Financial Skeptic Bulletin, September 2009
| Contents |
There are no markets anymore, just interventions
- [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.
- In September the March-August rally continued.... Support
of stock might, in part, come from government money injected in
financial sector, in part from the desire to return to asset-based inflation.
- The first and most important lesson to be learned is that the
vast majority of investors (individuals and institutions) are usually
wrong, that's right; wrong. The simple explanation for this is the
The herding effect could be explained in one sentence:
If it's too apparent, it's apparently wrong.
By Simon Maierhofer
Everyone Is Buying Stocks - Isn't That The Time To Sell - Yahoo!
- "...the consumer's balance sheet 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"
- "...another data point demonstrating the desire to return to excess
consumption and the asset-based economy of the bubble years."
Perpetuating excess consumption by
- Job market continues to deteriorate.
"Total losses will exceed 7 million jobs before the hemorrhaging
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,
chairman of the Federal Reserve, over his policy of persistent cheap
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.
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
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
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.
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?
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:
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:
News) fell nearly 20%. The iShares iBoxx $ High Yield Corporate
Bond Fund (NYSEArca:
News) dropped 25%. Lower quality junk bonds did even worse.
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
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.
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
Clearly, they are expecting to cut 10% at least through attrition
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....
“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.”
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
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,
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.
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.
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.
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.
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'.
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
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
Few could argue with Barack Obama last week when the US president
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.
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
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.
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
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.
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.
Ilian Mihov suggests (with evidence) that
healthcare and education costs played a key role in the rise of
Americans cannot get any truth out of their government about anything,
the economy included.
The unemployment rate, as reported, is a fiction and has been since
the Clinton administration.
Refreshed with the TARP $700 billion and the Federal Reserve’s expanded
balance sheet, banks are again behaving like hedge funds.
The US economy has been kept going by substituting growth in consumer
debt for growth in consumer income.
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.
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 shadowstats.com 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
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
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
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
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
by AL MARTIN
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
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
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
but wsj obviously deleted the video.
if true the MSM should have a collective interest to hide this interview.
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
"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
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
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: email@example.com.
Check Dr. Tremblay's coming book
The Code for Global
articles by Rodrigue, or
visit Rodrigue's website.
Extending and pretending -- the way banks work with loans on the
Bankslaughter n. The crime of driving a bank out of business
by making excessively risky investments
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
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
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.
If Japanese stop buying bonds, that's a national catastrophe for the
September 22, 2009 | theTrumpet.com
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
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
“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
More alarming for American policymakers, Hatoyama has authorized
a wide-ranging review of the U.S. military presence on Japanese soil.
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
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
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,
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
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
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
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
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
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…?
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.
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."
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
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.
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
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
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.
It looks like QE is an indirect cause of equities rally.
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
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
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.
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.
...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
... ... ...
“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
“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
who is buying this rally and by
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..."..."
"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?
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.
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.
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.
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
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
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
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
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.
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 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.
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...
"global economy seems to be stabilizing at a level that is 'unacceptably
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.
Of course real unemployment is already approaching 20%.
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
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.
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."
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
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.
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
From Stuart Thomson, economist at Ignis Asset Management:
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.”
Oil depletion might take care of that problem: too many people too few
jobs, at lease parcially...
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
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?
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
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
- "We are becoming a banana republic. Except that we cannot grow bananas."
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?
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
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
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.
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?
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
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.
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.
September 20th, 2009 | The
“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,
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
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
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
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 . . .
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 Bloomberg.com,
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
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
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.
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
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
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.
From Suzanne on www.complaintsboard.com:
Complaint Rating: 86 % with 14 votes
Company information: Fisher Investments / Ken Fisher / Fisher Investmen
"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
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
They are very smart, their sales people are incredibly slick, and
are counting on the greater fool theory.
Sep 18, 2009 |
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.
September 18, 2009 |
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.
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
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.
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
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
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
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
I think it would behoove those interested in these issues to study
how the control systems that regulate complex chemical process plants
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.
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
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
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.
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.
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
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.
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
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
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
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
Question: How do you describe your key take-away from your
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
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.
- By Courtney Goethals Dobrow
- On Thursday September 17, 2009, 3:30 pm EDT
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
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
Junk behavior is really very strange, as if it is manipulated like stock
Let me guess -
record levels of junk bond defaults are positive for the economy
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
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.
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
...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
...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
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".
“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.
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
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.
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
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
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?
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
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.
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
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......
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
“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
“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
“I want to question any presumption that the federal safety net,
and financial support, will be extended beyond the traditional commercial
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
Black Swan, Dr. Evil: I'm going to play the devil's advocate
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.
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.
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
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
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
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?
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
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.
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.
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
Haven't done the numbers and don't know if it's true, but here
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
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
So, we all contributed to the spending of $3 billion to save $350
How good a deal was that?
I’m sure they’ll do a great job with health care though.
Very good piece.......
Bailout Lies Threaten Your Savings
by Daniel Amerman
More sinking sounds?
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
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
This is just an opinion, and it could be wrong, as all opinions may
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.
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
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.
“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.
In 2004 Bush claimed; "The
health care system looks like a giant lottery. That is what it looks
like these days with these lawsuits and somehow the trial lawyers are
always holding the winning ticket." Again in 2006 President Bush cited
Medical Malpractice Lawsuits as the biggest issue driving doctors out
of business; however, the numbers of physicians are rising at a ratio
faster than the population and at the same time as profits for malpractice
insurance companies. 15 malpractice insurers in Florida had profits
increase by ~$800 million in 2005. While insurance premiums may be rising
for doctors and profits are rising for insurance companies, the numbers
of malpractice suits resulting in payment have been declining. From
2001 to 2005, the numbers of payments decreased from 16,588 to 14,033
and are reflected in payments/awards per 100,000 made on behalf of doctors
going from 5.82 to 4.73. When adjusted for inflation, total malpractice
payments over the 14 years have gone from $2.11 billion in 1991 to $2.14
billion in 2005 or an increase of ½ of 1%.
“The Medical Tort Reform Debate” Public Citizen 2007
In the seventies, Tom Baker
(Univ. of PA Prof. of Law and Health Sciences) recalled similar issues
being discussed by his father around the dinner table accusing medical
malpractice lawsuits of driving up the cost of healthcare, insurance
premiums, and driving doctors out of business. In the mid 1970s, the
California Hospital and Medical Associations sponsored a study on the
“exploding” frequency of medical malpractice suits. The investigation
found thousands of people injured by malpractice; but, few of the injured
actually sued. The study was never brought to the forefront in California
until the passage of restrictive malpractice lawsuit reforms in California.
The study then emerged from the background it was placed in and published
in an association report and failed to get the public acknowledgement
Since the seventies, the
topic of malpractice lawsuits surfaced again in the eighties, at the
turn of the century, and again now. Other studies since the seventies
California study have confirmed what was found then in California in
the seventies: too much medical malpractice with little malpractice
litigation; the actual costs of medical malpractice having little to
do with the litigation; medical malpractice insurance premiums being
cyclical and having little to do with litigation or runaway juries;
and many undeserving malpractice suits being brought forth because people
can not find out what happened. What can be counted on is continued
pressure to draw the attention away from the ~100,000 cases of malpractice
yearly and rising insurance premiums until such time as premiums decline
for doctors. Little if nothing has been done to lower the incidence
of malpractice by doctors, which are mostly mistakes.
“The Medical Malpractice Myth,” Tom Baker.
August 2009, “Would
Tort Reform Lower Healthcare Costs?” Tom Baker answers questions
in the NYT Health Section. Tom Baker made the following observation
on medical malpractice reform:
“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
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
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.
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
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
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
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
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
Having started reading
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
"[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."
The relevance and parallels to the current crisis should be obvious.
"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
"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."
"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
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."
THE LONG-TERM PROBLEM OF FULL EMPLOYMENT
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.
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.
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,
(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
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
And of course, it will all be a “complete surprise and shock, something
no one could have predicted”.
Rally on, lemmings — the direction is
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
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
but i am glad barry has atleast given the name of the stocks he is
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)
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
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.
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
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
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
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.
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
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
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
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
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
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
You're assuming that the Adminstration says "jump" and everyone
just takes off. Things just don't work that way, especially in the
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
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
the future banksters can be certain that if their gambling results
losses then the public will foot the bill.
The big question is what should have been done. Here are a few
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
7. Separate investment and commercial banking i.e. repeal the
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
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
15. Stop allowing rich foreigner to live in the UK without paying
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
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
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
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 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 .
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. ...
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.
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
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
“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.”
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
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.”
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.
if a man’s bonuses depends on him NOT seeing something, he will not
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
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.”
Perhaps that’s why Martin Zweig said, “Don’t fight the Fed.”
They just might get it right, someday.
“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.
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.
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.
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.
"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."
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
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.
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
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?
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 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.
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
Call this another data point demonstrating the desire to return to
excess consumption and the asset-based economy of the bubble years.
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
That last component, liquidity, seems to be most dominant lately since
buying power (or lack thereof) determines if stocks go up or down.
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…
at 12:06 pm
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
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
"It seems to me that credit markets are usually "smarter" than equity
markets.. it probably makes a lot of sense to follow them. "
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.
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
There was also this story on bonds about a week ago:
September 3, 2009
Ominous Signals From Bonds Data
By EDWARD HADAS and DWIGHT CASS
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.
Doug Noland's Commentary and weekly watch is, as always, an interesting
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
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
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
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
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.
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
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
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
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.
Another point of view.
. RE: Debunking 9/11 Myths: Introduction to PM Expanded
"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)
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.
Grapes of Wrath ? Now compare that to
NYTimes.com "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
- Perhaps the bread and circus sleep walking is coming to an end.
- Ken Lay, Ken Lewis….is there really a difference?
- And I thought the Ken Lay / Lewis was an excellent Freudian
slip… not falling on her face at all (and she did acknowledge with
- And yes, their arbitration, credit counseling and debt consolidation
scams are just that - scams.
- it is truly liberating to disassociate yourself from the blood
sucking zombies that run the banks and credit industry. I’m never
going back. Adios shylocks.
- I just had a credit card company (Barclays) try to retroactively
change my interest rate. Fortunately, I was in position to immediately
pay it off. These banks are criminal enterprises. The executives
should be charged under RICO statutes.
Paul Craig Roberts
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%.
 that unemployment figures for July 2009 rose to 20.6%
According to an article
 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.
Surprisingly overdraft fees are a huge profit center for the banks.
..banks charge particularly aggressive over-limit fees on debit cards.
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
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%.
The US is in the midst of the steepest decline in home price on
Short-term treasury yields went negative and are still close to
Long-term treasury yields hit record lows.
Foreclosures hit record highs.
The stock market had the biggest collapse since the Great Depression.
U-6 unemployment is a whopping 16.8% and still rising.
The PPI (producer price index) had the biggest drop in 59 years.
The CPI is at -1.3% is declining at the fastest pace since 1950
according to government calculations. The real CPI by my calculations
is -6.2% (See
What's the Real CPI? for details).
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
"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."
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.
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......
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
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
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
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.
@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
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.
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
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".
"Total losses will exceed 7 million jobs before the hemorrhaging ends.
With productivity growing at least 2% a year and the working aged
population increasing 1% a year, GDP growth must exceed 3% to bring
...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
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.
- Construction - In July, construction lost 76,000
jobs. Since construction employment peaked in October 2006, the
sector has lost 1.4 million jobs.
- Retailing - The retail trade has shed 843,000
jobs since November 2007, and lost 44,000 jobs in July.
- Finance and insurance -
During the economic expansion finance and insurance, along
with technology sectors, offered some of the best new job opportunities,
outside of healthcare and technology-related activities.
Since December 2007, finance and insurance has shed 332,000 jobs,
and 13,000 in July alone.
- Manufacturing - In July, manufacturing lost 52,000
jobs. The dollar remains overvalued against the yuan and other Asian
currencies, and the large trade deficit with China and other Asian
exporters is a key factor pushing down US manufacturing employment.
Sep 9, 2009 |
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
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
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.
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.
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.
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.
Unemployment is unacceptably high. No conditions for increased private
demand exists. Hotels, retail are next shoes to drop...
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,
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
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
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
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.
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
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
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
Same old, same old.
@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
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
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″
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...
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.
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
But Corliss also questions whether
Moore’s call for a grass-roots revolution can make it past the theater
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
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
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
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.
September 6th, 2009 | The Big
“On the commercial side, I think we are fairly early in the down
-Matthew Anderson, a partner in Foresight Analytics
Floyd Norris explains the potential dollars involved in further CRE
“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
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.
“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
…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
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.
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
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?
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
"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
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
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.
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.
Bad loans everywhere ...
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.
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.
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..
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.
A new abbreviation: B.V.S. (Before the Vampire Squid) ;-)
- 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).
"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'
"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.
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.
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.
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
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.
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.
“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
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…
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
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…..
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
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.
September 2nd, 2009 at 10:50 am
OK DH — when you say “HFT kiddies” I can’t help but think Hot For Teacher
“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.
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:
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:
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.
“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”
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.
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.
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
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
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…
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?
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.
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
Replace “ST stimulus” with “allowing members of the financial oligarchy
to keep their jobs” and the BSD from Clarium might just have it
• 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.
| Contents |
Two Party System
as Polyarchy :
Corruption of Regulators :
and Control Freaks : Toxic Managers :
Harvard Mafia :
: Surviving a Bad Performance
Review : Insufficient Retirement Funds as
Immanent Problem of Neoliberal Regime : PseudoScience :
Who Rules America :
: The Iron
Law of Oligarchy :
War and Peace
Finance : John
Kenneth Galbraith :Talleyrand :
Oscar Wilde :
Otto Von Bismarck :
George Carlin :
Propaganda : SE
quotes : Language Design and Programming Quotes :
Random IT-related quotes :
Somerset Maugham :
Marcus Aurelius :
Kurt Vonnegut :
Eric Hoffer :
Winston Churchill :
Napoleon Bonaparte :
Ambrose Bierce :
Bernard Shaw :
Mark Twain Quotes
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
Vol 25, No.08 (August, 2013) Cloud providers
as intelligence collection hubs :
Financial Humor Bulletin, 2010 :
Inequality Bulletin, 2009 :
Financial Humor Bulletin, 2008 :
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 DOS
: Programming Languages History :
PL/1 : Simula 67 :
History of GCC development :
Scripting 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
Principle : Parkinson
Law : 1984 :
The Mythical Man-Month :
How to Solve It by George Polya :
The Art of Computer Programming :
The Elements of Programming Style :
The Unix Hater’s Handbook :
The Jargon file :
The True Believer :
Programming Pearls :
The Good Soldier Svejk :
The Power Elite
Most popular humor pages:
Manifest of the Softpanorama IT Slacker Society :
of the IT Slackers Society : Computer Humor Collection
: BSD Logo Story :
The Cuckoo's Egg :
IT Slang : C++ Humor
: ARE YOU A BBS ADDICT? :
The Perl Purity Test :
Object oriented programmers of all nations
: Financial Humor :
Financial Humor Bulletin,
2008 : Financial
Humor Bulletin, 2010 : The Most Comprehensive Collection of Editor-related
Humor : Programming Language Humor :
Goldman Sachs related humor :
Greenspan humor : C Humor :
Scripting Humor :
Real Programmers Humor :
Web Humor : GPL-related Humor
: OFM Humor :
Politically Incorrect Humor :
IDS Humor :
"Linux Sucks" Humor : Russian
Musical Humor : Best Russian Programmer
Humor : Microsoft plans to buy Catholic Church
: Richard Stallman Related Humor :
Admin Humor : Perl-related
Humor : Linus Torvalds Related
humor : PseudoScience Related Humor :
Networking Humor :
Shell Humor :
Financial Humor Bulletin,
2011 : Financial
Humor Bulletin, 2012 :
Financial Humor Bulletin,
2013 : Java Humor : Software
Engineering Humor : Sun Solaris Related Humor :
Education Humor : IBM
Humor : Assembler-related Humor :
VIM Humor : Computer
Viruses Humor : Bright tomorrow is rescheduled
to a day after tomorrow : Classic Computer
The Last but not Least
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September 12, 2017