to default on the numerous categories of debt held by U.S. banks.

Thus, as banks try to “protect” themselves through restricting credit, they create large numbers of defaults – translating into even more losses on their balance sheets, and at a time when all categories of loan-delinquencies are already at all-time records.

In the devastated U.S. housing sector, “self-preservation” is also producing (or will produce) its own series of unintended consequences. With virtually all U.S. home-builders threatened with bankruptcy, and sales of higher-end homes completely evaporating, all U.S. home-builders rushed into the low-end housing market (primarily through apartments/condominiums) – at the same time.

The result of this flight-of-the-lemmings is that for well over a year, every month U.S. home-builders have been starting construction on (at least) 50% more homes than they are selling. Increasing inventories in the most over-supplied housing market in history threatens the survival of all these home-builders – both individually and collectively.

Then there are the retiring U.S. baby-boomers, who are suddenly discovering that their retirements are severely under-funded. This shortfall can only increase dramatically as the U.S. government cannot pay any of the unfunded $70 trillion in entitlement-programs – which these same baby-boomers planned on leaching from their children and grandchildren.

With real estate comprising 75% of the assets of these baby-boomers, dumping real estate (year-after-year, decade-after-decade) is their only option. With over 20 million empty homes across the U.S., there is an endless supply of homes – all aimed at a tiny portion of Americans capable of being future buyers in this shattered economy.

This is the inevitable outcome of running a “Ponzi-scheme economy”, where mountains of leveraged debt can only be stabilized by mountains of new debt to allow borrowers to (temporarily) continue to make payments on debts they will never pay off.

As has been frequently pointed out by one-time laughing-stock, Peter Schiff (and many other non-mainstream commentators), you cannot solve economic problems caused by recklessly excessive borrowing-and-spending by engaging in even more reckless borrowing-and-spending.

“Self-preservation” actions are more than offsetting efforts by the Obama regime to re-inflate this Ponzi-scheme. The only path to financial health for Americans (and the United States, as a whole) is to dramatically ratchet-down spending and debt-levels – which can only occur over a period of many years.

The problem is that this “deficits don't matter” economy was based upon the foundation of ever-increasing debt. As with all other Ponzi-schemes, the U.S. economy cannot be fixed.

While individual actors may be able to save themselves as the “Titanic” goes down, the sinking of the U.S. economy is as inevitable as that ill-fated cruise ship. Attempts to avoid this certain fate can only make matters worse.

For those who believe that nothing could be worse than default on the national debt, I urge people to study the examples of other doomed economies which tried to avoid an inevitable fate – invariably through more reckless borrowing, followed by even more reckless money-printing. This inevitably means hyperinflation: the reduction of the value of currency to zero, followed by national default.

The United States is already confronted by total public and private debts which exceed $56 TRILLION. This mountain of debt is much too large to even be serviced by this relatively puny economy – as demonstrated by the fact the U.S. government is already forced to print money just to pay the interest on its debt.

Junk Bond Default Rate Passes 10 Percent

9/03/2009 | CalculatedRisk

From Rolfe Winkler at Reuters: U.S. junk bond default rate rises to 10.2 pct -S&P

The U.S. junk bond default rate rose to 10.2 percent in August from 9.4 percent in July ... Standard & Poor's data showed on Thursday.

The default rate is expected to rise to 13.9 percent by July 2010 and could reach as high as 18 percent if economic conditions are worse than expected, S&P said in a statement.
In another sign of corporate distress, the rating agency has downgraded $2.9 trillion of company debt year to date, up from $1.9 trillion in the same period last year.
Bad loans everywhere ...

[Sep 4, 2009] The Pareto Principle and the Next Wave Down in Real Estate

charles hugh smith

I have applied the Pareto Principle to the housing market over the years, and now that foreclosures have hit the critical 4% mark, it's time to revisit the 4/64 rule and the 80/20 rule. I was introduced to the Pareto Principle by longtime correspondents Harun I. and U.K.C.

The Pareto distribution quite effectively predicted that the 4% "vital few" subprime defaults would have an outsized effect on the 64% "trivial many" households with mortgages.

[Sep 4, 2009] How Low Can We Go

So far market behavior looks very similar to 2001 (with March instead of September as a "crash month"). Current situation reminds me Jan 2002.  Does this mean that we will live thou another 2002 with a major correction in three months or so is anybody's guess..
charles hugh smith

One fairly predictable pattern in any market chart is that price tends to oscillate between the upper and lower Bollinger band. I've marked this trait with small blue lines.

When markets are trending strongly, they can ride the Bollinger bands up or down. But if this is once again a "normal" market, as the VIX suggests, then it would be entirely normal for price to drift down to touch the lower Bollinger--around 7,800 or so, with the caveat that the bands expand in volatile markets and thus if they widen then the lower band drops.

In other words, if volatility increases, then the bands widen and the target drops accordingly.

Many observers are recalling that stocks tend to re-test their lows after severe drops, something which forms a "double bottom." The psychology is supposedly something like this: participants can't really be sure there won't be a new low until the market dips down and bounces off its last low.

If this holds true, then it would entirely normal for the DJI to drop back to the 6,500 area. From its high last week at 9,600, that's about a 3,000 point decline.

Standard issue financial pundits (SIFPs) are mewing calm words about a 10% decline of "profit taking."

Better keep a chart of the VIX handy just as a real-world test of those placid reassurances. If the VIX keeps rising, then Wiley Coyote may find he's run off the cliff into thin air.

[Sept 4, 2009] BLS Birth Death Conundrum The Big Picture

A new abbreviation: B.V.S. (Before the Vampire Squid) ;-)
  1. leftback Says:
    September 3rd, 2009 at 11:44 am

    Hard to believe that any businesses are actually being born in an environment of declining credit to small biz.
    BTW, natural gas may be a rare example of an un-gamed un-stimulated market*. It’s not singing a reflation song.

    *These were sometimes referred to as “free markets” in the older literature, B.V.S. (Before the Vampire Squid).

[Sept 3, 2009] FDIC chief Commercial mortgages a looming problem - MarketWatch

"Is she warning of another banking crisis?" Nice, but what if nothing at all has been fixed? Just swept under the rug...

In an interview with CNBC, Bair said commercial real-estate loans were "catching up" with residential mortgages as a threat to banks' balance sheets.

"Commercial real estate is a looming problem. It's going to be a bigger driver of bank failures toward the end of this year and into next year," she said.

[Sept 3, 2009] Short ETFs Jump, Confirming the Coming Market Correction -- Seeking Alpha

The US stock market appeared to take a decisive change of direction last night with the S&P closing under 1,000 points and the Nasdaq under 2,000. Short ETFs jumped, particularly the leveraged variety.

But tonight will be eagerly watched by the shorts for confirmation of a major change of direction - from a bear market rally of 51 per cent to a market correction, at best, or serious crash, at worst.

Beware September

September and October are often bad months for global stock markets, and there is little reason to believe this time will be different. Indeed, the economic outlook remains bleak.

What will happen to US auto sales now that the `cash for clunkers' scheme is over? Governments have only a limited capacity to force demand. Similarly as owners of banks they have no magic to restore profits, only to prevent collapses and then at the cost of preserving institutions that ought to fail and handicapping the others.

My shorting interest is concentrated in the banking sector. The recovery has been far too strong in bank stocks. The reality of the market is that profits will stay low and consolidation ought to be the order of the day. Share prices do not reflect this.

Why should stocks stay up while the economic environment remains weak, and could well deteriorate further or at the very least take a long time to recover?

Bank time bomb

Banks are sitting on huge unrealized losses around the world, and it is only the very recovery of stock prices that has eased the pressure on their capital adequacy ratios. As their stock prices fall again this leverage will work in reverse.

Across global industry any modest profit upticks have been largely from cost cuts - job losses mainly - and not from improvements in revenues. How can it be otherwise as global trade has crashed harder than in the 1930s?

In this environment a third down leg in stock prices is to be anticipated and it will likely prove much bigger than anything expected by commentators with a vested interest in talking things up. We will see where we get to by early November but everything points to a big fall now. I think we will get confirmation very soon.

That would also take industrial commodities, including oil, down to new lows. However, precious metals probably have a more limited downside risk as investors will hedge against future inflation and dollar weakness, although the US dollar and bonds will rise first over the next two months.

[Sept 2, 2009] Data Points to Ongoing Economic Woes

The bottom line is that this not a healthy situation, and it is not likely one that is on the verge of snapping back anytime soon.

Regardless of the “message of the market” — a 50% rally from deeply oversold conditions is not the same as an improvement in Hiring, Sales, Income, Industrial Production or Housing.

Marcus Aurelius:

“Despite the cheerleaders best efforts, the latest set of data to come out is filled with signs that the recovery — when it finally arrives — will be unimpressive. The best word for it is probably “sluggish.”

I still wonder why anyone is expecting recovery (a definition of the concept would probably help). There is nothing on the horizon — as there has been nothing for 2 years, or so — that would give any glimmer of hope that any “recovery” is in our future. This is still the beginning of a new paradigm (please forgive my use of the word), and any expectation of a return to what we would historically view as “normal” (economically or socially) is premature, at best.


Sour grapes huh?


The most important question striking the I is:

Why do the “cheerleaders” feel the need to cheer?  Its beyond the sophomoric interpretation of “data”… surely they cannot be this obtuse… over and over and over in their attempt to spit shine shit.

And there is still that pesky question of if the banks are really solvent or not. Just for fun… lets see the balance sheets ex financial chicanery of the major and regional banks, and really dig our teeth into those commercial and construction loan portfolios… you know, the ones no one wants to talk about…

Oh yeah… and there is still that issue floating around with just “what” is on the balance sheet of the most corrupt financial institution in the US… The Federal Reserve.

I suspect the answers to these questions get to the root of why the cheerleaders feel the need to cheer…

The Curmudgeon:

Recovery? Recovery from what? Recovery from the nearly-destroyed financial superstructure of an economy whose foundation is crumbling? If we get “recovery” it will only mean that we’ve successfully plastered and patched the superstructure of economy to give it the illusion of stability, but without repairing the foundation.

It will soon enough crash again, and will continue to do so, until the foundation is rebuilt.

No economy dependent on the monetary mischief of government miscreants can long stand.


Clearly there will be a rally, the question is when and how weak? It will be weak, you know…
Interesting to see the 2-year tag 0.89% and gold rallying this morning. The fear gauges are rising.


Taleb’s latest missive…..

dead hobo:×300&d=medium&b=bar&st=

Copper is doing its part. This dip might be the real deal. One more day that follows the chart (60 minute interval for several days) and hotchie mama, the shorts might finally have something to work with safely.

It’s really cool to see the high volume and downward emphasis … the HFT kiddies are very likely not capable of performing well in this scenario. In spite of the hype, they are best used to generate high velocity and markets that creep higher at a slow rate. They create and capitalize on a form of asset inflation. And are particularly effective when they control most of the market volume.

Today, they are just being swept downstream by the current, and are probably trying to retain dignity while being flushed. The HFT kiddles are probably the ones behind the volatile jumps, hoping to snag a few suckers to play with.

Whammer Says:

September 2nd, 2009 at 10:50 am
OK DH — when you say “HFT kiddies” I can’t help but think Hot For Teacher

cvienne Says:


“The fear gauges are rising.”

Clearly… The VIX is back up near 30…

I wouldn’t be surprised to see some heavy whiplash action for the rest of the week…

Perhaps 988 holds, a bounce back to 1008, then the rug gets pulled out and we get that 10% correction.

rootless_cosmopolitan Says:

September 2nd, 2009 at 10:52 am

I am not as optimistic as Barry Ritholtz who apparently thinks that the worst of this crisis is behind us, although he is obviously more pessimistic than you are. You seem to think that the biggest problems have already been solved, the crisis is basically behind us, and everything is getting better from here and will be just fine in a couple of years. Your views agrees strongly with the economic projections of the Obama-administration for the next years that just have been published. I think you and the Obama-administration are both delusional, though.

In contrast, I say the probability is high that the worst is yet to come. I just can’t tell you the exact timing for when it is going to play out. Do you want to know the real data from which I draw this conclusion, in case you say I don’t have anything “real” to back up this statement?

The data is a mountain of debt of about 52 trillion US dollars in United States, i.e. the total debt to US GDP ratio amounts to about 375%, the biggest debt bubble maybe in history, about twice as big than the one that deflated during the Great Depression, and there is no way that this debt crisis in United States can be solved just by normal economic growth and diverting a higher fraction of income to pay off the debt and w/o massive defaulting of debtors and following chain reaction in economy (massive losses on the side of the creditors and choking off economic growth) due to debt deflation.

The open question is when will it really start, how long can the government postpone the inevitable.

Here you can read the math, which I use to support my argument:


VennData Says:

There’s been four trillion in US wealth created in the stock market in a few months.

We always have had the gov’t deficit spending that increases the GDP, we just have a bit more now. It’ll keep on through next year.

Bond market and equity market disconnect? That’s because of quantitative easing, the central banks around the world are driving down interest rates. P/E ratios are fine, since interest rates are dirt cheap.

Employment is marginally down, by consumption is largely driven by the rich, who don’t depend on employment

Even though the Fed balance sheet doubled, there’s been no collapse in the dollar, no permanently high plateau in oil, gold, nat. gas etc and Americans, who are now saving are buying Treasury debt. In fact the Fed balance sheet has been shrinking all year.

The gov’t program, “Cash for Clunkers” worked. Meaning gov’t programs are more likely, even some that work.

House prices have generally flattened allowing people to buy, with mortgage rates so low

Recent economic numbers on Productivity, ISM, new orders, manufacturing are all good and there’s very little talk about more stimulus. If there is a need for more stimulus, China can provide it. The same Chinese who are buying our debt like there’s no tomorrow.

All the negative talk (See WSJ) emboldens the shorts, which is bullish.

Obama’s poll numbers are still above 50, even after all the tough political medicine he’s doling out. He’s a leader.

dead hobo Says:

Whammer Says:

OK DH — when you say “HFT kiddies” I can’t help but think Hot For Teacher

From what I’ve read, the HFT kiddies are uber math and computer nerds, who specialize in pattern recognition and reactive strategies. Some of them are said to be pretty young. Hot for Teacher is probably one of the themes they look for on Red Tube or elsewhere, as I can’t imaging many are socially capable of meeting real girls.

leftback Says:

“Perhaps 988 holds, a bounce back to 1008, then the rug gets pulled out and we get that 10% correction.”

Agreed, it almost seems too easy, like there must be a lurking vampire squid to suck the life out of the shorts and take the market rocketing to 1050. But sometimes we think too much, eh, my friend? Like yesterday, for example, when LB slapped on TBT and PST as a hedge when maybe he should have done… nothing.

“Don’t think, Meat, just throw the ball”

cvienne Says:

VennData = Robert Gibbs

dead hobo Says:

So, the big question is, when the HFT kiddies stop painting the tape, how far will the stone drop and how many bounces will it make? I smell blood. I hope some people are thanking the HFT kiddies for their generosity and selling into there beneficence.

rootless_cosmopolitan Says:

VennData said: “There’s been four trillion in US wealth created in the stock market in a few months.”

Fictitious wealth. Real wealth in society can’t be created just by circular buying and selling of things and assigning a higher price in every transaction.

leftback Says:

September 2nd, 2009 at 11:12 am
“There’s been four trillion in US wealth created in the stock market in a few months.”

Sure, whatever you say, “VD”. There was several million “created” in AIG and FNM stock in the last week, but that doesn’t mean it will still be there by the middle of next week. A lot of “millionaires” were “created” during the housing bubble and now they are collecting unemployment benefits.

Mannwich Says:

Bingo rootless. Bingo. But, hey, we’re all rich if we trade worthless paper to one another, right? At least it feels good to think that way.

cvienne Says:


good point!

as an ADD-ON to your statement, the simple change in FASB rules earlier this year conveniently removed how many trillions of losses from balance sheets?

Moral of the story… You can make up any numbers you want…

I can count, however, how many tomatoes I have growing on vines at the moment, how many potatoes & onions are in the ground, and how many ears of corn are ripe for picking…

Cohen Says:


How did CFC “work” exactly? Estimates are for SAAR sales of 13.7 million units. I’d consider that awful considering where car sales were a year+ ago sans stimulus. Not to mention it added some $13 billion of consumer debt to already strapped consumers.

What I think a lot of people who think a sustainable recovery is here are missing is the unsustainable nature of economy before the collapse. By that I mean the ever increase amount of $s of credit needed to create $1 of GDP. If econonic growth is dependent on credit expansion and credit is doing the opposite, where does growth come from?

[Sept 2, 2009] Macro Hedge Funds Betting Against Recovery Story  by Yves Smith

Note that while this Bloomberg story discusses that some major hedge funds are skeptical of the theory that the recovery is on, for the most part, it is silent on how they are implementing that view. Recall that even if a trader does make a correct fundamental call, investing successfully on it is another matter. Soros notoriously got many of the basics around the credit crisis correct, including recognizing the oil price spike as largely a bubble, but nevertheless was reported to have wrong-footed the trades.

From Bloomberg:

High unemployment, lower wages and potential missteps by policymakers around the globe may stifle economic growth in 2010, Tudor said….

Macro managers’ pessimism is fueled in part by the U.S. government’s response to last year’s financial crisis, which they say fails to address the root cause. Banks still hold hard- to-sell assets on their balance sheets, the managers said.

“Some critical initiatives have been cut short,” Tudor said. “As a result, toxic assets remain on balance sheets and credit growth is likely to be subdued for a long period.”

Some firms, including Brevan Howard Asset Management LLP, see the recession at its end while dismissing the likelihood of robust growth.

Brevan Howard, Europe’s largest hedge-fund manager with $24 billion in assets, told clients the U.S. could stumble when stimulus spending fades after the current quarter.

“If we have a recovery at all, it isn’t sustainable,” Kevin Harrington, managing director at Clarium, said in an interview at the firm’s New York offices. “This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”

• Kena says:

“This is more likely a ski-jump recession, with short-term stimulus creating a bump that will ultimately lead to a more precipitous decline later.”

Replace “ST stimulus” with “allowing members of the financial oligarchy to keep their jobs” and the BSD from Clarium might just have it right.

• Hugh says:

I don’t know how long the current suckers market will run. My own guess is it will tank sometime between now and the end of the year. I find it surprising that it should be thought surprising that market players should look past the atmospherics and actually base their strategies on the fundamentals. I suppose this is a function of how deeply engrained the casino mentality is in financial markets.

• Spectator says:

Beware the lure of fundamentals when it comes to timing market turns, specially with a reckless Fed head like Helicopter Ben. These drunken bouts usually last much longer than you’d think possible in the presence of free money and moral hazard.

Bet against the Fed at your own peril, or rather, bet with a large enough window to avoid timing uncertainty.

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Vol 25, No.12 (December, 2013) Rational Fools vs. Efficient Crooks The efficient markets hypothesis : Political Skeptic Bulletin, 2013 : Unemployment Bulletin, 2010 :  Vol 23, No.10 (October, 2011) An observation about corporate security departments : Slightly Skeptical Euromaydan Chronicles, June 2014 : Greenspan legacy bulletin, 2008 : Vol 25, No.10 (October, 2013) Cryptolocker Trojan (Win32/Crilock.A) : Vol 25, No.08 (August, 2013) Cloud providers as intelligence collection hubs : Financial Humor Bulletin, 2010 : Inequality Bulletin, 2009 : Financial Humor Bulletin, 2008 : Copyleft Problems Bulletin, 2004 : Financial Humor Bulletin, 2011 : Energy Bulletin, 2010 : Malware Protection Bulletin, 2010 : Vol 26, No.1 (January, 2013) Object-Oriented Cult : Political Skeptic Bulletin, 2011 : Vol 23, No.11 (November, 2011) Softpanorama classification of sysadmin horror stories : Vol 25, No.05 (May, 2013) Corporate bullshit as a communication method  : Vol 25, No.06 (June, 2013) A Note on the Relationship of Brooks Law and Conway Law


Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds  : Larry Wall  : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOSProgramming Languages History : PL/1 : Simula 67 : C : History of GCC developmentScripting Languages : Perl history   : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

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