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Financial Skeptic Bulletin, March 2011

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"...real GDP grew at an annual rate of 1.8% during the first quarter of 2011. Not exactly what the doctor ordered for a still very sick patient." James Hamilton


As usual with these bogus numbers, we'd like to unpack the creative accounting and take a look at what's really going on.

[1] How much of the alleged "economic growth" involves Ponzi scheme casino activity like Goldman Sachs?

Bear in mind that quite a few trillions of dollars of alleged GDP growth went on in the years immediately preceding the global economic meltdown. Turns out none of that was actual economic growth, just garbage numbers from fraudulent and/or delusional transactions.

How much of today's so-called 'economic growth' comes from fraud or self-delusion?

[2] How much of the so-called "economic growth" results from worthless military expenditures? I.e., pallets full of hundred dollar bills shipped to Iraq only to mysteriously vanish?

[3] How much of the so-called "economic growth" experienced by nominally American corporations actually results from accounting games involving payments by foreign subsidiaries which are actually wholly owned by the American corporation itself/ I.e., accounting games to zero out corporate tax liabilities, without any actual meaningful economic production of goods or services? One might enquire how GE managed to zero taxes last year: answering this question might go a long ways toward solving that riddle...

S&P 500 rally continues unabated... Gold broke another record. Oil is over $100.

The question "How much of the alleged "economic growth" involves Ponzi scheme casino activity like Goldman Sachs?" is really important in a long run...

Best | Rest

Top Posts

[Mar 28, 2011] Sorry, Ma & Pa: Smart Money Bought the Munis You Panic Sold By Matt Phillips

March 16, 2011 | WSJ

Interesting bit of market sleuthing by J.P. Morgan’s Nikolaos Panigirtzoglou, who cross references flows data on municipal bond fund sales with official flow of funds data on munis from the Federal Reserve. They don’t seem to be adding up. Here’s the key section, with some illustrative links we added:

Despite the strong outflows from Municipal bond funds over the past months [see here, here and here, -eds], the latest release of the US Flows of Funds data from the Federal Reserve showed that direct buying of Muni bonds by the household sector was $51 [billion] in Q4, the highest level on record.

This contrasts with the $7 [billion] of outflows from muni bond funds over the same period. Typically, muni buying through direct purchase and mutual funds have the same sign 70% of the time. This divergence in direct buying and mutual fund flows in Q4 2010 is likely driven by direct muni bond buying from non-traditional investors which do not have a separate category under the [flow of funds] and are includes in the “household” sector.

For example, hedge funds and non-profit organizations such as endowment funds are classified under the “household” sector in the Fed’s FoF. Another large buyer of Muni bonds in Q4 was commercial banks, who bought $17 [billion] of municipal bonds.

So did retail investors get too jittery about the prospects for muni defaults? The sign of hedgies, banks and endowments all diving into a market that retail investors are getting out of makes us wonder.


Meredith Whitney and her headline hysteria made suckers out of a lot of weak hands holder of municipal bonds. She is a fraud. She didn’t even make the Citi call first and moreover she disputed the same prediction by others before she finally caught on to the facts. Months after her hysteria based prediction about municipal bonds, hardly anybody in the media has got the actual facts concerning Meredith Whitney right.

Here are the facts: Whitney’s claim-to-fame, a bearish bank call on Citi, was over-hyped. Her Citi call was late. Jim Rogers, a world famous investor with a provable track record, appeared with her in early 2007 on Cavuto on Business and explained why he was short (bearish) on Citi. Whitney refuted him and continued to rate Citi sector “perform”, yet Citi underperformed the sector during this time period. It wasn’t until October 31, 2007, that she took Rogers’ hint and made her call.

Likewise her Bear Stearns call was late, and her Lehman call was tardy and she or her PR people seemed to take credit for an apparently nonexistent early call on AIG.


The hysteria on Munis is kinda ridiculous, if you think about it. Debt repayment is always a smaller fraction of state budgets, and no state wishes to be shut out of the credit markets. More likely it has something to do with all the government worker and school program hoop-lah.



[Mar 30, 2011] Is It a New Tech Bubble Let's See if It Pops

Facebook valuation really reminds me Internet bubble. Facebook is just AOL in WEB reincarnation and as such provides very little value beyond ability to have a personal webpage and to send and receive mail for those who can't master Hotmail of Gmail. Interface is primitive, facilities are even worse. Security is a problem. 
Yahoo! Finance

Banks pouring money into technology funds, wealthy clients and institutions clamoring to get pieces of start-ups, expectations of stock market debuts building -- as Wall Street's machinery kicks into second gear, some investors with memories of the Internet bust a decade earlier are wondering whether this sudden burst of activity spells danger for the industry once again.

With all this exuberance, valuations are soaring. Investments in Facebook and Zynga have more than quintupled the implied worth of each company in the last two years. The social shopping site Groupon is said to be considering an initial public offering that would value the company at $25 billion. Less than a year ago, the company was valued at $1.4 billion.

... ... ...

But as enthusiasm surged, many firms also rushed to make investments for their clients and themselves through special-purpose funds and direct investments. And in many cases the banks got burned just as ordinary investors did.

"The investment pools that we did back in 2000 did extremely poorly, because many of those companies went from filing an I.P.O. to bankruptcy courts in a matter of months," said Mr. Weisel, whose firm was acquired by Stifel Financial last year.

In 1998, Goldman Sachs Capital Partners, the bank's private equity arm, began a new, $2.8 billion fund largely geared toward Internet stocks. Before that fund, the group had made fewer than three dozen investments in the technology and communications sectors from 1992 to mid-1998, according to Goldman Sachs documents about the fund.

But between 1999 and 2000, the new fund made 56 technology-related investments, of about $27 million on average. In aggregate, the fund made $1.7 billion in technology investments -- and lost about 40 percent of that after the bubble burst. (The group, which manages the money of pensions, sovereign wealth funds and other prominent clients, declined the opportunity to invest in Facebook early this year.)

Philip A. Cooper, who in 1999 was head of a separate Goldman Sachs group that managed fund of funds and other investments, recalled that investors were clamoring, "We want more tech, we want more." Bowing to pressure, he created a $900 million technology-centric fund in 1999, and within eight weeks he had nearly $2 billion in orders. Despite the frenzy, he kept the cap at $900 million.

"There was a lot of demand, but we couldn't see any way we could prudently put that much capital to work," said Mr. Cooper, who has since left Goldman.

Other Wall Street firms, including JPMorgan Chase and Morgan Stanley, also made a number of small to midsize investments during the period. In 1999, for instance, Morgan Stanley joined Goldman Sachs and others in a $280 million investment in, which scrapped its initial plans to go public when the market deteriorated.

"We thought we were going to double our money in just a couple of weeks," said Howard Lindzon, a hedge fund manager of Lindzon Capital Partners and former investor. "No one did any due diligence." Mr. Lindzon lost more than $200,000 on his investment.

Also in 1999, Chase Capital Partners (which would later become part of JPMorgan Chase) invested in -- an online delivery service that raised hundreds of millions in venture funding. JPMorgan Chase, which just recently raised $1.2 billion for a new technology fund, at the time called "an essential resource to consumers." At its height, the company's sprawling network of orange bike messengers employed more than a thousand people. Less than two years later, it ceased operations.

An online grocer, Webvan, was one of the most highly anticipated I.P.O.'s of the dot-com era. The business had raised nearly $1 billion in start-up capital from institutions like Softbank of Japan, Sequoia Capital and Goldman Sachs. Goldman, its lead underwriter, invested about $100 million.

On its first day, investors cheered as Webvan's market value soared, rising 65 percent to about $8 billion at the close. Less than two years later, Webvan was bankrupt.

About the same time, Internet-centric mutual funds burst onto the scene. From just a handful in early 1999, there were more than 40 by the following year. One fund, the Merrill Lynch Internet Strategies fund, made its debut in late March 2000 -- near the market's peak -- with $1.1 billion in assets. About one year later, the fund, with returns down about 70 percent, was closed and folded into another fund.

"We all piled into things that were considered hot and sexy," said Paul Meeks, who was the fund's portfolio manager. Mr. Meeks started six tech funds for Merrill Lynch from 1998 to 2000.

Today, the collective amount of money that Wall Street banks are pumping into Internet start-ups, on top of the surging cash piles from venture capital groups, hedge funds and private equity, is a major concern for some investors.

Over the last five months, many venture capital players have raised giant amounts of capital. One Facebook investor, Accel Partners, is about to raise $2 billion for investments in China and the United States, while Bessemer Venture Partners is said to be closing in on $1.5 billion for a new fund. Greylock Partners, Sequoia Capital, Andreessen Horowitz and Kleiner Perkins Caufield & Byers have collectively raised more than $3 billion in the last six months.

Mr. Weisel, who has also been tracking hedge fund activity, finds the numbers dizzying. Countless hedge funds are investing in private placements -- "dozens and dozens of hedge funds are doing the same thing," he said.

As cash continues to pile up, the fear is that all this money cannot be put to work responsibly. With only a few perceived "winners," some investors must be choosing losers or paying too much, Mr. Meeks said.

"When you see the valuations being bandied about -- I do think, boy, these better be really special companies."

Peter Lattman contributed reporting.

[Mar 29, 2011] Peter Schiff

Most people are aware that foreign central banks figure very prominently into the mix. They buy for political reasons and to suppress the value of their currencies relative to the dollar. And while we think their rationale is silly, we do not dispute that they will continue to buy as long as they believe the policy serves their own national interests. When that will change is harder to determine.

Another very large chunk of Treasuries goes to "primary dealers", the very large financial institutions that are designated middle-men for Treasury bonds. In a late February auction, these dealers took down 46% of the entire US$29 billion issue of seven-year bonds. While this is hardly remarkable, it is shocking what happened next.

According to analysis that appeared in Zero Hedge, nearly 53% of those bonds were then sold to the Federal Reserve on March 8, under the rubric of the Fed's quantitative easing plan. While it's certainly hard to determine the profits that were made on this two-week trade, it's virtually impossible to imagine that the private banks lost money. What's more, knowing that the Fed was sure to make a bid, the profits were made essentially risk free. It's good to be on the government's short list.

Given that the Treasury is essentially selling its debt to the Fed, in a process that we would call debt monetization, some may wonder why it doesn't just cut out the middle man and sell directly. But the Treasury is prevented by law from doing this, so the private banks provide a vital fig leaf that disguises the underlying activity and makes it appear as if there is legitimate private demand for Treasury debt. But this is just an illusion, and a clumsy one to boot.

One wonders how the market could be soothed by these results when they are so clearly manipulated. But the more important question is when the foreign governments reverse their currency policies, and when the investment banks are no longer guaranteed a quick short-term profit, will there be anyone left willing to show up at Treasury auctions?

According to the Office of Management and Budget, the US government is expected to run a $1.6 trillion deficit in fiscal year 2011 (which expires in September). The Federal Reserve's current quantitative easing program is taking down a large share of that red ink. But the latest round of quantitative easing - "QE2" - expires in July, and in fiscal year 2012, the Federal government is projected to run a $1.1 trillion deficit (that of course could grow if the economy weakens).

An additional $1.1 trillion in Treasury notes and bonds will mature over that 12-month period. So in total, the Treasury will need to issue a total of at least $2.2 trillion in notes and bonds in FY 2012. This translates into quarterly borrowing needs of approximately $550 billion, morse than double the average of the last two quarters. To put this into perspective, the entire US personal savings rate is about $650 billion annually. Even if every dime of this amount were ploughed into Treasuries, we would still need to borrow or print another $1.6 trillion.

At the height of the financial crisis in Q4 2008, the Treasury issued a record $560 billion of notes and bonds. Fortunately for them, that spike corresponded neatly with huge inflows of funds into Treasuries as investors sought safety from collapsing equity and corporate debt markets. Will the Treasury catch that break once again? There may be another financial panic, but will investor reaction be the same this time around? Bill Gross, the founder and chief investment officer of PIMCO, the world's largest private purchaser of bonds, recently announced that he is reducing his Treasury holdings to zero. It is not clear what would convince Gross to get back into the market with both feet, but one might expect at minimum it would take much higher interest rates.

If private investors stay on the sideline, how does anyone expect the Treasury to sell its inventory without the support of a quantitative easing program from the Fed? Do they expect the Chinese to reverse course on their current policy and start heavily buying US debt once again, irrespective of the damage to their own economy? That seems extremely unlikely given the drift in Chinese currency policy.

More likely the Fed will remain the only buyer, meaning QE3, 4, and 5 are all but certainties. There should be no remaining doubts ... the US government intends to monetize its own debt. Of course, as bad as things will be if QE ends, it will be that much worse the longer it continues.

Peter Schiff is president of Euro Pacific Capital and author of The Little Book of Bull Moves in Bear Markets. Euro Pacific Capital commentary and market news is available at (Copyright 2011 Euro Pacific Capital.k)

[Mar 28, 2011] Sorry, Ma & Pa: Smart Money Bought the Munis You Panic Sold By Matt Phillips

March 16, 2011 | WSJ

Interesting bit of market sleuthing by J.P. Morgan’s Nikolaos Panigirtzoglou, who cross references flows data on municipal bond fund sales with official flow of funds data on munis from the Federal Reserve. They don’t seem to be adding up. Here’s the key section, with some illustrative links we added:

Despite the strong outflows from Municipal bond funds over the past months [see here, here and here, -eds], the latest release of the US Flows of Funds data from the Federal Reserve showed that direct buying of Muni bonds by the household sector was $51 [billion] in Q4, the highest level on record.

This contrasts with the $7 [billion] of outflows from muni bond funds over the same period. Typically, muni buying through direct purchase and mutual funds have the same sign 70% of the time. This divergence in direct buying and mutual fund flows in Q4 2010 is likely driven by direct muni bond buying from non-traditional investors which do not have a separate category under the [flow of funds] and are includes in the “household” sector.

For example, hedge funds and non-profit organizations such as endowment funds are classified under the “household” sector in the Fed’s FoF. Another large buyer of Muni bonds in Q4 was commercial banks, who bought $17 [billion] of municipal bonds.

So did retail investors get too jittery about the prospects for muni defaults? The sign of hedgies, banks and endowments all diving into a market that retail investors are getting out of makes us wonder.


Meredith Whitney and her headline hysteria made suckers out of a lot of weak hands holder of municipal bonds. She is a fraud. She didn’t even make the Citi call first and moreover she disputed the same prediction by others before she finally caught on to the facts. Months after her hysteria based prediction about municipal bonds, hardly anybody in the media has got the actual facts concerning Meredith Whitney right.

Here are the facts: Whitney’s claim-to-fame, a bearish bank call on Citi, was over-hyped. Her Citi call was late. Jim Rogers, a world famous investor with a provable track record, appeared with her in early 2007 on Cavuto on Business and explained why he was short (bearish) on Citi. Whitney refuted him and continued to rate Citi sector “perform”, yet Citi underperformed the sector during this time period. It wasn’t until October 31, 2007, that she took Rogers’ hint and made her call.

Likewise her Bear Stearns call was late, and her Lehman call was tardy and she or her PR people seemed to take credit for an apparently nonexistent early call on AIG.


The hysteria on Munis is kinda ridiculous, if you think about it. Debt repayment is always a smaller fraction of state budgets, and no state wishes to be shut out of the credit markets. More likely it has something to do with all the government worker and school program hoop-lah.

[Mar 27, 2011] stock-world-weekly-survivors-high by ilene

The MSM and the punditocracy may not be concerned with what’s going on, but I am. I think that we’re experiencing a sort of stock market survivor’s high, where investors are so relieved we didn’t crash that they’re ignoring the fact that there’s another cliff just ahead. Let’s make sure we have our disaster hedges in place and keep at least one hand on the emergency exit – just in case we don’t breeze over our levels.” - Phil

David Stockman, former Director of the Office of Management and Budget during the Reagan administration, published an article on Wednesday arguing that the Federal Reserve’s policies of (effectively) zero interest rates and quantitative easing are the equivalent of a monetary “Hail Mary” pass that is serving to cover up serious problems in the U.S. financial system.

He wrote, “Someone has to stop the Fed before it crushes what remains of America’s main street economy. Last Friday morning alone it launched two more financial sector pumping operations which will harm the real economy, even as these actions juice Wall Street’s speculative humors.

See also: Crony Capitalism Strikes Again Phil’s Stock World


Mr. Grant explores the history and philosophy behind the creation of the Federal Reserve, and how it has moved far beyond its original mission of being a “kind of balance wheel in the engine of the American money market.” Instead, it “has devoted itself to the black arts of central planning.”

Indeed, the very idea that a handful of men, meeting in secret, can arbitrarily set interest rates and decide the course of an entire nation's economy smacks of the worst sort of central planning hubris. Did the fall of the USSR teach us nothing?

The establishment and growth of such an elitist, economic central planning institution as the US Federal Reserve is the very antithesis of anything representative of a free market economy. Its existence is morally and intellectually repugnant to any advocate of a truly free society.

css1971 :

How can you have a free market when failing banks are given welfare to prop up their failing investments in failing companies and failed mortgage holders?

The free market died in 1913.


One should not concern oneself with matters over which one has no control. The Fed is like the weather, everyone complains about it but there is not a damn thing one can do about it.


The same thing could have been said about the Soviet Union, or chattel slavery, or the divine right of kings. Politics is the art of the possible --- and in politics, virtually ALL things are possible.

[Mar 26, 2011] Capitalize on the Disconnect

In "Have Consumers Gone on Strike?"'s John Carney discusses an issue I've raised many times at Financial Armageddon: the disconnect between what people believe is happening with the economy and what is actually going on.

The economy may be in worse shape than many economists and businesses expect.

Orders for US durable goods—manufactured items expected to last more than three years—were predicted to rise 1.5 percent overall, and to rise 2.5 percent excluding the volatile transportation sector.

Instead orders fell 0.9 percent overall, and 0.6 percent net transportation.

That’s a huge gap between expectations and actual numbers.

For several weeks, consumer activity has been tracking significantly lower than the expectations of economists. Similarly, the consumer numbers—consumer purchases, consumer sentiment, home sales, home prices—keep showing up lower than you would expect based on business numbers—employment, manufacturing orders, factory production.

What seems to be happening is that businesses have been ramping up their production and hiring in expectations of strong consumer demand. Consumers, however, have failed to provide that expected demand.

The Obama administration’s payroll tax cut may be contributing to this widening gap between expectations and consumer activity. The administration expected the temporary tax cut to stimulate more spending by consumers, boosting overall activity. But it now appears that the stimulus effect was over-estimated, as consumers have decided to save more of the tax cut than they spent.

The relationship between durable goods orders, economic growth and stock markets is ambiguous. Sometimes drops in durable goods orders are accompanied by falling stock prices and a slowing economy.

Sometimes they go in opposite directions. Although durable goods orders are described as a "leading indicator," it's not exactly clear whether it is very good at forecasting the economy or financial markets. Part of the problem may be that durable goods is a broad category that includes both consumer appliances and businesses equipment. This means that if economic expectations of businesses and consumers diverge, the data may be more noise than signal.

If the increased hiring and production by businesses can drag reluctant consumers into spending, the effect may be a supply-side driven economic boost. But if consumers continue to hold out—refusing to drive up demand at the cash register—businesses could find themselves with a surplus of inventory and employees. Liquidating the newly created inventory and jobs could push the economy into a renewed economic slump.

What Carney is suggesting, in essence, is that many decision makers have been lured by the false promise of ultra-cheap money, quick fix stimulus programs, misguided regulatory and accounting forebearance, and relentless economic cheerleading, into thinking that the worst is over, and they've acted in ways that likely ensure that is not the case.

As it happens, this current disconnect may represent one last opportunity for those who haven't been taken in by all the delusions and chicanery to get their affairs in order. While I don't believe there's any way to stop the coming train wreck, there may be ways to capitalize on that knowledge.

That might mean selling or swapping risky assets, which is somewhat easier when prices are artificially inflated by low rates and high expectations (house prices, unfortunately, are a bit of an exception, though I and others like my friend Charles Hugh Smith believe that if you can sell now, it's still a good idea).

[Mar 26, 2011] Marc Faber Here’s How I am Investing Now - Yahoo! Finance

... Faber said that “as a result of the reconstruction work” required in Japan (NYSE:EWJ), he believes “Japanese shares are worthwhile to accumulate.” He goes on to predict “a rebound of the U.S. Dollar (NYSE:UUP), weakness in asset markets, correction in commodities (NYSE:DBC), and maybe a rebound in U.S. bonds (NYSE:TLT).”

On how the earthquake in Japan will impact the international economy:

“The key to the performance of Japanese shares is the Japanese bond market becomes unattractive and that the Yen over time weaken. I think as a result of the reconstruction work that may cost up to $300 billion U.S. dollars that obviously the government will have to monetize, will push money into equities. I think Japanese shares (NYSE:EWJ) are worthwhile to accumulate.”

On how the asset and equity markets are performing:

“I think asset markets have begun a correction. We peaked out on the S&P (NYSE:SPY) on February 18 at 1344 and usually in April we have seasonal strength but I think it’s likely that the S&P will not be able to make a new high and then we will have a more significant setback in May, June. I think the Euro, contrary to expectations has rallied.

[Mar 25, 2011] Breakfast with Dave: Market & Data Musings

The market’s ability to shrug adverse economic news is going to be receiving a very critical test in coming months.

Indeed, surveys of industrial activity have been remarkably firm, but maybe it’s because these company executives are merely reporting what they’ve seen in their share price. What is happening on the expenditure side is a different story.

U.S. durable goods new orders unexpectedly fell in February for the fourth time in the past five months, slipping 0.9% on the month (the consensus was looking for +1.2% ― and the stock market still rallied and in style to boot). Practically every sector was down. What is key for GDP is the core capital goods orders measure (nondefense capital goods new orders excluding aircraft) ― slid 1.3% after a 6% plunge in January. This is the steepest first back-to-back decline since January 2009.

Core shipments rose 0.8% on the month but only put a small dent in the 2.3% decline in January. Together, the January-February core shipments data are pointing to a stagnant picture for capital spending in Q1.


One of our favourite equity valuation metrics, the Shiller Cyclically Adjusted P/E ratio, continues to suggest that the equity market remains overvalued (the cyclically-adjusted P/E uses 10-year earnings to smooth out volatility).

At 23.7x, it suggests an overvaluation of over 40% relative to historic norms (and in this case the data goes back to the late 1800s).

Note that this indicator has been over 23x for three months in a row, something we haven’t seen since early 2008.

[Mar 25, 2011] George Matkov

March 3, 2011

With the bulk of retail investors like me essentially out of the picture it is getting interesting – and very frustrating – to watch the pros vs the pros vs the machines duke it out during this ‘melt-up’ on low volume. BTW what would the volume be like if the machines didn’t do so much of the trading?

For all the finger-wagging about how people like me missed the run-up of the past two years, the averages mask the fact that most of the move is due to a small number of high-beta stocks. Have you noticed that the mutual funds have significantly underperformed the averages?

You have people manning the screens 24/7 so you can sell as soon as there is a whiff of trouble but the rest of us are stuck with the choice of losing a little at a time or losing big chunks of our assets in quick succession. ….

You get the picture.

[Mar 24, 2011] Imperialism Reclaimed by Robert Skidelsky

Project Syndicate

LONDON – History has no final verdicts. Major shifts in events and power bring about new subjects for discussion and new interpretations.

Fifty years ago, as de-colonization accelerated, no one had a good word to say for imperialism. It was regarded as unambiguously bad, both by ex-imperialists and by their liberated subjects. Schoolchildren were taught about the horrors of colonialism, how it exploited conquered peoples. There was little mention, if any, of imperialism’s benefits.

Then, in the 1980’s, a revisionist history came along. It wasn’t just that distance lends a certain enchantment to any view. The West – mainly the Anglo-American part of it – had recovered some of its pride and nerve under US President Ronald Reagan and British Prime Minister Margaret Thatcher. And there was the growing evidence of post-colonial regimes’ failure, violence, and corruption, especially in Africa.

But the decisive event for the revisionists was the collapse of the Soviet empire, which not only left the United States top dog globally, but also seemed, to the more philosophically minded, to vindicate Western civilization and values against all other civilizations and values. With the European Union extending its frontiers to embrace many ex-communist states, the West became again, if briefly, the embodiment of universal reason, obliged and equipped to spread its values to the still-benighted parts of the world. Francis Fukuyama’s The End of History and the Last Man testified to this sense of triumph and historical duty.

Such a conjuncture set the stage for a new wave of imperialism (though the reluctance to use the word remained). In doing so, it was bound to affect interpretations of the old imperialism, which was now extolled for spreading economic progress, the rule of law, and science and technology to countries that would never have benefited from them otherwise.

Foremost among the new generation of revisionist historians was Niall Ferguson of Harvard University, whose television series, based on his new book Civilization: The West and the Rest, has just started showing in Britain. In its first episode, Ferguson appears amid the splendid monuments of China’s Ming Dynasty, which, in the fifteenth century, was undoubtedly the greatest civilization of the day, with its naval expeditions reaching the coasts of Africa. After that, it was all downhill for China (and “the Rest”) and all uphill for the West.

Ferguson snazzily summarizes the reasons for this reversal in six “killer apps”: competition, science, property rights, medicine, the consumer society, and the work ethic. Against such tools – unique products of Western civilization – the rest had no chance.

From such a perspective, imperialism, old and new, has been a beneficent influence, because it has been the means of spreading these “apps” to the rest of the world, thereby enabling them to enjoy the fruits of progress hitherto confined to a few Western countries.

Understandably, this thesis has not met with universal approbation. The historian Alex von Tunzelmann accused Ferguson of leaving out all of imperialism’s nasty bits: the Black War in Australia, the German genocide in Namibia, the Belgian exterminations in the Congo, the Amritsar Massacre, the Bengal Famine, the Irish potato famine, and much else.

But that is the weakest line of attack. Edward Gibbon once described history as being little better than a record of the “crimes, follies, and misfortunes of mankind.” Imperialism certainly added its quota to these. But the question is whether it also provided, through Hegel’s “cunning of reason,” the means to escape from them. Even Marx justified British rule in India on these grounds. Ferguson, too, can make a sound argument for such a proposition.

The most serious weakness in Ferguson’s presentation is his lack of sympathy for the civilizations dismissed as “the rest,” which also points to the most serious limitation of the revisionist case. The “triumph of the West” that followed the collapse of Communism in Europe was clearly not the “end of history.” As Ferguson must know, the main topic of discussion in international affairs nowadays concerns the “rise” of China, and more generally Asia, as well as the stirring of Islam.

Of course, the Chinese may prefer to talk about “restoration” rather than “rise,” and point to a “harmonious” pluralism of the future. But “rise” is how most people think of China’s recent history, and in history the rise of some is usually associated with the decline of others. In other words, we may be reverting to that cyclical pattern that historians assumed to be axiomatic before the seemingly irreversible rise of the West implanted in them a view of linear progress toward greater reason and freedom.

Europe is plainly in decline, politically and culturally, though most Europeans, blinded by their high living standards and the pretensions of their impotent statesmen, are happy to dress this up as progress. Chinese savings are underwriting much of the American civilizing mission that Ferguson applauds. The pattern seems clear: the West is losing dynamism, and the rest are gaining it.

The remainder of this century will show how this shift plays out. For the moment, most of us have lost the historical plot. It is possible, for example, to imagine a “Western world” (one that applies Ferguson’s “killer apps”) in which the actual West is no longer the dominant factor: America will simply passes the torch to China, as Britain once did to America.

But it seems to me extremely unlikely that China, India, and “the rest” will simply take over Western values wholesale, for this would amount to renouncing any value in their own civilizations. Some syntheses and accommodations between the West and the rest will inevitably accompany the shift in power and wealth from the former to the latter. The only question is whether the process will be peaceful.

Robert Skidelsky, a member of the British House of Lords, is Professor Emeritus of Political Economy at Warwick University.

[Mar 24, 2011] “A Healthy Financial System Cannot Be Built On The Expectation Of Bailouts”

The Baseline Scenario
13)  There is an insularity and arrogance to policymakers around capital requirements that is distinctly reminiscent of the Treasury-Fed-Wall Street consensus regarding derivatives in the late 1990s – i.e., officials are so convinced by the arguments of big banks that they dismiss out of hand any attempt to even open a serious debate.

14)  Next time, when our largest banks get into trouble, they may be beyond “too big to fail”.  As seen recently in Ireland, banks that are very big relative to an economy can become “too big to save” – meaning that while senior creditors may still receive full protection (so far in the Irish case), the fiscal costs overwhelm the government and push it to the brink of default.

15)  The fiscal damage to the United States in that scenario would be immense, including through the effect of much higher long term real interest rates.  It remains to be seen if the dollar could continue to be the world’s major reserve currency under such circumstances.  The loss to our prestige, national security, and ability to influence the world in any positive way would presumably be commensurate.

16)  In 2007-08, our largest banks – with the structures they had lobbied for and built – brought us to the verge of disaster.  TARP and other government actions helped avert the worst possible outcome, but only by providing unlimited and unconditional implicit guarantees to the core of our financial system.  This can only lead to further instability in what the Bank of England refers to as a “doom loop”.

... ... ...

8)      At the heart of any banking crisis is a political problem – powerful people, and the firms they control, have gotten out of hand.  Unless this is dealt with as part of the stabilization program, all the government has done is provide an unconditional bailout.  That may be consistent with a short-term recovery, but it creates major problems for the sustainability of the recovery and for the medium-term.  Serious countries do not do this.

9)      As Larry Summers put it, in his 2000 Ely Lecture to the American Economic Association, “[I]t is certain that a healthy financial system cannot be built on the expectation of bailouts” (American Economic Review, vol. 90, no. 2, p.13).

10)  Seen in this context, TARP was badly mismanaged.  In its initial implementation, the signals were mixed – particularly as the Bush administration sought to provide support to essentially insolvent banks without taking them over.  Standard FDIC-type procedures, which are best practice internationally, were applied to small- and medium-banks, but studiously avoided for large banks.  As a result, there was a great deal of confusion in financial markets about what exactly was the Bush/Paulson policy that lay behind various ad hoc deals.

11)  The Obama administration, after some initial hesitation, used “stress tests” to signal unconditional support for the largest financial institutions.  By determining officially that these firms did not lack capital – on a forward looking basis – the administration effectively communicated that it was pursuing a strategy of “regulatory forbearance” (much as the US did after the Latin American debt crisis of 1982).  The existence of TARP, in that context, made the approach credible – but the availability of unconditional loans from the Federal Reserve remains the bedrock of the strategy.

12)  The downside scenario in the stress tests was overly optimistic, with regard to credit losses in real estate (residential and commercial), credit cards, auto loans, and in terms of the assumed time path for unemployment.  As a result, our largest banks remain undercapitalized, given the likely trajectory of the US and global economy.  This is a serious impediment to a sustained rebound in the real economy – already reflected in continued tight credit for small- and medium-sized business.

13)  Even more problematic is the underlying incentive to take excessive risk in the financial sector.  With downside limited by government guarantees of various kinds, Andrew Haldane of the Bank of England bluntly characterizes our repeated boom-bailout-bust cycle as a “doom loop.”

14)  Exacerbating this issue, TARP funds supported not only troubled banks, but also the executives who ran those institutions into the ground.  The banking system had to be saved, but specific banks could have wound down and leading bankers could and should have lost their jobs.  Keeping these people and their management systems in place serious trouble for the future.

[Mar 24, 2011] Fannie and Freddie Hiding Over $100 Billion of Losses

"Big banks financial statements are a fantasy."
naked capitalism


Teeing up in the litigation queue: the National Credit Union Administration.

MARCH 23, 2011

Banks Hit for Credit Union Ills


Federal regulators are blaming Wall Street’s biggest firms for the collapse of five institutions at the heart of the nation’s credit-union industry and are seeking to recoup tens of billions of dollars in losses on securities that doomed the five.

In one of the broadest accusations that Wall Street helped cripple financial institutions during the crisis, the National Credit Union Administration, or NCUA, has threatened to sue several investment banks unless they refund over $50 billion of mortgage-backed securities sold to the five institutions, called wholesale credit unions.

The NCUA is accusing Goldman Sachs Group Inc., Bank of America Corp.’s Merrill Lynch unit, Citigroup Inc. and J.P. Morgan Chase & Co. of misrepresenting the risks of the bonds to wholesale credit unions, which loaded up on the bonds in their role of investing on behalf of retail credit unions, according to people familiar with the situation.


The NCUA’s hardball move is one of most aggressive steps yet by the U.S. government against the Wall Street securities factory that turned millions of mortgages into bonds, helping to inflate the housing bubble, whose collapse resulted in economic damage throughout the world.

Mildred Wilkins:


You are pretty close. What the article really said is that the Us Economy is definitely SOGGY toast.

Our financing/banking/underwriting/securitization processes for the past 15 years have created a situation where most of the large banks are insolvent and the guarantors and investors behind them can not cover the losses.

As early as 2002 I was stating back in Indiana that Fannie Mae was buying ‘bad HUD loans’ in order to meet certain benchmarks of low in income loans in order to trigger larger bonuses for then Fannie head, Franklin Raines. He, along with others were determined that the American people would not know that the losses are staggering (that is 9 years ago folks) because it would have pushed stock values down and led to the possibility of the government needing to take over the management of Fannie.

I was speaking out trying to get someone to listen to the national impact such behavior would have–to no avail. On NPR I discussed this with Tavist Smiley as an issue with national implications. The Fannie Mae economist denied the they were hiding larges losses; I insisted they were.

Now history tells us that I was right and as a direct consequence Fannie Mae is now a ward of the country. What is so incredibly sad is that they (Fannie and Freddie) could have been reined in back then before they cost the country bu-billions and they are yet to cost us gu-billions more.

I could go on and on but I won’t.

They are now our children and we have to take responsibility for their irresponsible behavior.

Hence, we are unfortunately, bound to be really, really SOGGY toast.

Have the best day you an, given the state of the nation.



Thanks Mildred….I’ve just finished reading ‘The Price of Loyalty’ about Sec. of Treasury Paul O’neills two years in Bush administration 2000-2002. (This is my second time reading the book/read it when it first came out ‘04′)… it he writes about a economic cabinet meeting where Greenspan BLOWS UP and states ‘Capitalism is Broke’ in America(and world). This was after both O’neill and Greenspan(GOOD FRIENDS) found out that not only was Enron NOT an isolated incident BUT the way MANY MANY of the ‘BIGS’ (Banks,mutinationals) were ‘doing business’!!! Fast forward to Nov. 10′ interview with O’Neill where he clearly states NOTHING has changed and he’s not sure if ANYTHING can reverse it….BUT America’s day of ‘reckoning’ is CLOSE!!! ‘Day of Reckoning’???? …is that the CRASH of our economy and what will that LOOK LIKE????? (I know a LOADED question to ask!) THANKS!!!

Independent Accountant:

I agree with Whalen. Big bank financial statements are a fantasy.


Our elites have been building kleptocracy for the last 35 years. It’s not like this bit of the financial system is corrupted and that part isn’t. It’s all crap, just in different ways. When Geithner took the loss limits off the GSEs, it was clear they were going to be the designated garbage can. Of course, their accounting is fantasy. Whose isn’t? All of them are lying.

They will lie until reality, a collapse or a revolution, intervenes just as they will loot until one or both of these events occurs.

Taylor Wray:

It’s ridiculous how much bullshit Wall Street is willing to shovel onto this country in order to avoid taking a loss on anything.

Everyone wanted to bet big and hedge and hand out loans like candy, but now no one has the balls to just admit they made horrible business decisions and pay up.

Capitalism was god, and god is dead.


Jeezzz, 100B$? What’s that, 1 month of deficit?

Wake me up when the loss is at least half-a-T.

[Mar 23, 2011] No-fly zone cost could hit $1 billion in months

One billion stimulus to military-industrial complex...
Mar 22, 2011 | Reuters

The no-fly zone over Libya could end up costing more than $1 billion if the operation drags on more than a couple of months, defense analysts say.

Zack Cooper, a senior analyst at the Center for Strategic and Budgetary Assessments, said the initial cost of eliminating Libyan leader Muammar Gaddafi's air defenses was likely to be between $400 million and $800 million.

The expense of patrolling the no-fly zone once it is established is likely to be $30 million to $100 million per week, he said.

[Mar 23, 2011] "The Two-Tier Recovery": Why Most People Are Not Feeling It, Gary Shilling Explains

There is no real recovery and that idea of two tier recovery just masks that. It's amazing that unemployment level is not reflected in consumption. That only means that upper class so "out-consume" everybody else that they does not matter...  Shiller said that additional 20% of decline of houses in on the way.  Revenue growth for corporate America will be tougher and that will create pressure on stocks. 
Yahoo! Finance

The U.S. has been in official recovery mode since June 2009. But, with millions of Americans still without work and a housing market that continues to take a beating, you may not know that things are looking up.

There’s a reason for that disconnect, says economist Gary Shilling of A. Gary Shilling & Co: The U.S. is experiencing a “two-tiered recovery” that consists of the haves and have-nots.

“The last few years we had a revival of all the markets that were crushed during the recession…and anybody that was participating in that – in and out of Wall Street -- has done very well,” he tells Aaron and Henry in this interview. “But the rest of the economy has pretty much been lagging and those are the people that are reflected in the high unemployment rate," which stands at 8.9 percent.

Not only is a high jobless rate taking a toll on the majority of Americans, those on the bottom continue to face “depressed pay…and falling house prices,” he writes in his latest Insight research note.

He goes on to make the following points in his newsletter:

As you can imagine, there is no easy way out of this. Even more so now with Congress more divided than ever on whether to cut spending or spend more on stimulus programs aimed at helping working men and women in this country.

[Mar 23, 2011] The Seven Immutable Laws of Investing - John Mauldin's Outside the Box E-Letter

Keynes also said that “The central principle of investment is to go contrary to the general opinion, on the grounds that if everyone agreed about its merit, the investment is inevitably too dear and therefore unattractive.”

Adhering to a value approach will tend to lead you to be a contrarian naturally, as you will be buying when others are selling and assets are cheap, and selling when others are buying and assets are expensive.

Humans are prone to herd because it is always warmer and safer in the middle of the herd. Indeed, our brains are wired to make us social animals. We feel the pain of social exclusion in the same parts of the brain where we feel real physical pain. So being a contrarian is a little bit like having your arm broken on a regular basis.

[Mar 23, 2011] Robert Kuttner Brown Shoots

The disruption of Japan's production revealed the soft underbelly of globalization -- the reliance on vulnerable global supply chains only as strong as their weakest link. Rising food and energy prices produce a toxic stew of inflation and unemployment

...And the Republicans in Congress are compounding the crisis of prolonged recession and joblessness by slashing everything in sight -- throwing more people out of work.

[Mar 21, 2011] CLSA's Russell Napier - "QE 2 Fails - Sell US Equities - Await The Fed's Plan C On The Sidelines"

In his latest Market Outlook, CLSA's Russell Napier, who has long been one of the better big picture strategists, comes to the same conclusion as we did when we penned from last Friday "$440 Billion Drop In Shadow And Conventional Banking System Liabilities In Q4 Gives Bernanke Carte Blanche For QE3" namely that the contraction in broad money aggregates (shadow banking in Zero Hedge's case, M3 in the case of Napier), opens the door wide for Bernanke to usher QE3. "recent data imply that the US reflation is in trouble. QEII has boosted reserves but banks continue to reduce credit, while broad money has contracted. There is material downside risk to equity valuations." In other words - "Sell equities as the market wonders whether there will be a QE3 and in what shape it will come. Napier's conclusion - "Whether equities will fall further depends on how flexible and successful the Fed’s next monetary package will be. Given the risk, investors are better off watching from the sidelines." This should not come as a surprise to Zero Hedge readers: we have been claiming since January that the market is due for a major correction in the end of March, early April in time to set the stage for the political wrangling that will inevitably accompany more monetary injections. That recent geopolitical events have forced some to coin the term "Glow in the Dark Swan" only makes the Fed's job that much easier...

[Mar 20, 2011] The Stigmatization of the Unemployed « naked capitalism

March 20, 2011

Spencer Thomas:

Very good post. Thank you.

Over the past three decades, large parts of our culture here in the US have internalized the lessons of the new Social Darwinism, with a significant body of literature to explain and justify it. Many of us have internalized, without even realizing it, the ideas of “dog eat dog”, “every man for himself”, “society should be structured like the animal kingdom, where the weak and sick simply die because they cannot compete, and this is healthy”, and “everything that happens to you is your own fault. There is no such thing as circumstance that cannot be overcome, and certainly no birth lottery.”

The levers pulled by politicians and the Fed put these things into practice, but even if we managed get different (better) politicians or Fed chairmen, ones who weren’t steeped in this culture and ideology, we’d still be left with the culture in the population at large, and things like the “unemployed stigma” are likely to die very, very hard. Acceptance of the “just-world phenomenon” here in the US runs deep.

perfect stranger:

“Religion is just as vulnerable to corporate capture as is the government or the academy.”

This is rather rhetorical statement, and wrong one. One need to discern spiritual aspect of religion from the religion as a tool.

Religion, as is structured, is complicit: in empoverishment, obedience, people’s preconditioning, and legislative enabler in the institutions such as Supreme – and non-supreme – Court(s). It is a form of PR of the ruling class for the governing class.


perfect stranger,

Religion, just like human nature, is not that easy to put in a box.

For every example you can cite where religion “is complicit: in empoverishment, obedience, people’s preconditioning, and legislative enabler in the institution,” I can point to an example of where religion engendered a liberating, emancipatory and revolutionary spirit.


•Early Christianity •Nominalism •Early Protestantism •Gandhi •Martin Luther King

Now granted, there don’t seem to be any recent examples of this of any note, unless we consider Chris Hedges a religionist, which I’m not sure we can do. Would it be appropriate to consider Hedges a religionist?

perfect stranger:

Yes, that maybe, just maybe be the case in early stages of forming new religion(s). In case of Christianity old rulers from Rome were trying to save own head/throne and the S.P.Q.R. imperia by adopting new religion.

You use examples of Gandhi and MLK which is highly questionable both were fighters for independence and the second, civil rights. In a word: not members of establishment just as I said there were (probably) seeing the religion as spiritual force not tool of enslavement.


This link may provide some context: 

In particular, there seems to be an extremely popular variant of the above where the starting proposition “God makes moral people rich” is improperly converted to “Rich people are more moral” which is then readily negated to “Poor people are immoral” and then expanded to “Poor people are immoral, thus they DESERVE to suffer for it”. It’s essentially the theological equivalent of dividing by zero…



I agree.

Poll after poll after poll has shown that a majority of Americans, and a rather significant majority, reject the values, attitudes, beliefs and opinions proselytized by the stealth religion we call “neoclassical economics.”

That said, the ranks of the neoclassicists are not small. They constitute what Jonathan Schell calls a “mass minority.” I suspect the neoclassicists have about the same level of popular support that the Nazis did at the time of their takeover of Germany in 1932, or the Bolsheviks had in Russia at the time of their takeover in 1917, which is about 20 or 25% of the total population.

The ranks of the neoclassicists are made to appear far greater than they really are because they have all but exclusive access to the nation’s megaphone. The Tea Party can muster a handful of people to disrupt a town hall meeting and it gets coast to coast, primetime coverage. But let a million people protest against bank bailouts, and it is ignored. Thus, by manipulation of the media, the mass minority is made to appear to be much larger than it really is.

The politicians love this, because as they carry water for their pet corporations, they can point to the Tea Partiers and say: “See what a huge upwelling of popular support I am responding to.”


Well, if that’s true, then the unemployed are employable but the mass mediated mentality would like them to believe they are literally and inherently unemployable so that they underestimate and under-sell themselves.

This is as much to the benefit of those who would like to pick up “damaged goods” on the cheap as those who promote the unemployment problem as one that inheres in prospective employees rather than one that is a byproduct of a bad job market lest someone be tempted to think we should address it politically.

That’s where I see this blame the unemployed finger pointing really getting traction these days.


I apologize for the fact that I only read the first few paragraphs of this before quitting in disgust.

I just can no longer abide the notion that “labor” can ever be seen by human beings as a “cost” at all. We really need to refuse to even tolerate that way of phrasing things. Workers create all wealth. Parasites have no right to exist. These are facts, and we should refuse to let argument range beyond them.

The only purpose of civilization is to provide a better way of living and for all people. This includes the right and full opportunity to work and manage for oneself and/or as a cooperative group. If civilization doesn’t do that, we’re better off without it.


I am one of those long term unemployed.

I suppose my biggest employment claim would be as some sort of IT techie, with numerous supply chain systems and component design, development, implementation, interfaces with other systems and ongoing support. CCNP certification and a history of techiedom going back to WEYCOS.

I have a patent (6,209,954) in my name and 12+ years of beating my head against the wall in an industry that buys compliance with the “there is no problem here, move on now” approach.

Hell, I was a junior woodchuck program administrator back in the early 70’s working for the Office of the Governor of the state of Washington on CETA PSE or Public Service Employment. The office of the Governor ran the PSE program for 32 of the 39 counties in the state that were not big enough to run their own. I helped organize the project approval process in all those counties to hire folk at ( if memory serves me max of $833/mo.) to fix and expand parks and provide social and other government services as defined projects with end dates. If we didn’t have the anti-public congress and other government leadership we have this could be a current component in a rational labor policy…but I digress.

I have experience in the construction trades mostly as carpenter but some electrical, plumbing, HVAC, etc. also.

So, of course there is some sort of character flaw that is keeping me and all those others from employment…..right. I may have more of an excuse than others, have paid into SS for 45 years but still would work if it was available…..taking work away from other who may need it more….why set up a society where we have to compete as such for mere existence???????

One more face to this rant. We need government by the people and for the people which we do not have now. Good, public focused, not corporate focused government is bigger than any entities that exist under its jurisdiction and is kept updated by required public participation in elections and potentially other things like military, peace corps, etc. in exchange for advanced education. I say this as someone who has worked at various levels in both the public and private sectors…there are ignorant and misguided folks everywhere. At least with ongoing active participation there is a chance that government would, once constructed, be able to evolve as needed within public focus….IMO.


Some people would say I have been unemployed for 10 years. In 2000 after losing the last of my four CFO gigs for public companies I found it necessary to start consulting. This has lead to two of my three biggest winning years. I am usually consulting on cutting edge area of my profession and many times have large staffs reporting to me that I bring on board to get jobs done. For several years I subcontacted to a large international consulting firm to clean up projects which went wrong. Let me give some insight here.

First, most good positions have gate keepers who are professional recruiters. It is near impossible to get by them and if you are unemployed they will hardly talk to you. One time talking to a recruiter at Korn Fery I was interviewing for a job I have done several times in an industry I have worked in several times. She made a statement that I had never worked at a well known company. I just about fell out of my chair laughing. At one time I was a senior level executive for the largest consulting firm in the world and lived on three continents and worked with companies on six. In addition, I had held senior positions for 2 fortune 500 firms and was the CFO for a company with $4.5 billion in revenue. I am well known at several PE firms and the founder of one of the largest mentioned in a meeting that one of his great mistakes was not investing in a very successful LBO (return of in excess of 20 multiple to investors in 18 months) I was the CFO for. In a word most recruiters are incompetent.

Second, most CEO’s any more are just insecure politicians. One time during an interview I had a CEO asked me to talk about some accomplishments. I was not paying to much attention as I rattled off accomplishments and the CEO went nuclear and started yelling at me that he did not know where I thought I was going with this job but the only position above the CFO job was his and he was not going anywhere. I assured him I was only interested in the CFO position and not his, but I knew the job was over. Twice feed back that I got from recruiters which they took at criticism was the “client said I seemed very assured of myself.”

Third, government, banking, business and the top MBA schools are based upon lying to move forward. I remember a top human resource executive telling me right before Enron, MCI and Sarbanes Oxley that I needed to learn to be more flexible. My response was that flexibility would get me an orange jump suit. Don’t get me wrong, I have a wide grey zone, but it use to be in business the looked for people who could identify problems early and resolve them. Now days I see far more of a demand for people who can come up with PR spins to hide them. An attorney/treasurer consultant who partnered with me on a number of consulting jobs told me some one called me “not very charming.” He said he asked what that meant, and the person who said that said, “Ish walks into a meeting and within 10 minutes he is asking about the 10,000 pound guerilla sitting in the room that no one wants to talk about.” CEO do not want any challenges in their organization.

Fourth, three above has lead to the hiring of very young and inexperienced people at senior levels. These people are insecure and do not want more senior and experienced people above them and than has resulted in people older than 45 not finding positions.

Fifth, people are considered expendable and are fired for the lamest reasons anymore. A partner at one of the larger and more prestigious recruiting firms one time told me, “If you have a good consulting business, just stick with it. Our average placement does not last 18 months any more.” Another well known recruiter in S. Cal. one time commented to me, “Your average consulting gig runs longer than our average placement.”

With all of that said, I have a hard time understanding such statements as “@attempter “Workers create all wealth. Parasites have no right to exist.” What does that mean? Every worker creates wealth. There is no difference in people. Sounds like communism to me. I make a good living and my net worth has grown working for myself. I have never had a consulting gig terminated by the client but I have terminated several. Usually, I am brought in to fix what several other people have failed at. I deliver basically intellectual properties to companies. Does that mean I am not a worker. I do not usually lift anything heavy or move equipment but I tell people what and where to do it so does that make me a parasite.

Those people who think everyone is equal and everyone deserves equal pay are fools or lazy. My rate is high, but what usually starts as short term projects usually run 6 months or more because companies find I can do so much more than what most of their staff can do and I am not a threat.

I would again like to have a senior challenging role at a decent size company but due to the reasons above will probably never get one. However, you can never tell. I am currently consulting for a midsize very profitable company (grew 400% last year) where I am twice the age of most people there, but everyone speaks to me with respect so you can never tell.


 Ishmael, you’re quite right. When I showed my Italian husband’s resume to try and “network” in the US, my IT friends assumed he was lying about his skills and work history.

Contemporaneously, in Italy it is impossible to get a job because of incentives to hire “youth”. Age discrimination is not illegal, so it’s quite common to see ads that ask for a programmer under 30 with 5 years of experience in COBOL (the purple squirrel).


Some good points about the foolishness of recruiters, but a great deal of that foolishness is forced by the clients themselves. I used to be a recruiter myself, including at Korn Ferry in Southern California. I described the recruiting industry as “yet more proof that God hates poor people” because my job was to ignore resumes from people seeking jobs and instead “source” aka “poach” people who already had good jobs by dangling a higher salary in front of them. I didn’t do it because I disparaged the unemployed, or because I could not do the basic analysis to show that a candidate had analogous or transferrable skills to the opening.

I did it because the client, as Yves said, wanted people who were literally in the same job description already. My theory is that the client wanted to have their ass covered in case the hire didn’t work out, by being able to say that they looked perfect “on paper.” The lesson I learned for myself and my friends looking for jobs was simple, if morally dubious. Basically, that if prospective employers are going to judge you based on a single piece of paper take full advantage of the fact that you get to write that piece of paper yourself.


Hosswire — I agree with your comment. There are poor recruiters like the one I sited but in general it is the clients fault. Fear of failure. All hires have at least a 50% chance of going sideways on you. Most companies do not even have the ability to look at a resume nor to interview. I did not mean to same nasty things about recruiters, and I even do it sometimes but mine.

I look at failure in a different light than most companies. You need to be continually experimenting and changing to survive as a company and there will be some failures. The goal is to control the cost of failures while looking for the big pay off on a winner.


As a former recruiter and HR “professional” (I use that term very loosely for obvious reasons), I can honestly say that you nailed it. Most big companies looking for mid to high level white collar “talent” will almost always take the perceived safest route by hiring those who look the best ON PAPER and in a suit and lack any real interviewing skills to find the real stars. What’s almost comical is that companies almost always want to see the most linear resume possible because they want to see “job stability” (e.g. a CYA document in case the person fails in that job) when in many cases nobody cares about the long range view of the company anyway. My question was why should the candidate or employee care about the long range view if the employer clearly doesn’t?


Manwhich another on point comment. Sometimes either interviewing for a job or consulting with a CEO it starts getting to the absurd. I see all the time the requirement for stability in a persons background. Hello, where have they been the last 15 years. In addition, the higher up you go the more likely you will be terminated sometime and that is especially true if you are hired from outside the orgnanization. Companies want loyalty from an employee but offer none in return.

The average tenure for a CFO anymore is something around 18 months. I have been a first party participant (more than once) where I went through an endless recruiting process for a company (lasting more than 6 months) they final hire some one and that person is with the company for 3 months and then resigns (of course we all know it is through mutual agreement).



The real problem has become and maybe this is what you are referring to is the “Crony Capitalism.” We have lost control of our financial situation. Basically, PE is not the gods of the universe that everyone thinks they are. However, every bankers secret wet dream is to become a private equity guy. Accordingly, bankers make ridiculous loans to PE because if you say no to them then you can not play in their sand box any more. Since the govt will not let the banks go bankrupt like they should then this charade continues inslaving everyone.

This country as well as many others has a large percentage of its assets tied up in over priced deals that the bankers/governments will not let collapse while the blood sucking vampires suck the life out of the assets.

On the other hand, govt is not the answer. Govt is too large and accomplishes too little.

kevin de bruxelles:

The harsh reality is that, at least in the first few rounds, companies kick to the curb their weakest links and perceived slackers. Therefore when it comes time to hire again, they are loath to go sloppy seconds on what they perceive to be some other company’s rejects. They would much rather hire someone who survived the layoffs working in a similar position in a similar company. Of course the hiring company is going to have to pay for this privilege. Although not totally reliable, the fact that someone survived the layoffs provides a form social proof for their workplace abilities.

On the macro level, labor has been under attack for thirty years by off shoring and third world immigration. It is no surprise that since the working classes have been severely undermined that the middle classes would start to feel some pressure. By mass immigration and off-shoring are strongly supported by both parties. Only when the pain gets strong enough will enough people rebel and these two policies will be overturned. We still have a few years to go before this happens.


Let’s say I run a factory. I produce cars and it requires very skilled work. Skilled welding, skilled machinists. Now I introduce some robotic welders and an assembly line system. The plants productivity improves and the jobs actually get easier. They require less skill, in fact I’ve simplified each task to something any idiot can do. Would wages go up or down? Are the workers really contributing to that increase in productivity or is it the machines and methods I created?

Lets say you think laying off or cutting the wages of my existing workers is wrong. What happens when a new entrant into the business employs a smaller workforce and lower wages, which they can do using the same technology? The new workers don’t feel like they were cut down in any way, they are just happy to have a job. Before they couldn’t get a job at the old plant because they lacked the skill, but now they can work in the new plant because the work is genuinely easier. Won’t I go out of business?


 I am 54 and have a ton of peers who are former white collar workers and professionals (project managers, architects, lighting designers, wholesalers and sales reps for industrial and construction materials and equipment) now out of work going on three years. Now I say out of work, I mean out of our trained and experienced fields. We now work two or three gigs (waiting tables, mowing lawns, doing free lance, working in tourism, truck driving, moving company and fedex ups workers) and work HARD, for much much less than we did, and we are seeing the few jobs that are coming back on line going to younger workers.

It is just the reality. And for most of us the descent has not been graceful, so our credit is a wreck, which also breeds a whole other level of issues as now it is common for the credit record to be a deal breaker for employment, housing, etc.

Strangely I don’t sense a lot of anger or bitterness as much as humility. And gratitude for ANY work that comes our way.

Health insurance? Retirement accounts? not so much.

Mickey Marzick:

Yves and I have disagreed on how extensive the postwar “pact” between management and labor was in this country. But if you drew a line from say, Trenton-Patterson, NJ to Cincinatti, OH to Minneapolis, MN, north and east of it where blue collar manufacturing in steel, rubber, auto, machinery, etc., predominated, this “pact” may have existed but ONLY because physical plant and production were concentrated there and workers could STOP production. Outside of these heavy industrial pockets, unions were not always viewed favorably. As one moved into the rural hinterlands surrounding them there was jealously and/or outright hostility. Elsewhere, especially in the South “unions” were the exception not the rule. The differences between NE Ohio before 1975 – line from Youngstown to Toledo – and the rest of the state exemplified this pattern. Even today, the NE counties of Ohio are traditional Democratic strongholds with the rest of the state largely Republican. And I suspect this pattern existed elsewhere. But it is changing too…

In any case, the demonization of the unemployed is just one notch above the vicious demonization of the poor that has always existed in this country. It’s a constant reminder for those still working that you could be next – cast out into the darkness – because you “failed” or worse yet, SINNED. This internalization of the “inner cop” reinforces the dominant ideology in two ways. First, it makes any resistance by individuals still employed less likely. Second, it pits those still working against those who aren’t, both of which work against the formation of any significant class consciousness amongst working people. The “oppressed” very often internalize the value system of the oppressor.

As a nation of immigrants ETHNICITY may have more explanatory power than CLASS. For increasingly, it would appear that the dominant ethnic group – suburban, white, European Americans – have thrown their lot in with corporate America. Scared of the prospect of downward social mobility and constantly reminded of URBAN America – the other America – this group is trapped with nowhere to else to go.

It’s the divide and conquer strategy employed by ruling elites in this country since its founding [Federalist #10] with the Know Nothings, blaming the Irish [NINA - no Irish need apply] and playing off each successive wave of immigrants against the next. Only when the forces of production became concentrated in the urban industrial enclaves of the North was this strategy less effective. And even then internal immigration by Blacks to the North in search of employment blunted the formation of class consciousness among white ethnic industrial workers.

Wherever the postwar “pact of domination” between unions and management held sway, once physical plant was relocated elsewhere [SOUTH] and eventually offshored, unemployment began to trend upwards. First it was the “rustbelt” now it’s a nationwide phenomenon. Needless to say, the “pact” between labor and management has been consigned to the dustbin of history.

White, suburban America has hitched its wagon to that of the corporate horse. Demonization of the unemployed coupled with demonization of the poor only serve to terrorize this ethnic group into acquiescence. And as the workplace becomes a multicultural matrix this ethnic group is constantly reminded of its perilous state. Until this increasingly atomized ethnic group breaks with corporate America once and for all, it’s unlikely that the most debilitating scourge of all working people – UNEMPLOYMENT – will be addressed.

Make no mistake about it, involuntary UNEMPLOYMENT/UNDEREMPLYEMT is a form of terrorism and its demonization is terrorism in action. This “quiet violence” is psychological and the intimidation wrought by unemployment and/or the threat of it is intended to dehumanize individuals subjected to it. Much like spousal abuse, the emotional and psychological effects are experienced way before any physical violence. It’s the inner cop that makes overt repression unnecessary. We terrorize ourselves into submission without even knowing it because we accept it or come to tolerate it. So long as we accept “unemployment” as an inevitable consequence of progress, as something unfortunate but inevitable, we will continue to travel down the road to serfdom where ARBEIT MACHT FREI!

FULL and GAINFUL EMPLOYMENT are the ultimate labor power.


It’s delicate since direct age discrimination is illegal, but when circumstances permit separating older workers they have a very tough time getting back into the workforce in an era of high health care inflation. Older folks consume more health care and if you are hiring from a huge surplus of available workers it isn’t hard to steer around the more experienced. And nobody gets younger, so when you don’t get job A and go for job B 2 weeks later you, you’re older still!


Yves said- “This overly narrow hiring spec then leads to absurd, widespread complaint that companies can’t find people with the right skills”

In the IT job markets such postings are often called purple squirrels. The HR departments require the applicant to be expert in a dozen programming languages. This is an excuse to hire a foreigner on a temp h1-b or other visa.

Most people aren’t aware that this model dominates the sciences. Politicians scream we have a shortage of scientists, yet it seems we only have a shortage of cheap easily exploitable labor. The economist recently pointed out the glut of scientists that currently exists in the USA. 

This understates the problem. The majority of PhD recipients wander through years of postdocs only to end up eventually changing fields. My observation is that the top ten schools in biochem/chemistry/physics/ biology produce enough scientists to satisfy the national demand.

The exemption from h1-b visa caps for academic institutions exacerbates the problem, providing academics with almost unlimited access to labor.

The pharmaceutical sector has been decimated over the last ten years with tens of thousands of scientists/ factory workers looking for re-training in a dwindling pool of jobs(most of which will deem you overqualified.) 

Abe, NYC:

I wonder how the demonization of the unemployed can be so strong even in the face of close to 10% unemployment/20% underemployment. It’s easy and tempting to demonize an abstract young buck or Cadillac-driving welfare queen, but when a family member or a close friend loses a job, or your kids are stuck at your place because they can’t find one, shouldn’t that alter your perceptions? Of course the tendency will be to blame it all on the government, but there has to be a limit to that in hard-hit places like Ohio, Colorado, or Arizona. And yet, the dynamics aren’t changing or even getting worse. Maybe Wisconsin marks a turning point, I certainly hope it does


It’s more than just stupid recruiting, this stigma. Having got out when the getting was good, years ago, I know that any corporate functionary would be insane to hire me now. Socialization wears off, the deformation process reverses, and the ritual and shibboleths become a joke. Even before I bailed I became a huge pain in the ass as economic exigency receded, every bosses nightmare. I suffered fools less gladly and did the right thing out of sheer anarchic malice.

You really can’t maintain corporate culture without existential fear – not just, “Uh oh, I’m gonna get fired,” fear, but a visceral feeling that you do not exist without a job. In properly indoctrinated workers that feeling is divorced from economic necessity. So anyone who’s survived outside a while is bound to be suspect. That’s a sign of economic security, and security of any sort undermines social control.


You hit the proverbial nail with that reply. (Although, sorry, doing the right thing should not be done out of malice) The real fit has to be in the corporate yes-man culture (malleable ass kisser) to be suited for any executive position and beyond that it is the willingness to be manipulated and drained to be able to keep a job in lower echelon.

This is the new age of evolution in the work place. The class wars will make it more of an eventual revolution, but it is coming. The unemployment rate (the actual one, not the Government one) globalization and off shore hiring are not sustainable for much longer.

Something has to give, but it is more likely to snap then to come easily. People who are made to be repressed and down and out eventually find the courage to fight back and by then, it is usually not with words.

down and out in Slicon Valley:

This is the response I got from a recruiter:

”I’m going to be overly honest with you. My firm doesn’t allow me to submit any candidate who hasn’t worked in 6-12 months or more. Recruiting brokers are probably all similar in that way…. You are going to have to go through a connection/relationship you have with a colleague, co-worker, past manager or friend to get your next job….that’s my advice for you. Best of luck ”

I’m 56 years old with MSEE. Gained 20+ years of experience at the best of the best (TRW, Nortel, Microsoft), have been issued a patent.

Where do I sign up to gain skills required to find a job now?

Litton Graft :

 “Best of the Best?” I know you’re down now, but looking back at these Gov’mint contractors you’ve enjoyed the best socialism money can by.

Nortel/TRW bills/(ed) the Guvmint at 2x, 3x your salary, you can ride this for decades. At the same time the Inc is attached to the Guvmint ATM localities/counties are giving them a red carpet of total freedom from taxation. Double subsidies.

I’ve worked many years at the big boy bandits, and there is no delusion in my mind that almost anyone, can do what I do and get paid 100K+. I’ve never understood the mindset of some folks who work in the Wermacht Inc: “Well, someone has to do this work” or worse “What we do, no one else can do” The reason no one else “can do it” is that they are not allowed to. So, we steal from the poor to build fighter jets, write code or network an agency.


I used to work as a recruiter and can tell you that I only parroted the things my clients told me. I wanted to get you hired, because I was lazy and didn’t want to have to talk to someone else next.

So what do you do? To place you that recruiter needs to see on a piece of paper that you are currently working? Maybe get an email or phone call from someone who will vouch for your employment history.

That should not be that hard to make happen.

Francois T :

 The “bizarre way that companies now spec jobs” is essentially a coded way for mediocre managers to say without saying so explicitly that “we can afford to be extremely picky, and by God, we shall do so no matter what, because we can!”

Of course, when comes the time to hire back because, oh disaster! business is picking up again, (I’m barely caricaturing here; some managers become despondent when they realize that workers regain a bit of the higher ground; loss of power does that to lesser beings) the same idiots who designed those “overly narrow hiring spec then leads to absurd, widespread complaint that companies can’t find people with the right skills” are thrown into a tailspin of despair and misery. Instead of figuring out something as simple as “if demand is better, so will our business”, they can’t see anything else than the (eeeek!) cost of hiring workers. Unable to break their mental corset of penny-pincher, they fail to realize that lack of qualified workers will prevent them to execute well to begin with.

And guess what: qualified workers cost money, qualified workers urgently needed cost much more.

This managerial attitude must be another factor that explain why entrepreneurship and the formation of small businesses is on the decline in the US (contrary to the confabulations of the US officialdumb and the chattering class) while rising in Europe and India/China.


If you are 55-60, worked as a professional (ie, engineering say) and are now unemployed you are dead meat. Sorry to be blunt but thats the way it is in the US today. Let me repeat that : Dead Meat.

I was terminated at age 59, found absolutely NOTHING even though my qualifications were outstanding. Fortunately, my company had an old style pension plan which I was able to qualify for (at age 62 without reduced benefits). So for the next 2+ years my wife and I survived on unemployment insurance, severance, accumulated vacation pay and odd jobs. Not nice – actually, a living hell.

At age 62, I applied for my pension, early social security, sold our old house (at a good profit) just before the RE crash, moved back to our home state. Then my wife qualified for social security also. Our total income is now well above the US median.

Today, someone looking at us would think we were the typical corporate retiree. We surely don’t let on any differently but the experience (to get to this point) almost killed us.

I sympathize very strongly with the millions caught in this unemployment death spiral. I wish I had an answer but I just don’t. We were very lucky to survive intact.


 Thank you Yves for your excellent post, and for bringing to light this crucial issue.

Thank you to all the bloggers, who add to the richness of the this discussion.

I wonder if you could comment on this Yves, and correct me if I am wrong…I believe that the power of labor was sapped by the massive available supply of global labor. The favorable economic policies enacted by China (both official and unofficial), and trade negotiations between the US government and the Chinese government were critical to creating the massive supply of labor.

Thank you. No rush of course.


There are some odd comments and notions here that are used to support dogma and positions of prejudice. The world can be viewed in a number of ways. Firstly from a highly individualised and personal perspective – that is what has happened to me and here are my experiences. Or alternatively the world can be viewed from a broader societal perspective.

In the context of labour there has always been an unequal confrontation between those that control capital and those that offer their labour, contrary to some of the views exposed here – Marx was a first and foremost a political economist. The political economist seeks to understand the interplay of production, supply, the state and institutions like the media. Modern day economics branched off from political economy and has little value in explaining the real world as the complexity of the world has been reduced to a simplistic rationalistic model of human behaviour underpinned by other equally simplistic notions of ’supply and demand’, which are in turn represented by mathematical models, which in themselves are complex but merely represent what is a simplistic view of the way the world operates. This dogmatic thinking has avoided the need to create an underpinning epistemology. This in turn underpins the notion of free choice and individualism which in itself is an illusion as it ignores the operation of the modern state and the exercise of power and influence within society.

It was stated in one of the comments that the use of capital (machines, robotics, CAD design, etc.) de-skills. This is hardly the case as skills rise for those that remain and support highly automated/continuous production factories. This is symptomatic of the owners of capital wanting to extract the maximum value for labour and this is done via the substitution of labour for capital making the labour that remains to run factories highly productive thus eliminating low skill jobs that have been picked up via services (people move into non productive low skilled occupations warehousing and retail distribution, fast food outlets, etc). Of course the worker does not realise the additional value of his or her labour as this is expropriated for the shareholders (including management as shareholders).

The issue of the US is that since the end of WW2 it is not the industrialists that have called the shots and made investments it is the financial calculus of the investment banker (Finance Capital). Other comments have tried to ignore the existence of the elites in society – I would suggest that you read C.W.Mills – The Power Elites as an analysis of how power is exercised in the US – it is not through the will of the people.

For Finance capital investments are not made on the basis of value add, or contribution through product innovation and the exchange of goods but on basis of the lowest cost inputs. Consequently, the ‘elites’ that make investment decisions, as they control all forms of capital seek to gain access to the cheapest cost inputs. The reality is that the US worker (a pool of 150m) is now part of a global labour pool of a couple of billion that now includes India and China. This means that the elites, US transnational corporations for instance, can access both cheaper labour pools, relocate capital and avoid worker protection (health and safety is not a concern). The strategies of moving factories via off-shoring (over 40,000 US factories closed or relocated) and out-sourcing/in-sourcing labour is also a representations of this.

The consequence for the US is that the need for domestic labour has diminished and been substituted by cheap labour to extract the arbitrage between US labour rates and those of Chinese and Indians. Ironically, in this context capital has become too successful as the mode of consumption in the US shifted from workers that were notionally the people that created the goods, earned wages and then purchased the goods they created to a new model where the worker was substituted by the consumer underpinned by cheap debt and low cost imports – it is illustrative to note that real wages have not increased in the US since the early 1970’s while at the same time debt has steadily increased to underpin the illusion of wealth – the ‘borrow today and pay tomorrow’ mode of capitalist operation. This model of operation is now broken. The labour force is now being demonized as there is a now surplus of labour and a need to drive down labour rates through changes in legislation and austerity programs to meet those of the emerging Chinese and Indian middle class so workers rights need to be broken. Once this is done a process of in-source may take place as US labour costs will be on par with overseas labour pools.

It is ironic that during the Regan administration a number of strategic thinkers saw the threat from emerging economies and the danger of Finance Capital and created ‘Project Socrates’ that would have sought to re-orientate the US economy from one that was based on the rationale of Finance Capital to one that focused in productive innovation which entailed an alignment of capital investment, research and training to product innovative goods. Of course this was ignored and the rest is history. The race to the lowest input cost is ultimately self defeating as it is clear that the economy de-industrialises through labour and capital changes and living standards collapse. The elites – bankers, US transnational corporations, media, industrial military complex and the politicians don’t care as they make money either way and this way you get other people overseas to work cheap for you.

S P:

Neoliberal orthodoxy treats unemployment as well as wage supression as a necessary means to fight “inflation.” If there was too much power in the hands of organized labor, inflationary pressures would spiral out of control as supply of goods cannot keep up with demand.

It also treats the printing press as a necessary means to fight “deflation.”

So our present scenario: widespread unemployment along with QE to infinity, food stamps for all, is exactly what you’d expect.

The problem with this orthodoxy is that it assumes unlimited growth on a planet with finite resources, particularly oil and energy. Growth is not going to solve unemployment or wages, because we are bumping up against limits to growth.

There are only two solutions. One is tax the rich and capital gains, slow growth, and reinvest the surplus into jobs/skills programs, mostly to maintain existing infrastructure or build new energy infrastructure. Even liberals like Krugman skirt around this, because they aren’t willing to accept that we have the reached the end of growth and we need radical redistribution measures.

The other solution is genuine classical liberalism / libertarianism, along the lines of Austrian thought. Return to sound money, and let the deflation naturally take care of the imbalances. Yes, it would be wrenching, but it would likely be wrenching for everybody, making it fair in a universal sense.

Neither of these options is palatable to the elite classes, the financiers of Wall Street, or the leeches and bureaucrats of D.C.

So this whole experiment called America will fail.

[Mar 19, 2011] Calling Bull on the Bulls, Fake Rallies and Awww Broken Piggy Banks

Blast from the past
March 2010 | Jr Deputy Accountant

I especially appreciate this line from the Yahoo piece:

 "The winning streak... has pushed the major indexes to new recovery highs. Those recovery highs coincide with a number of oddities that are hard to explain, even concerning."

Oddities? That's a polite way to put it. The last time I spoke to Financial Armageddon's Michael Panzner about this bizarre, uh, movement beginning March 2009, he sounded like someone who had just seen a massive car wreck. "What the fuck?!" is usually the first thing that comes to my mind as well when I think about it. He also stated he'd underestimated how people will act when you give them free money. Like these guys?


TrimTabs founder and CEO Charles Biderman, added further evidence to suspicions many have had for a while. TrimTabs is a research firm that tracks money flows into the market.

Here's what Mr. Biderman had to say: 'We cannot identify the source of the money that pushed stock prices up so far so fast.' More specifically, the source of about $600 billion net new cash necessary to lift the market's overall capitalization by $6 trillion last year could not be identified.'

Biderman continues, 'We know that the U.S. government has spent hundreds of billions of dollars to support the auto industry, the housing market and the banks and brokers. Why not support the stock market as well? The money did not come from traditional players.

One way to manipulate the stock market would be for the Fed or the Treasury to buy a nominal $60 to $70 billion of S&P 500 stock futures each month for as long as necessary. Depending on margin levels, as little as $5 billion to $15 billion per month was all that was necessary to lift the S&P 500 by 67% (statement was made on January 6, 2010).'

I can identify the source: it's seedy, secretive, and run by the dude with the neckbeard. But wait! There's more! You can't have a good PPT run without the help of the SEC, the agency that repeatedly fails to find the real criminals and has taken instead to these massive (and useless) cluck missions.


[Mar 17, 2011] Quelle Surprise! New Home Construction Plunges « naked capitalism

March 16, 2011


f I lose my fight, I will never, never, never sign a mortgage again. NEVER.

Wow, strong words, consumer. I say “consumer” as you definitely don’t sound like a citizen.

I average about one adult-level conservation each decade with an American citizen — that’s one in 2000-2010, one in 1990-1999.

Why? Because like you, they are perennially clueless, spending all their time in consumer activities: sports viewing, TV and movie viewing, various other consumer-oriented entertainment, nothing citizenship-oriented.

The other day I overheard three conversations: (1) between a 50s-age fellow and an 70-year-old fellow, only about the actor Sheen (I don’t know his first name); (2) another between late 20s-age and early 30s-age fellows, concerning Sandra Bullock’s boyfriend who left her for some tattooed woman; and (3) late teens, early twenties group about someone running onto a stage to disrupt an award recipient, or something like that.

That’s how the typical American ConsumerTard rolls.

In Detroit, they are as clueless about what’s occurring with the privatization of everything agenda; similarly in once semi-aware Seattle. It is the epidemic of ignorance across the country (non-sovereign type).

In Wisconsin, consumer weenies continue to claim, “They’ve awakened a sleeping giant.”

“Sleeping giant” my citizen’s butt; those morons voted in a crook with an established record of privatizing municipal union jobs. PERIOD!

Just like those morons in Michigan and Florida who elected super-crooked governors. Typical American ConsumerTards!

They’ve relocated the production assets offshore; they’ve relocated the capital assets offshore.

And while everyone was watching their sports, their movies, etc., they’ve dismantled what was left of the American economy over the past 35 years.

One consistely overhears idiots whining about not being hired, completely ignorant of what’s been transpiring over their lifetimes, as if they are mindless Zombie ConsumerTards.

Oops! They are…..


The real economy is double dipping hard. The current so called “growth” is on pure money printing and massive government borrowing.

  1. if they expect japan earthquake will increase demand of US export, they might be right. But only for big capital goods, (utility, turbines, high end metals) the rest will be supplied by asia and china.
  2. Oil price will get worst as protest in middle east is not resolve (libya, bahrain, yemen)
  3. food inflation is burning all over the world.
  4. US big banks, euro fringe economies haven’t been fixed at all. They just keep printing money and wish for the best.

[Mar 14, 2011] “Anonymous” Whistleblower Charges BofA With Large Scale Force Placed Insurance Scheme With Cooperation of Servicers

What a dirty scumbags...
March 14, 2011 | naked capitalism

Here’s some background courtesy Barry Ritholtz:

When a homeowner fails to keep up their insurance premiums on a mortgaged residence, their loan servicer has the option/obligation to step in to buy a comparable insurance policy on the loan holder’s behalf, to ensure the mortgaged property remains fully insured….

Consider one case found by [American Banker's Jeff] Horwitz. A homeowner’s $4,000 insurance policy, was paid by the loan servicer, Everbank via escrow. But Everbank purposely let that insurance policy lapse, and then replaced it with a different policy – one that cost more than $33,000. To add insult to injury, the insurer, a subsidiary of Assurant, paid Everbank a $7,100 kickback for giving it such a lucrative policy — and, writes Horwitz, “left the door open to further compensation” down the road.

That $33,000 policy — including the $7,100 kickback – is an enormous amount of money for any loan servicer to make on a single property. The average loan servicer makes just $51 per loan per year.

Here’s where things get interesting: That $33,000 insurance premium is ultimately paid by the investors who bought the loan.

Mildred Wilkins:

For any of you who:
a. don’t believe that this is an industry wide practice
b. are aware that it is used as a regular part of business
and c. could happen to you tomorrow if you have a mortgage;

I can attest to the truthfulness of all 3 comments above.

I do foreclosure intervention training and counseling. Over the past 7-10 years I cannot count the number of consumers who have experienced a financial crisis leading to foreclosure not because they had some terrible thing like death, illness or unemployment occur but because their insurance spiraled out of control, their house payment got jacked up and they went into default–without clearly making the connection to the fact that their insurance had been switched–without their permission–to a company associated with their lender–for some crazy amount.

They received a letter stating they didn’t have insurance–


It is simply a ploy by the lender/servicers to get more money off the backs of unsuspecting borrowers who don’t know how the “Bank Game” works and what to do about it when you are confronted with some of the nasty tricks they play.

All banks do this. Regularly. With the specific goal of generating extra income where none is warranted.

I for one am glad that the leaks have been made public and encourage any one who reads them to pay attention, share the information with any and everyone in your circle.

Force-placed insurance is a characteristic of predatory lending. It is illegal in many states. It leads to foreclosure and it more common than the common cold.

Being forewarned could prove helpful down the road.

After Quake and Tsunami, Japan Faces Economic Worries -

One ripple effect could be a reduction in demand for United States Treasury bonds, adding pressure to American interest rates, according Byron R. Wien, vice chairman of Blackstone Advisory Partners. The Japanese have been large buyers of United States bonds, but, Mr. Wien said, “they are going to be using their money to rebuild, so they will be smaller buyers of our debt securities.”

[Mar 14, 2011] Wall Street Won! Nothing to Prevent Another Crisis, Says Former FDIC Chairman Bill Isaac

Banking system can't be stronger then economy. Measures taken since 2008 treated only symptoms, not underling fundamental problem. We will get in the soup again, we will.  Dodd-Frank took momentum out of the reform efforts. Wall Street is not reforms, huge concentration of finances risk and political power still exists. 

Crisis may create opportunity, but Congress completely flubbed its opportunity to enact meaningful financial reform in the aftermath of the worst crisis since the Great Depression, says the former chairman of the FDIC, Bill Isaac.

The Dodd-Frank reform bill--the one major piece of legislation to emerge since the financial crisis--is mostly meaningless, says Isaac, who is also the chairman of regional bank Fifth Third.  Dodd-Frank does nothing to address the root causes of the financial crisis, Isaac says, and it won't prevent the next one.

Specifically, Dodd-Frank will just create more bureaucracy and red tape. Meanwhile, our biggest banks are still "Too Big To Fail." Our commercial banks are still allowed to take way too much risk. Our regulators are still balkanized and political. And we still haven't addressed Fannie Mae and Freddie Mac.

Isaac suggests the solution may be to re-implement the Glass-Steagall Act which separated commercial and investment banking. But, at this stage of the game, that's not likely, considering the size and scope of the bank lobby in Washington.

In other words, it's fair to say that Wall Street won the financial crisis.

And it's no mystery who lost.

[Mar 13, 2011] Summary for Week ending March 11th Hoocoodanode

Rob Dawg wrote:

Rare but large events are cummulative as to probability. We are clearly in virtual certainty territory. Many of these forces are not binary either/or and thus we are exposed to multiplicative consequences. Toss 2d20 for a 36 or better saving roll.

There were a hundred different reasons given why the Nasdaq bubble could pop. When it eventually did, all of those hundred were pointed to, as well as dozens of others trotted out under the heading of "no one could have seen that coming".

The real reason why it happened was that unsustainable circumstances can't be sustained.

Same theory here. Laundry lists of reasons as to what might start the economic backslide might be useful, but only in the sense that they focus the discussion after the fact.

Deflationary Jane:

Not sure how linked it in the pigged thread but thatnks for linking the "if it's going to be so bad, quit" rant.

"Here's the remarkable thing about some conservatives: They can hold conflicting ideas in their heads without exploding."


CNBC and Fox both reported yesterday, in all seriousness, that the tsunami would prove to be hugely beneficial to Japan in the long run, as the rebuilding efforts would prove to be a fantastic economic stimulus. Not one on-air personality so much as mentioned the Broken Window Fallacy. (Was I surprised? Not really.) .


Vic wrote:

Capitalism works if the framework designed and implemented by the government does not allow the abuse of capitalism.

That may be the theoretical case on a planet with unlimited resources and energy. Capitalism needs to grow or it dies, and must continually break through new barriers. It has been resilient up to this point, as it has reenforced evolutionary survival traits that have been beneficial-- discounting the future, heuristic thinking, and basing reality on myth and story. These traits are now liabilities.


Vic wrote:

Capitalism works if the framework designed and implemented by the government does not allow the abuse of capitalism

Any ism (and all religions) will work in a society that has NO assholes, NO sociopaths, and all the children are above average.

When the socialists and libertarians stop living in their (mostly male) fantasy land they realize the NATURAL ism is fascism, which is why societies end up like ours. .


Vic wrote:

but we can get through this via education (people having less babies) and channeling the creative output of capitalism towards designing more energy and resource efficient means towards the luxuries that we are used to. I know that I sound hopelessly naive but it is better than all Dooooooooooooooom!!! all the time.

It is naive. The ONLY thing you need to do for a functional capitalist system is "educate" the dumbasses (prey) to identify the sociopaths (predator). As THIS is NEVER been done before, all I can say is what Sponge Bob would say: "Good luck with that". .


cellar door wrote:

you know you contribute nothing to society when try to pile on the shorts of re-insurance companies after a natural disaster?

This is comparable to the societal contribution of many lawyers, particularly the "ambulance chasers"... .

[Mar 13, 2011] Weekend at Bennie's

Neither snow, nor rain, nor riots in Saudi Arabia or once in a hundred year earthquakes shall deter these markets from rallying into the close. Good old Benny, always can depend on him to turn a frown upside down.

Seriously, although the major US indices had a nice bounce off their lows, they are far from out of the woods, and we cannot yet be complacent about this correction.

Defensive positions are recommended until the uptrend is re-established. While it was heartening to see the SP 500 climb back above its 50 DMA which is now around 1299, the NDX tech sector is still lagging withits 50 DMA around 2317, and this is the chart that I watch, in addition to financials and the Russell 2000, to judge the quality of any rallies. Too often they will jam the SP 500 futures higher and try to drag the rest of the market along with it.

I will be keenly interested in seeing the full extent of the damage in Japan, and any follow on problems to a quake of this magnitude, especially with regard to their nuclear infrastructure. I am sure they will handle it as they have done so many times in the past, rising as one people to the challenge. There will be many comparisons to how the markets reacted to the Kobe earthquake in the 1990's.

In terms of the US economy, there is no real recovery yet that I can determine. The earthquake of the financial crisis has left the country divided, its economy sputtering. Repairs have not been made, and those who created and benefited from the crisis are seeking conscripts to take their pain.

John Williams of Shadowstats had this to say:

"Markets Are Flying Blind.

In terms of meaningful economic reporting, the financial markets continue to be flying blind, at the moment. Economic data of questionable significance continue to flow from the government’s statistical bureaus, including this morning’s (March 11th) report of February retail sales. There will be a full review of the economic outlook in the Hyperinflation update, and the constant-dollar February retail sales will be assessed in the March 17th Commentary, following the CPI release.

On its surface, the February retail sales report was positive on a nominal (not-adjusted for inflation) basis, as well as likely in real (inflation-adjusted) terms. The reporting-quality problems remain in unstable monthly seasonal-factor adjustments. Seasonal patterns have been warped by the depth and duration of an economic downturn that is unprecedented in the post-World War II era of modern economic reporting. The retail data will be revised in a pending annual benchmark revision, scheduled for April 29th.

At that time, retail sales levels and growth of at least the last year should be subject to major downside revisions, showing a weaker economy than has been recognized previously. As with the recent, major downside revisions to payroll employment, and the pending downside revisions to industrial production later in March, the retail sales downgrade will be a precursor to major downside revisions in GDP history of the last several years, which are due for release in late July.

While there also are seasonal-adjustment issues with the trade data, the reported January 2011 deficit has set up a potential dampening of growth to be reported in first-quarter 2011 GDP, at the end of April."

Parable of the broken window - Wikipedia, the free encyclopedia

The parable of the broken window was introduced by Frédéric Bastiat in his 1850 essay Ce qu'on voit et ce qu'on ne voit pas (That Which Is Seen and That Which Is Unseen) to illustrate the hidden costs associated with destroying property of others. The parable, also known as the broken window fallacy, demonstrates how the law of unintended consequences affects economic activity people typically see as beneficial.

The parable

Bastiat's original parable of the broken window from Ce qu'on voit et ce qu'on ne voit pas (1850):

Have you ever witnessed the anger of the good shopkeeper, James Goodfellow, when his careless son happened to break a pane of glass? If you have been present at such a scene, you will most assuredly bear witness to the fact that every one of the spectators, were there even thirty of them, by common consent apparently, offered the unfortunate owner this invariable consolation—"It is an ill wind that blows nobody good. Everybody must live, and what would become of the glaziers if panes of glass were never broken?"

Now, this form of condolence contains an entire theory, which it will be well to show up in this simple case, seeing that it is precisely the same as that which, unhappily, regulates the greater part of our economical institutions.

Suppose it cost six francs to repair the damage, and you say that the accident brings six francs to the glazier's trade—that it encourages that trade to the amount of six francs—I grant it; I have not a word to say against it; you reason justly. The glazier comes, performs his task, receives his six francs, rubs his hands, and, in his heart, blesses the careless child. All this is that which is seen.

But if, on the other hand, you come to the conclusion, as is too often the case, that it is a good thing to break windows, that it causes money to circulate, and that the encouragement of industry in general will be the result of it, you will oblige me to call out, "Stop there! Your theory is confined to that which is seen; it takes no account of that which is not seen."

It is not seen that as our shopkeeper has spent six francs upon one thing, he cannot spend them upon another. It is not seen that if he had not had a window to replace, he would, perhaps, have replaced his old shoes, or added another book to his library. In short, he would have employed his six francs in some way, which this accident has prevented.[1][2]

The fallacy of the onlookers is that they considered only the positive effects for the glazier and those he may now purchase from without considering the equally harmful effects for the shopkeeper and those he now cannot purchase from.

The implications of the fallacy can also be extended to the glazier. The onlookers assume that this needed window will have a positive effect for the glazier, but in order to assume this, the glazier must have time and supplies available which currently have no other use. If the glazier has other jobs which demand his time and supplies, this additional job now represents a negative constraint for the glazier in that he may not be able to complete his other jobs on time.

In short, the broken window (and the boy who broke it) did not provide any net benefit to the town, but rather made the town poorer by at least the value of one window, if not more.

[Mar 13, 2011] Enough By James Kwak

The Baseline Scenario

A friend passed on this article in The Motley Fool by Morgan Housel. It begins this way:


“That’s the title of Vanguard founder John Bogle’s fantastic book about measuring what counts in life.

“The title, as Bogle explains, comes from a conversation between Kurt Vonnegut and novelist Joseph Heller, who are enjoying a party hosted by a billionaire hedge fund manager. Vonnegut points out that their wealthy host had made more money in one day than Heller ever made from his novel Catch-22. Heller responds: ‘Yes, but I have something he will never have: enough.’”

[Mar 13, 2011] Battle Of The Banking Policy Heavyweights

...Speaking on the side of greater reform for the biggest banks, Mervyn King – governor of the Bank of England – gave a forceful interview to the British newspaper The Telegraph at the end of last week.

“Why do banks in general want to pay bonuses? It’s because they live in a ‘too big to fail’ world in which the state will bail them out on the downside.”

In Mr. King’s view, casino-type banking caused the crisis of 2007-08.

 “Financial services don’t like the word ‘casino’, but instruments were created and traded only within the financial community. It was a zero sum game. No one knew which ones were winners when the crisis hit. Everyone became a suspect. Hence, no one would provide liquidity to any of those institutions.”

“We allowed a [banking] system to build up which contained the seeds of its own destruction.”

 And “reform” efforts so far do not amount to much.

“We’ve not yet solved the ‘too big to fail’ or, as I prefer to call it, the ‘too important to fail’ problem. The concept of being too important to fail should have no place in a market economy.” Read the rest of this entry »


[Mar 12, 2011] Should the Fed Respond to Commodity Price Increases

March 10, 2011

Okay. But suppose that the basis of Fed policy -- say QE2,3,4 -- consisted of pouring money into the bond market. And that the money went largely to speculative inflation of assets or commodities, not to any broad-based economic activity that might raise prices in relative proportions? Sound implausible?

Some recent results of QE2 here:

 If I understand correctly, primary dealers in government bonds are buying them from the Treasury and reselling them for a profit to the Fed under QE2. Then, if the case of Pimco is typical, putting the proceeds into cash. If so, how does this help aggregate demand or GDP? And how does it help the economy?

Shouldn't you or someone be walking back the claims made on behalf of QE2 as a stimulus to economic growth? And shouldn't you consider the potential for new bubbles, as so much of the cash from QE2 goes into speculative funds in, say, commodities such as oil?

I think it goes to show that micro-economic just-so tales ("Once upon an island, long-ago . . .") to prove points about macro-economic monetary policy (without taking into account real world existing distribution of resources) won't get us very far.

I tend to agree that the analysis is way too simplistic. The one thing I do remember from Eco 101 is Ceteris Paribus (everything else stays the same). In all the theories I learnd from the many textbooks I have read since, it is not stated anymore as it is taken for granted. But in the real world: nothing stays the same...

anne : 

March 10, 2011

The 3 month Treasury interest rate is at 0.07%, the 2 year Treasury rate is 0.63%, while the 10 year is 3.37%.

The Vanguard A rated short-term investment grade bond fund, with a maturity of 3.0 years and a duration of 2.2 years, has a yield of 1.89%. The Vanguard A rated intermediate-term investment grade bond fund, with a maturity of 6.8 years and a duration of 5.2 years, is yielding 3.61%. The Vanguard A rated long-term investment grade bond fund, with a maturity of 23.9 years and a duration of 12.5 years, is yielding 5.64%. *

The Vanguard Ba rated high yield corporate bond fund, with a maturity of 6.0 years and a duration of 4.8 years, is yielding 5.81%.

The Vanguard convertible bond fund, with a maturity of 4.9 years and a duration of 4.3 years, is yielding 3.29%.

The Vanguard A rated high yield tax exempt bond fund, with a maturity of 13.2 years and a duration of 7.7 years, is yielding 4.52%.

The Vanguard GNMA bond fund, with a maturity of 5.6 years and a duration of 2.7 years, is yielding 3.45%.

The Vanguard inflation protected Treasury bond fund, with a maturity of 8.5 years and a duration of 7.6 years, is yielding 0.28%.

* Remember, the Vanguard yields are after cost. The Federal Funds rate is no more than 0.25%.

river :

So, if oil's true cost say in one year's time is $6.00 a gallon, and there is no readily available alternative, and $6.00 a gallon causes a massive recession/depression to ensue, should the Fed even lower interest rates? Well, they can't lower interest rates now, but in hindsight, should they have lowered interest rates back in 2008? The Fed doesn't drill oil, so they have no control over this price, so why should they do anything to help the economy suffering from an increase in the price rise of Oil?

Our whole society is built on the energy we are able to produce, and if that energy is too expensive, it starves out consumption from the rest of the economy. If oil gets to be $5.00 or $6.00 a gallon or more, the economics of everything changes. Houses that are farther from work and city centers will become unsellable, while the small supply of homes in close will greatly increase in value, thousands of vehicles already produced will become unsellable and undriveable. This is real wealth that will basically evaporate do to gas costs increasing like this, and is infinitely deflationary.

So why does the Fed partake in QE2, QE3 and QE4 and keep the interest rates pegged at zero when high gas prices end up being a deal breaker?


I'm perplexed because it is relatively easy to "financialize" the commodity - to create a financial asset, such as stock or debt or a derivative or a futures contract, the price of which moves more or less in tandem with the underlying asset's price. For examples, gold mining stocks track gold prices, there are copper proxies in the capital markets, ETFs for rare earths and lithium, and so on. And we have seen there could be asset bubbles involving financial assets. And that the price of the financial asset affects behavior concerning the underlying asset. So I think inevitably there could be bubbles in the commodity and conversely a "don't react to commodity price changes" necessarily means "don't react to financial asset price changes". And whether that is right or wrong, I confess it does surprise me you hold that laissez faire view.

Why isn't residential real estate an example of the commodity in this post? Or fiber optic cable, to harken back to the Nasdaq bubble. Or tulips?


I would just add, in your hypothetical, there are no financial institutions, no lending, etc., just sea shells for commodities, spot priced, cash on delivery. So, yeah, there's not much for the island's Fed to do. But introduce finance, lending, credit, securities trading, forward contracts, etc. all keyed off the commodities, and I think the Fed might find something to do.


"I'm perplexed because it is relatively easy to "financialize" the commodity"

I'm glad to know it's easy, because I sure wish someone would explain to me how these various financial derivatives work. What assets do the managers hold? Do they actually hold contracts for the delivery of oil? Or is this just some big betting pool like Chelsea vs Arsenal?


 "it's interesting to think about how technological change that improves the quality or lowers the price of the renewable good plays into this. Such a change could offset the increase in the cost of living that households face. Thus improving technology, not Fed policy, is the key to helping people on the island struggling with high prices."

improving technology, and affordably scrapping the old. if for instance you assume (or draw a line in favor of) way better HVAC equipment, you have a lot of drafty windows & walls to fix along the way.

Benjamin Cole:

The CPI, in case anybody has looked, is today (220) about where it was in August 2008 (219). That's about 2 1/2 years ago. Since the CPI tends to over state inflation, we have been in deflation for nearly three years.

And yet some people, such as Richard Fisher of the Dallas Fed, seem to have the screaming meemies about inflation.

And no one has made headlines that natural gas is an an eight-year low. An eight year low!

Commodities, especially with the NYMEX and other exchanges, have become wild. Copper recently collapsed. Commodities often boom before bust, a cycle known by many through history. It takes the boom to bust the prices.

I cannot imagine a more stupid policy than tightening now.


 Should the Fed Respond to Commodity Prices?

That's easy. Depends on whether Jamie Dimon and Warren Buffet want the Fed to respond. The Fed only exists to keep the top 6 banks in business. Everything else is window dressing. To imagine that the Fed has the leeway to make a decision independent of the impact on major banks is pure fantasy.

Following 7 Weeks Of Market Topping Inflows, Retail Once Again Turns Its Back On Dropping Stocks With $3.1 Billion Outflow by Tyler Durden


It was to be expected: after 7 consecutive weeks of inflows during which the market drifted aimlessly, while seeing insiders dump a few billion to witless retail hot potato chasers, forming what some are calling a quadruple top, not to mention various revolutions and now counter-revolutions in MENA, the retail investor has once again said enough and turned their back on stocks. The beneficiary: taxable bond funds, which saw a whopping $4.8 billion in inflows, despite attempts by everyone in the propaganda machine to dissuade investors (read Baby Boomers) from putting their money into fixed income and reroute capital to stocks. Well, in an age of immediate demanded gratification and POMO-adjusted Newtonian third laws, every future inflow better be met with a greater than expected spike in the market, or the resulting outflow in the next week will be vicious. Also those hoping that the ongoing outflow from munis will finally end, will have to wait at least one more week: the week ending March 3 saw $711 million in muni outflows. Of course, following today's spanking by Jeff Gundlach we wouldn't hold our breath on a massive resurgence in capital allocation to an asset class which one of the greatest fixed income minds is due for a 15-20% correction. Yet what truly boggles the mind, is Legg Mason's response on how the $672 billion asset manager plans to deal with billions in sudden redemption requests: "Those outflows will be largely offset by market appreciation," said Nachtwey, chief financial officer of Legg Mason." In other words, the Ponzi will continue... or else Legg Mason is dunzo.

[Mar 12, 2011] Breakfast_with_Dave_2011_03_07

Indeed, where else can U.S. investors expect to see tax-equivalent yields of 7.7% on high-quality paper? It’s not far off the bargains corporate bond investors were

feasting on back in late 2008. See How to Play the Panic in Muni Bonds on page P23 of Barron’s (it is a sign of these classic contrarian times that another $1 billion fled the muni bond fund arena last week).


After practically everyone wrote off gold early this year the yellow metal broke out last week and silver surged to fresh 31-year high too. If it’s not concern over sovereign debt issues then its fears of the spreading unrest in the Middle East and North Africa. According to the FT, the U.S. mint is reporting new all-time highs with with regards to sales of silver American Eagle coins in each of the past two months.

[Mar 12, 2011] I Wonder What they Are Saying Now

Remember when municipal finance specialists, politicians, fixed-income fund managers, credit analysts, municipal finance columnists, municipal finance executives, bond analysts, business reporters, and sundry other "experts" pooh-poohed the warning Meredith Whitney's gave in December on CBS's "60 Minutes" about a coming meltdown in the muni market, with some suggesting the banking analyst was well out of her depth?

Well, I wonder what they are saying now that Jeff Gundlach, one of the most successful fixed-income investors of modern times, has voiced similar concerns about the outlook for what has been a very popular investment class:

"Jeffrey Gundlach: Munis Are The New Subprime" (

Bond king Jeff Gundlach likened municipal bonds to subprime mortgage bonds on CNBC’s Strategy Session on Wednesday.

“You’ve got a history of low defaults, which is comforting. But that kind of sounds like what subprime sounded like back in 2006,” Gundlach said.

Gundlach said the markets for subprime bonds and municipal bonds are similar because the buyers are similar. Muni bond buyers aren’t seeking fundamentally good credit stories—they are buying for “technical reasons,” Gundlach said. This is exactly what happened with subprime

With subprime bonds, buyers were seeking highly-rated credit with very low default histories in order to satisfy regulatory bank capital requirements. They largely ignored deteriorating fundamentals, and continued to buy subprime mortgage-backed securities at a rapid clip even when the problems with the market were becoming apparent in the first half of 2007.

Muni bonds are bought for a different “technical reason”—the tax benefit—and buyers are once again ignoring deteriorating fundamentals. So are munis going the way of subprime?

“If by that you mean, lower, then yes. If you mean crashing, I’m agnostic on that,” he told David Faber.

Got that? Munis are headed lower. And he’s “agnostic” on whether or not they will crash. When one of the most important names in bond investing says he cannot tell whether or not an entire class of bonds will crash, there’s reason for investors to worry.

[Mar 12, 2011] Gundlach Sees Munis Dropping Another 15-20%, "By The Time All Muni Shoes Drop It Will Look Like Imelda Marcos' Closet" by Tyler Durden

Munis are now offering higher yields than U.S. Treasurys of comparable duration, which is the inverse of the usual relationship, says Dan Loughran, senior portfolio manager at OppenheimerFunds.
03/09/2011 | ZeroHedge

DoubleLine's Jeff Gundlach appeared on CNBC earlier, and among other things, the muni market was discussed. It appears that the fund manager whom many consider to be roughly in the same ballpark as Howard Marks when it comes to fixed income investing is very much in Meredith Whitney's camp when it comes to his outlook on muni market prospects.

Asked by Faber if he believes that munis are ultimately going the way subprime securities did, Gundlach responds "If by that you mean lower, the answer is yes. If you mean crashing, I am agnostic on that." And for all those who love taking out their actuarial tables and their historical default data to refute what is simply common sense, Gundlach has a few words as well:

 "I don't think you need to know what the default rates are going to be, or need to know how low low is, munis are going to go down. There are going to be other shoes to drop. There might be so many it looks like Imelda Marcos' closet when all the shoes drop because all the states have to deal with this stuff....

Between here and the endgame lies the valley and the valley is full of fear. And I think the muni market is going to go down by at least 15 to 20%. At least."

As for Kaminsky relentless advocacy of munis, this time coming out with the always disingenuous "hold to maturity" defense, Gundlach simply made a mockery of that whole spiel: "You know what the definition of an investor? It is a trader who is underwater. People say they hold to maturity until they get scared and sell. It gets scary when the prices start to drop. The fear factor here is going to be palpable."

This is probably the single smartest statement ever made on CNBC, where for once a guest actually replied with what is elsewhere known as common sense, instead of ivory tower economic theories that work everywhere but in the market (yes, stocks just like housing can only go up, until they can't). Aside from that cue the congressional subpoena.

.And while Gundlach is bearish on munis and pretty much everything else, with an S&P 500 target of 500 "if deflation wins", the ironic thing is that the one asset class he likes, noted in reference to the disclosure on Zero Hedge that PIMCO has sold everything, "now we know who's gonna buy them when the Treasury stops. PIMCO." Perhaps. But that will occur at least 100 basis point wide of here. Otherwise Gross would obviously not be selling into the recent drop.


by I am a Man I am... on Wed, 03/09/2011 - 15:13 #1033913

my muni bond portfolio was up this past month, anyone know how many defaults we've had this year?? anyone?? a decent muni is yielding a whopping 2.4%. this guy is clueless on the muni market

simon says
on Wed, 03/09/2011 - 15:46

Sorry TD, I don't buy it.  Letting quasi-sovereigns like Munis fail will undo the support that Treasuries and MBSs have received from the Fed.  The Fed/Treasury will support AAA Munis (and maybe lower) for sure - they will just take their time to blink - so maybe we will see rising yields, but no failure.  Will wreak havoc on inflation of course, but that's what real money is for.

on Wed, 03/09/2011 - 16:27

according to financial reporter Ellen Brown, all that has to happen is refinance with 6month or less maturity, and use tax's as collateral, and the Fed already has the mandate to buy local and state muni's, just not the political will.

on Wed, 03/09/2011 - 17:25

At first thought I assumed the Fed would jump in this muni market no problem. However, after further thought I realized that letting the munis blowup would be used as justification to expand the federal government(or at least state) and this is something that is a 100% lock goal at all times for TPTB. So ya, I believe Lockhart...they won't be saving the munis.


[Mar 10, 2011] The Oil Drum Is shale oil the answer to peak oil

March 4, 2011

Given that Libya is increasingly looking to be entering a stalemated civil war, we can forget most of their production for the next few years. And it was easy, light sweet quality oil.

This I think will be typical of the reaction to peak oil - political instability as the oil rich monarchies and dictatorships fail to keep their young, restive and rapidly growing and increasingly hungry and religiously radicalised populations under control.

Decline from the peak will not be a smooth geological curve. It will not be an economic event. It will be violent and explosive.

A lot of people will die.

The esteemed (by us) geologists and economists posting here will have all their predictions rapidly overtaken by events.

Selected Comments


I think one of the issues is that it is hard to get the price of uranium up high enough, long enough, to really go after additional supply.

The market is fully supplied; even lifting the embargo on India didn't budge prices much.

The USA has around 700,000 tons of depleted UF6 in inventory (over 470,000 tons of elemental U). That's not reserves, that's inventory left over from enrichment since the Manhattan project. There is also about 60,000 tons of uranium in spent fuel, mostly from LWRs. All uranium is feedstock for fast breeder reactors, and that inventory alone is sufficient to run the USA at ~100 quads/yr for several hundred years.

That's why the Integral Fast Reactor had to die: it would have killed fossil fuels and "green" energy with one stroke. It also requires about 1/10 the steel and concrete of sources like wind, making it more economical if political factors don't torpedo it.

the recent historical pattern is toward less electricity generated using uranium, rather than more. Many of the old reactors are nearing the ends of their lives, and countries are not taking steps to replace them.

That's politics. Uranium remains a bargain, energy-wise (and the major supply-side response to AGW).

You should know this, but you're in deep denial.

enemy of state:

fail to keep their young, restive and rapidly growing and increasingly hungry and religiously radicalised populations under control.

What I see happening with these revolutions makes me seriously question the "religiously radicalised" part. It looks like a secular driven revolt. Desire for democracy, a better distribution of opportunity, and above a need to feel respected seems to be the driving force. Outside of a few areas -especially Pakistan, and Afghanistan (not in MENA) these folks seems only mildly religious to me. I think the radical Islam thing was mainly a desperate attempt to find a way out, as other methods had had no success freeing these people. Now, they have examples of seemingly successful secular revolutions.

[I say seemingly, because chasing out the old regimes is the easy part, and as long as the current chaos continues the economies of these countries are slipping backwards.]

[Mar 07, 2011] Wisconsin Humor Fest

March 5, 2011 | naked capitalism

Ina Deaver:

My problem with the Stewart bit is that it would be funny if it weren’t so incredibly sad.l tho clips are saying “But it isn’t the same thing at all — the CEOs have private contracts, whereas the government is a party to the contracts it wants to eviscerate with teachers. And teachers – anyone can do that.”


Stewart is right, but it doesn’t matter. It turns Stewart’s fine satire and cutting edge reporting into a sad farce.

Wall Street, the GOP, the Tea Party, and Washington are greedy, horrible sociopaths. I can’t decide if they simply represent people or if they rose to those positions because they are sociopaths. The former is perhaps excessively cynical, but just look at every day behaviour as you drive or walk around your town or city.

I suppose Americans would rise up if they weren’t too fat and lazy!

[Mar 06, 2011] Blast from the past

I wade through hundreds of commentaries and news reports on a daily basis. Occasionally, I come across an article that really makes me stop and say: "Amen, brother." When that happens, I feel compelled to share it with Financial Armageddon readers (and anybody else who cares about what is going on in the world around us).

The latest example is a post entitled "Suppressing the Cognitive Dissonance of a Bogus Recovery," by Charles Hugh Smith, author of Survival+: Structuring Prosperity for Yourself and the Nation and publisher of the Of Two Minds blog, a long-time favorite of mine. I invite you to read through it and see if you don't agree with me that Charles' take on reality is a breath of fresh, unadulterated air:

Despite a 24/7 campaign of carefully managed "good news," 76% of Americans do not believe the U.S. "recovery." Hmm, I wonder why?

A massive outbreak of economic cognitive dissonance is being suppressed with wave after wave of manufactured "good news." Every visibly negative bit of data is run through a media and Central State assembly line to refashion it as "good news" and "evidence" that the "nascent recovery is taking hold." Whatever cannot be rejiggered is simply buried or suppressed.

The fact that five corporations control the the vast majority of the U.S. mainstream media certainly aids that manufacturing process.

Let's run through a few of the most blatant examples of suppressed dissonance:

1. If the economy is recovering so strongly ( +3% GDP growth in the first quarter!) then why are tax revenues down? Federal budget deficit hits April record: The April deficit soared to $82.7 billion. Total revenues for April were down 7.9 percent from a year ago. In the seven months of this year, corporate tax receipts are up 8.9% to $77.1 billion. The same cannot be said of individual income tax revenue, which is down 11.6% in the first seven months to $500.8 billion.

Through the first seven months of the current budget year, which began on Oct. 1, the deficit totals nearly $800 billion. That is down only slightly from last year's deficit during the same period of $802 billion. Revenues total $1.2 trillion in those seven months, down 4.5 percent from the same period last year.

How can tax revenues be falling when the economy is "growing strongly"? As for those corporate profits: corporate profits register biggest year-over-year gain in 25 years.

As this chart from the Federal Reserve shows, non-financial corporate profits were almost 14% of GDP before the global meltdown. In a $13 trillion economy, that's $1.8 trillion.

But much of the "good news" in Corporate America is not quite as rosy as presented.

2. Rising corporate profits mask falling sales. Consider Walmart's last report, which caused the financial media to quiver in ecstasy because the retailer logged a 10% increase in profits. But behind the hype, (profits rose $0.3 billion on $99 billion in sales, whoopie), Walmart same-store sales drop; gross margins decline.

You have to read to the very last line to get to the sobering reality: same-store sales dropped in the U.S. and gross margins declined. Both are bad news, yet you'd never know it from the lead paragraphs and talking heads.

3. Corporate profits are boosted with special charges and other accounting trickery. It takes a forensic accounting analysis of corporate filings to discern what's real and what's been juiced to boost quarterly "earnings."

Meanwhile, corporations are loading up on debt again: Junk bonds -- essentially risky bets on future corporate earnings -- made up the biggest share of corporate debt sales on record last year. That hardly suggests prudence on the part of the companies loading up on tens of billions of dollars of high-interest debt. Load the company with debt, goose profits, cash out the big bonuses and then let the balance sheet implode.

4. Much of global corporate America's earnings resulted from the weak dollar. Now that boost to the bottom line has largely vanished in the collapse of the euro.

Many of America's premiere global companies earn most of their revenue overseas. Equipment maker Eaton, for instance, gets 55% of its sales from outside the U.S. Global companies such as Coca-Cola not only reap most of their sales overseas-- they also depend on international growth to boost their profits.

As the U.S. dollar has risen 25% against the euro, the U.S. multinationals' plump profits (in dollars) will take a huge hit. Indeed, American multinationals such as Caterpiller have already seen their stocks pummeled as traders realize the dollar's rise will slice their profits.

Here's how the weak dollar boosted U.S. corporate profits. In mid-2008, when a U.S. company booked 100 euros in profit made overseas, that translated into $160 in profits when calculated in U.S. dollars. Now that same 100 euros in profit translates into $122—a huge reduction.

If that wasn't bad enough, our major trading partners are heading into epic slowdowns. As the wheels fall off the credit/housing bubble in China--the global engine for commodities and manufacturing--and the credit storm takes down Europe--the world's largest trading bloc--U.S. corporate sales and profits will suffer.

5. Income inequality has risen to 1929 levels. If times are indeed good, they're only good for the top 5% of households. The bottom 80% have seen their net worth and incomes decline. So much for "trickle-down" prosperity.

6. U.S. households remain mired in debt. U.S. households took on too much debt and the consequences are still unfolding: 14% of mortgages delinquent or in foreclosure. This is only the above-water part of the iceberg; banks are holding tens of thousands of loans out of foreclosure lest their insolvency become too obvious. Tens of thousands of homes are being hidden in the "shadow inventory" of homes which are in default but which are not listed for sale.

Resetting the mortgage payments down a few dollars will do nothing to change the massive over-indebtedness: Home-Loan Aid Proves Little Help For Those With Other Big Bills to Pay.

7. Another wave of mortgage resets has yet to hit--housing's bogus "recovery" will dissolve like a sand castle in a tsunami.

8. The U.S. banking system is still rotten to the core. The list of ills in the U.S. banking industry is long indeed, but perhaps one fact reveals how little has been changed in the past few years of turmoil: U.S. commercial banks (not investment banks) generated a record $22.6 billion in derivatives trading revenues in 2009 -- the same year that the Federal Reserve spent trillions of dollars to prop up the U.S. mortgage market and the banking sector.

While massive Federal intervention staved off systemic insolvency last year, many U.S. banks remain effectively insolvent.

9. The U.S. trade imbalance is growing again. Though imports fell in the recession, imports rose 18% from the second quarter of 2009 to the fourth quarter.

Ultimately, the trade deficit adds to the nation's indebtedness. Though the trade deficit has dropped from the 2006 peak at $800 billion, it is still on track to reach $500 billion in 2010.

10. Economic "intelligence" is essentially propaganda. Despite the daily flood of financial and economic data, pundits, government agencies and forecasters were caught off-guard by the subprime mortgage crisis, the resulting banking crisis and now once again by the European banking storm and sovereign debt crisis.

[Mar 07, 2011] Breakfast_with_Dave_2011_03_02

liquidity-induced rallies are never sustained if the macro fundamentals don’t follow suit.
Equity markets overseas are down considerably as the realization of what $100 oil is likely to do to purchasing power at the consumer level and profit margins at the producer level. The U.S. dollar is still soft and gold is consolidating after yesterday’s surge to new record highs.

Treasuries are surprisingly not benefiting from the slide in equities though there is a modestly positive tone in European debt markets and a nice 5bps rally in Japanese government bonds back down to 1.25% (didn’t Japan just get downgraded recently … twice??).

It is still testament to the greed factor that according to the just-released Investors Intelligence survey, we still have over 50% bulls and less than 20% bears populating the poll universe. Yikes!

... ... ...


Even with a (spurious) rebound in residential outlays that was largely skewed by a surge in multi-family housing starts, total U.S. construction spending sagged 0.7% MoM in January on top of a 1.6% slide the month before. Non-residential expenditures tumbled 3.3% sequentially and are down now in each of the past four months. Between that, real consumer spending and capex shipments, we may well begin to see all those 4% GDP growth forecasts for Q1 end up being cut in half!


Too bad the ISM index doesn’t feed right into GDP. The economy would be booming. The ISM manufacturing index did come in better than expected in February but rarely has such a strong number in the past been so well advertised. The diffusion index ticked up to 61.4, which is the highest print since May 2004 (the peak for the cycle, but …. the bulls would tell you that still meant another 3-plus years of economic growth and a bull market mania), not to mention up seven months in a row. That is a streak and nothing in the components suggested any near-term giveback.

New orders edged up to 68.0 from 67.8 while inventories were run down to 48.8 from 52.4 in January. So what this in turn did was kick the orders-to-inventories ratio higher for the third month in a row, to 1.39x from 1.29x — the best print since January 2010, and if you recall, that led the headline index to a new interim high three months hence.

Most components posted gains, including the jobs sub-index, which was in contrast to most of the regional manufacturing indicators. It jumped to 64.5 from 61.7 in what was the fastest advance since January 1973— when factory payrolls rose a hefty 0.65% (which would translate into +75,000 today!). The other 10 times that the employment index was this strong or stronger was in the 1950s, and factory payroll rose an average of 1.2% (which would equate to +130,000!).


Only time will tell if yesterday’s market action was a true watershed. It was the first time since last July that the stock market was down on the first day of the month. Till yesterday, the opening days in January and February had already accounted for over half the year-to-date gains in the S&P 500 (over 90% last year).

It was also the first time since the last leg of the bear market rally began six months ago that “good” news failed to ignite equity prices. Yesterday we saw auto sales shoot up 6.7% to 13.4 million units (at an annual rate) which was the best level since August 2009, and we also saw the ISM inch higher to 61.4 from 60.8 with the “internals” of the report just as solid as the headline. This is likely a sign that Mr. Market had already paid up for these nice tidings. Recall that last September the data were still looking iffy, and it was not clear that double-dip risks had totally faded, but the stock market ripped in any event. That was a mirror image sign that at the time, all the “bad” news was priced in.

We also have a situation where economists are now taking down their GDP numbers after four months of raising them. Analysts have stopped raising their EPS forecasts. Corporate guidance has been spotty at best, and we have corporate insiders selling their stock at 10x the rate they are buying it. Not an encouraging signpost at all. The short interest is flirting with three-year lows so the absence of any short-covering as the market retreats could end up making price declines more intense than normal. So far, a big market decline has been averted because the “buy the dip” mentality is so well ingrained, but dangerous at the same time. The widespread view that $100 oil will only cause a ripple in the global economic outlook is equally dangerous.

The complexion of the FX market has also changed materially. The U.S. dollar, always a safe-haven in troubling times as it was in the aftermath of the global credit collapse and periodically last year amid the European debt fiasco, is no longer playing that traditional role during this latest round of turmoil overseas. Gold, silver, the yen and the Swiss franc have emerged as the safe-havens this time around. Could be a sign of the U.S. dollar losing its allure as the place to go when the going gets tough and no doubt spur talk as to whether the reserve currency status will ultimately be relinquished.

The weak performance of the U.S. dollar would certainly seem to reflect, at a certain level, a lack of confidence over U.S. policy making. Nothing in Ben Bernanke’s sermon yesterday should alter that view, especially his dismissive response to the Fed’s role in fuelling the surge in the commodity complex since last summer. He claims that since commodity prices have risen in all currency terms, hence this is not a weak-dollar story. To us, this misses the point. The Fed’s stated intent was to encourage risk-taking behaviour with QE2. He even mentioned the Russell 2000 on CNBC recently. Well, emerging equities have a tight correlation with small cap stocks, and by igniting a huge rally in those markets, their economies boomed from the hot money investment flows. And since it is this part of the world that is the marginal buyer of raw material, it is little wonder why the supply-demand balance for commodities was thrown further off kilter by the Fed’s quantitative easing.

Ben Bernanke said his concern was that inflation had fallen last summer to uncomfortable levels. So the main aim was to reflate and the stated goal was a wealth effect on spending. But only 20% of Americans own equities directly. And the inflation that the Fed has helped generate are in necessities, which is why in real terms, wages are either stagnating or contracting outright. If we hadn’t had a strong price deflator in January, consumer spending would have also been up in real terms, not down.

No doubt we will get a nice cushion for February spending out of auto sales — an antidote to what seems to be a lacklustre chain store sales. But even with incentives running wild, auto sales are still nowhere near the 16-18 million unit pre-credit-bubble norm. This is about as good as it will get, even with the subprime market for auto loans staging a revival.

Two more items from Ben Bernanke’s testimony that investors may want to pay attention to:

“... downside risks to the recovery have receded, and the risk of deflation has become negligible.”

These are not the words of someone about to embark on QE3. This could be important for a market that has had an 86% correlation with movements in the Fed’s balance sheet over the past two years.

“Until we see a sustained period of stronger job creation, we cannot consider the recovery to be truly established.”

Something else for investors to consider. How sustainable is a two-year 100% rally in equity prices if the economic recovery itself isn’t sustainable? This is what we have said all along — the U.S. economy is much more fragile than is commonly believed, and liquidity-induced rallies are never sustained if the macro fundamentals don’t follow suit.

[Mar 06, 2011] What Does Oil Doubling in 2 Years Mean

March 4th, 2011 | The Big Picture

Ted Kavadas:

Of course, oil is not the only commodity rising sharply. Many, if not most, are.

IMHO, there are various aspects of this “inflationary episode” that are particularly dangerous. One aspect is the growth rate disparity as seen, among other measures, in the “prices paid” vs. “prices received.”

For those interested, I recently wrote a blog post on the issue – it can be found at this link:

Guest Post Head of World’s Largest Asset Manager Says “Markets Like Totalitarian Governments”

March 4, 2011 | naked capitalism


Except that the two total revolutions in history, France and Russia in the end just exchanged who was in the Elite. In France they chopped off the heads of the old elite and Napolean and his crew came in, then after Waterloo the remnants of the old elite came back, along with some of the Napoleanic elite. In Russia they killed the old elite or exiled them, and a new elite arose that in the end was no better than the old one. Things never get better, never have never will elites are always going to be with us and will always only care for their interests. Any other point of view requires smoking something to maintain.


“Except that the two total revolutions in history, France and Russia in the end just exchanged who was in the Elite. “

The same is true for the evolution of mankind from Rome till present days. In each country the elite (which less politically correct is called oligarchy) dominates the political process and if one elite is weakened, the other take its place. In this sense, unfortunately, democracy is just a nice myth. It exists exclusively within the narrow social strata called elite (or top 1%).

So the real question is how strong is the grip of the elite and here large historic variations are possible. I would prefer the US oligarchy to the USSR oligarchy any day.

Another question is how isolated and self-sustained is the elite (social mobility issues). While people mistakenly assume that the USA have substantial vertical mobility, it does has slightly more vertical mobility then say, Great Britain, but definitely less then modern Russia (which substantially changed the composition of the elite after the dissolution of the USSR). It’s funny but in this sense Russia is one of the most democratic counties in the world which manage substantially change its elite twice in one century. Sadly this statement will not be approved by Hilary Clinton or Barack Obama :-)

Human societies have almost infinite capacity for self-delusion.


Both the French and Russian revolutions made material improvements in many people’s lives. Of course, lots of bad stuff happened too, but I don’t think you have to be on drugs to think that in both cases there was some improvement overall.


Thank you for the constructive comments Lyle and Kievite – excuse me for feeling you are unnecessarily pessimistic.

The French Revolution offers a good example of what I suspect is the best way of protecting the social contract. To be sure it was nearly destroyed by the neighbours until Napoleon stepped-in, but, once that happened, it worked very well and we are still living with the consequences of his initiatives. He described his government as “a dictatorship over a vast democracy.’

I know little of the Russian Revolution and cannot comment beyond noting that the errors of Marx have been absurdly overstated and there remains an immense amount of reliable analysis in his work.

Independence in USA was followed by at least 30 years of responsible government until we Poms destroyed it in 1812. There is a mass of insightful information there to guide us as well.

The British Revolution in 1688 is irrelevant as it was like the Egyptian one we are witnessing now – one power centre replacing another – which is the point Lyle percipiently makes in respect of Russia too.

So I focus on France and USA two centuries ago and I am confident that this time our efforts will be successful because of our technological development. The internet has changed the rules. Concealment is no longer an option. Power centers will have to confront publicity for their acts. They will never voluntarily express contrition or shame – they will try to justify the unjustifiable. That’s only one step from their complete failure.



Read this about internet manipulation. Realize John Rendon
of “Rendon Group” admitted in the article on the Bushit lies to drive internationally illegal invasion of Iraq, that, “The NEXT time we will have total control of propaganda=information..this time we didn’t”.

Rendon is referring to recent advent of CIA and FBI huge computer mega-facilities whereby “information warriors” will
come on forums such as this to contradict information.

The internet is devolving as we speak. There is a fundamentalist argument over whether truth even exists, outside the hallowed “individual”.

While most here on this forum are incredibly economically aware, I am not sure whether they are prepared by their education to comprehend Socratesian dialogue on truth in these debates. Having debated Jonah Goldberg on his ridiculous stance on “truth”, it does require enough background to remind opposition that even THEIR claims are subject to the test of truth.

Point is, it’s about to get a lot muddier, deeper…

Here’s the article in which Rendon makes his claim:

What a great headline. GW strikes again.

I could be wrong (I can’t find my link), but I believe it was the take-no-prisoners capitalista David Rubenstein, founder of the ruthless Carlyle Group, that said investing in China was a very smart play because China’s preference for state central planning — and 5 year plans — added a great deal of stability to the outsider’s risk equation.

It’s all such a joke, isn’t it? It would be hilarious if it wasn’t so tragic.

Daily watching fraudulent banksters and psychotic gamblers insidiously chatting with obsequious CNBC hosts; listening to Republican free-market poseurs professing their love for small businesses and jobs when they’re actually out to destroy both in the name of Global Corporatism; witnessing a torrent of Liberterians nut jobs — that believe anarchy and apartheid are not only compatible but the perfect symbiotic representation of the ideal society — descend on us like a Biblical plague; and especially knowing that Barrack “Probably Our Last Chance” Obama put the same people in charge of the economy that had just blown up the economy; the only conclusion I can draw is I will never see sanity restored to my corner of the world* in my lifetime.

* I consider America my corner of the world, for better or worse.

Alternatively, the elite was always in charge economically but they have shifted from a pattern that worked better for a lot of (1st world) people (high growth rate; lower percentage of elite taking) to a pattern that works worse for especially 1st world people (lower growth rate; less left over for the serfs).

Actually I think it is some of both. The technological changes of recent decades and the expanded trade possibilities of Pax Americana have disproportionally benefited the elite. Reduced racism and sexism have also left less extraordinary talent among the serfs to organize a rebellion. And academia, which once produced ideas useful for us serfs, has been incorporated as the R&D wing of corporate rule.

“Who doesn’t like totalitarian governments?”

Err, any bondholder who wants their debt repaid. In international law, there’s a jagged little pill called “odious debts”.

a legal theory which holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are thus considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion. beowulf:

More on odious debt, nice to see Washington and London are on board. :o)

The United States set the first precedent of odious debt when it seized control of Cuba from Spain. Spain insisted that Cuba repay the loans made to them by Spain. The U.S. repudiated (refused to pay) that debt, arguing that the debt was imposed on Cuba by force of arms and served Spain’s interest rather than Cuba’s, and that the debt therefore ought not be repaid. This precedent was upheld by international law in Great Britain v. Costa Rica (1923) when money was put to use for illegitimate purposes with full knowledge of the lending institution; the resulting debt was annulled

[Mar 03, 2011] Even Tea Party Members Do Not Support Cutting Social Security

March 2, 2011 | naked capitalism



David Stockman’s The Triumph of Politics was his memoir of watching Reagan’s handlers create a deficit by cutting the taxes of the rich and inflating military spending, then using the deficit as the excuse for cutting social programs. Aren’t we seeing the same game again? Or is that the “extremist” point of view?

The “deficit-conscious” are either the con artists or the marks.


Then again, I *am* deficit conscious. But, I want to solve it by increasing taxes on the wealthy and by cutting the war budget.

ohioralph :

If you cut the war budget, there would be no need to raise taxes. In fact, reducing our “national security” would enhance the argument for “cutting” social security.

Please see this link which identifies our $1.2 TRILLION “national security budget” Ninety percent(90%) cut anyone.

Paul Tioxon:

The other obvious reason why a super majority of Americans do not want politicians or anyone else to touch Social Security, under pain of death, real and political, there is the practical matter of the pay stub. If undereducated and below average, average Americans pay attention to anything, it is the paycheck. On it, broken out as clear as can be, are all of the taxes you pay and the other item that is not a tax, but a contribution, FICA. There is almost no one who does not ask the question, what the hell happened to my paycheck? It is usually explained by the old heads who know that while you may beat down the federal income tax and get a refund, FICA, is your future Social Security check from the government when you retire. They also know a great deal about other benefits associated with it, including disability. So, while it may come as news to the econometric crowd, and all of the Ivy Leaguers, stock brokers and other wise masters of the universe that there is some political convergence around SSI that may seem anomalous, it is not. Many of the people may be fooled most of the time about a lot of issues, but this is not one of them.

Just as the banking system has collapsed 3 times in the last 75 years, Social Security has never missed a payment in all of that time due to being a ticking time bomb, broke, insolvent, or demographically unsustainable. It has more credibility, more support and less need for calculus than NASA.


I am by no means fully informed, but I have done a little research. I have a pension from my employer that will pay me $500 a month starting in August, OR I could take a lump sum of $105,000. This lump sum is in the ballpark of what it would cost me for an annuity with a payout similar to my pension. It just so happens that my total FICA contributions including my employer contributions total almost 300,000. The SSA projects that my SS payment will be about $1500 a month which is what $300k in an annuity would get me or in the ballpark.


The thing that always bothers me about Social Security reform discussions is that they always talk about raising the retirement age as the “only solution” to making Social Security solvent for the long haul.

Nobody ever suggests that we just treat Social Security like a welfare program for the elderly. That’s essentially what it is, we just need to admit it. I don’t understand why people who have ample retirement income and/or pensions get Social Security at all. If we treated Social Security like welfare and only gave it to people over 65 who actually needed it, there wouldn’t be a solvency problem.

The argument against this would obviously be… “I paid into the system, I want my money back when I get old”. The response is that there are hundreds (if not thousands) of other programs that our tax money funds that the average person never “gets back”. It’s just the cost of living in a society that provides assistance and safety nets for the less fortunate. I may not use any of these programs, but I’d like to know that they’ll be there if I ever do need them.


Well, some people may not “need” their Social Security payments, but one reason the program works is that it has low overhead. Adding a means test would cost more than it would save. It’s simply more cost-effective to continue the current system, which doesn’t require expensive people to make decisions which must then be appealed to more expensive people.

I’m quoting from memory, so my details may be a little bit off, but in “The Predator State”, Jamie Galbraith pointed out that Social Security is a “significant” part of their retirement income for 65% of elderly people, and the ONLY retirement income for 20%. It is a bad, bad mistake to mess with it.

Michael Haley:

This is no news, the Tea Party has been against cuts to Medicare from the beginning. They are also against cuts to defense, and as mentioned social security. This is the main reason they are in such an untenable position, because when you combine that with being against any tax increases yet demand big cuts in spending, where do you go?

I think we have to cut health care costs, and Obama’s plan does not do that, at least enough, if at all. If we cut health care costs Medicare will come down.

Neither party wants to talk about it, which is also the dilemma for the budget. I think it is a mistake to say to the Democrats that they can use Republican efforts to cut medicare or social security against them, this shouldn’t be turned into a political football. We need to deal with this.


Fixing rising medical costs is the only solution. If we just cut or scale back Medicare/Medicaid without solving the rising medical costs issues, we’re going to have an awful lot of angry people who are being bankrupted by medical care, aren’t getting medical treatment they need, or are watching loved ones die for lack of money. That’s not a stable long-term situation.


Bruce Krasting said: “This is not a popularity contest. It is about economics.”

You’re stuck in the early 19th century, reciting the same old hackneyed talking points that the kleptocrats have used for over 200 years. And they’re just as big a fiction now as they were then.

Maybe this from Robert L. Heilbroner’s book The Worldly Philosophers will help us to see through the klepm Smith, Malthus, and Ricardo elaborated the laws of economic distribution. These laws seemed to explain not only how the produce of society tended to be distributed but how it should be distributed. The laws showed that profits were evened out and controlled by competition, that wages were always under pressure from population, and that rent accrued to the landlord as society expanded. And that was that. One might not necessarily like the result, but it was apparent that this result was the natural outcome of society’s dynamics: there was no personal ill will involved nor any personal manipulation. Economic laws were like the laws of gravitation, and it seemed as nonsensical to challenge one as the other. Hence a primer of elementary economic principles said: “A hundred years ago only savants could fathom them [economic laws]. Today they are commonplaces of the nursery, and the only really difficulty is their too great simplicity.”

Aunt Deb:

I work for my state’s Elderinfo office. I meet many of those people Procopius mentioned above, the people for whom Social Security means they can have a relatively independent old age. I have friends who work with people who receive Social Security disability income and Social Security supplemental income. These programs are vital to many Americans and I think if Social Security were changed significantly from its current form, we would discover that the number of people in poverty would increase rapidly.

My practical experience makes me think that Social Security is a program that achieves its goals. I don’t see any reason to tamper with this program other than to insure it can continue to function as it does now on into the future.

My experience with Medicare, however, has led me to conclude that there are serious problems that need to be clearly understood and dealt with, the quicker the better. Among those problems are the payment schedule which is in the hands of the RUC and Congress, a very bad cost-controlling situation; the absurd semi-privatized Medicare Advantage sector; the opaque and expensive “medigap” industry; the truly incomprehensible Medicare D semi-privatized prescription drug coverage. I would very much like to see these addressed.


ya know it upset me when Matt taibbi called the teabaggers idiots. Yes they are and they are racists, but we need them. Social Security would be a perfect cause for all of us to come together to fight the oligarchs with. Right now, breaking the oligarch hold on our country should be priority number 1.


Using the lexicon of Nietzsche, I would say most Tea Partiers are active nihilists.
“Active nihilism…is not content to be extinguished passively but wants to extinguish everything that is aimless and meaningless in a blind rage,” is how Michael Allen Gillespie explains Nietzsche’s philosophy in Nihilism Before Nietzsche; “it is a lust for destruction that purifies humanity.” It is “driven by the spirit of revenge or by resentment.”

While Nietzsche didn’t believe active nihilism was something “affirmative and healthy,” he nevertheless held it in much higher regard than what he did passive nihilism.

Passive nihilism is the “doctrine of resignation,” the “will to nothingness.” Passive nihilists don’t want to go out “with a bang” like the active nihilists, “but with a whimper.”

[Mar 03, 2011] The Effect of Middle East Collapse


All told, those countries had oil production of 16.61 million barrels/day in 2010, 56% of total OPEC oil production. Add in natural gas liquids, and together they represented 22.7% of total world hydrocarbons production, according to the International Energy Agency

In the short term, battles in the streets in a country could cut off its oil production altogether. In the longer term, revolutions in these countries are likely to be fairly short in duration, and confined mostly to the cities, although if Libya’s Muammar Gaddafi starts a fashion of blowing up oil pipelines we may have to recalibrate this calculation. The new governments are almost certain to be anti-Western, anti-capitalist and economically incompetent – like the post-1979 clerical regime in Iran, for example.
To calculate the short-term (up to 24 months, before long-term demand adjustments can be made or significant new supplies can appear) demand elasticity of oil, we now have an excellent control experiment, in the events of 2007-08. Between the summer of 2007 (April – September) and the summer of 2008 the U.S. economy expanded marginally, by 0.45% in real terms. The average global oil price increased by 70% between those two half-years, from $68.43 to $116.34. On the other hand, U.S. oil demand declined by 3.54%, from 20.902 million barrels/day to 20.163 million. If we assume that, given flat prices, demand would have increased by the same 0.45% as the overall economy, then the 70% price increase caused a demand drop of 3.99%, say 4% -- a demand elasticity of 4/70.

Given that elasticity, to make demand drop sufficiently to absorb an 11.4% fall in supply would require a price increase of almost exactly 200%. In other words, oil prices would have to treble from the current $100 per barrel to $300 per barrel. The U.S. gasoline price would increase from its current $3.19 per gallon average to $9.57 per gallon.

Guest Post: Bernanke’s Unstoppable, Self Reinforcing Feedback-Loop by Davos Sherman Okst


Bernanke’s Unstoppable, Self Reinforcing Feedback-Loop

Our economic death spiral into the Second Great Depression . Wracked up by both parties over many decades our debt has evolved into a yearly deficit that can no longer be serviced with tax revenue and borrowing. To avoid default Ben Bernanke chose to monetize the un-payable portion of our deficit. Each month about 100 billion dollars are created out of thin air to cover our government’s bills.

This has set forth an unstoppable, self reinforcing, feedback-loop whereby:

  1. Debt monetization (printing money out of thin air to cover the portion of governments spending not satisfied by tax revenue and borrowing) reduces the value of the dollar.
  2. The debt monetization triggers dollars to flow out of bonds and into commodities.
  3. This increases demand, commodity prices rise.
  4. As commodities make their way into the supply chains businesses and consumers realize higher prices.
  5. Since globalization has caused wages to stagnate at 1970 levels, and with 23% unemployment, businesses try to eat increases, this in turn reduces hiring, causes layoffs and kills expansion.
  6. Consumers reduce their purchases, case in point: Wal-Mart is losing market share to the Dollar Store - that right there spells retail health (read: it’s terminal).
  7. Nations whose citizens spend 32%-52% of their entire budget on food are especially affected.
  8. In those nations where citizens spend 32%-52% of total their income on food; food riots erupt, social unrest breaks out, governments topple.
  9. Geographically speaking, many of these nations are in the Middle East where about a third of the world's oil supply comes from - so oil production is adversely affected, the price of oil increases. Drastically increases. The empire must then send in troops and warships to protect oil assets from being wiped off the map.
  10. Oil is an integral part of everything from farming to manufacturing to transportation, therfore the prices of all goods and services rise.
  11. This of course creates more stress on our economy, which drives tax revenues down, whic creates a greater deficit, which causes idiot Ben to lean on the print button and monetize even more debt.
  12. Like an infinite loop in some errant computer code we go back to #1 above and iterate back through this unstoppable, self reinforcing, negatively-insane-Ben Bernanke-code that we call a negative self reinforcing feedback loop.


[Mar 03, 2011] Ian Fraser Lloyds – Enron Redux

March 1, 2011 | naked capitalism

Tertium Squid:

I think the book’s worth it. I also saw the movie first – it’s a pretty fast condensation and favors videotaped statements by the principals that are ironic in hindsight.

The movie has weaknesses that don’t appear in the book. The condensation rather gives the idea that most of Enron’s problems appeared near the end; the book makes it clear that the blow-up was no quick thing, and was years in the making. Some of their favorite tricks and frauds had gone on for a very long time.

If memory serves, the movie also kind of gave the idea that these guys were criminal masterminds, but the book disabuses that notion. They weren’t that self-aware until right before the very end. They believed their own lies.

Another thing I appreciated about the book is that it gave a glimpse into the perverse advantages of securitization, and how they could be used to blow up the world economy a decade later.

Here’s how I described the book on my blog:

“Saw the movie of the same title but hadn’t read the book; if anything this 400 page book is even more accesible than the film – almost to a fault. The authors are excessively conversational, and don’t show much faith in their reader’s understanding. I wonder if they imagined their words being read aloud at a Wal-Mart and wrote accordingly.”

Oh, and I pointed out that Fastow was CFO because that matters a lot to the narrative. Lay and Skilling tried to skate by pinning all the blame on a loose-cannon CFO, but criminal investigation (and journalistic efforts like the book we are describing) make it clear how pervasive the fraud and chicanery was.

John Emerson

Every once in awhile I say this, always to now avail as far as I know:

Sometimes you want to think inside the box. Some visionaries are crooks, and others are delusionary. Sometimes the “impossible dream” really IS impossible. Sometimes what they say “can’t be done” really CAN’T be done. Some authorities deserve respect.

Optimism can be poison, especially canned media optimism. The opposite of optimism is not necessarily pessimism (though pessimism and nay-saying are my own specialties: there’s nothing wrong with cursing the darkness). It can just be realism, or good sense, or paying attention or the simple absence of mania.

There’s all that stuff out there which is sold as liberating by people who really believe in their product, and which is sold as new and bold and exciting by people who really believe in their product, but which is really just the same old thing that hundreds of other people have said over the last 10, 20, or 50 years. Hopefully the target suckers will figure this out someday.



Groupthink : Two Party System as Polyarchy : Corruption of Regulators : Bureaucracies : Understanding Micromanagers and Control Freaks : Toxic Managers :   Harvard Mafia : Diplomatic Communication : Surviving a Bad Performance Review : Insufficient Retirement Funds as Immanent Problem of Neoliberal Regime : PseudoScience : Who Rules America : Neoliberalism  : The Iron Law of Oligarchy : Libertarian Philosophy


War and Peace : Skeptical Finance : John Kenneth Galbraith :Talleyrand : Oscar Wilde : Otto Von Bismarck : Keynes : George Carlin : Skeptics : Propaganda  : SE quotes : Language Design and Programming Quotes : Random IT-related quotesSomerset Maugham : Marcus Aurelius : Kurt Vonnegut : Eric Hoffer : Winston Churchill : Napoleon Bonaparte : Ambrose BierceBernard Shaw : Mark Twain Quotes


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


Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds  : Larry Wall  : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOSProgramming Languages History : PL/1 : Simula 67 : C : History of GCC developmentScripting Languages : Perl history   : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

Classic books:

The Peter Principle : Parkinson Law : 1984 : The Mythical Man-MonthHow to Solve It by George Polya : The Art of Computer Programming : The Elements of Programming Style : The Unix Hater’s Handbook : The Jargon file : The True Believer : Programming Pearls : The Good Soldier Svejk : The Power Elite

Most popular humor pages:

Manifest of the Softpanorama IT Slacker Society : Ten Commandments of the IT Slackers Society : Computer Humor Collection : BSD Logo Story : The Cuckoo's Egg : IT Slang : C++ Humor : ARE YOU A BBS ADDICT? : The Perl Purity Test : Object oriented programmers of all nations : Financial Humor : Financial Humor Bulletin, 2008 : Financial Humor Bulletin, 2010 : The Most Comprehensive Collection of Editor-related Humor : Programming Language Humor : Goldman Sachs related humor : Greenspan humor : C Humor : Scripting Humor : Real Programmers Humor : Web Humor : GPL-related Humor : OFM Humor : Politically Incorrect Humor : IDS Humor : "Linux Sucks" Humor : Russian Musical Humor : Best Russian Programmer Humor : Microsoft plans to buy Catholic Church : Richard Stallman Related Humor : Admin Humor : Perl-related Humor : Linus Torvalds Related humor : PseudoScience Related Humor : Networking Humor : Shell Humor : Financial Humor Bulletin, 2011 : Financial Humor Bulletin, 2012 : Financial Humor Bulletin, 2013 : Java Humor : Software Engineering Humor : Sun Solaris Related Humor : Education Humor : IBM Humor : Assembler-related Humor : VIM Humor : Computer Viruses Humor : Bright tomorrow is rescheduled to a day after tomorrow : Classic Computer Humor

The Last but not Least

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Last modified: September 12, 2017