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Financial Skeptic Bulletin, June 2010

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[Jun 28, 2010]   Economist's View DeLong Listening to Arsonists

Stability is destabilizing. The body slamming of the top 10% is coming. The top 10% doesn't give a rat's ass about unemployment, they are primarily concerned with asset prices. Thus the 2016 election will be the one that counts.

United States politics goes in long cycles. Stability is destabilizing. We haven't faced a true crisis in a long time (not since WWII), hence we haven't had truly talented people rise to the challenge, nor have the voters really cared enough to choose the talented and public-spirited in preference to the demagogues. It just hasn't mattered that much. That little hiccup in the financial system starting in 2008 has not been a real crisis, as I define them, because it hasn't hit the top 10% hard enough. That's what it takes to get reform. The top 10% must be hurt badly before we get reform that reins in the top 1%.

The body slamming of the top 10% is coming. First, there will be another stock market dip this year or next, then another recovery lasting until maybe 2015, by which time the accumulated deficits should be enough to restore household balance sheets and get the economy going again. Long-overdue inflation will finally kick in, interest rates will go up, and all asset prices will be crushed. Then, and only then, will there be powerful pressure for reform. The top 10% doesn't give a rat's ass about unemployment, they are primarily concerned with asset prices. Thus the 2016 election will be the one that counts.


"Political power is derived in large part from economic power, and a good place to start would be to begin asking harder questions about the costs and benefits of having businesses as big and influential as they are presently".

The ghost of John K. Galbraith appears to be rising. Hooray!

Bruce Wilder:

I can remember when Milton Friedman and John K. Galbraith contended in the public square.

Friedman had a powerfully seductive, albeit fundamentally dishonest argument. He observed the carefully nurtured and managed market economy, circa 1960, spinning in equilibrium like a toy gyroscope, and said, "look ma, no hands, it spins beautifully on its own". And, concluded that the expensive apparatus that put it to spinning was superfluous, and could be done away with.

I've pretty much forgotten Galbraith's argument, except for a few clever phrases.

And, that pretty much summarizes the course of political economy in the second half of the 20th century.

[Jun 06, 2010] 17 Minutes Bob Janjuah......

A very interesting interview. The guy is able to think strategically.

September 2009 FT Alphaville

I think balance sheets and sustainability - govt, central bank ANDprivate sector, MATTER

If they no longer matter, I will be WRONG, and I will have to accept that the policy of ‘Print/Borrow/Spend on Rubbish we don’t Need’ is a limitless phenomena, without consequences, which means there should never be a bear marketever again….

January 2010 FT Alphaville
Well I clearly underestimated the ability & willingness of the Public Sector, notably in the UK, US, parts of periph Europe and Japan, to take huge risks with their sovereign balance sheets, AND IMPORTANTLY, I over-estimated the ability & willingness of the Financial Sector/Market to see things for what they are (Another Debt Fuelled Bubble/Ponzi).

April 2010 ZH

We are trapped in some horrendous Keynesian/monetarist nightmare, where policymakers, aided/abetted/advised by their buddies in the media, in the lobbyist cabal and in financial system, have YET AGAIN decided to go down the route which merely delays the problem/pushes it down the road, but which virtually guarantees that when the NEXT bubble collapses (I assume it will be the Global Government Debt/Bond Bubble and/or the Global Fiat Money/Paper Money/FX Bubble), there is NO pleasant way back.


[Jun 30, 2010] Fed's Lockhart: Sustainable final demand not yet supporting growth

Jun 30, 2010 | CalculatedRisk

From Atlanta Fed President Dennis Lockhart: Recovery and the Challenge of Uncertainty

The central question is whether the recovery that is now well under way will be sustained or will falter, resulting in a slowdown or even a second recession—the so-called double dip.
Rising consumer activity surprised many in the first quarter of the year, but in April and May consumers seemed to put away their wallets to a certain extent. ... Business spending on equipment and software has been strong in the first half of the year. ... Manufacturing production is up about 8 percent over the past year through May.
Here's a key point about these contributors to recovery—each could be transitory. The economy has not yet arrived at a state where healthy and sustainable final demand is underpinning growth.

... I believe the recovery will move ahead at a modest pace and unemployment will gradually come down. Impediments to growth are being removed. Financial market function is being restored. Private balance sheets are being repaired. And necessary structural adjustments are under way.

The past few weeks, however, have seen a slight retrenchment from the mind-set of optimism and growing confidence that prevailed earlier in the year.
Several recent sources of uncertainty have clouded the outlook. I will cite four, including the oil spill in the Gulf.

First is European sovereign debt. ... Our financial system here in the United States has rather small and manageable direct exposure to the Greek government and the other sovereign borrowers. But as the situation has evolved, exposure to European banks as well as foreign and local corporations in the affected countries has complicated the estimation of risk.
A second source of uncertainty is ongoing state and local fiscal tightening.
A third area of uncertainty is commercial real estate. Banks across the country, especially small and regional banks, are heavily exposed to the commercial property sector and face a heavy docket of loan restructurings that may require sizable write-downs.
And there is the oil spill, which is, naturally, the central environmental and economic concern here in Louisiana and more broadly in the Gulf region. ...

The economic effect at the national level has been limited. I'm prepared to believe, however, that this relentless environmental disaster is an additional factor holding back consumer and business confidence. The spill disheartens us all and, I believe, makes the public a little more reticent to assume a smooth recovery path.
So, to pull this together, a recovery of the national economy is proceeding but not yet with solid and sustainable underpinnings. Inflation appears restrained. The outlook from here is beset by somewhat more than normal uncertainty.

Selected Comments

Rob Dawg:

It's almost as if the Fed is coming to the realization that debt derived consumption stimulus doesn't work as well as investment directed expenditures.


He thinks the problem is that consumers aren't opening their wallets? What if they are, and only moths fly out? Will that help?


ndk wrote:

Someone is going to have to clearly explain to me the transmission mechanisms from additional asset Bubble, Bubble, Toil and Trouble creation to economic growth.

Mechanism: If you don't profess to see the beauty of the emperor's new clothes, the master of the chamber sees you never come back to the court again.


recovery of the national economy is proceeding but not yet with solid and sustainable underpinnings

Translation: this is a fake 'recovery' based entirely on government spending.


Rob Dawg wrote:

It's almost as if the Fed is coming to the realization that debt derived consumption stimulus doesn't work as well as investment directed expenditures.

I think that realization struck them some time ago. The real question is what the hell you do about it.


In a sustainable Soviet Amerika, Demand supports you.

Mr Slippery:

The economy has not yet arrived at a state where healthy and sustainable final demand is underpinning growth.

He has the wrong world view.

We need prosperity without growth.
We need a money system that does not require growth.
We need policies that do not require growth.

The earth is finite.

[Jun 30, 2010] Bank Stress, ECB Liquidity Withdrawal Efforts, Deflation Fears Rattle Markets

June 30, 2010 | naked capitalism


Whether it is Europe, Asia or the US we are all headed for some degree of depression. One might want to get symantic about it and prefer to say a double dip recession. Nonetheless, however one might describe it we are trending toward a global reduction in living standards.

This denouement of the failure of global fiat currencies is marching inexorably toward some form of a hard currency. The sooner we get there the better. In that, it may be that the best option is to have a full blown depression. Perhaps that is the event that is the necessary condition for an optimal resolution.

Our representaive government has failed us because we have failed it. This is evidenced by the fact that voter turnout has been so low over the past 50 years. Yet even so, we demand a social safety, yet again, we are unwilling to pay for it and too willing to allow the gaming of any safety net that we might construct.

In all the sound and fury we have idealogues rampant in the media and blogosphere. Some would borrow beyond reason, some would demand hairshirts for all. No one comes and says, you know we’ve been kidding ourselves for at least 40 years and perhaps a bit longer. It’s time to deal with the fiercely negative incentive of the continuous erosion of purchasing power. If you prefer you might want to call it inflation. But then, whether diminished purchasing power or increasing inflation, the finanical minions will chase yield by any means. Moreover, there is no regulation for which a trader worth his bonus can’t create a work around. A law, now that is very difficult to evade especially if the government enforces the law. But then why enforce, when after all, the market will correct it on its own. Curious point of view that, what school yard did you play in? No rules? Even children apprehend the necessity of rules. Change the catchphrase to fair markets.

FINREG ignores the shadow banking network werein much of the financial fraud has occurred. Banks scream at any constraint that might be considered. Where’s the rational discourse? Nowhere to be found and why? Well, it seems that they see it as a goring of their ox. And yes it is. And yes it needs to be done. After all, it is that cartel called the Federal Reserve System and its members who create money by way of a loan. Indeed it begins as a loan to the borrower who then spends it as money. In that second transaction it has become money itself.

Now Fractional Reserves are a curious thing. We have a fiat currency which has no inherent value other than the fiat that it is legal tender for all debts public and private. It is only worth what it will buy. What is the sense in holding in reserve that which has no inherent value. Now in light of that and the prenicious and continuing loss in purchasing power it is clear that even reserves must be invested in something that provides as a minimum a return that offsets the loss in purchasing power. But then, inflation (loss in purchasing power) is only 2%. That’s something we can live with. Indeed you can, but then, in 5 year’s time you dollar will only buy $0.90 worth of what you could have bot 5 years prior. Will your net income have increased by 10% in 5 year’s time?

Now whatever the government might spend, that spending must be funded by either or all of the following; taxes, borrowing; or the debasement of currency. In practice what happens? The government will tax and given the fiat currency it will debase the currency.

For all those college degrees and their loans unpaid, we received less than fair value. However else could we have created this cultural and financial mess we are in?

Comes November, vote some poltroons out and lets begin to demand the represenative government we are entitled to by contract and the inherent rights of our existance.


“Nonetheless, however one might describe it we are trending toward a global reduction in living standards.”


We may also be heading toward major military conflict again. These governments that have the power to create money (well, the private central banks do), also have the power to shape, manipulate, and mobilize public perception in order to achieve a certain goal.

And, troubled governments have been known for starting conflicts with other nations in order to deflect attention elsewhere. Take the current BP trashing of the Gulf of Mexico. What if instead of BP that were a Chinese or an Arab oil company? Would we now already be at war with China or yet another Middle Eastern nation?

Perhaps this fiat financial system will collapse, and it will be replaced by a hard currency. However, I fear there’s still a long way to go, and it won’t go down without dragging much of the world down with it, and without generating massive conflict. I think we are entering dangerous times.


[Jun 28, 2010]   Economist's View DeLong Listening to Arsonists

Stability is destabilizing. The body slamming of the top 10% is coming. The top 10% doesn't give a rat's ass about unemployment, they are primarily concerned with asset prices. Thus the 2016 election will be the one that counts.

United States politics goes in long cycles. Stability is destabilizing. We haven't faced a true crisis in a long time (not since WWII), hence we haven't had truly talented people rise to the challenge, nor have the voters really cared enough to choose the talented and public-spirited in preference to the demagogues. It just hasn't mattered that much. That little hiccup in the financial system starting in 2008 has not been a real crisis, as I define them, because it hasn't hit the top 10% hard enough. That's what it takes to get reform. The top 10% must be hurt badly before we get reform that reins in the top 1%.

The body slamming of the top 10% is coming. First, there will be another stock market dip this year or next, then another recovery lasting until maybe 2015, by which time the accumulated deficits should be enough to restore household balance sheets and get the economy going again. Long-overdue inflation will finally kick in, interest rates will go up, and all asset prices will be crushed. Then, and only then, will there be powerful pressure for reform. The top 10% doesn't give a rat's ass about unemployment, they are primarily concerned with asset prices. Thus the 2016 election will be the one that counts.


"Political power is derived in large part from economic power, and a good place to start would be to begin asking harder questions about the costs and benefits of having businesses as big and influential as they are presently".

The ghost of John K. Galbraith appears to be rising. Hooray!

Bruce Wilder:

I can remember when Milton Friedman and John K. Galbraith contended in the public square.

Friedman had a powerfully seductive, albeit fundamentally dishonest argument. He observed the carefully nurtured and managed market economy, circa 1960, spinning in equilibrium like a toy gyroscope, and said, "look ma, no hands, it spins beautifully on its own". And, concluded that the expensive apparatus that put it to spinning was superfluous, and could be done away with.

I've pretty much forgotten Galbraith's argument, except for a few clever phrases.

And, that pretty much summarizes the course of political economy in the second half of the 20th century.

[Jun 28, 2010]   Greek-Style Deficits in America? By Barry Ritholtz

June 26, 2010

“States are going to have to cut back spending and raise taxes the same way Greece and Spain are. That runs counter to stimulating the economy and will put a big damper on the recovery in the latter half of this year.”

-Dean Baker, co- director of the Center for Economic and Policy Research in Washington.

Interesting discussion at about the coming budget crunches in US states and cities:

Even as the U.S. appears to be on the mend — gross domestic product has climbed three straight quarters — finances in Arizona, Illinois, New Jersey, New York and other states show few signs of improvement. Forty-six states face budget shortfalls that add up to $112 billion for the fiscal year ending next June, according to the Center on Budget and Policy Priorities, a Washington research institution. State spending is 12 percent of U.S. GDP . . .

State budget woes are a worsening drag on growth as the federal government tries to wean the economy from two years of extraordinary support. By Jan. 1, funds from the $787 billion federal stimulus bill will dry up. That money from Washington has helped cushion state budgets as tax revenue has plunged.

State leaders won’t be able to ride out this cycle the way they have in the past. The budget holes are too large. For the first time since 1962, sales and income tax revenue fell for five straight quarters, through December 2009, according to the Nelson A. Rockefeller Institute of Government at the State University of New York at Albany.

That is an ugly statistic. And I agree with Gluskin Sheff’s David Rosenberg — massive budget cuts and tax hikes will only make the situation worse, not better. The time to raise taxes and cut spending is during an expansion, not immediately post-contraction.

me Says:

Pretty funny here in Georgia. The republican state legislature was counting on $400 Million that was in the unemployment bill that the republican Washington contingent keeps voting against. They are already firing teachers. I wonder how many more teachers will get the axe?

But no worries, there is state funding for a new stadium for the Atlanta Falcons and money to start a football program at Georgia State U.

Owen Money:

Neil M. Barofsky, the Special Inspector General for TARP stated that, all inclusive, TARP is not a $700 billion program, but a $23 trillion program. Eric Sprott, probably one of the most successful hedge fund managers over the last 10 years, calculates that America is in debt to the tune of $128 trillion. There can never be an economic recovery with that kind of debt overhang.

More compounded Government debt spending may bump up quarterly numbers enough to get politicians re-elected or to subsidize the hundreds of billions in compensation packages for banksters, defense contractors and for big pharma and health care insurance kingpins, but it will never constitute a recovery on bankrupt Main Street America. We live in Enron nation, where people like Madoff are only minor ponzi princes.


For some of the worst offenders (eg, California), they’ve been running a budget deficit for years and years that they’ve been covering up with budget games. To spend counter-cyclically, the state would need to build up a reserve when times are flush, and spend it during the lean years. This takes legislative restraint when there is excess money available to spend, and we all know that politicians have all the logic and self-restraint of Charles Manson on crack.

California, especially, did not budget tax windfalls correctly. When tax revenues were really fat after the dot-com bubble (2000 and 2001), they spent their tax revenues on increasing public employee benefits and other long-term budget items, without wondering whether the tax revenues would be there forever. The tax revenues went away very quickly in 2002-2003, and they’ve been in severe deficit mode ever since. The single biggest problem there is that the legislature had *no* clue where the tax revenue was coming from – indeed, in the downturn, the politicians in Sacramento accused business of “not paying their fair share.” When the legislative analysts got to work, they determined that, no, with the exception of the highest personal income tax bracket, tax revenues were pretty much unchanged from the flush years of ‘99 and ‘00, and that the tax revenue surge in those years had been due to stock option plan exercises, resulting in a sudden bulge in highest-bracket personal income tax revenues.

In other words, the tax revenue surge of ‘99 and ‘00 was a one-time thing. It came, it went, and it wasn’t coming back. The prudent thing would have been to undo the long-term spending commitments they made with the mistaken assumptions of ongoing revenue.

Didn’t happen. They’ve been in a structural deficit ever since, unwilling to undo the rampant spending on public employee pay packages from those years.


Theoretically BR may be right that the best time to increase taxes and reduce spending is when the economy is doing well. But practically speaking, those are times when politicians are most likely to respond to the demands of the electorate to reduce taxes and increase spending. The only time when the public is clamoring to reduce government spending, particularly public employee salaries and benefits, is when the general public is suffering. Plus there is the argument that public spending doesn’t solve the problem. It delays the necessary adjustment in the economy, and increases the debt of future generations. I say lets clean out the excesses of the past and just keep a safety net combined with compulsory public service and ongoing training to ensure that people can maintain a adequate lifestyle during these difficult times (say $12k per adult and $5k per child.)


California is a special case. The problem isn’t that the state failed to raise a cushion with tax revenue in the boom years–that’s *A* problem but not *THE* problem.

The problem is that California’s Prop 13 made the state ungovernable. It’s impossible to build a budget cushion here because Prop 13 and an earlier law requires a 2/3 majority to raise taxes or even to pass a budget. And it just so happens that the GOP controls just barely enough seats to filibuster any tax increase or budget they don’t like.

So what happens? When the state is flush, the GOP demands tax cuts as the price of passing a state budget. When the state is broke, the GOP demands…tax cuts as the price of passing a state budget. Doesn’t make sense, right? Well, now you know why California is literally broken.

Oh, and the other terrible fact about Prop 13 is that it rearranged California’s tax structure. Before Prop 13, 60% of the tax revenue in the state came from corporations, 40% from individuals. Now, as a result of Prop 13, 40% of the tax revenue comes from corporations, 60% from individuals.

So Prop 13 was the biggest tax increase on California homeowners in state history. So you’d think we’d be fixing that, considering the dire state of the budget?

Nope. The price of passing a state budget in 2009 was that the GOP demanded and received…a massive…state…tax…cut…for…the…corporations.

Thank you, Prop 13.


Most of the elites who manage this economic system don’t really understand macro-economics at all. And they hire economists to compartmentalize the data series of prices and profits with mathematical functions that presume constant probabilities and bounded values. Monetary salvation is the ointment that keeps the paradigm operating. All the bugs that hit the wind-shield are seen as annoyances, rather then clues to something more systemic.

The various special corporate and elite interests have carved out of the people’s government their spheres of influence, and pay for the political mouth-pieces who pride themselves on the buckets of foul water they carry for the monetary interests. Why else are Sarah Palin and her ilk paraded before the television news cycle? What knowledge and relevance do they bring to the discussion, other than create confusion so that the elite paradigm can continue to exist.

Why even expect “Washington … to balance its budget?” Look at the history of nation-states and other elite structures of governance since the middle ages. The finances of the realm were always subject to the depraved notions of the aristocracy and their delusions of grandeur.

The larger question to ask is why the elites persist in this charade of “balancing-the-budget” when they themselves are the parasites who create the unbalanced budgetary process.

Why do we worry about adding another 2 trillion to keep the states and unemployed individuals solvent for the next one or two years, … but whine over restructuring costly defense department privatization contracts, or permit the various financial tax shelters in the Cayman Islands , both of which double or triple the deficits which seems to be so important !

How come the deficit hawks are so selective in what they chose to bemoan as the great evils of debt and government spending?


I agree with you, but in answer to your question, they cut spending on stuff we need (human services) and blow our wad on stuff we don’t (tax cuts for the rich, foreign wars) because the average person is an idiot.

Again, I go back to my Prop 13 argument. In the 1970s, Time Magazine did a poll about Prop 13 in California. They asked Californians what they thought the impact of the law would be. A supermajority of Yes on Prop 13 voters said that the law would result in a massive reduction in state revenue, leading to a budget crisis. But…a supermajority also thought that this crisis would eliminate “waste,” which people defined as government spending on programs that benefited non-whites. And a supermajority also said that these budget cuts would not hurt them personally!

The average person isn’t capable of understanding politics or really of voting in his or her own interest. They’re motivated by stupidities like racism, demagoguery, and the things “everyone knows” but just happen to be wrong–like the myth that balanced budgets create jobs.

And whatever happens, you can be sure that the average person will have forgotten everything within 6 months.


Just a question: How bad were federal deficits before Reagan cut tax rates for the wealthy and increased military spending? How bad were state budgets before they started cutting taxes around the same time?

Just asking…


BR I mentioned this issue months ago when you posited whether we were seeing a recovery. Any hiring in the next year in the private sector, which will be anemic at best, is going to be greatly overshadowed by layoffs in the public sector. There’s no way the lying math-magicians at the BLS are going to be able to keep the unemployment rate under 10%.

Moreover, the problems with public employees, on average, is not their salaries, but their benefits. Ridiculous pension and health benefits in comparison to private employees and little or no participation requirements as far as co-pays or monthly deductions from their paychecks.

I think when the public employees get all up in arms at the local board of education, municipal and state level political meetings the politicians might finally have the power to tell them to shut up. “There’s 10-20% of the population unemployed or underemployed in this country. You don’t want this job with realistic benefits then I am sure we can find plenty of people who want the job” should be their response to any whining.

Moreover Chapter 9 is always an option for these cities and counties.

Living in NJ, while I don’t support everything Chris Christie stands for I certainly support his stance against the hopelessly corrupt local and state unions.


One more question. philipat says “The way to solve a debt crisis is not with more debt.”

I wonder if philipat has ever heard of the concept of public investment in infrastructure? Did spending to build the interstate highway system impede economic growth? Does spending to modernize the electric grid lower future growth? Does spending on education impede growth? Does spending on improving energy efficiency in buildings impede growth? Does spending on high-speed rail impede growth? Does spending on local transit systems impede growth?

We have been living off the seed corn of the pre-Reagan investment in infrastructure for three decades and our competitiveness has obviously suffered. It is time to realize that the Reagan/Chicago School experiment was a complete failure and get to work repairing the national system of public structures – laws and regulations, courts, schools, transportation and the rest – that Reagan destroyed.


HEHEHE argues that since the power of private-sector unions have been reduced private-sector wages and benefits have been reduced, we all work harder, have less job security and all the benefits of the private economy go to a few at the very top, and THEREFORE we should kill off public sector unions, too, because they still have it good.

I think HEHEHE reached exactly the wrong conclusion. I think reviving private-sector unions is the answer. Lift all of us instead of a race to the bottom.

Marcus Aurelius:


Another view (with political commentary):


You make a common argument, but one that defies everything we know about human nature. You say that the problem with public employees is not their salaries, but their benefits. Now, in the business world, employees don’t just look at salaries. They add salaries and benefits and look at “compensation.”

Are you honestly telling us that public sector employees are any different? Are you telling us that if you keep a public employee’s salary the same and cut his pension, he’s just going to say “thank God…I made it through unscathed?”

Of course not. He’ll say “you cut my compensation.” The good ones will leave for greener pastures where they are given a just compensation commensurate with their skills. Just like they do in the business world.

call me ahab:

Does spending on education impede growth?

keep selling that lamest of talking points-

what of the Dept of Education? What have they done since their creation in 1980? Have we seen record growth in student achievement? On the contrary- the students have basically given the Dept of Education a giant middle finger. Lets assume we closed the Dept of Education and used that money to build really AWESOME schools w/ all the latest of technology- and while we’re it- lets pay the teachers $200K a year- did I say $200K- lets say $300k-

the results-

the kids will be as dumb as they ever were- because students have to WANT to learn- they have to give a shit- what you get for all that money spent is a collective yawn from the student body- by then cries will go out to raise teacher’s salaries and spend more on better schools (because it must be the problem)-

this isn’t the Field of Dreams- they may come (because they have to)- but no-one says they have to care

don’t you get it?????


Taxes go up and taxes go down. Does government spending ever go down?
Here’s a question: Businesses are forced to “prune” things that are too expensive or aren’t effective. They do it all the time. New programs aren’t paid for unless they can be cost justified. It’s so easy to “Add” and so difficult to “prune”. Taxpayers wouldn’t mind paying more if they felt the government was faithful in pruning things they don’t work rather than adding more programs. Over the last 30 years, how many government programs have been added vs. how many have been pruned for lack of measurable results? Spending on education is a prime example of this. Who is a wiser spender: one who is spending his own money or one who is spending someone else’s?



There’s a propensity for liberals to point a finger at Prop 13 and use it as the cause of all fiscal ills in California, that the voters were duped, that the voters would change it it they could, etc.

If you examine the budget in California, this is not borne out by the facts. The voters had an alternative on the ballot at the time Prop 13 was voted in, yet they chose Prop 13 instead of the alternative. The voters voted down a later proposition that sought to replace Prop 13 with another alternative (Prop 167, if memory serves). Politicians and think-tank liberals can call Prop 13 all manner of names, but it won’t make the voters change their minds: they want an assurance that they’re not going to be forced out of their house by ad valorem taxation. Evidence from other states shows that this is not irrational fear on the part of voters.

The tax landscape of California was changed by the voters in the late 70’s, and the politicians have known that Prop 13 was part of the landscape for years. It has been upheld in court. In other words, it is part of the job description for the legislature – deal with Prop 13’s effects as part of the budget process.

The state’s budget didn’t start getting into serious trouble until the mid/late 90’s, but even then, the situation could have been reversed, It was in 1999/2000, with the flush of dot-com tax revenue, the legislature spent like drunken sailors in a whorehouse and set up the situation today.

I take that back: sailors stop spending when they run out of money. The taxpayers would be better off with a legislature full of drunk sailors.

The problem in California is spending, in two parts:

1. A great deal of the CA budget has been made off-limits to the budgetary process by the voters and spending initiatives, much of it on education. Rampant spending hasn’t improved educational performance, BTW.

2. A legislature that is beholden to the public employee unions, making promises that cannot be met as we move into the future. In California, it isn’t just the teachers – add prison guards to the top of the list, teachers in the middle and cops and firemen to the tail end of the list of groups to whom huge promises have been made on their pensions.

If we want to look at an alternative to California’s Prop 13 environment, let’s look at New Jersey. There, property taxes are allowed to go up – and they have, drastically. Yet, if it were not for Gov. Christie actually cutting spending, NJ would be out of money as we speak.

The problem in most of these states boils down to this: Their political leaders made promises of spending, especially on public employee comp packages (not just pensions and medical bennies, but the whole package, including staffing levels), that are not sustainable.

If we look to the bond market for the indications of “Greek style” problems, we see that California is not a special case; it is simply one of the worst cases. The new #1 problem state, as indicated by the bond market, is Illinois. There’s nothing like Prop 13 in Illinois.


First of all, unbelievable analysis by all contributors. Whether you agree or not, TBP attracts great arguments from all sides.

Second, I don’t need a slide rule or economists to tell me what my Grandfather’s simple logic already knows >> When Governments and their citizens are tapped out, the party is over. It is going to get ugly.

My PWYMYMI? S&P sees 800 long before it sees 1,200. We hit 800 by no later than March 2011.

Before you cook me, here is my last PYMWYMI on TBP back in March 2008. I got cooked then – but I was dead on. In fact, I was too conservative in my otherwise aggressive call (at the time) of the market’s demise:

George The Greek


“When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that justifies it.”

Frederic Bastiat


Amazing how much “discussion” (actually just fact-free postulates) comes up against a simple fact. If government cuts back before the private side of the economy is recovered and can absorb the slack, then we get into a worse economic situation. That is a fact backed by hundreds of experiences in case simple one plus one math is to much for you. The screams about how terrible further debt would be at this point are not backed by any evidence. Other economies have survived much higher debt levels than ours are in currently. The argument against the debt is not that it is “dangerous” but that it is immoral. But it is also a lot easier to deal with this debt if we don’t allow stupid conservative ideology to sink the economy into a second dip before we begin to pay the debt back.

I agree that we have a serious problem with lack of restraint during the good times. The Bush tax-cuts were a great demonstration of that. They could not wait for that predicted zero-debt world to materialize before they cut taxes, and the rest is history. Maybe we need some kind of automatic tax-increase and budget cut formula that is tied to the size of the national debt and the growth of the economy. It is discouraging that our democracy as well as proposition 13 type initiatives both seem to fail so spectacularly when tested in the real world.

[Jun 26, 2010] Rosenberg The Case For Bonds Credit Writedowns

This is just in from David Rosenberg:

In the discussion about the outlook for U.S. Treasury bonds, the point must be emphasized that supply alone has been an inadequate focus for predicting future price/yield. You don’t have to do much more than to go back to examples like these: the 30-year Treasury bond yield went from 4.7% to 6.7% in 1999, even though bond issuance by the Treasury was practically nil. And, the decline in JGB yields over the last 20 years, even though deficit spending has been spectacular in Japan and debt-to-GDP is approaching 200%. The last I saw, the 10-year JGB yield was at 1.2%.

The problem with trying to assess either supply or demand in the current market environment is that everything is so confusing in the early stages of this new secular paradigm of a global credit collapse. There is no way to get it completely right. As Lacy Hunt has always maintained, it makes much more sense to assess the outlook for inflation as the primary effort in predicting Treasury rates. Simple and elegant. Maybe perhaps instead of inflation, we should really be discussing deflation, which has emerged as the primary trend, and governments have few bullets left in the chamber to deal with it.

Bond yields have been low for some time, and they will remain low. But don’t be lulled into numerical micro-phobia (the fear of small numbers that plagues the bond bears). The near 30% slide in the Chinese stock market suggests that we have three to six more months of deflating commodity prices. And, if the trend in Japanese, German and Swiss yields are any indication, bonds in the United States and Canada have plenty of room to fall further.

This is exactly right, especially if riskier asset classes fall as earnings expectations are reduced as the global economy slows. A lot of investors have been anticipating the demise of US Treasuries or British Gilts for quite a while. Yet, even with inflation well above the Bank of England’s target rate, yields remain low. Rosenberg continues with his bond –bullish case with some words about bond cycles and deflation and some interesting historical context. Note, Louise Yamada believes that we are nearing the end of the secular bull market in bond yields. See Yamada: Ready for a bond bear market?

I was at an event recently where I was able to see two legends among others – Louise Yamada and Gary Shilling. Louise made the point that while secular phases in the stock market generally last between 12 and 16 years, interest rate cycles tend to be much longer – anywhere from 22 to 37 years; and she has a chart back to 1790 to prove the point! So while all we ever hear is that this secular bull market in bonds is getting long in the tooth, having started in late 1981, it may not yet be over. After all, the deleveraging part of this cycle has really only just begun and if history is any guide, it has a good 5-6 years to go – at a time when practically every measure of underlying inflation is running south of 1%.

Gary not only ran with a terrific chart showing, over time, the gap between aggregate supply and the inflation rate (talk about compelling), but a table showing (and this one goes back to 1749!) how the primary trend during peacetime is one of deflation and in wartime it is inflation (including the Cold War).

Expand your horizons and go back before 1945 and you would see that during the American Revolution, inflation averaged over 12% per year, to then be followed by 28 years of peace that coincided with deflation of nearly 2% annually.

The War of 1812, which really lasted four years, saw prices advance at nearly an 8% average annual rate, while the next three decades of peacetime saw prices deflate by 2.4% per year.

Prices surged at a 15% annual rate during the Civil War and then we went through 51 years in which the price level fell at a 0.7% annual rate. So looking back over the past three centuries, we have had 92 years of war and prices rose at an average annual rate of 6%. Gary goes on to show that when we are not at war, prices typically decline at a 1.2% pace (wars lead to government procurement policies and soaring demand for material that goes into the munitions process).

This is important because while fiscal policy may have a 40% correlation with the direction of bond yields, inflation is twice as important.

The bottom line is that those making a simplistic supply and demand argument about bond yields should concentrate more on inflation. In fact, Rosenberg believes deflation is the defining factor and I would agree. That’s not to say higher inflation isn’t a risk over the medium-term. It is. But deflation is still the greater risk for now.

Source: Breakfast with Dave (pdf), David Rosenberg, 22 Jun 2010

[Jun 25, 2010] Breakfast with Dave by David Rosenberg

June 25, 2010

The rally in bonds seems to have run out of steam for now – JGB yields were unchanged at 1.13% despite a 1.9% drop in the Nikkei index (to 9,737) and European yields are up across the board (between 1bp to 5bps) despite a near 1% decline in the regional equity markets so far today. CDS spreads are widening across the pond too for the fourth day in a row as default risks widen further.

Adding to the concerns over the macro outlook, but all in the name of preserving fiscal sanity, was the inability for Congress to pass yet another extension of unemployment benefits as GOP support was nowhere to be seen. While Congress couldn’t find it in its heart to extend jobless benefits again, it did manage to throw a nice bone to the banks (after all, the banks donate more to political campaigns than those in the unemployment line) in the form of a watered-down financial overhaul bill and a major softening of the Volcker Rule.

As for yesterday’s action, what was notable was the rise in volume as the stock market sold off, not to mention the fact that the Nasdaq broke back below the 200-day moving average for the first time in two weeks. Neither of these two developments is particularly encouraging.

The bond rally is doing a great social service (why don’t more market pundits embrace it?) dragging down mortgage rates to their lowest levels since Howdy Doody time. The 30-year fixed rate is all the way down to 4.69% – compared with 4.75% a week ago (the 5-year rate is sitting at 3.84%, down from 3.89% a week ago). The problem is that so many Americans have already locked into ultra-low rates; as a result, refinancing activity is running at half the level of early 2009, the last time mortgage rates were even remotely close to current levels.

Based on estimates we have gleaned, it would take at least another 20bp rally in the bond market to ignite another round of refinancings. So stay bullish on Treasuries (especially since 70% of the $860 billion of fiscal stimulus will have already been implemented by the end of the summer with precious little to show for it ... in part because of the intensifying restraint at the State and local levels of government. With the Fed ceasing to re-expand its balance sheet, at least for now, Mr. Bond is the only man in town that can at least try to revive the economy!) And, households will need that cash flow because the failure to extend jobless benefits means that 1.3 million Americans are about to lose their government assistance.

 Read full article (PDF 600KB)

The Crash of 2011 What if the green sprouts turn to weeds - Investment News

Now that the Fed has flooded the credit markets and the government other rescue efforts are under way, the nation's economic outlook and mood has brightened. The current conventional wisdom is that the recession is bottoming out and a recovery, although not a particularly robust one, is on the way.

But before we grow complacent, let's consider: Our ever-growing national debt, our frightening Social Security and Medicare obligations, not to mention our fragile economy, are not going to disappear any time soon, no matter how far north the Dow climbs on any given day.

What if we're headed for another tumble instead of a recovery?

Here's how another crisis could unfold.

It's next October, and a hurricane slams into Texas, knocking out refineries and causing oil and gas drilling in the Gulf of Mexico to stop for two weeks.

Oil prices zoom to almost $100 a barrel, leading to a drop in the stock market and further declines in auto sales.

On the heels of higher fuel prices, an unusually cold December drives up home-heating-oil costs even more, which leads to sharply lower retail sales in the Northeast in the vital pre-Christmas shopping period.

In 2010, unemployment rises to 12% as the public grows skeptical of the Obama administration’s recovery plan. With Republicans poised to gain a pivotal seat or two in the Senate, Democrats push through a costly new health care bill while they still control Congress.

The deficit continues to grow and the dollar keeps slipping against other major currencies. Interest rates inch upward, food and fuel prices rise, gold hits $1,000 an ounce and GM's turnaround is nowhere in sight.

In mid-2011, in order to placate its increasingly belligerent neighbor, the South Koreans gives North Korea billions of dollars in aid and gifts funded by the sale of U.S. Treasury securities. The sale begins a wave of selling by other countries, leading to a sharp downdraft in Treasury prices, which causes panic selling by other countries, pushing short-term U.S. interest rates into the high teens.

With the economy going south, prices rising and the looming threat of an international flight from the dollar — not to mention a 1,000 point one-day drop in the Dow industrials — Congress and the administration are forced into action.

To show the world the United States is putting its economic house in order, it slashes government spending by 20% across the board, cuts Social Security payments and Medicaid benefits by 25%, raises the retirement age to 70 and imposes a 15% surtax on all income.

The actions calm the markets for the moment, but the public is stunned. With their job prospects slim, their meager life savings decimated and Social Security and Medicare payments drying up, they begin to lose faith in the future of the American Dream.

Granted, there are a lot of "what ifs" in my bleak tale — it's just one possible scenario. Let's hope it's not the scenario.

[Jun 25, 2010]   Tom Adams Face to Face With Polished Wall Street Psychopathy (SEC Says that ICP Stole from My Old Company Edition)

"dishonesty, lack of ethics, and professional incompetence have characterized huge parts of the behaviors of the current generation of Boomers and Generation-Xers."
naked capitalism

As described in the SEC’s complaint, ICP stole from my old company and from AIG and caused millions of dollars of losses, the loss of many jobs, the misapplication of taxpayer funds and contributed to the destruction of the economy. They did so while smiling and shaking our hands, vowing to protect our interests and then asking about our children and our families. They did so while taking that money and paying themselves millions of dollars of misappropriated fees and bonuses, even as our companies ran out of money and struggled to understand why.

What is most interesting about the ICP case to me is not that the people involved were unusual or evil, but rather how common and normal they seemed. They seemed to be knowledgeable and reasonable people; above average, by my assessment of the industry. As the CDO manager was allegedly committing its fraudulent activities they probably believed that their actions were justifiable and, indeed, were a normal way to conduct CDO business. I would agree: their behavior was likely commonplace, not extraordinary, and part of the acceptable course of business.

John J Xenakis:

I thank you for that fantastic story. It shows how dishonesty, lack of ethics, and professional incompetence have characterized huge parts of the behaviors of the current generation of Boomers and Generation-Xers. Bernie Madoff, his co-conspirators, his employees his SEC regulators and politicians were not an exception, but were and are the rule. You left out one important point however: The same people who perpetrated the crimes you describe are still in charge today. They’ve adapted their methods, but they’re still making promises that they know are fraudulent. You see them every day on CNBC, in WSJ, and in Congress. That’s why the financial crisis we’ve seen so far is nothing compared to the one that’s coming soon. John J Xenakis


The vast majority of people who have succeeded on Wall Street are not cursed with self-reflection, an interest in the greater good, or values not measured in currency. I’m sorry, but you sound a little naive if you got taken in. Yes, they are appealing people – but borderline sociopaths and narcissists are generally alluring until you realize that they care as much about you as a white shark.

Throughout history the power and wealth of people like this ebbs and flows. Let’s hope the value of yachts and expensive homes in the NYC-Stamford area is headed towards zero.

[Jun 25, 2010]   World Will Feel the Drag of Europe’s Austerity zero hedge

With France, Italy, Britain, Spain and of course Greece all now seemingly embracing austerity measures to bring their economies into line with EU terms specifying deficits be no larger than 3% of GDP, they are all about to experience “negative growth”.  A double dip recession is now hurtling our way and it will affect Canada and our housing markets in a very big way. Britain itself is targeting a debt reduction policy that it hopes will see that country’s massive debt fall to 40% or 50% of GDP by the year 2030. Prime Minister David Cameron has suggested that this will fundamentally change the lives of his countrymen for years to come. He is right.

Some economists and politicians are already spinning this development as a positive change and suggesting that inflation targets and growth objectives can be met while the engine of the economy is put into idle (if not reverse). That is nonsense, of course. And it is a hazard to your financial well being to believe it. We cannot have it both ways. We are headed for a deep correction and should just start telling it like it is. There will not be inflation, particularly if quantitative easing, debt monetization and stimulus are being abandoned. It is Contraction with a capital “C” and nothing less. Negative growth is coming.

Choosing Recession…or Worse

In other words, it spells recession. It is one thing for a single member of the European Union to choose a policy of restraint in order to bring its fiscal house back in order, but quite another when all of the heavy hitters of the EU do so at the same time. We are witnessing a sea-change of events unfolding that to my way of thinking spell a certainty of a global recession if not worse. Yes, that dirty “D” word is on the tip of my tongue: Depression.

The stars are lining up and they all have the same intention. Deficit-slaying to achieve balance, maintain bond ratings, and by so doing cap the costs of interest payments on the debts in which sovereign states are drowning. It may be a good thing, but you know what they say about too much of a good thing: It kills. And in this case, it kills growth. I will not even quibble over the outcome.

This is an important cumulative set of changes, and it has not been commented on enough by the wider media. It is happening with lighting speed, too. All of the countries I mentioned are now turning their backs on stimulus and Keynesian nostrums as solutions to their economic woes. Instead they are embracing pension reform, reductions in public-service spending, tax increases, program cuts, increasing the age of retirement, cuts to social service payments, and looking at national assets that might be sold to raise cash.


As BRIC and other emerging nation economies surge, the Europe contraction will be offset considerably. Europe's contraction will be "felt" by other nations in that Europe will once again become an inexpensive tourist destination, but not for Americans.

Europeans have been living high on the hog on credit, like Americans, and the tab needs to be paid. No doubt many have enough lard on them to last for the next decade.


It's not yet clear that politicians have given up on kicking the can the furthest they can to try and postpone a deflationary depression with more QE and stimulus.

Of course, we'll get there eventually, because a hyperinflationary death spiral is even worse. But I'll be more certain that our politicians have really chosen the deflationary route once the stock markets have plunged 50% and they haven't done anything to try and pump it back up.

We'll see, but for the time being I still give a 50/50 chance that we'll see yet another round of nonsensical QE and massive stimulus.

I don't think we'll see a third one though, because that one would have to be so massive that it would be a real capitulation.

All those who have claimed that it would be easy for central banks to create inflation when a deflationary depression takes place by printing enough money will be in for a surprise: the only thing they'll succeed is in creating a hyperinflationary collapse, like when you try to shake ketchup out of a bottle and the only thing you get is a big red splash all over your plate.

Also, it is a big problem that the general population and the dumm mainstream media hasn't yet understood what the two alternatives are, a painful decade long of deflationary depression or a sudden hyperinflationary collapse followed by an even more painful economic ruin.

I say it's a problem because I'm not yet certain that in either case we don't get social collapse and revolutions or civil wars.

Let's be at least clear on one thing :

In both cases that means large segments of the population who may become very very angry...

I've got a nice blanket of cash and gold, so of course I'd prefer a deflationary depression. But I'm not under the illusion that even in that case I'll be able to sleep comfortably at night when the hordes of angry people come looting and blocking the streets.

Good luck to all. 

[Jun 24, 2010] Video - Gross Economy to Stay Weak 'For a Number of Years'

Real Clear Markets

The slide in employment is representative of what the U.S. economy faces for years to come, Pimco co-chief investment officer Bill Gross told CNBC.

A slow-growth scenario continues to play out as consumers who are losing their jobs or are in fear of facing unemployment cut spending and inhibit economic growth, said Gross, who helps manage the world's largest bond fund at Pacific Investment Management.

Gross: "Much like we saw with the Depression, attitudes change, and so consumers and investors will now become conservative savers as opposed to spenders. Spending as driven by asset appreciation in terms of houses ... that game stops, that game has stopped and we must now move in another direction."

[Jun 23, 2010] Rosenberg The Pattern Would Suggest A Test Of 5,000 On The Dow (At The Same Time As Gold Is At 5,000 Too) zero hedge


gold does best in good times...look when the highs and lows were in the last decades

sure gold is better than some options in deflation...and its a good currency hedge..but don't think it goes up in deflation

Hedge Jobs:

Mr Mutt is correct. gold will not go up in a deflationary depression which is what will be the result if the DOW is to fall to 3000-5000 as suggested here. in a deflationary depression where are you going to keep said gold? in a bank vault? good luch finding a bank that will still be around. what about gold ETF? these will be liquidated along with every other assett class as people need money to survive. The only thing to do in a deflationary depression is make sure you have no debt as the value of your debt will increase in real terms. This is what wipes people out in a deflationary depression.The asset class that performs the best is cash, not in a bank account but under the matress. it is the only asset that increases in value. What the FED does with QE though is anyones guess. Hopefully they will all be in jail by then.

I suggest everyone read Rob Prechter's "the guide to understanding deflation" as a starting point to getting your head around deflation and give you, your friends and family the best chance of survival.


Jeezus, Rosie always puts things in such clear perspective. Am very grateful to ZH for making his work available.

That DJ chart is truly remarkable. The recent double top suggests just how strong has been the conviction that "in the long run, equities always out-perform."  (Not to mention the ZIRP and pump-n-dump effects.)

So, the fall could be quite painful if you're in equities. (I've been in cash and munis, with some AU, for 10 years. Muni exposure now running down due to calls and maturites -- thank goodness.)

But, before we all jump off a cliff ourselves, it's worth looking at the approximately 24-year period from 1896 to 1920. If we peg, say, 1995 as the start of this current phase, we could be bouncing between pillar and post for another 10 years before hitting bottom.

Not saying we will; the apocalypse always feels right around the corner. Just saying a lot more yo-yoing is possible.

Vix_Noob :

And he's been warning about an eminent collapse in equities for a year just like ZH. Anyone that put their money where his mouth was lost it unless they were buying bonds.

He's right IMO but understimating the ability of TPTB to limp this POS along. The system should have collapsed by the 80's if things were at all rational or tied to public knowledge but it didn't and still hasn't.

Rosie writes a good summary but he clearly doesn't have all relevant information because what's steering the financial markets is likely unseen to all but a few. Thats why so many hate Leo - his blind, naive faith (in the oppinion of the bears) pays off because something is keeping this thing going that none of us can figure out.

Brett in Manhattan:

If you're married to one side, whether it be the bull or the bear, you're most likely to be a pissed off investor.


Ironically Rosie was laughing off the ECRI in the spring of 2009 as it was predicting a cyclical recovery. Rosie was so full of himself constantly explaining how the ECRI was a bad indicator. Now suddenly he says ECRI is all powerful as a predictor? Only as long as his fits his thesis I guess.

dcb :

I predict a very long period of sideways movement. The oligarchy has only one tool to maintain power and that is via the markets. hose of us ho trade know how much manipulation is going on. As long as the money is cheap Big Ben can keep it floating.

Although I have no idea who is going to buy into a rally with the macro data so awful.

Guess what happens will prove what a sham the market is!!! (Or not)

[Jun 23, 2010]  The Looming Political Inflection Point and What It Means for Your Portfolio by Henry Reach

Seeking Alpha

An important inflection point lies dead ahead. If the politics of reality are finally crowding out the alchemists, a long overdue austerity-induced recession lies directly in our path. Recessions are an important part of capitalism. During these intervals, redundant capacity gets shuttered and excessive leverage is purged which clears the way for a restoration of equilibrium; short-term pain, long-term gain. In contrast, if those that preach the status quo get their way, be on the lookout for extended stimulus, new and bigger bailouts, and MORE PRINTED MONEY.

The investment implications of this inflection point are critically important. If the realists win the day, investors will want to be in cash, awaiting lower prices and valuations. Some of the greatest buying opportunities in history have been provided in the aftermath of similar scenarios. If the bubble bullies get their way, investors should own gold, equities of US companies with protectable pricing power, and assets denominated in the currencies of places that have no need for austerity, like Canada.

Disclosure: Author long GLD

[Jun 22, 2010] Market Outlook Bear Case Is Running on Fumes -- Seeking Alpha

June 20, 2010

The markets finished the week up over 2% on the three major indices and we now have had our second up week in a row. Back to back positive weeks haven’t happened for the S&P since the second week of April. The markets appear to be building a base that could set the next run up. Base building after all the volatility we have experienced lately is needed and constructive.

The bear case is the market is running on fumes. We have a short term extreme overbought condition which could mean that at least a short term pullback is in order to alleviate that situation. All the recent economic reports have been poor at best, but the market has mostly ignored them. There is tremendous overhead resistance that will come in play soon from the 50 day moving average and the highs back in January at the 1140 -1150 level for the S&P 500. Resistance for the NASDAQ is in the 2325 -2350 range for the same reasons.

A technical indicator known as a Head and Shoulders pattern may be forming on the charts for the major indices. If resistance comes into play and the markets fail at the overhead resistance levels outlined above, and the 1040 level for the S&P doesn’t hold, expect a quick decline down to the 875 – 950 level. Since so many chartists are aware of this potential pattern, its likely outcome is probably unlikely, but time will tell.

The calendar does not favor the bulls either. Next week is the week following the quarterly quadruple-witching options expiration week, and most often it tends to be negative. However, it has an even stronger negative bias for the month of June. Using the Dow Jones Industrial Average as the benchmark, the week after June’s expirations has been down for 11 straight years, and 18 of the last 20 years. We shall see if that streak continues.

The market's resiliency has been amazing, but that is why I remain long equities. The markets 200 day moving averages were pierced to the upside this week and are now acting as near term support for the indexes. Gold, silver, and gold mining stocks all had great weeks. High yield ETF’s may be signaling further strength for the stock market.

[Jun 22, 2010]   Brown Brothers Warns On Deterioration In State And Local Government Deficits...

"This sucker could go down."

Borrowing more and government bailouts do not solve this problem ever.  This is a result of exporting all your production overseas, and not investing in your infrastructure.  The entire US has not put any money into infrastructure in many many years.  This is a result of letting millions of illegals leech off citizens.  It is a result of fantasy land economics.  This is a result of spending trillons of dollars on other countries' well being and building their infrastructure and bailing them out at our expense.

Oh my, where we could be today if we hadn't wasted all that money over the years.  Heck, we might have a national transit system, or something better.  It is too late now.

I need more asshats:

The only way to solve the pain from bloat is to increase taxes. This will further reduce discretionary funds. Property tax mill rates will have a crippling bias toward punishing the 'nice neighborhoods'.

When Kernen was questioning Meredith this morning about consumer spending I just shook my head in disbelief. What a group of clowns the cheer leading crew is. Clowns.

MaximumPig :

California and other states in trouble could easily solve their fiscal problems by legalizing and taxing marijuana (if not all illegal narcotics).  In fact, Cali has a referendum on it this November--not medical marijuana, which they already have, but outright decriminalization for everyone.

Once Cali taps into the sales tax revenue on an estimated $14bn/year market (which is the size of the semi-legit medical marijuana industry in Cali alone), and issue $50 billion of "recovery" pot bonds, every other state and local government in the union is going to want a piece of that action. Not to mention the drop in costs of law enforcement and incarceration.

In other words, watch as inexorable economic forces wash over and erase cultural taboos.

Call it Munijuana.

Bam_Man :

Yeah, and think of all the "jobs" it will create in bong manufacturing, as well as the addiction counseling and medical de-toxification fields.

I can see it now (through the smoky haze): "The Stoner Economy".

aerojet :

I'd rather have that stoner economy than the fascist militarized police state one we have been working on since the 1970s.

Mr Lennon Hendrix :

Brown Brothers Harriman laundered money for Fritz Theissen, who was the main funder of the Nazi party.  They also owned and operated Amerika Shipping Lines and Amerika Mining (correct spelling) in Germany while the Nazi party was being established.  Averell Harriman was known as the founder of the new Democratic party and his wife was the Chief fundraiser.  Averell held many upper level cabinet positions both before after WWII, notably US Ambassador to the Soviet Union during WWII, US Ambassador to Britain after the war,  Secretary of Commerce under Truman, and Governer of NY.  Prescott Bush acted as President while the bank was laundering the Nazi money; he was charged with the 'Trading with the Enemies Act' during WWII, before he became Senator of Connecticut.  He was also one of Ike's favorite golfing buddies.  Averell's brother "Bunny" was the main shareholder of the bank.  George Herbert "Bert" Walker become CEO of said bank, this while establishing himself in NYC during the "roaring 20's".  He was an enthusiastic sportsman; he established Madison Square Garden and was in charge of the PGA, thus the 'Walker Cup'.  Prescott married Bert Walker's daughter, and passed down the family name to his eldest son, who did the same.  All three men (Averell '13, Bunny '17, Prescott '17) were Scull and Bones at YALE University, respectively.

Oh, and of course I will add, the Doelarr is dead.

Escapeclaws :

As usual,

no discussion of our bloated military or why we seem to be incapable of not waging at least two economy-sucking wars at the same time. How much has Iraq cost, $2 Trillion?  We didn't even get the goddamned oil. What about Afganistan $1 Trillion? How much have our 700 bases cost us over the last 10 or 15 years. Why is there never a cost benefit analysis of our miltary expenditures? Because there are all costs and no benefits.

The 401K as a replacement for the defined benefit pension was and is nothing but a scam. Who has benefited the most from that? Hint: not retirees.


Ah, sadly the military-industrial complex is doing exactly what it should be. The cost/benefit for Halliburton et al are stellar and with no defined goal or ending, they can count on the gravy train continuing.

There is no intention to have cheap oil, since you can't shore up the profits if it's easily available to poor schmucks with long commutes. Part of the strategy is denial of commodities and relationships for China (or practically anyone else).

But I agree that it is sickening and stupid to the nth degree.

Bruce Krasting :

I looked into this. For what it is worth, I think it is bunk. This is about how to invest working capital. The money that is available has been committed to future expenditures. If you wanted to be absolutely sure that your goal was to destroy municipal finance in the USA you you would do this.

We have to starve the beast before we can tame it. Debt is death. The sooner we accept that the better off we will be. The plan to tap municipal reserves just kicks the can down the road and sets us up for a harder fall.

We robbed borrowed $2.5T from the SS Trust Fund. That is going to be a hell of a mess to fix. The cafr idea is no different.

Gimp :

I know in South Florida, counties have been laying-off, hundreds of police, corrections officers,(just as crime is rising with overcrowded jails) firefighters, teachers and many other county jobs at an increasing rate since the beginning of the year. They are trying to keep it as quiet as possible so not to hurt that hopey changey promise that was delivered last year..

Bankster T Cubed :

no shit sherlock, er...I mean no shit "brown" brothers

they must have another analyst that's wildly bullish on equities at the same time, no?

[Jun 21, 2010] Meredith Whitney: "No Doubt We Have Entered A Double-Dip For Housing" by Tyler Durden

Jun 21, 2010 | zerohedge

Highlights from an interview by Meredith Whitney currently on CNBC (full interview to be posted later):

Mercury :

You know she believes a broader economic "double dip" is coming too - I mean, that was the whole picture she was painting - but she didn't want to call it on camera or assign a specific probability when prodded.

update: Whitney: De-levering is a good thing in the long term but the process will be painful.

And really isn't that the main thesis of Zero Hedge?


The thing that really boggles my mind, is seriously look at the economy. Yeah you have small pockets of hiring but that doesn't mean full growth. You need all areas to start to slowly hiring no just one. With so many people losing their jobs, places just completely closing.. why would anyone in there right mind buy a house. That's fine if u have the money and everything, but there is no way this economy can support the price of houses at this current level.

Just my 2 cents, here is a quick place to check. Never can have too much information, Keep up the goodwork ZH

I need more asshats:

To keep with the analogy, the patient can stay high longer than the market can stay irrational and that IS saying a lot.

The banks residential trump card is much like they are doing with CMBS. Extend and pretend. Stop foreclosing and work out a manageable longer term loan with lower monthly payments. 50 year paper is starting to float around.

The real trick is keeping the sheeple fully involved in The American Dream. Ahhh, CNBC. Sweet dreams.

[Jun 19, 2010]   Guest Post Corporate Entities As Modern-Day Street Gangs zero hedge by Gonzalo Lira

He got it backward: modern gangs are much like corporations.

Now let's compare how the U.S. Government dealt with BP, regarding the oil spill disaster in the Gulf of Mexico: President Obama met with BP officials, and as a product of that meeting, BP promised to set up a “compensation fund” of $20 billion over the next two years.

Note how this was agreed to outside of the ordinary judicial process. There was no suit. Neither did this agreement follow the law. It was simply a deal the White House made with BP. A Republican politician is receiving a lot of grief over having characterised the meeting and subsequent deal as a “shake down” of BP by the Government. This politician is being censured because apparently he sided with BP, the party responsible for the oil spill disaster—clearly the guy is an idiot.

Be that as it may, the politician’s characterization is in fact accurate: The Government did “shake down” BP for the money, in a manner no different from a street gang shaking down a neighborhood grocery store.

In such a lawless neighborhood, what can an individual do? Obvious: Join a gang—any gang. To remain unaffiliated is to be begging to be set upon by members of one gang or another, be it the various gangs that make up the government (TSA, IRS, ICE, Homeland Security, etc.), or the various corporations who have made sure that unaffiliated individuals are fleeced in health care, insurance, financial services, etc. (As an individual, health insurance is prohibitive in the U.S.—but as a corporate cog of a big corporation? That’s another story. How often do we hear of corporate employees kowtowing to their corporate masters in order to hang on to their health-care coverage?)

But what happens to a neighborhood where gangs dominate? Why, that’s quite simple: The neighborhood is destroyed. The gangs don’t disappear, as the neighborhood is slowly ruined. The gangs stay put, feeding off the corpse of the neighborhood, until it's nothing but a husk—kind of like digger wasps.

Apostate :

This is a solid analysis. Corporations are government-recognized legal entities (authorized to use the force of law against other entities).

If you're against the initiation of the use of force, you must also note that corporations regularly initiate force through the court system, occasionally using nominally governmental security forces as proxy mercenaries.

Note how even supposedly powerful Senators were humbled when they attempted to gun down a lowly trader, Mr. Tourre. It wasn't even much of a fight.

It really is "join a gang or die."

LeBalance :

The corporation is a body, a "person" with full rights of a person, that the UCC (Universal Commerical Code) can interact with in a Court on Commerce, which is what this whole thing is about. (I am kind of new to this area and would appreciate a kick in the tail over what I get wrong. Not a masochist, just like to learn.) So that is why each person has a strawman corporation (SSN, brith certificate). We are each governed by moral rules and commercial rules and are stated assets of various corporations, some of which are in bankruptcy (US, etc). As such we are chattel, knowingly and unknowingly. For the unknowing the world is a very weird place. Many things and lack in consistency of judicial rules and liquidity of same are unbelievable. But for chattel or monsters, who are just owned property, there is no need for a sense of honor or justice. We are to be used.

With this background, an illusory corporation, created as a shield by men, can have any bylaws it wishes. Any.

(1) Make as money for the share holders as possible.

(2) Have a stated moral code, but within the moral code state that the moral code may be junked under certain circumstances.

I think we all recognize GS, right?

So it is not at the outset that GS's SOP or operating code is examined. Like a business creation SOP bureaucracy right?, Mack. What is your biz? Ok. Operating sequence? Dude!!! You can't do that! Think of the children!!

Right? So under our present merchantile system the GS and similar SOPs are good to go.

Just my $0.02 to possibly add some value to the discussion. But I haven't explored the Law (fluid as it is) much, but I plan to.


Awesome insight LeBalance. Everyone seems really focused today.

I too am exploring the Law... is has been a very illuminating excercise.

There are gaping holes in them that scream at me...

Carl Marks :

Interestingly, BP subjected itself to an extra legal shakedown by the Obama Administration despite the fact that BP is essentially a lawless entity which routinely bribes and/or assassinates foreign heads of state in order to secure drilling rights. One must assume that the shakedown was accomplished in concert with the British Government, else, Obama could have faced the wrath of big oil. Give a little here, take a lot later.


The Anderson Accounting Death Penalty from Enron days may have served as a "incentive" for setting up a settlement fund. I have no objections with this use of force becuase ultimately BP would have been Exxon Squeared in dragging out the cases while sucessfully forcing the plantiffs to use assets they really don't have to secure a independent protection gang commonly referred to as plaintiff attorneys. In some cases attorneys would use their own funds if they were confident they had the assets to withstand a drawn out process or in some cases accept settlement as a small percentage of what should have been given if it had been adjudicated. Fast settlements beget bigger settlements as plantiffs retain attornies that can put as much food on the table as quickly as possible.

So we probably have one gang somewhat pissed that we haven't heard from and that's the Plaintiff attorney gang. If this settlement fund is similar to the 9/11 fund, plaintiffs will be given the choice of settling for x now or waiting years for the possibility of more. Once opportunity cost + desperation is factored in, BP was probably more than satisfied as are the bulk of the potential plaintiffs other wise knows as the small people.

So we had the Big Gang = Govt, a Smaller but still powerful gang= corporation and a potential gang of small people teamed with plaintiff attorneys who may have been stopped temporarily from forming as th4e Plaintiff attorneys must seek much higher and expensive fruit to make money from this. So new gangs will be formed to lay claim to all the free cash flow that BP can produce which , in reality, is fine as the selling price of the production has to pass though the hands of the operators who will take their cut leaving the shareholders empty handed. In other words there will never be a dividend again and the share price will go down as the realization sets in that the corporation now has a new set of owners that isn't the shareholders. Nevertheless, BP as a entity will survive for a long time in order to pay claims from their reserves and serve the operators and directors. A captive Gang with a benevolent prison warden.

The big hurdle thathelped create the captive gang would have been an agreement of no Criminal penalties. Once freedom becomes an issue, carrying costs , borne by shareholders , for the freedom fund for the operators of the gang was good to go at virtually any cost as long as they can continue to produce oil, live the high life and stay out of prison. Shareholders are usually an ineffectual and weak gang if they can ever form into one,so for them to lose their dividends and equity is probably less damaging than when Fannie and Freddie , a one time reliable pair of pension and WA stocks, ceased to exist. The operators are still making out fine here too.

The Gangs analogy works really well. Those of us that are unaffiliated like small business people , traders, normal people and not so normal will always be at the mercy of the larger gangs unless we can form a formidable gang ourselves. The truth won't set us free, but it may incent us to form a new gang armed with larger area denial devices to present a clear and present danger to the established gangs .

In short, the country we once knew is gone forever and at least for the time being a civilized Mad Max society has taken it's place.


Excellent article.

The lawlessness is eminating from the most powerful street gang in our nation’s history—the private international bankers who own both the central bank and our centralized government. This takeover has allowed the corruption to spread from the county courthouse to the halls of Congress. And, like dominos, to the Supreme Court. When Americans lose their representaiion, the gangs take over.

When private interests take over the government and control the money supply, then the principles of capitalism and protection for private citizens are destroyed. Why? Because only those private interests who now own the government have the advantage of monopoly--using the government laws and regulations they create to eliminate competition and dissent. If a private citizen cannot find protection of his rights and his property from the Supreme Court, then the corruption has become tyranny.

This favoritism extended by the government to the central bank money power has no resemblance to the principles of capitalism, representative government or the American Dream.

Throughout all these years of gathering together more and more power, more and more intervention and more and more government control, the money power finally has lawfully achieved the ability to reward its friends and punish its enemies—selectively and in secret. The money power can reward Best Buy and punish Circuit City, reward Israel with its WMDs and punish Iraq with its lack of WMDs—if it wants; this explains why it moves Heaven and Planet Earth to get this power—why its members cheat, lie, blackmail, threaten, assassinate… It is not so that they can be patriots, so that they can help America with her economic well being, or fertilize the fruits of capitalism and free-market competition.

Think about it.

And, now, the Fed has New Powers, as a result of the 2008 Bank Panic. Says Kirk MacKenzie in Money, Defending Your Prosperity (copyright 2010):

“A remarkable new feature of these expanded powers is the ability of Fed to selectively give differential advantage to specific companies of its choosing. This violates any standard for fair and equitable treatment.

“The People pick up the junk securities and pay the tab. Their incomes are reduced, and a portion of their savings are taken, by means of an inflated money supply that benefits the Chosen.”

Here is MacKenzie’s list of the Fed’s “New Powers”:

1. The Term Auction Facility (TAF) allows member banks to anonymously convert problem (junk) securities into money at low interest rates. Thus freed of their losses, the member banks can use the new money to make new loans.

2. The Term Securities Lending Facility (TSLF) allows primary dealers to dump problem residential mortgage-backed loans in exchange for Treasury securities.

3. The Primary Dealer Credit Facility (PDCF) allows primary dealers a further competitive advantage by converting other, non-mortgage problem securities into new money at low interest rates.

4. The Asset Backed Commerical Paper Money Market Mutual Fund Liquidity Facility (AMLF) allows selected financial institutions a competitive advantage by obtaining low interest rate loans directly from the Fed. The Fed decides who and thus far has refused to disclose who the recipients were.

5. The Commerical Paper Funding Facility (CPFF) allows selected non-financial corporations a competitive advantage by borrowing low interest loans directly from the Fed. The Fed decides who.

6. The Money Market Investor Funding Facility (MMIFF) allows selected money market mutual funds a competitive advantage by borrowing low interest funds from the Federall Reserve Bank of New York. The FRB-NY decides who.

7. On top of all these new powers, Chairman Ben Bernanke seeks expanded powers to directly control the banking system. (emphasis mine)


You've formulated the problem very well.

"Corporate entities, be they corporations, unions, the military, or the government, act lawlessly—anarchically—trampling the individual without hesitation, yet coming to accomodations between one corporate entity and another."

I know what has changed for me as I've gotten older is the expectation that anything will happen to corporate or government criminals. When I hear of a case of probably wrongdoing, my first assumption now is that the authorities won't even pursue it.

When people look back on this era searching for what changed in America, they will see powerful people getting away with crime and fraud on a mass scale, with dwindling recourse to law and order. The other thing they'll see is the judicial branch just "sitting it out" during crucial turning points while law and order eroded. Refusing to get involved in questions of torture, election irregularities, politicizing of the Justice Dept.

The trends will be obvious with time and distance: The Executive Branch essentially becoming immune even to investigation, much less prosecution. The Judicial Branch twiddling its thumbs as if these issues don't concern it. Congress structurally unable to put the country's best interests over politics and self-interest.

I won't even get started on corporations. The question for them is, why wouldn't you break the law? Who is going to catch you? The SEC?

Cursive :

In other words, our society has become a neighborhood where street-gangs—corporate entitites—battle one another for position. Even the Government is just another street gang.

+1. Never have individuals had such autonomy (automobiles, cellphones, internet, email, skype, smartphones, etc.) and less true freedom.

Our institutions will need to adapt and we will need to remain vigilant not to become unwitting accomplices to the proposed Hegelian "synthesis".

[Jun 19, 2010] Summers cautious about recovery

6/19/2010 | CalculatedRisk

patientrenter wrote on Sat,  - 2:38 pm TagsHere is an example of how Summers defines the health of a sector of our economy:

"Housing is also on the mend, Summers said, with prices nationally higher than expected".

So for Mr Summers, boosting house prices makes for a healthy housing sector. If you believe in the idea that sitting on your couch in a large home for a few decades generates real economic wealth for society at large, then having higher prices for homes makes real economic sense. If you think that housing is a consumer good, that can be paid for as rent every month, or up front as a fixed lump sum, then higher prices are bad.

Would we celebrate if the price of vegetables shot up? Of of clean water? Higher home prices lower total economic wealth. It merely transfers wealth from one sector of society to another. Celebrating and encouraging this is ludicrous. Higher asset prices benefit FIRE and older voters, and that is one key reason why Mr Summers likes them.

Selected Comments


patientrenter wrote:

Would we celebrate if the price of vegetables shot up? Of of clean water? Higher home prices lower total economic wealth. It merely transfers wealth from one sector of society to another. Celebrating and encouraging this is ludicrous.

wow. you made an excellent point, excellently.


It must be daily hell to have a job where you are not allowed to tell the truth or what you believe the data says.

It's a sad fact that people's actions are affected by words of optimism or pessimisn, and there many jobs require you to lie

It has always been so, but with media reacting immediately and globally to public statements, the number of professional liars seems much higher than before.

Rob Dawg:

but the outlook has become more uncertain in recent weeks ... said Lawrence Summers,
No one has a crystal ball, but Summers sure doesn't seem very confident. - CR

Not "crystal ball." Magic 8 Ball:
● As I see it, yes
● It is certain
● It is decidedly so
● Most likely
● Outlook good
● Signs point to yes
● Without a doubt
● Yes
● Yes - definitely
● You may rely on it
● Reply hazy, try again
● Ask again later
● Better not tell you now
● Cannot predict now
● Concentrate and ask again
● Don't count on it
● My reply is no
● My sources say no
● Outlook not so good
● Very doubtful

I guess it is an improvement over a coin toss. As this economic environment persists it looks more and more like the Clinton prosperity was more coincidence than policy.


SNAFU wrote:

Larry was much more confident in the Sunday morning talk shows about 6 months ago, was not he? 'Just funnel money to the banks and jobs will appear' suits Wall street, does not work for main street.

Larry accomplished what he needed to accomplish. At this point, he doesn't need to agitate for anything very forcefully, especially once Dodd and Frank and the rest of the jokers in Congress have finished their pretense at financial reform. His friends in FIRE will always be grateful for Larry's contributions in 2009. He will have an honored place, along with Bernanke and Geithner and Paulson and Dodd and Frank, in the Big Bankers' Hall of Fame.


Yes! Larry was much more confident in the Sunday morning talk shows about 6 months ago, was not he? 'Just funnel money to the banks and jobs will appear' suits Wall street, does not work for main street.

I betcha Summers and Emmanuel are green with envy of the level of control the Chinese Communist Party has over their banks. The Party told "Lend on!" and the lending stampede ensued, with Chinese banks competing fiercely with each other to meet their lending targets. That's Communism for ya!

[Jun 19, 2010] On the Curious and Misguided Defenses of BP

“It takes a high level of cognitive ability to see incompatibilities in one’s own system of opinions, attitudes, and values, and to overcome the lazy person’s liking for compartmentalized thinking, whereby people store incompatible beliefs in separate mental cubby holes without apprehending—-or even caring about—-the contradictions among them. It takes a mental openness and judicious turn of mind to entertain a variety of options for resolving inner conflicts. It takes mental energy to absorb the choices and intelligence to see all their ramifications. It takes moral strength to see what is right and commit to it.”
June 19, 2010 | naked capitalism

Yves Smith

What you write is utterly disconnected from reality. The only way for people to escape “responsibility” for events wildly removed from them is to go live in a survivalist fashion completely apart from modern life.

And your bizarre “we are all responsible for everything” by extension means we can all take credit for the good stuff too. Sorry, I don’t take credit for revolutionary scientific breakthroughs that save lives, or stunning artistic creations. By your logic, I can take credit for Apple’s successes too. How plausible does that sound?

How, pray tell, am I responsible for BP, given that I have been long supported stronger environmental, workplace safety and product safety regs, and have advocated carbon and higher gas taxes (and I walk my talk, I’ve never owned a car, even when I lived outside Manhattan, and intend never to own one, and use public transportation for the overwhelming majority of my trips in the five boroughs)?

Your line of thinking is ultimately grandiose. Most individuals have very little power over the course of human affairs. The social order is very large and very inertial. The most that the vast majority of humans can aspire to is to try not to make things worse and within whatever means they have available, to try to make things better. But even knowing what good conduct is in complex systems is not easy. For instance, some friends of my parents founded and funded a hospital in Africa to combat infant mortality. They found to their horror that by increasing survival rates, they increased starvation.

i on the ball patriot:

“What you write is utterly disconnected from reality. The only way for people to escape “responsibility” for events wildly removed from them is to go live in a survivalist fashion completely apart from modern life.”

And hopefully the BP disaster has taught all of those prudent survivalist escapists, living apart from modern life on the gulf coast and now knee deep in tar balls, the error of their ways. They must get involved politically!

“And your bizarre “we are all responsible for everything” by extension means we can all take credit for the good stuff too. Sorry, I don’t take credit for revolutionary scientific breakthroughs that save lives, or stunning artistic creations. By your logic, I can take credit for Apple’s successes too. How plausible does that sound?”

The artist creates with pigments on a canvas made possible by the combined efforts of the cotton grower, the cotton picker, the mechanic, the trash collector, the cop on the corner, etc., and would have no canvas at all without their efforts. We ARE all one. In that Debra is correct. The prudent survivalist mentioned above would not be able to go back to the land without tools created by others. The great artists credit all.

“How, pray tell, am I responsible for BP, given that I have been long supported stronger environmental, workplace safety and product safety regs, and have advocated carbon and higher gas taxes (and I walk my talk, I’ve never owned a car, even when I lived outside Manhattan, and intend never to own one, and use public transportation for the overwhelming majority of my trips in the five boroughs)?”

Perhaps in ‘supporting’ the things that you do, you inadvertently empower the things you are trying to eliminate? Working within or working without, how best do we apply our efforts? Just as the prudent is affected by the non prudent in the example above, the prudent non voter, is affected by the not so prudent voter who continues to empower the slime. How do we balance our efforts?

“Your line of thinking is ultimately grandiose. Most individuals have very little power over the course of human affairs. The social order is very large and very inertial. The most that the vast majority of humans can aspire to is to try not to make things worse and within whatever means they have available, to try to make things better. But even knowing what good conduct is in complex systems is not easy. For instance, some friends of my parents founded and funded a hospital in Africa to combat infant mortality. They found to their horror that by increasing survival rates, they increased starvation.”

I think you both possess wonderful lines of thinking in that they are both directed towards a more fair and caring social order. Somewhere in between yourself and Debra there is a balance to be found. I am a firm believer that regaining power over the course of human affairs will require that we all work a little harder to understand the corporate owned and controlled cultural shaping forces in our lives that make us what we are, more so today than in the past. We presently have many lions that have been conned into thinking that they are lambs. They need to be awakened to kick ass, like you have done here with BP (great post!). So, it seems we need to all keep the grandiose viewpoint of oneness in mind, and all kick ass, while at the same time seeing the existing system for the non responsive, energy dissipating, farce that it is.
Like BP it is TSTS – Too Sleazy Too Save!

Election boycotts are in order as a vote of ‘No Confidence’ in this corrupt government.

Deception is the strongest political force on the planet.

Glenn Stehle:


You also make the claim: “Me… I like to argue. It’s fun. It stimulates me intellectually.
It’s a way of playing. Why not ?
And I like to understand the way we work.
I am basically.. a scientist. LOL.”

But you’re not like a scientist, far from it. You’re more like a child, firing non-stop questions about why and how the world works.

While there’s nothing wrong with this and it is the engine that drives discovery, at some point one nevertheless has to fit all that into a coherent world view, which you clearly haven’t done. You’re all over the map. In one breath you’re calling yourself a scientist, and then in the next breath you’re touting the manifesto of the Modern Language Association, which is about as antithetical to scientific rationalism as anything one can possibly find.

You also seem to be adverse to choices, to exercising judgment. As Daniel Yankelovich writes in Coming to Public Judgment, public judgment is “the state of highly developed public opinion that exists once people have engaged an issue, considered it from all sides, understood the choices it leads to, and accepted the full consequences of the choices they make.” The opposite of public judgment is what Yankelovich calls “mass opinion,” which is where the “opinion holder is poorly informed and is caught waffling between two competing sets of values.” I’d classify your commentary as falling into the latter category.

“Cognitive resolution requires that people clarify fuzzy thinking, reconcile inconsistencies, break down the walls of the artificial compartmentalizing that keeps them from recognizing related aspects of the same issue, take relevant facts and new realities into account, and grasp the consequences of various choices with which they are presented,” Yankelovich goes on to explain. “Of all the obstacles to resolution, none is more difficult to overcome than the need to reconcile deeply felt conflicting values.”

You unleash an absolute flood of wonderful-sounding stuff, but you don’t seem to recognize that some of the wonderful-sounding stuff you throw out conflicts with other wonderful-sounding stuff you throw out.

To cite Yankelovich again,

“It takes a high level of cognitive ability to see incompatibilities in one’s own system of opinions, attitudes, and values, and to overcome the lazy person’s liking for compartmentalized thinking, whereby people store incompatible beliefs in separate mental cubby holes without apprehending—-or even caring about—-the contradictions among them. It takes a mental openness and judicious turn of mind to entertain a variety of options for resolving inner conflicts. It takes mental energy to absorb the choices and intelligence to see all their ramifications. It takes moral strength to see what is right and commit to it.”


I cannot agree more.

As an engineer, I am appalled when people use the “if you use oil, it’s your fault” argument. People tend to take for granted that they are surrounded by “deadly technology” which has been carefully made so safe that they take if for granted. Why did houses in Haiti collapse and kill people whereas similar size earthquakes in Japan or California kill far, far less? International Building Code. Why aren’t people killed while using Ac power, natural gas, buses, trains, airplanes, power tools? Standards, codes and regulations developed by scientists and engineers for the last hundred years, codified into laws and regulated and enforced by governments.

Think you can go to the backwoods of Alaska and escape it? Think about the metallurgy in your axe head, gun barrel, the reliability of your outboard motor, and your bush pilot’s airplane. Do you think this know how just sprang out of thin air?

There have been hundreds of thousands of oil wells drilled, probably hundreds in very similar deep water situations. BP’s record indicates that they have a corporate culture which is willing to ignore known safety standards and cut corners on the right way to get things done. In fact, given that following the regulations makes a Deepwater Horizon type accident very unlikely, the odds are very high that laws were broken.



I’m an engineer too.

You paint a great picture about all the marvels that make up the civilized, comfortable world as we know it and the magic behind the screen that made it possible.

All true. I love this life. But it was all made possible by cheap energy. Pull out the oil and it all falls apart.

Most intelligent people see that oil is on the verge of decline. They also see burning stuff has issues (AWG). Since there is no solution to sustain the current population without these nice old solutions, we talk about alternative energy. Basically we expect deus ex machina from our scientists and engineers.

In the mean time let’s continue without changing our current lifestyles. Magic will save us soon. We’re creative.

Personally, barring a clean nuclear fusion breakthrough, I see a big social upheaval and population decline sometime relatively soon.

No politician can run on this level of stark reality unless the worst is already happening and they can blame the guy before them.

I hate to be a party pooper, but as an engineer where is the flaw in this expectation?


Here again, I agree. We have ONE earth and when we pollute it up, we are also screwed (the earth itself will be fine and can do quite well without us). Oil is a finite resource, we do have peak oil, and we do need to transition to alternative sources of energy. All pretty much basic facts that others will argue about endlessly.

But there are alternative sources of energy which can successfully replace oil. Ultimately we will have to tap solar energy which is the source (other than nuclear – and you can argue that uranium comes from stars just not OUR sun) of all our energy since we are daily bathed in a massive amount of solar energy from our sun. You and I both realize that solar energy research has been more or less controlled by the oil companies because solar energy “sizing” works well for individual homes/communities and not so well for giant energy companies. Other sources (wind, nuclear, fusion, clean coal) also need to be developed, and we need to aggressively go after the easiest solution – conservation, just use less energy.

What we are experiencing is not a failure of technology, but rather a failure of our government to adequately plan and enact a long term energy policy. And Bush/Cheney were not going to produce a long term plan because they represent the existing energy industry which is not interested in a long term plan. But Obama hasn’t shown much leadership in this area either.

You and I both realize that this is because pursuing the technology required IS RISKY and EXPENSIVE, but it is also REQUIRED if we really want to solve these problems. What we’re doing now as a nation is the least risky and fattest profit approach which is fine if we all decide that the future potential of the human race is best reached by creating a couple of fat, rich, lazy bastards that haven’t a snowball’s chance in hell of building a space station, bases on the Moon, or terraforming Mars (but they can throw a heck of a party with Elton John doing a set).

It took a President to say we were going to the Moon, and a the world’s richest nation to make it happen. We are capable of great things, and maybe someday in the future, we can realize them, but it will not be easy. Personally, I wanted my kids to be able to vacation on the Moon, and their kids to be able to vacation on Mars. Why? Because the Earth is one small place in a large universe, and we remain to this day, one large meteorite strike from extinction.

So, why do I get mad at people that view large technology failures as inevitable? Because to a large degree they are ignorant of the danger all around them that is only mitigated and made safe because of the proper and safe application of that same technology. One hundred and fifty years ago, people thought travelling at sixty miles an hour on a train would kill you. One hundred years ago, we flew an airplaan atomic bomb. Fourty years ago, we put people on the moon. Now, most large cities have natural gas storage facilities with the stored energy of a small nuclear weapon. Most people take this advancement for granted without being aware of how much research, work, and REGULATION are keeping them safe. And when this system fails, we need to make the corrections required to make it safe and move forward. The BP oil spill was not a failure of technology, it was a failure which is typical of the systemic problems in our society: failure due to the greed and corruption of a few elites with all of rest of society suffering as a result.


So, why do I get mad at people that view large technology failures as inevitable? Because to a large degree they are ignorant of the danger all around them that is only mitigated and made safe because of the proper and safe application of that same technology. One hundred and fifty years ago, people thought travelling at sixty miles an hour on a train would kill you. One hundred years ago, we flew an airplane for the first time. Sixty years ago, we exploded an atomic bomb. Forty years ago, we put people on the moon. Now, most large cities have natural gas storage facilities with the stored energy of a small nuclear weapon. Most people take this advancement for granted without being aware of how much research, work, and REGULATION are keeping them safe. And when this system fails, we need to make the corrections required to make it safe and move forward. The BP oil spill was not a failure of technology, it was a failure which is typical of the systemic problems in our society: failure due to the greed and corruption of a few elites with all of rest of society suffering as a result.

Ah, the joys of trying to type and rant at the same time…

Jose L Campos:

Debra I follow you. It is original sin. It explains everything and therefore explains nothing.
Someone in the sixth century said that MYTH is something that never was but that continues being. So is with the woman that was seduced into biting on the fruit because she would be like God. She therefore would be omniscient, omnipotent and eternal. Every day our lives are the pursuit of those divine attributes and the result is nakedness and death. The myth survives everyday. Life is a tragedy but we attempt to transform it into comedy by searching for magical results that will dampen our anxiety.


What’s Oprah’s phrase? “It’s a teaching moment.” Something close, if not the exact quote.

I think that is where Debra is coming from, and I hope the BP spill really is. We have many huge issues that could take down civilization as we know it, and energy is one of the biggest.

None of the big issues are being acknowledged or addressed by most people. Our politicians are well acquainted with all of these issues and have been dancing around them for years without any substantive action.

So if this tragedy somehow starts some real attention and action to seriously address any of the multitude of crises we are looking at, it will be some good out of a bad situation.

But, Debra’s words about the Gulf disaster seem to paint it as some kind of dreamy metaphysical miasmia. For those removed by some distance it could be felt that way , but IT IS VERY REAL. The oil spewing into the Gulf is huge and very real. It is destroying very real life forms that lived in the Gulf and thereby destroying human lives that depended on their relationship to those other destroyed lives. Think of any natural area near you that gives you pleasure or sustenance. Now imagine it a few days later covered in sludge.

I hope this makes us think about changes we can make before other very real problems we are ignoring consume us. But I also hope we don’t ignore that this particular problem was the result of bad choices by people who knew better and had a responsibility to do better. They need to own the deliberate bad choices that caused this.

Glenn Stehle:

Oh Debra. I love you. You challenge our assumptions and make us think. And I don’t think you’ve got a mean or self-interested bone in your body.

So would the true culprit please stand up? Is this a BP problem? Is this an oil industry problem? Or is this a human problem (or as you put it, a problem of “society” or of “civilization”)?

I vote for all three.

Where I think your analysis falls down is that it lacks an understanding of how society functions, how it holds itself together. And punishment of those who offend societal norms is one of the indispensable mechanisms that society uses to elicit conformance with social norms. Call it non-voluntary cooperation, but cooperation is absolutely necessary. It is the glue that holds society together, and it is absolutely necessary to affect a functional level of cooperation, whether it be from a wayward individual party (like BP) or a wayward group (like the oil and gas industry).

It would be great to live in a touchy-feely, coercion-free world. But that is a pipe dream of libertarians and, as the Christian theologian Reinhold Niebuhr put it, the “sentimentalities and superficial analyses current in modern religion.”

Your taking a crowbar to the regnant social norms, including scientific rationalism and its ugly stepchild, neoclassical economic theory (you refer to this when you say “pinning a monetary PRICE on anything, any service, whatever”), is both appropriate and germane. But your critique is overbroad and overreaching—-you throw the baby out with the bathwater. A group is united by a system of beliefs and practices that is essentially moral in tone. There is right conduct and wrong conduct and the latter invites punishment, not only on religious grounds but on practical grounds as well. I think you lack a basic understanding of how cultural evolution takes place, and the key role punishment plays in both societal functioning and in cultural evolution.

There is also a denial about the novelty of some of the problems we now face. There are new problems confronting society (humanity or civilization as you put it), which require novel solutions. Yesterday’s solutions (for instance the oil economy) worked for yesterday’s problems, but they will not work for tomorrow’s problems. As David Sloan Wilson writes: “Cultural evolution can be seen in part as a Darwin machine in action, highly managed but nevertheless genuinely open-ended in its outcome. Confront a human group with a novel problem, even one that never existed in the so-called ancestral environment, and its members may well come up with a workable solution.” (David Sloan Wilson, Darwin’s Cathedral: Evolution, Religion and the Nature of Society)

 Dan Duncan:

I have no idea WTF y’all are trying to get at here…Nothing like watching people write past each other as one discusses jurisprudence, while another does metaphysics, and another does physics, evolution and the concept of civilization.

That stated: Watching Leftists fulminate against moral relativism has definitely been worth the price.

Glenn Stehle:

Dan Duncan,

I’m sorry if you “have no idea WTF” we’re trying to get at here, but I don’t know how to make it any simpler than what I have.

And you’re right, constructivism and/or structuralism, of which moral relativism is but a small part, is something that came out of the left. But while it originated there, that certainly hasn’t kept the right from taking the football and running with it. One has to look no farther than the right’s AGW arguments to see how effectively the right has deployed constructivism.

And perhaps the reason constructivism has been such an effective tool for the right is because so much of the left is so thoroughly enmeshed in the ideology that it has no immunities to it, nor can it mount a cogent argument against it.

But some of us on the left are trying to correct that.

So I wouldn’t get too comfortable in my schadenfreude—-“watching Leftists fulminate against moral relativism”—-if I were you. Because if the left can get its own house in order, its advance across the political terrain will be no less dramatic than Sherman’s march across Georgia.

John L:


Demand for oil isn’t what drove the BP men on that rig to take shortcuts in drilling and sealing that well. Demand for oil isn’t what caused them to use a BOP that wasn’t tested for reliability, and had been flagged as being unreliable. Demand for oil isn’t why they used a quarter of the spacers, or hung one pipe liner down the well, or didn’t bother to seal each joint with cement.

Greed is what caused them to do these things; the well was behind schedule and had already cost them a lot of money to drill, but the lure of the oil revenue caused them to push for the fastest, quickest method they knew of to get to it. That cost 11 men their lives, a $500 million drill rig, the loss of the well for production, millions of gallons of oil, and tens of billions of dollars in fines and expenses.

Plenty of companies are drilling for oil in the Gulf; none are doing it in such a hazardous manner as BP is.


The pressure coming down from BP management might have been profit-based (”greed”), but that exec on the rig likely didn’t make his decisions based off greed for the oil, but for personal vanity.

I reckon he was wanting an “attaboy!” for finishing up a tough well, or at least minimizing the “damage” to his managerial reputation from all of those delays and overruns. Or maybe he had a kid’s graduation upcoming and just wanted off the drilling mission… who knows, underlying motives of human misbehavior being so varied as they are.

Glenn Stehle:

Statements like “that exec on the rig likely didn’t make his decisions” or “maybe he had a kid’s graduation upcoming and just wanted off the drilling mission” come right straight out of the BP playbook.

It echoes Tony Hayward’s testimony before the congressional committee:

1) I don’t know what the “people on the rig were thinking” on April 20 when they made the fateful decisions they did. The “team on the rig,” which was made up of BP’s well supervisor, TransOcean and Halliburton personnel, made the decision not to run a cement bond log. I would be “very surprised” if BP COO Doug Suttles or managing director of BP Group Andy Inglis knew of the problems that they were experiencing on the Macondo well.

2) Every worker on the rig has “stop order authority” to shut down operations anytime they observe something unsafe going on.

Of course anyone who has spent more than a couple of days working on a drilling rig knows that Hayward is lying.

No, those decisions were made by someone in the BP hierarchy several command levels above the company man, by someone who had obtained an executive-level position but without the benefit of any hands-on experience, and someone who refused to listen to those under his command. We all know the type.

As far as those eleven men who died, I think Tennyson put it best:

Not tho’ the soldier knew
Some one had blunder’d:
Theirs not to make reply,
Theirs not to reason why,
Theirs but to do & die.

Hayward would blame the ships cook for the blowout if he thought he could get away with it.


The fund has been bizarrely treated as some sort of abuse of power…

Corporatist ideologues think the very purpose of civilization and the environment is to be the hunting ground, resource mine, and waste dump for big corporations. Government is supposed to be the bagman and thug.

So to such psychopaths, if government (in this case, only under political duress, since Obama is such an ideologue) instead acts even remotely in the public interest, demands any kind of accountability, even something so meager as this penny jar, it’s like religious apostasy, betrayal. It’s practically a metaphysical assault on the laws of the universe.

And then there’s the hired flacks and thugs (and the unpaid wannabes) who are simply paid to spout such criminal propaganda.

  • Expat says:

    June 19, 2010 at 5:40 am

    Corporations can’t be punished because punishing them hurts shareholders, employees, nations, our future, etc. We are all to blame for all disasters because of our collective failure to monitor, police, regulate, and control. Corporations will act in our best interests because it maximizes their profits in the medium and long term.

    Ok, so much for the bullshit. Now, reality.

    Corporations are not punished for many reasons, not the least of which is political influence from their wealth. Legal systems are convuluted and byzantine, making successful prosecution of corporations difficult and prosecution of executives nearly impossible. Corporations can effectively blackmail cities, states, and countries, threatening to cease doing business with them.

    We are all to blame for our world in a very general sense that humans make these decisions with the support of many other humans. But most Americans, as an example, support gun controls yet we see thousands of deaths every year from gunshots. In reality, nations are ruled by their political and wealth elite. You and I have no control over anything of significance.

    Government controls and laws are only as effective as the government charged with enforcing them. Nigeria probably has beautiful anti-pollution legislation but no enforcement. Of course, occasionally our rulers willfully remove protections such as Glass-Steagal.

    Corporations may, in some metaphysical sense, long for perennity, but CEO’s, traders, shareholders, and speculators wish only to see sharp, continual rising shareprices and profits. Drilling today at the cheapest cost makes us all very rich very quickly. Tomorrow it will be someone else on the job and he will get rich from our work if we don’t seize the day.

    Perhaps our greatest collective failure, and it may be genetic, is the way we readily accept the Adam Smith capitalist model. Were our brains attuned to ecology and communism, we might not find ourselves here. Unfortunately, we are a rapine, short-sighted species who has developped the unfortunate ability to permanently damage our environment.

    I say Drill, Baby, Drill. Build more nuke plants. Bring back CFC’s. Hummers for all of us. McDonalds on every corner. The sooner we burn out, the better off and the safe our universe will be.

    • Glenn Stehle says:

      June 19, 2010 at 9:28 am


      While your comment has a great deal to commend it, it nevertheless is marred by a note of defeatism.

      You assert that: “In reality, nations are ruled by their political and wealth elite. You and I have no control over anything of significance.”

      I believe the successful people’s wars in Vietnam and Afghanistan, and the series of peaceful overthrows of tyrannical dictatorships and oligarchies, beginning with the 1974 toppling of the military dictatorship in Greece and including Portugal, Spain, Argentina, Brazil, Chile, the Philippines, South Korea, Taiwan, Eastern Europe, the Soviet Union, South Africa and others, belies your pessimistic assessment.



    Media Lens Message Board Compare and Contrast BP vs Bopal

    [Jun 19, 2010] Rachel Maddow Rewrites Obama’s Oval Office Address on BP « naked capitalism

    June 17, 2010 |


    Ms Maddow, we live in a world that needs oil, and that oil needs to be provided by companies like BP. Whose gonna do it? You? You, Obama? I have a greater responsibility than you could possibly fathom. You weep for the Gulf, and you curse the oil industry. You have that luxury. You have the luxury of not knowing what I know. That the Horizon, while tragic, would have provided much needed oil. And my existence, while grotesque and incomprehensible to you, serves a purpose. You don’t want the truth because deep down in places you don’t talk about at parties, you want me offshore, you need me offshore. We use words like derrick, subsea tree, and umbilical. We use these words as the backbone of a life spent providing energy. You use them as a punchline. I have neither the time nor the inclination to explain myself to a woman who rises and sleeps under the blanket of energy that I provide, and then questions the manner in which I provide it. I would rather you just said thank you, and went on your way, Otherwise, I suggest you lease a semisub, and start tripping pipe. Either way, I don’t give a damn what you think you are entitled to!!


    Yes we need the oil,and you BP, need a contingency plan. BP, you’re drilling a big hole one mile under water and the pressure of the oil is 9000psi trying to escape. ANy ideas how to shut off the oil flow if there is a problem? Fair questions right. You could kill the shrimp and fishing industry if you screw this up BP… know? Let me ask another question bp. If you can’t plug the hole and there is 100000 barrells a day of oil spewing into the gulf, do you have a wway to at least contain and collect the oil BP? Well please wait on drilling until you figure those two problems out, it may be cheaper than a potential 100billion dollar mess in the gulf. Come

    nowhereman :

    Look BP, if the cost of extracting oil is environmental degradation on the scale we see in the gulf, then I say the cost is too high. If it takes a $5 gas tax to get us to cut back, so be it.
    If the President (presidents actually if you saw Jon Stewart last night) can’t get past the Oil Lobby then God help us.
    Rachel is right. There is a new America emerging from the Bank and Oil Crisis. We don’t believe your bought and paid for “experts” we don’t trust our government, and least of all we don’t trust the Oligarchs who own it.


    Re: and least of all we don’t trust the Oligarchs who own it.

    Not sure about this. The American peasants want cheap gas; they’ll overlook anything to keep it cheap.

    Cheap gas means no “public” transportation and suburbs with “good” schools. And everybody knows exactly why they need these things.


    Maddow?? What a joke! I can’t believe anybody watches MSNBC.

    “If it takes a $5 gas tax to get us to cut back, so be it.”

    Spooken like a goobermint worker. I guess you think your job is secure and the impact on the economy from $5 gas will have no impact. Thank God we have companies like BP, Exxon, Haliburton, and Transocean. Without these corporations and the real men that run them, the spice would not flow and you buffoons would be starving in the dark.


    Mick says, “you buffoons would be starving in the dark.”

    I think there’s a very good chance we all are going to be starving in the dark soon.

    We are driving our SUVs at 80 mph toward a cliff. It’s fun. I’ve been trying to get where ever we are going, among the first, most of my life.

    Now, some of us are beginning to see the cliff not too far in front of us. A few may manage to slow down or pull off in a different direction, but it looks like most of us are going to sail out there grinning like Thelma and Louise.

    I guess you prefer the opinions of sister Sarah over Rachel Maddow. Good luck with that. Keep your foot on the gas. Yeehaw!


    Okay start living without any petroleum products whatsoever tomorrow, not just gasoline, ANY. Bet you don’t even know how interwoven petroleum is in your life.

    You can’t, and more importantly you won’t…Go ahead, I dare you…


    Transitioning from oil is a transtion, a change of direction, not a one-second-to-the-next cold-turkey snap. These things take time of course, but will too. Pointing out we depend on oil (duh!) to people wanting to reduce our dependency on oil is hardly helpful.


    Yes we need the oil,and you BP, need a contingency plan. BP, you’re drilling a big hole one mile under water and the pressure of the oil is 9000psi trying to escape. ANy ideas how to shut off the oil flow if there is a problem? Fair questions right. You could kill the shrimp and fishing industry if you screw this up BP… know? Let me ask another question bp. If you can’t plug the hole and there is 100000 barrells a day of oil spewing into the gulf, do you have a wway to at least contain and collect the oil BP? Well please wait on drilling until you figure those two problems out, it may be cheaper than a potential 100billion dollar mess in the gulf. Come back in a year and reapply for your permit once you have done your homework BP.

    Mike Dayton:

    And another thing….:)

    It should be a principle of both law and policy that your right and ability to make a profit do not supercede and should not impede mine. Both the bank disaster and the BP situation are crystaline reminders that we, here in the USA, are being treated in a manner identical to third world citizens, illegal immegrants, American Indians, and anyone else whose life impedes someone else’s economic efficiency. The tactics are identical, though muted.

    Perhaps the only solution to drilling safety is to open all US shoreline to it, thus sharing risk and also the anxiety. Hey!! There’s a risk to hedge there to be hedged!! Quick get Goldman on the phone! Oil Spill futures that can beleveraged 22x over into….

    Dan Duncan:

    The narrative that “BP has limited liability” is misguided.

    Civil Liability:

    Yes, BP can invoke the Oil Pollution Act of 1990, which is the oft cited act that limits BP’s liability to $75 million. But this cap on damages does NOT apply to claims made in state court or under maritime law (which was the route of most Exxon victims).

    Additionally, there is the specter of securities class action suits–on the basis that BP misled investors (and creditors) about the risks of deep water drilling.

    Criminal Liability:

    There are many laws at the government’s disposal. The Clean Water Act, Refuse Act and Migratory Bird Treaty Act all impose strict liability. As a result, the government does not even need to prove any intent on BP’s part to violate the law. [The cap on fines for violating these criminal acts runs from 25k to 50k a day, a pittance for BP.]

    If, however, it is shown that BP made false statements to the government in obtaining permits or approvals in operating the rigs, or in compliance reports about environmental (or safety) regulations….then the above referenced caps will not apply. In the case of false statements, then federal sentencing guidelines allow damages to be based on the amount of loss caused to the victims of the crime.

    Again, the British media narrative that there are straight caps on liability and that these caps were unfairly modified… is to journalism accuracy, what BP’s actions in the Gulf are to Corporate Responsibility and Environmental Concern.

    John L:

    Under the Clean Water Act, each barrel of oil spilled into “waters of the US” can be fined up to $4300/barrel. If the EPA chose to use the highest amount for the fine (and I see absolutely no reason why they wouldn’t), BP already owes tens of billions of dollars from this law alone.

    Additionally, the limit mentioned in the Oil Pollution Act is waived if the responsible party is found to have operated in a negligent or willful manner in not following safety and other regulations. The $75 million limit is for punitive damages alone; the OPA also makes it very clear that the responsible party will be required to pay for all cleanup costs resulting from that spill.

    BP is the responsible party; they’re the prime contractor on the rig and therefore responsible for everything done there

    i on the ball patriot:

    Peacefully???? Errrr … let us not go overboard with admiration for slash and kill big oil …


    “The cost of licenses for offshore drilling have been mysteriously slashed by the Department of the Interior, a way of transferring your money to the oil companies and of actually promoting offshore drilling, with all its potential to harm you environmentally and economically. Do you remember lobbying the Mines and Minerals Service for that one?

    Even the wars you are paying for in the Perso-Arabian Gulf and in Central Asia, as well as the aid given Israel and Egypt, amounting altogether to over $100 billion a year, must be seen as a subsidy to big oil.

    And then, the cost of water, soil and air pollution is not figured into the price of a gallon of gasoline. It is charged to the taxpayer in various ways. And, global warming is also not figured into the cost of gasoline.

    In fact, the various deep subsidies that you are involuntarily giving Big Oil are being used in part to buy a propaganda campaign to convince you that climate change has been exaggerated and is nothing to worry about. Ironic, ain’t it?

    But that is not your fault, either.

    People keep saying that wind power is ‘just about’ competitive with oil and gas. But in fact if the true cost of oil and gas were properly calculated, and all the hidden subsidies were removed, wind would be revealed to be much cheaper than these other power sources are. Even solar might make a good showing in that case. (Don’t bother complaining to me about the limits of wind turbines and solar cells; they have those limits because not enough research and development money has been thrown at them by the government and by government-engineered incentives to private business. A reader complained that the investment had not worked with regard to fusion but that is silly. Wind and solar are proven but infant technologies and Germany has already shown that government support makes a big difference here.)

    The subsidies for petroleum are unlikely to be lifted. This outcome is not because you will lobby congress and the senate to keep supporting big oil with your tax dollars. It is because of legislative capture. Too many elected representatives secretly run on the Big Oil Party ticket. (And no, it is not true that President Obama is more guilty of that than were his opponents).”

    More here …

    Deception is the strongest political force on the planet.


    I have always been suspicious of metrics however they are used. I have seen them used quite often in my business dealings. They are presented as “objective” and thus somehow above reproach. In general, I usually quite cynically find that the individuals who carefully follow the metrics are by far the worst offenders in the “real” world. They know precisely how to “game” the system so that their performance appears above reproach whereas in reality they are usually slacking off, or more likely, actually completely failing at their jobs.

    Quite obviously BP with its “Beyond Petroleum” moniker made a conscious effort to portray itself as “socially responsible.” I am sure that somewhere it carefully monitored all of the things that went into its “scores” so that t could present itself as a “good” corporation by those metrics. Most of the “scores” are probably based largely upon giving the appearance of things rather than actually doing things.

    Unfortunately, the core of the problem is corporate power. BP being a “good” citizen is no better than your average Suburbanite using his gas guzzling SUV to take used plastic milk cartons to the recycling center. You can pat yourself on the head for being an “environmentally conscious” without actually doing the math that on a net carbon basis it would have probably been netter to stay home.


    The $20 Billion escrow ($5 billion per year over 4 years) was a great deal for BP. With an annual dividend (now canceled) exceeding $10 billion, the president extracted a fraction of what he should have from BP. If there was a shakedown it was BP and not the administration doing the shaking. (remember the banksters and how they were treated)

    This is a must watch report from CNN (Weds Jn 16) just after the White House meeting that has received little attention. Watch the first two or three minutes and you will see what I mean. Reminds me of how a couple of sales people would react to a very successful deal that they just negotiated. For $5 billion per year BP bought themselves cover. Their position coming out of the White House meeting was much stronger then when they went in.

    CNN (Weds June 16 10 pm et)

    Moreover towards the end of the congressional hearing (on Thurs Jn 17) one congressperson tried to pin down Hayward on health care costs, his response; “that’s why we’ve appointed an independent adjudicator” who will be managing the distribution of the $20 billion.

    clip here

    [Jun 18, 2010]   Uncertainty and Schizophrenia

    Yahoo! Finance

    Mr. Market's Schizophrenia

    Legendary value investor Benjamin Graham describes in his classic book "The Intelligent Investor" a character called Mr. Market who is willing to buy or sell stocks at different prices each day depending on his whim. The online-user-defined encyclopedia Wikipedia states schizophrenia is a mental disorder characterized by abnormalities in the perception or expression of reality. Graham never formally diagnosed Mr. Market with schizophrenia, but I think he would agree that there is no better description of the flaws in Mr. Market's processing of information than the definition of schizophrenia.

    Mr. Market typically, but not always, reacts to changes in the sources of uncertainty that are reasonably relevant to most of the companies in the market, and Mr. Market is usually directionally correct about how changing expectations for the sources of uncertainty should affect the value of the market. But Mr. Market is most schizophrenic about the magnitude of the impact of the changing expectations, or the value of the changes in uncertainty as reflected in the changes in the implied volatility of index options. There are also a near infinite number of sources of uncertainty that can have a material impact on the market as a whole. Because Mr. Market has limited ability to process information, sources of uncertainty tend to fall on the radar screen, and the magnitude of its reaction to those factors tends to vary widely.

    The sources of uncertainty that drive the market are usually conceptual measures that are evaluated using a number of different data points. The concepts that were on the radar this week are "health of the consumer," "European debt contagion," and health of the global economy. Recent sources of uncertainty that have slipped off the radar for the moment are "health of the financial system" as measured by every legal hiccup at Goldman Sachs (NYSE:GS - News). Let's walk through the details of this week's sources of uncertainty.

    The Numbers
    The VIX index of S&P implied volatility opened the week flat with the previous week's close of 28.77 after strong European industrial data reports and slid before a Moody's Investors Service downgrade of the credit rating of Greece to junk status, which brought the European debt contagion source of uncertainty into focus, driving the VIX up to the close.

    Markets rose Tuesday, and the VIX eased as a rising financial sector was attributed to a strong IPO performance by futures and options exchange CBOE Holdings, while the expiration of a first-time home-buyer tax credit allowed Mr. Market to ignore a decline in the National Association of Home Builders residential builder's sentiment index from 22 to 17. A decline in consumer defaults in May, also reduced uncertainty about both the health of the consumer and the health of the financial system. The perceived health of the consumer was further boosted after two large semiconductor producers pointed to growing global demand.

    The VIX remained flat Wednesday and Thursday as a decline in housing starts and an increase in jobless claims failed to raise broad market concerns, but concern over the health of the consumer did increase as a the jobless claims caused a decline in retail stocks. The Federal Reserve Bank of Philadelphia said on Thursday that manufacturing activity in June increased at a much slower pace than May, which also failed to raise concerns.

    On Friday, former Federal Reserve chairman Alan Greenspan said the U.S. may soon face higher borrowing costs as the level of the deficit may raise concerns regarding the riskiness of U.S. debt, but the S&P 500 remained flat for the day, and the VIX declined, closing at 23.91.

    Small-Stock Uncertainty

    The spread between implied volatility on the Russell 2000 Index of small stocks (RVX) and the VIX index of implied volatility on the large-cap S&P 500 closed the week up slightly at an elevated 8.4 percentage points, confirming that investors remain increasingly concerned that the macroeconomic issues facing the market are a greater sources of uncertainty for small-cap stocks than for large-cap stocks.

    Uncertainty About Next Quarter vs. This Quarter

    The spread between the implied volatility of the three-month options on the S&P 500 Index (VXV) relative to the implied volatility of the one-month options represented by the VIX continued its rise by another 1.8 percentage points following a 3 percentage point increase a week earlier. The spread between the VXV and the VIX is now a positive 4 percentage points, indicating that S&P large-cap investors are becoming more conscious of the uncertainty surrounding earnings in the upcoming announcement season than present macroeconomic uncertainties.

    Expected Correlation

    The S&P 500 implied correlation index (JCJ) measures the expected correlation between the stocks in the S&P 500 until January 2011. Implied correlations edged down 2.5 percentage points, further down from elevated levels to end the week at 68.2%. The failure of the correlation index to fall significantly, taken in conjunction with the failure of the small-stock uncertainty spread to close, indicates that the market is focusing on macroeconomic sources of uncertainty over and above stock-specific concerns. Overall, the market is continuing to perceive an elevated level of uncertainty regarding the health of the consumer and the global economy.

    Philip Guziec is co-editor of the Morningstar OptionInvestor online newsletter and research service, and is co-author of the Morningstar Investor Training course on Option Investing. For more about Morningstar's fundamental approach to investing in options, please use the link below to download our free guide to option investing:

    Morningstar Premium Members get access to over 3,900 Stock and Fund Analyst Reports, Analyst Picks, and award-winning portfolio tools. Learn More.









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    [Jun 18, 2010] White House Opposing Key Measure in Shareholder v. Bank Executive Pay Reform Fight « naked capitalism

    Yves here. I suggest you read the entire piece. This conduct is a disgrace, and should settle any doubts as to whose interests Obama really serves. Hint: it isn’t yours and mine.

    Francois T:

    “This conduct is a disgrace, and should settle any doubts as to whose interests Obama really serves.”

    It should settle any doubts…in the mind of intelligent people. Apparently, it is in shorter supply than I thought possible.
    I posted at the HuffPo forums something very critical of this move; there were still a fair number of Obamabots who descended on me like I was Karl Rove or David Addington.

    It is obvious that too many people drink several cups of stupid every day.

    [Jun 18, 2010] Video Respect My Authoritah The Daily Show Comedy Central

    The Daily Show With Jon Stewart Mon - Thurs 11p / 10c
    Respect My Authoritah
    Daily Show Full Episodes Political Humor Tea Party

    [Jun 18, 2010] Rosenberg On Reality Vs Propaganda, A Realistic Outlook, And Capital Allocation

    The real question is what the current level of risk. Rosenberg outlook can materialise in 6 months, 12 months, 24 months 48 months and so on.
    zero hedge

    Some terrific insight from Rosie on the future:


    • Deflation: own income-generating securities, which include dividend yield and dividend growth.
    • Corporate balance sheet strength and liquidity: own corporate bonds with liquidity, marginal refinancing needs and stable cash flows.
    • Intense volatility: invest in classic hedge funds — true long-short strategies that preserve capital and minimize fluctuations in the portfolio.
    • Ongoing sovereign credit concerns and recurring rounds of currency depreciation: ensure the portfolio has a core holding in precious metals (gold and silver). These are effective hedges against lingering concerns over the stability of the global monetary system.

    I realize that I am viewed as a perma-bear, but it’s my forecast that is bearish, not my personality. I’m bullish on my kids. I'm bullish on my friends — the few I have. I'm bullish on the New York Yankees — please don’t hold it against me. And I'm bullish on my firm. Look — if I really believed that cash was where investors should be, I’d be working at a bank, not a wealth management firm.

    ... On the present:

    Double-dip risks in the U.S. have risen substantially in the past two months. While the “back end” of the economy is still performing well, as we saw in the May industrial production report, this lags the cycle. The “front end” leads the cycle and by that we mean the key guts of final sales — the consumer and housing.

    [Jun 17, 2010]  Todd Harrison- "We Are in the Eye of the Storm"

    policymakers keep pushing "drugs that mask the symptoms
    Jun 17, 2010 | Tech Ticker, Yahoo! Finance

    "While the recent price action has been docile, I believe we're in the eye of the storm," Todd Harrison, CEO of wrote yesterday. Todd joined me this morning to discuss why he thinks the current environment will prove to be "a relative calm between the first phase of the financial crisis and the cumulative comeuppance that'll flush -- and perhaps reset -- the system."

    As with other pundits, most notably George Soros, Harrison says the subprime implosion of 2007-08 was merely "phase one" of the crisis. Since then, "historic efforts" by global policymakers temporarily revived the financial markets but didn't cure the underlying problems, he says.

    Rather than providing "medicine that cures the financial disease" - debt destruction or restructuring and asset deflation - policymakers keep pushing "drugs that mask the symptoms," Harrison warns.

    Citing the "cumulative imbalances" in the financial system (key word: "cumulative") and interconnectedness of the global economy, Harrison says the big question is: "How long can this continue before we're allowed to take free market medicine?"

    Given the "big picture concerns" cited above and detailed here, Harrison is still (still!) holding 100% cash in his long-term account, something he first discussed here two years ago.

    [Jun 17, 2010]  Funds prepare for double dip recession

    "...conditions would lead to increased volatility and uncertainty on financial markets."

    Some of the world's leading hedge fund managers are positioning their funds for a double dip recession, saying there has been a dramatic shift in the macro-economic environment over the last month.

    Many funds have already begun to dramatically derisk their portfolios or reposition themselves more cautiously after a particularly volatile May , that saw the average hedge fund lose 2.26 per cent, according to Chicago-based hedge fund research.

    At the GAIM conference in Monaco - one of the biggest annual gatherings for the industry - hedge fund managers yesterday issued gloomy forecasts for the global economy, saying conditions would lead to increased volatility and uncertainty on financial markets.

    Steve Friedman, the managing partner of the $2.4bn EOS Partners, forecast fiscal tightening by European governments would worsen the global economic situation.

    "Growth will be less than people expect," said Mr Friedman. "The European austerity programme right now will likely lead to a double dip recession."

    Peter Clarke, chief executive of the FTSE-listed Man Group, told industry peers that his group's funds - including its $21bn flagship quantitative trading giant AHL - had been recalibrated to be less correlated to wider markets.

    The funds now had "lots of volatility and downside protection" in a sign that lessons had been learned from the gobal financial crisis in 2008.

    [Jun 16, 2010] An initial double-dip indicator

    Stagnation: "Even if we don’t get a double-dip recession (I was the only one at the weekend retreat to see the odds as being more than remote) economic growth will probably be insufficient to absorb the still-large amount of excess capacity in the system."
    FT Alphaville

    Gluskin Sheff man and über-bear David Rosenberg, for instance, outlined his concerns about unemployment and the prospects of a double-dip recession in a Tuesday note. He’s been at a weekend retreat with Nouriel Roubini and Marc Faber — which means he’s more bearish than ever:

    The answer is that the U.S. economy is susceptible to a growth relapse, with all deference to the various purchasing managers’ reports, which for portfolio managers, should be treated as coincident indicators (equities historically have done far better the year after ISM comes off the 30 level than the years after the 60 milestone is reached, just as an example). A variety of recent consumer-related reports, including the May employment and retail sales releases, have been sub-par and are posing appropriate questions as to whether the recovery will be V-shaped. That mortgage applications for new home purchases have plunged 40% in the past five weeks to a 13-year low despite a 25bps decline in mortgage rates is, to be polite, disconcerting . . . Even if we don’t get a double-dip recession (I was the only one at the weekend retreat to see the odds as being more than remote) economic growth will probably be insufficient to absorb the still-large amount of excess capacity in the system. In turn, what that means is that the U.S. unemployment rate will stay near double-digit terrain for an extended period of time. It also means that inflation and interest rates will remain low for a sustained period of time. And, it means that a stock market priced for peak earnings in 2011 could be in for some disappointment.

    [Jun 15, 2010] The second Bernanke crash by Martin Hutchinson

    "The result of the second Bernanke crash, particularly if it is indeed centered on the Treasury bond market, must therefore be high inflation. I can't see how it can be avoided. Only by robbing the nation's savers of a large portion of their remaining savings through rampant inflation will the government be able to achieve its twin aims, of reducing the value of government's outstanding obligations and reducing the living standards of Americans to a level at which they are once more competitive, given the country's diminished capital base. "
    May 26, 2010 | Asia Times

    An additional hidden but connected problem is the further intensification of Wall Street's trading culture, exemplified by the explosion in "fast trading" volume, now three quarters of the trading volume on the New York Stock Exchange. This trading simply exploits the benefits of insider knowledge of money flows; in aggregate it subtracts value from the economy. Its participation in the recent "flash crash" in which over US$1 trillion was wiped off the value of US equities in 15 minutes is symptomatic of the problem - with "fast trading" computers in control, doing thousands of trades a minute there seems no reason why that loss should not have been $10 trillion or even more.

    Maybe the theory that advanced galactic civilizations don't exist because they wiped themselves out with super-atomic weapons before developing interstellar travel is wrong. Maybe they simply invented computerized fast trading and reduced their civilizations to impoverished rubble that way.

    With excessive leverage and inadequate saving, the US capital base is not being renewed as it would normally be after a speculative blowout. In the financial sector, this brings additional risk of a meltdown such as occurred in 2008. In the rest of the economy, it means in the long run that the US will no longer have sufficient capital supporting the skills of its workforce. If the US comes to have capital per head equivalent to that of China, and its education system is no better, why should it enjoy higher living standards?

    Only those of us in the media, who live on reporting and analyzing excitement and chaos, can rejoice that the monetary policies of Federal Reserve chairman Ben Bernanke are unlikely to produce gradual, civilized decline to the living standards of China. Instead, because of the leverage and speculation they generate, they are much more likely to produce a gigantic bursting bubble, with major financial institution bankruptcies. The destruction of wealth will be greater than that of a slow decline, but the impoverished masses will be able to blame the evil private sector bankers instead of the public sector follies of the Fed.

    It seems increasingly likely that the generator of the second Bernanke crash will lie in the global public sector. Budget deficits of 10% of gross domestic product (GDP) are not a normal response to economic downturns, and so we have very little idea what pathological market behavior they will produce. Currently, long-term US dollar interest rates are falling rather than rising, as crazed investors "fly to safety" into the bonds of a polity whose current fiscal policies are unsustainable and which under the current administration is showing no significant sign of reforming them. That seems very unlikely to last for long.

    Should investor enthusiasm for US Treasuries disappear quickly, as it did for Greek government bonds, the crash in the Treasury market will doubtless be dismissed by Wall Street's risk managers as another "25-standard-deviation event" - or even, this time, a 50-standard-deviation event if the bang is big enough.

    The justification for bailout at taxpayer expense will again be trotted out that the crash should not have happened in the lifetime of a billion universes, according to Wall Street's best risk models. The government will look for excuses to get round the new banking legislation and institute those bailouts. However, the one disadvantage for Wall Street of a financial calamity caused by a crash in the Treasury bond market is that taxpayers will not be available to fund bailouts through additional state borrowing. Thus bailouts will have to be funded by direct Fed money printing, making the experience more unpleasant for Wall Street and a lot more unpleasant for the rest of us.

    The result of the second Bernanke crash, particularly if it is indeed centered on the Treasury bond market, must therefore be high inflation. I can't see how it can be avoided. Only by robbing the nation's savers of a large portion of their remaining savings through rampant inflation will the government be able to achieve its twin aims, of reducing the value of government's outstanding obligations and reducing the living standards of Americans to a level at which they are once more competitive, given the country's diminished capital base.

    For investors, the only safe haven is of course gold. I have written elsewhere how I expect the gold price at some point to enter a "spike" like that of 1978-80 in which it soars to $5,000 - given the monetary expansion since 1980 that price, not the mere $2,400 given by an inflation calculation, is the equivalent of 1980's peak of $875.

    Before gold bugs go into their victory dance, however, I would point out that when gold gets to that level, $5,000 may not buy very much.

    Martin Hutchinson is the author of Great Conservatives (Academica Press, 2005) - details can be found at

    [Jun 15, 2010]   Calling a Bear a Bear - Up and Down Wall Street Daily - R. Forsyth -

    THE SORT OF MARKET that dare not speak its name -- bear -- is being mentioned increasingly in polite company.

    It's been a few weeks since this column asserted the trend had turned lower ("A Bear Market by Any Other Name," May 21.) If anything, the tide still is moving in that direction even more strongly.

    While the major stock averages aren't down the requisite 20% that conventionally defines a bear market, the odds of the current decline stopping short of that mark aren't great.

    According to Bespoke Investment Group, there have been 58 "corrections" of 10% or more in the Standard & Poor's 500 since 1927. In 33 cases, the corrections stopped short of the 20% bear market threshold and the market went on to higher highs, while 25 times they grew into a full-grown grizzly.

    But in the 32 instances when the market has dropped as much as this one has -- 14.4% from the April 23 peak through Monday -- the outcome has been heavily weighted to the losing side. Only seven times drops of that size stopped short of the 20% bear mark. In the 25 other times the decline extended to 20%, the average bear market decline was 35.5%.

    As pointed out in that aforementioned column from last month, Dow Theory Letters' Richard Russell was unequivocal in urging his subscribers to get out of stocks. And in his latest Remarks, the dean of market technicians is even more adamant. After listing a litany of bearish technical indicators, he concludes;

    "So all in all, I'm convinced through many of my studies that the top has been put in and the primary bear trend is again in force. Remember, the 14-month counter-trend advance served to hold back the bear forces, even though the bear pressure had been building up. For this reason, I'm afraid of what might occur in the weeks and months ahead. This, even though I believe a tame period is overdue."

    On the latter score, Market Semiotics' Woody Dorsey proprietary sentiment readings point to some "upside tries" ahead. His Semiotics Sentiment hit an absolute 100% at the peak in late April, but has tumbled all the way to 1% in the latest reading. That could point to a bounce into June 18-23 before giving way to the Summer Bummer he's been predicting for months. For the longer term, Dorsey remains steadfastly bearish, calling from the next buying opportunity in 2012 and an ultimate "secular buy" in 2015-16.

    For now, Mark Steele, BMO Capital Markets' head of quantitative and technical research, offers this unequivocal recommendation in the title of his report: "Go to Cash -- In Plain English." In a version prepared for non-technical readers, he offers this cogent summary:

    "We advocate switching out of equity positions and going to cash. The European sovereign debt crisis appears to be nowhere near over. The global credit environment is worsening. Cost of capital is going up and availability is going down. There are large gaps between where the credit market prices risks and where the equity market is priced. Equity is lagging the deterioration in credit conditions. Moves in currency, equity and commodity markets are mirroring the moves in the credit market. Global growth, in a credit-constrained environment, will slow. Profits will be squeezed by the higher cost of capital."

    Cyclical indicators have Albert Edwards, head of the global strategy team at Societe Generale, calling for the resumption of the structural bear market in stocks. Specifically, he points to the Economic Cycle Research Institute weekly leading indicator, which has slid sharply in recent weeks. The ECRI index, it should be noted, also caught the beginning of the 2009 recovery.

    Edwards's hypothesis is that in structural bear markets, cyclical counter-trend bull markets would become more synchronized with swings in the real economy. Thus, the ECRI leading indicator has been a useful timing tool, signaling when to get into the market. Now it's doing the opposite.

    "It is worth noting that despite all the anxiety this year about Greece/Chinese liquidity et al, it took a non-farm payroll disappointment to produce the second-biggest one-day decline in the Dow this year last Friday. The cycle is the key, and the leading indicators tell there is a big slowdown on the way."

    Similarly, he cites Soc Gen colleague Andrew Lapthorne's work that shows equity analysts' optimism (defined as the percentage of their earnings estimates that are increased) leads the conventional leading economic indicators. Lapthorne sees a "savage slide" in optimism globally in recent weeks, including declining earnings in the Asia ex-Japan region, Edwards relates. "This rapid rate of erosion is something investors ignore at their peril," he concludes.

    Finally, as this column has been pointing out ad nauseum since the beginning of the year, U.S. broad money-supply (M3) growth has turned negative, portending a renewed downturn ("Follow the Money -- Into a Double-Dip," Jan. 6.) John Williams's Shadow Government Statistics, which pieces together the M3 numbers since the Federal Reserve stopped reporting them publicly several years, finds the current 5.9% annual rate of decline to be the most precipitous since the 1930s, signaling an "intensifying business contraction."

    All these relatively esoteric indicators mainly serve to confirm the message of the markets: the sharp drop in copper and other commodity prices along with the slide in Treasury yields point to a renewed economic slowdown and deflationary pressures. Stocks are catching up with that clear signal.

    [Jun 15, 2010]   Odds of a Double-Dip Recession The Big Picture#comments#comments

    June 14, 2010

    Detroit Dan:


    I’m glad I wasn’t relying on this chart in 2007. As I noted, it showed the probability of a recession in the next year plummeting just 6 months before the recession started.

    I have nothing against models, but you have to do a sanity check, and this one doesn’t pass the smell test for reasons noted above.

    Here’s more from Rosenberg today:

    Not only are the economists calling for 3% real growth, which would imply something close to 4-5% nominal GDP growth, but the consensus among equity analysts is that we will end up seeing over 30% operating EPS growth to a new high of $95.59 for 2011. But there are a couple of points worth making here. The bottom-up crowd is never that good at predicting where profits are going to be heading at the best of times, but at turning points in the economy it is awful — overestimating earnings by an average of nearly 20%. So we could easily be closer to $75 for next year’s EPS than $95. And, even $75 may be a stretch when you consider that there is not a snowball’s chance in hell that we are going to see earnings outstrip nominal GDP by a factor of six in the coming year. This type of earnings is always possible at the trough in profit margins, but we are coming off the third highest level on record — coming off the trough, historically, corporate earnings jump 17% the next year. At the peak, profits actually tend to decline 6% in the ensuing 12 months — imagine what that number becomes when you come off peak margins and head into a recession at the same time. It’s not a pretty picture.


    Hussman’s weekly market comment yesterday is about the probability of such a recession as well. His conclusion is a little bit different. Two of four criteria, which being in place signal a recession (“There have been no false signals”), are currently fulfilled. The other two are not so far from being present: 

    And then there is also my new favorite leasing indicator:


    Don’t think anybody posted this yet….The Pragmatic Capitalist posted a piece by Bondsquawk today regarding the ECRI index and other items. Some excerpts:

    “The Index has declined 6.21 percent in the past 12 weeks, which is the largest decline in the weeks prior to all of the episodes of negative growth rates, head-fake or not. Comparatively, the average decline for the ECRI Index stands at 1.59 percent for episodes that led to a recession (excluding the 1981-82 recession where the ECRI Growth Rate failed to predict a recession). The average drop for head-fake episodes is at 1.04 percent.”

    “It remains to be seen if negative growth rates will persist long enough, which could signal another recession.”

    “However, in the event that today’s readings persist in negative territory, the U.S. economy may not be able to avert a recession in the same manner of the four previously mentioned head-fakes. A response in Monetary Policy may be limited today given that the Fed Funds Rate cannot go below zero. While the U.S. government has other tools to stimulate the economy, we may not have the political will to enact them as well as perform them in a timely manner. Given these restrictions coupled with the significant decline in the ECRI Index, the risks of an economic slowdown followed by double dip are certainly present. ”

    Ed Harrison:

    If the data are so good, why is everyone screaming double-dip-

    I think the last week’s data were pretty good. I know I’m putting a bullish gloss on things here but the jobs number was up at the end of the previous week, jobless claims were better, consumer confidence is up, freight and truck traffic is up, and we saw some modest consumer deleveraging. Moreover, despite the shockingly weak retail number, if you strip out the non-core measures, the number wasn’t terrible (it wasn’t good either). So, on the whole, the data were ok. Moreover, the market seemed to like the data as shares rallied from an oversold position last week.

    The problem comes when you dig beneath the surface to more forward-looking data.

    ECRI data. The ECRI numbers have been misinterpreted by analysts. There is nothing in the numbers which indicates imminent double-dip recession. They are not that dire. ECRI Leading Indicators levels are now flashing red because this tool suggests slowing growth. That’s all. I have said I expect 1-2% in the 2nd half of the year. And the ECRI numbers are in line with that. Let me explain where the slowing growth is likely to come from and what that could lead to.


    [Jun 15, 2010]   Breakfast_with_Dave_061410


    The smoothed ECRI leading economic index fell in the opening week in June for the fifth week in a row and now down in nine of the past ten. The index, went from +0.3% to -3.5%, the weakest it has been in a year. After predicting the V-shaped recovery we got briefly in the inventory-led GDP data when the index soared off the bottom in late 2008, at -3.5%, we can safely say that this barometer is now signalling an 80% chance of a double-dip recession. It is one thing to slip to or fractionally below the zero line, but a -3.5% reading has only sent off two head-fakes in the past, while accurately foreshadowing seven recessions — with a three month lag. Keep your eye on the -10 threshold, for at that level, the economy has gone into recession … only 100% of the time (42 years of data).

    Suffice it to say, when the ECRI was drifting lower in 2007, it got to -3.5%, where are we are now, in November and unbeknownst to the consensus at the time that a recession was only one month away. Remember that the economics community did not call for recession until after Lehman collapsed — nine months after it started; and go back to 2001, and the consensus did not call for recession until after 9/11 and again the economy had been in recession for a good six months). We should probably point out here that real M3 has contracted at the fastest rate since the early 1930s, as John Williams has published, and declines in the broad money measured has foreshadowed every recession in the past seven decades.

    To be sure, the Fed has not raised rates and the yield curve is steep but there has been a visible tightening in financial market conditions that poses a significant risk for what has been a very fragile recovery in dire need of recurring rounds of policy stimulus. The widening in credit spreads and decline in the stock market represent a sizeable increase in the debt and equity cost of capital. The Fed has stopped expanding its balance sheet (and now we have Fed presidents Hoenig clamoring for rate hikes and Plosser for reducing the size of the Fed’s balance sheet) and end of the housing tax credits implies a major withdrawal of federal government support at a time when restraint is accelerating at the State and local levels (the States have a $127.4 billion aggregate deficit to close for the fiscal year beginning July 1st so right there we have a one-percentage point drag on baseline GDP growth).

    The data suggest that we are now seeing the consumer sputter with what looks like a very weak handoff into the third quarter. The housing sector is collapsing again. The export-import data are pointing to a sudden deceleration in two-way trade flows. Commercial real estate is dead in the water. Bank credit is in freefall right now (down 0.3% or $32 billion in the first week of June — the third decline in a row and has now contracted in six of the past seven weeks and at an 11% annual rate. In the last three weeks, bank credit has contracted a total of $119bln, which is the steepest decline since the week of November 19, 2008 when the economy was deep in recession.


    Double-dip watch: The ECRI weekly leading index has now swung from +0.3% to -3.5% for the week ending June 11



    [Jun 14, 2010]   Small businesses "collapse" around the Gulf

    "Futures are positive on the news. "

    6/13/2010 | CalculatedRisk

    Here is the Weekly Summary and a Look Ahead

    From Kim Murphy at the LA Times: As businesses collapse, claimants still waiting for checks from BP

    Across the gulf, residents already shellshocked by the tar balls, oil soup and dead sea life washing up on their beaches are now getting hit with a second wave: the sudden collapse of their livelihoods, and the equally intimidating challenge of getting BP to pay for it.
    Hotels, restaurants, machine shops, bars, tour companies all became collateral damage when the Gulf of Mexico ... became an industrial cleanup site.
    One real estate agent said his "phone quit ringing a month ago", but is that because of the oil gusher or other factors? This will takes years to sort out ...

    [Jun 13, 2010]   Douglas Rushkoff » Too Big to Fail The BP Bailout as Corporatism

    From comments: "It reminded me of Thomas Geoghegan’s essay from a few years ago. He said that the US is now like the old Soviet Union in that no matter how hard you work you’ll never get ahead of those who don’t work at all…."

    Nowhere have I seen a clearer example of the perils of corporatism playing out than in the current handling of the BP oil spill. If only Obama understood the context of the decisions he’s about to make, he might be able to use this as an opportunity to turn all this around, and put people and the planet before profits. (Will someone please tell him to read my book Life Inc?)

    Like so many presidents before him, Obama is being given an opportunity to choose between corporatism and commerce, between banking and the environment, between investment capital and small business, between passive extraction of value and active creation of value. And, like almost all of them, he’s going the wrong way.

    Today, Obama will be discussing the leak – already the greatest environmental disaster in US history even if it were patched right now – with his counterpart in Great Britain, newly elected Prime Minister David Cameron. Why are the two talking? Because if the US actually were to force UK-based BP to pay for damage it’s causing, the company would lose a lot of money – and so would its shareholders.

    In the latest round of empty fist waving by Obama and apologetic posturing by BP, the President raised the issue that while BP has spent a few tens of millions on the cleanup effort and damages so far, the company’s annual dividend to shareholders is about $10.5 billion. The company is acting as if all its resources are being diverted to address this spill, when – financially anyway – this is clearly not the case. So as a way of changing the widespread perception that it is underspending on the crisis, BP suggested it might “suspend” – meaning pay later, not never – its quarterly dividend. A gesture of goodwill.

    What a brilliant move. By suggesting they might suspend their dividend, BP initiated widespread panic about what would happen if that dividend were compromised in any real way. All of a sudden, business newspapers and cable channels begin calculating just what this means for shareholders – those people and institutions who park their money in an oil company and expect returns. How many pension funds have invested in BP? And how many retirees in England have made the oil a company a central part of their retirement portfolios, and are depending on these dividends to maintain their quality of life?

    So now, instead of an transnational oil company against the American gulf fishermen, beach workers, and ocean itself, it’s the interests of presumably innocent British pensioners against American workers. We’re supposed to limit BP’s liability for wrecking our lives and our planet, because of the impact that appropriate penalties will have on those collecting dividends off the oil company’s crimes against us. This means bailing out the company by using government funds to pay for its spill.

    Sorry, but the too-big-to-fail argument just doesn’t play. Investors: This is what you get when you decide to bet your retirement on an oil company in the 21st century. Why did you think the dividend was ten times what you’d get from a government bond? Because of the risk. This is the post-Valdez universe, after all. While many of the readers of this blog might be too young to remember that oil disaster, septuagenarian pensioners should be able to remember.

    The pity-the-pensioners argument is really just another way of valuing passive extraction of wealth by those with capital over the active creation of wealth by those who work. There are plenty of old people in the gulf who, instead of depending on shares of stock are still working on boats or supporting their kids who are. But under a corporatist scheme, the people who actually create value are much less valued than those who passively extract it from them.

    In a healthier, more justly designed economy, pensioners would be investing the excess wealth of their working years into local businesses, their kids’ businesses, or other productive assets instead of the retail stock of long-distance, environmentally irresponsible multinationals. The fact that the latter strategy is failing one is no justification for working people to bail out the investment capital community time and time again.

    Then, of course, there’s all those union workers at BP – supposedly in danger of losing employment if we were actually to allow the company to falter. But by favoring the interests of a company operating on the scale of BP over the interests of small businesspeople trying to fish, beach, cook, or even make energy, we simply increase our dependence on corporations for employment. And continuing to favor the corporate scale over the human one just makes it that much harder to choose appropriately the next time. Bailing out Goldman Sachs makes it harder not to bail out BP, and so on.

    Don’t get me wrong: this is not a right-left problem. The Left’s commitment to unions is just as debilitating as our Right’s commitment to corporate welfare. For while unions are great for workers already mired in the corporatist scheme, they work against the interests of those attempting to work independently of that system. Union workers need the corporations they work for to succeed, so they end up in a death grip with management – everyone simply fighting over the ill-gotten spoils. Union workers work hard and deserve compensation – but in the big picture, they are more like the crew on a pirate ship fighting for their share of the raping and pillaging.

    It’s possible Obama just doesn’t get this (which is why I want him to read my book – or at least have one of his people write a summary for him). He may have benefited so much from the system as it exists that he truly believes that the marriage of government and corporate interests is the best way to work society. He may have seen the short-term successes of corporate welfare, and believe that the maintenance of these outsized institutions really is the only way to provide individuals with the jobs and income they need to survive.

    But it’s a losing game and an economic system that is at once bad for people, bad for the planet, and bad for business. BP, and corporations of their ilk, are not truly profitable – not without government intervention, and not without excluding the human and planetary costs of their activities. If BP were actually to pay back the cost of repairing the damage to the environmental and business infrastructure of the Gulf Coast, they would cease to exist.

    And if Obama has read a bit of history and economics and does get this? What does that mean? It means that his policy of defending other oil companies and oil-producing nations in our prolonged war in Afghanistan have cost him the political capital he needs to fight on our behalf against BP. England is our only vocal partner left in what has become America’s longest war, ever. We can’t afford to lose them as our friend and ally.

    Of course, England isn’t really fighting in Afghanistan because they want to support their great friend, America. They’ve got the very same oil interests that we do. They’ve also the same obedience to the corporations putting politicians in office, giving union workers their jobs, and paying pensioners their dividends.

    The BP crisis recapitulates the entirety of corporatism in real time, transparently enough for anyone to see. It should be evidence enough for us to break from business as usual, right now. This is not just a disaster, but a golden opportunity as big as 9-11 to leverage new public awareness towards a positive, groundbreaking shift away from corporatism and back toward the creation of real value – away from corporations, and toward people.

    This is Obama’s chance to promote change we can believe in, the change we have been waiting for. If he doesn’t, then we really ought to turn our backs on hope.

    Don Blohowiak (12.06.10 at 09:31 )

    The “free market” has taken a most bizarre twist. Large corporations want to operate RISK-free in addition to operating unfettered with freedom from regulatory constraints.

    The only risk that seems to be assumed in the free market is by two relatively powerless constituencies:

    1. Small business owners who may well lose their homes, personal wealth, and perhaps even their well-being if their businesses fail; and

    2. Employees of virtually all corporations, large and small, who work under the illusion of “job security” until they have no job, no income, no benefits whatsoever — often with little to no advanced notice. “Such is the free market,” goes the dismissive explanatory note from the corporate bosses with the no-lose Golden Parachutes.

    The risk equation has been turned upside down. Stockholders protected, everyone else assuming risks they did not willingly take on.

    See a related insightful commentary from the late Sumantra Ghoshal of the London Business School, at

    [Jun 14, 2010]   Gold Daily Chart and a Look at Silver.

    Jun 10, 2010 | Jesse's Café Américain

    There are a number of IPO's coming out next week, including one for the CBOE. Goldman Sachs is an underwriter on most of them.

    So we might expect some shenanigans on the equity front, as they will try and support the markets while they get the IPO's priced and out the door. The primary downside risk there is 'headline risk' as volumes remain light. Few actually believe that there is an economic recovery.

    [Jun 14, 2010]   TAC TV » The Biggest Earmark Is Empire

    In the upcoming runoff for South Carolina’s 1st Congressional District, the losing Tea Party-anointed candidate in that race, attorney Larry Kobrovsky, has said that both primary winners—Charleston County Councilman Tim Scott and fellow Councilman Paul Thurmond—are too “establishment” to deserve an endorsement from grassroots conservatives. This is true, but there’s also another reason to be reluctant to endorse such Republicans: Because neither one of these men is really as conservative as he claims to be—and not just in the obvious ways establishment-weary Tea Partiers might think.

    In his recent column “A Tea Party to Nowhere” former CIA counter-terrorism specialist Philip Giraldi writes “Most Tea Partiers claim to want smaller and cheaper government, less interference from Washington in their daily lives… (but) Most also want a strong, assertive national defense and are supporters of an aggressive foreign and security policy.” Giraldi notes the incoherence of conservatives holding both positions:

    “They fail to understand that it is precisely the interventionist defense and foreign policies that are driving the bad things they see in government… Ballooning defense and security spending… all accomplished without raising taxes, has been the engine of growth for a $13 trillion national debt, a total that increases by $4 billion every day. The United States now accounts for 45% of the entire world total for military spending, euphemistically referred to as ‘defense.’ The Pentagon budget has gone from $432 billion in 2001 to a projected $720 billion in 2011, not including the costs of the wars in Iraq and Afghanistan. The Federal Government is twice as big as it was in 2001… Tea Partiers have unfortunately been fed a line of hokum by politicians aided and abetted by the mainstream media.”

    The good news is conservative voters are not as emotionally wedded to the pro-war insanity that characterized the George W. Bush years as they once were. The bad news is most GOP politicians still are, and remain just as pro-war, any war as ever, while simultaneously pretending to be for smaller government and less spending. In SC, congressional candidates Scott and Thurmond are perfect examples of this, where both men claim to be more conservative than the other, yet are still enthusiastic about spending trillions of taxpayer dollars on the most expensive government program in this country’s history—American global empire. Liberal Congressman Barney Frank complained last year that if we hadn’t wasted so much money on the Iraq War we would have enough for national healthcare. The problem with “conservative” Republicans like Scott and Thurmond is that they essentially agree with Frank on the need for astronomical government spending—they just disagree on where to spend.

    It would be helpful if Tea Party folks reluctant to endorse men they perceive as establishment candidates, like Scott and Thurmond, would finally make the connection that the most crucial membership requirement for being part of the Republican establishment is a politician’s support for the foreign policy status quo. The reason so many GOP bigwigs went after Rand Paul in his bid for US Senate in Kentucky recently was not simply because Paul has an interest in smaller government, but because he is comprehensive enough in his conservatism to be willing to look at all of government spending—including the Pentagon. This is the same reason the GOP establishment does not attack Tea Party favorite Sarah Palin to the extent that they do Paul, as Palin’s foreign policy views differ little from Dick “deficits don’t matter” Cheney—who understandably, has admitted to being a Palin fan.

    True to form, the establishment always tries to frame any criticism of our national security status quo as unrealistic and coming from those who don’t believe in having any defense at all. This is preposterous. There’s a world of difference between actually defending the nation and trying to defend the entire world, our current policy and never-ending predicament. But it is true that we do have a disproportionate view of the actual terrorist threat versus what we sacrifice, or as Giraldi notes “The Tea Partiers should instead understand that terrorists will only tear down the United States if we Americans help them to do so. Irrational fear of a small group of men hiding in a cave in Asia is what drives larger government, the infringement of civil liberties, and more taxes and regulation.”

    Giraldi spells out what’s at stake: “So how can the Tea Party turn things around? It can only do so by realizing that the first thing that must be done to fix the government in Washington is for the United States to end its wars overseas and dramatically scale back on its international commitments. There is no good reason for Washington to serve as the world’s policeman and many good reasons why it should cease and desist from doing so.”

    For all their conservative rhetoric, today’s establishment Republicans are no more willing to question the efficiency and cost of our national security state than liberals are to question the social welfare state. And arguments about spending and “earmarks” are pointless distractions until conservatives first get serious about addressing America’s two biggest economic drains—unsustainable entitlements and an equally unsustainable American empire.

    [Jun 14, 2010] Robert Reich (Why the Main Street Economy Isn't Getting Any Better)

    The common wisdom is that excessive debt-financed spending was one of the causes of the recent recession, so the news that household debt is dropping is being celebrated by business cheerleaders as reason to believe we’re on the mend.

    Baloney. The reason so many Americans went into such deep debt was because their wages didn’t keep up. The median wage (adjusted for inflation) dropped between 2001 and 2007, the last so-called economic expansion. So the only way typical Americans could keep spending at the rate necessary to keep themselves — and the economy — going was to borrow, especially against the value of their homes. But that borrowing ended when the housing bubble burst.

    So now Americans have no choice but to pare back their debt. That’s bad news because consumer spending is 70 percent of the economy. It helps explain why we so few jobs are being created, and why we can’t escape the gravitational pull of the Great Recession without far more government spending.

    It’s also a bad omen for the future. The cheerleaders are saying that for too long American consumers lived beyond their means, so the retrenchment in consumer spending is good for the long-term health of the economy. Wrong again. The problem wasn’t that consumers lived beyond their means. It was that their means didn’t keep up with what the growing economy was capable of producing at or near full-employment. A larger and larger share of total income went to people at the top.

    So in the longer term, it’s hard to see where the buying power will come from unless America’s vast middle class has more take-home pay. Yet the economy is moving in exactly the opposite direction: Businesses continue to slash payrolls. And the hourly wage of the typical American with a job continues to drop, adjusted for inflation.

    Here’s more news: A Federal Reserve report Thursday showed the net worth of Americans rose a fourth straight quarter in January-March. Don’t be fooled by this one either. That increase was almost entirely based on the stock market’s rise in the first quarter. But the market has since fallen back to where it was at the start of the year. More to the point, most Americans don’t have many assets in the stock market. To the extent they have any net worth, it’s in their homes. And home prices continue to languish.

    Don’t be fooled by the cheerleaders. The economic news continues to be dismal.

    [Jun 13, 2010] Press Release Distribution - PR Agency

    Potentially, I think that this disaster could shut down the whole coastal tourism-based economy. Oil spill is going to impact them whether it lands on the beach or not. The tourism brings $65 billion a year to Florida and all that depends on pristine beaches.

    ( - Updated oil spill pictures slamming the coast of the Florida shores might cut thousands of jobs and drum up losses in the billions for tourism related businesses just before the busiest time of the year.  Tarballs and oil slicks heading towards the Florida panhandle may deter visitors.

    News from the area indicates many businesses are reporting hotel cancellations as pictures show tarballs of oil washing up on the western coast of the Florida panhandle strangling the local economy.  If the oil travels farther to the east and surrounds the entire panhandle, the economy in Florida could suffer massive losses into the billions from the spill.

    There are twenty three counties that border the western coast of the Gulf of Mexico and a direct hit of oil washing ashore could cost almost 200,000 jobs which deal with tourism in the area.  Reports indicate that 25% of Florida's state tax income is directly related to the tourists who visit the Sunshine state.

    [Jun 13, 2010] 'It Makes Sense to Be Gloomy'

    June 10, 2010 | Financial Armageddon

    In a presentation to the National Association of Real Estate Editors in Austin, Texas, last week, Stan Humphries,'s chief economist, pointed to four myths he said consumers are latching on to as they try to make sense of recent housing statistics.

    The four myths:

    1. The housing recession is over. It's not, Humphries said. He estimates the bottom in home prices won't come until the third quarter, at least from a national perspective. Doug Duncan, chief economist at Fannie Mae and also a speaker at the conference, agreed with that estimation.

    2. After markets hit bottom, prices will rebound to boom levels. Not going to happen, at least for a while, Humphries said. "Once we hit bottom, the bottom is going to be a long and flat affair across the markets," he said. "What we're going to see once we hit bottom is the second phase of the housing recession... that second phase is one of being flat."

    3. The worst of the foreclosure mess is behind us. More wishful thinking, according to Humphries. He estimates foreclosures will peak later this year, then remain elevated for a while. Rick Sharga, senior vice president of RealtyTrac, an online marketplace for foreclosure properties, said he doesn't envision foreclosure activity stabilizing until late 2011.

    4. The tax credits saved the housing market. With or without a tax credit, those who bought would have done so anyway, Humphries said. "The biggest impact [in home sales] we believe were low prices... low interest rates and the unsung factor here is the ramped up lending by the Federal Housing Administration."

    Still, it's easy to understand why many homeowners want look on the bright side.

    "They went from what everyone thought was a lucrative asset to something worth a lot less than they owed on it," said Douglas Culkin, president of the National Apartment Association, in a phone interview. "We all want it to get better," he said.

    Some want to finally sell their homes and move on with their plans. And homeowners are tired of thinking their houses are bleeding equity, losing value like a new car driving off the dealership lot.

    Selected Comments


    flat housing huh?

    ya right, with about 9 friggin years of inventory and falling wages? I am not seeing it


    Why don't the economists begin to analyze what is going to be happening when the Gulf of Mexico gets shut down, including the mouth of the Mississippi River? I really do believe that scenario would make a cake walk out of unemployment, sales, corporate P&L, housing, and the other "markers" that are used to predict financial status. If one follows the possibilities, and the unknowns on the Gulf oil spill (fracture/leak), all the stock market, bull and bear stuff is useless.

    We are looking at the complete end game of the US economy if certain scientists are correct, or remotely close to correct.

    I say back-burner finance, North-South Korea wars, Israel boat boarding, Iran nukes, Afgan/Iraq stuff, and lets all begin to pray that the Gulf of Mexico is not history! Once that hole gets plugged (if that is at all possible) and the mega-disaster is over, then we can figure out wars and economics. Otherwise it is all moot.


    Invade a country that posed no threat, directly kill thousands of women and children, and unleash a total hell upon toppling the goverment. And people think they can continue to go around driving expensive cars, living in McMansions like business as usual?


    most americans seem to go about being unaffected by the depression. I still see the fake blonde wives acting snooty to the customer service reps (former execs now making minimum wage and who've lost their family, their retirement, their homes, their self worth). Worse are the young punky snotty nosed self righteous bmw brats who still mirror the old Gordon Gekko methodology and bravado. Until they are humbled, we'll just continue to muddle thru until the great masses have been reduced to poverty and the still monied 1% class get the revolution they deserve.

    Think 1917 St. Petersburg. I hope I'm alive to see it.


    There are 25 million nuclear families (mom, dad, kids) in the US. There are 75 million housing units with three or more bedrooms. How is that going to work out?


    "Think 1917 St. Petersburg. I hope I'm alive to see it."

    Luke, the result of that revolution was tens of millions dead in the gulag.

    smile and give it back

    Goldman: Give the Money Back

    The Young Turks protest Goldman Sachs taking 13 billion dollars in unnecessary bailout funds and ask Geithner at the Federal Reserve to get it back.



    the revolution was taken over by thugs. but the overthrow of the aristocracy was compelling.
    Unfortunately, the pendulum always swings too far


    Gloomy no. Realistic yes. The human race would not have survived this long without occasionally playing defense.

    [Jun 12, 2010] Talking Business - Waking Up From the American Dream -

    Obviously, the country is too psychologically invested in the idea of homeownership to ever abandon completely the homeownership ideal, or to put renting on a equal footing with owning. Which is why I found the most appealing idea to be Mr. Rivlin’s.

    Despite having spent the last two years of his life reporting on the destruction wrought, in part, by the government’s unthinking push for ever more homeownership, he still wasn’t willing to abandon it completely. Rather, he thought the big policy mistake we had made as a culture was in promoting policies that encourage all home purchases, under any circumstance. “Why should the government help me buy a second home?

    Why should it subsidize a refinancing?” he asked. (I was amazed to discover that, if you qualify, you can actually get an F.H.A. loan for a refinancing.) “We have missed the essential piece,” he added. “The social good is in helping qualified first-time buyers own a home. That should be our goal. After that, people should be on their own.”

    Right now, more than two years after the fall of Bear Stearns, which represented the beginning of the financial crisis, the federal government is more involved in the mortgage industry than it has ever been in its history. As wards of the state, Fannie and Freddie are insuring three out of every four mortgages. Most of the remaining 25 percent are being guaranteed by the F.H.A. As much as you might resent the fact that the taxpayers now have to pick up behind new Fannie and Freddie, the sad truth is that without them, no one in America would be able to buy a home.

    Surely, that’s the logical culmination of decades of government policy promoting homeownership. Eventually, of course, the private market will return to the mortgage business, though it is hard to know when. Fannie and Freddie will be reconfigured in some way. But unless we change the way we think as a society about the virtues of homeownership, the fundamental fact will remain: the government will always be the backstop for the mortgage business, with the taxpayers always liable for the losses.

    Is that really what we want?

    [Jun 12, 2010] Employment, Interest, and Money Second Dip by Andy Harless

    The Case for a Second Dip
    1. The Fed’s policy of quantitative easing, which was temporarily buttressing demand, is over, and its impact will likely decline over time, imparting a downward bias to growth in the coming quarters.


    2. This fiscal stimulus, which was temporarily buttressing demand, has been largely exhausted and has likely reached its point of peak impact (even if additional fiscal measures are taken), so that its impact will be declining in the coming quarters, imparting a downward bias to growth.


    3. Pent-up demand from consumers (many of whom were worried about the losing their jobs last year but no longer are) has been largely exhausted, and its impact will likely decline over time, imparting a downward bias to growth in the coming quarters.


    4. The process of inventory adjustment has run its course, and firms have been able to increase production again to maintain inventories at the new, lower level and to begin slightly increasing inventories in anticipation of a recovery. Significant increases in production are no longer necessary to maintain inventories, so that an upward bias that has been imparted to growth in recent quarters will no longer be present in future quarters.


    5. With the dollar relatively strong again and the pace of world recovery expected to slow, export growth, which had offered the possibility of a robust recovery, no longer seems to offer that possibility.


    6. Normally, the surge in productivity at the beginning of a recovery is followed by a surge in employment. They typical lag is about two quarters. Last year’s surge in productivity took place over the last three quarters of the year, which suggests that a surge in employment should have taken place beginning in the last quarter of last year and continuing through the current quarter. Aside from temporary census employment, the anticipated surge does not appear to be taking place. Meanwhile, productivity growth has settled back into the normal range, which dampens hope for a future surge in employment.


    7. The Bush tax cuts expire at the end of 2010, creating an incentive for high-income individuals (and their corporate agents) to shift income out of 2011 into 2010. To the extent that they are successful in doing so, and to the extent that the shifted income is associated with actual economic activity taking place during the period in which it is declared, we should expect a downward bias to growth between 2010 and 2011. (This point comes from a recent Wall Street Journal op-ed by Arthur Laffer, to which a colleague referred me. People who know my work well know that I have had my quarrels with Arthur Laffer in the past, but in this case, I don’t see any fundamental flaw in his argument.)


    8. Given all these negatives, there is no evidence of any positive stimulus to growth that would offset them. The financial panic of late 2008 subsided long ago, and the residual financial weakness is lifting very slowly, with no suggestion that the pace of improvement will accelerate, especially in the light of potential fallout from financial difficulties in Europe. With capital ratios still an issue, the current regulatory environment is not conducive to rapid increases in bank lending.

    It’s possible that the case for a second dip is basically right but that we still don’t technically get one. With normal productivity growth and population growth, we could have a severe slowdown, involving maybe one quarter of negative growth, or two quarters of very slightly negative growth, or three quarters of very slightly positive growth, and it might not qualify as a recession. Obviously, it would still suck.

    What worries me particularly is that, even if the case for a second dip is completely wrong, the employment picture going forward is still dismal, and there is still a case for deflation. Am I wrong in understanding that this is standard textbook macroeconomics? There is a non-accelerating inflation rate of unemployment (NAIRU). When the actual unemployment rate is above the NAIRU, the inflation rate declines. The further the unemployment rate is above the NAIRU, the more quickly the inflation rate declines. The unemployment rate is currently 9.7% and is not expected to fall rapidly, even under optimistic scenarios

    [Jun 12, 2010] The Oil Drum EIA From Forecast of Oil Supply Abundance to Decade of Stagnation


    " many times are we willing to be fooled??"

    A strange quirk of human nature called magical thinking:

    I learned many years ago that being repeatedly right in one's predictions did not enhance one's credibility if the predictions where not popular or were perceived as 'negative' to begin with.
    Similarly, being repeatedly wrong in one's predictions did not damage one's predictive reputation providing that one's series of predictions were popular and positive to begin with.

    What seems to count is 'having a positive attitude' rather than being right or wrong.

    Any fortuneteller worth their salt would reassure Miss Desperate that Mr Right will soon walk into her life. If Mr Right does turn up, the fortune-teller shares in the kudos if not, the fortune-teller is not blamed. Contrariwise, if the fortuneteller predicted that Miss Desperate would never find her man, her would earn nothing but antipathy- if she was right but additionally and with equal lashings of scorn if she was wrong. Rule Number #1: Never make a negative romantic forecast!

    In parts of Asia for example, there were (before ultrasounds) old women who are renowned for predicting the sex of an unborn child.If the parents hoped for a boy, she would predict that it would be a boy. If they ( rarely) hoped for a girl, she would predict a girl. That way she could never go wrong. If the baby turns out to be the predicted sex, her reputation is enhanced, if not then the parents will say, "Well, at least she tried and her heart was in the right place" and the reputation remains untarnished.

    In a sense, through magical thinking, to predict something is to make it happen.

    This is a bit like the idea of the best-selling book 'The Secret'- wish for something and it will happen.

    ('Praying' falls into this category.)

    Conversely, the be skeptical is to emit bad vibes which can only lead to bad things happening and thus the tribe will hold you accountable when bad things do happen. If you see that houses are being built on a hillside and the trees are being chopped down and you foolishly then predict a mudslide, when the mudslide then occurs, groupthink will hold you responsible for it.

    (Like Herman Hesse's shamanistic rainmaker)

    Every successful bureaucrat understands this instinctively. Always be optimistic, never upset the tribe with negative thoughts, never rock the boat, never be a whistleblower... which brings us back to, and explains, the lack of public/official concern regarding the series of repeatedly inaccurate EIA predictions.


    The media spends a lot of its time spreading the message that corruption is a feature of 3rd world and non-democratic countries. Supposedly there is no significant corruption in the USA, Canada and the rest of the "good guy" club. So it is not surprising that people think that this is reality. I say follow the money. Here in Toronto the budget has increased by 50% (three billion Canadian per year) in the last six years without any proportional increase in population and in the face of very low inflation. Meanwhile, infrastructure is rotting. Somebody is raking in the dough and it ain't the single mothers on welfare. The main difference between western corruption and that of some underdeveloped country is that it is well hidden (sophisticated and ignored by the media) and not idiotically petty (like cops shaking drivers down for money).

    Casey Burns:

    Most think about peak oil in terms of long gas lines like in the early 70s during the oil embargo, and don't see much beyond that. But consider how our agriculture and military, not to mention a society based on long distance commuting, are dependent upon oil - and what increasing scarcity will mean. 95% of our agriculture is dependent upon oil for tillage, fertilizers, pesticides, etc. The threat of oil scarcity to national security is huge.

    The solution isn't to pump more. Instead, we should be trying to protect what we have way into the future so we have oils for things we really need, like lubricants - and learn to live without. Instead, we've been driving around in Hummers and Expeditions and one still sees these newly on the road with paper plates in the windows.

    There are peak oil deniers, just like there are global warming deniers, creationists, flat earthers, Tea parties and greasy politicians from Oklahoma. They operate on a belief that peak oil doesn't exist - despite overwhelming evidence to the contrary. Unfortunately they get listened to and frequently elected. And some are agreeing with BPs lowball flow estimates and saying the Gulf will recover quickly, that this is a little blip. And that we shouldn't interfere with the "free market" with a little increased oversight and regulation. And that it was probably the shrimpers' fault that they are out of work now, do we really need manatees or pelicans? ad nauseum. Why do we listen to these idiots?


    Realistically, we can expect resource allocation to be the order of the day in a post peak world (eg rationing). Agriculture, chemicals, industry, goods transport, plastics, etc. will protected by 'first dibs' on available fuel. That's not a big issue since they don't take a large amount in relative terms. We can also expect government usages will assume themselves 'important', gobbling up a sizeable chunk. Together they will account for around half the current usage in the US; varying values in other countries.

    The upshot is the available oil for private transport and non-reserved transport will dry up much faster - what I call 'rationland' (one of the general class of resource inequality factors). Rough numbers suggest a trend towards zero fuel for this class of transport within 10 years, possibly/probably faster.

    The threat therefore becomes how fast we can adapt from a world of ubiquitous transport and commuting, to a world where motorised transport is unusual and expensive (eg going back 100 years). In particular, how fast we can get out of the idea of commuting large distances everyday. Bend or break is wrapped up in that question.


    Bueracracies are like cancers;they always feed themselves and look after thier own short term interests first, and by doing so, they eventually kill the host society if they manage to grow big enough.

    It is a rare thing to find someone working within one that doesn't put his personal welfare ahead of all other considerations;the very people capable of putting the public welfare first are not likely to get promoted to positions of responsibility, even if they keep thier mouths shut and stay for lack of better options.

    Crime rates have fallen quite a bit in many places over the last few years,while the need for publicly funded health careand emergency support for the unemployed has risen dramatically.

    I don't think there is a chief of police in the whole country who has stepped up and offered to sacrifice part of his budget allocation during the budgetary process to the local community hospital or clinic or food pantry.

    I hope somebody can prove me wrong, as that would restore a bit of my lost faith in human nature.

    [Jun 11, 2010] Deep Trouble in the Gulf of Mexico 'A Disaster of Epic Proportions'

    For the region along the Gulf of Mexico, the sinking of the oil rig will undoubtedly have catastrophic consequences. The effects will likely be felt by the entire country. The coastal waters are among the most productive fishing grounds on Earth, and a large share of fish and shellfish produced in the United States comes from the region. The oyster harvest was originally scheduled to begin last Saturday, and the shrimp season was supposed to open in mid-May. Dozens of shrimp boats are sitting idle in the harbor at Venice.

    "You probably get the world's best fish, oysters and shrimp here," says Roy Mareno, the owner of Bud's Boat Rental. "When the oil gets here, all that will be over for a while." An entire sector of the economy threatens to drown in the oil slick.

    "The waters are extremely important as a breeding ground for fish and many other sea animals," says Ken Litzenberg of the local branch of the US Fish and Wildlife Service. He and his coworkers spent much of last week trying to jockey the oil barriers into place in the most seriously threatened areas.

    "Big Oil has perpetuated a dangerous myth that coastline drilling is a completely safe endeavor," says US Senator Robert Menendez. "Accidents like this are a sober reminder just how far that is from the truth."


    My Name is Ozymandias...

    In the late 70's, extrapolating from my experiences in China, I began to realize how flimsy the Soviet Union was, and that it was in for great changes in the near future.

    In 1986, there was Expo 86 in Vancouver, BC, and the day after the news about Chernobyl came out, I visited the Soviet Pavillion and started talking to one of the people there. He was in a state of shock: He was from Kiev, his family was there, he didn't know what was going on and he couldn't contact them. For a minute or two he tried weakly to give me the propaganda line he had been trained in, but he soon realized that I was educated and not a Russia-basher, and before we knew it, we were talking honestly with each other: I told him what I thought were the weaknesses in the Soviet system, what they might turn to positive uses, what I thought was wrong with America and so on. He did likewise. I was astonished how openly he was talking, and we were agreeing far more than we were disagreeing. This went on for 15 minutes to half-an-hour. Finally, two burly, unsmiling KGB-types started moving in on us, so I made sure they heard me thanking him for his brochures on the USSR, and how he had made me realize what an interesting country the Soviet Union was!

    When Chernobyl happened, I thought that it was the beginning of the end for the Soviet Union--and I was right.

    Well, now I am beginning to think that the oil volcano in the Gulf is America's Chernobyl, the beginning of the end for the USA, as we know it.

    I am still not sure; it depends on how much oil is really coming out, but the figures seem to be steadily inching up---as if the politicos and the media are trying to soften the shock by stretching out the bad news.

    Much may also depend on the hurricane season. If hurricanes pick up uncounted tons of oil and carry them far inland, it will be a disaster that is almost inconceivable.

    The Yankees did not manage to destroy Dixie, but BP might just do it.


    The parallel you have drawn is quite fascinating – could the leak herald the end of the States as superpower like Chernobyl announced the end of Soviet Union? The Ukrainian you spoke to knew about the danger of an implosion of a nuclear reactor otherwise he did not feared for his family. But the people who were sent to the plant in order to seal off the reactor did not have any clue about the harm radioactivity cause when it is released. Perhaps they knew that they would die very soon after their work. I am not quite sure about their feelings. But what I know is that people have not cared much about aftermaths. The problems they had and still have seem not to allow them to deal with it. There are only few who demand that nuclear power plants must be closed. That is quite strange.

    I think Chernobyl has a much higher significance in Western countries than in the countries which followed Soviet Union. Chernobyl was very often interpreted as a sign of the technological superiority of the capitalist countries. Now, you are right, as the only superpower its own Chernobyl.

    I have not yet informed me whether BP managed to put the absorber on the BOP. I hope they fixed it. For the circumstance that the big oil concerns have ignored problems concerning off-shore drilling I think BP has done quite well so far. I do not know how people who are affected, fishermen for example, feel. As far as I know they have already got some compensation. Much depends on BP’s ability to support those who are suffering from the catastrophe. As long as BP can finance it victims will be quiet.

    The results of that policy could be counterproductive since nobody is prompted to change the habit of using too much oil, however, everybody affected must be helped. Only a movement which comes from grassroots could develop a consciousness for environment. One messiahs is not enough.

    Is BP Too Big To Fail

    Jun 11, 2010 | zero hedge


    EPA leaked

    Gulf test reveals Volatile organic compounds

    Hydrogen sulfide

    • Safe Levels Allowed 5 to 10 parts per billion
    • Actual 1200 parts per billion


    • Safe Levels Allowed 0 to 4 parts per billion
    • Actual 3000 parts per billion

    Methylene chloride

    • Safe Levels Allowed 61 parts per billion
    • Actual 3400 parts per billion

    [Jun 10, 2010] Q1 Flow of Funds- Household Net Worth off $11.4 Trillion from Peak

    "And I suggest to most here that they too not take risks in the market. Those who are comfortable with them, God bless 'em. Most here can't afford the losses. So, never take a risk. This is not about fun for most here. It's about economic soundness. "

    The Federal Reserve released the Q1 2010 Flow of Funds report today: Flow of Funds.

    According to the Fed, household net worth is now off $11.4 Trillion from the peak in 2007, but up $6.3 trillion from the trough in Q1 2009. A majority of the decline in net worth is from real estate assets with a loss of about $6.4 trillion in value from the peak. Stock market losses are still substantial too.

    .... ... ...

    Mortgage debt declined by $99 billion in Q1. Mortgage debt has now declined by $377 billion from the peak.

    Selected Comments


    first again, I don't take risks. And I suggest to most here that they too not take risks in the market. Those who are comfortable with them, God bless 'em. Most here can't afford the losses. So, never take a risk. This is not about fun for most here. It's about economic soundness.

    Comrade Janošik:

    Slumdog wrote:

    This is not about fun for most here. It's about economic soundness.

    For me it's more about staying in a conversation about a very interesting (even if heartbreaking) period in history.

    There are some intelligent people that post here (and some quacks), and getting this conversation outside of CR is difficult.

    Most people I know prefer to not talk about it, even if they recognize a real possibility of hard times ahead.


    Soros just was quoted as saying,

    " June 10 (Bloomberg) -- [snip] George Soros said “we have just entered Act II” of the crisis as Europe’s fiscal woes worsen.

    The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.” [snip]

    When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken center stage, but the effects are liable to be felt worldwide,” Soros said. "

    He has been dead accurate on this theme for a long time.


    Note the summary table on the PDF - household debt is shrinking, public debt is growing. Exactly what a lot of posters here have commented on - we are replacing private for public debt.

    We will see how that works out.

    Mr Slippery:

    This includes real estate and financial assets (stocks, bonds, pension reserves, deposits, etc) net of liabilities (mostly mortgages). Note that this does NOT include public debt obligations.

    Not a problem, public debt just rolls over, it doesn't ever have to be paid back.


    ghostfaceinvestah wrote:

    Note the summary table on the PDF - household debt is shrinking, public debt is growing. Exactly what a lot of posters here have commented on - we are replacing private for public debt.

    We will see how that works out.

    Regrettably, it's the only thing keeping us from going immediately into a true deflationary debt spiral. Or rather, it's disguising and/or putting off having us go into a true deflationary debt spiral. That said, it almost ensures that we will go into a true deflationary debt spiral.


    let's see if this works - well, not great, but you get the picture, total debt continues to grow, but household debt has been shrinking for the past two years. In order for our debt-based system to work, debt has to grow continually, the government has taken on that role.

    Growth of Domestic Nonfinancial Debt
    Percentage changes; quarterly data are seasonally adjusted annual rates

    Total Households Business State and local govts Federal

    2000 5.0 9.1 9.3 1.4 -8.0
    2001 6.3 9.6 5.7 8.8 -0.2
    2002 7.4 10.8 2.8 11.1 7.6
    2003 8.1 11.8 2.3 8.3 10.9
    2004 8.8 11.0 6.2 7.3 9.0
    2005 9.5 11.1 8.7 10.2 7.0
    2006 9.0 10.1 10.6 8.3 3.9
    2007 8.7 6.7 13.1 9.5 4.9
    2008 6.0 0.3 5.4 2.1 24.2
    2009 3.1 -1.7 -2.5 4.8 22.7
    2009:Q1 3.8 -1.2 -0.7 4.7 22.6
    Q2 4.3 -1.6 -2.9 4.0 28.2
    Q3 2.7 -2.5 -3.0 5.6 20.6
    Q4 1.3 -1.6 -3.5 4.6 12.6
    2010:Q1 3.5 -2.4 0.0 4.3 18.5

    Rob Dawg:

    CalculatedRisk wrote:

    Rob, sorry - I've been doing several things. I'm not sure what you are pointing out. Yeah - I capitalized Trillion the first time ... and didn't the second time. Is that your point?

    I was too obscure. I was referring to the fact that ignoring the increases in public debt in those figures was ignoring the big elephant. In 2005/6 I called $7-9T in lost household wealth with an overshoot. I just didn't see an increase in $7T in Federal and untold trillions in State/muni obligations.

    noob goldberg:

    "Market observers pessimistic; it's felt "professionals are in control of the situation," and, while this remains so, tendency is to stay on sidelines and use any technical rebounds to lighten long positions."

    News from 1930: Wednesday, April 22, 1931: Dow 158.83 -4.58 (2.8%)

    The more things change, the more they stay the same.


    his is one of my favorite Fed reports, though I don't know how good the data really are.

    3.5% growth in nonfinancial debt in Q1. Businesses flat, households down somewhat, federal and state government much higher. Domestic financial debt continues to shrink very rapidly, which is a good thing.

    Still amazing that we haven't had a single quarter of negative debt growth throughout the entire escapade.

    Total Q1 debt: 35010. Nominal GDP: 14601. 340% of GDP. This is down slightly from the recent peaks of the recession(343%, I believe), but still up from 324% in 2008Q2.


    It will be interesting to see if the government can maintain the public debt growth after the midterm elections if things go poorly for the democrats.

    Koo's presentations are very informative in that the Japanese scenario they continued to stop too soon. I don't think we are likely to be any different and will follow the same pattern the Japanese did. We may need more room on our cone for more scoops. Then again neither party seems to be that interested in slowing down debt growth just yet.


    Ca. is saved. The wheel of doom has been stopped.

    June 10 (Bloomberg) -- California’s revenue in May exceeded Governor Arnold Schwarzenegger’s estimate by $592 million, or 9.8 percent, the state controller said in a release today.

    Personal income taxes contributed to most of the increase, beating forecasts by $392 million, Controller John Chiang said in the statement.

    [Jun 10, 2010] Market Rally Open Thread

    Another vation on callsic "markets can stay irrational longer then you can stay solvent..."
    June 10, 2010 | The Big Picture


    I say TPTB are thinking it will be MUCH easier to keep pumping the futes via FRBNY than to confront the masssively imploding pension and municipal fiscal problems across the nation.

    I also say TPTB are going to find it increasingly difficult to have their cake and eat it too.

    I also say…get some popcorn. The next few years are gonna be interesting to say the least!


    Who bought today and who sold? The volume was pityful. Is it really true that the hedge funds are the only game in town? Bernanke really fucked up the price discovery mechinism.


    I think it’s duckweed market action; i.e. it grows fast and burns easy. The trading desk at places like GS, JPM and the “friends of Geithner and Bernake” are the feces in the pond water that fuel the growth. Without all this shit, the market would be growing slower and would be a reliable investment.


    I think this does amount to something going forward into July earnings. These earnings are still likely going to be good.

    I normally don’t flip around a lot once I have my mind set but I saw things I didn’t like as a short. CAT in particular will only earn likely around $3.50 this year. But yet the funds or traders have no problem taking CAT at almost any price on the ask because of the projected $8+ earnings in 2012. The steel stocks haven’t reacted quite this same way at all. AAPL keeps getting bid up pre-market by $2-3 no matter what the major indexes are trading at in the morning.

    A lot of puts would have been sold for June and July.

    Closed shorted most June calls today and sold some July puts (INTC, GS, BP, AAPL). Too many calls were getting close to having the potential for either losing a significant amount of the profits or worse causing losses and I didn’t want that to happen. The Jun calls that are still below 10% or so are still on to lay dead. I picked up some more BP I have with profits for the year and also GS and AAPL.

    I think the VIX is going to start to roll over and although I have never done so to date I sold some VIX call spreads @ 30/31 for July.

    I feel that stocks will start to separate more from the indexes as we go forward and I do see that happening. Stocks which didn’t have much earnings recovery are starting to go down more than the indexes but I haven’t yet seen the inverse a lot of stocks which have good earnings are holding up better.

    As a short I don’t like the fact that the market knows a bailout worked (or so it seems so far) for the US banking system so why wouldn’t one work also for the Euro region. I don’t like analysts are still predicting very bullish #’s for next year and the market still seems to believe these are possible. If the market didn’t think these #’s are possible then I think on the third pass at 1040 it would have went under.


    I noticed the headlines today that the Dow had its 3rd best day this year. Looking at a chart it looks like the other 2 were in May. So all 3 have occured in a downtrend so far. So far this action is giving me flashbacks of late spring/summer 2008. Yay!

    [Jun 09, 2010] Fair Warning By Invictus

    "Idiot Larry" as a contrarian indicator?
    June 9, 2010

    Larry Kudlow, December 7, 2007:


    There is no recession. Despite all the doom and gloom from the economic pessimistas, the resilient U.S economy continues moving ahead—quarter after quarter, year after year—defying dire forecasts and delivering positive growth. In fact, we are about to enter the seventh consecutive year of the Bush boom.

    Larry Kudlow, June 8, 2010:

    I don’t yet see a double-dip recession.

    You have been warned.

    Selected Comments

    The Curmudgeon:

    The Bush Boom? Really? Sounds strangely erotic. Well, Kudlow is something of a porn star of an analyst.

    peter north:

    I did hear that is kind of coming back – short Brazilian waxing stocks.

    Short Kudlow too. Grotesquely stupid.

    alfred e:

    I don’t think any of these pundits (that includes Bernanke) have a clue.

    There are too many mixed signals, the stimulus is not totally flushed, states and munis are hanging on by their fingernails.

    My guess is, as a “major” signal, GDP gets stuck in neutral or worse. Deflationary pressures have not gone away. Nor has our ginormous mountain of public and private debt.

    Seems everyone’s hoping for a sunny day tomorrow. Hope is not a strategy, as they say.


    the stimulus is not totally flushed

    Most of the stimulus wasn’t even stimulus. A lot was tax breaks that got pocketed as profit, some was tax breaks to just push people over the edge to buy things they probably ought not buy, and most of the rest went to partially offsetting the enormous losses of state revenue to keep state workers employed.

    Very little went into long term infrastructure or energy distribution or research, which might have led to real economic stimulus. The country got a No-Doze when it needed an adrenaline shot to the chest.


    “If average J6P goes into a shell and stops spending and burying him/herself in debt up to their eyeballs, it’s game over for the economy, markets and country. The reflationary confidence game is all they have left.”

    Hasn’t it always been that way? When was it ever not that way?

    Capitalism is about confidence of investors and consumers. I’m struggling to see what has changed in this regard. Sure moral hazard etc etc, but the confidence thing, animal spirits – no change there, its just they are harder to animate.


    @scepticus: Sure, it’s always been that way to a degree but confidence and trust need to be based on real, substantive things that are worthy of that confidence and trust. When it’s nothing but smoke & mirrors so the sheeple can continue to get fleeced over and over again, we have a problem. Trust and confidence in the system and each other are are breaking down right now because much of the public believes (and rightfully so, I think) that it is either being taken for a ride by our so-called “leaders” in nearly every institutional sector of our country (corporate, gov’t, religious, etc.) and/or or that our “leaders” simply don’t know what the hell they are doing or how to truly solve these problems.


    mannwich, it has always, always been smoke and mirrors. Its just that that fact was disguised by external factors like population growth and the destruction of excess capacity in europe during WWII, amking all the happy stuff seem more real.

    through the 60s-80s the sheeple were getting fleeced, they just didn’t notice so much because of generalised good stuff going on, and even though the returns to sheeple during this period were a lot less than they should have been given the benign economic environment, they didn’t mind because they got a net positive result.

    only supreme confidence can cause a sheeple to put his savings in a bank. and only supreme confidence could possibly maintain the value of savings put under a mattress.


    @scepticus: Fair point. Perhaps I have just awoken to that fact within the last 5-10 years or so? I think that’s probably the case. Same with others who are now coming to this conclusion.

    [Jun 09, 2010] Gulf of Mexico Spill Expert Recommends Killing Oil-Soaked Birds


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

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

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

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

    The oil spill -- which continues to pump more than 200,000 gallons (755,000 liters) of crude into the Gulf each day -- was caused by an April 20 explosion on a BP-operated oil rig about 50 miles off the Louisiana coast.

    In the path of the spill are several large protected areas for wildlife, including a vital nesting area for thousands of brown pelicans which were only removed from the US Endangered Species Program last year. Louisiana's Breton National Wildlife Refuge is by itself home to 34,000 birds. So far, the vast oil slick has yet to make significant landfall, limiting the numbers of birds affected, but observers worry that it is only a matter of time before beaches along America's Gulf Coast become blackened.

    Birds Will Eventually Perish from Long-Term Causes

    Catching and cleaning oil-soaked birds oftentimes leads to fatal amounts of stress for the animals, Gaus says. Furthermore, forcing the birds to ingest coal solutions -- or Pepto Bismol, as animal-rescue workers are doing along the Gulf Coast -- in an attempt to prevent the poisonous effects of the oil is ineffective, Gaus says. The birds will eventually perish anyway from kidney and liver damage.

    Gaus speaks from 20 years of experience, and she worked on the environmental cleanup of the Pallas -- a wood-carrying cargo ship that spilled 90 tons of oil in the North Sea after running aground in October of 1998. Around 13,000 birds drown, froze or expired due to stress as a result of the Pallas spill.>

    [Jun 09, 2010] This Oil Spill, too, Shall Pass

    We humans and our effects upon our planet are, by nature, evolutionary. We are supposedly entering Earth's sixth major extinction phase, this one, at least partially, due to human interference. Two-hundred-fifty million years ago, perhaps due to volcanic activity, 95 percent of all marine life and nearly all land life became extinct including dinosaurs. The beginning of agriculture 10,000 years ago has accelerated this most recent phase.

    Oil is not foreign to Earth, but a part of her, a natural substance. Ocean floors normally experience ongoing oil leaks and volcanic eruptions. It is difficult to prove or disprove the numbers floating around about natural leak rates and oil industry spill statistics.

    Barry Ritholtz cited Dr. Roy Spencer's graph showing that the 1991-2 Gulf war time period resulted in 500 million gallons of dumped and spilled oil, and says that 250 million gallons of oil is spilled annually from global rigs and tankers.

    An Alaskan reporter claims that a billion gallons of oil are swallowed by our oceans each year. This would agree with Dagmar Schmidt Etkin's figures. WWII no doubt bled a great deal of oil to sea. So far, though estimates vary widely, perhaps 50 million gallons have leaked from this Deepwater Horizon event.

    On May 13th, NPR did an interview of Ken Ringle, a former Washington-Post reporter who covered the Tobago spill in 1979.

    From the transcript, In Context, BP Oil Spill 'Isn't The Apocalypse':

    ...let me explain a couple of facts. The problem with an oil spill is not just the amount of oil that's spilt. It's where it's spilt. And it's the kind of oil that's spilt.

    In the case of the Trinidad and Tobago spill, it was in the tropics, it was in July. It was - there was a lot of sun. And the water was very warm. The air was very warm. The trade winds were blowing. And about 50 percent of the oil spill simply evaporated, and the rest was largely consumed by oil-eating microbes, which attack oil because it's a natural substance.

    And light Arabian crude, which was cargo of these ships, is the most volatile and the most unstable of all crude oil pumped from the earth, so more of that evaporates. Now that evaporation is not an entirely harmless process. I mean, it's greenhouse houses and so forth that go off. But it leaves a lot less there to coat birds.

    The heaviest parts of the oil, paraffins and asphalt and things like that, become tar balls and they sink to the bottom of the oceans, which is what happened there. But by the time the oil spill was stretching toward Grenada, one of the experts that I interviewed estimated that it was such a thin sheen, it was about what your wife finds in the sink when she's washed the salad bowl, he said.

    There are some important conditions that need considered when discussing the outcome of this spill when attempting to make comparisons to other spills such as the Alaskan Valdez spill. One, the water temperatures in the Gulf of Mexico are many degrees warmer than those of the Exxon-Valdez spill, promoting degeneration of the material by microbes and through evaporation. Two, the kind of oil spilled is lighter crude meaning it will evaporate more quickly, especially in the Gulf's warmer temperatures of air and water. Further, wave action breaks apart the oil and the already adaptive, opportunistic hydro-carbon eating bacteria feast upon the oil.

    [Jun 09, 2010] In gulf oil spill's long reach, ecological damage could last decades

    June 6, 2010 | Washington-Post

    Ecosystems can survive and eventually recover from very large oil spills, even ones that are Ixtoc-sized. In most spills, the volatile compounds evaporate. The sun breaks down others. Some compounds are dissolved in water. Microbes consume the simpler, "straight chain" hydrocarbons -- and the warmer it is, the more they eat. The gulf spill has climate in its favor.

    Scientists agree: Horrible as the spill may be, it's not going to turn the Gulf of Mexico into another Dead Sea."

    But neither is this ecological crisis going to be over anytime soon. The spill will have ripple effects far into the future, scientists warn.

    By 2003, there were still 21,000 gallons of oil in Prince William Sound, Rice reports in a recently published study on the lingering effects of the Exxon Valdez spill. The oil can be found by someone scraping three to six inches below the surface of the beach. Rice writes that an oil spill will be "over" when the oil itself is gone, the litigation has been settled and there are no continued negative effects in the environment.

    "The Exxon Valdez spill does not meet any of these three criteria," he wrote.

    ... Scientists have been monitoring the effects of some of them for decades, including a 189,000-gallon spill that occurred off Cape Cod in September 1969.

    Five years after that spill, fiddler crabs in the oiled marsh were sluggish and reproduced poorly. In many cases they dug burrows too shallow to protect themselves over the winter.

    Astonishingly, many of those problems remained 35 years later, when a graduate student, Jennifer Culbertson, surveyed the marsh. She found that the fiddler crabs reacted slowly to startling motions, apparently the result of a narcotic effect of oil that still formed a visible layer four inches below the marsh surface. (A similar clumsiness has been seen in juvenile spot fish when they chew on sediments contaminated with compounds from oil.) When the crabs burrowed down and hit the layer of 40-year-old oil, they veered horizontally.

    "The marsh is still waging chemical warfare several inches below the surface," said Christopher M. Reddy, a chemist at the Woods Hole Oceanographic Institute in Massachusetts who helped supervise Culbertson's research.

    ..."The degradation of oil slows over the years. The microbes move on, as the large and complex compounds that remain, known as the asphaltenes, are too hard to digest. What's left tends to be dense, tar-like, largely inert and attractive only to people who like to pave roads.

    [Jun 09, 2010] Trickster Gold

    charles hugh smith-Weblog and Essays

    To assume new highs will be reached on a "flight to safety" ignores the lesson of 2008: gold is subject to losing a third of its value in short order if a liquidity crisis forces players to sell anything in their portfolio that still has value to raise desperately needed cash.

    [Jun 09, 2010] Happy "Froth" Day

    "Who doesn't love froth week?"
    Jon Lansner at the O.C. Register notes the fifth anniversary of then Fed Chairman Alan Greenspan's "Froth" speech: Greenspan’s froth not bubble, 5 years later
    “Although a ‘bubble’ in home prices for the nation as a whole does not appear likely, there do appear to be, at a minimum, signs of froth in some local markets where home prices seem to have risen to unsustainable levels.” [said Fed Chairman Alan Greenspan, June 9, 2005 in testimony to Congress]
    Perhaps to celebrate "Froth Day", Fed Chairman Bernanke made this statement:
    [U]nderlying housing activity appears to have firmed only a little since mid-2009, with activity being weighed down, in part, by a large inventory of distressed or vacant existing houses and by the difficulties of many builders in obtaining credit.
    Selected Comments


    VOLCKER: Although some people believe that good times are ahead for the markets, there's no basis for "business as usual" in US, Europe.

    Doc Holiday:

    In retrospect the froth theme should have been about scum:

    See: A layer of impurities that accumulates at the surface of a financial crisis

    Juvenal Delinquent :

    Froth is a fancy way of describing packaged air, right?


    ghostfaceinvestah wrote:

    It is clearly created money, and a debasement of the currency, so saying there is "no risk or cost" to the taxpayer is pure BS - every dollar created dilutes one in your pocket. Sure, other dollars are being destroyed in other areas, but those holding dollars (i.e. savers) are punished by the Fed's creation of new dollars out of thin air, with no effort behind their creation.

    Everything carries some risk, but in the grand scheme of things this one's pretty low on the scale, isn't it?

    "Lend freely but at a penalty rate" - that was Bagehot's maxim. IMO this may be the only defensible thing the Fed has done over the past 24 months.

    Insofar as I have a gripe, EHP nailed it - the Fed isn't doing this lending at a "penalty rate", as they should be, because their thesis is that the works were so gummed up that the "market rate" is meaningless. Well, why is what the market is telling you about equity values proof of your brilliance but what it's telling you about swap rates proof that something's broken? That's talking out of both sides of one's mouth.

    [Jun 09, 2010] BMO Says "Go to Cash - In Plain English", Cites Weakening Credit Conditions

    Looks like injection of steroids (aka stimulus) started to dissipate....

    I do not think I have ever seen a warning like this one. BMO literally says Go to Cash - In Plain English


    We advocate switching out of equity positions and going to cash. The European sovereign debt crisis appears to be nowhere near over. The global credit environment is worsening. Cost of capital is going up and availability is going down. There are large gaps between where the credit market prices risk and where the equity market is priced. Equity is la message out is that in its raw form (how we normally write), the argument is quite technical:

    Client: Why go to cash?
    Quant/Technical: Look at the euro-dollar basis swap pricing!
    Client: Say what??

    Now, however, the market is showing signs that everyone can easily recognize as indicative of economic weakness:

    Job growth has stagnated, and
    Commodities and inflation expectations are falling.

    These new signs are not new information on why things are bad. Rather, they are symptoms, or outward displays of how weak the credit market has become.

    Weakening credit conditions are the cause.
    Economic fallout is the effect.

    [Jun 09, 2010] Junk Bonds Widen to Most Since December as Mutual Funds Flee - By Pierre Paulden and Shannon D. Harrington

    “Investors feel the Street is long paper and until they see reduced volatility they don’t want to catch a falling knife.” Many who plowed into junk bonds are having second thoughts. Can we have another massive equity selloff without a collapse in investment grade? Perhaps, but some sort of selloff is likely. ...[remember] a panic low in October of 2008 where literally everything was abandoned in a panic. Now we see weakening corporate bond conditions so junk should sink faster then high quality, althouth both will be affected.

    May 26 (Bloomberg) -- Yields on junk bonds rose to the highest since December relative to Treasuries, with prices declining on debt from American International Group Inc. to Harrah’s Entertainment Inc. on concern Europe’s debt strains will derail the global economic recovery.

    Spreads widened 27 basis points yesterday to 724 basis points, or 7.24 percentage points, the highest since Dec. 9, according to Bank of America Merrill Lynch index data. That’s up from a low this year of 542 basis points on April 26.

    High-yield debt has lost 4.6 percent in May, on pace for the first drop in 15 months, after gaining 73 percent from the market bottom in March 2009 through last month. Investors withdrew more than $3.1 billion in the past two weeks from junk funds amid growing concern that European efforts to control government deficits would interrupt the recovery, making it harder for the neediest companies to reduce and refinance their borrowings.

    “We’re seeing high yield under a lot of pressure here,” said Nicholas Pappas, the co-head of flow credit trading in the Americas at Deutsche Bank AG in New York. “There is a flight to quality to solid investment-grade companies.”

    First Data Corp., the credit-card processor bought by KKR & Co. at the height of the leveraged buyout boom in 2007 for $27.5 billion, led losses in the Bank of America Merrill Lynch index this month with a decline of 17.5 percent. AIG bonds lost 11.1 percent and Harrah’s securities dropped 8.6 percent.

    AIG’s $4 billion of 8.175 percent bonds due 2058 and rated two steps below investment grade by Moody’s Investors Service at Ba2 fell 4.5 cents to 67 cents on the dollar, and have declined this month from 87.125 cents, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

    Fund Redemptions

    Harrah’s $3.3 billion of 10 percent notes due 2018 fell 1 cent to 77.1 cents on the dollar, and have declined from 92 cents on May 5, Trace data show.

    Redemptions from high-yield funds “topped $1 billion” in the third week of May, according to EPFR Global, a research firm in Cambridge, Massachusetts, that tracks fund flows. That followed $2.1 billion of redemptions a week earlier, according to EPFR.

    Speculative-grade debt is rated below Baa3 by Moody’s and lower than BBB- by Standard & Poor’s.

    Investment-grade corporate bonds have gained 0.05 percent this month, the index data show.

    “Due to low levels of cash at mutual funds, redemptions are forcing sales,” said Brian Yelvington, head of fixed-income strategy at Knight Libertas LLC in Greenwich, Connecticut. “Investors feel the Street is long paper and until they see reduced volatility they don’t want to catch a falling knife.”

    [Jun 09, 2010] Goldman, BNP Paribas Downgraded by Bondholders Credit Markets

    May 26, 2010 |

    “It’s all part of concern about the system, about whether the sovereign-debt crisis will morph into a bigger systemic crisis,” said Padhraic Garvey, head of investment-grade strategy at ING Groep NV in Amsterdam. “We’re not quite at a point where that’s imminent, but that risk is being priced in.”

    High-yield debt has lost 3.6 percent this month, on track for the first monthly drop since February 2009 and the biggest loss since falling 8.43 percent in November 2008, Bank of America Merrill Lynch index data show.

    Emerging-market bonds fell as spreads widened 10 basis points to 348 from this year’s low of 230 on April 15, according to JPMorgan Chase & Co.’s EMBI+ Index.

    Financial company bonds have lost 0.74 percent this month on average, compared with a gain of 0.52 percent for industrial companies, based on Bank of America Merrill Lynch indexes. That would be the biggest monthly loss since March 2009, when they tumbled 1.72 percent.

    [Jun 09, 2010] Junk vs. Investment Grade Bonds, What Does the Divergence Suggest for Equities

    The liqudation phase has just started...
    Mish's Global Economic Trend Analysis


    Here is where the rub comes. What most people don't know is that stock is mostly junk in risk. Where is the treasury plus 7% or more return in the stock market. Don't say the 70% gain, which only took the Dow and SPX back to the levels last seen the week the TARP was passed. P=D/(k-g) is the valuation model of stocks and the broad market reveals how rich the market is. I did a lot of work on Shillers data that can be sourced on his website at Yale. Compound growth over the past 84 years of dividends is less than 1% above inflation. Risk free is 3% above inflation. Dividends are 2%, so stocks are priced as risk free as a portfolio and the portfolio can't return less than the individual companies, so most companies are priced as risk free as well. Otherwise there would be a return to the portfolio.

    Deflation is a credit phenomenon. The growth in earnings in stocks is also a credit phenomenon and the credit inflation of the last 20 or more years has created the earnings in stocks. Every stock is subordinate to its debt, even the bailed out GM. Only a few stocks could really be investment grade, stocks like AIG, Enron, GM, FRE, FNM, C and WCOM. Meaning, what was the peak loss in these 7 companies? $2 trillion? I doubt the public looked at any of these stocks as anything but investment grade.

    The liquidation phase has just started. Where do we got off thinking a US market created by massive central bank inflation will do any better in deflation than a Japanese market supported by massive export earnings and attempts at bailouts by Japanese government and central bank action? Can anyone with a straight face look at another and tell them the SPX at a 1.06% dividend in late 2000 wasn't the biggest blue chip price bubble in history? Even larger than the 1990 Nikkei? And, how much of that cap value went to zero already with 6 of the 7 stocks I mentioned (C is merely there because it is all but a total loss) and the lead balloons forced on the public through SPX funds?

    An 80% loss is Dow 2350 and SPX 310. As the bulbs of junk explode and fiscal dicipline is enforced on governments, I fully expect these to be the minimum limits. Once the worm turns and the flash trading can only be done against their own portfolios, the paper pushers will be trapped and values will sink.

    black swan:

    mannfm11, Japan, with its huge positive world trade balance account, has been able to keep the balls in the air for 20 years. The US, with the largest deficit account balance in the world, will not be so fortunate.


    Swannie, I beg to differ. The US credit machine is the backbone of the financial world and Japans balls have only been kept in the air by US credit. Without the US markets over the past 20 years, the Japanese economy would have imploded on itself.

    If you don't believe this, look at the implosion around the world going on now the US slowed down? Much of the world is being supported on artificial support in China, which is being supported on the back of Bernanke. If you think the Chinese can afford to sell the US debt, then get a knife and cut off your nose and one of your ears. They would shut down over night. It turns out as it has for the past 60 years that when the US has to take off its shirt, others are found to be totally naked.

    The US could do away with trade deficits overnight. Just force people to retire at 60 starting 10 years from now and force consumer creditors to recognize this. Long term trade imbalances are nothing more than excessive credit in one place and restrictive in another. The Japanese debt model imploded 20 years ago. Their trade inflow has been totally insufficient to solve their domestic inadequacies.



    "Debt is being destroyed faster than the government can manufacture liquidity"

    Debt is not being destroyed - Debt is being shelved-(ie) "level 3"
    Credit and the collateral that underpins it-is what's being destroyed--
    Debt-still remains


    Can some of you bond geniuses do me a favor. I would like to know at what interest rate, on the US GOV debt, will crush us.

    In other words. How much debt is the Fed. Gov. paying on. Not the future liablilities, etc, but current debt amount which the Gov. is paying interest on today. Next, at what % level with the Gov. payments EXCEED the Gov tax intake.

    Black Swan says the debt is 120 Trillion. If the average interest was to BECOME 5% in a bond collapse, then that means the Fed. Gov. must pay out 6 Trillion per year. Is that correct? Then if so, this amount exceeds the present Gov. income, correct?


    Haven't looked recently, but LQD used to be *heavily* weighted towards bank debt, so a plausible guess for Minyan Harvey might be that it was hammered during the '08-'09 sell-off in large part because of fears related to bank failures and ultimate default on the bonds? Fears about U.S. bank failures this time around -- at present, subject to change -- are non-existent.

    Of its top 10% or so of its holdings, at least 6% of LQD is financial - including Citi and Wells. Maybe it shouldn't really be considered 'investment grade'

    [Jun 09, 2010]  Gulf Oil Spill: time to revise resource tax policy; how about a BEST surcharge? by Linda Beale

    6/07/2010 |

    Crossposted with Ataxingmatter

    Gulf Oil Spill: time to revise resource tax policy; how about a BEST surcharge?

    The oil spill in the Gulf continues, wreaking hazard along the Gulf coast and threatening the Atlantic coastline as well. Birds, fish, sea flora and fauna are all threatened. Tourism and fishing face enormous economic costs. Our public lands will take years, perhaps decades, to recover.

    Corporatism in all its ugly colors is on ready display in this disaster. The drilling used a single sleeve pipe instead of the stronger and less likely to leak double-walled version that is ordinarily used. They hurried the sealing of the well rather than cycle through the extra day necessary, worried about the fact that the well had already taken longer than intended, with each day costing thousands extra and the rig ready to move on. They apparently disregarded signs of leaking gas and rushed testing at the end. But worst of all, neither BP nor TransOcean was prepared to deal with a deep-water disaster. By BP's own admission, it "didn't have the tools" it needed to handle a deep-sea explosion, and obviously hadn't invested the millions (billions?) it should have in research and experimentation on deep-sea disasters. It looks like profits was the only driving force--no matter what the cost in potential environmental disaster and human lives.

    Yet we provide enormous breaks to natural resource extractive industries. Their responsibility for damages is limited. (Congress is considering changing this now--it should do so immediately, and hold BP and Transocean retroactively accountable for the full long-term cost of the damage they've done to our world.) We provide the resources at almost no cost--piddling royalties at best. We give layers of tax breaks, including the "percentage depletion allowance" that reduces the taxable income on the theory that eventually the company will have no more product and go out of business. Times, styles, customs and tastes change--but almost every company tied to a specific product will eventually lose out, and it would be foolish to provide that company a tax break for its expected future losses. Tax has always been related to current profits rather than life cycles. But not for the extractive industries.

    BP, of course, faces potential criminal charges for its conduct. See this article in (June 3, 2010); US Opens Criminal Inquiry, NY Times June 1, 2010. Hopefully, the mere existence of a criminal investigation will act as a deterrent to other extractive companies, signalling the importance of preparation for dealing with potential environmental and economic hazards.

    Changes, though, are necessary in the way we deal with extractive industries. Much greater transparency and accountability in the industry are required. Accountability requires more intensive regulation, and a sharper focus on compliance/enforcement within the agencies responsible. The Minerals Management Service is known for collusion with its overseen industries--this has to end. Salazar, Secretary of the Interior, is too much a friend of business and not enough a supporter of the environment--he should be replaced.

    Transparency should include clear reporting on the way companies pay (or don't pay) for the resources from which they profit, and how the compensation within the firm rewards those at the top and fails to ensure adequate focus on research to deal with problems. Senators Lugar and Cardin have suggested full disclosure by companies about amounts they pay to governments for access to natural resources (discussed as an amendment to financial reporm legislation). See Lissakers (from Revenue Watch Institute), The Cleanup Can't Stop at the Shore, Huffington Post, May 18, 2010. Guess what--lobbyists object to disclosure, saying it would "increase operating costs and hobble competition." Id. That's bullshit. Those costs have to be accounted for in the companies' financial statements and therefore whatever is spent (taxes, royalties, fees) is readily ascertainable by the companies. It is time that it was readily ascertainable by the American public.

    Accountability requires more intensive regulation, and correction of the relationshipo between the Minerals Management Service and the industry, to ensure that companies at least do what is currently required of them by law. Companies should be held strictly liable--with joint and several liability among drillers, cementers, oil rig owners--for all cleanup costs as well as long-term environmental and economic damages. Congress should enact such a law immediately, with retroactive force covering BP, Transocean and Halliburton. We can no longer treat resource extraction the way we did in the 1800s--this is a different time, and the potential harms are much greater. Companies, not American taxpayers, have to assume the risks of losses in connection with their profit-making activities.

    Perhaps, too, it is time to rethink our tax policy towards environmentally harmful industries to ensure that the industries take into account the cost of current "externalities" such as risk of lives and risk of harm to the environment and economy (as in the tourism and fishery industries being harmed by the Gulf oil spill). Obama called for rethinking the tax breaks for the extractive industries at a speech at Carnegie Mellon, noting that the catastrophic spil demonstrates the need to move towards clean energy. See Obama Calls for Roll Backs on Big Oil tax breaks, Apollo Alliance Daily Digest, June 3, 2010; Obama Calls for Rolling Back Oil Company Tax Breaks to Net Billions for Alternative Energy, Huffington Post, June 2, 2010.

    What steps could be taken? Consider the following:

    Some background about previous efforts to remove excessive tax benefits for extractive industries. Senator Robert CAsey (D-PA) in 2007 proposed an excess profits tax, when Exxon Mobil reported huge profits from the high price of oil. See Sen. wants to tax Big Oil's 'excess' profits, AP, Apr. 26, 2007. The House in 2007 and 2008 at least had the gumption to vote to remove tax breaks (amounting to about $18 billion over ten years) that US oil companies enjoy. See House Repeals Tax Break for Big Oil,, Jan. 19, 2007 (noting that bill would have repealed the 2004 lowering of corporate tax rates for big oil and barred new federal leases unless they renegotiated problematic leases from 1998 and 1999 that did not require any royalties whatsoever for Gulf oil production, all measures that were opposed by the Bush administration, which didn't think the improperly drafted leases should have to be renegotiated by Big Oil); House Votes to Tax Big Oil, Fund Renewable Energy,, Feb. 28, 2008. Action was defeated in the Senate, however, where Senate Republicans ensured that big oil would dodge the windfall profits tax bullet and continue to receive the many tax benefits in the Code. See Democrats' Oil Tax Plan Fails in Senate Vote,, Jun. 10, 2008 (noting the GOP's defeat of a Democratic energy package that would have rescinded existing tax breaks and imposed a 25% tax on "unreasonable" profits of the largest US oil companies--Exxon Mobil, Chevron, Shell, BP America, and ConocoPhilips--which made $36 billion in the first three months of 2008; the tax would have been avoidable if the companies invested in alternative energy programs or refinery expansions).

    [Jun 07, 2010]  Richard Fisher (Federal Reserve Bank Of Dallas)- Larry Summers, The G20, And Financial Dementia

    The Baseline Scenario

    Richard Fisher, president of the Dallas Fed, has long been a proponent of serious financial sector reform.  As a former commercial banker, he sees quite clearly that the legislation now headed into “reconciliation” between House and Senate versions amounts to very little.  He also knows that pounding away repeatedly on this theme is the best way to influence his colleagues within the Fed and across the policy community more broadly.

    He is now taking his game to a new, higher level.  Couched in the diplomatic language of senior officials, his speech on June 3 to the SW Graduate School of Banking was both a carefully calibrated assault on the administration’s general “softly, softly” approach to the big banks and a direct refutation of arguments put forward by Larry Summers in particular.

    As the title of Mr. Fisher’s speech implies, if the legislation is not real financial reform (and it is not, according to him), then our current policy trajectory amounts to facilitating further rounds of financial dementia.

    [Jun 07, 2010] Surowiecki The Regulation Crisis

    Economist's View

    James Surowiecki argues, correctly I think, that one of the key factors in effective regulation is the societal attitude about the value of what regulators do:

    The Regulation Crisis, by James Surowiecki: A few weeks after B.P.’s Deepwater Horizon oil rig blew up and crude started spewing into the Gulf, Ken Salazar, the Secretary of the Interior, ordered the breakup of the Minerals Management Service—the agency ... supposedly in charge of offshore drilling. It was a well-deserved death: during the past decade, M.M.S. officials had let oil companies shortchange the government on oil-lease payments, accepted gifts from industry representatives, and, in some cases, literally slept with the people they were regulating. When the industry protested against proposed new regulations (including rules that might have prevented the B.P. blowout), M.M.S. backed down. ...
    M.M.S.’s bad behavior was unusually egregious, but it’s hard to think of a recent disaster ... that wasn’t abetted by inept regulation. Mining regulators... Financial regulators... The S.E.C... These failures weren’t accidents. They were the all too predictable result of the deregulationary fervor that has gripped Washington in recent years, pushing the message that most regulation is unnecessary... The result is that agencies have often been led by people skeptical of their own duties. ...
    The obvious problems of graft and the revolving door between government and industry, in other words, were really symptoms of a more fundamental pathology: regulation itself became delegitimatized... This view was exacerbated by the way regulation works... Too many regulators, for instance, are political appointees, instead of civil servants. This erodes the kind of institutional identity that helps create esprit de corps, and often leads to politics trumping policy. Congress, meanwhile, often takes a famine-or-feast attitude toward funding, allocating less money when times are good and reinflating regulatory budgets after the inevitable disaster occurs. ... This ... also contributes to the sense that regulation is something it’s O.K. to skimp on. ...
    [T]he history of regulation both here and abroad suggests that how we think about regulators, and how they think of themselves, has a profound impact on the work they do. ... So reforming the system isn’t about writing a host of new rules; it’s about elevating the status of regulation and regulators. More money wouldn’t hurt: as ... George Stigler and Gary Becker point out, paying regulators competitive salaries ... would attract talent and reduce the temptations of corruption. It would also send a message about the value of what regulators do. That’s important... If we want our regulators to do better, we have to embrace a simple idea: regulation isn’t an obstacle to thriving free markets; it’s a vital part of them.

    [Jun 07, 2010] Richard Fisher (Federal Reserve Bank Of Dallas) Larry Summers, The G20, And Financial Dementia

    The Baseline Scenario


    Per Kurowski

    I make no pretense of understanding Basil II. The little I get from Wikipedia is that it tries to limit credit, operational, and market risk. I assume you find it ineffective, useless?

    You seem to be groaning that Basil II is completely ineffective;

    (from your link) “Don’t they know that if there is anything that has guided the evolution of the current financial regulations, those that I have for so long sustained doomed the world to exactly the type of crisis we now have, that is the Basel Committee. “

    And that Basil II is not mentioned in either the Senate or House financial bills,
    and yet (Basil II) is the basis of the bill?

    I’m confused. What you are trying to say? You sound depressed. That, I can understand.

    It is evident to me that the current versions of the financial bills under negotiation between the Senate and House committees are so watered down that nothing effectual will come of them.
    No Volcker rule
    No reinstatement of Glass Steagall
    No clear statutory laws on derivatives; no transparency and deleveraging
    No break up of Too Big To Fail banks
    No independent Consumer agency
    No return of Mark to Market rules
    No clear statutory regulation of big banks
    No clear separation of the Rating Agencies from the Financial Institutions they rate

    The Financial industry has bought the US Congress. Neither Dodd or Shelby or Frank stand for the real necessary reforms.


    Obama gave a longish speech at Carnegie Mellon University in Pittsburgh last week blaming most of the problems in the US on the Republicans and a few greedy banks, extolling the reforms in health care and the financial system that he has been able to push through despite the minority opposition, and recalcitrant leftish supporters, after he saved the country by the unfortunate but unavoidably necessary bank bailouts.

    His speech sounded good. And if you do not look too closely at what is going on, and how things are being run, and the lack of actual reform, you might have had a feel good moment. It was about as effectively staged as the case that George W made to the American people for the invasion of Iraq. And it was probably just as phony and self-serving.

    I come away feeling that Lincoln had it exactly right. There will be a die hard group who will never lose faith in their party, or any of their chosen leaders, and will find desperate comfort in partisan blindness.

    “If you once forfeit the confidence of your fellow citizens, you can never regain their respect and esteem. It is true that you may fool all of the people some of the time; you can even fool some of the people all of the time; but you can’t fool all of the people all of the time.” Abraham Lincoln

    But the great majority of the American people are waking up, and that spells trouble in the November elections for most incumbent politicians. So the pace and velocity of the spin will have to be adjusted. Hence the speech last week, and the outlook for the tortured American economic system, and the official descriptions of it.

    For a refresher, read Matt Taibbi’s caustic expose of the financial reform process. Wall Street’s War.

    [Jun 06, 2010]  On BP’s Many Forms of Less Than Artful Dodging

    naked capitalism


    Recall this stunning remark from BP’s chairman:

    The US is a big and important market for BP, and BP is also a big and important company for the US, with its contribution to drilling and oil and gas production. So the position goes both ways.

    This is not the first time something has gone wrong in this industry, but the industry has moved on.

    That accurately depicts both the current power reality and the attitude of corporate sociopathy.

    The government is a kleptocracy which consistently abdicates sovereignty in order to leave behind power vacuums for lawless, stateless, anti-sovereign corporations to fill.

    The response of “Obama”, i.e. a fungible criminal cog, was by the numbers – give BP the anti-sovereign equivalent of the imperium, let them lawlessly control as much of the Gulf and its beaches as it chose and was able to control, and alienate all government property (Coast Guard, NOAA, regional police forces, etc.) to be lawlessly “deputized” as corporate cadres. Meanwhile the government’s only remaining job was to parrot BP’s lies.

    The geographic lawless zone is yet another form of enclosure, and it’s just an extreme example of the ongoing enclosure assault taking place on every level of what used to be civilization, from the most physical/geographical to the most political and spiritual.

    (How many readers here are following the struggle to sustain net neutrality and enact a real National Broadband Plan? Anyone who cares about the future should be, since what’s at stake is nothing less than the last space left for public democracy.)

    The drive everwhere is to destroy society itself and replace it with a corporatized anti-society.

    An analogue is how the Nazis set up the “General Government of Poland” administrative zone, which was ruled as a direct bureaucratic tyranny by Nazi functionaries, and whose purpose was to provide a stateless, lawless zone where the SS could operate with total license. That’s where the death camps were set up. No laws were broken at the death camps, because no law applied. The SS was a corporation just like today’s. Himmler even wanted to put it on a profit-seeking basis.

    This same combination of total power prerogative with zero responsibility or accountability is the goal of corporatism. I defy anyone to name a sector or other area where this isn’t the trend. The kleptocracy now exists only to facilitate and enforce this program.

    (If I were a corporatist I think I’d want the rackets to systematically step up the assault right now, as conditions seem especially favorable. You couldn’t ask for a more compliant, active flunkey than Obama (even Bush could be unpredictable with his childishness and his craziness), while for the time being there’s no counter-movement on the scene which could possibly frighten the kleptocrats in office.)


    Thank you. Your point of view is correct and perfectly articulated. It is hard to imagine any event, man made war or natural, that will not play into the hands of the system so thoroughly in place for policing the deprived and soon to be deprived scores of American people.

    Very little is written on police organizing exported to the rest of the world by the US along with drug prohibition policy policed by the UN.

    I recommend a little known book about how decisions for the rest of us are made by small groups of transnational frat buddies meeting at conferences all over the world that bypass democratic processes: Anti-Drugs Policies of the European Union: Transnational Decision-Making and the Politics of Expertise by Martin Elvins, Palgrave-Macmillan: 2003.

    Ever since Hank Paulson sat in front of Congress and the American people on the TV repeating how ‘hard we are working,’ the fix has been clear. Nothing in his words or the words of anyone following him in front of Congress and the cameras implies responsibility to anyone on earth other than their own cronies.

    It is Paulson’s words that signaled the beginning of the end of the American enterprise ‘for the people.’ For seven hundred billion dollars he stood up there with no clothes on and told us where we stand. Everyone has his price.

    And the beat goes on with PR talking points worthy of Geobbles like worries about HATE for British Petroleum, the GAFFEs of their CEO, his apologies, and the facile utterances of Obama. Where is the law? Feelings are not rule of law.

    The PR talking points are way off the mark.

    It would surprise me if HATE has any room in the hearts of people whose love of country, of American culture in the Gulf area, their families, communities and livelihoods, the wildlife of the beach and waters of the Gulf, for the people hired by BP on the clean-up acquiring health problems as we speak, are feeling anything but heartbreak, pain and apprehension right now


    Winston Churchill observed that you could always rely on the US to do the right thing, after it had exhausted every other possibility.

    I’m terrified that after we had all breathed a sigh of relief that the US had at last done the right thing by electing Obama after a series of disastrous Presidents beginning with Reagan, we will be proved wrong. If Obama fails what option will the US have left to do the right thing? If Obama fails to respond to the popular fury about the robber bankers, about corporate arrogance, about Israel’s intransigent stupidity, and at the end of the his term it’s just business as usual what lesson can be drawn but that democracy has failed – and when democracy fails the mob is inclined to want to rule

    Low Roller:

    The UK Telegraph is reporting that Tony Hayward sold 1/3 of his stock positions in BP on March 17, 2010. The Waxman Congressional Investigation seems to have emails that show that BP asked for MMS permission to use a cement plug 750 ft. above the bottom of the hole on March 11, 2010. The Fourth Estate of the Free Press is failing us. Congress is failing us.

    Why is Tony Hayward still in charge of the operation?

    If BP is “too big to prosecute” and the Megabanks are “too big to fail” and prosecute, then we have confirmation of a lawless unconstitutional state being run by very huge and powerful interests that are making a mockery of what we call a constitutional representative democracy. We all know that Attorney General Cuomo has grand jury testimony that could bring indictments against Investment Banks for their intentional creation of a feaux due diligence process in securitizing the toxic mortgages. I believe the Rating Agencies were given immunity. I have been waiting for the indictments for 2 years and Grand Jury Secrecy is being used to suppress the information. Maybe Yves can elucidate us on the testimony of the ex-chief of Clayton Holdings.

    Just to make matters worse, the safety of the citizens of the Southeast is being compromised by literally giving British Petroleum defacto sovereignty over the oil blowout.

    The government is relying on BP for information on the situation on the bottom of the Gulf, and nobody from BP or the Government has provided any evidence that Matt Simmon’s allegations are baseless.

    It feels like we have stepped “through the looking glass”, and we are now living in a full blown Oligarch Kleptocracy of Powerful Private Interests that have the power of Feudal Lords.

    [Jun 06, 2010] 17 Minutes Bob Janjuah......


    September 2009 FT Alphaville

    I think balance sheets and sustainability - govt, central bank ANDprivate sector, MATTER

    If they no longer matter, I will be WRONG, and I will have to accept that the policy of ‘Print/Borrow/Spend on Rubbish we don’t Need’ is a limitless phenomena, without consequences, which means there should never be a bear marketever again….

    January 2010 FT Alphaville
    Well I clearly underestimated the ability & willingness of the Public Sector, notably in the UK, US, parts of periph Europe and Japan, to take huge risks with their sovereign balance sheets, AND IMPORTANTLY, I over-estimated the ability & willingness of the Financial Sector/Market to see things for what they are (Another Debt Fuelled Bubble/Ponzi).

    April 2010 ZH

    We are trapped in some horrendous Keynesian/monetarist nightmare, where policymakers, aided/abetted/advised by their buddies in the media, in the lobbyist cabal and in financial system, have YET AGAIN decided to go down the route which merely delays the problem/pushes it down the road, but which virtually guarantees that when the NEXT bubble collapses (I assume it will be the Global Government Debt/Bond Bubble and/or the Global Fiat Money/Paper Money/FX Bubble), there is NO pleasant way back.

    [Jun 06, 2010]   It’s all political now by David Goldman

    May 13th, 2010

    Now that the state and the banks have merged in a corporatist alliance, all market news is political news. The market got clobbered today on news that New York State would investigate banks for rigging credit ratings on mortgage-backed securities by providing bad information to the ratings agencies. In my experience, the banks and the ratings agencies had a common purposes, which was to make money. The ratings agencies would advise the banks on how to tweak the portfolios behind Collateralized Debt Obligations so as to squeeze out more incomes. It wasn’t simply a matter of the banks hiring ratings agency experts and gaming the models for their own benefit; the ratings agencies themselves were making most of their money from the CDO market, and volunteered their time and advice to help the banks issue more.

    These issues come up because the banks and governments are partners in the attempt to reflate the world economy through deficits comprising a double-digit proportion of GDP in most of the major economies. The banks finance the governments, with money that they borrow from the governments.  That’s why many banks showed a profit during every single trading day of the first quarter: with a steep yield curve and nearly zero-cost funding, you have to go out of your way to lose money.

    Here’s an update of my favorite data series: the collapse of commercial and industrial lending on the books of major banks and its dollar-for-dollar replacement by holdings of Treasury securities:

    FRED Graph

    The trend shows no sign of abating; when we get the Treasury TIC data for April at the end of this month, we will find out whether foreign banks continue to shovel money into the US Treasury market at the rate of $50 to $60 billion per month.

    This symbiosis means that the banking system is in effective government control. As my friend Michael Ledeen–an expert on Italian fascism among many other fields–this is “control without ownership,” or fascism, rather than socialism. Governments and banks will wrangle over the spoils. When the banks look fat the government will use them as a political whipping boy or milk them for taxes; when the banks’ holdings of government securities threaten to topple them, as in Europe last week, the governments will pledge a trillion dollars–and borrow it from the banks.

    [Jun 06, 2010]   US Total Government Debt Reaches 130% of GDP

    Here's a postcard from off-balance-sheet country.

    This includes only current debt and not future unfunded obligations.

    I like to call this US debt chart "The Last Bubble," but it could equally apply to a chart showing the representation of this debt - the US bonds, notes, bills and of course dollars, which are really nothing more than Federal Reserve Notes of zero duration in the modern fiatopia.

    It all adds up, eventually, and must be reconciled. It is easier to print money and accumulate debt when you own the world's reserve currency. For a while the dollar might even flourish, despite the printing, as the international savers flee ahead of the economic hitmen, from country to country, and crisis to crisis.

    Chart compliments of the Contrary Investor.

    [Jun 06, 2010] Extend and Pretend Reaches A New Level

    Accounting may be surreal, but bonuses paid to executives and employees are real
    May 25, 2010 | naked capitalism

    After all, VaR-based models computed the odds of the most two extreme moves in the Dow in October 2008 as being possible only once every 73 to 603 trillion billion years. Since our universe is maybe 20 billion years old, we’d need to wait at least a trillion universes to expect to see one month like that. Weren’t we all lucky?

    Here’s the part Deux Ex Macchiato does not like:

    I used to think that level 2 assets were things valued using a model, but where all the model inputs were current market observables. In other words, a swap valued using a discounted cashflow model calibrated to the quoted libor rates is level 2, but a quanto option valued using historic correlation isn’t, as correlation is not a current market observable (but rather an historic property). In fact anything valued using a model where one input is an historic property – historic vol, historic prepayment rates, etc. – should be level 3.

    Unfortunately the text of 820 now includes the clarification that anything based on a market input is in level 2. And since historical volatility is based on a price history, an option priced using historic rather than implied is in level 2. This is not good. There is a crucial difference between a current price used as an input (or equivalently a convention for quoting prices, like implied vol) and anything else. Level 2 should be kept for purely price based model inputs. That, of course, would also make the level 3 uncertainty disclosures much more useful.

    Eeek. Having crawled in the bowels of some financial firms, I’ve been skeptical of whether an investor can make head or tails of the performance of a financial institution of any complexity. This move should give the skeptics even more cause for pause.

    ab initio:

    Fantasy accounting to make financial statements increasingly obtuse only means managements can pay themselves as much as they want as they can create statements that reflect what they want to game compensation. Of course such statements will never reflect the actual financial condition of the firm. In any case that is never of any concern as the taxpayers are always there to hold the bag when reality catches up.

    Richard Kline:

    In the last Administration, it was those at the Department of Defense that thought they created their own reality. In this Administration, it’s those at the Department of the Treasury who think they create their own reality. If forced to choose . . . I’d pitch them both out the window, and let the Devil sort his own.


    Agreed… and to take this a step further, one could say the Dept of Treasury and their fellow oligarchs are using the financial system as weaponry (war) as well as ideological domination (religion) to attain their desires for wealth and power for the few against the many.


    Not sure anyone had to crawl into the bowels of a financial firms to conclude they were black holes. Complexity and intentional obfuscation that brings things beyond human comprehension in an Orwellian sense. That is what bankers do when the ship is going down. Big Bonuses. That wasn’t just greed – that was get some before the ship goes down. But then again, some of the brightest minds in the game have taken enormous stakes! Like freakin FAMOUS trader GOD super genius John Paulson and his huge BofA stake. Warren Buffet and his GS stake. The list goes on. Know this, friends – there is a saying “Too old to laugh, too young to cry” that applies here.

    But What Do I Know?:

    Having seen what can be done with the accounting statements of a manufacturing company, I can only imagine what a financial firm can do. This just makes it easier, and assures that no one can ever be prosecuted for mispricing assets.

    IMHO, one should assume that the bank (insurance company) is lying, and their statements are not worth the paper they are printed on.

    ben there done that:

    The real shame is there actually is a population of independent quants and super quants that could provide pretty good prices for these esoteric, exotic, hard to value assets. They are creating tools to value the crazy stuff – and yes, they know from crazy. The problem is similar to the derivatives issue – darkness and secrecy help propel an inefficient market and allow certain players to extract disproportionate fees and asymmetric market power. No one really wants a baseline, independent and market driven pricing model. The banks are particularly nimble at setting up and sponsoring multi-member institutions that are meant to level the playing field and provide transparency – LSTA, ISDA, to name a few. When market efficiencies have removed the ability to overplay one’s hand, it is usually the one whose hand is no longer in power that insists that the market embrace a standard bearer for that particular market or product. So – we can belly ache all we want about whether FAS 157/820 makes sense. What we should be fearing is as long as the market players refuse to move towards a commonly adopted pricing system for hard to value assets, you can bet there are big winners and big losers – it is just a little harder to tell who is who in the dark.


    Can we talk a little more about risk? I do not believe that accounting which allows non-market pricing of assets and liabilities is ever going to be perfect. That is, a balance sheet would always be wrong. Now, if you are a banker, you might prefer that your balance sheet be wrong in a good direction – it keeps the regulators at bay and improves your ability to raise capital. Thus, logic tells us that at each step along the way in modeling value, the assumed values of unknown parameters (like the assumed volatility function in a Black-Scholes model based on historical volatility) would favor the outcome the banks want. The solution would seem to be to assume that the value of a bank’s tier 3 assets is some fraction of their stated value – say 50%. This may not even be conservative enough. Also, at its core, I believe this modeling bias is a root cause of the current catastrophe. That is, bankers and regulators alike were duped because they believed the bankers’ lies.

    Obviously the Magnetar and Abacus stuff was pure fraud, but given this tendency to overstate a bank’s health, to similarly understate risk, and the scale of credit creation, I believe the catastrophe would have occurred anyway – perhaps a little later. Thank you for another wonderful post Yves. For you next little bit of magic, would you please stop the Gulf oil leak?

    [Jun 05, 2010] Six Banks Made $51 Billion in ‘09 (The rest lost money)


    I believe that the point here is that consumer banks are not supposed to be hedge funds. That was the purpose behind Glass-Steagall and prevented a lot of banks from blowing themselves up over the 50+ years that Glass-Steagall was in effect.

    And one can easily see, in a New York nanosecond, that the banksters will go to the mat to prevent any restrictions on their ability to do highly leveraged trading with huge fractions of their assets, or to allow anything to come between them and their next taxpayer bailout.

    And the points made about bankster solvency (or lack thereof) if they had to properly account for their toxic debt are just icing on the cake.

    60 Minutes needs to do a show on this, and then follow up with interviews with the clown Senators and Representatives that are so eager to have their palms greased by the banking lobbyists. Or at least, if 60 Minutes did serious investigative journalism any more, they ought to be aiming at this.

    To turn this around and look at it through the other end of the telescope, this kinda seems to say that the only thing keeping the entire banking industry from imploding is the mark-to-make-believe accounting and the trading profits of the large hedge funds masquerading as banks.

    The FDIC is taking their time in closing the large (and growing) list of failing banks, keeping up a steady pace of from 3-7 banks closed every weekend, since the start of 2008. Maybe by 2015 or thereabouts we will have recycled most of the banks and digested the losses from our national mortgage implosion.

    Or maybe it might have been better to have performed an FDR-like closing of all the banks (or assimilation within the goobermint during the reconstruction), processing them all and restructuring the system, them re-opening for business with clean slates and all the toxic debt zeroed out. Back in the 30’s when this was done, there were many, many times more banks than we have today, and they managed to complete the task in about 6 months. Our banks and their businesses are a lot more complex today, but then we have automated tools that were not in existence in the 30s. I think we could have done a “melt-and-repour” on our banking system early in 2008 and have had a shot at having a stable banking system by now.

    Yes, it would have provoked a lotta screams and angst, but really, would it have been worse than where we are headed with the EU cracking up? Not that those are either-or situations, the EU would almost certainly have still crashed on the rocks even if we had recreated our banking system, but we would be in a lot better shape to weather the storm today if we had done so then …

    [Jun 05, 2010] A negative 2% in the quarter starting next month? by John Mauldin

    Jun 04, 2010 | Thoughts from the Frontline Weekly Newsletter

    How can that be? Let's look at what caused the recent growth.

    First-quarter GDP was revised down to 3% last week by the BEA (Bureau of Economic Analysis). But buried in that release was an upward revision to inventories, which accounted for over half of that 3%. At some point inventories become balanced and no longer grow.

    And that may already be happening. We got the ISM number on Wednesday, and it came in somewhat above consensus at a quite robust 59.7. But when you look at the inventory sub-component, you find a different picture. It was slightly negative in April and dropped another 3.8 in May to be down to 45.6. This is a drop in that index of 9.7 points in just two months (anything north of 50 shows growth and below 50 suggests no growth or actual retreat).

    Increases in inventory count as a plus when you are figuring GDP. If inventories are not growing, that figures to be a drag on second-quarter GDP.

    And a significant part of the growth in the past three quarters came from transfer payments from the government (AKA stimulus), which are going away. The money received by state and local governments, which allowed them to keep employees on the job, is now being taken off the table; and the stories of state and local governments having to cut back are everywhere.

    I have my doubts about negative GDP growth of 2% in the third quarter, but a much slower GDP than the consensus 3% seems quite possible.

    [Jun 04, 2010]   Models Show Gulf Oil May Reach US East Coast This Summer «

    naked capitalism

    Don in GA:

    I suspect BP having a stock price that’s greater than 0 is largely based on the fact that it is a U.K. based company that pays 17% of the total dividends of the FTSE index, i.e. to a lot of pension funds, retirees, etc. Should the U.S. government think about sticking BP with enough cleanup costs to wipe out BP stockholders, I could see the U.K. and the EEC suggesting that they might be forced to look a lot more closely at the business practices of Goldman Sachs and other U.S. corporations operating in the UK and the EEC, up to and including criminal charges that could threaten the viability of those companies and deal a severe blow to the US economy.

    [Jun 04, 2010] Rising costs fuel food inflation fears

    The rising cost of meat, dairy products and vegetable oils will increase the world’s food import bill by 11.5 per cent in 2010, according to the United Nations, further stoking fears of rising food inflation in emerging countries.

    Food costs make up a significant part of the price of consumer goods, and the increase is likely to lead to higher inflation at a time when many emerging economies are battling rising inflation.

    Chinese consumer price inflation rose to 2.8 per cent in April, with food prices rising 5.9 per cent year-on-year – one factor pushing the Chinese authorities to take measures to cool the growth of their economy.

    In its forecast about this year’s food import bill, the UN’s Food and Agriculture Organisation said on Thursday that the cost of imported foods would hit $921bn, its highest level after a record of $1,015bn in 2008, and well above levels before the food crisis of $350bn-$450bn a year.

    The high figure is the result of increases in the cost of commodities such as milk, beef and sugar as well as a growing trend towards the consumption of higher-value foods in emerging economies.


    Global recovery threatens food price surge - Nov-16

    The seeds of a profitable crop - Apr-21

    Niger faces food crisis - May-11

    Summit draft removes date to end hunger - Nov-11

    [Jun 04, 2010] EvilHenryPaulson wrote on Thu, 6/3/2010 - 6:15 pm

    Rising nationalism complicates the picture in Eastern Europe and xUSSR area...

    Hungary and Slovakia: Pandora's passport | The Economist
    The Budapest Times - Hungary‘s leading English Language source for daily news

    couple of articles on Hungary, because it does seem to be popular

    Applicable to countries or corporations —
    Open question, will use countries for example;
    1) What defines a country, beyond keeping with history to that point
    2) I would say we try everything, but only the stable solutions last
    3) The organizational style will affect the outcome
    4) Too small and inefficiency becomes a limitation
    5) Too large and ineffectiveness becomes a limitation
    6) Cultural. Ethnic, linguistic, historical
    7) Geographic. Agriculture, transportation, climate, neighbours
    Q) Whatever set where minimal barriers will maximize the surplus? (economic, but with geographic + cultural roots)
    Q) How significantly, and in which direction small/big, does modern technology shift the common results from what we've known in the past

    Just look at a map. Are so many tiny countries feasible, especially if they rely on tax dodging (which is one thing Obama and continental EU states are serious about and independently able to after). Conversely, are the larger countries able to respond to so many different needs when times are tough?

    You can also extend the thinking to corporations, like how big is too big for a conglomerate

    1) In an era of stagnant growth, the dominant strategy is fighting for an increase in one's share
    2) Dynamic areas have outsized influence, and the lead the rest

    [Jun 04, 2010] Oil and Florida Tourism


    Tags nova wrote:

    What the hell is "weathered oil?" Is that salty oil with a rough plank finish?

    Oil is a mixture composed of molecule as light as methane (though this is typically not considered oil) to the heavy components used for asphalt. I suspect that heat, sunlight and wave action cause the lighter components to evaporate, and the sludge that's left is called "weathered" oil....


    I don't want to hear too much more about how serious the situation is. I've heard it. I want to hear about concrete measures to preserve remaining fisheries and wetlands, and even expand them. This means moritoriums on development and drilling in these areas. This existing disaster has made the remaining areas more precious and valuable than ever; and they simply must be protected. We have lost the ability to absorb any more risk to these areas. That's one of the true costs of the disaster - we cannot afford any more risks. If we are accepting large dead zones as the price of BOA, then we deserve to decline, precipitously.

    Pellice wrote on Thu, 6/3/2010 - 6:09 pm Tags Has Obama made one speech where he said that we as a people need to rethink how we live our lives? Has he asked us to consider whether we could manage four driveless days per month? Has he announced additional funds for wetlands purchases starting immediately?



    There are still Exxon claims working their way through the courts. This case is far more complex. My heart goes out to those folks who are losing their way of life.

    Comrade Kristina:

    He gave a speech today that touched on some of that Pellice. Of course he'll be lambasted for it and called the second coming of the Peanut Farmer that wanted real "Muricans" to wear sweaters.


    Pellice wrote:

    Has Obama made one speech where he said that we as a people need to rethink how we live our lives?

    What, you haven't heard people screaming he's a nazi-commie-socialist-muslim-supervillain enough lately? In a democracy, political leadership can't really make demands of people that they won't accept. At least not for long. You're merely getting the government your nation both demands and deserves.

    [Jun 01, 2010]   Front-running money market fear by Tracy Alloway Alphaville

    And in words:

    The stress indicators are still far from the post-Lehman crisis. During Q408/Q109, the move in these indicators was led by cash, eventually spilling over to the futures as markets started pricing in an extended period of funding related issues. However, currently the move appears to be led by forwards rather than cash suggesting a front running of moves.

    We’re sure that’s meant to be comforting but, err, someone seems to be placing bets on greater money market stress. Time will tell if they’re right of course. But in the meantime, Deutsche say there’s not much chance of Lehman-like difficulties. There are too many liquidity programmes in place.

    Watch out for July 1st though:

    With the ECB unlimited allotment 3M tender facilities in place (and the possibility of 6M tenders to be reintroduced if need be), liquidity risks for European banks should remain at manageable levels. The expiry of the 1Y tender (EUR 442bn) on the 1st of July presents a pressure point for the financial sector.

    However, note that the expiry of the 1Y tender coincides with the settlement of a 3M and a 1W tender, which should address rollover risks. Of particular concern has been the issue of USD funding for European banks as access to the USD CP market could become constrained. Currently, potential avenues for European Banks for USD funding are the US CP market, ECB USD swap facility or swapping their euro funding into dollars via the fx market.

    If conditions were to deteriorate significantly, assuming a worst case scenario of no access to the CP market. non- US banks and other foreign entities would need to fund approximately $200bn through other avenues . . . While access to market dollar funding could get constrained, particularly for weak banks, the main saving grace is the ECB 1W USD swap facility. The take up at this week’s tender was slightly over EUR 5bn while the last 84day tender had a take up of EUR 1.04bn. The limited take-up at these auctions suggests that stress levels in the funding market are, as of yet, not at critical levels . .

    [Jun 01, 2010] Robert Prechter's Glimpse Of The Apocalypse To Come

    zero hedge

    here is a complete list of what Prechter expects on the way down, pulled from an October 2003 issue of the Elliott Wave Theorist.

    Cognitive Dissonance:

    While many may laugh at this list I will ask a simple question. Considering the economic and political policies in place not only in the US but around the world of denial of the current situation, where do people think we are going? And where does it end?

    A careful read of the list outlines the logical progression of various problems that are not confronted and dealt with early, meaning now or over the last 10 years. An infection not treated becomes gangrene.

    [Jun 01, 2010]   Walk Aways, NYT Version

    The Big Picture

    Strategic walkaways gets the NYT (Owners Stop Paying Mortgages, and Stop Fretting.) treatment today. The data is fairly impressive:


    Wow, it is incredible how shocking this is. Even when we know a lot about the repercussion caused by the past years’ recession, we are still surprised to see the numbers and charts showing the damage and how many people and families lost far more than their jobs. I honestly hope this gets better so we read some posts on how good things are going. Thank you for sharing.

    be the ball:


    You keep harping on this topic in a slightly derogatory way and I finally had to register and comment.

    Here’s your honest statement:

    “I’ve done the math, and it doesn’t make sense to pay the mortgage. Like all the big banks have all done, I’ve made the calculation that it is financially beneficial to default on the loan — so that is what I did.”

    This is exactly what my family and I decided to do last July, the short sale with no contribution from me closed this March. My 2nd ate $110,000 and my 1st ate about $30,000 on an original purchase price of $675,000 in Los Angeles (2006).

    Let me take it one step further for you. I assumed that this was a distinct possibility the day I purchased the house. And for that SPECIFIC reason, I opted for 100% financing 10 yr interest only ARM at the time of purchase. I even had the sellers pay 100% of the closing costs and fees. It literally cost me $36 to move in to a $675,000 house in 2006. The banks were willing to take on 100% of the risk of my home ownership. Either things continue to appreciate and my family and I can eventually refi down to just a first mortgage, or things go to hell and the bank can have the house back…..I effectively paid a glorified rent payment, with an upside of potential appreciation.

    You tend to paint everyone who took on a “risky” loan as a jackass who was being a fool with no clue as to what he/she was doing.

    My personal opinion of why you “never” hear the honest statements about walkaways that you are looking for, is that those of us who have done so have moved on and have better things to do than to advertise our business decisions….

    Just thought I would share.


    One contributor to the length of time to foreclose is the legal process once the lender decides to pull the trigger. The notification, sheriff’s appraisal, public auction, confirm sale, get deed from the sheriff, etc. process in Ohio takes 9 months in many jurisdictions. The problem is the number cramming through the system and the public entities being loath to staff up for a “temporary” situation. So, it is easy to see it taking a year or more, especially if a degree of delinquency is tolerated and hovers around, say, 60 days past due for awhile before payments stop altogether. Of course, add BK and you add another 6 months.

    I am uncomfortable with the glorification of the walk aways. It is similar to glorifying someone who gets free (charity) medical care at the emergency ward. I think we all understand that we, as a group, pay for that “free” care. I, for one, dislike paying more so that someone else can exploit the system.

    We also pay for the walk aways in the form of lower interest paid on deposits, government debt (FDIC), and the not-yet-realized increased cost for mortgages for those of us who are credit worthy when the government finally decides it cannot be the financing source for the mortgage industry (because the loss of principal caused by walk aways makes MBS unappealing to the world’s investors.)

    I also regret seemingly this final nail in the coffin of standing by one’s commitments. We seem to have almost lost our moral compass. So, morals are now situational, to be followed until times get tough. Sad. We will all pay.



    I don’t think anyone’s “glorifying” people who walk away from their mortgages. To me, it’s a symptom of just how bad the overall borrowing scheme has gotten that people who would normally never miss a credit card payment have made a completely rational decision to stop making payments on a house that’s worth less than they paid. These aren’t deadbeats who skip out on loans for a living.

    And it’s been mentioned before, but I’ll say it again. The “walk away” process isn’t new, it’s just that corporations have been doing most of the walking until now. Capitalism doesn’t have a moral compass.


    There is no privileged class that steals with impunity at the highest levels while the little guy must live an upright life or be castigated – Sorry! What’s good for the goose, etc.

    Julia Chestnut :

    If I read the same article, the two anecdotal cases in the article were not strategic defaults. One woman got lung cancer and tried to work with her bank; they refused, so she had no real choice but to quit paying. Another couple, her son and his wife, quit because they could either invest in their business or keep making their payments. These are not people deciding that it is in their best interest to quit paying because they are underwater – which is the “strategic default” meme. But that wasn’t what the person writing the article wanted to talk about, so the bit about the woman having lung cancer is a single line in the article.

    Honestly, I don’t believe that the “strategic default” as it is being described on the internet is happening. I do genuinely believe that the time between default and foreclosure is lengthening in mandatory court process states. The banks are probably having incredible trouble getting the paperwork in order, and almost certainly are faking it in half the cases that they bring. Courts are very difficult to rush. But that isn’t because ordinary people are being strategic. It is because the process is purposefully somewhat inefficient in order to protect rights that definitely need protection.

    Again, this is not “strategic default.” This is default, and then the banks take forever to actually assert their right to evict the mortgagor. My question is whether the banks’ failure to do so is strategic: until they take possession, they don’t owe taxes etc. on the property, the “owner” does. The mortgagor has to keep the property up to keep the homeowners’ association happy. The house is less likely to be stripped of all plumbing and fixtures if it is occupied. The market sucks. Hmm . . . . . .yeah, I’m sure that it is just slow-moving courts that are keeping the foreclosures from going through quickly.

    [Jun 01, 2010]   "Debt Is Choking Global Growth" (Bill Gross, Business Spectator commentary)

    Common sense observation tells you...rounding the Lehman liquidity crisis and why they’re beginning to balk once again. Too much debt/too little growth makes for a 'three will get you two' moment, and they refuse to extend credit under those circumstances.

    So the developing predicament is becoming more obvious to Shakespeare’s “lenders and borrowers be". Fiscal tightening and budget conservatism may have come too late for Greece and its global lookalikes. Continued deficit spending may be an exorbitant privilege extended to only a few. Caught in the middle are many developed countries that likely face New Normal growth rates and a continued bumpy journey toward that destination.

    Investors must respect this rather tortuous journey in the months and years ahead for what it is: A deleveraging process based upon too much debt and too little growth to service it. No longer will 'two get you three' in the investment world. Not 1,000 per cent, but 4-6 per cent annualised returns for a diversified portfolio of stocks and bonds is the likely outcome. And be careful – sometimes “three gets you two'.




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