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Financial Skeptic Bulletin, July 2010

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[Jul 17, 2010]  Political Aspects of Full Employment

One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.
Economist's View

Via email, everything old is new again. This is from 1943:

Political Aspects of Full Employment, by Political Quarterly, 1943: ... Section IV ... 3. ...In the slump, either under the pressure of the masses, or even without it, public investment financed by borrowing will be undertaken to prevent large-scale unemployment. But if attempts are made to apply this method in order to maintain the high level of employment reached in the subsequent boom, strong opposition by business leaders is likely to be encountered. ...
In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all these forces, and in particular of big business—as a rule influential in government departments—would most probably induce the government to return to the orthodox policy of cutting down the budget deficit. A slump would follow...
This pattern of a political business cycle is not entirely conjectural; something very similar happened in the USA in 1937-8. The breakdown of the boom in the second half of 1937 was actually due to the drastic reduction of the budget deficit. ... [full text]
Another quote:

The fact that armaments are the backbone of the policy of fascist full employment has a profound influence upon that policy's economic character. Large-scale armaments are inseparable from the expansion of the armed forces and the preparation of plans for a war of conquest. They also induce competitive rearmament of other countries.

This causes the main aim of spending to shift gradually from full employment to securing the maximum effect of rearmament. As a result, employment becomes 'overfull'; not only is unemployment abolished, but an acute scarcity of labour prevails. Bottlenecks arise in every sphere, and these must be dealt with by the creation of a number of controls. Such an economy has many features of a planned economy, and is sometimes compared, rather ignorantly, with socialism.

How ever, this type of planning is bound to appear whenever an economy sets itself a certain high target of production in a particular sphere, when it becomes a target economy of which the armament economy is a special case. An armament economy involves in particular the curtailment of consumption as compared with that which it could have been under full employment.[4]

The fascist system starts from the overcoming of unemployment, develops into an armament economy of scarcity, and ends inevitably in war.

Selected Comments


So it's admitted in the article that Hitler starting war in Poland was the reason we got out of the persistent economic slump, primarily because reducing the budget deficit was no longer a priority among business leaders. And these were the FDR years.


[Jul 31, 2010] David Rosenberg Here's 5 Reasons Why Earnings Haven't Lifted Stocks More

As Rosenberg noted: "with the monetary and fiscal policy stimulus behind us, we can see what the economy looks like – back-to-back declines in retail sales, durable goods orders and shipments, and household employment. Not to mention consumer and producer prices. "

Fourth, while revenues have been above expected, they are running at about  one-fifth the pace of profit growth and as a result margins are hitting new highs. What happens when they begin to compress (especially with 80% of the incoming economic data disappointing over the past month)?

Fifth, with the monetary and fiscal policy stimulus behind us, we can see what the economy looks like – back-to-back declines in retail sales, durable goods orders and shipments, and household employment. Not to mention consumer and producer prices

[Jul 31, 2010]   Trucking Industry Says Economy Is Slowing

Jul 29, 2010 | Business Insider

The quote of the week comes from Bob Costello, Chief Economist of the American Trucking Association who is warning of an economic slowdown:

ATA Chief Economist Bob Costello said that the two sequential decreases reflect an economy that is slowing.  Furthermore, growth in truck tonnage is likely to moderate in the months ahead as the economy decelerates and year-over-year comparisons become more difficult.  Nevertheless, Costello believes that tonnage doesn’t have to grow very quickly at this point since industry capacity has declined so much.  “Due to supply tightness in the market, any tonnage growth feels significantly better for fleets than one might expect.”

This came on the back of yesterday’s data release showing the second consecutive month of declines in truck tonnage:

The American Trucking Associations’ advance seasonally adjusted (SA) For-Hire Truck Tonnage Index decreased 1.4 percent in June, although May’s reduction was revised from 0.6 percent to just 0.1 percent.  May and June marked the first back-to-back contractions since March and April 2009.  The latest reduction lowered the SA index from 110.1 (2000=100) in May to 108.5 in June.

Sell Orders Overwhelm WOPR As 10 Year Recaptures 2.99% zero hedge


Drip after drip of deflation data

Today’s release on manufacturing activity by the Richmond Fed is pretty ghastly, as you would expect given that the effects of fiscal stimulus are now wearing off at accelerating pace – before the happy handover to the private sector is safely consummated – and given that the structural East-West imbalances that lay behind the global crisis are getting worse again.

The expectations index for the US 5th District is crumbling:


This follows yesterday’s horrendous fall in the Texas business activity index from the Dallas Fed, which fell from -4 in June to -21 in July. “Thirty-one percent of firms reported a worsening of activity, up from 22 percent in June,” said the bank.

Texas New Orders were -9.6 in July, -8.2 in June, and +15.8 in May.

Capacity Utilization was -0.6 in July, +2.7 in June, and +18.7 in May.


[Jul 28, 2010]   Jim Rickards Compares The Collapse Of The Roman Empire To The US, Concludes That We Are Far Worse Off zero hedge

In the latest two-part interview with Jim Rickards by Eric King, the former LTCM General Counsel goes on a lengthy compare and contrast between the Roman Empire (and especially the critical part where it collapses) and the U.S. in it current form. And while we say contrast, there are few actual contrasts to observe: alas, the similarities are just far too many, starting with the debasement of the currencies, whereby Rome's silver dinarius started out pure and eventually barely had a 5% content, and the ever increasing taxation of the population, and especially the most productive segment - the farmers, by the emperors, to the point where the downfall of empire was actually greeted by the bulk of the people as the barbarians were welcomed at the gate with open arms. The one key difference highlighted by Rickards: that Rome was not as indebted to the gills as is the US. Accordingly, the US is in fact in a far worse shape than Rome, as the ever increasing cost of funding the debt can only come from further currency debasement, which in turn merely stimulates greater taxation, and more printing of debt, accelerating the downward loop of social disintegration. Furthermore, Rickards points out that unlike the Romans, we are way beyond the point of diminishing marginal utility, and the amount of money that must be printed, borrowed, taxed and spent for marginal improvements in the way of life, from a sociological standpoint, is exponentially greater than those during Roman times. As such, once the collapse begins it will feed on itself until America is no more. Rickards believes that this particular moment may not be too far off...

In this context, Rickards presumes, it is not at all surprising that both individual Americans and domestic corporations have set off on a massive deleveraging and cash conservation wave: the subliminal sense that something very bad is coming, is becoming more palpable with each passing day. The bottom line is that the Fed, just as our founding fathers had warned, could very well end up being the catalyst to the downfall of American society as it cannibalizes all productive output and transfers the wealth to the oligarchy, while paying for this transfer in the form of unrepayable indebtedness. Ostensibly, had the army of Ancient Rome agreed to be paid in paper instead of (even diluted) precious metals, thus creating the first central bank in history, the collapse of that particular overstretched empire would have been far quicker. On the other hand, it would have prevented the disaster of Central banking in its current form, as civilization would have learned about its evils far sooner. Alas, that did not happened, and it now befalls upon the current generation to realize just how much of a destructive influence central banking truly is. If Jim Rickards is correct, however, the realization will be America's last, just before US society disintegrates.

Must hear two part interview can be found here:


[Jul 27, 2010] Luck Or Skill - What Is More Critical To An Exceptional Investor (Or Even A Completely Worthless One)

Ironically, investors have learned their lessons: after a nearly 60% ramp from the all time lows, investors continue to refuse to buy when everyone else is buying, contrary to the pleading by Obama, and all the conflicted fly by night permabullish mutual fund managers which CNBC appears to have an infinite collection of to recycle and fill content inbetween all those incontinence ads 24/7.

Jason T :

Question should be:

What's the less immoral way to make money today:  inside information or using your banks deposits to front run your brokerage client's orders?

[Jul 27, 2010] Ever Wondered How You Know You Are In A Depression David Rosenberg Explains zero hedge

As usual, some terrific points from the man who was far too smart for Merrill Lynch. We are also glad that Rosie caught our observation over the weekend that securitized loans have plummeted by trillions recently: easily the single biggest argument for QE2.

From Breakfast with David:


Congress moved to extend jobless benefits seven times, as has been the case over the past two years, at a time when almost half of the ranks of the unemployed have been looking for at least a half year.

The unemployment rate for adult males (25-54 years) hit a post-WWII this cycle and is still above the 1982 recession peak, and the youth unemployment rate is stuck near 25%. These developments will have profound long-term consequences – social, economic and political.

The fiscal costs of the depression continue to mount, with the White House on Friday raising its deficit projection for 2011 to $1.4 trillion from $1.267 trillion. That gap in the forecast – $133 billion – was close to the size of the entire budget deficit back in 2002. Amazing.

You also know it is a depression when you find out on the weekend that the FDIC seized and shuttered another seven banks, making it 103 closures for the year. What a recovery!

Meanwhile, how are the surviving banks making money? By cutting their provisions for bad debts (at a time when the household debt/income ratio is still near record highs of 120% and at a time when one-quarter of the consumer universe has a sub-600 FICO score – which means they are also ineligible for Fannie or Freddie mortgage financing. The banks thus far have reduced their loan loss reserves between 23% (Cap One) and 73% (First Horizon) – as Jamie Dimon said last week, these are not real earnings.

You also know it's a depression when a year into a statistical recovery, the central bank is still openly contemplating ways to stimulate growth. The Fed was supposed to have already started the process of shrinking its pregnant balance sheet four months ago and is now instead thinking of restarting Quantitative Easing. Of course, we are in this bizarre environment where bank credit continues to contract – last week alone, bank wide consumer credit outstanding fell $2.2 billion; real estate lending contracted $9.2 billion; and commercial & industrial loans slid $5.1 billion.

What did the banks do this past week? They replaced cash with government securities – the $47.5 billion net buying was the second largest in the past three years. As the banks find few opportunities to lend – households are either not creditworthy enough to lend to or are busy paying off debts and companies that do have any expansion plans have enough cash on their balance sheet to finance their initiatives – they are likely to use their $1 trillion in excess reserves buying government and related securities, especially with the yield curve so steep and the Fed ensuring that it has no intention of taking the 'carry' away for a long, long time.

Did we mention that you also know you are in some sort of depression when after two years of record $1+ trillion deficit financing to kick-start the economy, the yield on the 5-year note is sitting at 1.8%? What do you think that tells you? It tells you that the private credit market is basically defunct, especially when it comes to the securitized loans, which played such a critical role in promoting leveraged economic growth from 2001 to 2007 – the amount of securitized credit that has vanished since the credit bubble burst two years ago is $1.4 trillion – 40% of this market is gone. And what replaced it was this rampant government intervention into the economy – aimed at putting a floor under the economy. But insofar as the government stimulus fades and the contraction in credit persists, it will be interesting to see what sort of spending, output and income growth we are going to see in the near- and intermediate-term.

And as a must read tangent, here is Rosie on the market's most recent addiction to barbiturates, lithium, xanax and geodon all at the same time (not to mention the Fed's daily bouts of monetary heroin withdrawal, coupled with the market regulator's taxpayer funded pornography addiction bills). That probably explains it - to trade one really has to be stoned 24/7, or to at least do the 180 degree opposite of what makes sense.


Everyone seems to be basing their view on the economic outlook from what the stock market is telling them – so one week it is a return to recession, and now that the market is surging, we must be in some sort of boom. Coincident indicators out of Europe has everyone convinced that the backdrop is solid and yet the massive fiscal tourniquet has to be applied. Investors are caught in bouts of monthly euphoria and depression – it is amazing that we have all this joy for a market that has made its way back to the middle of the range and a market that is basically flat for the year.

Program trading, algorithms, momentum trading, technicals – all are at play. Meanwhile, the Treasury market has steadfastly refused to budge from a double-dip view, with real rates still under downward pressure, and while the breadth of the market has been decent, this rally has continued to lack volume – down a further 2% on Friday on the NYSE. Meanwhile, we are at another key technical juncture – the Dow and Nasdaq have retaken their 200-day moving averages while the S&P 500 and the Nasdaq are caught between the 50-day and 200-day m.a.'s.

It is amazing that Mr. Market has been able to look through some of the blemishes of the Q2 earnings season, the recent spike in jobless claims, the latest hot spot for sovereign default risk (Hungary), and the ECRI hitting a level that is more negative now than in the worst point of the 1990-91 recession. Even with the recent recoveries, the downdraft in most industrial metal prices since mid-April has been breathtaking – down 18% for aluminum, down 13% for copper, down 27% for nickel, and down 15% for steel. Since China has accounted for 40% of global consumption of base metals over the past year, these price moves would seem to suggest that the economic landing there might be less soft and harder than is generally perceived.

[Jul 26, 2010]   Ten Stock-Market Myths That Just Won't Die By BRETT ARENDS

The Dow Jones Industrial Average last week ended up pretty much where it had been a little more than a week earlier. A rousing 200-point rally on Wednesday mostly made up for the distressing 200-point selloff of the previous Friday.

The Dow plummeted nearly 800 points a few weeks ago -- and then just as dramatically rocketed back up again. The widely watched market indicator is down 7% from where it stood in April and up 59% from where it was at its 2009 nadir.

These kinds of stomach-churning swings are testing investors' nerves once again. You may already feel shattered from the events of 2008-2009. Since the Greek debt crisis in the spring, turmoil has been back in the markets.

At times like this, your broker or financial adviser may offer words of wisdom or advice. There are standard calming phrases you will hear over and over again. But how true are they? Here are 10 that need extra scrutiny.

1 "This is a good time to invest in the stock market."

Really? Ask your broker when he warned clients that it was a bad time to invest. October 2007? February 2000? A broken watch tells the right time twice a day, but that's no reason to wear one. Or as someone once said, asking a broker if this is a good time to invest in the stock market is like asking a barber if you need a haircut. "Certainly, sir -- step this way!"

2 "Stocks on average make you about 10% a year."

Stop right there. This is based on some past history -- stretching back to the 1800s -- and it's full of holes.

About three of those percentage points were only from inflation. The other 7% may not be reliable either. The data from the 19th century are suspect; the global picture from the 20th century is complex. Experts suggest 5% may be more typical. And stocks only produce average returns if you buy them at average valuations. If you buy them when they're expensive, you do a lot worse.

3 "Our economists are forecasting..."

Hold it. Ask your broker if the firm's economist predicted the most recent recession -- and if so, when.

The record for economic forecasts is not impressive. Even into 2008 many economists were still denying that a recession was on the way. The usual shtick is to predict "a slowdown, but not a recession." That way they have an escape clause, no matter what happens. Warren Buffett once said forecasters made fortune tellers look good.

4 "Investing in the stock market lets you participate in the growth of the economy."

Tell that to the Japanese. Since 1989 their economy has grown by more than a quarter, but the stock market is down more than three quarters. Or tell that to anyone who invested in Wall Street a decade ago. And such instances aren't as rare as you've been told. In 1969, the U.S. gross domestic product was about $1 trillion, and the Dow Jones Industrial Average was at about 1000. Thirteen years later, the U.S. economy had grown to $3.3 trillion. The Dow? About 1000.

5 "If you want to earn higher returns, you have to take more risk."

This must come as a surprise to Mr. Buffett, who prefers investing in boring companies and boring industries. Over the last quarter century, the FactSet Research utilities index has even outperformed the exciting, "risky" Nasdaq Composite index. The only way to earn higher returns is to buy stocks cheap in relation to their future cash flows. As for "risk," your broker probably thinks that's "volatility," which typically just means price ups and downs. But you and your Aunt Sally know that risk is really the possibility of losing principal.

6 "The market's really cheap right now. The P/E is only about 13."

The widely quoted price/earnings (PE) ratio, which compares share prices to annual after-tax earnings, can be misleading. That's because earnings are so volatile -- they're elevated in a boom, and depressed in a bust.

Ask your broker about other valuation metrics, like the dividend yield, which looks at the dividends you get for each dollar of investment; or the cyclically adjusted PE ratio, which compares share prices to earnings over the past 10 years; or "Tobin's q," which compares share prices to the actual replacement cost of company assets. No metric is perfect, but these three have good track records. Right now all three say the stock market's pretty expensive, not cheap.

7 "You can't time the market."

This hoary old chestnut keeps the clients fully invested. Certainly it's a fool's errand to try to catch the market's twists and turns. But that doesn't mean you have to suspend judgment about overall valuations.

If you invest in shares when they're cheap compared to cash flows and assets -- typically this happens when everyone else is gloomy -- you will usually do very well.

If you invest when shares are very expensive -- such as when everyone else is absurdly bullish -- you will probably do badly.

8 "We recommend a diversified portfolio of mutual funds."

If your broker means you should diversify across things like cash, bonds, stocks, alternative strategies, commodities and precious metals, then that's good advice.

But too many brokers mean mutual funds with different names and "styles" like large-cap value, small-cap growth, midcap blend, international small-cap value, and so on. These are marketing gimmicks. There is, for example, no such thing as "midcap blend." These funds are typically 100% invested all the time, and all in stocks. In this global economy even "international" offers less diversification than it did, because everything's getting tied together.

9 "This is a stock picker's market."

What? Every market seems to be defined as a "stock picker's market," yet for most people the lion's share of investment returns -- for good or ill -- has typically come from the asset classes (see No. 8, above) they've chosen rather than the individual investments. And even if this does turn out to be a stock picker's market, what makes you think your broker is the stock picker in question?

10 "Stocks outperform over the long term."

Define the long term? If you can be down for 10 or more years, exactly how much help is that? As John Maynard Keynes, the economist, once said: "In the long run we are all dead."


[Jul 26, 2010] Chicago Fed: Economic activity declined in June

7/26/2010 | Calculated Risk

Note: This is a composite index based on a number of economic releases.

From the Chicago Fed: Index shows economic activity declined in June

Led by deterioration in production- and employment-related indicators, the Chicago Fed National Activity Index declined to –0.63 in June, down from +0.31 in May. Three of the four broad categories of indicators that make up the index made negative contributions in June, while the sales, orders, and inventories category made the lone positive contribution.


Hell To Pay wrote:

There is no expansion without fresh debt fuel. Our collective ability to process additional debt fuel has reached full saturation point. We are living in both an interesting conundrum and on borrowed time.

"No expansion without fresh debt fuel?" That IS a conundrum, and it implies that any fiat currency regime has what is essentially a finite life, though what defines that lifespan is less apparent....

[Jul 25, 2010] Potholes in the Recovery Road - Reduce Speed Ahead by Paul Kasriel

His analogy with 1990-1993 recession is questionable: the recovery in this case was pretty certain because of huge boost caused by the dissolution of the USSR.
Jul 9, 2010 |

For various reasons that will be discussed below, we are lowering our 2010 real gross domestic product (GDP) forecast. At the same time, we are publicly unveiling our 2011 forecast - admittedly not nearly as anxiously awaited as LeBron's revelation. For the second half of 2010, we now are projecting annualized real GDP growth of 1.8% versus our May forecast of 2.5%. This lower second-half projection and the Commerce Department's revised lower first quarter growth reduces our Q4/Q4 2010 real GDP growth forecast to 2.2% versus May's forecast of 2.7%. As a result of our reduced 2010 real GDP growth projection, the forecast for the unemployment rate has been increased. For Q4:2010, we now place the average unemployment rate at 10.3% versus the May forecast of 10.0%. Our Q4/Q4 2011 forecast for real GDP growth is 3.2%.

Before getting into the reasons for downgrading the 2010 GDP forecast, we think it is important for investors to realize that this past recession and current recovery are of a different nature than most others in the post-war era - an exception being the recession/recovery/expansion of 1990-93. Most postwar recessions were brought on by the Federal Reserve intentionally tightening monetary conditions in order to extinguish undesired increases in the prices of goods and services. In this event, the nonfinancial sectors of the economy bear the brunt of monetary policy tightening. However, the financial sector, although also adversely affected, remains able to resume credit creation when the Fed adopts an accommodative policy after goods/services price increases moderate. The Fed lowers its policy interest rate, in effect providing cheaper credit to the financial sector, which, in turn, provides cheaper credit to the private nonfinancial sector. Credit growth created by the private financial sector picks up, growth in private sector spending picks up, and a robust recovery ensues.

Although the onset of the recent recession unfolded in a similar fashion as described above - the Fed intentionally tightening monetary conditions to restrain undesired increases in the prices of goods and services - the financial sector was more adversely affected in the recent recession than in prior ones. Of course, the reason for this was the post-war unprecedented decline in residential real estate prices. With home mortgages outstanding rising to both absolute and relative record highs in this past cycle (see Chart 1) and with the value of the collateral backing this debt falling precipitously, the financial sector experienced its biggest losses in the post-war era. These losses, which resulted in the massive "evaporation" of capital, rendered the financial sector unable to create net new credit for the private nonfinancial sector when the Fed slashed the cost of its credit.

Chart 2 shows that starting in Q1:2009 and continuing through Q1:2010 (the latest data point available) outstanding loans and investments on the books of private financial institutions contracted. In prior post-war recessions, loans and investments slowed in their rate of growth. But this is the first instance of an outright contraction in private financial sector issued credit. Judging from the annualized rate of contraction in bank loans and investments of 4.9% in April and 8.0% in May (see Chart 3), private financial sector credit creation likely contracted again in the second quarter of this year.

What all this means is that the transmission mechanism between the Federal Reserve and the nonfinancial sector of the economy is malfunctioning. The Fed is revving up the monetary engine, but these high rpms are not being transferred to the wheels of the economy. With regard to the revving up of the monetary engine, the Fed has reduced its effective policy rate to a level below 0.25% and has increased the amount of assets on its balance sheet from $877 billion at the end of 2007 to over $2.3 trillion today. Under normal circumstances, if the private financial system were functioning properly, this cheap and abundant Fed credit would have been transformed into cheap and abundant credit for the private nonfinancial sector. But this is not happening because the private financial sector monetary transmission mechanism is malfunctioning.

Qualitatively, but not of the same magnitude, the private financial sector transmission mechanism also was malfunctioning in the early 1990s. The commercial banking system incurred relatively large losses associated with falling commercial real estate values in the late 1980s. Because of capital constraints resulting from these losses, banks could create relatively little credit for the private sector. (An increase in private sector loans and investments incurs a charge against risk-based capital.) As shown in Chart 4, quarter-to-quarter growth in real final sales was very weak in the three quarters of the recovery. Subsequently, growth in real final sales accelerated, only to contract again in Q1:1993. The unemployment rate did not peak until the Q2:1992 and declined rather slowly in 1993. The Fed continued to reduce its federal funds target through September 1992, a full 18 months after the trough of the prior recession (March 1991). First associated with the weak and uneven recovery following the 1990-91 were terms such as "jobless recovery," "double-dip," and who could forget the Maestro's phrase, "financial market headwinds." Sound familiar?

[Jul 24, 2010] Breakfast_with_Dave_072210

The problem with minimal bond yield is that temptation to get higher yield is too strong to resists and that lead to disappointments down the road...  Like Mark Twain used to say "A thing long expected takes the form of the unexpected when at last it comes."
Jul 22, 2010 | gluskinsheff


Those were the words Ben Bernanke used to describe the macro outlook. He refrained from discussing double-dip risks, but in contrast to the market's desire for more policy juice, he actually spent more time talking about the how, " at some point, the Committee will need to begin to remove monetary policy accommodation to prevent the buildup of inflationary pressures".

Amazing – the Fed is still pre-occupied with inflation at this juncture


The big news yesterday was the continued decline in bond yields – with the 10-year note closing down at 2.88%, which is the lowest since April 2009. This is critical because the Treasury market is telling a different story than equities are...but remember which asset class really leads.

Treasury yields peaked three months before equities peaked in 2007 (June vs. October) and bottomed three months before equities in 2008-09 (December '08 vs. March '09).

When did Treasury yields peak this year? Try early April at 4.01% – while "hope" persists in equities we doubt that this condition will be sustained as the weakening in the economic data points spill over into the earnings landscape.

[Jul 24, 2010] Rosenberg’s 17 reasons to be bullish (seriously) by Paul Murphy

A very apt quote (everybody and his brother were shouting that bond yield will go up in 2010): "Ask the bullish community if by this time of the year we were supposed to see bonds outperforming stocks – folks like our friends Byron Wien at Blackstone and Jim Caron at Morgan Stanley thought we were on our way to a 5.5% yield on the 10-year T-note. So let’s keep the whippy, albeit positive, action in the equity market into perspective. This is the sixth (!) multi-week bounce in the equity market so far in 2010 and the year is barely seven months old."
FT Alphaville

Count ‘em! We’d better capture these bullish talking-points from Gluskin Sheff’s David Rosenberg, just in case they disappear…

– Congress extending jobless benefits (yet again).

– Polls showing the GoP can take the House and the Senate in November.

– Some Democrats now want the tax hikes for 2011 to be delayed.

– Cap and trade is dead.

– Cameron’s popularity in the U.K. and market reaction there is setting an example for others regarding budgetary reform.

– China’s success in curbing its property bubble without bursting it.

– Growing confidence that the emerging markets, especially in Asia and Latin America, will be able to ‘decouple’ this time around. We heard this from more than just one CEO on our recent trip to NYC and Asian thumbprints were all over the positive news these past few weeks out of the likes of FedEx and UPS.

– Renewed stability in Eurozone debt and money markets – including successful bond auctions amongst the Club Med members.

– Clarity with respect to European bank vulnerability.

– Signs that consumer credit delinquency rates in the U.S. are rolling over.

– Mortgage delinquencies down five quarters in a row in California to a three-year low.

– The BP oil spill moving off the front pages.

– The financial regulation bill behind us and Goldman deciding to settle –more uncertainty out of the way.

– Widespread refutation of the ECRI as a leading indicator … even among the architects of the index! There is tremendous conviction now that a double-dip will be averted, even though 85% of the data releases in the past month have come in below expectations.

– Earnings season living up to expectations, especially among some key large-caps in the tech/industrial space – Microsoft, AT&T, CAT, and 3M are being viewed as game changers (especially 3M’s upped guidance). Even the airlines are reporting ripping results.

– Bernanke indicating that he can and will become more aggressive at stimulating monetary policy if he feels the need and yesterday urging the government to refrain from tightening fiscal policy (including tax hikes).

– Practically every street economist took a knife to Q2 and Q3 GDP growth, which has left PM’s believing we are into some sort of capitulation period where all the bad news is now “out there”.

Of course none of these factors have come near to turning Dave into a bull. As if.

This is a secular bear market, remember, where rallies are there to be rented not bought:

From our lens, this is still a meat-grinder of a market. The bulls have the upper hand, but only until the next shoe drops in this modern-day depression and post-bubble credit collapse. The S&P 500 is still down 2% for the year, the Dow by 1%, the FT-SE and Nikkei by 11%, the Hang Seng by 5% and China by over 20%.

Ask the bullish community if by this time of the year we were supposed to see bonds outperforming stocks – folks like our friends Byron Wien at Blackstone and Jim Caron at Morgan Stanley thought we were on our way to a 5.5% yield on the 10-year T-note. So let’s keep the whippy, albeit positive, action in the equity market into perspective. This is the sixth (!) multi-week bounce in the equity market so far in 2010 and the year is barely seven months old.

[Jul 23, 2010] Bankers overpaid by $1.6bn By Justin Baer

"turn the other cheek" policy
July 23 2010 |

Citigroup, Bank of America and 15 other bailed-out financial services companies overpaid their top executives by $1.6bn during the height of the financial ­crisis, according to a review by the White House’s ­special master on Wall Street compensation.

Kenneth Feinberg, who was appointed last year by Barack Obama, president, to oversee the pay policies at the companies that received the greatest government support, began in March his latest inquiry into top executives’ compensation from late 2008 to early 2009.

While the payments were legal at the time, Mr Feinberg said on Friday, they would have fallen foul of restrictions the government set for participants in its troubled asset relief programme (Tarp).

Citi topped the list on excessive pay, thanks in large part to the compensation of several star employees at the bank’s Phibro commodities trading unit, people familiar with the matter said. Citi sold the business to Occidental Petroleum last year.

“Getting our compensation structure right is a priority for us,” a Citi spokeswoman said. “Since the crisis, we have done a lot of work to make sure it is performance-based and we look forward to reviewing the special master’s recommendations.”

The other companies cited by the special master were: American Express, American International Group, Boston Private Financial Holdings, Capital One Financial, CIT Group, JPMorgan Chase. M&T Bank, Morgan Stanley, Regions Financial, SunTrust Banks, Bank of New York Mellon, Goldman Sachs, PNC Financial Services Group, US Bancorp and Wells Fargo.

While Mr Feinberg no longer had the authority to police compensation at those that had paid back the government’s investment, he used a “look back” provision in the statute to ask for more information about their pay during a window between the start of the Tarp and when new restrictions on executive pay took effect.

Mr Feinberg reviewed what the 419 companies that received government assistance before February 2009 had paid their top 25 executives. The institutions were required to submit details on employees who earned more than $500,000.

Eleven of the 17 companies cited by the special master have repaid the government for its assistance during the crisis. And, while Mr Feinberg conceded that none of the retention awards, bonuses, golden parachutes and other payments that appear excessive today was “contrary to the public interest”, he proposed the companies adopt a new policy that would supersede pay guarantees granted to executives.

[Jul 23, 2010]  FDIC’s Bair Banks Making ‘Disingenuous’ Capital Claims

The Big Picture

Usage Note: The meaning of disingenuous has been shifting about lately, as if people were unsure of its proper meaning. Generally, it means “insincere” and often seems to be a synonym of cynical or calculating. Not surprisingly, the word is used often in political contexts, as in It is both insensitive and disingenuous for the White House to describe its aid package and the proposal to eliminate the federal payment as “tough love.” This use of the word is accepted by 94 percent of the Usage Panel. Most Panelists also accept the extended meaning relating to less reproachable behavior. Fully 88 percent accept disingenuous with the meaning “playfully insincere, faux-naïf,” as in the example “I don’t have a clue about late Beethoven!” he said. The remark seemed disingenuous, coming from one of the world’s foremost concert pianists. Sometimes disingenuous is used as a synonym for naive, as if the dis- prefix functioned as an intensive (as it does in certain words like disannul) rather than as a negative element. This usage does not find much admiration among Panelists, however. Seventy-five percent do not accept it in the phrase a disingenuous tourist who falls prey to stereotypical con artists.

The American Heritage® Dictionary of the English Language, Fourth Edition copyright ©2000 by Houghton Mifflin Company. Updated in 2009. Published by Houghton Mifflin Company. All rights reserved.

disingenuous adjective artful, artificial, counterfeit, crafty, cunning, deceitful, deceiving, delusive, delusory, designing, devious, dishonest, dodging, evasive, false, false hearted, feigned, fraudulent, hypocritical, insidious, insincere, lacking frankness, lying, mendacious, misdealing, misleading, parum candidus, prevaricating, scheming, shifty, sly, spurious, tricky, truthless, uncandid, underhanded, unethical, ungenuine, unprincipled, unscrupulous, unstraightforward, untrustworthy, untruthful, wanting in candor, wily, without truth
See also: corrupt, deceptive, dishonest, evasive, fraudulent, lying, machiavellian, oblique, sinister, tortuous, unconscionable, unscrupulous, untrue
Burton’s Legal Thesaurus, 4E. Copyright © 2007 by William C. Burton. Used with permission of The McGraw-Hill Companies, Inc.

Could We deign to believe that Sheila may be so forthcoming as to clarify her ’statement’? ( be so good as to )


I think “intellectually dishonest” is better than disingenuous if one wants to be more forceful in the diplomatic approach to describing:

artful, artificial, counterfeit, crafty, cunning, deceitful, deceiving, delusive, delusory, designing, devious, dishonest, dodging, evasive, false, false hearted, feigned, fraudulent, hypocritical, insidious, insincere, lacking frankness, lying, mendacious, misdealing, misleading, parum candidus, prevaricating, scheming, shifty, sly, spurious, tricky, truthless, uncandid, underhanded, unethical, ungenuine, unprincipled, unscrupulous, unstraightforward, untrustworthy, untruthful, wanting in candor, wily, without truth

[Jul 22, 2010]  Defense Spending and Deficit Reduction

The defense budget seems to be off the table when it comes to budget discussions, but it shouldn't be:
America's Unquenchable Defense Spending, by Michael Cohen: If there's one issue that seems to unite an increasingly divided and fractured capital, it is the ever-expanding federal budget deficit. ... Except one area of the federal budget is seemingly off limits: the $692 billion elephant in the room -- America's defense budget.
The calls from Republicans and Democrats for belt-tightening rarely, if ever, seem to extend to the military. Deficit hawks in the House have even demanded that an amendment to the $37 billion Afghanistan spending bill that would allocate $10 billion to prevent teacher layoffs ... be paid for with offsetting spending cuts. No such demands have been made about war spending, which since 9/11 tops more than $1 trillion. ...
Yet, outside ... Social Security, Medicare and Medicaid, the defense budget is by far the biggest chunk of the nation's fiscal pie. Aside from money allocated for the Pentagon there is another more than $300 billion in additional outlays for costs like homeland security, military aid, veteran's benefits and military-related interest on the national debt. That's more than $1 trillion in taxpayer money -- or about $3 out of every $10 in tax revenue.
And while the defense budget has been growing for decades, since 9/11 the numbers have jumped significantly. ... [T]he money is not just going to pay for wars in Iraq and Afghanistan. Nonwar defense spending makes up more than a third of the increase.
All of this is happening at a time when the U.S. faces no major foreign rival and al-Qaida, according to the nation's intelligence chiefs, has been reduced to a mere 400 to 500 key operatives in Pakistan and Afghanistan. In Afghanistan alone, the U.S. is spending $100 billion and deploying 100,000 troops to face an enemy that has only about 50 to 100 operatives in the entire country.
Trimming the defense budget will not solve the country's deficit woes, but it would certainly help. Moreover, smart spending cuts would allow lawmakers to divert money toward creating jobs and growing the economy -- steps that would, over time, do far more to reduce the deficit. A recent report by the Sustainable Defense Task Force ... found nearly $1 trillion in possible savings over 10 years. ...
[I]f Congress is willing to consider cuts to Social Security and Medicare, or won't even fund money for teachers and benefits for the unemployed out of deficit fears, why should the defense budget be off the table?
Of course, as the report also suggests, the surest way to truly reduce U.S. military spending would be to adopt a policy of greater "restraint" that makes the deployment of U.S. forces a true last resort, minimizes overseas commitments and stops subsidizing the defense responsibilities of our allies in Europe and Asia. ...

In the short-run, cuts in defense spending (or more "restraint") could be used to temporarily fund recession fighting and job creating programs. In the longer run, as those expenditures expire, the reductions in defense spending would help with the debt problem.

[Jul 19, 2010] Tim Geithner’s Ninth Political Life

"Can GEICO really save you 15% or more on car insurance? Is Tim Geithner a lying dirt bag?"
July 16, 2010 | The Baseline Scenario

Lavrenti Beria

Some poetic justice here I suspect. Big Sis Elizabeth Warren, the darling of the non-profit brie and Chardonnay set, rolled at the hearings, supportive of the hideous compromise that will put the CFPB under the auspices of the Fed, and vomiting on the rug with enthusiasm for the toothless “financial reform” legislation about to be signed into law, just may have been taught a lesson: You don’t compromise with filth so that you can secure a Federal job you covet, you go down with your ship.

Its here that one sees the pitiable Warren eviscerated, and by the Mephistophelean Timmy! Its something like having served in the Red Army during WWII, having been captured and upon repatriation having been shot for cowardice. Bye-bye, Liz.

ask Chomsky

QUESTION: You wrote that Henry Kissinger’s memoirs “give the impression of a middle-level manager who has learned to conceal vacuity with pretentious verbiage.” You doubt that he has any subtle “conceptual framework” or global design. Why do such individuals gain such extraordinary reputations, given what you say about his actual abilities? What does this say about how our society operates?

CHOMSKY: Our society is not really based on public participation in decision-making in any significant sense. Rather, it is a system of elite decision and periodic public ratification. Certainly people would like to think there’s somebody up there who knows what he’s doing. Since we don’t participate, we don’t control and we don’t even think about the questions of crucial importance, we hope somebody is paying attention who has some competence. Let’s hope the ship has a captain, in other words, since we’re not taking in deciding what’s going on. I think that’s a factor. But also, it is an important feature of the ideological system to impose on people the feeling that they are incompetent to deal with these complex and important issues; they’d better leave it to the captain. One device is to develop a star system, an array of figures who are often media creations or creations of the academic propaganda establishment, whose deep insights we are supposed to admire and to whom we must happily and confidently assign the right to control our lives and control international affairs. In fact, power is very highly concentrated, decision-making is highly concentrated in small interpenetrating elites, ultimately based on ownership of the private economy in large measure, but also in related ideological and political and managerial elites. Since that’s the way the society effectively functions, it has to have political theology that explains that that’s the way it ought to function, which means that you have to establish the pretense that the participants of that elite know what they are doing, in our interest, and have the kind of understanding and access to information that is denied the rest of us, so that we poor slobs ought to just watch, not interfere. Maybe we can choose one or another of them every few years, but it’s their job to manage things, not ours. It’s in this context that we can understand the Kissinger phenomenon. His ignorance and foolishness really are a phenomenon. I’ve written about this in some detail. But he did have a marvelous talent, namely, of playing the role of the philosopher who understands profound things in ways that are beyond the capacity of the ordinary person. He played that role quite elegantly. That’s one reason why I think he was so attractive to the people who actually have power. That’s just the kind of person they need.

jake chase

This also explains Alan Greenspan perfectly.

ask Huxley:

We see, then, that modern technology has led to the concentration of economic and political power, and to the development of a society controlled (ruthlessly in the totalitarian states, politely and inconspicuously in the democracies) by Big Business and Big Government. But societies are composed of individuals and are good only insofar as they help individuals to realize their potentialities and to lead a happy and creative life. How have individuals been affected by the tech­nological advances of recent years? Here is the answer to this question given by a philosopher-psychiatrist, Dr. Erich Fromm:

Our contemporary Western society, in spite of its material, intellectual and political progress, is in­creasingly less conducive to mental health, and tends to undermine the inner security, happiness, reason and the capacity for love in the individual; it tends to turn him into an automaton who pays for his human failure with increasing mental sickness, and with despair hidden under a frantic drive for work and so-called pleasure.

Our “increasing mental sickness” may find expression in neurotic symptoms. These symptoms are conspicuous and extremely distressing. But “let us beware,” says Dr. Fromm, “of defining mental hygiene as the prevention of symptoms. Symptoms as such are not our enemy, but our friend; where there are symp­toms there is conflict, and conflict always indicates that the forces of life which strive for integration and happiness are still fighting.” The really hopeless victims of mental illness are to be found among those who appear to be most normal. “Many of them are normal because they are so well adjusted to our mode of existence, because their human voice has been silenced so early in their lives, that they do not even struggle or suffer or develop symptoms as the neurotic does.” They are normal not in what may be called the absolute sense of the word; they are normal only in relation to a profoundly abnormal society. Their perfect adjustment to that abnormal society is a measure of their mental sickness. These millions of abnormally normal people, living without fuss in a society to which, if they were fully human beings, they ought not to be adjusted, still cherish “the illusion of indi­viduality,” but in fact they have been to a great extent deindividualized. Their conformity is developing into something like uniformity. But “uniformity and free­dom are incompatible. Uniformity and mental health are incompatible too. . . . Man is not made to be an automaton, and if he becomes one, the basis for mental health is destroyed.”

In the course of evolution nature has gone to endless trouble to see that every individual is unlike every other individual. We reproduce our kind by bringing the father’s genes into contact with the mother’s. These hereditary factors may be combined in an al­most infinite number of ways. Physically and mentally, each one of us is unique. Any culture which, in the interests of efficiency or in the name of some political or religious dogma, seeks to standardize the human individual, commits an outrage against man’s biological nature.


[Jul 19, 2010] Five Reasons for Nonsensical Forward Earnings Estimates

Jul 19, 2010 | Mish's Global Economic Trend Analysis

Forward S&P 500 earnings estimates are outrageously optimistic as noted in Hussman on Misallocating Resources, Market Valuations, Earnings Estimates, and Public Policy.

The above link addresses what is happening. This post will address the reasons why.

Reasons for Nonsensical Earnings Estimates

US Banking Earnings are a Sham

David Stevenson at MoneyWeek addresses the first bullet point above quite nicely. Please consider The US banking recovery is a sham.

Selected Comments

The Sim:

I think point #5 (most analysts are shills) is the most important


I think it should be restated as "almost all analysts are shills".


Washington primes the Wall Street Pump Machine with FASB 157. These two are tag teaming the small investor, beating them to a pulp. Must make the penny stock pump & dumpers jealous.


If you do it, you go to jail. If they do it, they get a bonus. The world is so simple if you think about it.


The rules of bank accounting are at best "hope for the best outcome". Only bank examiners have an idea of the true financial health of a bank. Thus, while your bank's annual report looks great, the bank examiner may have come to the conclusion that your bank will fail in two years. Thus trading bank stocks is flying blind, and Wall Street is clueless! Back in the early 1990's there was a large (1100 branches) bank in California called Security Pacific National Bank. It was headquartered in Los Angeles, California and generally considered a very strong institution. However, Security Pacific had some very iffy commercial loans on its books. So the regulators went to Bank of America, which had survived a similar problem and thus had very few dodgy commercial loans on its books and said "We want you to buy Security Pacific". Now after the announcement Wall Street was doubtful that the 'regulators' would approve of this merger on anti-trust basis (as Wall Street did not know that it was a shotgun marriage, while everyone I knew on the hill {Bunker Hill, L.A. and not Capitol Hill in D.C.} knew it was.).

The approval was granted and the stock prices spiked and we all learned that not all information was priced into the stock (how could so many of us know and Wall Street not know?).

The bigger lessons from that are:
1.) Ignore a bank's official reports, you cannot trust them.
2.) Regulators do not like bank failures and will break any rule to prevent them.
3.) Financials, which are the biggest part of many mutual funds are volatile and no one knows what they are really worth.

[Jul 19, 2010] "Fractal Finance, Part II"

June 28, 2010 | Sudden Debt

In Fractal Finance, Part I we saw that fractals can be useful in describing complex, seemingly chaotic patterns in nature.  We also saw how Wall Street took advantage of the same advances in information technology that made the study of fractals possible starting in the 1980s, to come up with computer-driven black-box trading schemes.  For example, index arbitrage strategies were widely blamed for the Black Monday crash of October 1987.
Wall Street is always on the look-out for new "angles", opportunities to better skin a cat in a place already full of very sharp razors.   The sheer quantity of money moving around attracts very bright individuals, at least the variety who get high on making as much money as possible with the seat of their pants and the money of others. Wall Street is also home to some of the hugest and most ruthless egos to be found anywhere, resulting in a kind of kindergarten for genius gunslingers, but that's material for a subsequent post.

Unlike what most people may think,  professional traders don't usually make huge "straight"  up-and-down bets;  there's  simply too much risk involved. They leave this type of activity to end-user speculators and investors (e.g. hedge or pension funds), and mostly involve themselves in market-making and arbitrage.

Market-making is the workaday, mundane function of providing secondary market liquidity in return for a thin "spread" profit between bid and offer prices. This is the foundation upon which rests most trading revenue and is the training ground for all junior traders. The real action, however, where whiz-kids can and do make a difference playing with the firm's own money, is in arbitrage and arbitrage-related activities, where profit margins are modest but risk is usually well-defined, small and manageable.  The trick there is to identify new "angles"  and take advantage of them early on, when profit margins are still fat, i.e. before other players get a whiff of the action and pile in too.

(If you are not familiar with arbitrage and risk, Richard Bookstaber's A Demon of Our Own Design is an excellent and enjoyable book, written by a true insider. Also, see the personal note at the end of this post.)

The basic principle of arbitrage is simple: if A=B and B=C,  then by definition  A=C.   Financial arbitrage is, of course, more complicated than simple math since it involves a variety of different risks, ranging from simple execution risk (the ability to complete a trade as planned), all the way to counterparty risk (an entity on the other side of the trade fails).

The basic elements common to all arbitrage operations are: The amounts of money involved are very large.  Since profit margins are small a lot of capital must be applied in order to make a decent return, in dollar terms. Trading is very active.  Again, because of such small margins, which can appear and disappear within minutes, if not seconds, traders have to pounce on them fast and often. Heavy leverage is always used to boost returns.  Twenty-to-one is considered conservative, fifty-to-one is standard and 200-to-one is not unheard. (Or was, we now live in the Age of De-leverage).

And where do fractals fit in?  Where is self-similarity in markets?

One does not need to study price charts in major, liquid markets for long to realize that they look very similar in all time frames.  Do this: take the daily chart of any reasonably active stock or commodity and start narrowing the time frame, i.e. reduce the time unit to hourly, 30-minute intervals, 10-minutes and so on.  You will see that fluctuation patterns are, more or less, similar. 

Now, expand the time frame by looking at weekly, monthly, etc. charts.  Again, similar patterns.

[Image] S&P 500 - One Day Chart  (Friday, June 26 2010)

[Image] S&P 500 - One Year Chart
The study of patterns is not new in markets, of course. It has been going on for ages as technical analysis, wave theory, Fibonacci trading, etc. What is new, however, is the massive size of computing, communications and network capacity now being applied to markets, causing trading to become unrecognizable when compared to even ten years ago.  It is estimated that  an astonishing 70% of all volume in U.S. stockmarkets is now driven by so-called "high frequency" trading, where buy and sell orders are generated by algorithms residing in black-box computers,  taking advantage of arbitrage opportunities between the prices of shares, indexes, trackers, futures and other derivative instruments.

In Part III I shall present my conviction that such developments are detrimental to the overall health of financial markets and, indeed, the entire real economy.
I first heard of the words arbitrage and arbitrageur in 1981 during the Mobil - Marathon - U.S. Steel takeover battle. At the time, I was in grad school getting my Master's degree in ChE - and mentally a million miles from Wall Street though a stone's throw  away. 

I was introduced to David P., a major-league arbitrageur at the time, who tried to explain what he did.  I found it all extremely boring in those, my early Joe Engineer days:  oil prices were setting new records and Wall Street was flat on its back.  It wasn't until several years later that I realized who David really was. Or, for that matter, who one Carl Icahn was, whom I had met at one of David's parties and, having never heard of him until then, cheekily asked: "And what do you do for a living?"  I still blush at my ignorance.

posted by Hellasious at 2:43 AM on Jun 28, 2010


The reason I say that we need to use more government spending is because private industry does have the capital -- or is unwilling to deploy it -- to build renewable energy systems. Only the government has the capital base from which to draw on to build a new energy infrastructure.

We have 10% unemployment and adequate financial resources to put into place; it just isn't being utilized.

Private corporate interests in the U.S. only look to the next quarter to show immediate profit rather than accept that in the short term there will be capital expenditures to develop profits in 10 years, which is the turn-around time for most renewable energy projects.

I can also tell you that the "common wisdom" of the people I have talked to over the years (the ones that watch Fox News) are being told that renewable energy cannot be built due to "environmental" and "animal rights" concerns. In other words, the meme is being spread that wind and solar farms cannot be built due to environmental regulations to save some animal from extinction kind of thing. (In reality, I suspect that said projects were tanked due to astroturf "environmental groups" fighting it. I also would not be surprised if some of the environmental studies didn't have a predetermined outcome to make the case that "darn, we just can't switch to renewable energy."

I think we make a grave mistake when we insist that any development must come from private industry. The policy of switching to renewable energy is a societal good and we have millions of unemployed workers who could be deployed rather quickly to begin working on said project. (I actually think we need to reactivate the old Civilian Conservation Corps and Works Progress Administration to employ the millions of workers already counted as "long term unemployed" and the millions who are about to follow them soon.)


I see what you mean Okie..

Still, I very much doubt that focusing on Roosevelt-era remedies will do anything for today's situation.

Let's see..

1. In 1930 the federal government was tiny, by comparison to now, and could be expanded greatly - and was.

2. Ditto, government debt was tiny and was ballooned to enact Keynesian policies.

3. There were no serious environmental/resource constraints. Quite the reverse, actually, as the Age of Oil was just gaining momentum.

4. The concept of socialism/communism was quite new and untarnished then, thus making massive government intervention more acceptable to the voting public. Obviously, this is not the case now.

I believe we must create a combination of market-based and tax incentives to "force" private industry towards renewable energy and sustainability.

...and, of course, The Greenback as monetary policy (smile).



One of our current problems, I think, is the confusion in many people's minds over the difference between socialism and social cohesion.

My impression of the mother country is that social cohesion is at zero level. Bye bye the social contract when social cohesion gets to zero level.

Rampant, uncontrolled individualism and social cohesion are incompatible.

And I think that our language works in such a way that the opposite pole of the atomic, unfederated, unbelieving individual is... the totalitarian mass.

The one implies the other. You can't have the atomized individual without creating at the same time the totalitarian mass to which the idea "individual" is opposed.

I think that the government needs to get taxation going again. To reinvest it as an idea. (yeah, and not having our taxes pay for empire's little wars would be a good idea too).

I also think that... belief follows practice, and that practice does not necessarily follow belief.
So... that means that I see NO VALID REASON why private corporations can determine any collective course on these issues WITHOUT wholesale handing over POLITICAL LEGITIMACY to the PRIVATE corporations.

Are you sure that's the world you want to live in ?

Not me. The semantic opposition private/public is vital to maintaining the meaning of BOTH "private" and "public".


Hellasious and mon:

Here is my problem with your proposal(s):

During the Wall Street meltdown in 2008, we saw the taxpayers provide working capital to the Wall Street financiers, while they paid themselves bonuses from the taxpayer's largesse. We called it "the privatization of profit and the socialization of losses."

I would rather it be that we provide the direct working capital and the taxpayers get a share of the company equal to the capital that was put into the project / company. Then, if the private company wants to buy out the taxpayer's (government's) interest, they should be allowed to do so at market rates.

For the last three years, I have been working in the private industry that would be affected by a lot of the necessary building brought on by government spending. We have talked among ourselves about how there is ten years worth of critically needed infrastructure installment, repair or replacement from bridges, to dams, to railroads to energy grids and pipelines. No amount of "tax incentives" will provide the needed capital to complete all of these projects (and private industry doesn't want to pay for it, anyway).

On some of these, perhaps, there could be a private-public partnership. But, I, as for one, don't want to simply give them the components of profits without something in return.

We have become accustomed to this: as in the case wherein some sports stadium is built by taxpayers in order to draw in some sports team, other tax breaks are given and the owners leave for another town as soon as the tax credit ends. The team owners profit handsomely with no risk. We used to have this archaic notion that any successful enterprise should entail risk on behalf of those who seek to profit from the venture. I guess that has gone by the wayside.

June 30, 2010 6:21 PM

[Jul 17, 2010] Guest Post Lloyd Blankfein's Days Are Numbered As Chairman Of Goldman Sachs zero hedge


nice interview with Elizabeth Warren...she talks about commercial real estate and local/regional banks precarious situation starting at 11:46

Like this:

"The longer you pretend, the longer it takes to get the market back to where supply and demand match each other, the longer it takes to get the right price back on commercial real estate, attract in the businesses, get the rents back in the right place, and get this economy back up and moving.

Everyone would like the world to be always in bubble times but that doesn't happen, what we have to do to have a secure financial system, and frankly an economy that functions well, we've got to be right back down where supply meets demand...that means that are there are a lot of losses in commercial real estate....that just have to be acknowledged..."

[Jul 17, 2010] Economist's View Political Aspects of Full Employment

One of the important functions of fascism, as typified by the Nazi system, was to remove capitalist objections to full employment.

Via email, everything old is new again. This is from 1943:

Political Aspects of Full Employment, by Political Quarterly, 1943: ... Section IV ... 3. ...In the slump, either under the pressure of the masses, or even without it, public investment financed by borrowing will be undertaken to prevent large-scale unemployment. But if attempts are made to apply this method in order to maintain the high level of employment reached in the subsequent boom, strong opposition by business leaders is likely to be encountered. ...
In this situation a powerful alliance is likely to be formed between big business and rentier interests, and they would probably find more than one economist to declare that the situation was manifestly unsound. The pressure of all these forces, and in particular of big business—as a rule influential in government departments—would most probably induce the government to return to the orthodox policy of cutting down the budget deficit. A slump would follow...
This pattern of a political business cycle is not entirely conjectural; something very similar happened in the USA in 1937-8. The breakdown of the boom in the second half of 1937 was actually due to the drastic reduction of the budget deficit. ... [full text]
Another quote:

The fact that armaments are the backbone of the policy of fascist full employment has a profound influence upon that policy's economic character. Large-scale armaments are inseparable from the expansion of the armed forces and the preparation of plans for a war of conquest. They also induce competitive rearmament of other countries.

This causes the main aim of spending to shift gradually from full employment to securing the maximum effect of rearmament. As a result, employment becomes 'overfull'; not only is unemployment abolished, but an acute scarcity of labour prevails. Bottlenecks arise in every sphere, and these must be dealt with by the creation of a number of controls. Such an economy has many features of a planned economy, and is sometimes compared, rather ignorantly, with socialism.

How ever, this type of planning is bound to appear whenever an economy sets itself a certain high target of production in a particular sphere, when it becomes a target economy of which the armament economy is a special case. An armament economy involves in particular the curtailment of consumption as compared with that which it could have been under full employment.[4]

The fascist system starts from the overcoming of unemployment, develops into an armament economy of scarcity, and ends inevitably in war.

Selected Comments


So it's admitted in the article that Hitler starting war in Poland was the reason we got out of the persistent economic slump, primarily because reducing the budget deficit was no longer a priority among business leaders. And these were the FDR years.

[Jul 17, 2010] Economist's View In Finance We Distrust

I would recommend the just released "The future of finance" a book free to download with entires by Adair Turner, Peter Boone and Simon Johnson among others:

One more before I hit the road to my high school class reunion (35 years):

In Finance We Distrust, by Michael Spence, Commentary, Project Syndicate: Around the world,, the debate about financial regulation is coming to a head. ...
It now seems universally accepted (often implicitly) that government should establish the structure and rules for the financial system, with participants then pursuing their self-interest within that framework. If the framework is right, the system will perform well. The rules bear the burden of ensuring the collective social interest in the system’s stability, efficiency, and fairness


Let me fill you in on something interesting about my take on Merck & Co and their pain killer Vioxx. I really thought the best of Merck. I never thought the managers would ever do anything to harm the reputation they built for themselves. So, as a stockbroker, I built a rather large position in their common stock. Then one day in late 2000, another broker who knew I had built that position in Merck approached me to fill me in on a paper he found about Vioxx. I'll never forget what he fisrt said, "Do you really know what a Cox-2 inhibitor is?" I checked out the article he was referring to, and I began offing that position immediately when I realized people were going to die from Vioxx. As a matter of record, the highest price Merck traded at was from part of a 1500 share position I whacked for a customer in Jackson Hole, WY. I never looked back at Merck again. They knew damned well what they put on the market.

Enron's common stock was another company I traded in heavily, but was completely out of it before April 2001.

My feelings about corproate America changed while I was a trader, and I can't say I miss those days at all. Something happened to upper corporate management during the Reagan and Bush years. Accountability for their nefarious deeds was being overlooked by the DOJ, (unless of course you're Michael Milken, and not sharing your deals by opening a syndicate with the rest of the Street), so management began having no fear to hold more of their own stock, (to manipulate it), than ever before. The DOJ has developed a culture of looking the other way, and old Rudy Giuliani was the one who started it.

What surprises me is that I knew what was going on as far as the DOJ was concerned since the mid 1980's. Why I chose not care was because I wanted my piece of the pie first before I turned to walk away from it all.


I don't think it is possible to have effective cultural norms for the financial system when the distribution of income in this country is so skewed. The wealthy have always lived by somewhat different rules than the rest of us, but today in America the wealthy live in a completely different world. The point of cheating in finance is not just the money, it's to get yourself into the world where rules don't apply.


I agree with MT. Rules are paramount , and precede the widespread adoption and practice of the ethic.

We all have an innate sense of guilt , but a firm rule like "Thou shalt not covet thy neighbor's wife" , associated with the prospect of a vengeful God who might fuse your bare butt cheeks together with a lightning bolt , transformed that innate sense of guilt into a cultural ethic.

Write down the rules in stone , so to speak , then enforce them consistently , and the ethic will take hold , reducing both the frequency of offenses and the necessary enforcement costs.

The mistake we ( especially you , Bush and Greenspan ) made was in thinking that the ethic , once established , made rules and their enforcement unnecessary.


The H.R. 4173 Bill has been passed, is it not? Screw what we all think needs to be done, somebody needs to figure out exactly what this Bill does.

Nobody read it agian, and it's 2000 pages long.

Regulation that makes sense, works for the masses = Good
Over Regulation that works for Politicians and Elites = Bad

Does anybody really know where the masses stand with this Bill? Probably not, but we gonna find out aren't we? With the geniuses we have selected for our leadership over the past thirty years...everybody better cross your fingers.

Bruce Wilder:

It's not your fingers you need to cross, not that it will do you any good.


I would recommend the just released "The future of finance" a book free to download with entires by Adair Turner, Peter Boone and Simon Johnson among others:

[Jul 17, 2010]   Flash Crash Lows!

The Big Picture


Are stocks really cheap? Relative to when? Once all the leverage and stimulus has seeped from the system, will it look cheap?

When more stocks look like Wellpoint (8p/e trail, 4 p/e forward) perhaps we will be cheap, but too many stocks are priced for recovery and a return to normalcy and it just isn’t that way.

Earnings don’t matter, it’s how you got the earnings that is being scrutinized. Forward P/E should be lower as the market is discounting a slow to no growth environment for many sectors. Top line growth will be rewarded as it will be a rare feat.

Technical analysis is not alchemy, it is your only window to see what the big money is truly doing, because they often contradict what they say with their actions. Without technicals you are blind to the truth of the money that moves the markets.

Rosenberg’s best analysis is economic, not stock market. He tries to translate econ into market but either gets time or price wrong. His economic analysis is impressive though.

Times like these will make legends, but legends rarely get to make another great call despite having their career defined by a great call. Look at the greats of the ‘87 crash–one great call made their career, made them celebrity, but rarely did any of them hit another critical tipping point with such accuracy. This isn’t a slam on them, but a cautionary observation to be wary of those who guided you through 2008-2009 because they will likely fail in further meaningful market calls. The market is cruel like this. So thanks to Fleckenstein, Kass, Whitney, Roubini, Harrison, Ritholtz, Rosenberg, Bernstein, and many others, but in all likelihood they won’t be able to call “the bottom” or future tops. Except for Barry, perhaps with his Fusion IQ methods he may get it right, but I’m sure you’ll have to pay up as a client to know for sure…

Just remember the market is never satisfied until all are shown to be fools…s…

ThreeFold Commonwealth:

This is a market that is driven by the consensus. Look at Euro crash when Euro touted as dollar substitute. Likewise 30 yr treasury rates took out 1982 trendline with 4.75% only to be smashed the opposite way. Today a substantial pullback in lackluster volume.

Smells lower but plenty of cash and bond money to punish. We’re above the trendline on the lower highs. Friday move on options trading meaningless. Monday and tuesday tell the story. Wednesday the book is printed.

Want to know if you are a market professional? Are you up this week? Are you up this year? This is a wicked market.

The wolves are prowling. They are hungry. Pimco is right: Survive first. Get out of debt. Build cash. Be opportunistic. Watch volume not Cramer.

[Jul 16, 2010]   Breakfast_with_Dave_071610

Main Street investors continue to ignore Wall Street strategists by shunning the ever-volatile equity market for safety and income at a reasonable price. The ICI data just came out for the July 7th week and it showed a net outflow of $4.2 billion from equity funds while bond funds attracted $6 billion of fresh money on top of $3.5 billion the week before.

This demographic drive for income is increasingly emerging as a secular theme.

The focus on boosting savings in a prudent way is also going to become extremely pronounced too because a study published by the Employee Benefit Research Institute found that the "early baby boomers" in particular, those between 56 and 62, have a 47% chance of not having enough money to fund their basic expenses in retirement.

Fully 1 in 3 middle-class workers will have run out of money altogether after 20 years of retirement — the comparable share for low-income earners is 10 years.

[Jul 16, 2010]

The Future of Finance:
The LSE Report

Download by chapter
Preface Richard Layard

Chapter 1: What do banks do? Why do credit booms and busts occur and what can public policy do about it?
Adair Turner

Chapter 5: How should we regulate the financial sector?
Charles Goodhart

Chapter 6: Can we identify bubbles and stabilise the system?
Andrew Smithers

Chapter 7: What framework is best for systemic (macroprudential) policy?
Andrew Large

Chapter 8: Should we have “narrow banking”?
John Kay

Chapter 9: Why and how should we regulate pay in the financial sector?
Martin Wolf

Chapter 10: Will the politics of global moral hazard sink us again?
Peter Boone and Simon Johnson

[Jul 16, 2010] Who Steered You Wrong About the GS Case

The Big Picture


Sorry but $550 million is not enough as far as I am concerned. Hell…Tiger Woods has to pay $750 million settle his problems and he only slept around, not brought an entire financial system to their knees (maybe a few ex-pornstars to their knees, but not the entire financial system).


...Sadly, this is probably not Blanfein’s last erection?


I was on the trading desk when watching the live coverage when senior officers from Kidder Peabody were led out of their Manhattan offices in handcuffs. Same with Drexel This was in addition to large financial penalties. From mine and our firms perspective it gave us pause to understand that breaking the securities laws had sever consequences. Comparing Goldies transgressions, the (lack of) impact on its management and its business going forward, I view this incident and the SEC as toothless aggression. Fraud was committed but who is responsible? Lets see some individual culpability!

The Window Washer:


fraud: 1. crime of cheating somebody: the crime of obtaining money or some other benefit by deliberate deception

Buffet isn’t a lawyer, though he tries to play one on TV, so you can presume he was using this definition in his PR work. He needs to be taken to task for his GS statements he either lied or was thoughtlessly using his image to manipulate public perception of GS.

I started getting uncomfortable with Buffet in late 06 and sold my BRK in mid 08. He has a cult of personality now so I stay far away.

[Jul 15, 2010] The Big Interview Morgan Stanley’s Stephen Roach

The Big Picture

On double dip: Weak recovery don't have a cushion and can be down again on external shock.

[Jul 15, 2010] Guest Post Why Goldman Could Pull It Off

zero hedge

..the dirty little secret on Wall Street was that all too often, due diligence was a sham. People went through the motions without a thorough understanding of what they were doing, like kids who write a report by plagiarizing the encyclopedia. Investors saw triple-A ratings and stopped thinking. Goldman didn’t need to lie in order to sell “shitty deals.” It only needed to find a greater fool with an impressive resume at a multibillion-dollar institution who didn’t ask too many questions. And it was able to keep the scam going because all CDOs remain shrouded in secrecy to this day.

The only people who can buy access to CDO performance data on ABSNet are actual investors, who are subject to nondisclosure agreements.


anyone wonder why the SEC picked this "weak" case to publicly pursue?

over the years they could have brought many cases.  this isnt about justice, this isnt about the SEC doing its job.  this is all about political theatre.

obamas already planning campaign commercials about fighting the big evil banks.  SEC could do the commercial for him.

Voodoo Economics :

If you were a sophisticated investor who had done his due diligence, you didn’t need to be told that the deal was designed to fail. You would have figured it out for yourself!

What BS!

O.K. Let's say that GM (GMAC and whatever other financing arm sold some ABS to the market with significant knowledge that the 15 - 30 % of the damn cars coming from certain plants and that were the security interest for future ABS paper had a freaking defect that caused the car to be destroyed. To be conservative, let's also say that no person was physically injured from the defect.

Now, what if GM hired "independent engineers" (Let's call them Moody's Or S&P engineer consulting for finacial products) attested to the veracity of the engineering of the cars and said that the probability of defects was significantly less to almost no risk that these cars had such a defect.

To keep it simple, let's say GM & GMAC create Ford Pinto LLC to sell the paper that is backed by these cars. And, a very good client of GM with a great financing arm (let's call them Paulsen Auto Engineers & Associates) is brought in to "help decide" which cars and which plants they come from would be the specific assets to back the different tranches and securities in the markets. Oh, and as you might guess, Ford Pinto LLC and Paulsen Auto Engineers are able to short sell the securities to the markets that they know are backed by the cars with the probable defects.

Amazingly, after 2 years, the cars that back the paper start breaking down. Suddenly, the ABS paper with this crap in it drops. Guess what? GM and GMAC and Paulsen make huge returns from shorting the crap.

What would happen to these folks? They would go to jail.

Caveat emptor - BS. There is a fraudulent element in GS, too.

Don't give me this shit that "If you were a sophisticated investor who had done his due diligence, you didn’t need to be told that the deal was designed to fail. You would have figured it out for yourself."

I guess I could have hired my own independent engineers in the GM scenario, too.

Are you really arguing that it is my affirmative duty to uncover fraud? How inefficient is that to the system.

Oh, that's right, I just forgot that we at GS own the system.

Don't get me wrong, these stupid pension funds and other institutional investors that are manipulated by GS and the likes need to feel some pain, BUT

This scandal is fraud. Nothing less.


I disagree that the case was weak - look at the statement Goldman issued and its admission. That admission probably represents "the case" or a subset thereof and it seems there is enough there for a successful prosecution.

They could, with political will, have been prosecuted for what they admitted.

If you look at the pattern of political donations and friendships, Goldman bought this break and paid well for it. As long ago as the 1990s when I worked on Wall St. (Water St. and later Broad St., actually), Goldman seemed to me intensely Democratic. Just the impression of a financial software outsider, but a striking one.

Given the amount of money poured into Democratic congressional races, GS earned a somewhat better break than they actually got in this settlement. On the other hand, they were lucky that in today's atmosphere of declining morality and opportunism, the Congressional Democrats remain honest politicians:

An honest politician is one who, when he is bought, will stay bought  - Simon Cameron

[Jul 15, 2010]   Dick Bove Says Chance Of Double Dip Is Now 40-60%, Butchers JPM Earnings And Jamie Dimon

zero hedge

As Bove is the quintessential contrarian indicator, we are preparing for a month long sabbatical to a Buddhist monastery in Tibet to thoroughly reevaluate our perspectives on the universe.


You are wasting ink, or pixels as it were, on Bove? Seriously?

The same guy that was telling the sheeple to buy GS 5 mins after charges were announced? He is a shrill covering his arse after having been wrong. If anyone in this market is talking their book or a "tool" it is Bove.


I'm guessing that he also reserves the right to change him mind...tomorrow...or by the closing bell...or by lunchtime.


absolutely audacious that they have the gall to release reserves. think about how bad everyone else is if JPM needs to do this to meet numbers.

market feels like its being supported unnaturally again, the empire and philly fed numbers should be causing a lot larger down move.

Commander Cody:

Its called levitation. Any decent magician can do it!

Cognitive Dissonance

"Its called levitation."

I always get a chuckle when I hear or see the commercial for "Levitra" which immediately brings to mind levitation. You just know the marketing guys, who are the people who actually give any new drug it's commercial street name, were laughing when they came "up" with this name.

John McCloy:

Well they are nearly out of suckers to participate in the markets Oso so they release the reserves. I cannot believe the "premier minds in finance" are follish enough not to see how terrible the fundamentals are becoming even with mark to unicorns. HELOCs and Prime mortgages are just beginning their taint and this is a last push to keep the eps up as in order to pay quarterly bonuses.

Meanwhile they deleverage into quarter close..repo it up to make it look they are not leveraged a trillion to 1 so they can squeeze every ounce of profits out of their trading and then resume to ramps after the earnings report which is why we saw the ramps right after quarter close. The efforts are yielding less profits and becoming more risky as the data really heads off a cliff so I take solace in that.

They are however exposing how weak they are to a market pullback since their trading revenues were down about 44% since past quarter. I am sure Ben feels is not liking them just holding onto this money for reserve and paying it out to themselves while lending since it is killing his credibility of any recovery


Bove is never gonna recover from his Lehman legacy. That's why you take him with a ton of salt everytime he opens his mouth.

NotApplicable :

You're kidding, right?

I keep waiting for the so-called bond "market" to rise up and bitch-slap fedgov for its transgressions, but what do I see but the fabled "flight to safety," and its near record low yields.

At this point, the Fed IS the bond market, the stock market, the repo market, the Forex market, the MBS market, ad infinitum.

The only shots being called by pissed off "citizens" are along the lines of "Don't Taze me bro!"

Rainman :

The mark-to-myth carnage has long legs. Forget about organic revenue. The banksters believe they can hold off a FASB fair value challenge forever. They will pay off all necessary parties to keep their own bonus party going as long as possible.

No one should underestimate their ability to continue the game.

Bam_Man :

And these f**king criminals at JPM have the nerve to be talking about a "stock buyback".

Share re-purchases by too-big-to-fail banks should be illegal. It is an obvious racket.

Although it may produce a higher stock price over the short-run (the whole idea) share re-purchases DECAPITALIZE the f**king bank.

Oh, but wait, we can just GO TO THE F**KING TAXPAYER the next time we need to be re-capitalized.


[Jul 13, 2010]   Hussman on Misallocating Resources, Market Valuations, Earnings Estimates, and Public Policy

See also Mish interview on Yahoo TechTicker: "Without driver for jobs I don't understand how one can be bullish on stock market".
Mish's Global Economic Trend Analysis


Seriously, good paying jobs to China?

How about: All the low skill, repetitive manufacturing jobs has been sent to lower cost countries that has less environmental and workplace laws, which allows us to buy things for less, export our pollution; but also took away the low level blue collar jobs that we need.

Since production is there, we might as well start transferring more creative and higher paying jobs, such as design, since it's probably better that designers sit in the same timezone as the factories. Besides, even the higher paying jobs is cheaper there.

Many of the jobs created in China is not really what I would consider to be good jobs. The electronics assembly jobs have been done outside of this country since the days of transistor radios. Much easier to get young people with the dexterity and good eye sight to plug the components together for 12 hours a day. Steel work? Environmental laws + union rules basically forced that stuff out. The list goes on and on.

I find it ironic sometime when I see people complaining about weapon system costs. That is one area where most of the work is still done in the US, with it's associated price tag.


What we are doing, is keeping 50 million people fed through the unemployment program. We are keeping Walmart shelves stocked with cheap stuff so people can think they have a good standard of living. We are borrowing money we can't payback as that is needed for all sort of important, social programs. We are also exporting our pollutions to places like China.

What we need, is a reality check, or shall we say, a "Come to Jesus" moment. We need to realize that we don't need 500-750 sq ft of housing for each family member. We don't need a SUV and 2 Jet Skis in the driveway, and a Flat Panel in every room. We need to realize that housing prices needs to be 2-3 times median income. We need to realize that having things doesn't make you rich or successful, especially if you borrowed the money.

We need to realize that we need to be energy independent, and that means building Nuclear power plants. We need to face up the fact that our pollutions haven't been reduced, just moved to somewhere we don't see.

Just like low end jobs are now moving out of China because China is getting expensive, we have to face the fact that we will need to compete on price. The way to make that work, is to make sure everything is cheaper here, and making sure we need less "Things".

Just complaining about us vs them don't help. We are all human beings with similar motivations.


The only defined benefit programs that still exist in the private sector are for unionized workers and top executives. Unionized workers receive benefits according to their union contract; top executives (VP-level and above) usually receive something called a SERP (Supplemental Executive Retirement Plan), or participation in a Rabbi Trust. The Rabbi Trusts have elements of both defined benefit and defined contribution plans. In some companies, upper-level middle managers (Director-level) are also able to participate in Rabbi Trusts, but the package is less generous than the packages VPs receive.

Few people know about SERPs or Rabbi Trusts. Corporations do not advertise them as they are just another way for executives to pay themselves special hidden benefits that are not available to rank and file or lower level middle management workers.


Mish, I occasionally make specific comments and they range from 95% to 100% support of your pieces and positions.

I'd now like to be just a general comment about your pieces and positions: thank you.

Rome was not built in a day, but the combination of yourself, the internet, Pension Tsunami, etc. have slowly been able to educate portions of the general public as to the gargantuan "whale" that has been crippling the private sector for a long, long time: municipal employee unions and their leadership.

I live in a suburb of Chicago (Cook County) and I've had some success questioning the rhetoric of teacher unions and "it's for the children" garbage, etc - but I can only reach a few people at a time.

I have many friends who are teachers (and my son is now in college to obtain his degree to teach physics in high school) - and the vast majority are genuinely motivated by their love of their profession and KNOW that they're are big problems in their means and method of compensation.

If dramatic reform does not arrive soon - we'll have deep societal problems. The economic decline only shortened the time when "doom" was going to arrive due to pension, wage, work rules and benefit promises made during the boom years since around 1993.

Again, Mish, thanks!!!


Wall Street shares while mainstreeet sacrifices. Isn't that always the way it workks? Stop the casino, cut the military, spend on infrastructure and tech.


The Submarine Deals That Helped Sink Greece

As Greece slashes spending to avoid default, it hasn't moved to skimp on one area: defense. The deeply indebted Mediterranean nation, whose financial crisis roiled the global financial system this year, is spending more than a billion euros on two submarines from Germany. It's also looking to spend big on six frigates and 15 search-and-rescue helicopters from France. In recent years, Greece has bought more than two dozen F16 fighter jets from the U.S. at a cost of more than €1.5 billion.

Greece, with a population of just 11 million, is the largest importer of conventional weapons in Europe—and ranks fifth in the world behind China, India, the United Arab Emirates and South Korea. 


From my own post:

Since production is there, we might as well start transferring more creative and higher paying jobs, such as design, since it's probably better that designers sit in the same timezone as the factories. Besides, even the higher paying jobs is cheaper there.

This is an evolution that we can't stop. Once you start on the initial low cost track, the rest of the world realize there is nothing magical about building it in the US. The know how is transferable, and once it evolves more, we become dated. I believe in the fields such as LED and other semi-conductor fields, there are now more production expertise and knowledge outside this country.

A lot of the jobs people complain about are the low skill manufacturing jobs, which back in the old days, allowed someone to raise a family here. Those jobs are gone, due to our own choice for lower cost goods, and higher wages, and clean environmental laws. What might be a good paying job here is still a good paying job, just put into a different economic scale.

This isn't even just a US issue. The fact that Toyota and Honda production were impacted when their Chinese factories went on strike shows that the same behavior is the same in Japan.

The only safe jobs are the jobs that can only be done here, or that we maintain a competitive edge. Healthcare workers (not necessarily Doctors) and software comes to mind, but software is a field that the border is mighty thin...

Read the Maglite story, very illuminating. 

Good luck!


OT: Fed chief to banks: Find a way to lend to small business

What a frickin' disingenous sack of horse manure!

Or is he mentally ill? You have to wonder.


Ben Bernanke is a tool of the large banking elite. The reason small business is not getting its fair share is that the large banks have the bucks but in the 1990's got rid of all the people who know how to lend to small business. They know how to make big loans but not how to make small loans. What is missing from our debate is how politics and banking have shifted to favor the Large over the Small. Yet it is the Small who create the jobs!

[Jul 13, 2010] The Con of the Decade Part I

July 8, 2010

The con of the decade (Part I) involves the transfer of private debt to the public (the marks), who then pays interest forever to the con artists.

I've laid out the Con of the Decade (Part I) in outline form:

1. Enable trillions of dollars in mortgages guaranteed to default by packaging unlimited quantities of them into mortgage-backed securities (MBS), creating umlimited demand for fraudulently originated loans.

2. Sell these MBS as "safe" to credulous investors, institutions, town councils in Norway, etc., i.e. "the bezzle" on a global scale.

3. Make huge "side bets" against these doomed mortgages so when they default then the short-side bets generate billions in profits.

4. Leverage each $1 of actual capital into $100 of high-risk bets.

5. Hide the utterly fraudulent bets offshore and/or off-balance sheet (not that the regulators you had muzzled would have noticed anyway).

6. When the longside bets go bad, transfer hundreds of billions of dollars in Federal guarantees, bailouts and backstops into the private hands which made the risky bets, either via direct payments or via proxies like AIG. Enable these private Power Elites to borrow hundreds of billions more from the Treasury/Fed at zero interest.

7. Deposit these funds at the Federal Reserve, where they earn 3-4%. Reap billions in guaranteed income by borrowing Federal money for free and getting paid interest by the Fed.

8. As profits pile up, start buying boatloads of short-term U.S. Treasuries. Now the taxpayers who absorbed the trillions in private losses and who transferred trillions in subsidies, backstops, guarantees, bailouts and loans to private banks and corporations, are now paying interest on the Treasuries their own money purchased for the banks/corporations.

9. Slowly acquire trillions of dollars in Treasuries--not difficult to do as the Federal government is borrowing $1.5 trillion a year.

10. Stop buying Treasuries and dump a boatload onto the market, forcing interest rates to rise as supply of new T-Bills exceeds demand (at least temporarily). Repeat as necessary to double and then triple interest rates paid on Treasuries.

11. Buy hundreds of billions in long-term Treasuries at high rates of interest. As interest rates rise, interest payments dwarf all other Federal spending, forcing extreme cuts in all other government spending.

12. Enjoy the hundreds of billions of dollars in interest payments being paid by taxpayers on Treasuries that were purchased with their money but which are safely in private hands.

Since the Federal government could potentially inflate away these trillions in Treasuries, buy enough elected officials to force austerity so inflation remains tame. In essence, these private banks and corporations now own the revenue stream of the Federal government and its taxpayers. Neat con, and the marks will never understand how "saving our financial system" led to their servitude to the very interests they bailed out.

The circle is now complete: in "saving our financial system," the public borrowed trillions and transferred the money to private Power Elites, who then buy the public debt with the money swindled out of the taxpayer. Then the taxpayers transfer more wealth every year to the Power Elites/Plutocracy in the form of interest on the Treasury debt. The Power Elites will own the debt that was taken on to bail them out of bad private bets: this is the culmination of privatized gains, socialized risk.

In effect, it's a Third World/colonial scam on a gigantic scale: plunder the public treasury, then buy the debt which was borrowed and transferred to your pockets. You are buying the country with money you borrowed from its taxpayers. No despot could do better.

[Jul 13, 2010]   Rail Freight Container Volumes Hit Sixth Highest Level Ever

Seeking Alpha

Either rails have become a lagging indicator or there is no recession in rail traffic. This week’s data is VERY strong (via AAR):

The Association of American Railroads today reported that rail traffic for the week ending July 3, 2010 topped comparison weeks from both 2008 and 2009. Carloads were up 18.8 percent, at 286,777 cars, from the comparable week in 2009 and up 0.4 percent from the same week in 2008. Comparison weeks in both 2009 and 2008 included the July 4th holiday. In order to offer a complete picture of the progress in rail traffic, AAR reports 2010 weekly rail traffic with comparison weeks in both 2009 and 2008.Intermodal traffic totaled 231,286 trailers and containers, the highest since week 42 of 2008. Volume was up 36.6 percent from a year ago and 19.1 percent from 2008. Container volume of 197,134 was the sixth highest week ever and the highest since week 39 of 2007. Compared with the same week in 2009, container volume gained 39.8 percent and trailer volume rose 20.9 percent. Compared with the same week in 2008, container volume increased 30.8 percent and trailer volume fell 21.3 percent.

Eighteen of the 19 carload commodity groups increased from the comparable week in 2009, with metallic ores up 205.5 percent; motor vehicles and equipment up 122 percent; metals and metal products up 80.3 percent; and crushed stone, sand and gravel up 50.6 percent. Seven of the commodity groups also posted gains over 2008 levels.

Carload volume on Eastern railroads was up 36.8 percent from last year and 5.5 percent from 2008. In the West, carload volume was up 9.5 percent from last year but down 2.7 percent from two years ago.

For the first 26 weeks of 2010, U.S. railroads reported cumulative volume of 7,338,963 carloads, up 7.8 percent from 2009, but down 12.9 percent from 2008, and 5,434,892 trailers or containers, up 12.9 percent from 2009, but down 6.2 percent from 2008.

[Jul 12, 2010]   “Innovation” and the Social Purpose of Financial Services

The sad thing is that those scumbags forced everybody to bet  on a roulette-like game. 401K investors are forced to put their chips either of black (inflation) or on red (deflation).
July 12, 2010 | naked capitalism


In the never-ending conflict of individual interest vs. general interest (or what Yves calls “social purpose”), I believe there is an underestimation of just how thoroughly individual interest has triumphed. This is not something that is unique to orthodox economic theory. The sacrificing of group interest on the altar of individual interest has been almost ubiquitous throughout the behavioral and biological “sciences” over the last 40 or 50 years.

In the individual interest vs. general interest debate, there are three types of ideologies to be on the watch out for:

1) Ideologies that claim to promote the general interest and do indeed promote the general interest.

2) Ideologies that claim to promote the general interest but in reality promote individual interest.

3) Ideologies that overtly promote individual interest.

From some of the comments I’ve seen here on Naked Capitalism, there are some (Reinhold Niebuhr dubs them “moral pessimists” or “the children of darkness”) who believe that human beings are not sufficiently intelligent or adaptive to be able to sort out number 1 from numbers 2 & 3. The long sweep of history, however, I would argue belies this assertion.


Re: Reinhold Niebuhr dubs them “moral pessimists” or “the children of darkness”

Or perhaps realists?…

I see no reason to expect that the smartest amoral scumbag (sociopath) in ANY group of people wouldn’t win.

Perhaps the question is why do some societies appear to control their sociopaths “better”. I would suspect that one reason would be the fear of other nations (tribes). A Canadian sociopath leader would still have a “fear” of the US that might make him less likely to sell the entire country down-the-tubes. The US has no such fear as our dumbass peasants have been condition for 50+ years to assume American is the greatest country in the entire universe. And who better to lead a group of peasants – that believe a fantasy – than sociopaths.

Perhaps “the greatest nations” always fall when the peasants believe in the fantasy too much.


“There was one last capital reserve to tap, U.S. taxpayers, to revive the financial system and make the innovators whole. Widespread anger turned into sullen resignation as the public realized its opposition to the looting was futile.”

In defense of the taxpayers…they overwhelmingly were against TARP…Twice!

Let’s take a look at who comprises ‘the public’ and maybe we can come a bit closer to understanding the ‘public’s sullen resignation’. For simplicity let’s break it down to 2 groups…though there is much overlap.

About 50% of the public is dependent on a government sector job or are recipients of government redistribution of wealth schemes of some sort (everything from SS to food stamps to ag subsidies). If this portion of ‘the public’ were to complain too loudly they would be ‘breaking their own rice bowl’…as the Chinese say.

Then there are the debtors, that huge swath of Americans that are up to their eyeballs in debt either in revolving or non revolving debt. They have allowed themselves to become debt slaves and are now waking up to that reality. Some are angry and some are sheepish and some are a bit of both…and many of this group are in varying states of shock. Eventually most of this group will realize that, because of their eagerness to take on more debt, they are the enablers of the TBTF banks. Eventually most of this group will realize that without their debt contributions the TBTF banks could not have grown into the monstrosities that bought the public’s/debtors representatives.

When viewed from this perspective does anyone believe that more debt (more Fed printing of all duration debt from dollars to notes to bonds) will fix the current US deficits that are growing ever larger? The more debt that is paid down by the private sector (individual citizens), the more debt the public sector (all citizens as taxpayers) is encumbered with by Fed Gov spending. The current Fed Gov spending will be manifest in the form of coming higher taxes and fees by state, local and federal govs. Debt is simply a claim on future earnings. The enormous debts that have been rung up by the US Government could have been avoided at many turning points in the past…but it was not. Bad businesses and financial institutions were not allowed to fail in most cases if they were deemed too big to fail…or, friends of the Fed, Treasury, or whatever administration was in office.

The two groups mentioned above will muddle along, doing little, until one of the folling happen…

US declares soverign default on all or some debt obligations…foreign and/or domestic.

Fed prints enormous sums of dollars (yes, much much more than has already been printed) in an attempt to cause a controlled amount of inflation to reduce US debt in real terms. Note: If the Fed pursues this course they run the risk of destroying the public’s confidence in the currency and causing hyperinflation. Another problem with super printing is that the debt purchasers (US notes and bonds)will demand much higher interest rates on the perceived riskier debt…they will smell inflation in the air.

US finds or invents a reason to start a war because of it’s untenable economic situation.

A Black Swan occurs; ie, some event that none of us anticipate.


Yves wrote: We’ve pointed out from time to time that the financial services industry has lost sight of its role. While helping companies borrow and raise money, providing investment and saving vehicles and payment services are all useful activities, the cost of financial intermediation is ultimately a tax on commerce.

First, I wholeheartedly concur with Yves’ thesis.

Second, you fail to address the problems that our outsized, predatory ‘financial services’ sector now poses to viable businesses, to business expansion, and to general economic productivity.

Third, you appear to be unaware that by summer 2008, commodities speculation — hidden within the economic sector defined as ‘financial services’ – had destabilized markets. By Sept 2008, the banksters – many of whom had participated speculation through special “financial services vehicles” specifically designed to speculate and leverage – were telling large, mid, and small businesses that the banksters could not provide short term loans for payroll, etc, etc.

In other words, the banksters threatened to shut down commerce unless they got their TARP money.
Why didn’t the banksters have money to lend?
Because they’d leveraged – and lost – one too many speculative bets, so their next option was to tell the Fed, “Bail us out, or we’ll shut down commerce.”

In my view, that is ‘economic hostage taking’. It is a brazen, desperate threat: do what I want, or I’ll kill your darling. It is a power-play designed to show who ‘really’ runs the show. There is no real negotiation: it’s all or nothing. And the Bush Administration caved.

So it’s worth revisiting what I believe is the thesis of this post: the ‘financial services sector’ has lost sight of its role.  The ‘tax’ it takes off productive businesses has outgrown the usefulness of this sector as it is currently comprised – both for individuals, but also for businesses. The issue of personal credit card debt, which you seem to focus on, is only one piece of a much larger puzzle; it’s the larger economic role of servicing business that makes quite clear the ‘financial services sector’ has lost sight of its role.

Ask yourself: is political extortion (via TARP) an economically productive activity? I believe that it is deeply antisocial, and therefore dangerous to everyone in a society. It is very economically destabilizing.

Ask yourself: is it the role of ‘financial services’ to construct investment vehicles to leverage, and then speculate about, commodities futures?
When did leverage and speculation become primary features of ‘financial services’?!

Because IMVHO, building complex ‘financial vehicles’ in order to speculate is a very far cry from servicing businesses who need short term loans, long term loans, and other banking services.

Those two activities: speculation vs what might be better termed ‘economic husbandry’ (the traditional servicing business loans) are two extremely different things.

Servicing loans to grow businesses is economically critical.
Speculation and gambling, not so much.

This is not about ‘individuals’ who get in debt. This is about why one economic sector can hold governments, small businesses, and even Fortune 500 companies over an economic barrel.
What did we get in return?

The topic of how financial services have lost sight of their economic role is extremely important and needs far more attention and discussion.

Yves, I really tip my cap to you for this post. I hope it generates a similar discussion on other econ blogs and forums, because it seems to me that this is a key issue of the present historical moment. Thank you.


Re: I believe that it is deeply antisocial, and therefore dangerous to everyone in a society.

Unfortunately, a society run by sociopaths won’t be self correcting. Let’s assume for a moment that the US Party system is actually (and very simply) a sociopath vetting system. The Party vets local sociopaths judging their ability to manipulate the Party dumbasses with the approved stories (lies: ie, “those people”, “global warming”, “Sarah’s gonna git ya”, “peace n justice”, “Freedom n Democracy”, “Eeee-vil-doers”).

The best sociopaths are granted access to the State Party level, and finally the Federal level.

Perhaps the US peasants are truly unable to differentiate between sociopaths and non-sociopaths. As Party campaigns are nothing but marketing campaigns (a political sociopath is interchangeable with a F-150 truck) then how WOULD the average dumbass tell the difference?


“I’m not sure I get the whole “social purpose” argument. Surely the only question is whether the state funds an activity and that can be decided without appeal to such a nebulous concept.”

There is nothing ‘nebulous’ about how a financial system should function. Here is a very simple explanation from Wiki that anyone can understand.

‘In finance, the financial system is the system that allows the transfer of money between savers and borrowers.[1] It comprises a set of complex and closely interconnected financial institutions, markets, instruments, services, practices, and transactions.

‘Financial systems are crucial to the allocation of resources in a modern economy. They channel household savings to the corporate sector and allocate investment funds among firms; they allow intertemporal smoothing of consumption by households and expenditures by firms; and they enable households and firms to share risks. These functions are common to the financial systems of most developed economies.’

HFT, government intervention to pick winners and losers, Fed intervention in FX, commodities, securities, treasury debt issues, et al, do nothing to help the main st economy. As the US financial system is misfunctioning right now there is no price discovery that anyone can believe. Without the main st economy there is no reason for for a financial system…Hell, we could do as well with a barter system…at least the financial vampire squid would not get a percentage of all transactions.

 i on the ball patriot :

“And by the way, the cost of entry to HFT is really pretty low – just a few $K per month. That’s something a small independent professional investor *can* do. Is the argument that the markets shouldn’t permit trading activity that can’t be performed by a mom-and-pop-type investor in a mutual fund? That seems bizarre to say the least.”

Nice to see the Horatio Alger myth being kept alive.

Deception is the strongest political force on the planet.

 Tom Crowl:

Such an important post! Keep at it! The message has got to get through to anybody with a brain left…

But the MSM is nowhere close…

Just heard Jim Kramer on the Today Show suggest that recent increased hiring on Wall Street was a GOOD thing!

(I know the Today Show is nonsense but I usually try to catch the first 20 minutes. It’s a great daily indicator for just how far astray the general public has been led… and is willing to go!)

Somehow Mr. Kramer is convinced that feeding the tumor is supposed to be good for the patient. Gee, I wonder why the same ‘experts’ just keep coming back? BOOYAH Indeed!


Silly Bands – they serve no socially useful purpose, they’re rubber so bad for the environment, some child might swallow one and choke on it, they’re rent seeking at 2.99 for a pack of ten…I say ban or regulate them out of existence. HFT and silly bands – bad for America!


Re: The public understands that intuitively; it’s time the media and government officials have the nerve to state the obvious.

I’m not sure the public does understand. Perhaps “the public” you hang-wit is more intelligent than “the public” I hang-wit.

My homey’s still have faith in our hard working financial institutions of this great nation. Most of them are starting to suspect this was all “those people’s” fault, and the government. We really just need to get government out of the way and everything will be fine.

“The public” is large – unfortunately their brains are tiny. AND, their tiny brains are filled with information from “the media” – the same media you want to have “the nerve” to tell the truth. Nope, ain’t gonna happen.


“This says that critics need to keep hammering on the observation that financial services is only a support function to commerce, that when it is too big and profitable, that means it has become parasitic and extractive.”

Can we put this on a bumpersticker somehow so it will seep into American consciousness?

How about:
TBTF = Parasites Killing The Host (PKTH)

And i on the ball, I love your phrase as well.


Good idea about the bumper sticks but unfortunately the word “parasite” would be misinterpreted (from your intended meaning) into “those people” by about 40% of the peasant dumbasses.

The problem with manipulating dumbasses is that you’ve GOT to put yourself INTO their tiny brains and understand the semi-psychotic stories that already exist; AND THEN understand how your own words will be twisted by their brains hard-working bullshit machine. The human brain is simply a bullshit generation machine (stories) and rationalization machine (duplicity).

So, you’ve got the right idea (a simplistic story the dumbasses can remember) but your words are already used. Keep trying…

[Jul 12, 2010] Is The Market Experiencing A Slow Motion Crash

zero hedge

Each time the market looked like it was about to fall off a cliff, it had some outside force help it rally." Well, that big rally is happening now because once again a powerful “outside force” intervened to stop prices from collapsing. Folks, these aren't natural, free-flowing markets we're dealing with here. If they were, then the market would more than likely have crashed to the July 2009 lows by now."

Why We Must Reduce Military Spending by Rep. Barney Frank and Rep. Ron Paul

July 6, 2010 | The Huffington Post

As members of opposing political parties, we disagree on a number of important issues. But we must not allow honest disagreement over some issues to interfere with our ability to work together when we do agree.

By far the single most important of these is our current initiative to include substantial reductions in the projected level of American military spending as part of future deficit reduction efforts. For decades, the subject of military expenditures has been glaringly absent from public debate. Yet the Pentagon budget for 2010 is $693 billion -- more than all other discretionary spending programs combined. Even subtracting the cost of the wars in Iraq and Afghanistan, military spending still amounts to over 42% of total spending.

It is irrefutably clear to us that if we do not make substantial cuts in the projected levels of Pentagon spending, we will do substantial damage to our economy and dramatically reduce our quality of life.

We are not talking about cutting the money needed to supply American troops in the field. Once we send our men and women into battle, even in cases where we may have opposed going to war, we have an obligation to make sure that our servicemembers have everything they need. And we are not talking about cutting essential funds for combating terrorism; we must do everything possible to prevent any recurrence of the mass murder of Americans that took place on September 11, 2001.

KCFreedom :
I think Ron and Barney are absolutely right but the banksters, weaponers, and neos will never allow the defense budget to go down.

As soon as they start seeing cuts, watch as some sort of "attack" or "threat" occurs to stick it right back up there again.

John Hay :
I find it quite astonishing that American politicians are only now beginning to realize that they need to cut military spending. Their financial epiphany has arrived 10 years too late.

I would have thought it was patently obvious that fighting two wars simultaneously with borrowed money isn't very smart. And what for? America needs to end this arrogant military nonsense and start putting its own house in order.

John Hay

Millers Boy:

I don't know how you conclude that from reading this. Barney Frank has been anti-pentagon for his entire career... and Ron Paul's libertarian tendencies leave no room for any compromise - if he had his way, every overseas military base would be shut down immediately. He's been telling this to anyone who would listen for 40 years at least.

So there's nothing new in these two guys wanting to reduce pentagon spending. And the existence of this article doesn't mean a single thing about the feelings of the rest of the senate and congress. I'm sure they will be able to get a few names to sign on, but we are still a long, long way from the kind of domestic economic collapse that would force the hawks to go along with deep defense cuts.

90% of the GOP would rather see 30% unemployment than cut military spending. There's two main reasons for this - First, ideologically the GOP and many Democrats are simply devoted to the idea of American military supremacy. Cutting military spending significantly would feel like being castrated to a large part of the voting public.

Second, every single state in the USA has thousands of citizens employed by the Military or their suppliers. One truism of American politics is that a politician will *NEVER* vote for a spending cut that affects jobs in his home state. For military spending that goes double.

Real defense spending cuts are a long way off yet.


Creating jobs? The military creates a ton of jobs, both through the employment of service members and the corporations that support them and build the weapons of war. If the government proposed an equivalent number of jobs for building infrastructure it would be called Socialism, but because Americans are such chicken s h i t e s, we're only too glad to spend ourselves into the poor house for "security." Wake up, people!!


I hope YOU do win and I hope that YOU indeed cut every conceivable program that you can possible cut that any way benefits less fortunate Americans. At the same time I hope YOU continue to increase your military spending (already over 1 TRILLION), that you keep your troops deployed FOREVER (already >5400 US Soldiers DEAD and counting) and that YOU even expand your efforts into Pakistan and Yemen and where ever else YOU deem a threat might exist (you currently lack the numbers to maintain the 2 Wars plus face threats from Iran, N Korea, etc).
While you continue to spend money that you don't have on your War efforts your Country men/women will go without. Your infrastructure will suffer, your people will continue to remain unemployed, your poor will only only become poorer, more hopeless, and more disgruntled and then you will face a different problem from within your borders( as if the Gangs in you in the meantime China, India, Russia will continue to create or even to led the World in Green energy jobs and development, etc.

I pray that YOU get everything YOU wish for and that you continue to drain your conifers on the War effort while your Middle Class (what is left of them) go without. Please I hope YOU indeed cut every program for


With Obama's handpicked panel who have pre decided that only the fully funded program, Social Security system, is the place to cut; after Congress with the active collusion of all administrations have systematically looted the "trust" funds paid into Social Security from PAYROLL taxes for the Social Security bubble of baby-boomers (remember Georgie waving the IOUs)!

These stolen monies were used to give the top 1% tax breaks and you sure do not expect their lackeys in Congress to actually tax it back to pay off those IOUs, or to tax those robber barons of wall street with "capital gains" from unearned activities who sure don't expect their purchased Congress to treat them as if they actually worked to "earn" their income!!

Nor should our poor volunteer mercenaries in training have to do such menial jobs as KP, cooking, making their own beds, or managing supplies when our viperous contractors are happy to take 10times their pay to do it for them! Stopping ALL contracting activities for the "volunteer" military would bring a screeching halt to all our foreign adventurism and if we forbid selling any American arms or munitions to ANY foreign county it just might stop completely!!


We need a coalition in Congress that finally puts an end to extreme military spending. Under Clinton, we spent "only" $200 billion/year. 10 years later we end up spending $700 billion plus some additional funding here and there. $500 billion that could be spent in so many other, DOMESTIC issues. Just to list a few: Health Care, Education, Research & Development, Infrastructure, Border Security, Environment, and Cities.

There are a lot of great projects in this country that lack the funding. To name one: California High-Speed Rail. While other foreign governments invest tens of billions of dollars in high-speed rail, Congress decides to invest a ridiculous sum of $1.4 billion in high-speed rail for the Fiscal year 2011.


I agree with you point by point. I would make one change in your comment. We are not frittering away our national treasure on DEFENSE. Our military expenditure is arguably somewhere around 90% wasted on OFFENSE.
In the 21st Century, there can be little or no justification for an offensive military capacity. The maintenance of a small reactive and defensive military, consisting mostly of Special Forces - Seals, Rangers, Marine Recon, etc - is all that is indicated for response to the "asymmetrical" conflicts we face.


When the Soviets forward deploy, we call that "Expansion of the Soviet Empire." When the British forward deploy, we say "The Sun Never Sets over the British Empire." When America forward deploys we call that "Containment." America leads the World in public relations bullshit. America has what, 700 bases outside the United States? The British Empire, the Russian Empire, and the Roman Empire all pale in comparison to the American Empire. Barney Frank is correct. Tell the Pentagon they got 100 bases tops and the rest are shut down. Bring the troops home and at least spend all that money in America. We spend more than the rest of the world combined and then we pump up everyone else's economy with the spending. Bring it home.

The American military has been cast in the mold of the post WWII era of a raging Cold War. Now that the Cold War is no longer a concern, the military needs to reassess its posture and reconstruct according to a new and an updated paradigm.

The problem arises from the vested interests in the military industrial complex that resist the imminent change. Drastic cuts in military spending, if implemented rapidly, may have a negative impact on the economy in general and be of catastrophic consequence for regions of impact.

Our recent experiences in the Middle East have adequately demonstrated how unprepared the military has been to effectively perform in non-conventional and asymmetrical conflicts. Rather than focusing on cutting military spending for the sake of saving the national budget, we would be far better off to direct attention toward performing a major overhaul in the military and let the spending chips fall where they may.


I don't want the military to 'reassess itself". That's the problem. The "civilian " government is supposed to be in charge of the military, but it just ain't so. The military manipulates congress through the weapons lobbyists who spend millions to elect congressmen that will support them. The only way it will stop is when the middle class is so small it can no longer support the military - industrial complex.


Basically, you are right. But I agree with Jaczar that it is not the military that needs to do the assessing. Policy is made by our civilian government -- which receives a lot of campaign contributions from the military industry. Campaign finance reform - including blocking all corporate contributions - is the only thing that will cut that dependency and enable tough decisions. Neither can the military leadership provide independent advice since many officers who retire go on to lucrative jobs in the defense industry. Nobody will bite the hand that feeds them. That is the essence of the problem.

Bundenthal :

A few months ago the projected TOTAL SHORTFALL for the 48 state budgets predicted to be in the red for 2010/2011 was approx. 120 Billion. We have a real SIMPLE lesson in opportunity costs here.

Afghanistan/Iraq or the US? Which is more important to us?


It's not 42% of 'federal budget' it's of 'discretionary spending'. Most of the budget is made up of Social Security, Welfare, Mediare/Medicaid - which are 'entitlements'. I think only Education and Military are the big discretionary ones, and not even sure about education.


Despite what the U.S. military declares, manpower costs could be reduced with a return to conscription--with no exclusions for class; however, the "elites" you speak of would instantly change from an aggressive, militarily-labiled, foreign ANYTHING else. Especially, is this true of MANY Republicans who are long on aggressive fustian but shamefully short on experiencing what they prescribe....

There was, of course, never ANY threat to the U.S. from Hussein's regime in Iraq; moreover, even allowing for a vengeful foray into Afghanistan, U.S. military "planners" made a fatal mistake with a commitment at the present level.

The West has NEVER won a guerilla war--and certainly not one in a theatre wherein the populace is unenthusiastic about prosecution and the racial/cultural/ethnic differences are so apparent.


"Chalmers Johnson"

Author of 'Blowback', 'The Sorrows Of Empire' and 'Nemesis: The Last Days Of The American Empire', Chalmers Johnson has literally written the book on the concept of American Hegemony. A former naval officer and consultant of the C.I.A., he now serves as professor Emeritus at UC San Diego. As co-founder and President of the Japan Policy Research Institute, Mr. Johnson also continues to promote public education about Asia's role in the international community.

In this exclusive interview, you will find out why the practice of empire building is, by no means, a thing of the past. As the United States continues to expand its military forces around the globe, the consequences are being suffered by each and every one of us. 

[Jul 11, 2010]   Is the Fed Happy with the Crappy Economy?

July 10, 2010

It’s one thing to recognize that we are working through a painful hangover after a private sector borrowing binge that produced a global financial crisis. It’s quite another to be complacent about bad conditions and steer clear of possible remedies.



You bemoan the fact that, as we speak, we don’t have free markets in the United States. The government steps in to subsidize TBTF bankers. Working people are left to languish. In this I don’t think there’s much disagreement. The disagreement comes on solutions. Your prescription seems to be: “If we don’t have free markets, get them!”

Yours is the illusion of classical economics. This mythology holds that markets somehow can operate independent of the state and its power. The problem with this is that this has never happened. It never will.

If working people want a say in the economic life of the nation—-in how economic resources are created and distributed—-they must take an active role in politics, become involved in the public realm. The belief that some supernatural “invisible hand” can achieve economic harmony and efficiency is a a throwback to an earlier era when those same powers were attributed to God.


The ones with good jobs will see themselves as validated by the FREE MARKETS invisible hand where those with out are unclean, sore losers, heretics. Austerity is just another Crucifixion exercise me thinks.



I don’t believe in ‘free markets’; however, fair markets would be very nice indeed!

Francois T:

Are they happy with high unemployment?

Why should they give any thought to people they never meet (save to get their plumbing/electricity fixed, or their pool cleaned up), never meaningfully interact with?

Plus, the unemployed never go collect their checks at the office like it used to be. So, they are invisible to the media, the politicians (38th day of stand off on the UE benefits extension in the Senate, remember?) and the Fed people.

I would surmise that they just cannot possibly give a shit. After all, the Fed people frequent Wall Streeters, bankers, money managers and other respectable people who have means and wealth.

Life is honky-dory in their circle: ain’t got a recession here, right?

[Jul 10, 2010]   Irony Our Huge Military Is What Made Us an Empire ... But Our Huge Military is What Is Bankrupting Us, Thus DESTROYING Our Status as an Empire

07/09/2010 | zero hedge

As I've previously pointed out, America's military-industrial complex is ruining our economy.

And U.S. military and intelligence leaders say that the economic crisis is the biggest national security threat to the United States. See this, this and this.

As RT points out, it is ironic that America's huge military spending is what made us an empire ... but our huge military is what is bankrupting us ... No wonder people from opposite ends of the political spectrum like Barney Frank and Ron Paul are calling for a reduction in military spending.


And just why might that be?

Hint: read Smedley Butler's War Is A Racket! (

WAR is a racket. It always has been.

It is possibly the oldest, easily the most profitable, surely the most vicious. It is the only one international in scope. It is the only one in which the profits are reckoned in dollars and the losses in lives.

A racket is best described, I believe, as something that is not what it seems to the majority of the people. Only a small "inside" group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many. Out of war a few people make huge fortunes.

[Jul 10, 2010] mish say no to stocks because optimism is insane Tech Ticker, Yahoo! Finance

That's does not mean that he is right; but that does suggest that 401K investors might be better off enduing lower yield in bonds: 3% gain for a yield is much better than 3% loss.

The bulls have pushed aside the bears on Wall Street -- for now. Signs of optimism following three consecutive winning days in the stock market have replaced the doom and gloom mood so prevalent in the two prior weeks.

Having already heard the bullish case from Doug Kass and James Paulsen earlier this week, Tech Ticker decided to invite Mike "Mish" Shedlock, author of Mish's Global Economic Trend Analysis, back on the show to hear the other side of the argument.

Is he bearish? You bet!

"The optimism out there is rather insane," he says. There’s only a 15-20% chance of the market rallying, Mish tells guest host and Business Insider deputy editor Joseph Weisenthal. "It's more likely we go down there and test the March lows, and there's a decent chance actually that we break those lows," he says.

Mish says "it is nuts to be net long" stocks right now in the face of all these headwinds:

-- Slowdown in Europe as austerity measures take hold.

-- Slowdown in U.S. as stimulus fades, housing remains weak, state and local governments cutback

-- China looks to cool its economy in the face of growing housing bubble

Until Mish sees signs of sustainable job growth, he'll be firm in his bearish stance. "Without a driver for jobs I don't know how someone could be bullish on the stock market."

If not stocks, then what?

Mish is sticking with what's worked this year: Treasuries and gold. Treasury yields are still near record lows, but he think with the macroeconomy the way it is, it's very possible, "the bull market in Treasuries is not over." As for gold, he'd buy on the dips.

Yahoo! Finance User :

Nothing has been fixed. Stimulus was borrowed from the future. Debt was the problem to begin with and we have more of it now. Borrowing and spending does not make a recovery. Soon interest payments on debt will be enough to kill any recovery as you know it. Deflationary crash is coming. Individuals, state, local, federal governmers will not have disposable income left to spend. This is the mother of all crashes. 2008 was just the warmup. Stocks are at bubble prices. Yet everybody wants to own them! Back in March 2009 nobody wanted stocks. At that time only 3% of traders were bullish. That is how the crowd gets it wrong! That meant a fuel of 97% of traders to turn to the bullish side and drive the stocks higher. Fast forward to April 2010, 92%+ of traders were bullish and thought stocks would go ever higher and they would sell to the greater fool. Only the contrarians will sell at the top and buy at the bottom!

[Jul 09, 2010] Walking Away From Million-Dollar Mortgages

The housing bust that began among the working class in remote subdivisions and quickly progressed to the suburban middle class is striking the upper class in privileged enclaves like this one in Silicon Valley.

Whether it is their residence, a second home or a house bought as an investment, the rich have stopped paying the mortgage at a rate that greatly exceeds the rest of the population.

More than one in seven homeowners with loans in excess of a million dollars are seriously delinquent, according to data compiled for The New York Times by the real estate analytics firm CoreLogic.

By contrast, homeowners with less lavish housing are much more likely to keep writing checks to their lender. About one in 12 mortgages below the million-dollar mark is delinquent.

Though it is hard to prove, the CoreLogic data suggest that many of the well-to-do are purposely dumping their financially draining properties, just as they would any sour investment.

“The rich are different: they are more ruthless,” said Sam Khater, CoreLogic’s senior economist.

... ... ...

Lenders are fearful that many of the 11 million or so homeowners who owe more than their house is worth will walk away from them, especially if the real estate market begins to weaken again. The so-called strategic defaults have become a matter of intense debate in recent months.

Fannie Mae and Freddie Mac, the two quasi-governmental mortgage finance companies that own most of the mortgages in America with a value of less than $500,000, are alternately pleading with distressed homeowners not to be bad citizens and brandishing a stick at them.

In a recent column on Freddie Mac’s Web site, the company’s executive vice president, Don Bisenius, acknowledged that walking away “might well be a good decision for certain borrowers” but argues that those who do it are trashing their communities.

The CoreLogic data suggest that the rich do not seem to have concerns about the civic good uppermost in their mind, especially when it comes to investment and second homes. Nor do they appear to be particularly worried about being sued by their lender or frozen out of future loans by Fannie Mae, possible consequences of default.

The delinquency rate on investment homes where the original mortgage was more than $1 million is now 23 percent. For cheaper investment homes, it is about 10 percent.

With second homes, the delinquency rate for both types of owners was rising in concert until the stock market crashed in September 2008. That sent the percentage of troubled million-dollar loans spiraling up much faster than the smaller loans.

[Jul 08, 2010]  Guest Post The Rats Are Cornered

Zero hedge harbors extremists :-)...  
Jul 08, 2010 | zero hedge

Gully Foyle:


"My advice is to just (actually or figuratively) walk-away. If you can't do it physically, then do it mentally."

Ladies and gentlemen, and posers ( you know who the fuck you are) we have a WINNER!

You can't win playing a rigged game. You can win by not playing.


It never works. The people typically expat with their money when that happens.

Why should America be any different that way than Russia or Argentinia for example?

The shit hit the fan but the propaganda is strong and to this day, people believe it more than they do not. After all, 40 years of being told that America is the greatest nation on the planet does something to the collective mindset over time. Got news for you. America is not all that.

However, the cult of patriotism as executed among the millions of Americans and supported by a nonstop patriot government propaganda will turn people against each other. The guy next door who has gold in his house may be deemed unpatriotic. You may not want to bother the guy but your kids man, your kids are so patriotic that they will surely report to the hall super and he reports to the principal and he reports to the local authorities.

America is already a fascist state. American people are more paranoid than any other people - for a reason. There is no trust among people, there is no trust to authorities unless they are on your ideological side and you can score brownie points.

People with offshore accounts, whoever they are .. know this and will not wait for the day that the transport trucks come through the streets and take everyone to a rail station to get herded into box cars.


One of the commentors on this site - I think it was Apostate - was talking about the kulaks, the 'rich peasant' class; in the early 1930s a boy named Pavlik Morozov became a state hero for denouncing his father for hiding grain from the state. The state encouraged peasants to spy on one another for hoarding undue wealth.


An excellent commentary that includes excellent advice.

While I concur with almost everything you've said, I think there are many of these "Rats" who will fall off the radar screen, and be able to evade their eventual "date with destiny" until the end of their life.

Your commentary should be "required reading" for the masses!


"Bernanke cannot have the S&P500 at 850 and gold at 1,200 and announce QE2. Gold would surge to new highs and it would look horrible."

nailed it!!!

[Jul 08, 2010] Bank Of America Joins Economic Slowdown Chorus, Pushes First Rate Hike Estimate Out To 2012

zero hedge

Bank of America, via economist Ethan Harris, has joined the chorus of large banks reducing economic forecasts, and as a result has reduced its GDP projections for 2010 and 2011 to 3.0% and 2.6%, from 3.2% and 3.3% respectively. The inflection in 2011 is notable as now the bank sees a material slow down in the economy where before it saw growth. Also, BofA is now expecting that the Fed will leave the Fed Fund language unchanged unchanged for 18 months, until March 2012. This is not surprising: with QE2.0 around the corner, it means that the Fed will soon be implicitly lowering rates. Of course, should the Fed find some naughty pictures of Barney and Chris, it may soon pass laws that allow negative interest rates for the first time. Of course, nothing at this point would be surprising.


Bond crash imminent. LMAO!!

DoctoRx :

buzzsaw may be on to something.  Too much consensus for ZIRP4EVA to make me happy.  And usually trouble looms in the bond market when the 10 and 30 year are so far below their 150 day sma's.

-1Delta :

let it play out... its a break out. The trouble is in equities; the fed will let the equities slide a bid before the bond market- housing 8.0


“The U.S. turned 234 years old yesterday (July 4th), and yet over half of the nation’s money supply was created since Helicopter Ben took over the flight controls four years ago.” --David Rosenberg, Gluskin Sheff, Breakfast with Dave

The essence of the BofA’s call to move its anticipation of the first interest rate hike further out into the hinterland—March 2012, is anti sound money.  What BofA is really saying is we need more risk, we need to reward risk, maybe we need to continue rewarding it forever—maybe even into 2050…because this thing is working!  Well, it’s working for BofA.  Everybody had such tears in their eyes over BofA's troubles, but look at it now.  As far as BofA is concerned, why change something when it’s working!

It’s like a Ponzi scheme where there’s nothing at the end except a few investment banks at the top continuing to coin the money, capitalizing on the financial “crisis” using the idea of the “slow recovery” to justify their moves. Notice how Bernanke mentions it every time he extends the ZIRP. "Slow recovery" is part of the lie used to hold the interest rates down for the benefit of the banks. There is no recovery. The reason for the "improving" lie is so they can support the political system; the people are taken in with it.

These bankers are huge criminals; look at how they used the Dow today. It’s nothing more than Bernanke’s thermostat. He set it today to hit 10,000. That’s why many investors are staying away. 

The Fed’s inflationary and zero interest rate policies punish savers-- they encourage younger people to over borrow because interest rates are so low, and they punish the thrifty who saved but now find their dollars eroded by inflation.

As Gary North of the Mises Institute said, “When savers stop saving, misery will result. The Establishment economists have never accepted this universal fact of economic life.

“Central bankers have not yet grasped the implications of the substitution of fiat money for thrift. They expect savers to roll over and play dead. They ask rhetorically, ‘Who needs savers when you have the legal authority to create digits and print pieces of paper with politicians’ faces on them?’"

North concluded in his article The Central Banks’ War on Savers: “Anyone who worries about imminent price deflation has not thought through the Old Boy Network and its solution to every economic slowdown: more fiat money. In contrast, anyone who worries about the long-term decline of productivity due to the euthanasia of savers has indeed thought through the Old Boy Network’s solution.”

[Jul 07, 2010]  Alpha Is Dead: Barclays Says With Stock Dispersion At All Time Lows, It Is "Not A Stock Pickers' Market" 

There is a simple reason why all hedge funds with "relative value" or "deep value" in their names will soon be looking to change their moniker: stock picking no longer works, with the only strategy that matters, as implied correlation is now at the second highest level in history, is picking the time to leverage beta exposure and riding the broader market up or down. Alpha is now dead. as Barclay's head of quantitative strategies Matt Rothman says, "Indeed, it was hard to be a stock picker in the market for the last two months as the last two months have seen historically low levels of dispersion in stock returns. As shown in Figure 2, the cross-sectional correlation across all stocks in the market was at its second highest level last month (measured back to July 1950) and recorded its third highest level this month; there have never been to two months back-to-back with anything approaching these levels. To belabor the obvious and put this in perspective, current levels of correlation are higher than in October 1987, anytime during the Fall of 2008, either the run-up or the bursting of the Internet Bubble, or after 9/11. The reason this matters to all stock pickers — fundamental or quantitative — is because with stock return dispersions at all-time lows, it is extraordinarily difficult to be picking stocks." In other words, the danger of yet another systemic meltdown (or up), now that everyone is on the same side of the trade (and whoever isn't, is getting steamrolled), is higher than ever in history, up to and including May 6. And he, who has the greatest access to (risk free) leverage wins. Therefore look for all the "investment bank" hedge funds with prop desks and discount window access to once again post record trading days for the current and all future quarters until even they blow themselves up eventually and the Fed can do nothing to prevent it.


Correlation always kicks up in a downward trending market. There's no reason to own single stocks anymore. If you are going to get long, and God help you if you do, you are better off owning sector ETF's and at least mitigating some of the inherent credit risk. Throw mirco-economic analysis out the window, and form a marco strat.

Oh regional Indian:

Of course Alpha is dead.

Everything is tightly correlated and tightly coupled. Commodities, currencies, geo-politics. Lack of diversity in manufacturing.

Every one is playing the tail and praying they have a good quarter.

Beta will disappear similarly. Then only the extremely tactical (algos) and the extremely strategic will make money.

Ripped Chunk :

+ 10,000

"People, not commercial organisations or chains of command, are what make great civilizations work, every civilization depends upon the quality of the individuals it produces. If you overorganize humans, over-legalize them, suppress their urge to greatness — they cannot work and their civilization collapses."

Awesome post. Thanks for the reference

 Reductio ad Absurdum :

From another recent article on the same topic:

According to data provided by Cleve Rueckert of Birinyi & Associates, 78 percent of the S&P 500 is currently moving with the market.

Back in April the correlation was more like 50 percent. And if you go back further to the good old days of the mid-90s, according to Rueckert, it was around 30 percent.

colonial :

Hey Tyler, what about a caveat? I agree with the premise and have said so on this site for months. I called it the commoditization of the market. I have also argued that on a larger scale, other linchpins of the investment world as we knew it are gone forever.

For instance, what's a brokerage house today? They are mostly now universal banks, with a few exceptions, (Brown Brothers, Jeffries, etc.) What is an exchange? You have written extensively on trading issues.

Since the fiduciary debate refuses to go away, what's the definition of an investment professional? If captive license holders no longer work for the House but must now work on behalf of the investor/client, why work for a House?

This industry is changing before our eyes and the idiots in Washington don't have a clue what's going on...which is really scary.

Here's my caveat, I think many mega cap stocks are in essence ETF's and/or indexes as well. Therefore, traders and investors can now be long or short an index and add "alpha" by including a GE, XOM, JNJ, WMT etc. Maybe the claim should be that the OEX components are also indexes. Adding mega caps, long or short, provides limited alpha.

[Jul 06, 2010] Goldman Sachs: "The Second Half Slowdown Has Begun" by Tyler Durden

As Lenin used to say about middle class: "we will grind them between the millstones of taxation and inflation".

The economic mood at 200 West has officially downshifted. In a report by Jan Hatzius, the Goldman chief economist warns that "the second half slowdown has begun." Hatzius says: "This is consistent with our long-standing forecast of materially slower growth of just 1½% (annualized) in the second half of 2010." And while the contraction has been obvious to all those without a metric ton of wool in front of their eyes, the two indicators that have broken Goldman's will were this week's NFP and ISM reports. And not only that, but Hatzius is now firmly in the Krugman camp, blaring an even louder warning that should the government cut off the fiscal subsidy spigot "there is some downside risk to our forecast of a gradual reacceleration in 2011 (to about 3% on a Q4/Q4 basis)."

In other words, not only will H2 GDP officially suck, but since Goldman has now officially jumped on the Keynesian gravy train, and as Goldman has rapidly become the best contrarian indicator in the world (we can't wait for David Kostin to realize that endless economic stimulus, GDP and corporate profits are, gasp, related), it likely means that Obama will not allow for even $1 dollar of extra unemployment subsidies or state bailouts just to spite Goldman.


Does anyone pay any attention to Goldman, Krugman, Bernanke, Geithner, Paulson, Greenspan or any of the other lying sack of sh*t douchebags who have destroyed our economy? We are in a Depression that was papered over with government/Fed spending and bailouts. That's all that has occured since the Fall of 2008. They know that and yet they've lied on a daily basis during that period trying to get as much profit as they can before the artificial pump job ends and they stick the sorry saps who bought their bullish bs with a bunch of overpriced shares. These people belong in their own prison where they are sod*mized on a daily basis with a broken beer bottle considering what they've been doing to Joe Six Pack the past decade.

[Jul 04, 2010] The Financial Crisis and the Scientific Mindset

The New Atlantis

Taken as a whole, these interventions constitute a kind of technocratic revolution in capitalism, and a decisive step toward socialism in the United States. But it is a curious socialism, concentrated in the labyrinth of financial engineering, and manifesting itself above all in the socialization of much of the risk associated with this engineering.

... ... ...

A shadow bank is a financial institution operating outside the heavy regulation of the traditional banking sector, but basically doing the same thing that traditional banks do: borrowing short and lending long. The crucial feature is that it mostly functions off balance sheet, outside the regulatory apparatus, and out of sight of those not actively working in it. It is, in Pittman’s words, “a method of lending without using capital,” which “works by taking anything that has regular payments — mortgages, car loans, aircraft leases, music royalties — and channeling the money to a trust that pays bondholders principal and interest.” The capture of these payments by advanced probabilistic modeling is known as securitization, and forms the shadowy or ghostly character of this business. By a wide variety of complicated artifices, future payments are converted into present value, with little capital expended in these machinations, and plenty of fees extracted.

There is some irony in the fact that this wild and unregulated industry made its best profits by means of facilitating the flow of capital into U.S. housing, a sector of the economy which has for generations featured extensive and elaborate — and largely unapologetic — government meddling. Since at least the New Deal, it has been a sustained policy of both parties to encourage and subsidize home ownership. In a sense, we might say that the debacle of 2008 combined the ruin of both a heavily regulated sector with a history of constant state intervention and a largely unregulated sector with a history of exuberant inventiveness.

So capital generated from a kind of globalized field of laissez-faire brashness was plowed into the stolid old housing sector, long the beneficiary of state support. In addition to the usual players in the housing sector — the regional banks, the massive financial conglomerates, the government-sponsored enterprises — this was also accomplished through the shadow banks.

Shadow banking also involves big industrial firms that few would normally think of as finance giants. These institutions make use of their top credit rating to carry on a brisk trade in certain classes of debt security, or derivatives on said securities. By 2008, these corporations had realized such massive profits on their shadow banking operations that it is not too much to say that they had become huge unregulated banks, with auxiliary industrial arms attached to them. According to James Stewart, writing in The New Yorker, even the Secretary of the Treasury did not know of the high-tech bank run on one such institution, American International Group, Inc., only three days before a collapse at that firm so calamitous as to force the Treasury and the Federal Reserve to nationalize it at extraordinary cost. A similar high-tech bank run nearly brought General Electric to grief six months later. Neither A.I.G. nor G.E. is a bank in the traditional sense of the term. Yet they played (or, in the case of G.E., still play) an indispensable role in the infrastructure of world bond markets.

[Jul 03, 2010]  Robert Shiller Says the Depression Scare is Back

"I believe that globalization has produced too many leaks in the US economy for stimulus to work the way textbooks suggest. "  Robert Shiller
Economist's View


I don't believe that yet more stimulus is going to work either for anything other than a short term boost that might palliate voters for one election cycle.

I believe that globalization has produced too many leaks in the US economy for stimulus to work the way textbooks suggest. Some examples: the government gives someone food stamps; s/he buys fruits and vegetables; even if those came from the US, the workers that picked them are likely immigrant and sending some of their wages out of the US. Suppose the government stimulates consumer purchases - e.g., someone buys a consumer electronics product; a chunk of the purchase price attributable to the manufacturing costs goes to overseas firms. Goods and services are delivered via trucks and planes that use fuel that, while refined in the US was likely extracted in Mexico, Canada, Saudi Arabia, etc., and shipped in a Korean or other ship. Someone buys a pair of sneakers and the wage component of that in part goes overseas. There is the amount we spill out in Iraq, Afghanistan etc. And on and on.

We can't expect US stimulus to work on the US economy the way it did when the US economy was more self-contained in terms of its manufacturing, commodities, etc. and we didn't have so much military expense in foreign countries. US stimulus may be stimulating the global economy and sure all that money comes back in the balance of payments but it does so more in the form of capital flows than purchases of goods and services. Which is why stimulus leads to asset price inflation rather than economic growth.

Then there are other sponges that soak up fiscal stimulus --take a medicare payment to a surgeon for a patient. The surgeon and the patient both report that as income and pay taxes on it, sucking it back out of the economy. The surgeon may pay a portion toward a student loan, a practice buying loan, or for malpractice insurance, all of which goes back into capital flows, which is fine, but not stimulus of jobs making and buying goods and services.

Then there are the high relative wages, high relative business compliance costs and taxes on business owners in the US that deflect potentially productive activity overseas and again diminish the effect in the US of any stimulus. You can think of those as kinks in the hose to extend the leak metaphor.

So I know it is the dismal science but there is really not going to be a lot of benefit from pumping more water into a leaky hose. That is what is misguided to quote the post. It is better to start thinking about second best alternatives like austerity and balance sheet repair and structural reforms of the relationship of the employer to the polity.


"I believe that globalization has produced too many leaks in the US economy for stimulus to work the way textbooks suggest."

Perhaps the only stimulus that will work in both the short and medium term is direct hiring by gov't (including state and local). Extending unemployment benefits and food stamps and stuff is better than nothing, but there is nothing for ending unemployment like putting people to work.


Eeek, now I'm really scared.

Seriously, I think the American people basically have believed in a broad conservative consensus of deregulation, globalization, unions are bad, and so on. If they have disagreed, it wasn't strong enough to cut through manipulative campaigns and impact final votes. Same difference.

This consensus is falling apart, along with the global economy. I think Obama has made a few big mistakes (should have tossed out the bank ceo's, for example, the way he did with GM) but he has gotten more progressive legislation through Congress than anyone has done since Johnson. Not too shabby. BUT. That has been a finger in a collapsing dike. It hasn't been enough.

Basically, you get the democracy you deserve. We have the social welfare state and capitalist oligarchy that was roughly in line with what has been acceptable to most Americans for several decades. This is the triumph of Reagan. It is incorrect to blame Obama for this. We could have had McCain, after all. We could still get Palin, if the economy continues to fall apart.

In history, the collapse of an ideology can be a difficult, even gruesome, business. That is what we are experiencing now.


I have been betting on a return of the downturn for some time. The main questions were how long the government financed respite would last. There is simply no self-sustaining driver on the horizon to replace asset-bubble-induced demand and the only other path (rebalancing of exporters, particularly China) is not going to happen anytime soon.

devin :

So whatever anybody else wants doesn't matter?

I've been less than impressed by Obama's performance so far (though, as I did with Bush, I'm trying to reserve judgment until the next presidential election and try to take in the big picture then), but I find this meme that wants to pin everything on the President (Obama, Bush, Clinton, whoever) as being very dangerous. We're supposed to be something sort of like a democracy. We're supposed to be governed by a constitution designed to limit the powers of any one individual or interest group. But if we're going to blame a President for acting within the bounds of the Constitution and respecting the will of a democratically elected Congress, then what do we want as the alternative?

Bush concerned me with his seeming disregard for the checks and balances of the system. But it seems like this behavior has come to be the expectation for Presidents. Have we just grown tired of democracy and all its messy workings in this country? Are we ready to crown a king? It seems like our short attentions spans and desire for immediate results are fundamentally at odds with the laborious workings of a democratic system. I'm very concerned about which side will ultimately win out.

Fred C. Dobbs :

When Hoover failed to handle the '29 Crash, the mess was
turned over to FDR (who spent the next decade dealing with it).

So, who was 'Hoover' this time around?

Would we really turn over the reins of the federal guv'mint
to Republicans, with some sort of expectation they could
fix what ails us? That would seem most unlikely. Unless...

Maybe we haven't seen 'our Hoover' yet. Or...

Maybe this fall's election forces the Democrats to realize
it's time to shift into a higher gear, bring in a new
economic team, *really* tackle our problems.


"Would we really turn over the reins of the federal guv'mint to Republicans, with some sort of expectation they could fix what ails us? "

Just why should anyone give a damn any more? Yeah, yeah, the Repub's are batshit crazy. So what? It's not like the Dems are gonna do a damn thing to stand in their way about anything meaningful.

Face it, we're in a banana republic. Our role is to stand by and clap while the looting accelerates.


US Republicans are trying to wreck the economy for political purposes. They want to extend Bush's tax cuts and sabotage Social Programs

Michael Pettengill:

I see great differences on policy between the parties.

Conservative Republicans want to subsidize environmental pillage and plunder to shift the costs of their decapitalization to future generations.

Obama has been pragmatically seeking cap and trade to both create jobs, create exports, and reduce the rate of environmental pillage and plunder.

Conservative Republicans want to create jobs by making US health care even less efficient than it already is, or else make US health care work like it does in Africa - rich people get care, and the rest are dependent on charity and witch craft.

Obama wants single payer which is universally far more efficient, but pragmatically settles for national Romneycare, the Republican health care alternative to universal coverage.

Conservative Republicans advocate decapitalism - the economic system of consuming capital without replacing it.

Obama advocates capitalism - the economic system of sacrificing current consumption to direct surplus labor to increasing productive capital, especially energy generating capital which will satisfy part of the increasing annual demand for energy over many decades. And to Obama, the surplus labor should be employed, not wasted forever.

I see a bit difference between the parties.

Oh, and another difference, conservative Republicans have mastered the art of making bad policy seem like genious and making Democrats look like idiots, and too many Democrats play right into the stereotypes Republicans have defined.

In particular the idea that Democrats are elitists, and when Obama takes time to explain a subject in detail, the Republicans say "see, he's an intellectual elitist." But when Obama repeats the question he is asked in an interview using the language of conservatives, Republicans call him crude. Obviously Obama should see those attacks coming, but wait, if he did, then he would be too political.

I have noted the repeated "Obama is blaming Bush" every time he says "inherited" when Bush was still saying "inherited" at least as late as August 2002.


"In particular the idea that Democrats are elitists, and when Obama takes time to explain a subject in detail, the Republicans say "see, he's an intellectual elitist." But when Obama repeats the question he is asked in an interview using the language of conservatives, Republicans call him crude. Obviously Obama should see those attacks coming, but wait, if he did, then he would be too political."

Not to forget: 'he said he was a different type of politician'

Funny, it  reminds me of Joy Behar (on Hillary Clinton),
"She cries, she’s too emotional. She doesn’t cry, she’s a bitch. No matter what this woman does,.."


"Obama wants single payer which is universally far more efficient, but pragmatically settles for national Romneycare, the Republican health care alternative to universal coverage."

Heh. That's a good one! Set-up and punchline all in one sentence -- bravo!

Look -- when Obama chose hacks and losers like Biden, Summers, Clinton, Geithner, Emmanuel, etc., he told you everything you needed to know about what he "wanted". It never had much to do with what you or I wanted.

[Jul 02, 2010] David Harvey Crises of Capitalism

naked capitalism


“free Market is total fiction … Yes a new direction is needed”

Frankly may people have appreciated, at least since the Great Depressions, that “free markets” are a myth, or more accurately, a slogan (no two people will ever agree on what’s free and what’s not). That understanding has been undermined, at least here in the US since the Reagan era, by the “free markets uber alles”, “regulation is bad”, “government is bad” ideology. It’s like something from Victorian Britain’s plutocracy.

That’s why I prefer the term “competitive markets”. It’s a term that I suspect would have appealed to Adam Smith, who despised monopolies (much of what he railed against was government granted monopolies), talked about the need to foster competition, but was also in favor of things like progressive taxation and regulated interest rates.

The answer we hit upon then, and that worked so well for so long, was competitive markets that were regulated to a reasonable degree. Again, no two people will ever agree on what’s an appropriate level of regulation, but it’s important to accept the principle that a reasonable degree of regulation rather than the mythical “free market” is what’s appropriate.

There’s no need to re-invent the wheel. We had a good system, but threw well established principles out the window. That’s particularly true of the latest financial fiasco, which was little more than a re-play of many past financial panics (as they used to be called) with nothing more than a few new acronyms like CDO and CDS tossed in to confuse the historically ignorant.


If you watch Harvey, his main point is that what we had from the 40s to the 70s is no longer workable — that 3% compound growth per year is fundamentally unsustainable — and we need a new way.


“his main point is that what we had from the 40s to the 70s is no longer workable”

Right, this time it’s different. This is the magical moment in time when we’ve finally hit the limits of capitalism due to it’s inherent contradictions, just as Karl predicted. 1848 and 1917 were just false alarms.

What gets me is the way he dismisses those who see resource limitations as the fundamental problem with endless growth as people making excuses for capitalism’s inherent instabilities. He wants to see everything through his ideological lens. Resource limits are a very real issue. The inherent instabilities of capitalism are something that we’ve muddled along with and fixed willy nilly. Our big mistake was in forgetting the lessons of the past. He talks about the need for new thinking, but offers no real suggestions. Big deal.


Are resource limitations responsible for the current turmoil?


Read Harvey’s very recently published book ‘The Enigma of Capital: And the Crises of Capitalism’, and you’ll find out that what you have to say about natural resource limitations is fully addressed by Harvey in the book.

Best know what it is you say before saying it.

Beard :

Marxism = 100,000,000 dead… Albert

Well, the fascist banking and money system killed 50-86 million in WWII via the Great Depression. Also, fractional reserve lending leads to the business cycle which Marx mistakenly blamed on capitalism.

Michael Fiorillo:

While his prescriptions have been discarded, no one has yet surpassed his descriptions of how capitalism works.

It’s good to see Old Whiskers get the credit he deserves on this site.


Marx was a dialectical materialist, rather the opposite, metaphysically speaking, of a Platonist.


“There isn’t much to like about the old boy’s writing or thinking”

I take it, then, that you watched one or both of the above videos and found them utterly insubstantial and/or dishonest?

One should also keep in mind that while Marx was a single man who produced a finite body of work in reaction to his times, “Marxist” thought describes about 150 years of inquiry and many thousands of individuals. You meant to say “There isn’t much to like about David Harvey’s writing or thinking,” which is laughable even from the most principled objection to Marxist critique.


“Marxism = 100,000,000 dead…”

That is maybe evidence that Marxism as a political ideology might not be a viable solution to capitalism’s problem.

It does not mean that Marx was wrong with his analysis of the failures and contradictions of capitalism. In fact, Marx’s analytical framework looks a whole hell of a lot better than classical economic theory these days….


Nowhereman and Alex are right about “free markets,” but they need to go a step further. “Free market” is an oxymoron. Markets are sets of rules – intrinsically un-free. Same with “free trade,” as in international trade, a border being a necessary restraint. Same for “free enterprise,” in that commerce requires rules. A competitive market is a tightly, intelligently, and dynamically regulated market.

What many don’t like about this kind of critique is that it exposes our present economic system as contrived. Those who run the show would like you to think that it is inevitable, and that there is in it some ideal state of equilibrium. They don’t want people even considering that there might be equally valid alternatives.

Our present dilemma is the end of a three-decade long cycle. The industrialists/merchants wanted demand without high wages and government subsidy (including military spending) without high taxes. The financial sector wanted to make money without paying anybody for producing actual physical value. It worked (for them) until the credit card bill couldn’t be pushed back anymore.


“It worked (for them) until the credit card bill couldn’t be pushed back anymore.”

Yay verily (whatever that means). Forget Marx and think Minsky.

Jim :

Harvey has given a wonderful thumbnail overview of the major explanations for this economic/political crisis(i.e human frailty, institutional failure, false theory failure, cultural explanations and policy mistakes).

His own narrative might be categorized as a firm belief in the necessary and utlimately emancipatory role of the state in gaining social control over the surplus generated by the economy.

I would immediately want to know, in detail, what, I presume, would be his new theory of the state taken the miserable governing record of most existing or formally existing Marxist regimes.

My bias has been and still is that an entrprenurial capitalist can make decisions substantially more rational that any large bureaucratic apparatus (public or private).

Part of my personal critique of modern capitalism is that because of the way it has been historically organized (primarily huge private bureaucracies) only a very limited number of people participate in its decion-making process which in its more entrepreneural form engages the entire personality of the indivdual involved–because of his or her skin in the game.

Most Marxists would dismiss my viewpoint as petty-bourgeoise provincialism and cultural backwardness.

Inronically, I believe that this type of backwardness is part of what we need to move forward.


Two points (and I’m not saying you’re wrong or attacking):

1) He makes no mention of the state. Just says we need to think differently from how we have thought. Did you watch the entire thing?

2) Capital moves to accumulate more capital. If you want to believe in the power of the entrepreneur, that’s great. But s/he will move toward becoming the bureaucratic monolith you hate because otherwise s/he will stop growing and be overrun.


“His own narrative might be categorized as a firm belief in the necessary and utlimately emancipatory role of the state in gaining social control over the surplus generated by the economy.

I would immediately want to know, in detail, what, I presume, would be his new theory of the state taken the miserable governing record of most existing or formally existing Marxist regimes.”

Well, not only that, but, could you imagine what Hank Paulson and Turbo Timmy would do with it?

So, yes, I would like to know what his new theory of the state is myself.


What nonsense. Both the individual entrepreneur and the corporation (ie GM) were stymied by the freeze of credit caused by the failure of the banking system. The billionaire hedge fund officers were enabled by the bailout of the financial system on the backs of the very people who suffered due to the freeze of credit.

Didn’t uber-capitalist Jamie Dimon explain to his daughter that a financial crisis was “something that occurs every five to seven years”? Direct quote from Marx. Sorry, Karl is the only one to provide a durable explanation for the behavior of the capitalist system. Republicans like to confuse American workers with the notion that they are “entrepreneurs”. Booshwah. Labor is a commodity which along with raw materials and tooling, capitalists use to produce products. The surplus value is capital, which they use as Harvey explained, to expand in one way or another.


Absolutely brilliantly put together. I ha come to the conclusion through a lot of thinking but never have been able to tie together the logic and history like was done here. I once worked as an analyst at a hedge fund after a decade and a half career in engineering asnd manufacturing. I found my hedge fund collegues to be extremely narcissisitc and entitled. They only had negative things to say about the common working man all the while complaining about half-million dollar salary+bonus right out of college. There is/was absolutely something wrong with that.

As I compare the social benefit of my former collegues in engineering and my most recent former collegues in the hedge fund I would say my engineering collegues to be better, more grounded, nicer and more socially beneficial than the most recent hedge fund collegues.

I have since been let go from the hedge fund (blew up) and couldn’t be happier not to be associated with them (I do miss the $ but fortunatley never based my lifestyle on it). I am off to do public service work in finance now at an annual salary that is less than one months pay as a hedge fund analyst. It will be an interesting contrast.

Progressive Ed:

Public service work? Why not transition to something useful, e.g. start some sort of company and create some jobs.


If you want to help people, become a doctor, or anurse. There is always need.

If you want to create jobs, better make an appointment with a banker.



Every time I’m ready to recoil at the mention of Marx, that lyric from the vapid “American Pie” pops into my head.
While Lennon (john) read a book on Marx..

to remind me it was Lenin, not Marx who was the evil genius.

There’s nothing in this piece that doesn’t ring true. If it’s author isn’t outed as a ‘radical’ this piece would probably come off as pretty mainstrean and on point, given most people’s experience over the last 3 (and 20) years.

Here’s to hoping that this time around the observations will lead to better policy than they did the last time these ideas got a hearing. It’d be nice if the good guys got to hijack it this round.

aet :

“Evil genius”? Marx never killed anybody.

Here’s a speech that mentions Marx, very prominently:

You are welcome


Harvey is a geographer, actually. Just pointing it out b/c radical theories and critiques (Marxist, feminist, post-this and -that) of capitalism are actually mainstream in Anglo-American geography and that is often overlooked in popular culture, yet alone many American universities. Harvey is one of the “fathers” and “mothers” of a robust critical bent to geography. It’s a wonderfully creative field.

Pat Donnelly:

Banking can be too successful. What happens when they lend to everyone who wants a loan, even those who are unable to repay?
Stick around we are all finding out …….

Pat Donnelly:

Got big tits? Get an X-Ray and sell to a gullible, ghoulish public!

Pat Donnelly:

How to get rid of a PM! Mining tax OK!

[Jul 01, 2010] Time to Investigate Blankfein and Paulson (More AIG Shenanigans Edition)

We’re a 2nd world political system with a 1st world standard of living. The only question is how quickly the standard of living falls and if TPTB can keep control of the dumbass peasants. This IS a Country that re-elected Bush2...
June 30, 2010 | naked capitalism

The New York Times has unearthed a damning tidbit about the bailout of AIG:

When the government began rescuing it from collapse in the fall of 2008 with what has become a $182 billion lifeline, A.I.G. was required to forfeit its right to sue several banks — including Goldman, Société Générale, Deutsche Bank and Merrill Lynch — over any irregularities with most of the mortgage securities it insured in the precrisis years.

Yves here. How one reacts to this depends in no small measure as to how one views the salvage operation. For all intents and purposes, the rescue of AIG was merely a way to save the banks; the credit default swaps had been too big a source of faux capital (for US firms, via risk-dumping, and for Eurobanks, as part of a regulatory arbitrage) to let the insurer go. So any effort by the officialdom to aid the banks, most notably by paying out 100% on credit default swap exposures (which had already been written down by counterparties to less than par) was simply an effort to funnel more cash to the banks. Since we’ve had massive backdoor bailout mechanisms in addition to the overt ones, this orientation should come as no surprise.


the Fed’s own advisors (Morgan Stanley, Black Rock, and Ernst & Young) were advocating a tough stand with the banks, including haircuts on their guarantees with AIG. But Treasury appears to have carried the day:

For its part, the Treasury appeared to be opposed to any options that did not involve making the banks whole on their A.I.G. contracts. At Treasury, a former Goldman executive, Dan H. Jester, was the agency’s point man on the A.I.G. bailout. Mr. Jester had worked at Goldman with Henry M. Paulson Jr., the Treasury secretary during the A.I.G. bailout.

Yves here. And in an astonishing lapse, Jester still owned Goldman stock. By any standard, he should not have been involved at all in the process, much less in a crucial role. But because he was a contractor, and not a government employee, this arrangement was kosher. Not surprisingly, Jester opposed measures that would require Goldman and other banks to take any pain.

The Times reminds readers it pays to be a bankster:

All of this was quite different from the tack the government took in the Chrysler bailout. In that matter, the government told banks they could take losses on their loans or simply own a bankrupt company; the banks took the losses.

Yves here. The Audit the Fed investigation will shed even more light on the AIG rescue, but the seamy dealing of Treasury means that investigations need to extend into its role as well. But it will take a public hue and cry for that to come to pass.


I know I am horribly cynical at heart, but I don’t understand why you appear to be even the least surprised by this. Is there anyone out there who thinks Congress, the Fed, and the White House are independent or act in the interest of the People?

I don’t think there is a financial Star Chamber or secret handshakes (well, there might be), but there is a direct connection between our elected officials, the regulators, and Wall Street. People like Geithner and Paulson defend their personal interests as well as their natural affinities. Congress both defends the hands which feed it and listen attentively to the propaganda about how Wall Street is essential to the US economy.

The leaders of Wall Street compete fiercely against each other when necessary, but prefer collusion. Colluding in limiting government constraints is not illegal, though. The legal standing of Treasury is not clear, however.

What is clear is that these people, from Geithner to Blankfein to Obama, are a bunch of scum-sucking, treasonous bastards. That, though, is just what America wants.


“I know I am horribly cynical at heart, but I don’t understand why you appear to be even the least surprised by this.”

Where did Yves say she was surprised? Obviously I can’t speak for her, but I’d guess that she’s one of the least surprised people.

It’s easy to act “worldly” and cynical, but to the extent that people say it’s just business as usual, rather than showing the appropriate outrage, it just ensures that nothing ever changes.

“Is there anyone out there who thinks Congress, the Fed, and the White House are independent or act in the interest of the People?”

How worldly and cynical! Is there out there who thinks that there’s ever been a perfect government? It’s a matter of degree.

“What is clear is that these people, from Geithner to Blankfein to Obama, are a bunch of scum-sucking, treasonous bastards. That, though, is just what America wants.”

And how do you come to the conclusion that this “is just what America wants”? Do you have some poll results or something showing that most Americans want a corrupt plutocratic government?


Re: It’s a matter of degree.

Which implies “things” are kinda ok. Nope, it’s not. We’re a 2nd world political system with a 1st world standard of living. The only question is how quickly the standard of living falls and if TPTB can keep control of the dumbass peasants.

But, it is a matter of perspective. The believers in an “ism” will always see a hopeful future as their “ism” is surely to take control and right all the wrongs. (The Cubs will eventually win the World Series too. But, ya know what, even if they do it doesn’t matter, because “the game” we’re so enthusiastic about isn’t the one that really matters).


Jeezz. I didn’t register this…

Re: Do you have some poll results or something showing that most Americans want a corrupt plutocratic government?

Yeah, I do. In fact, I can even make a prediction I’s so sure of the polling figures.

I predict – and I’m going out on a limb here, but remember, you’ll be shocked when you think about about how accurate I was – I predict that 99% of the population will vote Republicrat this November. Yup, I know, almost sounds crazy… The there you have it, proof the American dumbasses want “a corrupt plutocratic government”.


“No balls! No brains! No freedom!”

Got it. So when does the revolution start? Should we go with a historical theme and meet on the Lexington common? Do we have to bring our muskets or will they be issued from the public armory?

i on the ball patriot:

The revolution starts when you stop banging your head against the wall and realize that change will never come from within the corrupt system, or constantly reflecting off of its also corrupt media, but rather from without.

No muskets required.

Simple massive election boycotts as a ‘vote of no confidence’ in this crooked government — with sufficient participation it would fall like an overripe tomato — with a concurrent rewrite of the constitution that includes; a more inclusive democratic electoral process, far greater governmental transparency, and meaningful punishment for violations of the public trust by public officials, all as a new basic framework that would be good for starters, what would you like to see in the newly formed government Alex?

Deception is the strongest political force on the planet.


“massive election boycotts”

We already have that, in the form of some of the lowest voter turnouts of any democracy. Half don’t vote now. If 90% didn’t vote, it would still be called a legitimate election.

“a concurrent rewrite of the constitution …”

Re-written by who? How ratified?


In times past it was framed as nobility and paupers, royal blood and commoners. Now it’s rich and poor. There is no difference.

The Pope ascended royal blood via divinity. Today the government ascends the rich via a legal framework. People believed then the Pope to be infallible and today they believe we live in a democracy governed by the rule of law: is there really a difference?

I look back at the arrangement of nobility and commoners and wonder how the commoners accepted their wretched conditions as providence. I look at the present and wonder how the poor accept their wretched state as democracy governed by the rule of law. It was never providence and it is not democracy governed by the rule of law: It was, and always will be, the golden rule: those with the gold make the rules!


Re: That, though, is just what America wants.

Vote Republicrat! Because we have nothing to sell but fear itself.

Different clowns, same circus.

Stelios Theoharidis:

None of the responsible parties are going to be punished for this unless we actually have a serious follow-on to the financial crisis. While it may not be in the interest of the public, a double-dip would probably foment enough rage in the general populace to clear out the politicians that have been bought and paid for to obstruct the political process. But that can’t be certain, given the state of general delusion it may only bring in xenophobic populists bent on scapegoating the crisis upon minorities.

I can’t be but amazed over the mastery of public sentiment. The options have already been set forth, all the public gets to do is decide amongst them, the game is rigged in that sense. Unfortunately everyone just keeps pulling the slot machine handle. We have this rabid sense of fear over the external terrorism, immigration, crime, drugs, stranger-danger amongst the general populace that has been cultivated for some time now. While the real dangers to the public and the solvency of the USA are all internal obesity, smoking, unchecked business, inadequate public education, lagging competitiveness, government capture, and environmental hazards.

In framing the fears of the public and crystalizing them into a set of issues that can only be resolved by a larger defense and prison industrial complex citizens were herded into defending a set of cows sacred to specific interests, they were distracted by two wars while the regulatory apparatus was dismantled, their savings were pilfered (social security surpluses during Clinton and Bush), jobs exported overseas, and the political process was captured. When this financial crisis occured they were then duped into socializing risk and bank losses while allowing the gains to be privatized. In short order a set of private and powerful interests has the US on a pathway to cannibalized itself, its become quite tough to exploit third world nations since there a lot more competitors out there these days, so it was the only natural option.

Maybe the dog will get tired of getting kicked and eventually bite the foot off, I don’t want to be around when the USA hits inequality levels like those in Brazil or South Africa. Unfortunately that seems like the path that we have been heading towards since the 70s. You can’t have money down their without armed guards and 14-foot walls and a constant threat of kidnapping. The reason we feed the poor is so that they don’t feed on us.


[Jul 01, 2010] "A Gigantic Ponzi Scheme, Lies and Fraud": Howard Davidowitz on Wall Street

"The banality of evil." Because accountants and auditors allowed Wall Street firms to carry assets at "completely fraudulent" valuations, he says the industry looked hugely profitable and was able to use borrowed funds to make leveraged bets on all sorts of esoteric instruments. "Their bonuses were based on profits they never made and the leverage they never could have gotten if the numbers were right - no one would've given them the money in their right mind,"
Jul 01, 2010 | Yahoo! Finance

Day one of the Financial Crisis Inquiry Commission's two-day hearing on AIG derivatives contracts featured testimony from Joseph Cassano, the former head of AIG's financial products unit. Goldman Sachs president Gary Cohn was also on the Hill.

Meanwhile, the Democrats are still trying to salvage the regulatory reform bill, with critical support from Senator Scott Brown (R-Mass.) reportedly still uncertain.

According to Howard Davidowitz of Davidowitz & Associates, what connects the hearings and the Reg reform debate is the lack of focus on the real underlying cause of the financial crisis: Fraud.

"It was a massive fraud... a gigantic Ponzi Scheme, a lie and a fraud," Davidowitz says of Wall Street circa 2007. "The whole thing was a fraud and it gets back to the accountants valuing the assets incorrectly."

Because accountants and auditors allowed Wall Street firms to carry assets at "completely fraudulent" valuations, he says the industry looked hugely profitable and was able to use borrowed funds to make leveraged bets on all sorts of esoteric instruments. "Their bonuses were based on profits they never made and the leverage they never could have gotten if the numbers were right - no one would've given them the money in their right mind," Davidowitz says.

To date, the accounting and audit firms have escaped any serious repercussions from the credit crisis, a stark difference to the corporate "death sentence" that befell Arthur Anderson for its alleged role in the Enron scandal.

To Davidowitz, that's perhaps the greatest outrage of all: "Where were the accountants?," he asks. "They did nothing, checked nothing, agreed to everything" and collected millions in fees while "shaking hands with the CEO."

Hello :

Look what the idiots at the FED are doing with our money! "Federal Reserve Chairman Ben S. Bernanke and then-New York Fed President Timothy Geithner told senators on April 3, 2008, that the tens of billions of dollars in “assets” the government agreed to purchase in the rescue of Bear Stearns Cos. were “investment-grade.” They didn’t share everything the Fed knew about the money." 


It's known as, "The banality of evil." All the little eichmanns in bespoke suits that pimp for the Wall Street casino and the Washington war machine are more than happy to sell out their country and their fellow Americans for a fat bonus, a trophy wife, a suburban manse with a pool, and a fleet of lux mobiles. Basically, these people are devoid of imagination, all playing follow the a word, they're fascists. Historically, a group mind's grandiose delusions will carry them for about twelve years before it blows up. We only have a couple of years to go.


We build a culture that has only one moral directive -- gain as much wealth as you can. Being rich and having lots of things is the only goal we promote and we promote it loudly, clearly, and often through every possible venue. Now we're surprised and outraged that the Wall Street dudes took us seriously? Puhleeze, folks, stow your indignation. We are all responsible for this mess. Hmm. Maybe it's time to rethink what's important and restructure our message. Just a thought.

[Jul 01, 2010]   Half of U.S. Companies Haven't Restored 401(k) Match, Towers Watson Says

Almost half of U.S. companies that reduced or suspended their contributions to employee retirement plans during the recession haven’t restored them, according to Towers Watson & Co.

A survey of 334 firms with more than 1,000 employees in April and May found that 18 percent reduced or suspended their contributions to 401(k) plans since September 2008 to save cash. About 49 percent of them haven’t resumed their matches, the New York-based benefits consultant said today.

“Some of the companies who have reinstated or who are thinking about reinstating are making the contributions contingent on profits of the company,” said Robyn Credico, defined-contribution practice leader in North America for Towers Watson. “If there is ever another downturn they don’t have to go through the painful experience of communicating to employees that they’re suspending the match.”

Companies including General Motors Co., Ford Motor Co., Eastman Kodak Co. and FedEx Corp. have restored contributions to 401(k) plans, according to the Pension Rights Center, a consumer group based in Washington. Motorola Inc., with 53,000 employees globally, will reinstate its contributions to employee plans starting July 1, said Tama McWhinney, a spokeswoman for the mobile-phone maker. Sears Holdings Corp. with 290,000 U.S. workers, hasn’t reinstated its match, according to spokeswoman Kimberly Freely.

The most common contribution by larger employers is 3 percent if workers save 6 percent of their salaries, Credico said. The average account balance of workers was $71,044, according to the survey, which represents more than 5.3 million plan participants.




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Vol 25, No.12 (December, 2013) Rational Fools vs. Efficient Crooks The efficient markets hypothesis : Political Skeptic Bulletin, 2013 : Unemployment Bulletin, 2010 :  Vol 23, No.10 (October, 2011) An observation about corporate security departments : Slightly Skeptical Euromaydan Chronicles, June 2014 : Greenspan legacy bulletin, 2008 : Vol 25, No.10 (October, 2013) Cryptolocker Trojan (Win32/Crilock.A) : Vol 25, No.08 (August, 2013) Cloud providers as intelligence collection hubs : Financial Humor Bulletin, 2010 : Inequality Bulletin, 2009 : Financial Humor Bulletin, 2008 : Copyleft Problems Bulletin, 2004 : Financial Humor Bulletin, 2011 : Energy Bulletin, 2010 : Malware Protection Bulletin, 2010 : Vol 26, No.1 (January, 2013) Object-Oriented Cult : Political Skeptic Bulletin, 2011 : Vol 23, No.11 (November, 2011) Softpanorama classification of sysadmin horror stories : Vol 25, No.05 (May, 2013) Corporate bullshit as a communication method  : Vol 25, No.06 (June, 2013) A Note on the Relationship of Brooks Law and Conway Law


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