Softpanorama
May the source be with you, but remember the KISS principle ;-)

Contents Bulletin Scripting in shell and Perl Network troubleshooting History Humor

Casino Capitalism: Neoliberalism in Western countries

"When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done"

John Maynard Keynes

PseudoScience > Who Rules America > Neoliberalism

News Neoliberalism Recommended Links Neoclassical Pseudo Theories and Crooked and Bought Economists as Fifth Column of Financial Oligarchy Peak Cheap Energy and Oil Price Slump Regulatory Capture & Corruption of regulators Neocolonialism as Financial Imperialism
Ayn Rand and Objectivism Cult Energy returned on energy invested (EROEI) The Systemic Instability of Financial Institutions In Goldman Sachs we trust Number racket GDP as a false measure of a country economic output Neoliberalism as a Cause of Structural Unemployment in the USA
Neoliberalism and rising inequality Secular Stagnation  Efficient Market Hypothesis Redistribution of wealth up as the essence of neoliberalism Supply side Voodoo Rational expectations scam Monetarism fiasco
Twelve apostles of deregulation Summers Greenspan Rubin Reagan Helicopter Ben: Arsonist Turned into Firefighter Bush II
Chicago school of deification of market Free Market Fundamentalism Free Market Newspeak as opium for regulators The Idea of Dynamic Stochastic General Equilibrium CDS -- weapons of mass financial destruction Phil Gramm Clinton
Zombie state of neoliberalism Insider Trading SEC corruption Fed corruption Systemic Fraud under Clinton-Bush Regime Wall Street Propaganda Machine American Exceptionalism
Pseudo Theories and Crooked and Bought Theorists Glass-Steagall repeal Pope Francis on danger of neoliberalism Fiat money, gold and petrodollar Neoliberalism as a Cause of Structural Unemployment in the USA Buyout Kleptocrats Republican Economic Policy
Principal-agent problem Quiet coup Pecora commission History of Casino Capitalism Casino Capitalism Dictionary :-) Humor Etc
Sine ira et studio

Tacitus, see Wikipedia


Alternatively, we could have spent more time studying the work of Hyman Minsky. We could also have considered the possibility that, just as Keynes’s ideas were tested to destruction in the 1950s, 1960s and 1970s, Milton Friedman’s ideas might suffer a similar fate in the 1980s, 1990s and 2000s. All gods fail, if one believes too much. Keynes said, of course, that "practical men … are usually the slaves of some defunct economist". So, of course, are economists, even if the defunct economists are sometimes still alive.

Martin Wolf

Speculation and gambling were always a part of Wall Street but since the 1930’s they were just a side-show, now they are the show.

comment to Matt Taibbi article Fannie, Freddie, and the New Red and Blue t

Introduction

History

The concept of Quite Coup

Stages of transformation

Casino Capitalism as a result of stagnation of industrial manufacturing

Casino Capitalism and Financial Instability

The Ideology of Casino Capitalism

Early Researchers of Casino Capitalism

Conclusions: From Animal Farm To Animal House


Introduction

“The sense of responsibility in the financial community
for the community as a whole is not small. It is nearly nil.”

-- John Kenneth Galbraith, The Great Crash of 1929

The term Casino Capitalism as a specific phase of neoliberal transformation of capitalism. Politically it was slow motion corporate coup d'état, which started in 70th and is now accomplished in the USA and other Western countries which buries social-democratic (New Deal style) model of capitalism.  It stresses police functions of state (in the form of national-security state)  while completely avoiding economic sphere in ways other then enforcer of laws. In this sense it is the opposite of communism (i.e. an entirely state-planned economy) and presupposed extremely deregulated economy. It is also called economic liberalism or neoliberalism

“Liberalism” can refer to political, economic, or even religious ideas. In the U.S. political liberalism has been a strategy to prevent social conflict. It is presented to poor and working people as progressive compared to conservative or Right wing. Economic liberalism is different. Conservative politicians who say they hate “liberals” — meaning the political type — have no real problem with economic liberalism, including neoliberalism.

In other words this is a variant of neoliberal model of corporatism used in wealthy Western countries during the period of "cheap hydrocarbons".  The period that is probably near the end and which by some estimate can last only another 50 years or so.  The major crisis of casino capitalism in 2008 was connected both with financial excesses (caused by moving to semi-criminal ways of extracting return on capital, typical for casino capitalism),  but also with the rise of the price of oil and decrease of  Energy returned on energy invested (EROEI)In this sense the current low oil price period that started in late 2014 can be viewed as the "last hurrah" of the casino capitalism.

The term itself was coined by Susan Strange who used it as a title of her book Casino Capitalism published in 1986. She was one of the first who realized that

  1. "The roots of the world's economic disorder are monetary and financial";
  2. "The disorder has not come about by accident, but has in fact been nurtured and encouraged by a series of government decisions." (p. 60). In other words its was a counter-revolution of the part of ruling elite that lost its influence in 30th (dismantling New Deal from above in the USA (Reaganomics) or Thatcherism in the GB).

According to Susan Strange transformation of industrial capitalism into neoliberal capitalism ("casino capitalism") involved five trends. All of them increased the systemic instability of the system and the level of political corruption:

  1. Innovations in the way in which financial markets work due to introduction of computers;
  2. The sheer size of markets;
  3. Commercial banks turned into investment banks;
  4. The emergence of Asian nations as large players;
  5. The shift to self-regulation by banks (pp.9-10).

Now it is pretty much established fact that the conversion from "industrial capitalism" to neoliberal "casino capitalism" is the natural logic of development of capitalism. In early and incomplete matter this trend was noticed earlier by many thinkers. So, in a way, replacement of industrial capitalism with financial capitalism was immanent and corruption was contributing, but not decisive factor.  The same is true about globalization, especially about globalization of financial flows, typical for casino capitalism.

Also this conversion did not happen due to lack of oversight or as a folly. it was couscous or subornation choices made by the elite, which faced deterioration of rates of return on capital. Also unlike "industrial capitalism" which was more-or-less stable system, able to outcompete the neo-theocratic system of the USSR, the financial capitalism is unstable in the same sense as radioactive elements are unstable.  And this instability tend to increase with time. So there is probably natural half-life period for neoliberalism as a social system. It might be already reached in 2008.  In we assume that global victory of neoliberalism happened in 1990. It is just 18 years.

The golbal crisis of neoliberal capitalism which started from bursting the USA subprime housing bubble in 2008 undermined ideological legitimacy of its central claim that "free markets" lead to faster and more uniform economic development of all countries. While the peak of its power might be over, it will exist in zombie state due to economic and military power of the USA and G7. And as we know from Hollywood films, zombies can be especially bloodthirsty. It probably will remain the dominant force for at least the next two decades with the policy of "forceful" opening of energy rich countries for western multinationals intact. But as Napoleon quipped "You can do anything with bayonets, you just can't sit on them".

Conversion to neoliberal capitalism was a reaction on stagnation of industrial production and as such it was nurtured and encouraged by a series of government decisions for the last 50 years. Stagnation of industrial production made expansion of financial sector of paramount importance for the ruling elite and by extension for Congress which represents this elite. House vote 377:4 for Commodity Futures Modernization Act of 2000 is pretty telling in this respect.

There was also two important parallel developments.

Most respectable authors like Henry Giroux in his article in Counterpunch generally consider the term "casino capitalism" to be an equivalent to the term Neoliberalism.

Here is a relevant quote from Henry Giroux's Authoritarian Politics in the Age of Casino Capitalism :

There is more at work here than simply a ramped up version of social Darwinism with its savagely cruel ethic of “reward the rich, penalize the poor, [and] let everyone fend for themselves,” [ii] there is also a full scale attack on the social contract, the welfare state, economic equality, and any viable vestige of moral and social responsibility. The Romney-Ryan appropriation of Ayn Rand’s ode to selfishness and self-interest is of particular importance because it offers a glimpse of a ruthless form of extreme capitalism in which the poor are considered “moochers,” viewed with contempt, and singled out to be punished. But this theocratic economic fundamentalist ideology does more. It destroys any viable notion of the and civic virtue in which the social contract and common good provide the basis for creating meaningful social bonds and instilling in citizens a sense of social and civic responsibility. The idea of public service is viewed with disdain just as the work of individuals, social groups, and institutions that benefit the citizenry at large are held in contempt. As George Lakoff and Glenn W. Smith point out, casino capitalism creates a culture of cruelty: “its horrific effects on individuals-death, illness, suffering, greater poverty, and loss of opportunity, productive lives, and money.”[iii] But it does more by crushing any viable notion of the common good and public life by destroying “the bonds that hold us together.”[iv] Under casino capitalism, the spaces, institutions, and values that constitute the public are now surrendered to powerful financial forces and viewed simply as another market to be commodified, privatized and surrendered to the demands of capital. With religious and market-driven zealots in charge, politics becomes an extension of war; greed and self-interest trump any concern for the well-being of others; reason is trumped by emotions rooted in absolutist certainty and militaristic aggression; and skepticism and dissent are viewed as the work of Satan.

If the Republican candidacy race of 2012 is any indication, then political discourse in the United States has not only moved to the right—it has been introducing totalitarian values and ideals into the mainstream of public life. Religious fanaticism, consumer culture, and the warfare state work in tandem with neoliberal economic forces to encourage privatization, corporate tax breaks, growing income and wealth inequality, and the further merging of the financial and military spheres in ways that diminish the authority and power of democratic governance.[v] Neoliberal interests in freeing markets from social constraints, fueling competitiveness, destroying education systems, producing atomized subjects, and loosening individuals from any sense of social responsibility prepare the populace for a slow embrace of social Darwinism, state terrorism, and the mentality of war—not least of all by destroying communal bonds, dehumanizing the other, and pitting individuals against the communities they inhabit.

Totalitarian temptations now saturate the media and larger culture in the language of austerity as political and economic orthodoxy. What we are witnessing in the United States is the normalization of a politics that exterminates not only the welfare state, and the truth, but all those others who bear the sins of the Enlightenment—that is, those who refuse a life free from doubt. Reason and freedom have become enemies not merely to be mocked, but to be destroyed. And this is a war whose totalitarian tendencies are evident in the assault on science, immigrants, women, the elderly, the poor, people of color, and youth. What too often goes unsaid, particularly with the media’s focus on inflammatory rhetoric, is that those who dominate politics and policymaking, whether Democrats or Republicans, do so largely because of their disproportionate control of the nation’s income and wealth. Increasingly, it appears these political elite choose to act in ways that sustain their dominance through the systemic reproduction of an iniquitous social order. In other words, big money and corporate power rule while electoral politics are rigged. The secrecy of the voting booth becomes the ultimate expression of democracy, reducing politics to an individualized purchase—a crude form of economic action. Any form of politics willing to invest in such ritualistic pageantry only adds to the current dysfunctional nature of our social order, while reinforcing a profound failure of political imagination. The issue should no longer be how to work within the current electoral system, but how to dismantle it and construct a new political landscape that is capable of making a claim on equity, justice, and democracy for all of its inhabitants. Obama’s once inspiring call for hope has degenerated into a flight from responsibility. The Obama administration has worked to extend the policies of the George W. Bush administration by legitimating a range of foreign and domestic policies that have shredded civil liberties, expanded the permanent warfare state, and increased the domestic reach of the punitive surveillance state. And if Romney and his ideological cohorts, now viewed as the most extremists faction of the Republican Party, come to power, surely the existing totalitarian and anti-democratic tendencies at work in the United States will be dangerously intensified.

 

History

Casino capitalism can probably be more properly called financial corporatism. While the key idea of corporatism: that political actors are not individual people, but some associations and first of all corporations (which are officially considered to be "persons" and have rights) and trade unions, remains intact, Financial corporatism is different from classic corporatism in several major ways:

Historically corporatism in various modifications became dominant social system after WWII and defeated "command socialism" as was implemented in the USSR. Here is an instructive review of corporatism history (The Economic System of Corporatism):

In the last half of the 19th century people of the working class in Europe were beginning to show interest in the ideas of socialism and syndicalism. Some members of the intelligentsia, particularly the Catholic intelligentsia, decided to formulate an alternative to socialism which would emphasize social justice without the radical solution of the abolition of private property. The result was called Corporatism. The name had nothing to do with the notion of a business corporation except that both words are derived from the Latin word for body, corpus.

The basic idea of corporatism is that the society and economy of a country should be organized into major interest groups (sometimes called corporations) and representatives of those interest groups settle any problems through negotiation and joint agreement. In contrast to a market economy which operates through competition a corporate economic works through collective bargaining. The American president Lyndon Johnson had a favorite phrase that reflected the spirit of corporatism. He would gather the parties to some dispute and say, "Let us reason together."

Under corporatism the labor force and management in an industry belong to an industrial organization. The representatives of labor and management settle wage issues through collective negotiation. While this was the theory in practice the corporatist states were largely ruled according to the dictates of the supreme leader.

One early and important theorist of corporatism was Adam Müller, an advisor to Prince Metternich in what is now eastern Germany and Austria. Müller propounded his views as an antidote to the twin dangers of the egalitarianism of the French Revolution and the laissez faire economics of Adam Smith. In Germany and elsewhere there was a distinct aversion among rulers to allow markets to function without direction or control by the state. The general culture heritage of Europe from the medieval era was opposed to individual self-interest and the free operation of markets. Markets and private property were acceptable only as long as social regulation took precedence over such sinful motivations as greed.

Coupled with the anti-market sentiments of the medieval culture there was the notion that the rulers of the state had a vital role in promoting social justice. Thus corporatism was formulated as a system that emphasized the positive role of the state in guaranteeing social justice and suppressing the moral and social chaos of the population pursuing their own individual self-interests. And above all else, as a political economic philosophy corporatism was flexible. It could tolerate private enterprise within limits and justify major projects of the state. Corporatism has sometimes been labeled as a Third Way or a mixed economy, a synthesis of capitalism and socialism, but it is in fact a separate, distinctive political economic system.

Although rulers have probably operated according to the principles of corporatism from time immemorial it was only in the early twentieth century that regimes began to identify themselves as corporatist. The table below gives some of those explicitly corporatist regimes.

Corporatist Regimes of the Early Twentieth Century
System Name Country Period Leader
National Corporatism Italy 1922-1945 Benito Mussolini
Country, Religion, Monarchy Spain 1923-1930 Miguel Primo de Rivera
National Socialism Germany 1933-1945 Adolph Hitler
National Syndicalism Spain 1936-1973 Francisco Franco
New State Portugal 1932-1968 Antonio Salazar
New State Brazil 1933-1945 Getulio Vargas
New Deal United States 1933-1945 Franklin Roosevelt
Third Hellenic Civilization Greece 1936-1941 Ioannis Metaxas
Justice Party Argentina 1943-1955 Juan Peron

In the above table several of the regimes were brutal, totalitarian dictatorships, usually labeled fascist, but not all the regimes that had a corporatist foundation were fascist. In particular, the Roosevelt New Deal despite its many faults could not be described as fascist. But definitely the New Deal was corporatist. The architect for the initial New Deal program was General Hugh Johnson. Johnson had been the administrator of the military mobilization program for the U.S. under Woodrow Wilson during World War I. It was felt that he did a good job of managing the economy during that period and that is why he was given major responsibility for formulating an economic program to deal with the severe problems of the Depression. But between the end of World War I and 1933 Hugh Johnson had become an admirer of Mussolini's National Corporatist system in Italy and he drew upon the Italian experience in formulating the New Deal.

It should be noted that many elements of the early New Deal were later declared unconstitutional and abandoned, but some elements such as the National Labor Relations Act which promoted unionization of the American labor force are still in effect. One part of the New Deal was the development of the Tennessee River Valley under the public corporation called the Tennessee Valley Authority (TVA). Some of the New Dealer saw TVA as more than a public power enterprise. They hoped to make TVA a model for the creation of regional political units which would replace state governments. Their goal was not realized. The model for TVA was the river development schemes carried out in Spain in the 1920's under the government of Miguel Primo de Rivera. Jose Antonio Primo de Rivera, the son of Miguel Primo de Rivera, was the founder of Franco's National Syndicalism.

Corporatist regime typically promote large governmental projects such as TVA on the basis that they are too large to be funded by private enterprise. In Brazil the Vargas regime created many public enterprises such as in iron and steel production which it felt were needed but private enterprise declined to create. It also created an organized labor movement that came to control those public enterprises and turned them into overstaffed, inefficient drains on the public budget.

Although the above locates the origin of corporatism in 19th century France it roots can be traced much further back in time. Sylvia Ann Hewlett in her book, The Cruel Dilemmas of Development: Twentieth Century Brazil, says,

Corporatism is based on a body of ideas that can be traced through Aristotle, Roman law, medieval social and legal structures, and into contemporary Catholic social philosophy. These ideas are based on the premise that man's nature can only be fulfilled within a political community.
..........
The central core of the corporatist vision is thus not the individual but the political community whose perfection allows the individual members to fulfill themselves and find happiness.
...............
The state in the corporatist tradition is thus clearly interventionist and powerful.

Corporatism is collectivist; it is a different version of collectivism than socialism but it is definitely collectivist. It places some importance on the fact that private property is not nationalized, but the control through regulation is just as real. It is de facto nationalization without being de jure nationalization.

Although Corporatism is not a familiar concept to the general public, most of the economies of the world are corporatist in nature. The categories of socialist and pure market economy are virtually empty. There are only corporatist economies of various flavors.

These flavors of corporatism include the social democratic regimes of Europe and the Americas, but also the East Asian and Islamic fundamentalist regimes such as Taiwan, Singapore and Iran. The Islamic socialist states such as Syria, Libya and Algeria are more corporatist than socialist, as was Iraq under Saddam Hussain. The formerly communist regimes such as Russia and China are now clearly corporatist in economic philosophy although not in name.

The concept of Quite Coup

The term "Quiet coup" which means the hijacking of the political power in the USA by financial oligarchy was introduced by Simon H. Johnson, a British-American economist, who currently is the Ronald A. Kurtz Professor of Entrepreneurship at the MIT Sloan School of Management and a senior fellow at the Peterson Institute for International Economics. From March 2007 through the end of August 2008, he was Chief Economist of the International Monetary Fund. The term was introduced in Simon Johnson article in Atlantic magazine, published in May 2009(The Quiet Coup - Simon Johnson - The Atlantic). Which opens with a revealing paragraph:

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government

The wealth of financial sector gave it unprecedented opportunities of simply buying the political power iether directly or indirectly (via revolving door mechanism):

Becoming a Banana Republic

In its depth and suddenness, the U.S. economic and financial crisis is shockingly reminiscent of moments we have recently seen in emerging markets (and only in emerging markets): South Korea (1997), Malaysia (1998), Russia and Argentina (time and again). In each of those cases, global investors, afraid that the country or its financial sector wouldn’t be able to pay off mountainous debt, suddenly stopped lending. And in each case, that fear became self-fulfilling, as banks that couldn’t roll over their debt did, in fact, become unable to pay. This is precisely what drove Lehman Brothers into bankruptcy on September 15, causing all sources of funding to the U.S. financial sector to dry up overnight. Just as in emerging-market crises, the weakness in the banking system has quickly rippled out into the rest of the economy, causing a severe economic contraction and hardship for millions of people.

But there’s a deeper and more disturbing similarity: elite business interests—financiers, in the case of the U.S.—played a central role in creating the crisis, making ever-larger gambles, with the implicit backing of the government, until the inevitable collapse. More alarming, they are now using their influence to prevent precisely the sorts of reforms that are needed, and fast, to pull the economy out of its nosedive. The government seems helpless, or unwilling, to act against them.

Top investment bankers and government officials like to lay the blame for the current crisis on the lowering of U.S. interest rates after the dotcom bust or, even better—in a “buck stops somewhere else” sort of way—on the flow of savings out of China. Some on the right like to complain about Fannie Mae or Freddie Mac, or even about longer-standing efforts to promote broader homeownership. And, of course, it is axiomatic to everyone that the regulators responsible for “safety and soundness” were fast asleep at the wheel.

But these various policies — lightweight regulation, cheap money, the unwritten Chinese-American economic alliance, the promotion of homeownership—had something in common. Even though some are traditionally associated with Democrats and some with Republicans, they all benefited the financial sector. Policy changes that might have forestalled the crisis but would have limited the financial sector’s profits — such as Brooksley Born’s now-famous attempts to regulate credit-default swaps at the Commodity Futures Trading Commission, in 1998—were ignored or swept aside.

The financial industry has not always enjoyed such favored treatment. But for the past 25 years or so, finance has boomed, becoming ever more powerful. The boom began with the Reagan years, and it only gained strength with the deregulatory policies of the Clinton and George W. Bush administrations. Several other factors helped fuel the financial industry’s ascent. Paul Volcker’s monetary policy in the 1980s, and the increased volatility in interest rates that accompanied it, made bond trading much more lucrative. The invention of securitization, interest-rate swaps, and credit-default swaps greatly increased the volume of transactions that bankers could make money on. And an aging and increasingly wealthy population invested more and more money in securities, helped by the invention of the IRA and the 401(k) plan. Together, these developments vastly increased the profit opportunities in financial services.

Not surprisingly, Wall Street ran with these opportunities. From 1973 to 1985, the financial sector never earned more than 16 percent of domestic corporate profits. In 1986, that figure reached 19 percent. In the 1990s, it oscillated between 21 percent and 30 percent, higher than it had ever been in the postwar period. This decade, it reached 41 percent. Pay rose just as dramatically. From 1948 to 1982, average compensation in the financial sector ranged between 99 percent and 108 percent of the average for all domestic private industries. From 1983, it shot upward, reaching 181 percent in 2007.

The great wealth that the financial sector created and concentrated gave bankers enormous political weight — a weight not seen in the U.S. since the era of J.P. Morgan (the man). In that period, the banking panic of 1907 could be stopped only by coordination among private-sector bankers: no government entity was able to offer an effective response. But that first age of banking oligarchs came to an end with the passage of significant banking regulation in response to the Great Depression; the reemergence of an American financial oligarchy is quite recent.

He further researched this theme in his book 2010 book 13 Bankers: The Wall Street Takeover and the Next Financial Meltdown (ISBN 978-0307379054), coauthored with James Kwak. They also founded and regularly contributes to the economics blog The Baseline Scenario.

See also History of Casino Capitalism

The net effect of the ideological counter-revolution based on market fundamentalism ideology was that it restored the power of financial oligarchy typical for Gilded Age. In the influential Atlantic Monthly article The Quiet Coup Simon Johnson argues that was partially done by subverting regulators and that oversize institutions always disproportionately influence public policy:

The second problem the U.S. faces—the power of the oligarchy—is just as important as the immediate crisis of lending. And the advice from the IMF on this front would again be simple: break the oligarchy.

Oversize institutions disproportionately influence public policy; the major banks we have today draw much of their power from being too big to fail. Nationalization and re-privatization would not change that; while the replacement of the bank executives who got us into this crisis would be just and sensible, ultimately, the swapping-out of one set of powerful managers for another would change only the names of the oligarchs.

Ideally, big banks should be sold in medium-size pieces, divided regionally or by type of business. Where this proves impractical—since we’ll want to sell the banks quickly—they could be sold whole, but with the requirement of being broken up within a short time. Banks that remain in private hands should also be subject to size limitations.

This may seem like a crude and arbitrary step, but it is the best way to limit the power of individual institutions in a sector that is essential to the economy as a whole. Of course, some people will complain about the "efficiency costs" of a more fragmented banking system, and these costs are real. But so are the costs when a bank that is too big to fail—a financial weapon of mass self-destruction—explodes. Anything that is too big to fail is too big to exist.

To ensure systematic bank breakup, and to prevent the eventual reemergence of dangerous behemoths, we also need to overhaul our antitrust legislation. Laws put in place more than 100years ago to combat industrial monopolies were not designed to address the problem we now face. The problem in the financial sector today is not that a given firm might have enough market share to influence prices; it is that one firm or a small set of interconnected firms, by failing, can bring down the economy. The Obama administration’s fiscal stimulus evokes FDR, but what we need to imitate here is Teddy Roosevelt’s trust-busting.

Caps on executive compensation, while redolent of populism, might help restore the political balance of power and deter the emergence of a new oligarchy. Wall Street’s main attraction—to the people who work there and to the government officials who were only too happy to bask in its reflected glory—has been the astounding amount of money that could be made. Limiting that money would reduce the allure of the financial sector and make it more like any other industry.

Still, outright pay caps are clumsy, especially in the long run. And most money is now made in largely unregulated private hedge funds and private-equity firms, so lowering pay would be complicated. Regulation and taxation should be part of the solution. Over time, though, the largest part may involve more transparency and competition, which would bring financial-industry fees down. To those who say this would drive financial activities to other countries, we can now safely say: fine.

Two Paths

To paraphrase Joseph Schumpeter, the early-20th-century economist, everyone has elites; the important thing is to change them from time to time. If the U.S. were just another country, coming to the IMF with hat in hand, I might be fairly optimistic about its future. Most of the emerging-market crises that I’ve mentioned ended relatively quickly, and gave way, for the most part, to relatively strong recoveries. But this, alas, brings us to the limit of the analogy between the U.S. and emerging markets.

Emerging-market countries have only a precarious hold on wealth, and are weaklings globally. When they get into trouble, they quite literally run out of money—or at least out of foreign currency, without which they cannot survive. They must make difficult decisions; ultimately, aggressive action is baked into the cake. But the U.S., of course, is the world’s most powerful nation, rich beyond measure, and blessed with the exorbitant privilege of paying its foreign debts in its own currency, which it can print. As a result, it could very well stumble along for years—as Japan did during its lost decade—never summoning the courage to do what it needs to do, and never really recovering. A clean break with the past—involving the takeover and cleanup of major banks—hardly looks like a sure thing right now. Certainly no one at the IMF can force it.

In my view, the U.S. faces two plausible scenarios. The first involves complicated bank-by-bank deals and a continual drumbeat of (repeated) bailouts, like the ones we saw in February with Citigroup and AIG. The administration will try to muddle through, and confusion will reign.

Boris Fyodorov, the late finance minister of Russia, struggled for much of the past 20 years against oligarchs, corruption, and abuse of authority in all its forms. He liked to say that confusion and chaos were very much in the interests of the powerful—letting them take things, legally and illegally, with impunity. When inflation is high, who can say what a piece of property is really worth? When the credit system is supported by byzantine government arrangements and backroom deals, how do you know that you aren’t being fleeced?

Our future could be one in which continued tumult feeds the looting of the financial system, and we talk more and more about exactly how our oligarchs became bandits and how the economy just can’t seem to get into gear.

The second scenario begins more bleakly, and might end that way too. But it does provide at least some hope that we’ll be shaken out of our torpor. It goes like this: the global economy continues to deteriorate, the banking system in east-central Europe collapses, and—because eastern Europe’s banks are mostly owned by western European banks—justifiable fears of government insolvency spread throughout the Continent. Creditors take further hits and confidence falls further. The Asian economies that export manufactured goods are devastated, and the commodity producers in Latin America and Africa are not much better off. A dramatic worsening of the global environment forces the U.S. economy, already staggering, down onto both knees. The baseline growth rates used in the administration’s current budget are increasingly seen as unrealistic, and the rosy "stress scenario" that the U.S. Treasury is currently using to evaluate banks’ balance sheets becomes a source of great embarrassment.

Under this kind of pressure, and faced with the prospect of a national and global collapse, minds may become more concentrated.

The conventional wisdom among the elite is still that the current slump "cannot be as bad as the Great Depression." This view is wrong. What we face now could, in fact, be worse than the Great Depression—because the world is now so much more interconnected and because the banking sector is now so big. We face a synchronized downturn in almost all countries, a weakening of confidence among individuals and firms, and major problems for government finances. If our leadership wakes up to the potential consequences, we may yet see dramatic action on the banking system and a breaking of the old elite. Let us hope it is not then too late.

It is pretty interesting to see how financial oligarchy filters information provided to the population to fit their biases. For example, the key facts about repeal of Glass-Steagall law are (BTW Joe Biden voted for it):

Commodity Futures Trading Commission — under the leadership of Mr. Gramm’s wife, Wendy — had approved rules in 1989 and 1993 exempting some swaps and derivatives from regulation. In December 2000, the Commodity Futures Modernization Act was passed as part of a larger bill by unanimous consent after Mr. Gramm dominated the Senate debate...

"He was the architect, advocate and the most knowledgeable person in Congress on these topics," Mr. Donovan said. "To me, Phil Gramm is the single most important reason for the current financial crisis."

"The virtually unregulated over-the-counter market in credit-default swaps has played a significant role in the credit crisis, including the now $167 billion taxpayer rescue of A.I.G.," Christopher Cox, the chairman of the S.E.C. and a former congressman, said Friday.

But you will never find discussion of flaws and adverse consequences Phil Gram (or Greenspan for a change) initiatives in Heritage Foundation and other right-wing think tanks publications.

 

Stages of transformation

So what we are experiencing is a the completion of the transformation of one phase of capitalism to another. It happened in stages:

  1. Manufacturing stagnated and can't provide the "decent" rate of growth. Competition from re-built Europe and Asian markets severely stressed the US manufacturing. due to competition return of capital dropped and in several industries became negative.
     

  2. Computers brought innovations into financial markets. They make possible real time trading of induces like S&P500, complex financial instruments like derivatives, etc. Later they enables superfast trading (HFT). All those instruments dramatically increased the possibilities of extracting the rent by financial institutions from the society.
     

  3. Globalization kicked in due to new opportunities offered by high speed global communications (Internet). And that is not limited to outsourcing. Due to globalization the sheer size of the financial markets increased to the extent that they started to represent a different, new transnational phenomena allowing new types of redistribution of wealth to be practiced. Integration of Russian elite (oligarchs) is just one example of this process. In case of pro-western oligarchs (fifth column) West went to significant length to protect them and their racket (Mikhail Khodorkovsky - Wikipedia,)
     

  4. Commercial banks turned into investment banks to exploit this opportunity.
     

  5. Financial sector completely corrupted academic science converting most economists to pay prostitutes which serve their interests.
     

  6. Collapse of the USSR provided the financial sector major shoot in the arm and a golden, once in century opportunity to finance new half-billion consumers and stole for a penny on a dollar huge industrial assets and natural resources as well as put most of those countries in the debt (Latin-Americanization of xUSSR space). Harvard Mafia (with some support from London) did the bidding of western banks in xUSSR space. As more becomes known about the laundering of Russian money in Western banks, many in the United States will likely try to hide behind stories of faraway organized crime. But U.S. policy toward Russia has contributed to that country's sorry conditions--with the Harvard Institute for International Development's Russia project (HIID) playing a major role (Harvard's 'Best and Brightest' Aided Russia's Economic Ruin ). Professor Jeffery Sacks provided a bogus idea of "shock therapy" to achieve spectacular for Western banks result. As a result all xUSSR space became new Latin America with typical for Latin America problems like huge level of inequality, prostitution, child poverty, and prominent role of organized crime.
     

  7. Banks became dominant political force on western societies with no real counterbalance from other parts of the elite. The first president completely subservient to banking elite was elected in the USA in 1992. Bill Clinton regime lasted eight years and along with economic rape of xUSSR space in best colonial powers tradition, it removed what was left of financial regulations after the flurry of deregulation of the early 1980s. And they behaved as an occupying force not only in xUSSR space but in the USA as well. They deprived workers out of their jobs, they abolished the US pension system as it impede playing with population money and replaced in with widely inadequate 401K plans. They deprived municipalities out of their revenues and assets, while municipalities became just a den of bond traders looking for then next mark which give them the ability to put municipalities deeper in debt.

  8. Newly acquired political power of financial elite speeded the shift to bank "self-regulation" created huge shadow banking system which dwarf "official" under the smoke screen of "free-market" propaganda and PR from a coterie of corrupts academics (Chicago Scholl, Harvard Mafia, etc) . It engaged in pursuit of short term profits and self-enrichment of top brass which became new elite by-and-large displacing not only the old one, but also the newly minted IT elite of dot-com boom. Using newly acquired power financial elite remove all regulations that hamper their interests. Glass-Steagall was repealed at the last days of Clinton presidency, financial derivatives became unregulated.

  9. Deindustrialization kicked in. As financial speculation proved to be much more profitable to other activities deindustrialization kicked in the USA as the financial center of the world. Outsourcing which first was limited to manufacturing jobs now extent its reach on IT and decimate previously profitable sector and its export potential.

  10. Externalities can no longer be suppressed and economics became unstable. Growth of inequality, job insecurity, as well as frequency of financial crises were natural consequences of financialization of the economy. They create huge imbalances, like bubble in residential real estate which was blown with the help and full support of the USA government as a way to overcome dot-com crisis consequences.

  11. Debt crisis strikes. Growth of debt became unsustainable and produces the financial crisis of enormous proportions. By their reckless policies and greed financial sector caused huge financial crisis of 2008 and now they are forcing national governments to auction off their cultural heritage to the highest bidder. Everything must go in fire sales at prices rigged by twenty-something largest banks, the most corrupt institutions the world has ever known.

  12. Devastating "local" wars became "new normal". Due to financial crisis, the overconsumption in western economies came under threat. Debt expansion which led to overconsumption within the western economies affected (or infected) by financialization. To sustain the current standard of living financial expansion became the necessity. It took the form of a competition for spheres of influence in the area of energy supplies, which we see in post USSR space, Iraq, Libya and elsewhere. And central banks play critical role in financing wars. After all Banks of England was created with this exact purpose.

I think by 2008 when the second major financial crisis hit the USA, the transformation on the USA economy into casino capitalism, which is essentially implementation of neoliberal doctrine (or more correctly the US brand of corporatism) was by-and-large complete.

In short we are living in a new politico-economic system in which financial capital won victory over both labor and industrial capital. We might not like what we got, but financial elite is now a new ruling class and this fact is difficult to dispute. As a result. instead of the robber barons of the early 20th century (some of whom actually created/consolidated new industries), we have the top executives from investment banks, insurers and mortgage industry who represent a new Rentier class, much like old aristocracy.

They are living off parasitic monopolization of access to any (physical, financial, intellectual, etc.) kind of property and gaining significant amount of profit without contribution to society (see Rentier capitalism which is a very fuzzy term for neoliberal model of capitalism).

Casino Capitalism as a result of stagnation of industrial manufacturing

Stagnation of industrial manufacturing droved up financial speculation as the method to compensate for falling rate on return on capital. This stagnation became prominent during Reagan administration (which started the major shift toward neoliberalism), although signs of it were present from early 60th.

For example Chicago which was a manufacturing center since 1969 lost approximately 400K manufacturing jobs which were replaced mainly by FIRE-related jobs, In 1995 over 22% of those employed by FIRE industries (66K people) were working in executive and managerial positions. Another 17% are in marketing, sales and processional specialty occupations (computer system analysts, PR specialists, writer and editors).

Those changes in the structure of employment had several consequences:

  1. The stagnation of the underlying economy meant that capitalists were increasingly dependent on the growth of finance to preserve and enlarge their money capital.
  2. The financial superstructure of the capitalist economy could not expand independently of its base -- underlying productive economy — hence the bursting of speculative bubbles became a recurrent and growing problem.
  3. Financialization could never overcome stagnation of industrial production. It is just an opium for rich, not a structural adjustment of the stagnation-prone economy. But like addition to narcotics does to human body it does tremendous damage to real economy.
  4. Rapid increase in inequality is necessary to sustain the appetites of the elite in the system with fixed size of the pie. Politico-economic conditions might became even more unfavorable for labor. Stagnation of industrial production mean shrinking pie, which necessitates redistribution of wealth in favor of a new, all-powerful financial Rentier class. This redistribution resulted in partial wipe-out of large swats of middle class. For the past three decades, America has steadily converted itself into a nation of haves (as Bush II quipped "This is an impressive crowd -- the haves and the have mores! Some people call you the elite -- I call you my base". ) and have-nots. The cost of a college education rises rapidly at a time when wages for skilled labor stagnate, so access to college became against discriminated in favor of upper class of the society. Repressive apparatus and ideological brainwashing are too strong to mount effective resistance.

The key to understanding of Casino Capitalism is that it was a series of government decisions (or rather non-decisions) that converted the state into neoliberal model. In other words casino capitalism has distinct "Government property" mark. It was the USA elite, which refused to act responsibly in the face of changing economic conditions resulting from its own actions, and instead chose to try to perpetuate, by whatever means it had at its disposal, the institutional advantages of dollar as a reserve currency which it had vis-à-vis its main economic rivals and grab as large part of the world economic pie as it can. And this power grab was supported first of all by the role of dollar as currency in which oil is traded.

There might be some geo-strategically motives as well as the US elite in late 80th perceived that competitiveness is slipping out of the USA and the danger of deindustrialization is real. Many accuse Reagan with the desire to ride dollar status as a world reserve currency (exorbitant privilege) until the horse is dead. That's what real cowboys do in Hollywood movies... But the collapse of the main rival, the USSR vindicated this strategy and give a strong short in the arm to financization of the economy. Actually for the next ten years can be called a triumphal ascend of financization in the USA.

Dominance of FIRE industries clustered up and in recent years reached in the USA quite dramatic proportions. The old Bolsheviks saying "When we say Lenin we mean the Party and when we say the Party we mean Lenin" now can be reworded: "Now it we say US banks, we mean the US government and vise versa if we say US government we mean US banks".

According to the Center for Responsive Politics, the FIRE sector was and is the biggest contributor to federal candidates in Washington. Companies cannot give directly, so they leave it to bundlers to solicit maximum contributions from employees and families. They might have been brought down to earth this year, but they’ve given like Gods: Goldman Sachs, $4.8 million; Citigroup, $3.7 million; J.P. Morgan Chase & Co., $3.6 million; Merrill Lynch, $2.3 million; Lehman Brothers, $2.1 million; Bank of America, $2.1 million. Some think the long-term effect of such contributions to individual candidates was clear in the roll-call votes for the bailout.

Take the controversial first House vote on bailout of major banks on Sept. 29, 2008. According to CRP, the "ayes" had received 53 percent more contributions from FIRE since 1989 than those who voted against the bill, which ultimately failed 228 to 205. The 140 House Democrats who voted for the bill got an average of $188,572 in this election cycle, while the 65 Republicans backing it got an average of $185,461 from FIRE—about 23 percent more than the bill’s opponents received. A tinkered bill was passed four days later, 263 to 171.

According to the article Fire Sale (The American Conservative) half of Obama’s top ten contributors, together giving him nearly $2.2 million, are FIREmen. The $13 million contributed by FIRE executives to Obama campaign is probably an undercount. Democratic committee leaders are also dependent of FIRE contributions. The list includes Sen. Dodd ( please look at Senator Dodd's top donors for 2007-8 on openSecrets.org ) and Sen. Chuck Schumer ($12 million from FIRE since 1989), Rep. Barney Frank ($2.5 million), and Rep. Charlie Rangel ($4 million, the top recipient in the House). All of them have been accused of taking truckloads of contributions while failing to act on the looming mortgage crisis. Dodd finally pushed mortgage reform last year but by then as his hometown paper, The Hartford Courant stated, "the damage was done."

Casino Capitalism and Financial Instability

At the same time rise of financial capital dramatically increased instability. An oversized financial sector produces instability due to multiple positive feedback loops. In this sense we can talk about Financial Sector Induced Systemic Instability of Economy. The whole society became "House of cards", "Giant Enron" and "extension of Las Vegas". Reckless management, greed and out-right stupidity in playing derivatives games was natural consequence of the oversized financial sector, not just a human folly. In a way it was dramatic manifestation of the oversized financial sector negative influence of the economy. And in 2008 it did brought out economy to the brink of destruction. Peak oil added to suffocating effect on the economy of reckless gambling (and related debts) of financial sector producing the economic calamity that rivals Great Depression. Also, like Socialism, Casino Capitalism demands too much of its elite. And in reality, the financial elite much like Bolsheviks elite, is having its own interests above the interests of the society.

As Kevin Phillips noted "In the United States, political correctness, religious fundamentalism, and other inhibitions sometimes dumb down national debate". And the same statement is true for financial elite that became the center of power under the Casino Capitalism. Due to avalanche of greed the society became one giant Enron as money that are made from value addition in the form of manufacturing fade in significance to the volume of the money that is made from shuffling money around. In other was the Wall Street's locked USA in the situation from which there is no easy exit.

Self-reinforcing ‘positive’ feedback loops prevalent in Casino Capitalism trigger an accelerating creation of various debt instruments, interest of which at some point overwhelm the system carrying capacity. Ability to lend against good collateral is quickly exhausted. At some point apparently there is no good collateral against which lending freely was possible, even at high rates. This means that each new stage of financial innovation involves scam and fraud, on increasing scale. In other words Ponzi economy of "saving and loans" is replaced with Madoff economy.

Whether you shift the resulting huge private debt to public to increase confidence or not, the net result is of this development of events is a crisis and a huge debt that society needs to take. Actually the debt bubble in 2008 can only be compared to the debt bubble of 1933. The liquidation of Bear Sterns and Lehman was only a start of consolidation of finances and we need to find something that replace financial sector dominance in the national economy. It would be nice is some technological breakthrough happened which would lift the country out of this deep hole.

See Financial Sector Induced Systemic Instability of Economy for more details.

Neoliberalism as the Ideology of Casino Capitalism

Like Bolshevism was marked by deification of teaching of Marx and Lenin, converting them into pseudo-religious doctrine, the Casino Capitalism has its own deified ideological doctrine. It is the ideology of Neoliberalism. The latter as an ideology and an agenda seeks to topple democratic capitalism and replace it with a de facto unaccountable autocratic government which serves as channel of a wealth transfer from the public to a rentier elite. In a way it is a spectacular example of a successful (in a very negative sense) pseudo-religious doctrine.

Addiction of the societies to disastrous politico-economical doctrines are similar to addictions to alcohol and drugs in individuals. It is not easy to recover and it takes a long, long time and a lot of misery. As dissolution of the USSR aptly demonstrated not all societies can make it (in this case the USSR elite (nomenklatura) simply shed the old ideology as it understood that it will be better off adopting ideology of neoliberal capitalism; so it was revolution from above).

This also means that "society at large" did not had effective brakes to the assent of financial plutocracy (aka financial oligarchy). In a way this was a silent coup. I would add to this the computer revolution and internet that made many financial transaction qualitatively different and often dramatically cheaper that in previous history. Computers also enabled creation of new financial players like hedge funds, exchange-traded funds (ETFs), as well as high-frequency trading and derivatives.

From the historical view Reaganomics also can be considered to be the US flavor of Lysenkoism with economics instead of genetics as a target. Here is how Reaganomics is defined in Wikipedia

Reaganomics (a portmanteau of "Reagan" and "economics") refers to the economic policies promoted by United States President Ronald Reagan. The four pillars of Reagan's economic policy were to:[1]
  1. reduce the growth of government spending,
  2. reduce marginal tax rates on income from labor and capital,
  3. reduce government regulation of the economy,
  4. control the money supply to reduce inflation.

In attempting to cut back on domestic spending while lowering taxes, Reagan's approach was a departure from his immediate predecessors.

Reagan became president during a period of high inflation and unemployment (commonly referred to as stagflation), which had largely abated by the time he left office.

Please not that the Number 1 idea ("reduce government spending") was essentially a scam, a smoke screen designed to attract Rednecks as a powerful voting block. In a way this was a trick similar to one played by Bolsheviks in Russia with its "worker and peasants rule" smokescreen which covered brutal dictatorship. In reality all administrations which preached Reagonomics (including Clinton's) expanded the role of state and government spending. The number two was applied by-and-large to top 1%. The number three means deregulation in the interests of financial oligarchy and dismantling all social program that hamper profit of the latter (including privatizing of Social Security). The number fours is a scam, in the same sense as number one. As soon as financial institutions get in trouble, money are printed as if there is no tomorrow.

While the essence of Reagonomics was financial deregulation, the other important element was restoring the Gilded Age level of power of financial oligarchy which influence was diminished by FDR reforms. In this sense we can say that Reagan revolution was essentially a counter-revolution: an attempt to reverse the New Deal restrictions on financial sector and restore its dominance in the society.

Like it was the case in Bolshevism the ideology was developed and forced upon the society by a very small group of players. The key ideas of Casino Capitalism were formulated and implemented by Reagan administration with some contribution by Nixon (the role of rednecks aka "moral majority", "silent majority" as an important part of republican political base, which can be attracted to detrimental to its economic position policies by the smoke screen of false "moral" promises).

It was supported by each president after Reagan (paradoxically with Clinton having the most accomplished record -- he was the best Republican President in a very perverted way). Like in case of Lysenkoism opponents were purged and economic departments of the country were captured by principless careerists ready to tow the party line for personal enrichment. Like in case of Bolshevism, many of those special breed of careerists rotated from Republican Party into Fed and other government structures. A classic example of compulsive careerists that were used by finance sector to promote its interests was Alan Greenspan.

One of the key ideas of Reaganomics was the rejection of the sound approach that there should be a balance between too much government regulation and too little and that government role is important for smooth functioning of the market. In this area Reagan and its followers can be called Anarchists and their idea of 'free market" is a misnomer that masks the idea of "anarchic market" (corporate welfare to be exact -- as it was implemented). Emergence of corporate welfare Queens such as GS, Citi, AIG, are quite natural consequence of Reaganomics.

Reaganomics was a the US flavor of Lysenkoism with economics instead of generics as a target... It can and should be called Economic Lysenkoism.

The most interesting part of Reaganomics was that the power of this ideology made it possible to conditioned "working class" and middle class to act against their own economic interests. It helped to ensure the stagnation of wages during the whole 25 years period, which is close to what Soviets managed to achieve with working class of the USSR, but with much more resentment. This makes it in many ways very similar to Bolshevism as a whole, not just Lysenkoism (extremes meet or in less flattering way: "history repeats, first as a tragedy, then as farce).

Along with the term Reaganimics which implicitly stresses the deregulation, the other close term "market fundamentalism" is often used. Here is how market fundamentalism is defined (Longview Institute):

Market Fundamentalism is the exaggerated faith that when markets are left to operate on their own, they can solve all economic and social problems. Market Fundamentalism has dominated public policy debates in the United States since the 1980's, serving to justify huge Federal tax cuts, dramatic reductions in government regulatory activity, and continued efforts to downsize the government’s civilian programs.

Some level of government coercion (explicit or implicit ) is necessary for proper labeling of any pseudo-scientific theory with the term Lysenkoism. This holds true for both Market Fundamentalism (after all Reagan revolution was "revolution from above" by financial oligarchy and for financial oligarchy and hired guns from academia just do what powers that be expected) and, especially, Supply side economic. The political genius of those ideas is evident. Supply-side economics transformed Republicans from a minority party into a majority party. It allowed them to promise lower taxes, lower deficits and, in effect, unchanged spending. Why should people not like this combination? Who does not like a free lunch?

In this sense the Republican Party played the role very similar to the Communist Party of the USSR.

For example supply side economics was too bizarre and would never survive without explicit government support. This notion is supported by many influential observers. For example, in the following comment for Krugman article (Was the Great Depression a monetary phenomenon):

Market fundamentalism (neoclassical counter-revolution — to be more academic) was more of a political construct than based on sound economic theory. However, it would take a while before its toxic legacy is purged from the economics departments. Indeed, in some universities this might never happen.

Extreme deregulation and extreme regulation (Brezhnev socialism) logically meets and both represent a variant of extremely corrupt society that cannot be sustained for long (using bayonets as in the case of USSR or using reserve currency and increasing leverage as is the case of the USA). In both cases the societies were economically and ideologically bankrupt at the end.

Actually, elements of market fundamentalism looks more like religious doctrine than political philosophy — and that bonds its even closer to Lysenkoism. In both cases critics were silenced with the help of the state. It is interesting to note that Reaganomics was wiped into frenzy after the dissolution of the USSR, the country which gave birth to the term of Lysenkoism. In a way the last act of the USSR was to stick a knife in the back of the USA. As a side note I would like to stress that contrary to critics the USSR was more of a neo-feudal society with elements of slavery under Stalin. Gulag population were essentially state slaves; paradoxically a somewhat similar status is typical for illegal immigrants in industrialized countries. From this point of view this category of "state slaves" is generally more numerous that gulag inmates. Prison population also can be counted along those lines.

It look like either implicitly or explicitly Reagan's bet was on restoration of gilded Age with its dominance of financial oligarchy, an attempt to convert the USA into new Switzerland on the "exorbitant privilege" of dollar status as the global fiat currency.

Casino Capitalism is characterized by political dominance of FIRE industries (finance, insurance, and real estate) and diminished role of other and first of all manufacturing industries. It was also accompanied by the drastic growth of inequality (New Gilded Age). Its defining feature is "the triumph of the trader in assets over the long-term producer" in Martin Wolf's words.

Voodoo economic theories

Attempts of theoretical justification of Economic Lysenkoism fall into several major categories:

Those can be called pillars, cornerstones of Economic Lysenkoism. Each of the deserves as separate article (see links above).

Historically especially important was Chicago school of market fundamentalism promoted pseudo-scientific theories of Milton Freedman (Chicago School) as well as supply side economics.

Collapse of the USSR as ideological justification of Casino Capitalism superiority

The huge boost of Casino Capitalism was given by the collapse of the USSR in 1991. That gave a second life to Reagan era. Collapse of the USSR was used as a vindication of market fundamentalism. After it New Deal regulations were systematically destroyed. Dumped down variants of Nietzsche philosophy like bastardatized variant promoted by Russian emigrant became fashionable with an individual "creative" entrepreneur as a new Übermensch, which stands above morality.

"The word Übermensch [designates] a type of supreme achievement, as opposed to 'modern' men, 'good' men, Christians, and other nihilists ... When I whispered into the ears of some people that they were better off looking for a Cesare Borgia than a Parsifal, they did not believe their ears."[9] Safranski argues that the combination of ruthless warrior pride and artistic brilliance that defined the Italian Renaissance embodied the sense of the Übermensch for Nietzsche. According to Safranski, Nietzsche intended the ultra-aristocratic figure of the Übermensch to serve as a Machiavellian bogeyman of the modern Western middle class and its pseudo-Christian egalitarian value system.[10]

Brainwashing

The instability and volatility of active markets can devalue the economic base of real lives, or in more macro-scenarios can lead to the collapse of national and regional economies. In a very interesting and grotesque way it also incorporates the key element of Brezhnev Socialism in everyday life: huge manipulation of reality by mass media to the extend that Pravda and the USSR First TV Channel look pretty objective in comparison with Fox news and Fox controlled newspapers. Complete poisoning of public discourse and relying on the most ignorant part of the population as the political base (pretty much reminiscent of how Bolsheviks played "Working Class Dictatorship" anti-intellectualism card; it can be called "Rednecks Dictatorship").

The "heroes" or transformation of US economy to casino capitalism model

While transformation to casino capitalism was an objective development, there were specific individuals who were instrumental in killing New Deal regulations. We would single out the following twelve figures:

  1. Ronald Reagan (although first steps toward casino capitalism were made under Carter).
  2. Milton Friedman
  3. Alan Greenspan
  4. Phil Gramm
  5. Robert Rubin
  6. Larry Summers
  7. Helicopter Ben
  8. Bush II
  9. Bill Clinton
  10. Sandy Weill
  11. Jeffrey Sachs with his "shock therapy" racket
  12. Martin Feldstein

There is no question that Reagan and most of his followers (Greenspan, Rubin, Phil Gramm, etc) were rabid radicals blinded by ideology. But they were radicals of quite different color then FDR with disastrous consequences for society. Here again the analogy with Bolsheviks looms strong. In a way, they can be called financial terrorists inflicting huge damage on the nation and I wonder if RICO can be use to prosecute at least some of them.

In Bailout Nation (Chapter 19) Barry Ritholtz tried to rank major players that led country into the current abyss:

1. Federal Reserve Chairman Alan Greenspan
2. The Federal Reserve (in its role of setting monetary policy)
3. Senator Phil Gramm
4-6. Moody’s Investors Service, Standard & Poor’s, and Fitch Ratings (rating agencies)
7. The Securities and Exchange Commission (SEC)
8-9. Mortgage originators and lending banks
10. Congress
11. The Federal Reserve again (in its role as bank regulator)
12. Borrowers and home buyers
13-17. The five biggest Wall Street firms (Bear Stearns, Lehman Brothers, Merrill Lynch,Morgan Stanley, and Goldman Sachs) and their CEOs
18. President George W. Bush
19. President Bill Clinton
20. President Ronald Reagan
21-22. Treasury Secretary Henry Paulson
23-24. Treasury Secretaries Robert Rubin and Lawrence Summers
25. FOMC Chief Ben Bernanke
26. Mortgage brokers
27. Appraisers (the dishonest ones)
28. Collateralized debt obligation (CDO) managers (who produced the junk)
29. Institutional investors (pensions, insurance firms, banks, etc.) for
buying the junk
30-31. Office of the Comptroller of the Currency (OCC); Office of Thrift
Supervision (OTS)
32. State regulatory agencies
33. Structured investment vehicles (SIVs)/hedge funds for buying the junk

Early Researchers of Casino Capitalism

Hyman Minsky

Hyman Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt. He identified 3 types of borrowers that contribute to the accumulation of insolvent debt: Hedge Borrowers; Speculative Borrowers; and Ponzi Borrowers. That corresponds to three stages of Casino Capitalism of increasing fragility:

After the collapse of the USSR there were a lot of chest thumping of the status of America as a hyper power (American exceptionalism) and "end of history" where capitalism was supposed to reign supreme followed. But in 2000 the first moment to pay the piper arrives. It was postponed by Iraq war and housing bubble but reappeared in much more menacing form in 2008. It looks like in 2009 the USA arrived to the a classic Minsky moment with high unemployment rate and economy suppressed by (and taken hostage) by Ponzi finance institutions which threaten the very survival of our system and way of life.

The shift from speculative toward Ponzi finance was speed up by increased corruption of major players.

"As Minsky observed, capitalism is inherently unstable. As each crisis is successfully contained, it encourages greater speculation and risk taking in borrowing and lending. Financial innovation makes it easier to finance various schemes. To a large extent, borrowers and lenders operate on the basis of trial and error. If a behavior is rewarded, it will be repeated. Thus stable periods naturally lead to optimism, to booms, and to increasing fragility.

A financial crisis can lead to asset price deflation and repudiation of debt. A debt deflation, once started, is very difficult to stop. It may not end until balance sheets are largely purged of bad debts, at great loss in financial wealth to the creditors as well as the economy at large."

Susan Strange

For Strange the speed at which computerized financial markets work combined with new much larger size and their now, near-universal pervasiveness is an important qualitative change. One of the side effects of this change is that volatility extends globally. Approximately $1.5 trillion dollars are invested daily as foreign transactions. It is estimated that 98 per cent of these transactions are speculative. In comparison with this casino Las Vegas looks like a aborigine village in comparison with Manhattan.

Notes:

Susan Strange (June 9, 1923 - October 25, 1998) was a British academic who was influential in the field of international political economy. Her most important publications include Casino Capitalism, Mad Money, States and Markets and The retreat of the State: The Diffusion of Power in the World Economy.

For a quarter of a century, Susan Strange was the most influential figure in British international studies. She held a number of key academic posts in Britain, Italy and Japan. From 1978 to 1988, she was Montague Burton Professor of International Relations at the London School of Economics and Political Science (LSE), the first woman to hold this chair and a professorial position in international relations at the LSE. She was a major figure in the professional associations of both Britain and the US: she was an instrumental founding member and first Treasurer of the British International Studies Association (BISA) [1] and the first female President of the International Studies Association (ISA) in 1995.

It was predominantly as a creative scholar and a forceful personality that she exercised her influence. She was almost single-handedly responsible for creating ‘international political economy’ and turning it into one of the two or three central fields within international studies in Britain, and she defended her creation with such robustness, and made such strong claims on its behalf, that her influence was felt—albeit not always welcomed—in most other areas of the discipline. She was one of the earliest and most influential campaigners for the closer integration of the study of international politics and international economics in the English language scholarship.

In the later period of her career, alongside the financial analyses offered in Casino Capitalism (the analysis in which she felt was vindicated by the South-East Asian financial crisis) and Mad Money, Strange's contributions to the field include her characterisation of the four different areas (production, security, finance and knowledge) through which power might be exercised in International Relations. This understanding of what she termed "structural power", formed the basis of her argument against the theory of American Hegemonic Decline in the early eighties.

Her analysis particularly in States and Markets focused on what she called the ‘market-authority nexus’, the see-saw of power between the market and political authority. The overall argument of her work suggested that the global market had gained significant power relative to states since the 1970s. This led her to dub the Westphalia system Westfailure. She argued that a ‘dangerous gap’ was emerging between territorially-bound nation states and weak or partial intergovernmental cooperation in which markets had a free hand which could be constructive or destructive.

John K. Galbraith

Among early critiques of casino capitalism was John K. Galbraith. He promoted a pretty novel idea that the major economic function of Governments is to strengthen countervailing powers to achieve some kind of balance between capital and labor. While unions are far from being perfect and his prediction did not materialize in view of sliding to corporatism it may well be that the renewed support of unions right efforts to organize could make a big contribution to a revised, post subprime/derivatives/shadow_banking crisis stage of capitalism.

His critique of Milton Freedman pseudoscience still has its value today.

As Joseph Stiglitz noted (CSMonitor, Dec 28, 2006):

...In many ways, Galbraith was a more critical observer of economic reality.

Driven to understand market realities

Galbraith's vivid depictions of the good, bad, and ugly of American capitalism remain a sorely needed reminder that all is not quite as perfect as the perfect market models – with their perfect competition, perfect information, and perfectly rational consumers – upon which so much of Friedman's analysis depended.

Galbraith, who cut his teeth studying agricultural economics, strove to understand the world as it was, with all the problems of unemployment and market power that simplistic models of competitive markets ignore. In those models, unemployment didn't exist. Galbraith knew that made them fatally flawed

... ... ...

In his early research, Galbraith attempted to explain what had brought on the Great Crash of 1929 – including the role of the stock market's speculative greed fed by (what would today be called) irrational exuberance. Friedman ignored speculation and the failure of the labor market as he focused on the failures of the Federal Reserve. To Friedman, government was the problem, not the solution.

What Galbraith understood, and what later researchers (including this author) have proved, is that Adam Smith's "invisible hand" – the notion that the individual pursuit of maximum profit guides capitalist markets to efficiency – is so invisible because, quite often, it's just not there. Unfettered markets often produce too much of some things, such as pollution, and too little of other things, such as basic research. As Bruce Greenwald and I have shown, whenever information is imperfect – that is, always – markets are inefficient; hence the need for government action.

Galbraith reminded us that what made the economy work so well was not an invisible hand but countervailing powers. He had the misfortune of articulating these ideas before the mathematical models of game theory were sufficiently developed to give them expression. The good news is that today, more attention is being devoted to developing models of these bargaining relationships, and to complex, dynamic models of economic fluctuations in which speculation may play a central role.

Government's role

While Friedman never really appreciated the limitations of the market, he was a forceful critic of government. Yet history shows that in every successful country, the government had played an important role. Yes, governments sometimes fail, but unfettered markets are a certain prescription for failure. Galbraith made this case better than most.

Galbraith knew, too, that people aren't just rational economic actors, but consumers, contending with advertising, political persuasion, and social pressures. It was because of his close touch with reality that he had such influence on economic policymaking, especially during the Kennedy-Johnson years.

Galbraith's penetrating insights into the nature of capitalism – as it is lived, not as it is theorized in simplistic models – has enhanced our understanding of the market economy. He has left an intellectual legacy for generations to come. And he has left a gap in our intellectual life: Who will stand up against the economics establishment to articulate an economic vision that is both in touch with reality and comprehensible to ordinary citizens?

Galbraith was vindicated in his belief that the only economics possible is political economics and as government is always an agent of dominant class it always mixed with politics. Krugman and Stiglitz both have eaten humble pie, because according to neoclassical economics the crises should not have happened. Both should now reread Galbraith's The Great Crash: 1929 (see also extracts). BTW it is interesting that in 1996 Paul Krugman criticized limitations of Galbright vision in the following way:

To be both a liberal and a good economist you must have a certain sense of the tragic--that is, you must understand that not all goals can be attained, that life is a matter of painful tradeoffs. You must want to help the poor, but understand that welfare can encourage dependency. You must want to protect those who lose their jobs, but admit that generous unemployment benefits can raise the long-term rate of unemployment. You must be willing to tax the affluent to help those in need, but accept that too high a rate of taxation can discourage investment and innovation.

To the free-market conservative, these are all arguments for government to do nothing, to accept whatever level of poverty and insecurity the market happens to produce. A serious liberal does not reply to such conservatives by denying that there are any trade-offs at all; he insists, rather, that some trade-offs are worth making, that helping the poor and protecting the unlucky may have costs but will ultimately make for a better society.

The revelation one gets from reading John Kenneth Galbraith's The Good Society is that Galbraith--who is one of the world's most celebrated intellectuals, and whom one would expect to have a deeper appreciation of the complexity of the human condition than a mere technical economist would -- lacks this tragic sense. Galbraith's vision of the economy is one without shadows, in which what is good for social justice always turns out to have no unfavorable side effects. If this vision is typical of liberal intellectuals, the ineffectuality of the tribe is not an accident: It stems from a deep-seated unwillingness to face up to uncomfortable reality.

Similar limited understanding of Galbright is demonstrated in London Times (cited from comment to Economist's View blog) :

Some motifs of Galbraith’s work have entered popular consciousness. Galbraith wrote of private opulence amid public squalor, illustrating it with a memorable metaphor of a family that travels by extravagant private car to picnic by a polluted river.

Yet while arguing for increased public expenditure on welfare, Galbraith gave scant attention to the limits of that approach. His writings perpetuate a debilitating weakness of modern liberalism: a reluctance to acknowledge that resources are scarce. In Galbraith’s scheme, said Herbert Stein, the former chairman of the Council of Economic Advisers: “The American people were only asked whether they wanted cleaner air and water . . . The answers to such questions seemed obvious — but they were not the right questions.”

Soros contribution to the understanding of growth of financial sector as source of new, global economic instability

This idea of "casino capitalism" as a driver of financial instability was developed further in the book The Crisis of Global Capitalism by George Soros (1998), who highlights the potential for disequilibrium in the financial system, and the inability of non-market sectors to regulate markets.

Although the insights of the Soros critique of global capitalism are scarcely new, they were articulated with such candor and accuracy that the book made a significant impact. The following is a sampling of Soros' insights.
  1. Unregulated financial markets are inherently unstable. Soros observes that, contrary to conventional economic theory, financial markets are not driven toward a relatively stable and rational price by the objective value assessment of such things as the soundness of a company's management, products, or record of profitability. Rather they are constantly driven away from equilibrium by the momentum of self-fulfilling expectations -- a rising stock price attracts buyers who further raise the price-to the point of collapse. The recent massive inflation and subsequent collapse in the price of the shares of unprofitable dot-com companies illustrates Soros' point.

    Bank lending also contributes to the instability, because the price of real and financial assets is set in part by their collateral value. The higher their market price rises the larger the loans banks are willing to make to their buyers to bid up prices. When the bubble bursts, the value of the assets plummets below the amount of the money borrowed against them. This forces banks to call their loans and cut back on the lending, which depresses asset prices and dries up the money supply. The economy then tanks-until credit worthiness is restored and a new boom phase begins.

  2. Financial markets are amoral by definition. Following Napoleon Bonaparte, Soros stressed that there is no meaningful place for individual moral behavior in the context of financial markets, because such behavior has no consequence other than to reduce the financial return to the ethical actor.

    When I bought shares in Lockheed and Northrop after the managements were indicted for bribery, I helped sustain the price of their stocks. When I sold sterling short in 1992, the Bank of England was on the other side of my transactions, and I was in effect taking money out of the pockets of British taxpayers. But if I had tried to take social consequences into account, it would have thrown off my risk-reward calculation, and my profits would have been reduced.

    Soros argues that if he had not bought Lockheed and Northrop, then somebody else would have, and Britain would have devalued sterling no matter what he did. "Bringing my social conscience into the decision-making process would make no difference in the real world; but it may adversely affect my own results." One can challenge the Soros claim that such behavior is amoral rather than immoral, but his basic argument is accurate. His understanding that it is futile to look to individual morality as the solution to the excesses of financial markets is all too accurate.

  3. Corporate employees are duty-bound to serve only corporate financial interests. Soros writes:

    Publicly owned companies are single-purpose organizations-their purpose is to make money. The tougher the competition, the less they can afford to deviate. Those in charge may be well-intentioned and upright citizens, but their room for maneuver is strictly circumscribed by the position they occupy. They are duty-bound to uphold the interests of the company. If they think that cigarettes are unhealthy or that fostering civil war to obtain mining concessions is unconscionable, they ought to quit their jobs. Their place will be taken by people who are willing to carry on.

    Though not specifically mentioned by Soros, this is why corporations were in the past (at least partially) excluded from the political processes (although it was never complete and it is well known fact that Crusades and Siege of Constantinople (1204) were financed by Genoese bankers upset by lack of access to the Byzantium markets). But at least formally other parts of the society can define their goals and the rules of the marketplace. They are incapable of distinguishing between private corporate interests and broader public interests. But that changed with the global dominance of corporatism.

  4. Financial markets are oblivious to externalities and are infected by "short-termism". Specifically the fact that a strategy or policy produces economic returns in the short-term does not mean the long-term results will be beneficial. The focus of financial markets is on short-term individual gain to the exclusion of both social and longer-term consequences. The fact that particular policies and strategies are effective in producing short-term financial returns does not mean they are more generally beneficial or desirable. Soros offers the example that running up a budget or trade deficit "feels good while it lasts, but there can be hell to pay later."

  5. The relationship between the center and the periphery of the capitalist system is profoundly unequal. The powerful countries at the center of the capitalist system are both wealthier and more stable than countries at the periphery because control of the financial system and ownership of productive assets allows them to shape economic and political affairs to their benefit.

    "Foreign ownership of capital deprives peripheral countries of autonomy and often hinders the development of democratic institutions. The international flow of capital is subject to catastrophic interruptions."

    In times of uncertainty financial capital tends to return to its country of origin, thus depriving countries at the periphery of the financial liquidity necessary to the function of monetized economies. "The center's most important feature is that it controls its own economic policies and holds in its hands the economic destinies of periphery countries."

  6. In the capitalist system greed (aka "monetary values") tend to displace social values in sectors where this is destructive of important public interests. Soros writes:

    Monetary values have usurped the role of intrinsic values, and markets have come to dominate spheres of existence where they do not properly belong. Law and medicine, politics, education, science, the arts, even personal relations-achievements or qualities that ought to be valued for their own sake are converted into monetary terms; they are judged by the money they fetch rather than their intrinsic value."

    Because financial "capital is free to go where most rewarded, countries vie to attract and retain capital, and if they are to succeed they must give precedence to the requirements of international capital over other social objectives.

Ha-Joon Chang

One notable later researcher of casino capitalism, especially "free market" fundamentalism propaganda Cambridge University researcher Ha-Joon Chang. In 2011 he published a fascinating book 23 Things They Don't Tell You About Capitalism. Here are two Amazon reviews that shed some light at the key ideas of the book:

William Podmore

Ha-Joon Chang, Reader in the Political Economy of Development at Cambridge University, has written a fascinating book on capitalism's failings. He also wrote the brilliant Bad Samaritans. Martin Wolf of the Financial Times says he is `probably the world's most effective critic of globalization'.

Chang takes on the free-marketers' dogmas and proposes ideas like

He notes that the USA does not have the world's highest living standard. Norway, Luxemburg, Switzerland, Denmark, Iceland, Ireland, Sweden and the USA, in that order, had the highest incomes per head. On income per hours worked, the USA comes eighth, after Luxemburg, Norway, France, Ireland, Belgium, Austria and the Netherlands. Japan, Switzerland, Singapore, Finland and Sweden have the highest industrial output per person.

Free-market politicians, economists and media have pushed policies of de-regulation and pursuit of short-term profits, causing less growth, more inequality, more job insecurity and more frequent crises. Britain's growth rate in income per person per year was 2.4 per cent in the 1960s-70s and 1.7 per cent 1990-2009. Rich countries grew by 3 per cent in the 1960s-70s and 1.4 per cent 1980-2009. Developing countries grew by 3 per cent in the 1960s-70s and 2.6 per cent 1980-2009. Latin America grew by 3.1 per cent in the 1960s-70s and 1.1 per cent 1980-2009, and Sub-Saharan Africa by 1.6 per cent in the 1960s-70s and 0.2 per cent 1990-2009. The world economy grew by 3.2 per cent in the 1960s-70s and 1.4 per cent 1990-2009.

So, across the world, countries did far better before Thatcher and Reagan's `free-market revolution'. Making the rich richer made the rest of us poorer, cutting economies' growth rates, and investment as a share of national output, in all the G7 countries.

Chang shows how free trade is not the way to grow and points out that the USA was the world's most protectionist country during its phase of ascendancy, from the 1830s to the 1940s, and that Britain was one of world's the most protectionist countries during its rise, from the 1720s to the 1850s.

He shows how immigration controls keep First World wages up; they determine wages more than any other factor. Weakening those controls, as the EU demands, lowers wages.

He challenges the conventional wisdom that we must cut spending to cut the deficit. Instead, we need controls capital, on mergers and acquisitions, and on financial products. We need the welfare state, industrial policy, and huge investment in industry, infrastructure, worker training and R&D.

As Chang points out, "Even though financial investments can drive growth for a while, such growth cannot be sustained, as those investments have to be ultimately backed up by viable long-term investments in real sector activities, as so vividly shown by the 2008 financial crisis."

This book is a commonsense, evidence-based approach to economic life, which we should urge all our friends and colleagues to read.

Loyd E. Eskildson

The 2008 'Great Recession' demands re-examination of prevailing economic thought - the dominant paradigm (post 1970's conservative free-market capitalism) not only failed to predict the crisis, but also said it couldn't occur in today's free markets, thanks to Adam Smith's 'invisible hand.' Ha-Joon Chang provides that re-examination in his "23 Things They Don't Tell You About Capitalism." Turns out that the reason Adam Smith's hand was not visible is that it wasn't there. Chang, economics professor at the University of Cambridge, is no enemy of capitalism, though he contends its current conservative version should be made better. Conventional wisdom tells us that left alone, markets produce the most efficient and just outcomes - 'efficient' because businesses and individuals know best how to utilize their resources, and 'just' because they are rewarded according to their productivity. Following this advice, countries have deregulated businesses, reduced taxes and welfare, and adopted free trade. The results, per Chang, has been the opposite of what was promised - slower growth and rising inequality, often masked by rising credit expansion and increased working hours. Alternatively, developing Asian countries that grew fast did so following a different version of capitalism, though to be fair China's version to-date has also produced much greater inequality. The following summarizes some of Chang's points:

  1. "There is no such thing as a free market" - we already have hygiene standards in restaurants, ban child labor, pollution, narcotics, bribery, and dangerous workplaces, require licenses for professions such as doctors, lawyers, and brokers, and limit immigration. In 2008, the U.S. used at least $700 billion of taxpayers' money to buy up toxic assets, justified by President Bush on the grounds that it was a necessary state intervention consistent with free-market capitalism. Chang's conclusion - free-marketers contending that a certain regulation should not be introduced because it would restrict market freedom are simply expressing political opinions, not economic facts or laws.
  2. "Companies should not be run in the interest of their owners." Shareholders are the most mobile of corporate stakeholders, often holding ownership for but a fraction of a second (high-frequency trading represents 70% of today's trading). Shareholders prefer corporate strategies that maximize short-term profits and dividends, usually at the cost of long-term investments. (This often also includes added leverage and risk, and reliance on socializing risk via 'too big to fail' status, and relying on 'the Greenspan put.') Chang adds that corporate limited liability, while a boon to capital accumulation and technological progress, when combined with professional managers instead of entrepreneurs owning a large chunk (e.g.. Ford, Edison, Carnegie) and public shares with smaller voting rights (typically limited to 10%), allows professional managers to maximize their own prestige via sales growth and prestige projects instead of maximizing profits. Another negative long-term outcome driven by shareholders is increased share buybacks (less than 5% of profits until the early 1980s, 90% in 2007, and 280% in 2008) - one economist estimates that had GM not spent $20.4 billion on buybacks between 1986 and 2002 it could have prevented its 2009 bankruptcy. Short-term stockholder perspectives have also brought large-scale layoffs from off-shoring. Governments of other countries encourage longer-term thinking by holding large shares in key enterprises (China Mobile, Renault, Volkswagen), providing greater worker representation (Germany's supervisory boards), and cross-shareholding among friendly companies (Japan's Toyota and its suppliers).
  3. "Free-market policies rarely make poor countries rich." With a few exceptions, all of today's rich countries, including Britain and the U.S., reached that status through protectionism, subsidies, and other policies that they and their IMF, WTO, and World Bank now advise developing nations not to adopt. Free-market economists usually respond that the U.S. succeeded despite, not because of, protectionism. The problem with that explanation is the number of other nations paralleling the early growth strategy of the U.S. and Britain (Austria, Finland, France, Germany, Japan, Korea, Singapore, Sweden, Taiwan), and the fact that apparent exceptions (Hong Kong, Switzerland, The Netherlands) did so by ignoring foreign patents (a free-market 'no-no'). Chang believes the 'official historians' of capitalism have been very successful re-writing its history, akin to someone trying to 'kick away the ladder' with which they had climbed to the top. He also points out that developing nations that stick to their Ricardian 'comparative advantage,' per the conservatives prescription, condemn themselves to their economic status quo.
  4. "We do not live in a post-industrial age." Most of the fall in manufacturing's share of total output is not due to a fall in the quantity of manufactured goods, but due to the fall in their prices relative to those for services, caused by their faster productivity growth. A small part of deindustrialization is due to outsourcing of some 'manufacturing' activities that used to be provided in-house - e.g.. catering and cleaning. Those advising the newly developing nations to skip manufacturing and go directly to providing services forget that many services mainly serve manufacturing firms (finance, R&D, design), and that since services are harder to export, such an approach will create balance-of-payment problems. (Chang's preceding points directly contradict David Ricardo's law of comparative advantage - a fundamental free market precept. Chang's example of how Korea built Pohang Steel into a strong economic producer, despite lacking experienced managers and natural resources, is another.)
  5. "The U.S. does not have the highest living standard in the world." True, the average U.S. citizen has greater command over goods and services than his counterpart in almost any other country, but this is due to higher immigration, poorer employment conditions, and working longer hours for many vs. their foreign counterparts. The U.S. also has poorer health indicators and worse crime statistics. We do have the world's second highest income per capita - Luxemburg's higher, but measured in terms of purchasing power parity (PPP) the U.S. ranks eighth. (The U.S. doesn't have the fastest growing economy either - China is predicted to pass the U.S. in PPP this coming decade.) Chang's point here is that we should stop assuming the U.S. provides the best economic model. (This is already occurring - the World Bank's chief economist, Justin Lin, comes from China.)
  6. "Governments can pick winners." Chang cites examples of how the Korean government built world-class producers of steel (POSCO), shipbuilding (Hyundai), and electronics (LG), despite lacking raw materials or experience for those sectors. True, major government failures have occurred - Europe's Concorde, Indonesia's aircraft industry, Korea's promotion of aluminum smelting, and Japan's effort to have Nissan take over Honda; industry, however, has also failed - e.g.. the AOL-Time Warner merger, and the Daimler-Chrysler merger. Austria, China, Finland, France, Japan, Norway, Singapore (in numerous other areas), and Taiwan have also done quite well with government-picked winners. Another problem is that business and national interests sometimes clash - e.g.. American firms' massive outsourcing has undermined the national interest of maintaining full employment. (However, greater unbiased U.S. government involvement would be difficult due to the 10,000+ corporate lobbyists and billions in corporate campaign donations - $500 million alone from big oil in 2009-10.) Also interesting to Chang is how conservative free marketing bankers in the U.S. lined up for mammoth low-cost loans from the Federal Reserve at the beginning of the Great Recession. Government planning allows minimizing excess capacity, maximizing learning-curve economies and economies of scale and scope; operational performance is enhanced by also forcing government-owned or supported firms into international competition. Government intervention (loans, tariffs, subsidies, prohibiting exports of needed raw materials, building infrastructure) are necessary for emerging economies to move into more sophisticated sectors.
  7. "Making rich people richer doesn't make the rest of us richer." 'Trickle-down' economics is based on the belief that the poor maximize current consumption, while the rich, left to themselves, mostly invest. However, the years 1950-1973 saw the highest-ever growth rates in the U.S., Canada, Australia, and New Zealand, despite increased taxation of the rich. Before the 'Golden Age,' per capita income grew at 1-1.5%/year; during the Golden Age it grew at 2-3% in the U.S. Since then, tax cuts for the rich and financial deregulation have allowed greater paychecks for top managers and financiers, and between 1979 and 2006 the top 0.1% increased their share of national income from 3.5% to 11.6%. The result - investment as a ratio of national output has fallen in all rich economies and the pace at which the total economic pie grew decreased.
  8. "U.S. managers are over-priced." First, relative to their predecessors (about 10X those in the 1960s; now 300-400X the average worker), despite the latter having run companies more successfully, in relative terms. Second, compared to counterparts in other rich countries - up to 20X. (Third, compared to counterparts in developing nations - e.g.. JPMorgan Chase, world's 4th largest bank, paid its CEO $19.6 million in 2008, vs. the CEO of the Industrial and Commercial Bank of China, the world's largest, being paid $234,700. Read more ›

Willem Buiter and the idea of long term after crisis stagnation

Willem Buiter in his FT article After the Crisis Macro Imbalance, Credibility and Reserve-Currency suggested that after financial crisis of 2008 there might be very long a painful deleveraging period aka secular stagnation. In short each financial crisis make recovery longer and longer. That's why the US will most likely face a long period of stagnation: the digestion of huge excessive debt of the private sector might well take a decade:

Since the excess of debt is relative to income and GDP, the lower the rate of growth, the longer the required period of digestion. This explains for the paradox of trying to stimulate consumption when the economy faces a monumental crisis provoked exactly by excessive debt and excessive consumption. A cartoon line best captured the spirit of it: "country addicted to speculative bubbles desperately searches a new bubble to invest in. "

... ... ...

The roots of the crisis are major international macroeconomic imbalances. Despite the fact that the excesses of the financial system were instrumental to lead these imbalances further than otherwise possible, insufficient regulation should not be viewed as the main factor behind the crisis. The expenditure of central countries, spinned by all sort of financial innovations created by a globalized financial system, was the engine of world growth. When debt became clearly excessive in central countries and the debt-financed expenditure cycle came to an end, the ensuing crisis paralyzed the world economy. With the lesson of 1929 well assimilated, American monetary policy became aggressively expansionist. The Fed inundated the economy with money and credit, in the attempt to avoid a deep depression. Even if successful, the economies of the US and the other central countries, given the burden of excessive debt, are likely to remain stagnant under the threat of deflation for the coming years. The assumption of troubled assets by the public sector, in order to avoid the collapse of the financial system, might succeed, but at the cost of a major increase in public debt. Fiscal policy is not efficient to restart the economy when the private sector remains paralyzed by excessive debt. Even if a coordinated effort to increase public expenditure is successful, the central economies will remain stagnant for as long as the excessive indebtedness of the private sector persists. The period of digestion of excess debt will be longer than the usual recessive cycle. Since imports represent a drain in the effort to reanimate domestic demand through public expenditure, while exports, on the contrary, contribute to the recovery of internal demand, the temptation to central economies to also adopt a protectionist stance will be strong.

Willem Buiter also defined ‘cognitive regulatory capture’ which existed during the Greenspan years and when the Fed were just an arm of Wall Street.

This regulatory capture has resulted in an excess sensitivity of the Fed to financial market and financial sector concerns and fears and in an overestimation of the strength of the link between financial market turmoil and financial sector deleveraging and capital losses on the one hand, and the stability and prosperity of the wider economy on the other hand. The paper gives five examples of recent behavior by the Fed that are most readily rationalized with the assumption of regulatory capture. The abstract of the paper follows next. The latest version of the entire enchilada can be found here. Future revisions will also be found there.

Joseph Stiglitz on 5 steps to Casino Capitalism

In his 2008 Vanity Fair article Capitalist Fools Stiglitz identifies five key steps in transformation of American capitalism to Casino Capitalism (moments of failure as he called them):

No. 1: Reagan Fires Fed Chairman Volcker and Replaces Him With Greenspan in 1987:

Volcker also understood that financial markets need to be regulated. Reagan wanted someone who did not believe any such thing, and he found him in a devotee of the objectivist philosopher and free-market zealot Ayn Rand.

snip

If you appoint an anti-regulator as your enforcer, you know what kind of enforcement you’ll get. A flood of liquidity combined with the failed levees of regulation proved disastrous.

Greenspan presided over not one but two financial bubbles.

  1. Congress repealed the Glass-Steagall Act in 1999 under Bill Clinton (Glass-Steagall was a depression-era reform that separated commercial and investment banks)

I had opposed repeal of Glass-Steagall. The proponents said, in effect, Trust us: we will create Chinese walls to make sure that the problems of the past do not recur. As an economist, I certainly possessed a healthy degree of trust, trust in the power of economic incentives to bend human behavior toward self-interest—toward short-term self-interest, at any rate, rather than Tocqueville’s "self interest rightly understood."

Stiglitz also refers to a 2004 decision by the SEC "to allow big investment banks to increase their debt-to-capital ratio (from 12:1 to 30:1, or higher) so that they could buy more mortgage-backed securities, inflating the housing bubble in the process."

Once more, it was deregulation run amuck, and few even noticed.

  1. The Bush tax cuts, both on income and capital gains

The Bush administration was providing an open invitation to excessive borrowing and lending—not that American consumers needed any more encouragement.

  1. Faking the Numbers

Here he refers to bad accounting, the failure to address problems with stock options, and the incentive structures of ratings agencies like Moodys that led them to give high ratings to toxic assets.

  1. Paulson and the Flawed Bailout

Valuable time was wasted as Paulson pushed his own plan, "cash for trash," buying up the bad assets and putting the risk onto American taxpayers. When he finally abandoned it, providing banks with money they needed, he did it in a way that not only cheated America’s taxpayers but failed to ensure that the banks would use the money to re-start lending. He even allowed the banks to pour out money to their shareholders as taxpayers were pouring money into the banks.

Stiglitz concludes:

The truth is most of the individual mistakes boil down to just one: a belief that markets are self-adjusting and that the role of government should be minimal. Looking back at that belief during hearings this fall on Capitol Hill, Alan Greenspan said out loud, "I have found a flaw." Congressman Henry Waxman pushed him, responding, "In other words, you found that your view of the world, your ideology, was not right; it was not working." "Absolutely, precisely," Greenspan said. The embrace by America—and much of the rest of the world—of this flawed economic philosophy made it inevitable that we would eventually arrive at the place we are today.

The flawed economic philosophy brought by Reagan, and embraced by so many, brought us to this day. Ideas have consequences, especially when we stop empirically testing them. Republican economics have created great pain to America and harmed our national interest.

The flaw that Greenspan found was always there: self-regulation does not work. As Stiglitz said:

As an economist, I certainly possessed a healthy degree of trust, trust in the power of economic incentives to bend human behavior toward self-interest — toward short-term self-interest

Yes, for all their claims to science, the premise conflicts with tendencies of people.

This is the real legacy of Ronald Reagan and Alan Greenspan:

The whole scheme was kick-started under Ronald Reagan. Between his tax cuts for the rich and the Greenspan Commission’s orchestrated Social Security heist, working Americans lost out in a generational wealth transfer shift now exceeding $1 trillion annually from 90 million working class households to for-profit corporations and the richest 1% of the population. It created an unprecedented wealth disparity that continues to grow, shames the nation and is destroying the bedrock middle class without which democracy can’t survive.

Greenspan helped orchestrate it with economist Ravi Batra calling his economics "Greenomics" in his 2005 book "Greenspan’s Fraud." It "turns out to be Greedomics" advocating anti-trust laws, regulations and social services be ended so "nothing....interfere(s) with business greed and the pursuit of profits."

 Conclusions: From Animal Farm To Animal House

Instead of conclusion I will reproduce the post from Sudden Debt (March 17, 2008):

In Orwell's Animal Farm all animals are equal - except that some are more equal than others. All in the spirit of law, order and the proper functioning of society, of course. Fittingly, the animals that have chosen this role by themselves and for themselves, are the pigs.

Cut to US financial markets today. After years of swinish behavior more reminiscent of Animal House than anything else, the pigs are threatening to destroy the entire farm. As if it wasn't enough that they devoured all the "free market" food available and inundated the world with their excreta, they now wish to be put on the public trough. Truly, some businessmen believe they are more equal than others.

But do not blame the pigs; they are expected to act as swine nature dictates. The fault lies entirely with the farmers, those authorities entrusted by the people to oversee the farm because they supposedly knew better. While the pigs were rampaging and tearing the place apart, they were assuring us all that farms function best when animals are free to do as they please, guided solely by invisible hooves. No regulation, no oversight, no common sense. Oh yes, and pigs fly..

So what is to be done now? Two things:

In other words, the focus from now on should be on adding value by means of work and savings (capital formation), instead of inflating assets and borrowing.

Furthermore, we should realize that in a world already inhabited by close to 7 billion people and beset by resource depletion and environmental degradation, defending growth for growth's sake is a losing proposition. The wheels are already wobbling on the Permagrowth model; pumping harder on the accelerator is not going to make it go any faster and will likely result in a fatal crash.

Debt, and finance in general, should be left to re-size downwards to a level that better reflects the carrying capacity of our world. The Fed's current actions are shortsighted and "conservative" in the worst interpretation of the words: they are designed to artificially maintain debt at levels that myopically projects growth as far as the eye can see.

What level of resizing may be necessary? I hope not as much as at Bear Stearns, which got itself bought by Morgan at buzz-saw prices: $2 per share represents a 98% discount from its $84 book value. What scares me, though, is the statement by Morgan's CFO, who said the price reflected the risk the firm was taking, even though he was comfortable with the valuation of assets in Bear's books. It "...gives us the flexibility and margin of error that's appropriate given the speed at which the transaction came together", he said.

If it takes a 98% discount and the explicit guarantee of the Fed for a large portion of assets to buy one of the largest investment banks in the world, where should all other financial firms be trading at? ....Hello? Anyone? Is that a great big silence I hear, or the sound of credit imploding into a vacuum?


Top updates

Softpanorama Switchboard
Softpanorama Search


NEWS CONTENTS

Old News ;-)

Casino Capitalism Bulletin, 2015 Casino Capitalism Bulletin, 2014 Casino Capitalism Bulletin, 2013 Casino Capitalism Bulletin, 2012 Casino Capitalism Bulletin, 2011 Casino Capitalism Bulletin, 2010 Casino Capitalism Bulletin, 2009 Casino Capitalism Bulletin, 2008

[May 24, 2016] The CEO of Goldman Sachs accidentally explained why everyone hates Wall Street

Notable quotes:
"... want to follow the rules ..."
"... The only thing you can trust is that Goldman Sach's values don't include giving a damned about average Americans even if in Blankfein's delusional mind he is doing "Gods work. It would go a way toward restoring trust in the system if these rip off artists would consent to paying more taxes on their ill deserved gains in order to help bring down some of the nations debt and relieve the misery their unethical behavior created. But that will never happen voluntarily. Basically they are immoral creeps killing the golden goose that is our country. ..."
"... Run corruption out of DC and there will be much more trust of big business. Do not buy the garbage that politicians are critical of the Wall Street crowd. Has Hillary released her speeches yet? NO. Don't expect she ever will. (aside: I do not find this article informative, and I'm dismayed by the comments I've read here.) ..."
"... "I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. …corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed." ..."
"... The mass of Americans are too powerless to fight back against the reign of the money powers. As Lincoln predicted, our Republic is destroyed. What awaits us now is dictatorship or even worse ... theocracy. ..."
finance.yahoo.com

Brilliance is often accidental, and so it was at Goldman Sachs' annual meeting on Friday.

In an attempt to pinpoint exactly what's wrong with the global economy - why demand is weak, why growth is anemic, why jitters on one side of the planet can turn into panic all over - CEO Lloyd Blankfein happened upon why Wall Street is so hated.

It was, as I said, an accident.

Blankfein said that what the world needs now is confidence. In investment banking, when people are confident t here are "more financings, more equity raises, because people invest more money in their own businesses when they're confident," he said, according to Business Insider's Portia Crowe , who was on the scene.

This explanation sounds right. When people think they can make money they put their money to work.

The problem is that "confidence" doesn't go far enough. More than confidence, for people to invest in the world they have to trust in it - in the systems and people that make it work.

The fact that Blankfein missed that mark, though, explains exactly why people hate Wall Street.

The financial crisis, the scandals and the fraud and the dark headlines, have all helped erode that trust. And that lack of trust is what is holding the world back right now.

This is not a drill

Think of a simple trust-building exercise, the fall game. When you're the fall guy, you can be confident that everyone is going to catch you. That, after all, is how the game is completed. You have to believe that everyone understands the rules.

What's better than knowing that everyone understands the rules, though? Trusting that everyone around you is going to catch you - believing beyond a shadow of a doubt that they want to follow the rules .

That's the difference between trust and conviction. Trust is something you can rely on, beyond certainty.

Now one can operate in markets without trust, with only conviction.

Conviction doesn't demand that you, or anyone else, play by the rules, though. It just demands that you understand what's going on (and what motivates everyone around you) at all times. It's a daunting task that neither the common person nor Wall Street's all-seeing CEOs were able to accomplish before the financial crisis. It is, however, part of the latter's full-time job - mitigating risk, seeing the unforeseen.

Of course, some of that burden would be lifted if we operated on more trust and less conviction.

Your correspondent is hardly the only person thinking this way. This week, Andrew G. Haldane, chief economist of the Bank of England, gave an incredibly compelling speech on what's wrong with global economy. Unlike Blankfein, though, he got it right. The speech was called The Great Divide, and he argued that the only way to close that divide is with trust.

"Evidence has emerged, both micro and macro, to suggest trust may play a crucial role in value creation. At the micro level, there is now ample evidence the degree of trust or social capital within a company contributes positively to its value creation capacity," said Haldane.

"At the macro level, there is now a strong body of evidence, looking across a large range of countries and over long periods of time, that high levels of trust and co-operation are associated with higher economic growth. Put differently, a lack of trust jeopardizes one of finance's key societal functions - higher growth."

Watchers on the wall

Back in 2014, when the market was roaring and everyone thought we were on the road to recovery, Dylan Grice, a portfolio manager at Aeris Capital, put forth the same idea. He saw in declining relations between the US and China, between Russia and the world, and between citizens and corporations what could only be perceived as our descent into the trough of a cycle of trust.

And, as he pointed out, credit - one of the main forces for moving money from place to place - comes from the Latin word for trust.

Over at HSBC, economist Stephen King wrote a note called Unhappy Families: The Case for International Policy Coordination in which he argued that the global economy could actually be saved quite easily if we trusted each other. If the countries that could save us - the US, China, and Germany - acted unselfishly and in coordination and simply did.

But they won't, because there is no trust.

"Yet it would be easy, too easy, to point the finger at finance alone," Haldane said in his speech. "For this Great Divide exists not just between the financial elites, but between elites generally and wider society. It is not just bankers who have suffered a loss of public trust. In varying degrees, this is also true of big business, government and, yes, politicians and central banks."

Man, see this mirror

This brings us back to Goldman Sachs, which happened to have had a very embarrassing little incident last week when one of its analysts recommended buying Tesla just before the bank announced that it would be helping the automaker with an equity offering.

Business Insider's Myles Udland described why that looks shady:

The stock upgrade is a detailed argument for why you, the investors, should buy the shares. As a result, investors buy.

This report is delivered just as Goldman's sales force is about to hit the phones to push $1.4 billion of those very shares for a nice fat fee for Goldman and a dilutive hit to the shareholders.

So then there are investors who, based on Archambault's note, bought the shares in the morning only to learn by that afternoon that Goldman would have a hand in diluting their newly acquired ownership stake.

And the popular view says Goldman knew this was going to happen the whole time.

If you're thinking the worst, this snafu was a breach of Wall Street's famous Chinese Wall between research and investment banking. What's more, because of this trust deficit, most people were thinking the worst because that's what they do when they think of Goldman Sachs.

View gallery

. Goldman Vampire Squid
Lloyd on a vampire squid. Sorry bro, too easy.

And because of that some people don't trust, or put their money in, the market.

And because of that the market doesn't move.

Haldane sees this fear as a loss of social capital arising from the crisis.

"Social capital is inextricably linked to trust," he said in his speech. "And banking is quintessentially a trust business. At root, it involves swapping promises to pay. These promises rely on trust."

It's the belief that these promises will be kept that the market is lacking, not necessarily that they can be kept. This is the difference between trust and confidence. And with every scandal and fraud, every dark headline telling of financial ruin that comes from the financial sector, some of that trust is lost.

Haldane thinks that recreating the local bank, a bank with the kind of accountability that comes from knowing someone by name and looking them in the eye, is part of the solution. But banking isn't moving that way. Every day we hear about how it's becoming more automated.

He acknowledges this, recognizing that banking must "seek new ways to nurture generalized, or anonymous, trust on the part of the public. Technology may be a great enabler here."

But in the end it doesn't matter how we fix this. We just have to fix it.

"Whatever business model is adopted, success will hinge on whether the public have faith in banks pursuing a purpose aligned with their needs, that they are fulfilling their fiduciary function. There is a mountain to climb on this front, not just for banking but for business generally," he said.

"If not at an all-time low, public trust in big business is plumbing the depths. And the chorus of criticism of business is not confined to the general public. It is shared by politicians, academics, investors and indeed sometimes by companies themselves."

Everyone is holding on to their money. Everyone is trying to look someone the eye and finding their counterparties' gaze shifting to wherever self-interest guides them. The counterparties are confident they'll find money there, sure, but the trust that makes the market go around is being lost in the process.

It takes so much more to build it up than to break it down.

NOW WATCH: THE STORY OF GOLDMAN SACHS: From foot peddlers to a powerhouse

rey Q 25 minutes ago
GS, Chase ,BofA,Wells Fargo.....,and some others big banks created the crisis past 2008-09.

Any one of the executives pass a day in prison, they pay cents on the dollars and happy cumballa until the next scam. Gov it's corrupt with a "revolving door" infiltrating the key position, every official working in White House or with the executive branch did work for a big bank first or going to work after!!!

They want trust, trust they themselves self smash, hundreds of case in courts from US citizens right now vs Government Why?

Because Gov. trying to steal ,expropriating private property without compensation and ignoring constitution. The rest of the population are worring about what wearing Kardashian!!! Our next election will be a show top level globally!!! Our founding fathers will be revolting in their tombs for now

PhilOSophocle

What the world needs now --- is love, sweet love. It's the only thing that there's just too little of, or so Burt Bacharach, Hal David & Jackie DeShannon said. But seriously folks . . . people hate Wall Street because of the unbridled greed everywhere. The Great Recession wasn't caused by real estate speculation --- it was caused by easy money from Wall Street when they packaged together risky mortgages & investment bankers sold them to banks as great investments, and then betting on them to fail on the side using Credit Default Swaps. It's very similar to what Joe Kennedy and his cronies did in the 1920's using market manipulation by cornering stocks & then doing a bear raid on it, which is illegal now. What the Wall Streeters did in 2000-2007 is still not illegal.

ey02kdv98

I agree. Trust needs to be restored. This requires Wall Street firms to be honest, and to weed out the greedy, psychopathic and sociopathic brokers, bankers, CEOs and chiefs, and assorted other criminals. By running firms honestly to a fault, investors would at first shy away because they'd think it was some kind of trick. Over a short period, good experiences will increase business to the point that it would exceed current sales many times over, even beyond your wildest imagination. There is a lot of $$$$$$$$$$$$ to be made in honestly run business. It's never to late to start.

Mark14

The only thing you can trust is that Goldman Sach's values don't include giving a damned about average Americans even if in Blankfein's delusional mind he is doing "Gods work. It would go a way toward restoring trust in the system if these rip off artists would consent to paying more taxes on their ill deserved gains in order to help bring down some of the nations debt and relieve the misery their unethical behavior created. But that will never happen voluntarily. Basically they are immoral creeps killing the golden goose that is our country.

DavBG

The repeal of Glass Stegal (which Roosevelt put in place after the last great depression) which prevented banks from investing depositors money in the stock market, is the root cause here. Banks were only allowed to make loans on real property, like businesses and mortgages. This put the money in savings back to work. Money placed in the house of cards, ponzi scheme, stock market, just sits there. Like a giant sponge sucking up the spare capital so that a 1% few can reap the benefit. Then insiders can cause booms and busts which slowly siphon the life out of a country and enslave it. The mortgage rate is now the lowest it has ever been in the US. Now with everyone's money in the stock market the next crash will bankrupt us since all the banks will have is worthless paper stock certificates.

Rp

Trust is not created through slick marketing and strategic press releases about speeches made by banking insiders, to other insiders, intended to convince those outside their cozy system, that they get it now, no more underhanded dealings, really this time, partners 50-50. We promise, no fingers crossed, everything above board from now on, you can trust us, really this time. That bs is played out, to ask for trust, is to confirm the fact that they should not, can not, be trusted. Trust, if it ever returns, to any degree, in any form, will be created by the numbers. The real numbers. The ones written under our names. The ones that stick. Trust is not a marketing concept, it can't be put where it doesn't belong, it can't grow where it isn't planted, protected, and nurtured.

Pat

Wall Street manipulators could not succeed without the complicity of Government. STOP REGULATING WALL STREET AND START DEMANDING THAT POLITICIANS CANNOT BE CONTROLLED BY LOBBYISTS. There should be a law that politicians bought by lobbyists WILL be prosecuted. It is Government that is guilty of capitulation. GOVERNMENT WRITES THE LAWS AND THE TAX CODES.

Run corruption out of DC and there will be much more trust of big business. Do not buy the garbage that politicians are critical of the Wall Street crowd. Has Hillary released her speeches yet? NO. Don't expect she ever will. (aside: I do not find this article informative, and I'm dismayed by the comments I've read here.)

Freethinker

It's so simple: the bank robbers have been given (or have taken) the combination to the bank vault and looted it. Then they were given raises and bonuses for this heist.

Doubt me? That canny corporate lawyer Abraham Lincoln anticipate our modern condition as far back as 1864, when he wrote:

"I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. …corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed."

The mass of Americans are too powerless to fight back against the reign of the money powers. As Lincoln predicted, our Republic is destroyed. What awaits us now is dictatorship or even worse ... theocracy.


[May 24, 2016] At The Edge Of Time This is Peak Oil

Notable quotes:
"... Some days ago I had the opportunity to watch a picture titled "The Big Short", an opus on the 2008 financial crisis. It portraits remarkably well how the marriage of ignorance with the lack of scruples can concoct the most toxic of outcomes. The so called "shale oil boom" is not much of a different story, only perhaps at a different scale. ..."
"... This contraction cycle will resound for years to come. Existing fields decline at a rate somewhere between 4% to 5% per year, meaning that the industry needs to bring online additional 3 Mb/d to 4 Mb/d every year just to keep extraction levelled. The investment deferrals under way and the time lag required to bring new fields online guarantee this replacement will be missed several years going forwards. ..."
"... Rystad Energy, a Norwegian petroleum and gas business intelligence consultancy, projects new extraction projects to miss the yearly decline of existing fields for at least the next five years . This consultancy expects an overall extraction decline of 300 kb/d this year, 1.2 Mb/d in 2017 and 2018 and deeper declines in 2019 and 2020. ..."
"... There are also reasons to believe the IEA is underestimating consumption , but this estimate produces a conservative (nearly best case) scenario: growth of 1.25 %/a. ..."
"... the extra stocks built by the OECD can alone keep consumers happy until the end of 2017; to go beyond that China has to follow the same strategy. However, if the trends identified here prevail, by the beginning of 2018 consumption will be exceeding extraction by almost 3 Mb/d, exhausting the remaining stocks of 0.5 Gb in a matter of months. ..."
"... The successive supply destruction - demand destruction cycles are the key dynamics of peak oil at an yearly scale. These cycles push left and transform each curve in succession, eventually producing a stall of traded volumes and finally a decline. The petroleum market has endured a supply destruction cycle for almost two years now, that while clearly closing, is yet far from the 100+ $/b price required to provide a reversing signal to the industry. With various petroleum exporting nations on the brink - in great measure due to the financial machinations concocted in the US - this supply destruction cycle might have been just too long. ..."
"... Present supply destruction cycle is coming to an end. ..."
blogspot.co.uk

Titling the last press review of 2015 I asked if that had been the year petroleum peaked. The question mark was not just a precaution, the uncertainty was really there. Five months later the reported world petroleum extraction rate is pretty much still were it was then. This is not a surprise, but the impact of two years of depressed prices is over due.

Nevertheless, during these five months of lethargy the information I gathered brings me considerably closer to remove the question mark from the sentence and acknowledge that a long term decline is settling in. Understanding the present petroleum market as a feature of the supply destruction - demand destruction cycle makes this case clear.

Looking Backwards

Worldwide petroleum extraction hit some sort of ceiling back in 2004, once it crossed above 70 Mb/d. The volume coming to the market kept increasing, but at a shy pace. From 2004 to 2012 the extraction rate grew only 3%, from 72 Md/b to 74 Mb/d.

At the same time, the Brent index endured a remarkable rise from 2004 to 2008. Some called this the "end of cheap oil", alluding to the increasing need for lower return-on-investment resources: ultra-deep water, heavy petroleums, Arctic, etc. Nevertheless, the price collapsed to a third from 2008 to 2009. Back then I explained how the concept of an ever rising petroleum price was at odds with "peak oil" . For the world extraction to enter a declining trend, periods of supply destruction must take place to keep those higher entropy resources at bay.

Today the market lives the second supply destruction cycle since the 2004 shift. In reality these cycles are lasting far longer than I anticipated, showing a considerable time lag in the adjustment of the supply curve. There is however something especial to this supply destruction cycle, that could possibly be sealing the end of growth to what petroleum is concerned.

The Miracle

Some days ago I had the opportunity to watch a picture titled "The Big Short", an opus on the 2008 financial crisis. It portraits remarkably well how the marriage of ignorance with the lack of scruples can concoct the most toxic of outcomes. The so called "shale oil boom" is not much of a different story, only perhaps at a different scale.

From 2011 to 2013 the extraction of petroleum from source rocks and other low permeability reservoirs in the US grew almost 2 Mb/d. These were remarkable days for the industry, with plenty of jobs created and a major revival to the American hands-on approach to business. However, such a rapid growth on a relatively small resource left many wondering if something else was at play.

By the beginning of 2014 it was becoming evident that the "shale oil boom" had been largely fuelled by the finance industry, that was feeding relentless amounts of what is sometimes called "dumb money" to be burned on America's source rocks. The scheme was simple: petroleum companies inflated their reserve assessments 10 times or more and imprudent investors kept buying bonds irrespective of losses. They thought they were investing on conventional 30 years petroleum bearing wells, when in fact were getting 3 years lifetime wells.

By late 2014 "shale oil" extraction in the US had increased 3.5 Mb/d since 2011, but at that point the price of petroleum in international markets was already coming off a cliff. 200 G$ rested on the American junk bond market, left to be trounced by a deep supply destruction cycle.

A bond default and bankruptcy wave formed throughout 2015, and is still surging today. One third of the companies involved in the "shale boom" should go belly up this year alone . However, these financial owes have not yet translated into a visible decline in extraction rates. This means that even bankrupt, petroleum companies are still bringing new source rock wells online, only deepening further the present supply destruction cycle.

When the WTI index (the regional equivalent to Brent) sank under 40 $/b late last year, Arthur Berman produced a most elucidating set of maps spatially portraying well profitability. At those prices only a small fraction of the wells extracting petroleum in the Permian formation were profitable.

And this is the remarkable achievement engendered by the marriage of America's petroleum and finance industries. Petroleum extraction became effectively insulated from prices; bankrupt or not, the wells on the Permian, Bakken and Eagle Ford formations will keep pumping - because the dumb money keeps burning. For the rest of the world, this is like inserting a sliver of 4 Mb/d at 0 $ at the far left of the supply curve, pushing all other resources rightwards. For an international industry already in contraction, this is like adding gasoline to the fire.

Supply Destruction

The present supply destruction cycle dates back to the beginning of 2014 - it actually unfolded before the price collapse. While prices still held above 100 $/b, international petroleum companies started facing issues regarding shareholder revenues. The supply curve is simply becoming too steep, when resources such as "Arctic oil" or "pre-salt" enter the portfolios of petroleum companies. The scale down of exploration activities started that year, as so the slashing of staff. In 2014 circa 100 000 jobs were laid off by the industry .

The price rout brought about by the shale miracle only accelerated this contraction. In 2015 the number of jobs laid off is estimated to have hit 250 000 . 2016 could end up close to that.

In panic mode, petroleum companies have been postponing or outright cancelling projects. Recent estimates point to a total of 400 G$ in deferred investments . A new wave of mergers in the industry is now expected.

Throughout 2015 only 2.8 Gb were identified in new reserves , the lowest score since the end of the II World War. This figure is less than one tenth of yearly consumption.

This contraction cycle will resound for years to come. Existing fields decline at a rate somewhere between 4% to 5% per year, meaning that the industry needs to bring online additional 3 Mb/d to 4 Mb/d every year just to keep extraction levelled. The investment deferrals under way and the time lag required to bring new fields online guarantee this replacement will be missed several years going forwards.

Rystad Energy, a Norwegian petroleum and gas business intelligence consultancy, projects new extraction projects to miss the yearly decline of existing fields for at least the next five years . This consultancy expects an overall extraction decline of 300 kb/d this year, 1.2 Mb/d in 2017 and 2018 and deeper declines in 2019 and 2020.

Looking Forwards

In a previous post I analysed the gap between petroleum extraction and consumption reported by the IEA. Using data fragments published by the press I then produced an estimate for China's stock flows that greatly explains what have been heretofore unaccounted barrels. In essence, the OECD and China could have amassed together a total of extra 900 Mb in stocks since the beginning of 2014.

Using this estimate for worldwide stocks I was then able to compute world petroleum consumption for the past two years. There are also reasons to believe the IEA is underestimating consumption , but this estimate produces a conservative (nearly best case) scenario: growth of 1.25 %/a.

Matching the outlook produced by Rystad with this consumption trend one can start the always risky exercise of predicting the future. In this case I projected forwards the consumption pattern of 2015 - with a double slump in later Winter and Spring, and the Summer up-tick - increasing at the steady pace identified before. As for extraction, I simple spread Rystad's outlook into a monthly dataset. The end result can be observed in the graph below.

The extraordinary stocks built by the OECD and China since 2014 are projected to hit 1 Gb right about now, but also to soon stop growing. None of this counts with the fires in Alberta, or the social-economic owes endured presently by Nigeria or Venezuela. Still, in this conservative scenario consumption is just about to exceed extraction.

In the scenario above I also made the exercise of estimating how long can these extraordinary stocks last if they are immediately released on the market to stave off an immediate price reaction. That being the case, the extra stocks built by the OECD can alone keep consumers happy until the end of 2017; to go beyond that China has to follow the same strategy. However, if the trends identified here prevail, by the beginning of 2018 consumption will be exceeding extraction by almost 3 Mb/d, exhausting the remaining stocks of 0.5 Gb in a matter of months.

How likely is this scenario? Is the OECD willing to bring its stocks promptly on the market to keep prices where they are now? Or will it wait for prices to rise to provide breathing air to the petroleum industry? And for how long can countries like Iraq, Nigeria or Venezuela withstand prices under 100 $/b?

As the events of recent months show, it might be far more likely for some disruptive happening to shake things up, than for these pretty trends to endure. In any case, this supply destruction cycle is coming to an end sooner rather than later. The market will eventually have to fix the widening gap projected in the graph above.

Consequences

These two years of supply destructive prices have pushed various important petroleum nations and regions to the brink. If there is some unexpected event shaking up the petroleum market, it will likely be in one of these places.

Conclusion

Depending on how the OECD (and perhaps China) decide to manage their extra petroleum stocks, the shift to a new demand destruction cycle closing the gap portrayed in the graph above will be complete by early 2018 the latest. If something goes seriously wrong with one of the key petroleum exporting nations, this shift could happen overnight.

What will such new cycle bring? Recent experience provides some clues: it took eight years for world extraction to rise from 72 Mb/d to 74 Mb/d; the so called "shale boom" required four years at prices above 110 $/b. These long time lags mean that Rystad's declining outlook is by this time almost certain.

The coming demand destruction cycle is therefore likely to be a long one too. And at some point it can invert the extraction trend upwards. In such a scenario, can extraction return to the 80 Mb/d rate of 2015? That is the big question, which I will abstain from answering definitively. Looking at it from the other side of the equation, for such a scenario to ever materialize, demand must withstand again a good number of years at high prices without undershooting.

The successive supply destruction - demand destruction cycles are the key dynamics of peak oil at an yearly scale. These cycles push left and transform each curve in succession, eventually producing a stall of traded volumes and finally a decline. The petroleum market has endured a supply destruction cycle for almost two years now, that while clearly closing, is yet far from the 100+ $/b price required to provide a reversing signal to the industry. With various petroleum exporting nations on the brink - in great measure due to the financial machinations concocted in the US - this supply destruction cycle might have been just too long.

The Take Away

[May 21, 2016] Could Sabotage Cause A Surge In Oil Prices

oilprice.com

OilPrice.com

There have always been three routes out of the unsustainably low prices: natural decline/growth of supply/demand, collaboration constraints on supply, and military conflict. Since January, while the talk of a growth freeze had no effect whatsoever on actual supply, the natural decline/growth did reduce the overhang by a couple of hundred thousand barrels of oil per day. Meanwhile, two little-discussed and less-understood military interventions took a combined 900,000 bopd out of supply in a virtual instant.

The history of attacks by rebels on oil infrastructure in the Niger Delta and the coincident prosecution of a former rebel superficially suggested that this attack was another in protest. On the other hand, responsibility for the attack was first claimed two months after the fact and by a group not previously known to exist, namely the Niger Delta Avengers. Moreover, the sophistication of the attack diverges from the historical airboat-and-AK style of rebels in the region.

A similarly mysterious outage affected 600,000 bopd out of northern Iraq. Located in a region of multi-lateral conflict and poor transparency, this interruption could be easily dismissed. Nevertheless, the fact remains that the exact cause of this major supply interruption was not publicly claimed or understood by any of the parties.

[May 21, 2016] NetSlaves: True Tales of Working the Web

www.amazon.com
Arthur Lindsey III , April 16, 2003
A 246 Page "Support Group"

Being an unemployed techie myself, I cannot begin to describe what a godsend this book is. NETSLAVES finally reveals the truth about what it is to be part of what is likely the most under-appreciated sect of the working class. The stale stories of "dorm-room success" have been supplanted by the pathetically sad/darkly humorous accounts of those who have been saddled with with million-dollar job titles, bleeding ulcers, and ramen noodle grocery budgets. NETSLAVES is an entertaining and enligtening read, written by two men who have actually been passengers in every sewer pipe that is The new-media industry. This book is a must for every modern library, as it can be considered a "warning shot" for those with IT aspirations, or as a source of vindication for those of us who have been dismissed and trampled on. Bravo!

A customer, November 24, 1999

Handwriting on the Wall

NetSlaves tells it like it is for the millions of us on the business end of the IPO and monopoly screwdrivers. Apply these lessons to the law, publishing, automotive, chemical, airline industries, etc., etc. This book is not just a cerebral and satirical indictment of the internet industry.

It is a comment on upper and middle management corporate business practices in general, and the dismal fate of the vast armies of workers used as cannon fodder since day one for the follies of unscrupulous robber barons; or morons who just happen to find themselves in the right place at the right time to make market killings; or Scrooges who will never learn what it is to have a heart. Baldwin and Lessard are heirs to the muckrakers of the early 20th Century. Corporate E-merica, take heed.

[May 20, 2016] Gerald Friedman: How the Dogmatic Despair of Mainstream Economists Brought You Donald Trump

Notable quotes:
"... By Gerald Friedman, Professor of Economics, University of Massachusetts, Amherst. A version of this post first appeared at the Institute for New Economic Thinking website ..."
"... Lesser Depression ..."
"... The reason why elite economists and politicians were so angry at my analysis of Sanders' proposals was that it disrupted a consensus that nothing can be done by government to improve the performance of the economy. After all, if things are already as good as they can be, it is irresponsible pie-in-the-sky to even suggest to the general public that we can do better. Instead, the task of economists and other policy elites becomes to explain to the general public why they should accept stagnant incomes and rising inequality, and applaud the anemic growth of recent years as the best possible outcome. But the real danger of such thinking is that it leaves liberals like Hillary Clinton with few policy options to offer in response to the siren song of demagogues like Donald Trump. The self-proclaimed "responsible" elite economists see their role as to persuade the public that nothing can be done, in the hope of heading off the challenge of those who would capitalize on the electorate's appetite for change. They have to slap down critics. "Responsible" elite economists have to keep the party of "good arithmetic" from overpromising at all costs. It should not surprise us, though, that those whose living standards have suffered most from stagnant growth are more inclined to believe politicians promising change. ..."
"... John Maynard Keynes showed how active government policy can raise employment and output; his followers, including Joan Robinson and Nicholas Kaldor, showed how full employment encourages further investments and leads businesses to find ways to raise labor productivity to match increasing product demand. New Deal American economists, such as Rexford Tugwell and John Maurice Clark, showed how active government policy can raise growth rates with investments in infrastructure, in public services, in human capital development, and in research and development. By listening to these ideas, economists associated with liberal American politics helped produce 25 years of relatively rapid and egalitarian growth after World War II. Abandoning these ideas, we have suffered 30 years of relatively slow growth and rising inequality, culminating in the current Lesser Depression. ..."
"... I had dinner last night with two excellent people who happen to be doing well at this time. They could not comprehend why anyone would be voting for Trump, whom they saw as a dangerous lunatic. They have supported Sanders and voted for him in the NY primary, but are absolutely going to vote for Clinton in the Fall. What I view as the credible case against Clinton has not reached them with any strength or registered at all. I was asked (because I had said nothing while they talked–I hate this kind of confrontation) what problem people could have with Hillary? I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that. ..."
"... HRC's recap of Reaganite Latin America policy is her most vile achievement. If anything demonstrates a continuity of imperialist strategy across administrations, that's it. ..."
"... " I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that." ..."
"... I run into this all the time. Utter and complete foreign policy illiteracy, particularly from otherwise politically correct millennials who know so little that Hillary gets a complete pass. ..."
"... This is a common story and illustrates that our current detachment from the world around us and our fellow citizens is coming to an end. We are being forced out of our individual bubbles. Modern corporations have supplied the populations of the world with abundance of goods, but in order to accomplish this feat, have destroyed and are destroying the cultural glue, if you will, that holds society together. ..."
"... TINA will be maintained by propaganda and physical force. We see that the propaganda is starting to weaken because the contradictions of the message can no longer be hidden. The destruction is too widespread and the inequality can no longer be hidden. You can hollow out a social system only so much before it collapses. The collapses we are witnessing is the promise of democracy. A collapse of the ideals of moderation and compromise. ..."
"... We are entering a phase of civil war. It is still carried out in a polite manner and intellectually, the discussion is still couched in Orwellian doublespeak. However, criticisms of the ruling elite are becoming more straightforward and more people are waking up to the fact that the system is rigged against them. ..."
"... This civil war is a battle over leadership. It is a battle to demand good government instead of no government. It is a battle to demand a government for and by the people. A battle for the common good. Evaluated not in some abstract terms like "trickle down" economics, but direct support and action. The hearts and minds of the population was won over long ago to wholeheartedly support capitalism and private ownership of the world's resources. This is proving to be a disaster. ..."
"... Supporters of unfettered capitalism know only one way. Privatization of ALL the worlds resources and potential. They showed their hand in 2008 with the bailouts and implementation of austerity policies. In their minds, there is no turning back. To compromise means failure. For them, TINA is real and logical. This is the perspective of owners of capital. They gain strength and advantage from seeming to compromise, but in the end know they can always reverse course and regain private control. Subterfuge and force allows the resilience of capitalism as the reigning social order. ..."
"... Jonathan Haidt is a psychologist, sometimes featured in the New York Times, who apparently believes the capability of people to be convinced by reasoned argument is not strong. From my limited reading of his work, he suggests that humans are instinctive beings who, when they have strong beliefs, their reasoning powers are used to justify these beliefs, not to cast doubt about these beliefs. ..."
"... For example, I believe HRC is little more than a well-connected and well traveled mediocrity, with a record of few positives and many egregious negatives that justifies this assessment. I view her as potentially more damaging to the USA, as President, than Trump. ..."
"... Successful big ideas and big projects require cheap abundant energy, resources and intelligent design. It'll be mighty funny when the Keynesians finally implement their plan to overhaul the national highway infrastructure, creating tons of high paying jobs and speeding up the economy–right when our access to cheap oil collapses. That's dumb design at its finest, yet this sort of thing is almost certainly the best that the lobotomized Keynesian planners will be able to think up and do. ..."
"... A truly innovative program to get the economy moving in a positive direction would be to outlaw personal vehicles and rebuild the nation's railway network. ..."
"... I share your antipathy toward freeways. I remember the big Freeway they built in Fresno when I was a child, destroying hundreds, if not thousands of modest homes (we had to move from a grand rental to a dilapidated house that cost more – were the landlords behind getting rid of a surplus of houses????) – to save maybe – maybe at the most 3 minutes in transit time over driving an existing surface street. Jobs were part of the rationale. ..."
"... "Sorry, nothing more can be done for you." TINA. ..."
"... "How can I help you today?" ..."
May 19, 2016 | nakedcapitalism.com

By Gerald Friedman, Professor of Economics, University of Massachusetts, Amherst. A version of this post first appeared at the Institute for New Economic Thinking website

The ferocious reaction to my assessment that Senator Bernie Sanders' economic and health care proposals could create long-term economic growth shows how mainstream economists who view themselves as politically liberal in America have abandoned progressive politics to embrace a political economy of despair. Rationalizing personal disappointment and embracing market-centric economic theories according to which government can do little more than fuss around the edges, their conclusions - and the political leadership that embraces them - have little to offer millions of angry ordinary people for whom the economy simply isn't working.

It has certainly been a rough seven years for the economists in the Obama Administration. While avoiding a Great Depression, the Administration has presided over what Paul Krugman and Brad DeLong call a " Lesser Depression ." One might almost forgive them for a certain defeatism after seven years of painfully slow economic recovery, and the dismay of seeing urgently needed programs blocked by the Republican congressional majority. After so many compromises and let-downs, perhaps it is easier to tell those who expect more that it just can't happen. There is comfort in the Thatcherite phrase, "There Is No Alternative" (TINA).

Combined with orthodox neoclassical microeconomics, however, rationalization has produced a toxic political economy that abandons progressive ideals and surrenders political space to xenophobes and the populist rightwing (see: Donald Trump). The mainstream economists who have attacked my embrace of Keynesian economics have abandoned, in practice, the notion that government can effectively intervene in the economy to raise levels of employment, and to promote economic growth and equity. Instead, they have returned to pre-Keynesian Classical thinking, where the very suggestion that government action can raise growth rates or wages is taken to be obviously wrong. Criticisms of the orthodox model and its conservative policies are deemed worthy of scorn, to be dismissed tout court because they are obviously at variance not only with textbook economics, but with what we need to believe in order to accept failure .

The mechanism of economic policy paralysis among the liberals who espouse market-centric economics works like this: If we accept the (flawed) premise that the total supply of goods and services equals total demand, then we can agree with the Congressional Budget Office (CBO) that potential output is best measured by observing actual output. And, with that - presto! - unemployment magically disappears, and we no longer suffer from slow growth. Conveniently align growth projections with the otherwise-disappointing performance during the Lesser Depression, and, as the CBO has done, estimates of potential growth now equal actual growth: Instead of the 3 percent average annual growth of the 1959-2007 period, not to mention the 4 percent growth 1947-73, we are now told to accept 2 percent growth not as a disappointment, but as recognition of an unfortunate necessity. Such reevaluations say to policy elites, "Hey, we are doing as well as can be expected." To the general public, the message is: "Sorry, nothing more can be done for you." TINA.

The reason why elite economists and politicians were so angry at my analysis of Sanders' proposals was that it disrupted a consensus that nothing can be done by government to improve the performance of the economy. After all, if things are already as good as they can be, it is irresponsible pie-in-the-sky to even suggest to the general public that we can do better. Instead, the task of economists and other policy elites becomes to explain to the general public why they should accept stagnant incomes and rising inequality, and applaud the anemic growth of recent years as the best possible outcome. But the real danger of such thinking is that it leaves liberals like Hillary Clinton with few policy options to offer in response to the siren song of demagogues like Donald Trump. The self-proclaimed "responsible" elite economists see their role as to persuade the public that nothing can be done, in the hope of heading off the challenge of those who would capitalize on the electorate's appetite for change. They have to slap down critics. "Responsible" elite economists have to keep the party of "good arithmetic" from overpromising at all costs. It should not surprise us, though, that those whose living standards have suffered most from stagnant growth are more inclined to believe politicians promising change.

It was only by rejecting classical economics that Franklin Roosevelt was able to save the American economy and bring about a revolution in social policy. And only by rejecting the new classical economics and the policy of so-called responsible elite economists can Clinton meet our current economic crisis.

John Maynard Keynes showed how active government policy can raise employment and output; his followers, including Joan Robinson and Nicholas Kaldor, showed how full employment encourages further investments and leads businesses to find ways to raise labor productivity to match increasing product demand. New Deal American economists, such as Rexford Tugwell and John Maurice Clark, showed how active government policy can raise growth rates with investments in infrastructure, in public services, in human capital development, and in research and development. By listening to these ideas, economists associated with liberal American politics helped produce 25 years of relatively rapid and egalitarian growth after World War II. Abandoning these ideas, we have suffered 30 years of relatively slow growth and rising inequality, culminating in the current Lesser Depression.

The debate over my little report showed how mainstream economics has left us with a smugly certain macroeconomics lacking in imagination, and offering no effective policies to move beyond economic stagnation and escalating inequality. If these economists cannot do better, then we risk more than personal disappointment; we gamble our liberal political economy against the likes of Donald Trump and Ted Cruz. Hillary Clinton can do better. And Americans deserve better.

James Levy , May 19, 2016 at 6:31 am

A very bold thing for a man like this to say. I know he will be criticized (vilified?) for his misplaced belief that Clinton can "do better", but considering who this man is and where he is coming from, condemning him at this stage of the game would be churlish. He's taken on The Bigs and the stifling orthodoxy they embody and for that we owe him.

I had dinner last night with two excellent people who happen to be doing well at this time. They could not comprehend why anyone would be voting for Trump, whom they saw as a dangerous lunatic. They have supported Sanders and voted for him in the NY primary, but are absolutely going to vote for Clinton in the Fall. What I view as the credible case against Clinton has not reached them with any strength or registered at all. I was asked (because I had said nothing while they talked–I hate this kind of confrontation) what problem people could have with Hillary? I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that.

so , May 19, 2016 at 7:10 am

Sad. There is them and there are us. Empathy. Hard to have when your busy all the time.

jsn , May 19, 2016 at 7:16 am

I've had many similar recent encounters. I find that if I ask for a positive reason to vote Clinton, the first three or four reasons they raise can be dismissed by single phrase references to past betrayals, Sister Solja, End of Welfare, Nafta etc. and the next few by scandals, Lewensky or what should be scandals as you mentioned. As a rule after four or five tries I get to watch them self censor before each subsequent try and don't have to make any negative claims myself.

I doubt I've changed minds, but they no longer doubt mine.

Torsten , May 19, 2016 at 7:54 am

I would have first pointed to Honduras. And Haiti:

https://www.washingtonpost.com/blogs/post-partisan/wp/2016/03/10/hillary-clinton-needs-to-answer-for-her-actions-in-honduras-and-haiti/

What did she do in Nicaragua?

hemeantwell , May 19, 2016 at 8:01 am

I think that was a slip, but an historically correct one I can completely sympathize with.

HRC's recap of Reaganite Latin America policy is her most vile achievement. If anything demonstrates a continuity of imperialist strategy across administrations, that's it.

bowserhead , May 19, 2016 at 8:46 am

" I said: Libya, Ukraine, and Nicaragua. They really didn't know what I was talking about and although I spoke up for why I thought this made her a neocon like the ones that surrounded Dubya, they simply didn't know any of the details and we left it at that."

I run into this all the time. Utter and complete foreign policy illiteracy, particularly from otherwise politically correct millennials who know so little that Hillary gets a complete pass.

Norb , May 19, 2016 at 9:01 am

This is a common story and illustrates that our current detachment from the world around us and our fellow citizens is coming to an end. We are being forced out of our individual bubbles. Modern corporations have supplied the populations of the world with abundance of goods, but in order to accomplish this feat, have destroyed and are destroying the cultural glue, if you will, that holds society together.

TINA will be maintained by propaganda and physical force. We see that the propaganda is starting to weaken because the contradictions of the message can no longer be hidden. The destruction is too widespread and the inequality can no longer be hidden. You can hollow out a social system only so much before it collapses. The collapses we are witnessing is the promise of democracy. A collapse of the ideals of moderation and compromise.

We are entering a phase of civil war. It is still carried out in a polite manner and intellectually, the discussion is still couched in Orwellian doublespeak. However, criticisms of the ruling elite are becoming more straightforward and more people are waking up to the fact that the system is rigged against them.

This civil war is a battle over leadership. It is a battle to demand good government instead of no government. It is a battle to demand a government for and by the people. A battle for the common good. Evaluated not in some abstract terms like "trickle down" economics, but direct support and action. The hearts and minds of the population was won over long ago to wholeheartedly support capitalism and private ownership of the world's resources. This is proving to be a disaster.

Supporters of unfettered capitalism know only one way. Privatization of ALL the worlds resources and potential. They showed their hand in 2008 with the bailouts and implementation of austerity policies. In their minds, there is no turning back. To compromise means failure. For them, TINA is real and logical. This is the perspective of owners of capital. They gain strength and advantage from seeming to compromise, but in the end know they can always reverse course and regain private control. Subterfuge and force allows the resilience of capitalism as the reigning social order.

I bring up the notion of a civil war because these ideas are too important to be left to chance. In America, the citizenry has been complacent with their lot in life and so have lost control over their fate. As the world changes around them, they desperately attempt to hold onto their position while not realizing they are supporting their own impoverishment. Speaking ideas of the common good -for ALL- and notions of public ownership of land, natural resources, citizens natural rights to jobs, basic income, and healthcare divide family and friends. Those who are comfortable don't want to cause trouble and those feeling the pressures brought down upon them by an unrelenting system are too weak and fearful to act.

In a sense, the revolution has already begun. It is the revolution to convince people that there is a better and different way to live our lives.

John Wright , May 19, 2016 at 10:11 am

Jonathan Haidt is a psychologist, sometimes featured in the New York Times, who apparently believes the capability of people to be convinced by reasoned argument is not strong. From my limited reading of his work, he suggests that humans are instinctive beings who, when they have strong beliefs, their reasoning powers are used to justify these beliefs, not to cast doubt about these beliefs.

This can explain why attempting to convince someone to change their political/religious beliefs is fated to be largely futile.

For example, I believe HRC is little more than a well-connected and well traveled mediocrity, with a record of few positives and many egregious negatives that justifies this assessment. I view her as potentially more damaging to the USA, as President, than Trump.

Per Haidt, maybe my beliefs are instinctive and I am willfully blind to all of Clinton's accomplishments over the last 40 years.

human , May 19, 2016 at 10:48 am

ROTFLMAO

david s , May 19, 2016 at 6:51 am

I think that if there are to be any Keynesian big ideas and projects that will help lift us out of this stagnation, they will much more likely come from a Trump Administration than a Clinton one.

jgordon , May 19, 2016 at 7:47 am

Successful big ideas and big projects require cheap abundant energy, resources and intelligent design. It'll be mighty funny when the Keynesians finally implement their plan to overhaul the national highway infrastructure, creating tons of high paying jobs and speeding up the economy–right when our access to cheap oil collapses. That's dumb design at its finest, yet this sort of thing is almost certainly the best that the lobotomized Keynesian planners will be able to think up and do.

A truly innovative program to get the economy moving in a positive direction would be to outlaw personal vehicles and rebuild the nation's railway network. But this society isn't even anywhere close to having something so useful on its agenda. So we'll do some Keynesian program, funnel the few remaining resources we have left down into some stupid dead end rathole, and then in a couple of years we'll be envious here in America of the extravagant lifestyles that the Mexicans are leading. Hell Trump's wall will be a lot more useful keeping the Mexicans in who are trying to flee. That is the end result of Keynesian programs in a delusional society with bass-ackward priorities. Way more harm than good.

fresno dan , May 19, 2016 at 10:11 am

I share your antipathy toward freeways. I remember the big Freeway they built in Fresno when I was a child, destroying hundreds, if not thousands of modest homes (we had to move from a grand rental to a dilapidated house that cost more – were the landlords behind getting rid of a surplus of houses????) – to save maybe – maybe at the most 3 minutes in transit time over driving an existing surface street. Jobs were part of the rationale.

I have been gone 20 years, and they had gone on a real freeway building tear while I was gone. The whole city crisscrossed with freeways laid out as if someone had thrown a bowl of spaghetti on a map – apparently so every neighborhood can enjoy the sound of traffic.

Really, Fresno is just not that physically big to justify all these freeways. And with its high unemployment and no real "center" there aren't any places with traffic congestion anyway – but you get these dubious justifications that millions of dollars are wasted because an implausible auto trip is 4 minutes longer without the freeway….

david s , May 19, 2016 at 6:55 am

There seems to be a developing narrative that the Obama Administration has just been brimming with big ideas that have been thwarted by evil Republicans.

I don't remember it this way. I do remember an Obama Administration that turned to austerity shortly after the 2009 stimulus, and one that has been patting itself on the back all along about what a great job it has done.

"All across America, families are tightening their belts and making hard choices. Now, Washington must show that same sense of responsibility."
President Obama, April 2009(!)

Akronite , May 19, 2016 at 7:56 am

Now that the pictures we snapped of Obama are finally beginning to develop, where we thought we had photographed his lush jungle, we're now seeing just a single thin sapling planted for "the future." And Clinton will soon have a picture of her snapped at this sad tree, with her big lying smile.

hemeantwell , May 19, 2016 at 8:09 am

I don't think Friedman is saying this, unless Rex Tugwell has been secretly disinterred and is serving under Obama. The capitalist ideological counteroffensive that got going in the 70s has been hegemonically successful. Friedman doesn't acknowledge that enough, he instead focuses on what sounds more like disciplinary politics.

flora , May 19, 2016 at 8:22 am

Great post. Thanks.

JLCG , May 19, 2016 at 8:26 am

This type of article or perhaps, all articles about the Economy, deal with the Economy as a substance to which people are appended as accidents. The economy is the sum total of the effort of the people and if the people think that enjoying this very present is preferable to an effort to build a future nothing can be done about it. It is the mind of the people that has to be changed. Wars are very good mechanisms for that.

Carla , May 19, 2016 at 9:14 am

I can't remember if I got this link from an NC comment, or elsewhere. In any case, it's a scary read: "The 14 Defining Characteristics of Facism," augmented by a selection from "They Thought They Were Free." http://rense.com/general37/fascism.htm

Brings Obama and HRC to mind just as much as Trump, if not more.

sinbad66 , May 19, 2016 at 10:05 am

Read "Democracy, Incorporated" by Sheldon Wolin: http://www.amazon.com/Democracy-Incorporated-Managed-Inverted-Totalitarianism/dp/069114589X/ref=sr_1_1?ie=UTF8&qid=1463666525&sr=8-1&keywords=democracy+incorporated

Explains it all….

fresno dan , May 19, 2016 at 9:57 am

"The ferocious reaction to my assessment that Senator Bernie Sanders' economic and health care proposals could create long-term economic growth shows how mainstream economists who view themselves as politically liberal in America have abandoned progressive politics to embrace a political economy of despair."
==========================

Here is the problem: "a political economy of despair" – accepting that economists are a real objective academic discipline is a BIG mistake – the idea that these technocrats, who never seem to recognize how much fraud, rent seeking, and capture of the political system
((because the people paying them don't WANT THEM TO)),
decides things like how much inequality there is, which than decides how much demand there is, and NOT knowing, and apparently NOT WANTING TO KNOW, that it is a POLITICAL economy, and politics decides how resources are often allocated.
We can have single payer heath care if we choose it and free college education (it wasn't all that long ago that I went to a CA college essentially for free). HOW is it college used to be free when GDP was less than 1/6 of what it is now??????
It just doesn't make sense that we used to be able to afford free college and we can't now. It is a POLITICAL decision – when Krugman says Sanders plan is "too expensive" Krugman is making a political decision – not some objective scientific assessment. And if he is not even smart enough to ponder why it used to be free and it is not free now – well, theres your problem right there!

Punxsutawney , May 19, 2016 at 10:22 am

Nice to see this article. When I talk about economics, most people who know anything, only know what someone on TV tells them, so they often question, well who agrees with you? Nice to have another name to list.

And then…

"Sorry, nothing more can be done for you." TINA.

Of course for those at the tippy-top, "How can I help you today?"

[May 20, 2016] Shale is not viable below 80 dollars per barrel

Notable quotes:
"... I would say shale is not viable below $80 per barrel, at a minimum. ..."
"... I completely agree. I think that conventional oil production will get some boost in $50-$80 price range, but not the US LTO oil production. Prices of metals, transportation, almost everything, correlate with the price of oil. So they will move up and that (along with heavy debt load) makes the repetition of "carpet drilling" unlikely and a large part of so called "productivity gains" a mirage. IMHO. ..."
"... Add to this debt load and the status of red hair step child that LTO now got in financial industry and it is plausible that we need $100 per bbl for full revival. ..."
"... I think that oil industry internationally is now sufficiently screwed up for another oil price spike (and possibly a second crash in five-seven years time frame). So all those "linear extrapolation" forecasts in best EIA style does not take into account one crucial variable: the level of financialization of the world economy and as such are mostly wrong. ..."
"... Instability due to strong positive feedback loops provided by financialization is the hall mark of neoliberalism. ..."
peakoilbarrel.com

shallow sand , 05/20/2016 at 8:52 am

Heinrich,

I would say shale is not viable below $80 per barrel, at a minimum.

So, is TX C + C falling?

Are you out there Dr. Dean? I really appreciate your analysis of TX production!

Heinrich Leopold , 05/20/2016 at 9:15 am
Shallow Sand,

Texas C&C is also falling, yet not as strongly as condensate and gas (see below chart).

In my view there is something slowly cooking up for gas. As below chart shows total Texas gas still above 20 bcf/d in March, the recent http://www.bentekenergy.com report for the week to May 14 shows Texas gas at 18.3 bcf/d. This is a steep plunge from last year. If you take look at below chart you can feel the gravity drawing down the curves.

And given the recent plunge of gas drilling to 88 rigs from a high of 1600 not so long ago, this can only mean a massive gas shortage in a few months. I took for my part considerable buy options for natgas.

Dennis Coyne , 05/20/2016 at 11:39 am
Hi Shallow sand,

I will do a full post in a few days, but Dean sent me the following Chart.

He also said:

…find attached the Texas data for March 2016. I also attach the evolution of my correcting factors over time: given these data, I've started thinking that Texas oil production did not fall in the first months of 2016, but actually increased (a bit), similarly to what we observed in 2015.

likbez , 05/20/2016 at 4:57 pm
I would say shale is not viable below $80 per barrel, at a minimum.

I completely agree. I think that conventional oil production will get some boost in $50-$80 price range, but not the US LTO oil production. Prices of metals, transportation, almost everything, correlate with the price of oil. So they will move up and that (along with heavy debt load) makes the repetition of "carpet drilling" unlikely and a large part of so called "productivity gains" a mirage. IMHO.

Add to this debt load and the status of red hair step child that LTO now got in financial industry and it is plausible that we need $100 per bbl for full revival.

I think that oil industry internationally is now sufficiently screwed up for another oil price spike (and possibly a second crash in five-seven years time frame). So all those "linear extrapolation" forecasts in best EIA style does not take into account one crucial variable: the level of financialization of the world economy and as such are mostly wrong.

Instability due to strong positive feedback loops provided by financialization is the hall mark of neoliberalism.

[May 20, 2016] What price is needed to ramp up shale production

Notable quotes:
"... I think posting these historical numbers from the 10K since CLR went public tell a story. I am not good at guessing what will happen in terms of production at $50 WTI, $60 WTI, etc. I have made general views here pretty clear, and I do not think I need to repeat them. ..."
"... I will note, however, that CLR has about 6 times long term debt per BOEPD as of 12/31/2015 than it had as of 12/31/2007. I think this is a relevant metric. ..."
"... Assuming investors and banks look at figures like these, it should take a very high price for LTO to "ramp back up". It did not do so well, IMO, despite very high prices from 2007-2014. ..."
"... The price of oil will always be a major factor with regard to CAPEX levels, but there is a lag, as companies react to oil prices. ..."
peakoilbarrel.com
There were some comments above about what price is needed to ramp up shale production, and whether price is a big factor. Thought I would post down here to widen things out.

I always pick on Continental Resources, primarily because they are big enough to draw some conclusions about LTO, but also because their financials are straightforward, they pretty much strictly operate LTO, and they have not raised funds through equity issuances. In other words, 10K's are straightforward.

CLR went public 5/14/2007. They had been in business as a private company since 1967.

As of 12/31/2007, per the 10K, CLR produced 30,369 BOEPD, 82% oil, spent $526 million in CAPEX for the year, and had long term debt of $165 million at year end. For 2007 their realized prices were $63.55 for oil, $5.87 for gas, for BOE of $58.32

12/31/2008.
Production 36,018 BOEPD, 76% oil.
CAPEX $989 million
Long term debt $376 million
Oil price $88.87
Gas price $6.90
BOE $77.66

12/31/2009
Production 37,323 BOEPD 74% oil
CAPEX $444 million (refutes the idea that oil price does not matter – see 2008)
Long term debt $524 million
Oil price $54.44
Gas price $3.22
BOE $45.10

12/31/2010
BOEPD 43,318 75% oil
CAPEX $1,237 million
Long term debt $926 million
Oil price $70.69
Gas $4.49
BOE $59.70

12/31/2011
BOEPD 61,866 73% oil
CAPEX $2.224 billion
Long term debt $1.254 billion
Oil price $88.51
Gas price $5.24
BOE $73.05

12/31/2012
BOEPD 97,585 70% oil
CAPEX $4.358 billion
Long term debt $3.540 billion
Oil Price $84.59
Gas price $4.20
BOE $66.83

12/31/2013
BOEPD 135,918 71% oil
CAPEX $3.842 billion
Long Term Debt: $4.651 billion
Oil price $89.93
Gas price $4.87
BOE $72.04

12/31/2014
BOEPD 174,189 70% oil
CAPEX $5.016 billion
Long Term Debt $5.929 billion
Oil price $81.26
Gas price $5.40
BOE $66.53

12/31/2015
BOEPD 221,715 66% oil (note for 2016 guiding 60% oil)
CAPEX $2.564 billion
Long Term Debt $7.118 billion
Oil Price $40.50
Gas Price $2.31
BOE $31.48

They are guiding about 15,000 BOEPD less production in 2016, are going to be spending close to $1 billion in CAPEX in 2016. They are going to be producing more gas as almost all completions will be in OK, which are primarily gas plays.

I think posting these historical numbers from the 10K since CLR went public tell a story. I am not good at guessing what will happen in terms of production at $50 WTI, $60 WTI, etc. I have made general views here pretty clear, and I do not think I need to repeat them.

I will note, however, that CLR has about 6 times long term debt per BOEPD as of 12/31/2015 than it had as of 12/31/2007. I think this is a relevant metric.

Assuming investors and banks look at figures like these, it should take a very high price for LTO to "ramp back up". It did not do so well, IMO, despite very high prices from 2007-2014.

Ves , 05/20/2016 at 4:39 pm
2008
Price $77
CAPEX 989 m

2010
Price $59
CAPEX 1,2 m (refutes idea that price matters, see the price and CAPEX in 2008)

And let's look at Long term debt.
Shallow when your debt starts increasing do you cut CAPEX spending or you keep increasing? Obviously if you look at that long term debt of CLR that did not matter in relation to CAPEX . So how can you say that price matters when CAPEX increased and Long term debt increased even at higher rate??

and then 2015
Price $31
CAPEX 2.5 bilion (refutes idea that price matters see 2008 price and CAPEX)

Here I am talking only about shale not the rest of conventional.

shallow sand , 05/20/2016 at 5:02 pm
Ves. My point is in response to the price collapse at the end of 2008, CAPEX in 2009 was cut substantially from 2008 levels.

The same happened if we compare 2014 CAPEX to 2015 CAPEX, and will happen again 2015 compared to 2016.

The 2008 collapse was very severe, I remember it very well. The price dropped over $100 in around 5 months. But the price recovered fairly well.

The price of oil will always be a major factor with regard to CAPEX levels, but there is a lag, as companies react to oil prices.

As for shale, it is very dependent on credit. If credit does not come back as prices rise, and just develops out of cash flow, I think the actual data from CLR is evidence that a very high price will be needed for it to begin to grow again.

[May 20, 2016] As we moved closer to il deficit, suddenly, an extra outage will cause meaningful rallies instead of being mostly written off

I remember looking back on the IEA's 2005 World Energy Outlook and being perplexed that anyone still takes their price or production forecasts with any seriousness whatsoever. Their 2003 WEO is even more hilarious.
Notable quotes:
"... Eventually market sentiment focused on the recency bias of a 2 year glut is going to shift into the realization that disruptions, depletion, and growing demand have thrown the global balance into a dearth where inventories are being drawn to meet demand – such as the news about Saudi's relying on inventory to meet demand, the "missing" 800,000,000 barrels of OECD inventory from Q1 2016, or next weeks inevitable U.S. inventory draw. ..."
"... Suddenly, an extra outage (like… say… if anything happens to Venezuela) will cause meaningful rallies instead of being mostly written off. ..."
"... The best, live, interactive charts I am most fond of are here: https://www.dailyfx.com/crude-oil ..."
"... I expect one last fight around $50, a few day consolidation move lower. Then market realities will push WTI past $50, and shorts will have to cover pushing it even higher. ..."
"... Next thing you know were range bound in the mid-$50s at the end of June as everyone questions if shale production will magically skyrocket overnight. Maybe the rig count will go up by 3 or 4, and it'll spark a sell-off back to or below $50 because of the psychological recency bias of a "repeat of 2015". ..."
"... I remember looking back on the IEA's 2005 World Energy Outlook and being perplexed that anyone still takes their price or production forecasts with any seriousness whatsoever. Their 2003 WEO is even more hilarious. ..."
"... Most people are simply incapable of seeing a bigger picture, and they'll simply never understand the relationship between depletion, economic and population growth, and the long-term fact that this equals higher prices (and probably also, in the long run, higher poverty and unemployment). ..."
"... It is for that exact same reason that so many people we know will simply never get it. Physics doesn't have agency, it cannot be avoided, cajoled, or "blamed". It simply is, and that is so unsettling to our psyche that most people have a strong, unconscious drive to negate and ignore that conclusion even if they will acknowledge it is a sound and true explanation of how economics, growth, employment, wealth, energy (physics and thermodynamics), and depletion are woven of the same fabric. ..."
"... Brian – I think you are closer to reality than EIA or USGS, it will be interesting to see how it plays out against your scenario. ..."
"... There doesn't necessarily have to be more social breakdown in Venezuela to have an impact – Haliburton and Schlumberger are pulling out and will have immediate effect as the extra heavy oil production needs continuous attention to the wells. I'm surprised Angola and Algeria haven't seen disruptions yet either. ..."
peakoilbarrel.com

Brian Rose , 05/19/2016 at 11:04 pm

Big news from Canada today:

http://www.reuters.com/article/us-canada-wildfire-idUSKCN0YA0Z1

"The joint-venture Syncrude project told customers to expect no further crude shipments for May, trading sources said on Thursday, extending a force majeure on crude production from earlier in the month."

Eventually market sentiment focused on the recency bias of a 2 year glut is going to shift into the realization that disruptions, depletion, and growing demand have thrown the global balance into a dearth where inventories are being drawn to meet demand – such as the news about Saudi's relying on inventory to meet demand, the "missing" 800,000,000 barrels of OECD inventory from Q1 2016, or next weeks inevitable U.S. inventory draw.

Suddenly, an extra outage (like… say… if anything happens to Venezuela) will cause meaningful rallies instead of being mostly written off.

In fact, judging by the price action on oil over the last 24 hours, I'd say that sentiment is very close to a shift. From 11 AM forward crude oil marched higher relentlessly, even in opposition to dollar strength. Most every single commodity was down, as we're most every stock market… except oil.

The best, live, interactive charts I am most fond of are here: https://www.dailyfx.com/crude-oil

I expect one last fight around $50, a few day consolidation move lower. Then market realities will push WTI past $50, and shorts will have to cover pushing it even higher.

Next thing you know were range bound in the mid-$50s at the end of June as everyone questions if shale production will magically skyrocket overnight. Maybe the rig count will go up by 3 or 4, and it'll spark a sell-off back to or below $50 because of the psychological recency bias of a "repeat of 2015".

That is, until rational minds, or the market itself pushes prices back up as it becomes obvious that a slowdown in U.S. production declines will mean little in the face of mounting production declines around the globe, and "surprisingly" strong demand – because apparently predicting that lower prices will cause stronger than average demand growth is beyond the economic capability of the EIA or IEA, and markets tend to take their word as gospel.

I remember looking back on the IEA's 2005 World Energy Outlook and being perplexed that anyone still takes their price or production forecasts with any seriousness whatsoever. Their 2003 WEO is even more hilarious.

Every step of the way analysts and talking heads will be confused that prices aren't dropping back to $30 just like they were for 5 straight years from 2003 to 2008. They'll predict Saudi's will raise production to 12 mbpd any day now, or that shale will magically take off overnight.

They'll never even realize that they don't understand the history of Saudi production, or the logistical and financial complexities of shale production rising as fast as it did before. Instead they'll blame the banks, or speculators, or Big Oil for artificially making oil prices rise (without questioning why they let them fall for 2 years in the first place)

But then again if gas is cheap, which average people are fond of, their brain says "I like this, so it must be right". If gas is expensive their brain says "I don't like this, it must be wrong, what evil force made this happen?!?"

Most people are simply incapable of seeing a bigger picture, and they'll simply never understand the relationship between depletion, economic and population growth, and the long-term fact that this equals higher prices (and probably also, in the long run, higher poverty and unemployment).

Their lives will have ups and down, growth and recession, but they'll know and feel it is generally getting harder. They'll never be aware that this is the "fault" of nothing but physics and thermodynamics, even if told directly and shown all the rather clear evidence (I know every one of you has experienced this as I have). Instead, they'll blame those dang immigrants, or the Chinese, or the Congress, or regulations.

They'll blame anything that fits their paradigm enough to allow cohesiveness so their fragile lives can at least MAKE SENSE. You can't blame physics, and, frankly, I think that is a large psychological barrier for people comprehending what is happening. We need to have some agent to blame for things, and physics has no agency. Blaming something for a problem is settling because it gives us something to focus on to solve the problem, or, at the very least, avoid it. The evolutionarily beneficial need to assign agents as the cause of events is what pre-disposes us to believing that events we cannot easily assign agency to are, nonetheless, the will of… a greater, invisible, omnipresent agent.

It is for that exact same reason that so many people we know will simply never get it. Physics doesn't have agency, it cannot be avoided, cajoled, or "blamed". It simply is, and that is so unsettling to our psyche that most people have a strong, unconscious drive to negate and ignore that conclusion even if they will acknowledge it is a sound and true explanation of how economics, growth, employment, wealth, energy (physics and thermodynamics), and depletion are woven of the same fabric.

George Kaplan , 05/20/2016 at 1:36 am
Brian – I think you are closer to reality than EIA or USGS, it will be interesting to see how it plays out against your scenario.

A couple of other impacts are summer maintenance season in North Sea (Buzzard and, I think, Ekofisk have major turnarounds), Alaska and Canada (maybe Russia as well) and increased demand from driving season in USA and AC use in Middle East.

There doesn't necessarily have to be more social breakdown in Venezuela to have an impact – Haliburton and Schlumberger are pulling out and will have immediate effect as the extra heavy oil production needs continuous attention to the wells. I'm surprised Angola and Algeria haven't seen disruptions yet either.

[May 20, 2016] Goldman Responds To Goldman's Stock Offering of A Goldman-Upgraded Tesla Zero Hedge

www.zerohedge.com

Goldman Responds To Goldman's Stock Offering of A Goldman-Upgraded Tesla

Submitted by Tyler Durden on 05/19/2016 09:59 -0400

  • Chinese Wall
  • Investor Sentiment
  • Restricted Stock
  • Twitter
  • Twitter
  • In what many considered to be a flagrantly criminal abuse of investment bank "restricted lists", yesterday Goldman underwrote a $2 billion equity offering for Tesla (to find its amusing expansion strategy) just hours after Goldman upgraded the stock to a Buy.

    We have done our best to alert the regulators...

    Hey @SEC_News here it is in terms even you can understand pic.twitter.com/Yprw3GZDMm

    - zerohedge (@zerohedge) May 18, 2016

    Hey @GoldmanSachs do you use restricted lists and was Tesla on it?

    - zerohedge (@zerohedge) May 18, 2016

    ... however we are confident the regulators are paid far better to remain unalerted.

    So for those curious what Goldman's research analyst who upgraded Tesla, Patrick Archambault, had to say about this "odd, very odd coincidence", here it is straight from the mouth of the horse which obviously remains stabled safely on the other side of the Chinese wall located at 200 West.

    Commentary: Tesla announces equity offering and provides further details on Model 3 reservations

    News

    After the close on May 18, Tesla announced a 6.8mn primary share offering. The offering includes a greenshoe option which, if exercised, would increase the number of shares sold to approximately 8.2mn. Based on the May 18 closing price of $211.17, this would result in a total value of $1.4bn for the offering, or $1.7bn if the greenshoe option is exercised. In addition, Elon Musk, CEO, will sell 2.8mn shares to satisfy tax implications from exercising 5.5mn in stock options that expire at year-end. The company noted that Mr. Musk also plans to donate 1.2mn shares to charity and that the net result of these actions will be to increase his holdings to 31.1mn shares from 29.6mn. All said, based on the latest closing share price and including the primary offering, greenshoe, and Mr. Musk's sale, the total size of the transactions would be $2.3bn.

    In the preliminary prospectus, the company also provided an update on Model 3 reservations and announced that it had 373k deposits as of May 15, 2016. This is net of 8k (approx. 2% of total) in customer cancelations and 4.2k (approx. 1% of total) reservations deemed to be duplicates.

    Implications

    Adjusting for the announced transaction and the supplemental stock options outstanding, and for restricted stock units (RSU) information, our EPS estimates would be unchanged for 2016-2017. Including the greenshoe, our 2016-2017 EPS estimates would decline by less than 1% on average.

    Our take

    We maintain our Buy rating and EPS estimates following the announcement . Additionally, our 6-month price target of $250 remains unchanged, derived from five probability-weighted automotive scenarios plus stationary storage optionality , all of which embed a 20% cost of capital. While the announced capital raise of $1.4bn (or $1.7bn with the greenshoe) is ultimately higher than our $1bn estimate, after factoring in the updated supplemental RSU and option information, dilution to our estimates would be immaterial. Consistent with our previously published research (see Putting in our reservation for the Model 3; upgrading TSLA to Buy, May 18) we believe the funding level is adequate for the Tesla Model 3 roll-out. The reservations of 373k are in line with the company's recent comments of "approaching 400k", though they imply slowing growth (even adding back the cancellation and duplicates) as reservations had already hit 325k one week after the Model 3 unveil.

    Risks: Decline in overall investor sentiment impacting the appetite for concept stocks, further delays in the Model X production ramp which could force a guidance reduction as well as exacerbate FCF burn, and higher-than-forecast operating expenses and/or capex investments.

    Actually the biggest risk factor, and what is most hilarious about this whole incident is that in the Goldman upgrade, which was clearly rushed, and in which Goldman itself admitted there is a two-thirds likelihood the stock will plunge to $125 or lower and the only upside is due to a "key man provision" and a ridiculous thesis that Musk alone is worth tens of billions in market cap (somehow excluding tens of billions in taxpayer grants)...

    ... is that all those who bought TSLA on the Goldman report (and/or Goldman stock offering) will actually read it.

    A Pimp's love i...

    God's Work

    greenskeeper carl , Thu, 05/19/2016 - 10:04

    Would it really be that surprising if it did hit 250? I wouldn't be the least bit surprised. It makes no sense where it is now, another 20% up would be par for the course for this "market". It's probably just more muppet slaying by Goldman, but I could see them releasing those cars that will of course get stellar reviews and have a full retard price spike. Dumber shit has happened.

    ParkAveFlasher , Thu, 05/19/2016 - 10:04

    "It feels good, doesn't it Muppet? You want more, don't you?!"

    Stackers , Thu, 05/19/2016 - 10:11

    ZH is dead on. This is CFA Level 1 stuff.

    http://www.investopedia.com/exam-guide/cfa-level-1/ethics-standards/stan...

    How to Comply
    The Standards of Practice Handbook provides a number of operational suggestions that one should recommend for adoption by the compliance department.

    Establish a restricted list - This is to limit research on those firms that have a business relationship with that company. If an adverse opinion would hurt this business relationship, the company stock should be restricted from the research universe, and only factual information on the company should be disseminated.

    TradingIsLifeBrah , Thu, 05/19/2016 - 10:14

    I bet Goldman believes its valuation is "factual" lol

    OrangeJews , Thu, 05/19/2016 - 11:22

    The worst part in my opinion is that by keeping Musk going makes him look like a God to all of the sheeple when in reality he's just using other people's money and other people's ideas to become famous. Basically the definition of the current United States.

    JamaicaJim , Thu, 05/19/2016 - 10:23

    Ah yes...Pacino.....in one of his finest works....plus excellent writing....

    His God speech;

    https://www.youtube.com/watch?v=RGR4SFOimlk

    asteroids , Thu, 05/19/2016 - 10:23

    Obviously something is broken. It's up to the SEC to act. If it doesn't then the SEC is broken. If the SEC is broken then it's up to .....

    ShorTed , Thu, 05/19/2016 - 10:24

    Yes something is broken... must be the porn filters at the SEC again. Don't expect people who's future (once they pass thru the revolving door) depends on them not finding any malfeasance, to do the right thing.

    JamaicaJim , Thu, 05/19/2016 - 10:10

    Goldman Sucks Ass should be Lehman-nized

    Shut Down

    Arrests made

    Convictions

    Lengthy prison senten.....

    ...wha.....huh.....I was having a dream?

    FUCK!

    quadraspleen , Thu, 05/19/2016 - 11:09

    Yeah. Dreaming. I actually spat water at "arrests made"

    Dream on

    nibiru , Thu, 05/19/2016 - 10:10

    Everything i in order guys, don't worry it's temporary technical glitches... carry on, nothing to see here. Oh and sell gold! Listen to Gartman!

    TradingIsLifeBrah , Thu, 05/19/2016 - 10:11

    They should have added in a 1% chance that TSLA goes to $1,000,000,000 per share to pull the target price up a little higher.

    Farmer Joe in B... , Thu, 05/19/2016 - 10:24

    Having worked in a mid-sized IB, I can tell you there is no such thing as a fucking Chinese wall. Cheesecloth at best.

    This cocksucker absolutely knew that a deal was cooking...

    ptoemmes , Thu, 05/19/2016 - 10:24

    Who are these "many" you speak of? Clearly does not include the financial and regualtory elite.

    Similar to politicians and one D Trump claiming they could shoot someone on the Senate floor - or Times Square - and not get arrested I think that CNBC should have a reality hour where finanial elites and regulators carry out obvious fraud on live TV. You know, just to see what happens...

    The Daily Fraud

    Fraudish

    Spungo , Thu, 05/19/2016 - 10:25

    Should I even care about this? The people who own Tesla shares are functionally retarded. If it wasn't Tesla stealing their money for the sake raising capital, some other questionablle enterprise would get their money just as quickly. I'm thinking horse racing and lottery tickets.

    bamawatson , Thu, 05/19/2016 - 11:03

    oh man, please don't equate seasoned pari-mutual investors with the "functionally retarded" tesla shareholders

    Dadburnitpa , Thu, 05/19/2016 - 10:28

    Anyone can be "brilliant" if they're festooned with enough free government money. But once the tit dries up, you're no better than the rest.

    rosiescenario , Thu, 05/19/2016 - 10:33

    While Tesla's cars may be a rare sight for others in the U.S. if you drive around the SF Bay Area they are as common as anyother make of car. While the stock is at a nutty value, I'd bet you'd find that 80% of individual owners of it reside around Silicon Valley and are convinced this is the next Apple.

    Personally I see no appeal to a car which has such a limited driving range....you really cannot take a trip with it.

    [May 20, 2016] Economic Models Must Account for Power Relationships

    economistsview.typepad.com
    I have a new column:
    Economic Models Must Account for Who Has the Power'' : Nobel Prize winning economist Joseph Stiglitz recently highlighted two schools of thought on how income is distributed to different groups of people in the economy. Which school is correct has important implications for our understanding of the forces that have caused the rise in inequality, and for the policies needed to reverse this trend. It also relates to another controversy that has flamed up recently, how economics should be taught in principles of economics courses. ...

    Posted by Mark Thoma on Tuesday, May 17, 2016 at 06:09 AM in Economics , Market Failure | Permalink Comments (22)

    !-- View blog reactions

    --> !-- -->

    Comments

    Feed You can follow this conversation by subscribing to the comment feed for this post. anne : , Tuesday, May 17, 2016 at 06:27 AM
    Excellent approach, incisive writing.
    kthomas -> anne... , Tuesday, May 17, 2016 at 10:55 AM
    Im suprised you are so enamoured of Stiglitz. He does not put up with BS.

    Still, you are right. As usual.

    DrDick : , Tuesday, May 17, 2016 at 06:50 AM
    Awesome. Thanks for this.
    Adamski : , Tuesday, May 17, 2016 at 07:22 AM
    Good one from the Stig, also.

    And according to Sraffa's side in the Cambridge capital controversy labour and capital do not receive their marginal products, which leaves the distribution of income to some extent socially or politically determined.

    Now please make a donation to Project Syndicate, and check out Robert Skidelsky at the same site.

    New Deal democrat : , Tuesday, May 17, 2016 at 08:21 AM
    Excellent. It will be taught in graduate school, long after the little ones have been indoctrinated in reactionary thought be Econ 101.

    P.S. The school of thought that accepts inequality as a Teh Awesome result of merit cannot explain why inherited wealth should be allowed to accumulate - another aspect of how power writes the economic rules.

    pgl -> New Deal democrat... , Tuesday, May 17, 2016 at 09:33 AM
    "It will be taught in graduate school, long after the little ones have been indoctrinated in reactionary thought be Econ 101."

    Joan Robinson's writing on market power was required reading when I was in graduate school. My undergrad profs touched on this issue but not as much. I wonder if Greg Mankiw teaches market imperfections to his undergrad students at Harvard.

    two beers -> pgl... , Tuesday, May 17, 2016 at 09:42 AM
    "I wonder if Greg Mankiw teaches market imperfections to his "undergrad students at Harvard."

    According to theoclassical doctrine, all market imperfections are the result of gummint innerference. Left to themselves, markets hum with music of the perfect spheres.

    pgl -> two beers... , Tuesday, May 17, 2016 at 11:52 AM
    "theoclassical doctrine". My new favorite term. Excellent and thanks.
    RC AKA Darryl, Ron : , Tuesday, May 17, 2016 at 08:25 AM
    We are way past just one or the other of those explanations being true. Opportunities come in many forms, but just not for many people. Competition becomes limited in the womb and then they go from there. Better schools across all zip codes and public day care with universal pre-K would be a start. Even that is doomed to the catch-22 of making a better informed public requires a better informed public to demand being better informed. Down east they say "You can't get thar from here."

    I was fortunate enough to grow up in Prince William County VA in the late sixties just as it was beginning to boom from growth proximate to the DC Beltway. We had a new and progressive school system even relative to NoVA. Still by the 7th grade it was evident to me that the pedagogy related to reality in dogmatic POVs that were only relevant to the next generation of yuppie kids that had gotten a half step advantage in some various way from their parents.

    My half step came from an unusual source though. My dad was illiterate and my mom only finished the 8th grade, but they were stoics with exceedingly powerful work ethics transferred more by their example of excellence in every menial thing that they did rather than by belittling and cajoling me. My dad was the best hunter, the most successful fisherman, grew the most beautiful and bountiful garden, and was self-sufficient in caring for his car and home. His position with the state highway department was limited by his illiteracy to maintenance superintendent, but due to his ability he still got to supervise the construction of roads and bridges without the benefit of commensurate pay.

    My mom was the best cook, kept the cleanest house, and as at home day care for a few friends was the best a dealing with troubled children from potty training to outbursts of anger. It was a tough act to follow. Furthermore it did not fit the status quo mold that public schools were designed to reinforce. My half step freed me to reject the intellectual authority of my instructors even though their administrative authority was still sacrosanct in my home. I did well in school and even better on tests eking by to enter the Honor Society and passing the SAT test well enough to qualify for Mensa, but I dropped out of college first semester mostly just to relocate away from home to find a job in the city. So, I got drafted and went to Viet Name, but was lucky enough to survive and develop a successful career in IT systems management large systems capacity planning and performance management. The best break that I got was being laid off in June 2015 with a severance package good enough to afford me a retirement income equal after the change in expenses from leaving the professional world behind to what I had been making while working.

    The moral to my story is that one can despise our education system and still do very well by themselves with it. One can reject our higher education and still do very well by themselves without it. One can despise our corporate "meritocracy" system and still have a successful career and maybe even a comfortable retirement, but the ladder has been raised for the latter. How anyone can be successful in school and/or in career without recognizing their own half step advantage or recognizing the intellectually and morally vacant institutions that they traversed in their journey is deeply puzzling to me.

    RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 08:35 AM
    P.S. I had the good fortune to relocate from Prince William County to Orange County VA in summer 1966 before my senior year in high school when my dad cashed out his state retirement fund saving to start an electric motor/ john boat livery and concession stand at Lake Orange, a VA Game and Fisheries Commission state fishing lake.
    The high school teachers were probably just as intelligent as in Manassas Park, but far more socially challenged at least in the academic curriculum. Still, the kids with that half step from their successful parents did well enough to attend decent colleges, but academic performance overall was much lower than it had been in Manassas Park back in Prince William County. The kids in Orange with really successful parents all attended private prep schools.
    RC AKA Darryl, Ron -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 08:47 AM
    P.P.S. Relative to the thread topic then we have a fairly rigid establishment that favors the haves and keeps the have-nots at bay. Monopoly rents are just one of the luxurious rent extracting tools of an aristocracy of social exclusion. Bankers, proto-industrialists, and slave owners established the meme of republicanism as the conservative power that protects us all from tyranny of the majority, but perhaps a little too well. More importantly they established the US Constitution as a nearly inviolable foundation for preserving their world view of well-deserved elite privilege. And they did it all in the name of democracy while showing Thomas Paine the door.
    anne -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 08:54 AM
    Interesting and really nicely described.
    RC AKA Darryl, Ron -> anne... , Tuesday, May 17, 2016 at 10:06 AM
    It's a cool rainy day in central VA. Being retired and primarily a person of outdoor interests then today I have an abundance of time to waste. And commenting on the EV blog sure beats a colonoscopy, which is what I will be getting this time next week :<)

    TMI? Yeah, tell me about it.

    BigBozat -> RC AKA Darryl, Ron... , Tuesday, May 17, 2016 at 12:00 PM
    "Down east they say "You can't get thar from here."

    Actually, they say "Ya cain't get thay-uh frum he-yah." And they usually pre-pend a big, fullsome "Ayuh".

    RC AKA Darryl, Ron -> BigBozat... , Thursday, May 19, 2016 at 05:09 AM
    THANKS! In any case, they are often correct :<)
    Dan Kervick : , Tuesday, May 17, 2016 at 08:50 AM
    Jonathan Nitzan and Shimshon Bichler have developed an account of capitalism over sever years summarized by the slogan "Capital as Power."

    http://www.capitalaspower.com/

    two beers : , Tuesday, May 17, 2016 at 09:58 AM
    There is no Nobel Prize in economics.
    JohnH : , Tuesday, May 17, 2016 at 10:16 AM
    John Kenneth Galbraith used to write about countervailing power. Unfortunately Galbraith has been pretty much consigned to the dustbin. Even when he was writing, economics courses did not talk about his ideas much...I guess he did not use enough math symbols.

    Business has long understood the concept of what I'll call leverage points...critical intellectual property, experience, and know how. Control of these critical factors is a key to pricing power and profitability. As one example, Symbol Technologies dominated the handheld bar code scanner market for years, not because they had superior technology or marketing, but because they held the patent on the trigger, which was critical to activating the scanner for reading. Their market power affected not only competitors but suppliers and customers as well.

    Leverage points like this are commonplace in business today. Yet I'm not aware that economics, with its orientation towards competitive markets, has ever tried to model this common behavior or even dealt with it.

    Likewise, businesses have also understood the importance of market and marketing channel domination to their long term survival and profitability. Firms who fail to dominate must specialize. These concepts are considered elementary in business schools. Yet I don't know that economists have ever managed (or even tried) to incorporate them into their models.

    It might help if more economists took business courses to understand how the game is played...

    Denis Drew : , Tuesday, May 17, 2016 at 11:16 AM
    Re-organize labor -- make union busting a MARKET WARPING (not job firing) felony ...

    ... re-make America into one big Costco.

    Longtooth : , Tuesday, May 17, 2016 at 12:36 PM
    I still say that until economists can reach consensus on the objective of an economy, they remain divided on the objective. Simply defining it as "for the general good" is a cop-out --- and economists and everybody else know this full well. Define what "general good means"....then see if consensus can be reached. I seriously conclude this cannot be done, since only by compromises can they reach consensus, and this means defining the objective in subjective, vague terms... just like "the general good" is vague and subjective.

    The cop-out used by economists is at the heart of what Thomas' blog subject is about: Policy makers .. i.e. gov't decides the objectives of an economy, which is to say that economic power defines it. And of course economic power will define it to maintain and extend their economic power.... and at the very least to minimize any erosion thereof.

    So one must wonder how, if gov't is controlled by economic power, that gov't will NOT insure the maintenance and extension of that economic power? Is it possible in a democracy defined by the U.S. constitution to significantly reduce the economic power of those who have it? The constitution in fact makes it impossible.

    Even when congress occasionally finds a large enough majority to make law to erode or reduce economic power in gov't, the constitution enables 5 people in robes to deem it unconstitutional OR the next congress, or the next will make law that erode or reduce the effect of prior congress's law(s) that reduced or eroded economic power.

    If this were not the case we'd long since have had universal single payer health care, strong labor unions, tax policies that don't give unearned income a huge break, and don't give offshore income an out by not taxing it until its "repatriated", welfare systems that don't keep people in poverty, and an educational system that provide free & equal education to all (not one that gives communities, county's, and States with the highest incomes & property values the best education and everybody else with a lesser one.

    Nor, will I add would it be possible to rape the nation's environment by contaminating the nation's rivers, soils, and the air with green-house gases .. not just "paying" fines after the fact for doing so or putting low cost "caps" on green-house gas emissions.

    So what does "the general good" actually mean? Economists can't agree on it, nor the means of achieving it of course nor can policy makers.... and this is the fundamental problem not being addressed.

    Denis Drew : , Tuesday, May 17, 2016 at 02:32 PM
    Make America one big Costco -- re-unionize.
    Chris G : , -1
    Nice column.

    One comment: You wrote "...individuals are rewarded according to their contributions to the economic well being of society. Those who contribute the most to the production of the goods and services we all enjoy receive the highest rewards and climb to the top of the income distribution." I would add that having power includes being able to dictate that rewards are allotted according to economic contributions as opposed to other contributions. Cue my go-to Chris Lasch quote: "... individuals cannot learn to speak for themselves at all, much less come to an intelligent understanding of their happiness and well-being, in a world in which there are no values except those of the market.... the market tends to universalize itself. It does not easily coexist with institutions that operate according to principles that are antithetical to itself: schools and universities, newspapers and magazines, charities, families. Sooner or later the market tends to absorb them all. It puts an almost irresistible pressure on every activity to justify itself in the only terms it recognizes: to become a business proposition, to pay its own way, to show black ink on the bottom line. It turns news into entertainment, scholarship into professional careerism, social work into the scientific management of poverty. Inexorably it remodels every institution in its own image."

    [May 18, 2016] Thomas Frank: What Happened To the Party of the People

    jessescrossroadscafe.blogspot.com
    17 May 2016
    "Inequality is a euphemism, a kind of shorthand, for all of the things that have gone to make the lives of the rich so much more delicious, year on year, for the last three decades. And also for the things that have made the lives of working people so wretched and so precarious in that same time.

    This word inequality. It's visible in the ever rising costs of healthcare and college, in the coronation of Wall Street, and the slow blighting of wherever it is that you happen to live. And you catch a glimpse of inequality every time you hear about someone that had to declare bankruptcy because a child got sick, or you read about the lobbying industry that drives Washington DC, or the new political requirement, the new constitutional requirement that every presidential candidate has to be a billionaire's favorite, or a billionaire themselves.

    Inequality is about the way in which speculators, and even criminals, get a helping hand from Uncle Sam, while the Vietnam Vet down the street from you loses his house. Inequality is the reason that some people find such incredible significance in the ceiling height of an entrance foyer, or the hop content of a beer, while other people will never believe in anything again."

    Thomas Frank

    Change is coming. It must come, because the status quo is unsustainable, and has been so for some time.

    How many times will our 'very serious people' with access to the public information channels continue to miss the obvious dissonance of the common reality from the official story that they tell each other about everything from the economy to politics?

    At the root of this inequality, hidden as it is in the fog of fine sounding theories and economic models, is simple injustice.

    The longer that change is delayed, the longer that the professional class continues to insulate itself, looking down on the broader public with smug contempt from privileged perches, blinding themselves with hypocritical arguments that deny what is happening all around them, the more disruptive that change will finally be.

    And, as always, 'no one,' or at least no one who matters in their world, will have ever been able to see it coming. Because by definition no one who is an insider can ever publicly admit that the insiders have blown it completely, once again.

    "People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right. The sensitivity of the poor to injustice is a trivial thing compared with that of the rich."

    John Kenneth Galbraith

    [May 18, 2016] Two-thirds of the directors at the New York Fed are hand-picked by the same bankers that the Fed is in charge of regulating

    jessescrossroadscafe.blogspot.com
    "Two-thirds of the directors at the New York Fed are hand-picked by the same bankers that the Fed is in charge of regulating.

    Today, the United States is No. 1 in corporate profits, No. 1 in CEO salaries, No. 1 in childhood poverty, and No. 1 in income and wealth inequality in the industrialized world.

    Today, the top one-tenth of 1% owns nearly as much wealth as the bottom 90%. The economic game is rigged, and this level of inequality is unsustainable. We need an economy that works for all, not just the powerful.

    I think what the American people are saying is enough is enough. This country, this great country, belongs to all of us. It cannot continue to be controlled by a handful of billionaires who apparently want it all."

    Bernie Sanders

    The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

    [May 18, 2016] Governor candidates call for audit of North Dakota Oil and Gas Division WDAY

    Notable quotes:
    "... Both candidates said they had planned to hold the press conference next Monday but moved it up after they were contacted by an attorney for a division employee who claimed Mineral Resources Director Lynn Helms ordered the destruction of emails and records related to the transportation and sale of oil. ..."
    "... Sorum said a recent audit of the state Department of Trust Lands that identified errors in how oil and gas royalty payments were made underscores the need for an independent audit of the Oil and Gas Division, which oversees about 13,000 active oil and gas wells. ..."
    "... He said mineral owners who receive oil and gas royalty payments often receive revised settlement sheets notifying them that a mistake was made, which indicates production numbers aren't being adequately tracked and shows the need for an audit so mineral owners don't get shortchanged. ..."
    www.wday.com
    Two gubernatorial candidates from opposing parties called Thursday for an audit of North Dakota's Oil and Gas Division, raising concerns that production numbers are not being verified and citing a tip that employees were ordered to destroy public records – a claim the agency's spokeswoman called "completely baseless." Republican candidate Paul Sorum of Bismarck and Democratic hopeful Marvin Nelson, a state representative from Rolla, held a joint press conference in Bismarck to call for a performance audit of the division within the Department of Mineral Resources.

    "This is not a partisan issue, which is why Marvin and I and many other people are on the same page. We just want the law to be followed," Sorum said.

    Both candidates said they had planned to hold the press conference next Monday but moved it up after they were contacted by an attorney for a division employee who claimed Mineral Resources Director Lynn Helms ordered the destruction of emails and records related to the transportation and sale of oil.

    Sorum and Nelson said they had no proof that records were destroyed. The attorney asked not to be named publicly because it would identify the employee, they said, agreeing that the state's whistleblower laws provide inadequate protection.

    "Even without those rumors, there's still significant reasons why we should be do that (audit), and it should be urgent that we do that," Sorum, an oilfield consultant, said in an interview.

    Division spokeswoman Alison Ritter said the allegation of destroying records was untrue. "That's completely baseless," she said. "I think it's just absurd, actually." Ritter added that the office had a staff meeting Wednesday which involved making sure staff were reading the code of ethics policy, which includes a page related to records and making records available.

    Sorum and Nelson said they did not contact Attorney General Wayne Stenehjem, chief enforcer of the state's open records laws, about the report of records being destroyed. Stenehjem, who is the Republican Party's endorsed candidate for governor and also serves on the three-member Industrial Commission that oversees the Oil and Gas Division, "is part of the problem," Sorum said.

    Stenehjem was on the campaign trail and could not immediately be reached for comment. Fargo businessman Doug Burgum also is seeking the GOP nomination in the June 14 primary.

    Sorum said a recent audit of the state Department of Trust Lands that identified errors in how oil and gas royalty payments were made underscores the need for an independent audit of the Oil and Gas Division, which oversees about 13,000 active oil and gas wells.

    A bill co-sponsored by Nelson last year would have required a performance audit of state agencies that regulate oil and gas development, but House lawmakers rejected it 67-22.

    Nelson serves on the Legislative Audit and Fiscal Review Committee, which has the authority to request performance audits, but he couldn't recall if there had been a formal request for a division audit.

    He said mineral owners who receive oil and gas royalty payments often receive revised settlement sheets notifying them that a mistake was made, which indicates production numbers aren't being adequately tracked and shows the need for an audit so mineral owners don't get shortchanged.

    "There's really a public responsibility to get it right," he said.

    Ritter noted the state auditor's office recently completed a routine audit of the agency for the 2013-15 biennium and there were no formal findings for the Oil and Gas Division and a few formal fin

    Republican candidate Paul Sorum of Bismarck and Democratic hopeful Marvin Nelson, a state representative from Rolla, held a joint press conference in Bismarck to call for a performance audit of the division within the Department of Mineral Resources.

    "This is not a partisan issue, which is why Marvin and I and many other people are on the same page. We just want the law to be followed," Sorum said.

    Both candidates said they had planned to hold the press conference next Monday but moved it up after they were contacted by an attorney for a division employee who claimed Mineral Resources Director Lynn Helms ordered the destruction of emails and records related to the transportation and sale of oil.

    Sorum and Nelson said they had no proof that records were destroyed. The attorney asked not to be named publicly because it would identify the employee, they said, agreeing that the state's whistleblower laws provide inadequate protection.

    "Even without those rumors, there's still significant reasons why we should be do that (audit), and it should be urgent that we do that," Sorum, an oilfield consultant, said in an interview.

    Division spokeswoman Alison Ritter said the allegation of destroying records was untrue.

    "That's completely baseless," she said. "I think it's just absurd, actually."

    Ritter added that the office had a staff meeting Wednesday which involved making sure staff were reading the code of ethics policy, which includes a page related to records and making records available.

    Sorum and Nelson said they did not contact Attorney General Wayne Stenehjem, chief enforcer of the state's open records laws, about the report of records being destroyed. Stenehjem, who is the Republican Party's endorsed candidate for governor and also serves on the three-member Industrial Commission that oversees the Oil and Gas Division, "is part of the problem," Sorum said.

    Stenehjem was on the campaign trail and could not immediately be reached for comment. Fargo businessman Doug Burgum also is seeking the GOP nomination in the June 14 primary.

    Sorum said a recent audit of the state Department of Trust Lands that identified errors in how oil and gas royalty payments were made underscores the need for an independent audit of the Oil and Gas Division, which oversees about 13,000 active oil and gas wells.

    A bill co-sponsored by Nelson last year would have required a performance audit of state agencies that regulate oil and gas development, but House lawmakers rejected it 67-22.

    Nelson serves on the Legislative Audit and Fiscal Review Committee, which has the authority to request performance audits, but he couldn't recall if there had been a formal request for a division audit.

    He said mineral owners who receive oil and gas royalty payments often receive revised settlement sheets notifying them that a mistake was made, which indicates production numbers aren't being adequately tracked and shows the need for an audit so mineral owners don't get shortchanged.

    "There's really a public responsibility to get it right," he said.

    Ritter noted the state auditor's office recently completed a routine audit of the agency for the 2013-15 biennium and there were no formal findings for the Oil and Gas Division and a few formal fin

    Republican candidate Paul Sorum of Bismarck and Democratic hopeful Marvin Nelson, a state representative from Rolla, held a joint press conference in Bismarck to call for a performance audit of the division within the Department of Mineral Resources.

    "This is not a partisan issue, which is why Marvin and I and many other people are on the same page. We just want the law to be followed," Sorum said.

    Both candidates said they had planned to hold the press conference next Monday but moved it up after they were contacted by an attorney for a division employee who claimed Mineral Resources Director Lynn Helms ordered the destruction of emails and records related to the transportation and sale of oil.

    Sorum and Nelson said they had no proof that records were destroyed. The attorney asked not to be named publicly because it would identify the employee, they said, agreeing that the state's whistleblower laws provide inadequate protection.

    "Even without those rumors, there's still significant reasons why we should be do that (audit), and it should be urgent that we do that," Sorum, an oilfield consultant, said in an interview.

    [May 18, 2016] Oil Markets Balancing Much Faster Than Thought

    OilPrice.com
    The International Energy Agency estimates that the world is dealing with a supply surplus of 1.3 million barrels per day (mb/d) right now, which should last through the end of the second quarter. By the third and fourth quarters, however, the surplus shrinks to just 0.2 mb/d.

    The IEA reiterated its forecast that demand will hold at 1.2 mb/d, and expressed a growing sense of confidence that oil markets are only a few months away from moving into balance.

    For its part, OPEC largely agreed in its May Oil Market Report. But OPEC also chose to focus on the slightly longer-term, citing the massive cut in capital expenditures taken over the past two years. The industry has slashed $290 billion from 2015 and 2016 spending levels so far, with more cuts expected. The spending reductions contributed to the shockingly low level of new oil discoveries last year – the industry discovered less than 3 billion barrels of new oil reserves in 2015, the lowest level in six decades. With few new discoveries, and a rising number of projects deferred, there is a very low level of new projects in the pipeline, so to speak. In other words, oil supply and demand curves are converging towards a balance, and could even cross over at some point a few years down the line as supply fails to keep up with demand.

    ... ... ...

    Canadian wildfires knocked off more than 1.2 million barrels per day of production, a disruption that will be temporary, but ultimately could last a few weeks. Nigeria has lost roughly 0.4 to 0.5 mb/d due to a handful of attacks on oil pipelines and platforms. Shell and Chevron have shut down facilities and evacuated personnel because of attacks from the Niger Delta Avengers. Venezuela has seen production decline at least 0.1 mb/d from last year, and could fall another 0.2 mb/d at least over the course of 2016.

    All of these supply disruptions come on top of the expected decline in output from around the world, especially high cost U.S. shale. U.S. oil production has fallen to 8.8 mb/d as of early May, taking the loss in U.S. oil production to about 900,000 barrels per day since April 2015.

    [May 17, 2016] Work starts on new pipeline bringing Azeri gas to Italy

    bakken.com

    Construction work is starting on a new pipeline project bringing Azeri gas through northern Greece and Albania to Italy, reducing Europe's energy dependency on Russia.


    The Trans Adriatic Pipeline will run for 878 kilometers (550 miles), from Greece's border with Turkey to southern Italy, and includes a 105-kilometer (65-mile) stretch under the Adriatic Sea. First deliveries to Europe are expected in 2020.

    Greek Prime Minister Alexis Tsipras said the project would create 8,000 jobs in his financially struggling country, which has more than 24 percent unemployment.

    He spoke at a ceremony Tuesday to mark the beginning of the pipeline's construction in the northern port city of Thessaloniki.

    TAP is a joint project by Britain's BP, Azerbaijan's SOCAR, Italy's Snam, Belgium's Fluxys, Spain's Enagas and Swiss Axpo.

    [May 17, 2016] Nigerian oil production drops after militant attacks

    Notable quotes:
    "... Angola has become Africa's biggest oil producer as Nigeria's output slumped to 1.4 million barrels a day, Oil Minister Ibe Kachikwu said Monday, endangering a budget based on production of 2.2 million barrels. ..."
    "... Some 70 percent of Nigerians are living below the poverty line, according to the United Nations, despite the country's wealth. ..."
    "... The threatened strike comes as militants in the Niger Delta resumed attacks and forced oil majors to evacuate some workers. There are reports the Niger Delta Avengers are sponsored by southern politicians to sabotage Buhari. The president has deployed thousands of troops to the area, where the Avengers are demanding a greater share of the country's oil wealth and protesting cuts to a 2009 amnesty program that paid 30,000 militants to guard installations they once attacked. ..."
    bakken.com

    LAGOS, Nigeria (AP) - Militant attacks on oil installations and a threatened nationwide strike are driving Nigeria's petroleum production and its naira currency to new lows.

    Angola has become Africa's biggest oil producer as Nigeria's output slumped to 1.4 million barrels a day, Oil Minister Ibe Kachikwu said Monday, endangering a budget based on production of 2.2 million barrels. Angolan production was steady at near 1.8 million barrels daily, according to the Organization of Petroleum Exporting Countries.

    The naira fell to 350 to the dollar on the parallel market, against an official rate of 199, amid reports and denials that President Muhammadu Buhari's government plans an imminent devaluation, bowing to demands of the International Monetary Fund in exchange for soft loans.

    Nigeria's National Labour Congress and the Trade Union Congress, which say they represent 6.5 million workers, and some civic organizations called for a strike Wednesday to protest a 70 percent increase in gasoline prices, forced by shortages of foreign currency. Nigeria is dependent upon imports with oil accounting for 70 percent of government revenue.

    The crisis is dividing labor leaders on religious and ethnic lines, with those from the mainly Muslim north against the strike and Christians who dominate the oil-producing south urging citizens to "Occupy Nigeria!" Buhari is a northerner.

    The division may mean that the country will not be subjected to the massive protests that forced the previous government to shelve plans to do away with a fuel subsidy in 2012, although many Nigerians are stocking up on food and water.

    Inflation officially rose nearly 14 percent last month and prices of food and electrical goods have doubled while tens of thousands of workers have not been paid in months. Many angry Nigerians say the government could not have chosen a worse time to drop the fuel subsidy, though shortages forced people to pay double the fixed price anyway.

    Some 70 percent of Nigerians are living below the poverty line, according to the United Nations, despite the country's wealth.

    Buhari took over a year ago from President Goodluck Jonathan, whose government is accused of looting the treasury of billions of dollars.

    The threatened strike comes as militants in the Niger Delta resumed attacks and forced oil majors to evacuate some workers. There are reports the Niger Delta Avengers are sponsored by southern politicians to sabotage Buhari. The president has deployed thousands of troops to the area, where the Avengers are demanding a greater share of the country's oil wealth and protesting cuts to a 2009 amnesty program that paid 30,000 militants to guard installations they once attacked.

    [May 16, 2016] Governor candidates call for audit of North Dakota Oil and Gas Division WDAY

    www.wday.com

  • !--
  • !--
  • !--
  • !--
  • !--
  • Two gubernatorial candidates from opposing parties called Thursday for an audit of North Dakota's Oil and Gas Division, raising concerns that production numbers are not being verified and citing a tip that employees were ordered to destroy public records – a claim the agency's spokeswoman called "completely baseless." Republican candidate Paul Sorum of Bismarck and Democratic hopeful Marvin Nelson, a state representative from Rolla, held a joint press conference in Bismarck to call for a performance audit of the division within the Department of Mineral Resources.

    "This is not a partisan issue, which is why Marvin and I and many other people are on the same page. We just want the law to be followed," Sorum said.

    Both candidates said they had planned to hold the press conference next Monday but moved it up after they were contacted by an attorney for a division employee who claimed Mineral Resources Director Lynn Helms ordered the destruction of emails and records related to the transportation and sale of oil.

    Sorum and Nelson said they had no proof that records were destroyed. The attorney asked not to be named publicly because it would identify the employee, they said, agreeing that the state's whistleblower laws provide inadequate protection.

    "Even without those rumors, there's still significant reasons why we should be do that (audit), and it should be urgent that we do that," Sorum, an oilfield consultant, said in an interview.

    Division spokeswoman Alison Ritter said the allegation of destroying records was untrue.

    "That's completely baseless," she said. "I think it's just absurd, actually."

    Ritter added that the office had a staff meeting Wednesday which involved making sure staff were reading the code of ethics policy, which includes a page related to records and making records available.

    Sorum and Nelson said they did not contact Attorney General Wayne Stenehjem, chief enforcer of the state's open records laws, about the report of records being destroyed. Stenehjem, who is the Republican Party's endorsed candidate for governor and also serves on the three-member Industrial Commission that oversees the Oil and Gas Division, "is part of the problem," Sorum said.

    Stenehjem was on the campaign trail and could not immediately be reached for comment. Fargo businessman Doug Burgum also is seeking the GOP nomination in the June 14 primary.

    Sorum said a recent audit of the state Department of Trust Lands that identified errors in how oil and gas royalty payments were made underscores the need for an independent audit of the Oil and Gas Division, which oversees about 13,000 active oil and gas wells.

    A bill co-sponsored by Nelson last year would have required a performance audit of state agencies that regulate oil and gas development, but House lawmakers rejected it 67-22.

    Nelson serves on the Legislative Audit and Fiscal Review Committee, which has the authority to request performance audits, but he couldn't recall if there had been a formal request for a division audit.

    He said mineral owners who receive oil and gas royalty payments often receive revised settlement sheets notifying them that a mistake was made, which indicates production numbers aren't being adequately tracked and shows the need for an audit so mineral owners don't get shortchanged.

    "There's really a public responsibility to get it right," he said.

    Ritter noted the state auditor's office recently completed a routine audit of the agency for the 2013-15 biennium and there were no formal findings for the Oil and Gas Division and a few formal fin

    Republican candidate Paul Sorum of Bismarck and Democratic hopeful Marvin Nelson, a state representative from Rolla, held a joint press conference in Bismarck to call for a performance audit of the division within the Department of Mineral Resources.

    "This is not a partisan issue, which is why Marvin and I and many other people are on the same page. We just want the law to be followed," Sorum said.

    Both candidates said they had planned to hold the press conference next Monday but moved it up after they were contacted by an attorney for a division employee who claimed Mineral Resources Director Lynn Helms ordered the destruction of emails and records related to the transportation and sale of oil.

    Sorum and Nelson said they had no proof that records were destroyed. The attorney asked not to be named publicly because it would identify the employee, they said, agreeing that the state's whistleblower laws provide inadequate protection.

    "Even without those rumors, there's still significant reasons why we should be do that (audit), and it should be urgent that we do that," Sorum, an oilfield consultant, said in an interview.

    Division spokeswoman Alison Ritter said the allegation of destroying records was untrue.

    "That's completely baseless," she said. "I think it's just absurd, actually."

    Ritter added that the office had a staff meeting Wednesday which involved making sure staff were reading the code of ethics policy, which includes a page related to records and making records available.

    Sorum and Nelson said they did not contact Attorney General Wayne Stenehjem, chief enforcer of the state's open records laws, about the report of records being destroyed. Stenehjem, who is the Republican Party's endorsed candidate for governor and also serves on the three-member Industrial Commission that oversees the Oil and Gas Division, "is part of the problem," Sorum said.

    Stenehjem was on the campaign trail and could not immediately be reached for comment. Fargo businessman Doug Burgum also is seeking the GOP nomination in the June 14 primary.

    Sorum said a recent audit of the state Department of Trust Lands that identified errors in how oil and gas royalty payments were made underscores the need for an independent audit of the Oil and Gas Division, which oversees about 13,000 active oil and gas wells.

    A bill co-sponsored by Nelson last year would have required a performance audit of state agencies that regulate oil and gas development, but House lawmakers rejected it 67-22.

    Nelson serves on the Legislative Audit and Fiscal Review Committee, which has the authority to request performance audits, but he couldn't recall if there had been a formal request for a division audit.

    He said mineral owners who receive oil and gas royalty payments often receive revised settlement sheets notifying them that a mistake was made, which indicates production numbers aren't being adequately tracked and shows the need for an audit so mineral owners don't get shortchanged.

    "There's really a public responsibility to get it right," he said.

    Ritter noted the state auditor's office recently completed a routine audit of the agency for the 2013-15 biennium and there were no formal findings for the Oil and Gas Division and a few formal fin

    Republican candidate Paul Sorum of Bismarck and Democratic hopeful Marvin Nelson, a state representative from Rolla, held a joint press conference in Bismarck to call for a performance audit of the division within the Department of Mineral Resources.

    "This is not a partisan issue, which is why Marvin and I and many other people are on the same page. We just want the law to be followed," Sorum said.

    Both candidates said they had planned to hold the press conference next Monday but moved it up after they were contacted by an attorney for a division employee who claimed Mineral Resources Director Lynn Helms ordered the destruction of emails and records related to the transportation and sale of oil.

    Sorum and Nelson said they had no proof that records were destroyed. The attorney asked not to be named publicly because it would identify the employee, they said, agreeing that the state's whistleblower laws provide inadequate protection.

    "Even without those rumors, there's still significant reasons why we should be do that (audit), and it should be urgent that we do that," Sorum, an oilfield consultant, said in an interview.

  • [May 15, 2016] While oil production in the Bakken has been in decline for more than a year, natural gas production continues to increase

    Notable quotes:
    "... While oil production in the Bakken has been in decline for more than a year, natural gas production continues to increase. As there is no big natural gas fields in North Dakota and most of the gas is associated, this trend can be entirely attributed to the rising GOR. ..."
    "... Since the beginning of the shale boom in the Bakken North Dakota the natural gas to oil production ratio has increased almost 3 times ..."
    peakoilbarrel.com
    AlexS , 05/13/2016 at 6:22 pm
    While oil production in the Bakken has been in decline for more than a year, natural gas production continues to increase. As there is no big natural gas fields in North Dakota and most of the gas is associated, this trend can be entirely attributed to the rising GOR.

    Oil and natural gas production in the Bakken
    source: NDIC

    AlexS , 05/13/2016 at 6:26 pm
    Since the beginning of the shale boom in the Bakken North Dakota the natural gas to oil production ratio has increased almost 3 times

    Natural gas to oil production ratio in the Bakken (kcf/barrel)

    [May 15, 2016] Those in the trenches always suffer most.

    Notable quotes:
    "... I have read 25% of US E & P/ service co went BK in 1986. The US bankruptcy law firm Haynes and Boone is tracking oil and gas BK this time around. Through 4/30/16, 69 had filed with debts totalling about $35 billion. ..."
    "... The list doesn't include May, which could see another $20 billion of debt alone in BK for the industry. ..."
    "... If you would have told me in 2013 that $40 oil would be brining us great relief, is would have said you were certifiable. ..."
    "... In my opinion, almost all drilling activity at present in the US lower 48 is to avoid closing down company divisions. So many in the Bakken with just one rig, for example. ..."
    peakoilbarrel.com

    You can't avoid playing in this global financial casino. Doug Leighton , 05/13/2016 at 5:30 pm

    Hi Shallow,

    Well, the '86 bust was bloody terrible for me; I had kids in university then. Of course it was much worse for some of the other guys. At least my wife had her teaching/research job in Sweden so we managed. On a personal level I'd say it depends on where you're sitting. Sometimes I feel like a shit babbling on here when some very smart, productive and capable people, like you, are in the thick of it.

    likbez , 05/13/2016 at 6:08 pm
    Hi Doug,

    On a personal level I'd say it depends on where you're sitting.

    Very true. Those in the trenches always suffer most.

    shallow sand , 05/14/2016 at 9:00 am
    Hi Doug.

    I guess I am just wondering if there are any statistics out there comparing job losses and/or company bankruptcies?

    I have read 25% of US E & P/ service co went BK in 1986. The US bankruptcy law firm Haynes and Boone is tracking oil and gas BK this time around. Through 4/30/16, 69 had filed with debts totalling about $35 billion.

    The list doesn't include May, which could see another $20 billion of debt alone in BK for the industry.

    Of course, it is still my opinion that many more companies are technically insolvent as reserve values are below debts of most.

    If you would have told me in 2013 that $40 oil would be brining us great relief, is would have said you were certifiable.

    In my opinion, almost all drilling activity at present in the US lower 48 is to avoid closing down company divisions. So many in the Bakken with just one rig, for example.

    [May 13, 2016] Next round of ND oil production figures going to be bad

    Notable quotes:
    "... Total oil production in North Dakota Bakken fell to 1057 kb/d in March, a monthly drop of 8 kb/d. Decline in February-March was only 10 kb/d. Cumulative decline from December 2014 peak level is 107 kb/d (-9%). ..."
    "... as Shallow Sand pointed out: "It surprised me that production in ND didn't fall much when Mr. Helms stated there would be a dramatic drop." ..."
    peakoilbarrel.com
    AlexS , 05/13/2016 at 4:52 am
    repost from the previous thread:

    Total oil production in North Dakota Bakken fell to 1057 kb/d in March, a monthly drop of 8 kb/d. Decline in February-March was only 10 kb/d. Cumulative decline from December 2014 peak level is 107 kb/d (-9%).

    The chart below shows that both the EIA Drilling Productivity Report and the EIA/DrillingInfo monthly LTO production statistics tend to underestimate the resilience of tight oil production, at least in the case of the Bakken. The EIA estimates for February and March will likely be revised upward. I think that even bigger upward revisions will be done for the Eagle Ford.

    Bakken oil production statistics: NDIC data vs. the EIA reports (kb/d)

    AlexS , 05/13/2016 at 5:27 am
    as Shallow Sand pointed out: "It surprised me that production in ND didn't fall much when Mr. Helms stated there would be a dramatic drop."

    From an article in Bismarck Tribune:

    "Next round of N.D. oil production figures 'going to be bad,' Helms says

    May 4, 2016
    http://bismarcktribune.com/news/state-and-regional/next-round-of-n-d-oil-production-figures-going-to/article_5633c44e-09a9-5d3c-a47c-664f43dfd9cb.html

    Early March oil production numbers show that North Dakota will likely drop below 1.1 million barrels per day for the first time since June 2014, the state's top oil regulator said. An official update will be released next week, but Director of Mineral Resources Lynn Helms told an oil industry group in Williston he expects to see a "severe" production drop. "It's going to be bad," Helms told the Williston Basin chapter of the American Petroleum Institute Tuesday night."

    In fact, the decline was not as big as was expected and total ND oil production (incl. conventional) in March was 1109 kb/d.

    The chart below does not show any acceleration in monthly decline rates:

    Year-on-year and month-on-month growth/decline rates in Bakken North Dakota oil production (%)

    [May 12, 2016] Even if oil prices reach $60 per barrel, a decline of US shale still is imminent

    Notable quotes:
    "... Daniel Katzenberg, a senior analyst at Robert W. Baird, says investors aren't worried about profits as much as production. Quarter after quarter, the output of Pioneer's new horizontal wells has exceeded expectations, and that's why the stock price keeps rising. "What the market sees is that they're sitting on one of the most attractive and economic resource plays in the world," says Katzenberg. "Pioneer is tasked with proving their acreage is as good as the hype." ..."
    "... I like this way of thinking: "investors aren't worried about profits as much as production". However absurd it sounds, that is true. There is a class of investors that aren't worried about profits. Same can be said about investors in Tesla: "investors aren't worried about profits as much as new EV technologies". ..."
    "... New financing will be tough for survivors, and debt overhand will not dissipate any time soon. As for investors putting money into questionable companies (that Alex used as a counterargument) this is just throwing good money after bad. Most of those "new" investors are already up to the neck in this s**t and are afraid to write down holdings. So they decided to double down hoping that rising oil price will bail them out. ..."
    "... Nothing new here. America became the nation of speculators, big and small, so a new sucker is born every minute. They expect that the rising tide will lift all boats. And they already forgot lessons of 2008: I do not think investors memory (as a class) lasts more then five years. So a new bubble and related fraud can have any period larger then five years. Almost eight year passed from previous crash, so it's about time to milk those suckers again :-) ..."
    "... I think there will observable divergence between oil price rise and energy mutual funds/ETFs price rise. The latter will rise more slowly as bankruptcies might spoil the show. ..."
    "... US Production is falling (substantially) and rigs are still declining so obviously "investors" are not interested in production either. So Mr Katzenberg is talking baloneys. There are no investors. This just last gasps of money printing. You can see the cracks everywhere. ..."
    "... "If oil prices average $40 per barrel, U.S. shale oil production will likely decline by 3 million barrels per day between 2015 and 2020, and even if oil prices reach $60 per barrel, a decline is still imminent, according to the International Energy Agency (IEA). US shale production is not expected to halt the decline until we reach prices of $70 per barrel over the same period." ..."
    "... There will be time in a year when EIA will report the same and Wall Street will proclaim "We are shocked. No one could have predicted this". Same old same old. ..."
    peakoilbarrel.com
    Ves , 05/11/2016 at 5:30 pm
    US E&Ps were able to sell 10 billion not for the purpose of investing but for hiding the losses for little bit longer. That shale business model is dead.
    AlexS , 05/11/2016 at 8:17 pm
    "That shale business model is dead."

    But investors don't think so.
    Despite all those bankrupcies, they continue to invest in shale players, particularly in those who continue to increase production volumes.

    A good example is Pioneer, which is up almost 60% from 52-week lows.

    Interesting quotes from an article in Bloomberg:

    "The company, meanwhile, is spending a lot of money now in the belief that oil prices will soon rise. Not everyone thinks it will pay off. Criticizing shale drillers at the Sohn Investment Conference a year ago, David Einhorn singled out Pioneer, in which he has a short position, as the "Mother-Fracker." Einhorn, president of Greenlight Capital, argued that Pioneer lost $12 for every barrel it developed over the previous nine years. "That's like using $50 bills to counterfeit $20s," he said.
    ……………………..
    Daniel Katzenberg, a senior analyst at Robert W. Baird, says investors aren't worried about profits as much as production. Quarter after quarter, the output of Pioneer's new horizontal wells has exceeded expectations, and that's why the stock price keeps rising. "What the market sees is that they're sitting on one of the most attractive and economic resource plays in the world," says Katzenberg. "Pioneer is tasked with proving their acreage is as good as the hype."

    http://www.bloomberg.com/news/articles/2016-05-11/how-oil-s-most-boring-ceo-found-himself-atop-10-billion-barrels

    I like this way of thinking: "investors aren't worried about profits as much as production". However absurd it sounds, that is true. There is a class of investors that aren't worried about profits. Same can be said about investors in Tesla: "investors aren't worried about profits as much as new EV technologies".

    likbez , 05/11/2016 at 8:47 pm
    That shale business model is dead.

    Dead - no. Severely squeezed - yes. New financing will be tough for survivors, and debt overhand will not dissipate any time soon. As for investors putting money into questionable companies (that Alex used as a counterargument) this is just throwing good money after bad. Most of those "new" investors are already up to the neck in this s**t and are afraid to write down holdings. So they decided to double down hoping that rising oil price will bail them out.

    Nothing new here. America became the nation of speculators, big and small, so a new sucker is born every minute. They expect that the rising tide will lift all boats. And they already forgot lessons of 2008: I do not think investors memory (as a class) lasts more then five years. So a new bubble and related fraud can have any period larger then five years. Almost eight year passed from previous crash, so it's about time to milk those suckers again :-)

    I think there will observable divergence between oil price rise and energy mutual funds/ETFs price rise. The latter will rise more slowly as bankruptcies might spoil the show.

    Ves , 05/11/2016 at 11:02 pm
    " Daniel Katzenberg, a senior analyst at Robert W. Baird, says investors aren't worried about profits as much as production"

    Alex,

    " investors aren't worried about profits as much as production".

    Is this America? Profits are not important? Well if investors are not worried about profits than what is this? Charity, non-profit think-tank venture?

    US Production is falling (substantially) and rigs are still declining so obviously "investors" are not interested in production either. So Mr Katzenberg is talking baloneys. There are no investors. This just last gasps of money printing. You can see the cracks everywhere.

    Tesla is different. Tesla is still in hype 'stage" considering the number of vehicles sold.. You can run up Tesla stock so high just outside solar system and crash back and nobody will notice a thing. Oil is different because all 7 billions of us are using it.

    Ves , 05/12/2016 at 9:36 am
    Alex,

    Here is what IEA saying this morning:

    "If oil prices average $40 per barrel, U.S. shale oil production will likely decline by 3 million barrels per day between 2015 and 2020, and even if oil prices reach $60 per barrel, a decline is still imminent, according to the International Energy Agency (IEA). US shale production is not expected to halt the decline until we reach prices of $70 per barrel over the same period."

    IEA is completely disagreeing with anyone who is still claiming that shale has life below $70. And you know what is interesting is that that 2 years ago IEA & EIA were singing the same song but at this point IEA is splitting with that narrative because it is so obvious that you cannot hide it anymore.

    There will be time in a year when EIA will report the same and Wall Street will proclaim "We are shocked. No one could have predicted this". Same old same old.

    [May 11, 2016] Shale business model is dead

    Notable quotes:
    "... Why someone was investing in those cash-negative companies at the bottom of the cycle? And why they will not be investing when oil price will rise to $50 with prospects of further growth? ..."
    "... US E&Ps were able to sell 10 billion not for the purpose of investing but for hiding the losses for little bit longer. That shale business model is dead. ..."
    peakoilbarrel.com
    AlexS , 05/11/2016 at 4:55 pm
    Ves,

    US E&Ps were able to sell about $10 billion in equity in 1Q16, most of it in January-February, when oil price was around $30 and Goldman Sachs and others were predicting $20. Why someone was investing in those cash-negative companies at the bottom of the cycle? And why they will not be investing when oil price will rise to $50 with prospects of further growth?

    Cost deflation will not continue in 2017 as demand for drillling and fracking services will start to gradually recover.

    Ves , 05/11/2016 at 5:30 pm
    US E&Ps were able to sell 10 billion not for the purpose of investing but for hiding the losses for little bit longer. That shale business model is dead.

    [May 09, 2016] Can Iran And Saudi Arabia's Production Claims Be Believed

    Notable quotes:
    "... From the Iranian side, I have no doubts that an increase of another 1m barrels a day is precisely what they hope will happen, but the reality will surely be different. For all oil production, whether it is from an independent oil company or a sovereign nation, capital expenditures will determine the increase or decrease that can be achieved. Iran has a decidedly arthritic oil infrastructure, slowed by the lack of Western technology and the impact of a decade of sanctions. Their own economy is too weak to generate anywhere near the capex required to increase another 1 million barrels in the next year, and their overtures to foreign oil companies for leases inside Iran has been met cooly by prime contenders Total (TOT) and Eni (E). There is a lagged amount of already developed barrels that Iran can push onto the global market – perhaps 300,000 barrels a day; but by my reckoning, already 150,000 of those barrels have been added – making their ultimate targets very unlikely indeed to be reached. ..."
    "... It wouldn't be consistent to believe that for the last year and a half, the Saudis have been capable of increasing their production by another 20 percent, but have so far kept that potential under wraps. Instead, I am fully of the opinion that the Saudis are near, if not at their full production potential right now. ..."
    "... The oil market seems to agree – in February, if the threat of another 3 million barrels of oil hitting the global market had been unleashed, oil might have reached below $20 a barrel; today, oil is getting very close to rallying towards $50 a barrel instead. ..."
    OilPrice.com

    In light of the missed opportunity at Doha to curb OPEC production, angry statements have emerged from both Iran and Saudi Arabia on oil production – the Iranians saying that they cannot be stopped in increasing their exports another 1m barrels a day in the next 12 months, the Saudi oil minister in turn threatening to increase production another 2m barrels a day. Both of these statements need to be taken with not a grain, but a 5-pound bag of salt.

    From the Iranian side, I have no doubts that an increase of another 1m barrels a day is precisely what they hope will happen, but the reality will surely be different. For all oil production, whether it is from an independent oil company or a sovereign nation, capital expenditures will determine the increase or decrease that can be achieved. Iran has a decidedly arthritic oil infrastructure, slowed by the lack of Western technology and the impact of a decade of sanctions. Their own economy is too weak to generate anywhere near the capex required to increase another 1 million barrels in the next year, and their overtures to foreign oil companies for leases inside Iran has been met cooly by prime contenders Total (TOT) and Eni (E). There is a lagged amount of already developed barrels that Iran can push onto the global market – perhaps 300,000 barrels a day; but by my reckoning, already 150,000 of those barrels have been added – making their ultimate targets very unlikely indeed to be reached.

    The Saudis do not have any of the capex or technology problems that plague the Iranians. But the question of how much capacity the Saudis actually do have comes into play when they threaten to increase production by another 2 million barrels. For my entire career in oil, there has always been a dark question on Saudi 'spare capacity' – How much could the Saudis ultimately pump, if they were willing to open the spigots up fully? For years, the speculation from most oil analysts was near to 7.5m or 8m barrels a day – a number that was blown out in the last two years as Saudi production rocketed above 10m barrels a day.

    But the strategy the Saudis have pursued has been clear – they have been working towards full production and an aggressive fight for market share since the failure of the Vienna OPEC meeting in November of 2014. It is very difficult to believe that the Saudis have had much, if any, remaining capacity to easily put on the market since that time, or if any spare capacity could be developed at all. It wouldn't be consistent to believe that for the last year and a half, the Saudis have been capable of increasing their production by another 20 percent, but have so far kept that potential under wraps. Instead, I am fully of the opinion that the Saudis are near, if not at their full production potential right now.

    The oil market seems to agree – in February, if the threat of another 3 million barrels of oil hitting the global market had been unleashed, oil might have reached below $20 a barrel; today, oil is getting very close to rallying towards $50 a barrel instead.

    [May 07, 2016] Reserves replacement problem resurfaced again

    Notable quotes:
    "... Last year, the seven biggest oil companies in the West only replaced 75 percent of their reserves. This is seriously bad news, especially combined with the fact that many new discoveries made in the last four years have disappointed. ..."
    "... In the last four years the industry has seen disappointing - largely gas prone - exploration results, with the volume of liquids discovered annually falling from around 19 billion barrels between 2008 and 2011 to 8 billion barrels between 2012 and 2015 ..."
    OilPrice.com

    A 4.5-Million-Barrel Per Day Oil Shortage Looms Wood Mackenzie OilPrice.com By Irina Slav

    The third part of the problem is reserves replacement. New exploration is not just a form of art for art's sake, or a means of expansion to boost bottom lines. It's an essential part of the operations of an oil business. Oil is finite, and in order to stay profitable, an oil company needs to maintain a consistent rate of reserves replacement.

    And here's more bad news: Last year, the seven biggest oil companies in the West only replaced 75 percent of their reserves. This is seriously bad news, especially combined with the fact that many new discoveries made in the last four years have disappointed.

    Wood Mac's exploration research vice-president told Offshore magazine that "In the last four years the industry has seen disappointing - largely gas prone - exploration results, with the volume of liquids discovered annually falling from around 19 billion barrels between 2008 and 2011 to 8 billion barrels between 2012 and 2015."

    [May 07, 2016] Nigeria is suffering a worsening bout of oil disruption that has pushed production to the lowest in 20 years

    Notable quotes:
    "... Chevron Corp. shut down about 90,000 barrels a day of output following an attack on a joint-venture offshore platform that serves as a gathering point for production from several fields. Even before that strike on Wednesday night, Nigerian oil production had fallen below 1.7 million barrels a day for the first time since 1994, according to data compiled by Bloomberg. ..."
    peakoilbarrel.com
    AlexS , 05/06/2016 at 5:08 pm
    Nigerian Oil Output Plunges to 20-Year Low as Attacks Mount

    http://www.bloomberg.com/news/articles/2016-05-06/nigerian-oil-output-plunges-to-20-year-low-as-attacks-escalate

    • Strike on Chevron platform cuts output by about 90,000 b/d
    • Crude output fell in April to lowest in more than two decades

    Nigeria is suffering a worsening bout of oil disruption that has pushed production to the lowest in 20 years, as attacks against facilities in the energy-rich but impoverished nation increase in number and audacity.

    Chevron Corp. shut down about 90,000 barrels a day of output following an attack on a joint-venture offshore platform that serves as a gathering point for production from several fields. Even before that strike on Wednesday night, Nigerian oil production had fallen below 1.7 million barrels a day for the first time since 1994, according to data compiled by Bloomberg.

    Ves , 05/06/2016 at 6:24 pm
    and Alberta oil sands outage are now in range of 650k bpd and up 150k from yesterdays numbers.

    [May 07, 2016] Haliburton following Schlumberger in pulling out of Venezuela:

    peakoilbarrel.com

    George Kaplan ,

    05/06/2016 at 3:05 pm
    Haliburton following Schlumberger in pulling out of Venezuela:

    http://www.worldoil.com/news/2016/5/6/halliburton-joins-schlumberger-in-cutting-venezuelan-activity

    Extra heavy oil needs a lot of wells, so this should show up in production numbers fairly quickly.

    [May 07, 2016] apolitical_paddy

    profile.theguardian.com
    apolitical_paddy 4 May 2016 16:26 1 2 I decided to look up an answer to my question and found this http://www.bloombergview.com/articles/2012-03-18/princeton-reaps-tax-breaks-as-state-colleges-beg which suggests an effective subsidy of " $54,000 per student " at Princeton.

    The author goes on to write which I find a bit odd " To me, income inequality is an overrated problem in American life, and has even propelled the American entrepreneurial spirit. "

    He then seems to imply that maybe there is an emergent, de facto bad outcome: Yet it remains true that, considering all federal government policies, including tax exemptions, the rich schools have benefited more than the poor ones -- a regressive social policy that many would argue is inconsistent with using higher education as a tool in promoting the American Dream.

    Anyway, direct funding of third-level education by federal and state subsidies seems like a great idea and something that I would be very happy for my tax dollars to be used towards and -- moreover -- I would be happy paying more taxes if they were put to such purposes. !-- Kevin P Brown , 2016-05-04 21:19:27

    Ammunition : considerations that can be used to support one's case in debate

    There is a constant whining from the Clinton side about Fox news smears etc. One would believe that with all her supposed experience, she lacked the imagination to see the consequences of her actions with the email. Myself, this is just one indicator among many that she has learned nothing, her experience is flawed as her judgement is time and time again flawed.

    She has handed the FBI and Trump AMMUNITION. Not me, not you. She created this mess. Her supporters have 100% certainty that this particular issue is not an issue. They hand wave away the FBI. They shut down any discussion as just another smear manufactured out of thin air.

    Probity : the quality of having strong moral principles; honesty and decency

    We all get to decide each candidates probity. That I find her lacking is based on her actions alone, not on some lens provided by Fox news. If she were honest, she would admit that there is a risk. She states there is no risk. If her chickens come home to roost, we get Trump. Can I get odds from a bookie on the outcome of the FBI investigation? A genuine question as so many here revel in quoting the odds quoted by bookies.

    So lets gamble. Let's get to the race track and study form and history and see if the bookies have fully transparent info on all the factors leading to a win or loss. How have we come to be here? That we are is a sign of the dysfunction we live in politically. Clinton is now immune to all present and future critical thinking because ...... because she was smeared in the pass. Free pass. Sometimes ..... sometimes the King is actually naked and no one cares to call attention to that reality. !--

    TeeJayzed Addy Kevin P Brown , 2016-05-04 21:16:18
    It was not simply an "entanglement". The Kochs helped finance the Democratic Leadership Committee with Bill, Hill, McAuliffe, Tony Coelho (remember him?) and the rest of the "Third Way" Democrats who whored themselves to the first wave of christian-jihadist-wacko GOP congressmen swept into power in 1994, and it was all downhill from there, with the Republicans writing draconian legislation, the Dems rolling over, and Dirty Little Billy claiming it as a Great Leap Forward. !--
    list12345 , 2016-05-04 21:14:04
    "Shock victory" is another example of lazy, factually incorrect mass media journalism. Bernie ran an on the ground campaign in Indiana for 2 moths prior to yesterday's primary win. I should know, as our family did volunteer door-to-door canvasing for the first time over a couple weekends. We also attended the rally on Monday and it was great!

    Don't give up Bernie supporters, as we have momentum! Bernie's an honest man with fair and just principles. Our country needs such a leader and not another paid-off crony or deranged man-child.

    !--
    Kevin P Brown hillbillyzombie , 2016-05-04 21:01:18
    "Haven't you pissed off minority voters enough?"

    Again as always a deflection from the real point, documented over and over as to the long tanking DLC led strategy of leading with Southern States. Nothing to do with blacks, everything to do with Southern Conservatives. But yes, as always intellectually "honest". Innuendo. You choose to ignore the systems and structures put in place for reasons. I choose to see them. People like you choose to ignore the DLC history and the entanglement with the Koch Brothers who were so so happy Bill Clinton pushed the DNC into Republican territory, while we are all supposed to pretend that because the GOP is so bad bad bad, it gives a free pass to the DNC for the right wards ever rightwards shifting and the bandying of progressiveness on social issues that cost nothing, and the true position of the modern DLC as a money machine, with a purpose of existing to garner power.

    All you "progressives" love to talk about angry white man yet have zero answer to :

    ""In 2010, the median wealth, or net worth, for black families was $4,900, compared to median wealth for whites of $97,000. Blacks are nearly twice as likely as whites to have zero or negative net worth-33.9 percent compared to 18.6 percent."

    The fact that the above enrages me matters not to you, as you have your BernieBro Angry White man meme to deflect from real discussion about solutions. The real solution starts with getting the politicians beholden to the voters alone, not to corporate interests. That is Job One. Once that blockade is removed, then we can move on to poverty and violence as immutable links and solving them. 85% ...... 85% of the American people agree with this action. is it difficult? Yes. Wont happen however if we demand on smug entitled people throwing deflections and memes all over the place. "I am all right Jack, fuck you" should be the bumper-sticker of the Clinton supporters. !--

    Eugene Harvey Palomina , 2016-05-04 20:54:08
    Much as I despise Drumpf it worked for him, he openly railed against the GOP establishment which fort him to the bitter end with their last champions pulling out of the race. The people had spoken (most of it crazy talk), but the Democrats can't ignore the anti-Clinton sentiment. Bernie was a nobody at the beginning because all the focus was on Clinton, but more coverage was given to Bernie and people got to know what he stood for things have changed.
    The question for the Democrats is who is more likely to win the General against Drumpf? Who is more likely to win over the swing votes of those not affiliated to a party?
    The message is load and clear there is a lot of anti-establishment sentiment out there and Clinton is firmly seen as part of it.
    Drumpf having won his first leg of the race will no doubt moderate his rhetoric to appeal to a broader audience and look to grab a larger portion of the swing votes.
    In the bigger picture, Sanders is more likely to succeed against Drumof than the institutional Clinton. !--
    Janet Conard bashh1 , 2016-05-04 20:31:47
    53 year old Bernie Supporter and if Bernie doesn't win the nomination. Jesse Ventura has vowed to run as an independant and continue our grass roots movement. Jesse shares many of Sanders policies but he has an advantage over all the candidates when it comes to military experience. Navy Seal is pretty impressive. !--
    nnedjo , 2016-05-04 20:28:06
    If you ask, what is the purpose of the election, the answer is, elections should be used for two things:
    First, that some politicians will be rewarded by the voters, who will entrust the government to them.
    And second, but no less important, that some politicians will be punished by the voters for their past mistakes, in a way that will refuse to give them their votes. So, this second function of the elections is perhaps even more important because it ensures that politicians are held accountable for their previous actions.

    Now, if you look at these elections, you will notice that this is totally turned upside down in the case of Hillary Clinton.
    Her husband has created mass incarceration, and she, as the first lady, was the main promoter of it. And now she says, "Oops, that was an 'unintended consequence'! That is to say, over two million people in prison, many of which serve a sentence for minor offenses is an 'unintended consequence'''
    OK, fine, but what about the fact that she has got the money from the prison lobby?
    If the first was an 'unintended consequence', the latter is certainly not. So these are the things for which in every country on earth some politician would lose any chance to enter the next government. Provided that the politicians are held accountable for their previous actions, which is obviously not the case in the US.

    And, this is just one of the things for which Clinton can be held accountable.
    For example, what about the deregulation of Wall Street by President Clinton and the economic crisis eight years later, that after the next eight years Hillary Clinton took over half a million dollars from Goldman Sachs for three speeches? - Unintended consequence!

    What about voting for the Iraq war at a time when Hillary Clinton was the leader of the Democrats in the US Congress and the loss of people and money that followed after that, not to mention the rise of terrorism as a consequence? - Unintended consequences, too!

    What about turning Libya into a failed state, and exclamation, "We came, we saw, he [Gaddafi] died!", after which four US embassy staff, including Ambassador Stevens died, and after which Clinton lied to the American public about events that led to their deaths? - Unintended consequences!

    And, last but not least, what about NAFTA and other international trade agreements, all of them supported by Clinton to this day, although deprived and still depriving millions of American workers from their jobs? - Unintended consequence!

    So, as you can see, this is quite a long list, but probably there's more of it that is not listed here, yet. And it will be even more of such "unintended consequences" if Hillary Clinton will be elected for the US president. !--

    Sandypaws RobInTN , 2016-05-04 20:27:29
    Hence why I said 'some form of revolt' instead of 'burn the party down rawr'. The party establishment firmly put themselves behind Clinton early on. This is indisputable. 40+ percent of primary voters went against this in some form. Some will still welcome Clinton, some will tolerate her, some will walk, but the act of voting against establishment preference is already some form of revolt. !--
    Kevin P Brown hillbillyzombie , 2016-05-04 20:05:19
    You: "self-righteous crap"

    You:"his acolytes will just come up with another dumb ass reason "
    You: "Why didn't you just give it directly to Trump? "
    You: "Bernie, when all's said and done, is a fraud."
    You: "I never did trust politicians who hold mass rallies." ( Nice Nazi smear)
    You: " are already starting to misquote Bernie, and talk about how it's all the fault of "Jewish bankers" Smearing Sanders for your relatives jewish Smears
    You: "She doesn't pretend she's a damn rock star" Smear
    You: " I take it you are a Trump supporter now" Personal smear to me.
    You: "nihilistic" over and over again
    You: deleted reference ot Pope as child molester
    You: "His trip to kiss the Pope's ass was disgusting pandering" So their shared stance on global warming is irrelevant?
    You: "the ass of the world's most powerful homophobe"
    You: "But Bernie has always been a fraud" ( multiple repetitions of this)


    On and on....How self righteous are you?

    "personal insults from you"

    Really? What insults? Intellectually lazy? That is my assessment of you. Not intended as an insult but an assessment of who you are and how you think. Based on reading all of your posts. I pay attention. I find it interesting to figure out motivations.

    " I've got a right to my views"

    Indeed you do. Never ever asked you to to post. !--

    DebraBrown Bronxite , 2016-05-04 19:59:33
    I agree, Hillary is worse, and scarier than Trump. Hillary will justify her interventionist wars and terrible trade deals with slick, plastic, professional language which will fool some people into thinking she knows what she is doing.

    Hillary would be 8 more years of the Corporate Oligarchy cementing its hold on our process. Trump might last 4 years... then we can elect a real progressive. !--

    Sandypaws newageblues , 2016-05-04 19:51:46
    SoS is more extrapolation, based off the weakness of her credentials heading into the position. It should be remembered that her lack of experience in foreign policy was one of Obama's attack points in 2008, so to have him suddenly turn around and name her SoS is a bit odd. Specifically:
    The choice of Mrs. Clinton pleased many in the Democratic establishment who admire her strength and skills, and they praised Mr. Obama for putting the rancor of the campaign behind him. "Senator Clinton is a naturally gifted diplomat and would be an inspired choice if she is chosen by President-elect Obama as secretary of state," said Warren Christopher, who held that job under her husband.

    But it could also disappoint many of Mr. Obama's supporters, who worked hard to have him elected instead of Mrs. Clinton and saw him as a vehicle for changing Washington. Mr. Obama argued during the primaries that it was time to move beyond the Clinton era and in particular belittled her claims to foreign policy experience as a first lady who circled the globe."

    Source: http://www.nytimes.com/2008/11/22/us/politics/22obama.html?_r=0

    So read into that what you will.

    What -is- clear is that she got $17.5 million in personal cash out of the deal (Obama agreed to cover campaign debts, she lent her campaign 17.5 million).

    Source: http://www.huffingtonpost.com/2008/06/02/clinton-in-negotiations-f_n_104823.html !--

    Bob Zavoda , 2016-05-04 19:32:29
    Don't be lulled into a false "horse race" depiction of an especially HISTORICALLY IMPORTANT, planetary-civilization-survival moment. A predominantly, establishment, bankster-owned media, are pushing this epic election of "Main Street vrs wall street", as just another election. Wrong! A fictiion! Lies!

    Over 60% of us didn't vote last election, BECAUSE, only liars and apologists for "empire" oligarchs were running. Today, we see Bernie and perhaps Dr. Stein of the Greens. Only "The Bern" gets media minimal coverage, because he is running as an "Democrat". Indiana and other "open" primaries show, time and time again, the rigged nature of a duopoly electoral fraud. The establishment, wall street banksters and their allies DO NOT, WILL NOT let Bernie win. Do the math and ONLY BERNIE CAN BEAT TRUMP! SO QUIT THE HORSE RACE BS and see the BERN! And jut maybe we will have an inhabitable planet for our grandchildren that is fun to live upon. !--

    DebraBrown Kevin P Brown , 2016-05-04 19:31:40
    Putting it another way... Bernie has made them all look like chumps. They say they cannot get elected without big corporate dollars. Bernie did not sell out, and he raised money easily. He makes the rest of the lousy corrupt bunch look like fools.

    !--

    DebraBrown macktan894 , 2016-05-04 19:28:51
    Hillary did not concede in 2008 until after ALL the states had voted. Even then, she waited 4 days. What happened between the last primary and 4 days later, when she finally conceded? NEGOTIATIONS. She laid down the terms under which she would support Obama -- all goodies for Hillary, because Hillary Is For Hillary, period.

    Bernie will use the clout we give him to negotiate on behalf of THE PEOPLE at the Democratic Convention. That's the difference between him and self-serving Hillary.

    Looking forward to voting for Bernie in California on June 7. Meanwhile, praying for the FBI to indict Hillary. !--

    Kevin P Brown hillbillyzombie , 2016-05-04 19:27:01
    Yet for all her long name recognition, her second national presidential campaign, the superdelegates lined up before Sanders announced, with the cunning long term strategy of the DNC "southern firewall" designed to favour conservative candidates, despite all the power players endorsements, despite all the Superpac's, she still is not going to arrive at the convention with the required delegate count for victory. What does that tell us? I know what it tells me. It tells me that there are a lot of people who want more of a continuation of Obama Change. They want real change.

    So sure, she is "winning" a battle in a longer running war of ideas. Let's see how this plays out over the next 8 years.

    Kicking his ass by the way would have been if she reached the required pledged delegates months ago. She could not. Complacency is not a great stance in these times. !--

    Kevin P Brown hillbillyzombie , 2016-05-04 19:18:45
    "he'd spend it helping progressive candidates"

    Like Hillary has done since 2008? Helping the same old hack politicians, using her cash and her name and yet the people refused to come out and reverse the largest loss of Democratic seats in modern history? Yeah, blame the voters, you have them all pegged. it's never the fault of the politicians is it, it is the lazy voters. Well there is another theory that explains Trump and Sanders: They are sick of the same bullshit put out by the DNC and the GOP. Taking Ted Kennedys seat as an example the safest DNC seat in the nation, decades it sat with the DNC and as soon as he dies, the DNC selects one of your hack ersatz progressives, throws Bill Clinton and Hillary and bags of cash and STILL loses the seat. Was there a message there worth listening to? Not to you, you blame the voters. No no no never blame the DNC. Blame the voters.

    The voters perhaps is tired of what is presented to them as a voting solution. So in the end, your way of doing things has led to voter frustration and here we have Trump. There is a lesson there. Listen or dot listen, but the people are venting there frustration. Trump is a populist disaster, but he is a symptom of a dysfunctional system that needs revision and revision now. But nah! Lets just throw cash into a cesspit of dysfunction.

    Also you sit smugly ignoring the FACTS of Clinton laundering State contributions back into her campaign, leaving little or nothing for State DNC budgets. Ah, you say, this is a smear from Fox news. Um. No. Do you think we are idiots? You must. I assure you we are not idiots. Good luck in November. You will need it. !--

    Kiara Kiki Jenkins hillbillyzombie , 2016-05-04 19:16:30
    Bernie hasn't attacked Hillary directly since New York, and he had every right to go after her then, because she was on full offense against Bernie at that time, too, so enough with the innocent victim garbage. !--
    HJWatermelon , 2016-05-04 19:13:12
    Bernie always does better in open primaries because of the Independent voters. They are more likely to vote Trump in the general election in my opinion. He is going to start hammering Clinton now he is the nominee.
    Bernie should stay in right 'til the end in case anything ever happens with one of the two Clinton investigations. I don't see anything happening now though as the private server investigation appears to have stalled.
    Regarding the second (the Clinton Foundation) the Supreme Court is about to legalise political corruption with the McDonnell case. If that happens democracy is effectively suspended anyway and this is a pointless reality show farce. Policies will be decided by the highest bidder. How can she have broken any laws if there aren't any?

    Good news for women's rights under Clinton though - whilst her Syria no-fly-zone might start WW3, women will probably get to be drafted as well as men... !--

    RobInTN Martin Thompson , 2016-05-04 19:10:49
    Couple of things about this statement

    'Lawyer Hillary who is trained in well being a lawyer she even was a defense lawyer helping someone she believed was guilty of rapeing a 13 year old girl who has said Hillary "put her thru hell"."

    "someone she believed was guilty of rapeing a 13 year old girl"

    Interesting. Clinton discussed what she was thinking at the time with you?

    Or are you suggesting that some accused people should not get legal representation?

    I'm intrigued by the "put her through hell" portion of it. Especially as the case was plea bargained out and never went to trial.

    !--
    Freedom54 , 2016-05-04 19:06:41
    It is effortless to identify the ardent obtuse "Hillary Clinton and Donald Trump Supporters". Their verbiage and responses are always predicated on emotion and fiction versus an intellectual discourse based on factual information – Quite Like the Superficial Candidates that they blindly support. The 1% Billionaire Oligarchy Ruling Classes Owned Mass Media Outlets is intentionally protecting the Outed Racists Donald Trump and his female Clone Hillary Clinton from Public Scrutiny. They are salivating Like Pavlov's Dog for their "Ultimate Political Reality Show – The Donald Trump and Hillary Clinton Presidential Race" waiting to cash-in and profit as they stage and promote their "False Democracy".
    Knowledge = Power = Real Freedom..!
    1. This is why "Anonymous" Noble, Righteous, True American Heroes and Freedom Fighters are stepping in to fill the Fourth Estate void abdicated by America's Billionaire Owned Media to provide the 99% the Truth.
    Anonymous – Message to Hillary Clinton:
    https://www.youtube.com/watch?v=OTMaIX_JPE4
    Anonymous – Message to Donald Trump:
    https://www.youtube.com/watch?v=Ciavyc6bE7A
    2. CBS CEO and Chief Leslie Moonves: Comments he made at an investor conference last month when he said, "The money is rolling in, and this is fun." Added Moonves: "They're not even talking about issues; they're throwing bombs at each other, and I think the advertising (revenue $) reflects that. This is going to be a very good year for us (CBS). Sorry, it's a terrible thing to say, but bring it on, Donald."
    http://www.hollywoodreporter.com/news/daily-show-host-trevor-noah-877273
    3. Why isn't the Media asking Hillary Clinton about the Podesta group in the Panama papers working with the corrupt, Kremlin-run Sberbank, and the two shell companies setup by Bill Clinton (WJC, LLC) and Hillary Clinton (ZFS Holdings, LLC) at a Delaware address (1209 North Orange Street Wilmington, Delaware) that are the same address as 285,000 other companies, many of which were in the Panama papers and linked to laundering and tax avoidance schemes?.
    http://www.theguardian.com/business/2016/apr/25/delaware-tax-loophole-1209-north-orange-trump-clinton?CMP=share_btn_fb
    4. Why isn't the Media asking Hillary Clinton to Release the Transcripts from her numerous $275,000.00 Speeches to Goldman Sachs and the Other Wall Street Banks?
    https://youtu.be/3UkfsEeHUcg
    5. Why don't they ask Hillary Clinton if she would Prosecute her and her husband Bill Clinton's former "Trusted Deputy" Rahm Emanuel the current Mayor of Chicago for establishing a "Gulag" on American soil which allowed the Chicago police to covertly detain and torture more than 7000 people at the Secret Interrogation Center that completely ignored the American "Constitution" and the Bill of Rights at Homan Square?
    http://www.theatlantic.com/national/archive/2015/02/behind-the-disappeared-of-chicagos-homan-square/385964 /
    6. Hillary Clinton lying for 13 minutes straight- Hillary, the inevitable liar:
    https://youtu.be/-dY77j6uBHI
    7. Hillary Clinton: A Career Criminal:
    https://youtu.be/kypl1MYuKDY
    8. Secretary Clinton Comments on the Passing of Robert Byrd her friend and mentor who is a documented Racist and KKK member:
    https://youtu.be/ryweuBVJMEA
    9. Bill Clinton ATTEMPTS to Justify Robert Byrd's KKK Membership:
    https://youtu.be/8Fg3XNTMzNo
    10. Hillary Clinton & NYC Mayor Bill de Blasio Make Awkward RACIST Joke About CP TIME Colored People Time
    https://youtu.be/pP3syBu4ZDM
    11. Black Lives Matter protesters repeatedly interrupt Bill Clinton in Philadelphia: https://youtu.be/xRrVI5gHVyo
    Can You Say Hypocrisy?
    The only Authentic and Honest Candidate is Bernie Sanders who wants to return America back into a Transparent Citizen Accountable Democracy for the 100%. This is why the Bernie Sanders Army of Noble and Righteous Citizens-the 99% will never Vote or Support either of the Illegitimate 1% Billionaire Anointed Candidates Like Hillary Clinton or Donald Trump, Who Represent the Retention of a False Oligarchy Democracy and Everything That the Decent Noble and Righteous Citizens Despise, Compulsive Pathological Lying, Narcissism, and Insatiable Greed. !--
    Kevin P Brown hillbillyzombie , 2016-05-04 19:03:07
    "So your plan is for Bernie's opponent to get arrested? "

    Not my plan. Each citizen in this country has a set of was that rule what they can and cannot do. Even Clinton. I have spent a long time explaining my logic of why I believe she has broken various laws. I as a citizen appreciate the FOIA. If you cannot handle the facts of her actions, then what can I say? To me it does not bode well how Clinton comports herself. To you it is not an issue. You choose to ignore the reality of a real and extended FBI investigation. Obama rules the DoJ and the FBI. If it were indeed only a political smear, then he has the power to force Comey to resign. It is not a function of me, it is a function of laws. The investigation not some fevered Fox News plot as much as you with it to be. I understand completely what she has done. I understand why she did what she did.

    Regarding the bolstering the party, it seems it does not bother you the games her suprpac has done with bending the rules just up to the breaking point.

    Frankly, sanders on the back of this, and his supporters need to build an organisation that can put up true progressives. Your opinion is team based, you accept year after year the shift of the DNC orphaning in to centrist republicans. Your choice. I choose not to support this. So that he refused to fund more the same old hack politicians is fine by me. He has over his career supported the DNC with vote after vote after vote. He had the courage to offer "democrats" a real choice in the primaries.

    You again ignore with your blather about mid term motivations the fact that the people would not support the DNC in 2010, 2012, and 2014. People are not stupid, and they see that the change Obama promised is never coming. We can distill into a simple slogan then rich are getting richer even as the American worker gets more and more productive, yet their share of the capitalist pie shrinks and shrinks. The common man sees that Obama care still is not the solution for him and his family when the average deductions are over 5000 a year on top of his premiums and the average coverage is 60% of costs when he gets sat the deductible. He is told about Gold Standard trade agreement negotiated in absolute secrecy, and that cause him discomfort. Some black families see : ""In 2010, the median wealth, or net worth, for black families was $4,900, compared to median wealth for whites of $97,000. Blacks are nearly twice as likely as whites to have zero or negative net worth-33.9 percent compared to 18.6 percent."" and understand for all of Clinton's triangulation there is nothing palpable to change that. He sees she is great at trotting up mothers of dead people and Black people as props to gain votes, and he see that perhaps Sanders Class based solutions will help him more, as maybe he is tired of racial divides and knows intuitively Clinton has no real solution to gun crime, spurred on by poverty, nor solutions to poverty itself.

    So get all huffy about the FBI investigation. I lived though the turmoil of Nixon and before his reelection I predicted that he would suffer, as my gut feeling led me to believe he was involved, that he had dirty hands. Continue to believe that genuine logical conclusions and issues are only a rehash of Fix news when they are not. Cheap and nasty way to deflect any and all valid criticism. Is Sanders perfect? far from it, but I believe I know what he stands for and how he thinks.

    "Bernie, when all's said and done, is a fraud."

    Funny but I have concluded that Clinton is a fraud. But you are welcome to vote as you wish. In the end, your fear of Trump? The risk is real and palpable that she will cause disarray to the party if the FBI fins what I believe is obvious, and the risk is her handing the election to Trump. To you? You don't care. You cannot and will not see the risk, preferring to hide like a gormless child behind tortured smear theories rather than standing up as an adult and properly assessing the real risks to the Democratic.

    All the pieces of what she did are there if you care to look. But nah! You are lazy intellectually and it is easier to blame Fox news than to actually look and ponder and conclude the evidence. As are most of the vociferous Clinton fans here. Intellectually lazy. !--

    DebraBrown , 2016-05-04 18:28:32
    Hillary wins closed primaries, where only the tribalized party faithful participate (and voter suppression and other shenanigans run rampant). Bernie wins open primaries and brings in millions of new voters. Democrats like me, Independents, even Republicans vote for Bernie.

    Newsflash: November will not be a closed primary. !--

    shepdavis PATROKLUS00 , 2016-05-04 18:21:37
    Got that right...

    She loses on the Big 3 Issues, war, Trade & "corruption" to Trumps words and Bernie's life walk. Dems are falling into dreamlala math- Hillary will get women (50%), Blacks (10%) & Hispanics "another 10%). How can she lose.

    Start with GOP women at the end will not vote her way. That BLack and Hispanic percentages are already baked in, and Trump will cater to men, not just white, on the basis avg men have been getting shafted for 40 years now.

    If there is a terror attack, Trump wins big. If the economy goes down he wins too.

    The tea leaves and tarot readers have been all wrong this election.

    & Hill is likely to lose most of the last primaries. Embarassing

    "Hillary Clinton will say anything to get elected, and nothing will change." Barack Obama, 2008

    !--
    Bronxite ID7731327 , 2016-05-04 18:14:50
    Is that HRC new slogan, "Hillary is shit, but at least she's not as shitty as Trump"
    Actually I think she's worse. The DNC turns a blind eye every time she breaks the law, and tries to change the rules for her, but both the RNC and DNC will keep Trump on a short lease. !--
    scrjim , 2016-05-04 18:14:20
    The Guardian's anti-Bernie agenda is really quite off-putting. Even the article summary is patronising :

    "Despite trailing behind Hillary Clinton in polls, Sanders once again proved his appeal to disaffected midwest voters by pulling off his 18th victory of 2016"

    The translation is that the Bernie Sanders constituency is backwards and centred around white males who have lost blue collar jobs to globalisation; in other words he appeals to people who want to turn back time. The inference is that Clinton's group is far broader, more cultured and more progressive. This is patently false. Sanders is popular with young people and with people who are passionate about politics. Clinton's constituency tends to be older and more conservative. Clinton is the establishment candidate Sanders is the beacon of hope. !--

    talenttruth RobertHickson2014 , 2016-05-04 18:11:03
    No surprise there. As is it no surprise that ABC is a "subsidiary" of The Walt Disney Company, which has been to the right of Attila-the-Hun since "sweet grandfatherly Walt" himself, who was practically a neo-Nazi politically. Need proof? Walt's cheerful cooperation with McCarthy's House Un American Activities persecution of anyone not sharing Adolph Hitler's political persuasion).

    Disney's movies have always exhibited that nauseating, fake, treacle "sweetness" which all fascists use as "cover" for their actual addiction to fear, hatred, tribalism and Orwellian manipulation.

    So we can hardly be "shocked, shocked, shocked" by ABC's gross "news" bias.

    How about NBC? It's been a corporate "investment football," recently boosted by Comcast from former owner General Electric. You KNOW they're both dedicated to impartial news reporting, right? HA HA HA

    How about CBS? Oh it's owned by Viacom, an "entertainment conglomerate," of course dedicated never to sensationalism or deliberate distraction of the public, but rather, to honest news reporting. Right.

    MSNBC? GE + Microsoft. That of course equals total devotion to unbiased and complete news reporting, even if the news WERE "bad for the Shareholders." Uh huh. (See the pigs flying by).

    CNN? Oh its "daddy" is Time Warner, another paragon of public-spirited democracy.

    Even PBS has fallen. Think that's a "radical statement?" The super right did a twofer on PBS: (1) cut its government funding so as to make it terrified and desperate and then (2) gradually brainwashed PBS into actually being another Corporate PR outlet.

    Non-commercial? PBS? IT LIVES ON CORPORATE ADS. And under those deliberately created survival pressures, even PBS news has collapsed into reporting all news like it's a trivial sports event - Never Delving Deeper, because its Corporate Overlords wouldn't like that.

    So, welcome to the reality of well-entrenched corporate fascism. For that, in part, we can thank Ronnie Puppet Reagan's reversal of a former 50-year policy which did not allow non-media corporations to "buy" the news. May that SOB continue to roast, whereever.

    Bernie Sanders would be all of these Corporate Overlord's worst nightmare. They would have to work "even harder" (yawn, pass the caviar), to blacklist, cover up, lie about the truth he would tell through his bully pulpit. Thus all of THEIR media outlets have worked like little beavers to Cancel the Cancer of Bernie, before he could cause real damage to The Entitled Domain. Ugh. !--

    PATROKLUS00 , 2016-05-04 18:10:21
    The Democrats, just as blind and foolish in their own way as the GOP, will make a tremendous mistake in nominating HRC. Anyone with an ounce of political insight can see the coming election is going to be about the revolt of the middle class against the Establishment and megacorporations that have been exploiting that class for at least two score years. The politically dimwitted and somnolent American middle class has finally come to realize how they have been used and abused and they aren't taking it anymore. They don't give a damn about foreign policy, single payer or anything else. They are furious at having been used and hoodwinked and they are in full revolt. The stupidity of the Democrats, in not seeing this and running an Avatar of the Establishment, HRC, will make the election very close with a good chance she will lose. Sanders can out Trump Trump on the anti-Establishment issue as polls clearly show, but the Dems are going to shoot themselves in the foot by coronating HRC. With Sanders they could probably sweep Congress also, but with HRC they will at best keep the White House and possibly a very narrow majority in the Senate. HRC is a poor campaigner with an unlikable personality, unlike Elizabeth Warren, and Trump will really mangle Hillary. With Sanders he will not be able to do that because Sanders easily can out anti-establishment Trump for, obviously, Trump too is of the 1% like HRC. There is the slim hope, forlorn as it may be, that the Democrat super-delegates, most of whom are political pros and thus focused on winning, will see the light and nominate Sanders. But the Democrats are usually reliably stupid so look forward to a cliff-hanger in November and very possibly a President Trump.
    DebraBrown , 2016-05-04 18:10:20
    Hillary did not concede in 2008 until after the last state finished voting. The counting was done, and Obama had more delegates. Even then, she waited 4 days before conceding. What went on during those 4 days? Negotiations. No way a super-predator politician like Hillary Clinton was just going to give in, without getting something for herself.

    Here's what Hillary got out of the deal: a cabinet post, Obama's promise of support for her next bid in 2016, and Obama's help paying off her 2008 campaign debt.

    The difference with Bernie is that he is not in this for himself. Bernie stepped up to the plate because America deserves better than another Corporate Tool Politician. When Bernie goes to the convention, he will not be negotiating for himself. He will be fighting for ALL OF US. Bernie fights for The People.

    This is why we need to give him as many delegates as possible. I look forward to voting for Bernie in California on June 7. Furthermore, speaking as a middle aged feminist who has been a registered Dem for 35 years -- I will NEVER vote for Hillary. !--

    sbabcock LanaCvi , 2016-05-04 18:04:13
    A Shillary in denial... Do you need the NYT or Guardian to report it to make it true? Many of the biggest companies in the US-the biggest polluters, the biggest pharmaceutical companies, the biggest insurance companies, the biggest financial companies-gave to the Clinton foundation while she was Secretary of State and then they lobbied Secretary Clinton and the state department for "favors." Even foreign governments have given to the foundation, including that stalwart of democratic principles Saudi Arabia, who gave at least $10 million… Then magically they had a $26 billion plane deal with Boeing.

    Is that what you're voting for? Does that sound like someone with integrity? hate to break it to you that this information isn't found only on right wing websites. Inform yourself. Can't you see why she'd play games with email? It's all right there, in your face. !--

    WhiteMale cliffstep , 2016-05-04 17:48:28
    Alleged pragmatist, but more likely Hillary will actually be a pushover on social and economic issues and a hawk on foreign policy. She is more of a Republican than Trump. !--
    WhiteMale cliffstep , 2016-05-04 17:48:28
    Alleged pragmatist, but more likely Hillary will actually be a pushover on social and economic issues and a hawk on foreign policy. She is more of a Republican than Trump. !--
    Manami , 2016-05-04 17:33:14
    Shock?!!!! How could the American Queen lose right?!!!

    The main point is, Hillary has no chance of winning against Trump. She is already trying to get a cadre of neocon Republicans to support her, thinking she could get swing a portion of Republicans to support her, forgetting why she is so despised by a large segment of Democrats and majority of independents. It is her default cling to neocon interventionist, and corporate base of support that causes it. She is tone deaf, ignorant and arrogant. Unless, we Democrats stop her now Trump will beat her handily. I have no doubt about it. !--

    Manami , 2016-05-04 17:33:14
    Shock?!!!! How could the American Queen lose right?!!!

    The main point is, Hillary has no chance of winning against Trump. She is already trying to get a cadre of neocon Republicans to support her, thinking she could get swing a portion of Republicans to support her, forgetting why she is so despised by a large segment of Democrats and majority of independents. It is her default cling to neocon interventionist, and corporate base of support that causes it. She is tone deaf, ignorant and arrogant. Unless, we Democrats stop her now Trump will beat her handily. I have no doubt about it.

    [May 06, 2016] If you think productivity increase is going to compensate for overall depletion and lack of new exploration success then I think you are wrong.

    Notable quotes:
    "... that ND general stats show 13012 wells producing in Feb 2016 and 13212 in Oct 2016 (this is net i.e. wells added minus wells shut in), and 5) that taken together these do not indicate that there is any potential for a large production increase in the near or far future. ..."
    "... I think we will have to see what happens when oil prices rise to $75/b or so, my expectation is that there will be at least 15,000 more wells completed in the Bakken/Three Forks in the next 10 years or so if oil prices rise to $75/b and remain at that level or higher. ..."
    "... I expect ND Bakken/Three Forks output will increase gradually to maybe 1.22 Mb/d (only 60 kb/d above the previous peak) by about 2022 and then will gradually decline. This is under a scenario where the completion rate increases to 155 new wells per month and then gradually declines along with output. Total ERR of about 8.4 Gb and 27k total Bakken/Three Forks wells completed. The scenario requires high oil prices ($155/b in 2015$) by 2020, lower oil prices will mean less output. ..."
    "... They know where it is because they searched heavily up to 2012. They didn't stop searching because of the price, or because they had so much acreage they didn't need any more. They stopped because they were hitting dry holes and ran out of places to look. That definitely does mean lack of success at the periphery. ..."
    peakoilbarrel.com
    George Kaplan , 05/06/2016 at 11:45 am
    Dennis, I didn't look at well productivity, which is what you seem to be discussing. My points were:

    1) that there is no exploration drilling being conducted at present and that it declined quickly after 2012 when prices were high, implying that there aren't any areas left worth looking at,

    2) that 5 counties had high exploration success and these are the ones now responsible for almost all production (and actually all in decline) and that the development in each county quickly followed the exploration, suggesting core areas are key for overall production rates,

    3) that other counties have been explored without success and are likely to be unproductive,

    4) that ND general stats show 13012 wells producing in Feb 2016 and 13212 in Oct 2016 (this is net i.e. wells added minus wells shut in), and 5) that taken together these do not indicate that there is any potential for a large production increase in the near or far future.

    If you think productivity increase is going to compensate for overall depletion and lack of new exploration success then I think you are wrong.

    Dennis Coyne , 05/06/2016 at 12:10 pm
    Hi George,

    They know where the oil is, there is not much need for exploration. I do not expect well productivity to continue to increase, the chart was intended to show that there has been no productivity decrease so far. I agree that at some point the sweet spots will be fully drilled and drilling will need to move to less productive areas.

    When that point is reached we will see new well productivity decrease.

    Older low output wells from the non-Bakken formations have been shut in at faster rates due to low prices, though some may be reactivated as oil prices rise. The NDIC seems to think there are another 30,000 potential well locations, perhaps they are mistaken, the USGS also thinks there are that many potential well sites and they could also be wrong.

    I think we will have to see what happens when oil prices rise to $75/b or so, my expectation is that there will be at least 15,000 more wells completed in the Bakken/Three Forks in the next 10 years or so if oil prices rise to $75/b and remain at that level or higher.

    I also agree there won't be a large production increase (though we have not defined large).

    I expect ND Bakken/Three Forks output will increase gradually to maybe 1.22 Mb/d (only 60 kb/d above the previous peak) by about 2022 and then will gradually decline. This is under a scenario where the completion rate increases to 155 new wells per month and then gradually declines along with output. Total ERR of about 8.4 Gb and 27k total Bakken/Three Forks wells completed. The scenario requires high oil prices ($155/b in 2015$) by 2020, lower oil prices will mean less output.

    AlexS , 05/06/2016 at 12:26 pm

    George,

    Exploration drilling in shale plays is important only in early stages of development. The geology of the Bakken, Eagle Ford and the Permian is already very well known, and there is no need for additional exploration. The fact that activity is currently concentrated in the sweet spots does not mean lack of exploration success in the periphery. Resources are there, but they are too costly to produce at current oil prices.

    George Kaplan , 05/06/2016 at 2:09 pm
    They know where it is because they searched heavily up to 2012. They didn't stop searching because of the price, or because they had so much acreage they didn't need any more. They stopped because they were hitting dry holes and ran out of places to look. That definitely does mean lack of success at the periphery.

    [May 06, 2016] apolitical_paddy

    profile.theguardian.com
    apolitical_paddy 4 May 2016 16:26 1 2 I decided to look up an answer to my question and found this http://www.bloombergview.com/articles/2012-03-18/princeton-reaps-tax-breaks-as-state-colleges-beg which suggests an effective subsidy of " $54,000 per student " at Princeton.

    The author goes on to write which I find a bit odd " To me, income inequality is an overrated problem in American life, and has even propelled the American entrepreneurial spirit. "

    He then seems to imply that maybe there is an emergent, de facto bad outcome: Yet it remains true that, considering all federal government policies, including tax exemptions, the rich schools have benefited more than the poor ones -- a regressive social policy that many would argue is inconsistent with using higher education as a tool in promoting the American Dream.

    Anyway, direct funding of third-level education by federal and state subsidies seems like a great idea and something that I would be very happy for my tax dollars to be used towards and -- moreover -- I would be happy paying more taxes if they were put to such purposes.

    [May 05, 2016] The number of new wells drilled in the United States has halved from 40,000, and the addition of a thousand or two thousand wells will not do much to arrest steep declines in shale production

    Notable quotes:
    "... We could make a simple approximation of how much the decline will be in 2016: Production from wells starting in year 1, typically decline somewhere around 59% the next year. Older wells decline in total about 45%. ..."
    "... Based on this I estimate that the wells in my dataset will do about ( 1400 * 41% + 1617 * 55% = ) 1463 kbo/d by Dec 2016. Add a little extra due to revisions, improved initial production, and maybe a somewhat slower drop in older production, and I would say that 1600-1800 is a close call, or a drop of about 1.4 mbo/d (not counting the output of any new completions in 2016). ..."
    "... Last year, by December, total output from wells starting in 2015 was about that size (1.4 mbo/d). But the rate of completions is probably half (very roughly) the size this year, so the drop till 2016 Dec could be in the order of 700 kbo/d, just from the areas I'm looking at. ..."
    peakoilbarrel.com
    AlexS , 05/05/2016 at 8:05 am
    Higher oil prices will likely accelerate completion of the DUCs, but that will not stop the decline in U.S. oil production this year.

    excerpts from an article in Reuters:

    DUCs in a row: Oilfield servicers to gain as more wells completed

    Wed May 4, 2016
    http://www.reuters.com/article/us-oilfieldservices-spending-idUSKCN0XV2DT

    U.S. shale producers are returning to unfinished business – completing previously drilled wells – offering a ray of hope for oilfield service providers battered by the oil slump.
    Halliburton Co and Baker Hughes Inc, the world's second and third-largest oilfield services companies, indicated on Tuesday that they expected a drop in the large number of drilled-but-uncompleted wells (DUCs) as crude oil prices steady.
    Oil is hovering above the $40/barrel mark after having rallied 20 percent in the past month.
    This has been enough for several producers to return to the thousands of unfinished wells that dot shale fields across the United States – essentially to ready them for production.
    Devon Energy Corp, Diamondback Energy Inc and SM Energy Co all said on post-earnings calls on Wednesday that they were completing more wells.
    There were 1,732 "abnormal" DUC wells in March – those that hadn't been completed within three months of drilling – in the top five U.S. shale fields, including Eagle Ford in Texas and Bakken in North Dakota, according to Alex Beeker, an analyst at energy consultant Wood Mackenzie.
    That number is expected to consistently fall through the year.

    Next month, for example, Beeker expects the number of such wells to drop by about 400. "We don't see that volume (of DUCs) continuing to build; and in fact, it's being worked off in the stream of work that's out there today," Halliburton President Jeff Miller said on Tuesday.

    Baker Hughes said it expected oil producers to complete several hundred wells every month as oil prices climb back into the mid-$50s.

    … … …

    To be sure, the fledgling recovery in spending won't mean the end of troubles for these [oil services – AlexS] companies. "Even if DUCs come online, U.S. production will continue to fall, and until output stops declining, it's going to be a challenging market for oilfield service companies," said Rob Thummel, a portfolio manager at Tortoise Capital Advisors LLC.

    "The number of new wells drilled in the United States has halved from 40,000, and the addition of a thousand or two thousand wells will not do much to arrest steep declines in shale production."

    Enno Peters , 05/05/2016 at 8:48 am
    Thanks Alex,

    The title of the article is misleading: "as more wells completed" => no, there will be less wells completed compared with 2015, only more than are being drilled.

    I just made an update on shale production in the US. What I found interesting to see is that the legacy decline of wells > 1 year was about 50%, each year in the past few years (wells in the non-Bakken basins decline much faster). For example, wells starting production before 2015, dropped in total output from around 3.2 in Dec 2014, to 1.6 mbo/d by Dec 2015.

    We could make a simple approximation of how much the decline will be in 2016:

    Production from wells starting in year 1, typically decline somewhere around 59% the next year. Older wells decline in total about 45%.

    Based on this I estimate that the wells in my dataset will do about ( 1400 * 41% + 1617 * 55% = ) 1463 kbo/d by Dec 2016. Add a little extra due to revisions, improved initial production, and maybe a somewhat slower drop in older production, and I would say that 1600-1800 is a close call, or a drop of about 1.4 mbo/d (not counting the output of any new completions in 2016).

    Last year, by December, total output from wells starting in 2015 was about that size (1.4 mbo/d). But the rate of completions is probably half (very roughly) the size this year, so the drop till 2016 Dec could be in the order of 700 kbo/d, just from the areas I'm looking at.

    This is not a prediction, just a rough guess at what might be in store.

    [May 05, 2016] Low oil prive forever regime in of the verge of breakdown

    Notable quotes:
    "... meaning Sechin ..."
    "... "Mr Sechin warned last week that the current shale boom could be another "dotcom bubble" about to burst after drillers, loaded up on risky debt, and hedge funds piled in to make a quick buck over the last five years." Seems like he was prescient in that observation as well. ..."
    "... The elephant in the room is the cost of production which for most countries including the USA and Canada is far higher then the current prices. That means that the wave of bankruptcies and drop in the USA production will continue unabated. The total loss might be above 1 Mb/d for the 2016. Canada also lost some production (currently 0.5 Mb/d due to fires) and needs about $80 for tar sand production to be profitable. Chances that oil price will reach this level in 2016 are slim, so the future of Canadian tar sand oil production is grim. ..."
    "... Several oil producing countries are on the verge of bankruptcy (Nigeria, Venezuela, Iraq). Saudi are losing around 100 billion a year in currency reserves while still playing a role of Trojan horse of the West in oil markets. ..."
    "... This situation is unsustainable and speculator/HFT driven suppression of oil prices at some point might break and will be replaced by a new price boom. It in highly probable that the price of oil will reach, at least temporary, the level of $55 this year. ..."
    "... But oil is a strategic product and high oil prices mean stagnation of Western economies. The key problem is that high oil prices threaten neoliberalism as a social system and derail neoliberal globalization. So they will be fought tooth and nail by the US and the EU elites. That's why agreement to freeze oil production by OPEN was derailed. Another victory of western diplomacy. ..."
    naked capitalism

    Is Gasoline Demand the Biggest Red Herring In Oil Markets naked capitalism

    Jack Heape , May 5, 2016 at 8:41 am

    Perhaps Igor Sechin is right (Sechin is head of the Russian energy company Rosneft and a close ally of Putin). In a Telegraph article on 2/2/15, discussing Sechin and the remarks he made at an oil consortium, the author comments that, "However, the real "haymaker" punch he ( meaning Sechin ) aimed at the global energy system came with the accusation that oil futures markets in London and New York, which set the price of the world's most vital energy commodity, are essentially being rigged by a feral cabal of speculators and traders." That would explain the obvious disconnect discussed by the author here concerning the red herrings put out by the oil sector. Interesting as well, in the article mentioned above the author also notes, "Mr Sechin warned last week that the current shale boom could be another "dotcom bubble" about to burst after drillers, loaded up on risky debt, and hedge funds piled in to make a quick buck over the last five years." Seems like he was prescient in that observation as well.

    Jack Heape , May 5, 2016 at 8:43 am

    The link to that article I mentioned is here .

    tegnost , May 5, 2016 at 9:58 am

    Berman implies as much, but puts a kinder spin on it
    "The collective consciousness that drives the oil market is fed up with low oil prices"

    Jim Haygood , May 5, 2016 at 12:24 pm

    We're fed up, ain't gon' take it no mo.

    June crude is up 2.5% to $44.87 today.

    Celebrating Cinco de Mayo … free money, free beer, free gasoline!

    likbez , May 5, 2016 at 1:14 pm
    The elephant in the room is the cost of production which for most countries including the USA and Canada is far higher then the current prices. That means that the wave of bankruptcies and drop in the USA production will continue unabated. The total loss might be above 1 Mb/d for the 2016. Canada also lost some production (currently 0.5 Mb/d due to fires) and needs about $80 for tar sand production to be profitable. Chances that oil price will reach this level in 2016 are slim, so the future of Canadian tar sand oil production is grim.

    Several oil producing countries are on the verge of bankruptcy (Nigeria, Venezuela, Iraq). Saudi are losing around 100 billion a year in currency reserves while still playing a role of Trojan horse of the West in oil markets.

    This situation is unsustainable and speculator/HFT driven suppression of oil prices at some point might break and will be replaced by a new price boom. It in highly probable that the price of oil will reach, at least temporary, the level of $55 this year.

    But oil is a strategic product and high oil prices mean stagnation of Western economies. The key problem is that high oil prices threaten neoliberalism as a social system and derail neoliberal globalization. So they will be fought tooth and nail by the US and the EU elites. That's why agreement to freeze oil production by OPEN was derailed. Another victory of western diplomacy.

    Arthur Berman was a very keen observer of shale bubble in the USA until recently. Then something changed.

    [May 05, 2016] Capex cuts

    peakoilbarrel.com
    likbez , 05/05/2016 at 3:32 pm
    Capex cuts (billions):
    Deepwater                $87.65
    LNG $63.10
    Onshore $44.61
    Oil sands $28.50
    Shallow water $23.30
    Offshore gas $13.90
    Heavy oil $7.97

    Source: Rystad Energy
    Note: Data through March 2016

    [May 05, 2016] Oil production cut by unforseen events

    Notable quotes:
    "... Iraq: Production at an oilfield near Kirkuk, in northern Iraq, has been stopped after unidentified gunmen set at least two wells on fire on Tuesday night. ..."
    "... US: An official update will be released next week, but Director of Mineral Resources Lynn Helms told an oil industry group in Williston he expects to see a "severe" production drop. ..."
    "... IPD's prediction comes on the heels of its quarterly sector survey, which estimated Venezuela's oil output tumbled 6.8 percent to 2.59 million bpd in the first quarter compared with the same period of 2015, due to drilling delays, insufficient maintenance, theft, and diluent shortfalls. ..."
    "... …Morgan Stanley's Benny Wong … estimates that the total number of offline capacity will be anywhere between 400 and 500 mbbl/d, with the shut-in expected to last about 10 days, potentially reducing total market output by as much as 5 million barrels. ..."
    "... Americans are driving more than ever before. Vehicle miles traveled (VMT) reached an all-time high of 3.15 trillion miles in February 2016 Figure 2). VMT have increased 97 billion miles per month (3 percent) since the beginning of 2015 and gasoline sales have increased 187 kbpd (2 percent). The rates of increase are not proportional. ..."
    peakoilbarrel.com

    Ves , 05/05/2016 at 11:32 am

    Just in the last 24 hours.

    Canada: Taken together this amounts to some 0.5 million [barrels a day] of capacity that is currently offline. Infrastructure is being affected too, with the 560,000 b/d Corridor pipeline shut down and movement along the 140,000 b/d Polaris pipeline significantly curtailed.

    Lybia: An official at the port told the news agency that tanks at Hariga were 7-10 days away from hitting their full capacity. This means, Reuters reported, that with no tankers loading oil at the port, Libya will be forced to shut in about 120,000 bpd of output, which is the export capacity of the port.

    Iraq: Production at an oilfield near Kirkuk, in northern Iraq, has been stopped after unidentified gunmen set at least two wells on fire on Tuesday night.

    US: An official update will be released next week, but Director of Mineral Resources Lynn Helms told an oil industry group in Williston he expects to see a "severe" production drop.

    And all of that is worth a $1.17 of increase on WTI/Brent in the last 24h!!! Really? :-)

    AlexS , 05/05/2016 at 1:36 pm
    Militants attack Chevron platform in Niger Delta: navy spokesman

    Thu May 5, 2016
    http://www.reuters.com/article/us-nigeria-oil-delta-idUSKCN0XW1PL

    ---------------

    Venezuela 2016 oil output seen down at 2.35 million bpd: consultancy

    Tue May 3, 2016
    http://www.reuters.com/article/us-venezuela-oil-output-idUSKCN0XU22R

    Venezuela's oil output may fall to average some 2.35 million barrels-per-day this year, as the South American OPEC country's cash crunch and shortages weigh on production, according to energy consulting firm IPD Latin America.

    IPD's prediction comes on the heels of its quarterly sector survey, which estimated Venezuela's oil output tumbled 6.8 percent to 2.59 million bpd in the first quarter compared with the same period of 2015, due to drilling delays, insufficient maintenance, theft, and diluent shortfalls.

    That estimate is a whisker above the 2.53 million bpd Venezuela produced in the first quarter, according to OPEC numbers. But it marks the first time since the third quarter of 2008 that production fell in all districts, including the extra-heavy crude Orinoco Belt, IPD added.

    likbez , 05/05/2016 at 11:42 am
    500,000 Barrels And $1 Billion In Losses The True Cost Of Canada's Wildfire OilPrice.com

    "…Analysts noted that Shell shut its Albian Sands mine and Suncor shut its base plant, while producers Syncrude Canada and Connacher Oil & also reduced output in the region."Taken together this amounts to some 0.5 million b/d of capacity that is currently offline. Infrastructure is being affected too, with the 560,000 b/d Corridor pipeline shut down and movement along the 140,000 b/d Polaris pipeline significantly curtailed. On top of that, trains are not operating near Fort McMurray, according to the Canadian National Railway," said the analysts.

    …Morgan Stanley's Benny Wong … estimates that the total number of offline capacity will be anywhere between 400 and 500 mbbl/d, with the shut-in expected to last about 10 days, potentially reducing total market output by as much as 5 million barrels.

    likbez , 05/05/2016 at 11:53 am
    Is This The Biggest Red Herring In Oil Markets OilPrice.com by Arthur E. Berman

    Americans are driving more than ever before. Vehicle miles traveled (VMT) reached an all-time high of 3.15 trillion miles in February 2016 Figure 2). VMT have increased 97 billion miles per month (3 percent) since the beginning of 2015 and gasoline sales have increased 187 kbpd (2 percent). The rates of increase are not proportional.

    …From April 2015 to March 2016, oil production decreased 660 kbpd (-7 percent) but net crude oil imports increased 800 kbpd (+10 percent) (Figure 5).

    [May 05, 2016] Early March oil production numbers show that North Dakota will likely drop below 1.1 million barrels per day for the first time since June 2014

    Notable quotes:
    "... "It's going to be bad," Helms told the Williston Basin chapter of the American Petroleum Institute Tuesday night. North Dakota saw a smaller than expected drop in oil production in February as more companies put fracking crews to work to complete wells and maintain cash flow. ..."
    "... March figures, scheduled to be released May 12, are reflecting the more significant production drop Helms had been anticipating. "I think that's a significant milestone," ..."
    "... The declining North Dakota oil production – down from the record 1,227,483 barrels per day set in December 2014 – is prompting Helms to reevaluate an earlier projection he made that the state could one day produce 2 million barrels of oil per day. ..."
    "... "It's kind of taken away hope of getting to 2 million barrels per day," Helms said. ..."
    "... Low oil prices are forcing operators to focus drilling activity only in the core areas of the Bakken where wells have the greatest production. As oil prices recover and drilling expands to other areas of the Bakken, those high-producing wells will be declining, Helms said. ..."
    peakoilbarrel.com

    Ron Patterson, 05/04/2016 at 8:51 pm

    Next round of N.D. oil production figures 'going to be bad,' Helms says

    WILLISTON – Early March oil production numbers show that North Dakota will likely drop below 1.1 million barrels per day for the first time since June 2014, the state's top oil regulator said. An official update will be released next week, but Director of Mineral Resources Lynn Helms told an oil industry group in Williston he expects to see a "severe" production drop.

    "It's going to be bad," Helms told the Williston Basin chapter of the American Petroleum Institute Tuesday night. North Dakota saw a smaller than expected drop in oil production in February as more companies put fracking crews to work to complete wells and maintain cash flow.

    The state produced an average of 1,118,333 barrels of oil per day in February, a 0.4 percent drop from January, according to preliminary figures released in April. But March figures, scheduled to be released May 12, are reflecting the more significant production drop Helms had been anticipating. "I think that's a significant milestone," Helms told the oil industry group.

    The declining North Dakota oil production – down from the record 1,227,483 barrels per day set in December 2014 – is prompting Helms to reevaluate an earlier projection he made that the state could one day produce 2 million barrels of oil per day.

    "It's kind of taken away hope of getting to 2 million barrels per day," Helms said.

    Low oil prices are forcing operators to focus drilling activity only in the core areas of the Bakken where wells have the greatest production. As oil prices recover and drilling expands to other areas of the Bakken, those high-producing wells will be declining, Helms said.

    [May 05, 2016] How European Union Fiscal Rules Subverted Democracy and Institutionalized Neoliberalism

    Notable quotes:
    "... By John Weeks, a member of the Union for Radical Political Economics (URPE) in London, one of the founders of the UK-based Economists for Rational Economic Policies, and part of the European Research Network on Social and Economic Policy. Receive podcasts of his weekly radio program by Twitter, @johnweeks41. Originally published at Triple Crisis ..."
    "... I have dear friends from H to VI, but sleep walking through life, while natural resources are needlessly strip mined for the sake of maintaining artificial scarcity, is a good way to put it. ..."
    "... The dual mandate is a fiction. There's nothing the Fed can do to lower unemployment (though it can raise it by mistake.) The unemployment rate is set by the fiscal policies of Congress and the Executive. The unemployment rate, should they desire, can even be set to zero. That it is not should be sufficient cause for the guillotines. ..."
    "... primum non nocere ..."
    "... I think the process of corporate control of the EU was so slow and gradual plenty of left wingers in Europe still haven't really grasped what has happened. From the beginning, there was always a tension within Europe between pressure from corporations for more business friendly policies and the generally social democrat lite views of the original founders. I think though to call it 'neoliberal' is not quite correct – for me 'neoliberal' implies a specific set of policies associated with the Anglosphere – I think in Germany what we've seen is the takeover by a more German flavoured right of centre view – it is similar, but is more generally corporatist and mercantilist in nature with a strong dash of Austrian economics. ..."
    "... Well of course the 'competition' is a myth. As anyone who has witnessed what has happened in electricity markets can see, it has, if anything, raised prices of electricity for consumers. But various powerful interests have done very well indeed. you can see the same process in water and waste services and pretty much anything that has been directly regulated and privatised. The only areas where I think it can be shown that consumers have benefited from competition are in telecommunications and in air travel. And in the former, I suspect the consolidation of the telecom industry will reverse those gains. ..."
    "... "To render the rule Kafkaesque, after the EC bureaucracy calculates that a government will not meet the hypothetical target, it then mandates contractionary policies that guarantee that the target cannot be achieved. The problem is imaginary and the solution contradictory." ..."
    "... "The "independent institutions" include the European Commission itself, which adds a distinctly Orwellian character to the already Kafkaesque Treaty." ..."
    "... "Thus, not restricting surpluses carries an implicit mercantilist message." EU guidelines fix trade surplus at 6%, Germany is, I believe, in its seventh year of violation and should be fined. That it doesn't happen maybe shows that the elite ruling the EU is German. ..."
    naked capitalism
    Yves here. Anyone who has paid attention to how the various sovereign debt crises have played out in Europe can't help noticing that a bureaucratic elite is calling the shots and riding roughshod over popular will. But what are the mechanisms which allow these perverse outcomes to come to pass? This post describes the major steps that enabled neoliberalism to become the ruling doctrine.

    By John Weeks, a member of the Union for Radical Political Economics (URPE) in London, one of the founders of the UK-based Economists for Rational Economic Policies, and part of the European Research Network on Social and Economic Policy. Receive podcasts of his weekly radio program by Twitter, @johnweeks41. Originally published at Triple Crisis

    The EU: Hold Your Nose and Vote "Stay"

    Most Americans and many U.S. progressives hold a favorable view the European Union. This positive assessment persists despite the crushing of the Greek challenge to austerity conditionalities set by the European Commission and European Central Bank aided and abetted by the International Monetary Fund.

    The primary basis for pro-EU sentiments may be that Americans consider the European Union a bastion of social democracy in contrast to the neoliberal ideology of the Republican and Democratic parties, which Bernie Sanders has so eloquently attacked. However, the institutions of the European Union, especially its executive the European Commission practice a neoliberal ideology and pro-business policies as aggressive as counterparts in the United States.

    This is not a recent change, but a long-maturing trend going back at least to when Helmut Kohl of the right-wing Christian Democratic Union replaced the Social Democrat Helmut, Schmidt, as chancellor of Germany. The misplaced belief that Jacques Delors , EC president for ten years, was committed to social democracy perpetuated the illusion of a progressive EU. While no reactionary like Kohl, the French socialist politician supported market oriented "reform" of the European Union's economic policies.

    By the 2000s neoliberals had taken firm control of the European Commission, manifested most obviously in the 1992 Maastricht Treaty. The step-by-step legal codification of EU reactionary economic policies goes far beyond legislation enacted in the United States. As a result, it should surprise no one that in Britain and on the continent support for membership in the European Union splits progressives. In Britain the issues looms large, with a referendum on continued membership scheduled for 23 June.

    The progressive case of membership is a hard row to hoe.

    Loss of Democracy in the European Union

    History provides many examples of authoritarian rule achieved through formally democratic procedures. To these we should add the 2012 EU Treaty on Stability, Coordination and Governance ( TSCG ), adopted by 25 democratically elected EU governments (the Czech Republic and the United Kingdom took opt-outs ). On an EU website we find the overall purpose of the TSCG boldly highlighted :

    The European Union's economic governance framework aims to detect, prevent, and correct problematical economic trends such as excessive government deficits or public debt levels, which can stunt growth and put economies at risk.

    This bureaucratically bland sentence asserts the power of the unelected European Commission, as the executive of the European Union, to monitor ("detect") whether the public budget of an elected member government conforms to EU fiscal rules. If it does not, the Commission claims the power to prevent the implementation of that budget and to specify the changes ("corrections") required.

    No one can miss the ideological asymmetry of the "governance framework" – deficits can be excessive, but not surpluses. In practice a budget surplus usually goes along with a trade surplus, so that the contractionary effect of the former will be offset the expansionary impact of the latter. Thus, not restricting surpluses carries an implicit mercantilist message.

    The EU website goes on to explain "detection" or "monitoring" as follows ,
    Each year, the EU countries that share the euro as their currency submit draft budgetary plans to the European Commission. The Commission assesses the plans to ensure that economic policy among the countries sharing the euro is coordinated and that they all respect the EU's economic governance rules. The draft budgetary plans are graded as either compliant, partially compliant, or at risk of non-compliance.

    When the EC implements this paragraph literally as it did in Greece, the role national legislatures is to endorse what the Commission judges as "compliant." The TSCG de facto makes member governments formulate their budgets for the Commission not their legislatures, because there would be little point and considerable embarrassment by submitting to parliament a budget that the EC would reject. After the Commission judges the budget as satisfactory the national legislature goes through a pro forma approval process. It will be a small step to require, as in Greece , approval by the EC before revealing the budget to the public.

    The TSCG transfers sovereignty from democratic institutions to an unelected bureaucracy. Were it the case that the EU parliament possessed substantial control over the Commission (which it does not), the TSCG would still be profoundly authoritarian because of the power of the EC bureaucracy over what should be decided democratically.

    Treaty-Protected Mismanagement

    EU fiscal rules, from the Maastricht Treaty to the TSCG are anti-democratic, as well as inflexible to change. The Treaty specifically commits the adopting government to embed the fiscal rules in law in a manner ensuring their "permanent character, preferably constitutional." Embodied in treaties, they can only change through repeal or adoption of additional treaties. Both involve extremely cumbersome and time consuming processes.

    Were the fiscal rules theoretically and practically sound their anti-democratic and inflexible nature would still discredit them. Far from sound, they are technically flawed, mandating macroeconomic mismanagement. The Treaty mandates specific limits to fiscal policy.

    [The Treaty] requires contracting parties to respect/ensure convergence towards the country-specific medium-term…with a lower limit of a structural deficit (cyclical effects and one-off measures are not taken into account) of 0.5% of GDP; (1.0% of GDP for Member States with a debt ratio significantly below 60% of GDP).

    Before considering the wisdom of the 0.5% deficit target, two major technical mistakes standout, 1) the Treaty uses an unsound measure of the fiscal deficit; and 2) the key concept, "structural deficit," is theoretical nonsense.

    The TSCG adopts the Maastricht deficit specification, total revenue minus total expenditure, which is the overall deficit. As the IMF explains in its guidelines for fiscal management , the appropriate measure for sound fiscal management is the primary deficit, which excludes interest payments on the public debt (which if reduced would imply partial default).

    When the TSCG specifies the 0.5% as a "structural deficit" we go from the inappropriate to the absurd. The Commission as well as the usually competent OECD defines "structural deficit" as the deficit that would appear by eliminating cyclical effects; i.e., the deficit when an economy operates at normal capacity.

    Making this concept operational requires an analytically sound method of eliminating cyclical effects, then a clear and consistent measure of normal capacity. The EU structural deficit fails on both criteria. In practice the EC bean-counters make no attempt to eliminate cyclical effects. The method of calculation of normal capacity ignores the cycle altogether by defining normal capacity to the level of output at which the rate of unemployment implies stable inflation (the "non-accelerating inflation rate of unemployment," NAIRU ). Again, the EC bureaucrats reveal their ideology by taking inflation not output or unemployment as measure of economic health.

    The NAIRU would be sufficiently problematical were attempt made to adapt it to the specific institutional characteristics of each country at specific time periods. For example, if the concept has operational validity, it is extremely unlikely that it would assume the same value before and after the 2008-10 global recession. An inspection of the eurostat tables for the actual and "structural" deficits shows no evidence of estimations with country specific adjustments.

    The decidedly dubious nature of the NAIRU is indicated by its nom de guerre , "the natural rate of unemployment." This phrase betrays an underlying ideology that 1) unemployment is a natural phenomenon to which all economies automatically adjust; and 2) inflation always results from excess demand. If the first were true the global recession would not have occurred. The second ignores price pressures arising from traded goods and services, petroleum being the most obvious and price-volatile.

    The possibility of calculating country and time specific normal capacity would not save the 0.5% rule the realm of ideological nonsense. First and foremost, it represents static analysis applied to a dynamic process. The formal statement of the 0.5% would be as follows:

    Economy A operates below normal capacity with a fiscal deficit of 2.5% (for example). Other things unchanged, were economy A at normal capacity the deficit would be 1.5% (for example), above the 0.5% requirement. Therefore, the government of country A must now take steps to reduce expenditure or raise taxes, so if the economy were at full capacity the hypothetical deficit would be 0.5%.

    The 0.5% rule is a hypothetical outcome based on analytically unsound calculations. This "what if" calculation by statisticians is used by an undemocratic bureaucracy to force elected governments to implement contractionary economic policies. The technically unsound, hypothetical 0.5% target mandates a pro-cyclical macroeconomic policy. To render the rule Kafkaesque, after the EC bureaucracy calculates that a government will not meet the hypothetical target, it then mandates contractionary policies that guarantee that the target cannot be achieved. The problem is imaginary and the solution contradictory.

    The wording of the TSCG makes it clear that deviant fiscal behavior by a member country will not be tolerated,
    Correction mechanisms should ensure automatic action to be undertaken in case of deviation from the [structural deficit target] or the adjustment path towards it, with escape clauses for exceptional circumstances. Compliance with the rule should be monitored by independent institutions.

    The "independent institutions" include the European Commission itself, which adds a distinctly Orwellian character to the already Kafkaesque Treaty.

    Painted into a Recessionary Corner

    Market economies pass through cycles of recession and expansion. They suffer from fiscal deficits in recessions, because falling or slow-growing output results in falling or slow-growing revenue. Such circumstances typically result from a drop in private investment or exports. Economies most effectively overcome recessions by the public sector using its spending powers to compensate for the inadequate private demand.

    The TSCG legally prohibits the implementation of this effective countercyclical fiscal policy. It forces member governments to apply policies analogous to the practice 200 years ago of bloodletting to restore health to the ill. It is a Treaty designed to maintain perpetual stagnation across the European continent.

    The term "Six-Pack", the secondary legislation linked to the treaty, is frequently used as synonymous with the TSCG. This is a singularly appropriate nickname for the enabling legislation. The Six-Pack contains the economic equivalent of a pernicious snake oil, a witch's brew to turn minor fiscal problems into recessionary downturns. For those dedicated to a prosperous and harmonious European Union, repeal or replacement of the TSCG stands out as an urgent priority. Fiscal integration on the basis of the TSCG would be disastrous.

    ke , April 20, 2016 at 11:03 am

    What most Americans know about Europe is on a postcard, or the propaganda they were taught in school. The vast majority on this planet is dependent on a MAD money laundering scheme built by Wall Street, copied globally, and automated by WS of the West, silly valley, now strip mining the planet, on auto pilot, with a belief in political discourse, among completely insulated, puppet politicians.

    Back in the day, before joining, Robert R actually said some intelligent things about labor. The crashing actuarial ponzi has been in operation so long it is an assumption. On the one hand money enslaves future generations to the present, and on the other we are all supposed to seek a feudal pension. The casino wins in both directions.

    I have dear friends from H to VI, but sleep walking through life, while natural resources are needlessly strip mined for the sake of maintaining artificial scarcity, is a good way to put it.

    We don't even need oil, but the economy is leveraged on that contract price, to maintain subservient populations. We are choking on excess oil, storing it all over the ocean, and preventing iran/iraq from putting its product on the market, all to confirm a psychology of dependence, like an ant farm, assuming that individual humans can only wander randomly without the benefit of the collective, serving the sociopathic psychologist writing the scripts.

    Funny, there is a shortage of private demand for more incompetent government.

    RabidGandhi , April 20, 2016 at 11:53 am

    Another fundamental difference between the US and EU is the difference in central bank mandates, with the Fed having its dual inflation/employment mandate in its bylaws, but under Maastricht the ECB only has a mandate for low inflation.

    That said, the Fed has a dual way for getting around the dual mandate: playing fast and loose with what is defined as unemployment, and just straight out ignoring it (eg, raising interest rates at the first whiff of possibility that there might be a rumour that someone's uncle's cousin's best-friend's roommate thinks there could eventually be a slight uptick in the CPI). This means, yes there are differences in the founding documents, but is there anywhere in US economic governance that NAIRU is not assumed either?

    Benedict@Large , April 20, 2016 at 3:00 pm

    The dual mandate is a fiction. There's nothing the Fed can do to lower unemployment (though it can raise it by mistake.) The unemployment rate is set by the fiscal policies of Congress and the Executive. The unemployment rate, should they desire, can even be set to zero. That it is not should be sufficient cause for the guillotines.

    RabidGandhi , April 20, 2016 at 4:13 pm

    I definitely agree w/r/t fiscal policy, but I think the point is that at least in the US there is a nominal (but ignored) primum non nocere written into the Fed's by-laws. It is supposed to take actions that will "promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates." What this means is that raising interest rates at the mere rumour of inflation is going against the Fed's mandate– not that anyone in power cares. Meanwhile in Europe they just dispense with the whole fiction of not having a monetary policy that kills employment.

    PlutoniumKun , April 20, 2016 at 12:10 pm

    I think the process of corporate control of the EU was so slow and gradual plenty of left wingers in Europe still haven't really grasped what has happened. From the beginning, there was always a tension within Europe between pressure from corporations for more business friendly policies and the generally social democrat lite views of the original founders. I think though to call it 'neoliberal' is not quite correct – for me 'neoliberal' implies a specific set of policies associated with the Anglosphere – I think in Germany what we've seen is the takeover by a more German flavoured right of centre view – it is similar, but is more generally corporatist and mercantilist in nature with a strong dash of Austrian economics.

    I see the results every day when I step outside my apartment in Dublin. Thats to a focus on privatisation and 'competition', what was once a fully functioning waste collection service in my city has now become a chaotic privatised service, with competing companies driving down the quality. No more proper wheelie bins collected on the same day, instead there are plastic bin bags everywhere, there to be torn apart by seagulls and foxes, scattering rubbish everywhere. All in the name of 'competition', driven by EU Directives. The focus on 'internal competition' is gradually eroding sensible regulation in energy, waste and telecommunications. Supposedly in the interest of the consumer, but we all know who really benefits.

    Fajensen , April 20, 2016 at 5:09 pm

    I don't think all this "competition" really benefits anyone, I believe it's just there for the principle.

    PlutoniumKun , April 21, 2016 at 5:55 am

    Well of course the 'competition' is a myth. As anyone who has witnessed what has happened in electricity markets can see, it has, if anything, raised prices of electricity for consumers. But various powerful interests have done very well indeed. you can see the same process in water and waste services and pretty much anything that has been directly regulated and privatised. The only areas where I think it can be shown that consumers have benefited from competition are in telecommunications and in air travel. And in the former, I suspect the consolidation of the telecom industry will reverse those gains.

    Barry Fay , April 21, 2016 at 10:15 am

    The airlines are a terrible example – in fact, there was a great article treating the airlines as a classic example of "crapification". The seating has become ridiculously cramped (as a way to then "sell" seats that someone can actually sit in!), the service has been basically reduced to the bare minimum, luggage charges are outrageous and ticket prices continue to climb even though one of the major expenses (i.e. fuel!) has become cheaper by 50 per cent. No, the airlines were a bad example.

    financial matters , April 20, 2016 at 1:14 pm

    Nice to read such an excellent analysis. And with very appropriate metaphors.

    "To render the rule Kafkaesque, after the EC bureaucracy calculates that a government will not meet the hypothetical target, it then mandates contractionary policies that guarantee that the target cannot be achieved. The problem is imaginary and the solution contradictory."

    "The "independent institutions" include the European Commission itself, which adds a distinctly Orwellian character to the already Kafkaesque Treaty."

    JEHR , April 20, 2016 at 2:56 pm

    The World is really messed up!

    rfam , April 20, 2016 at 6:34 pm

    I would suggest that any country that doesn't like these rules failed to read the agreement and should exit the EU and start issuing worthless currency. In doing so they can feel free to devalue, run large deficits, borrow all they want and then leave the "neo-liberals" to it. When the banks and hedge funds that over-lend to fund these deficits fail or demand collateral ( http://www.npr.org/sections/money/2012/10/22/163384810/why-a-hedge-fund-seized-an-argentine-navy-ship-in-ghana ) you will discuss their predatory nature.

    Hansrudolf Suter , April 21, 2016 at 6:46 am

    "Thus, not restricting surpluses carries an implicit mercantilist message." EU guidelines fix trade surplus at 6%, Germany is, I believe, in its seventh year of violation and should be fined. That it doesn't happen maybe shows that the elite ruling the EU is German.

    Schofield , April 21, 2016 at 4:43 pm

    Given half a chance some human beings who never got much loving as a child will seek to correct the imbalance by "weaponizing" money and using it against the interests of the majority. For those who've read the psychoanalyst Alice Miller books they will recognize her argument that resentment builds up in the child and needs expression in the form of subconsciously motivated vengeance as an adult!

    [May 05, 2016] Robert Reich Why Is One of Sanders Most Important Proposals Being Ignored

    Notable quotes:
    "... By Robert Reich. Originally published at his website ..."
    "... "it would cost me $500-$1000 maybe more a year" ..."
    April 20, 2016 | naked capitalism
    Yves here. I want to clarify one key issue about a transaction tax. Its purpose is not to raise revenue. Its purpose is to discourage excessive trading, which is socially unproductive. Recently, many studies have found that an outsized financial sector is as drag on growth. The finer-grained ones have identified too many resources devoted to secondary market trading as the cause. "Secondary market trading" is all the buying and selling that happens after a company raises money, as in among investors, not sales of newly-issued securities from a company to investors to raise money. A certain level of secondary market trading is necessary and desirable so that an investor can sell if he wants to (as in he needs liquidity). But overly cheap liquidity makes it attractive to trade for purely speculative purposes, as the collapse in average holding times of NYSE stocks attests.

    Now a transaction tax may indeed raise a lot of revenue. But the intent is to discourage undesirable activity, and it's hard to estimate in advance how much trading volumes would fall with a well-designed transaction tax.

    By Robert Reich. Originally published at his website

    Why is there so little discussion about one of Bernie Sanders's most important proposals – to tax financial speculation?

    Buying and selling stocks and bonds in order to beat others who are buying and selling stocks and bonds is a giant zero-sum game that wastes countless resources, uses up the talents of some of the nation's best and brightest, and subjects financial market to unnecessary risk.

    High-speed traders who employ advanced technologies in order to get information a millisecond before other traders get it don't make financial markets more efficient. They make them more vulnerable to debacles like the "Flash Crash" of May 2010.

    Wall Street Insiders who trade on confidential information unavailable to small investors don't improve the productivity of financial markets. They just rig the game for themselves.

    Bankers who trade in ever more complex derivatives – making bets on bets – don't add real value. They only make the system more vulnerable to big losses, as occurred in the financial crisis of 2008.

    All of which makes Bernie Sanders's proposal for a speculation tax right on the mark.

    He wants to tax stock trades at a rate of 0.5 percent (a trade of $1,000 would cost of $5), and bond trades at 0.1 percent.

    The tax would reduce incentives for high-speed trading, insider deal-making, and short-term financial betting. (Hillary Clinton also favors a financial transactions tax but only on high-speed trading.)

    Another big plus: Given the gargantuan size of the financial market and the huge volume of trading occurring within it every day, this tiny tax would generate lots of revenue.

    Even a 0.01 percent transaction tax (a basis point is one-hundredth of a percentage point, or 0.01 percent) would raise $185 billion over 10 years, according to the nonpartisan Tax Policy Center.

    Sanders's 0.5 percent tax could thereby finance public investments that enlarge the economic pie rather than merely rearrange its slices – like tuition-free public education.

    After all, Americans pay sales taxes on all sorts of goods and services yet Wall Street traders pay no sales taxes on the stocks and bonds they buy.

    Which helps explain why the financial industry generates about 30 percent of America's corporate profits but pays only about 18 percent of corporate taxes .

    Naysayers led by the financial industry's lobbyists (the Financial Services Roundtable and Financial Markets Association) warn that even a small tax on financial transactions would drive trading overseas, since financial trades can easily be done anywhere.

    Baloney. The U.K. has had a tax on stock trades for decades yet remains one of the world's financial powerhouses. Incidentally, that tax raises about 3 billion pounds yearly (the equivalent of $30 billion in an economy the size of the U.S.), which is pure gravy for Britain's budget.

    At least 28 other countries also have such a tax, and the European Union is well on the way to implementing one.

    Industry lobbyists also claim the costs of the tax will burden small investors such as retirees, business owners, and average savers.

    Wrong again. The tax wouldn't be a burden if it reduces the volume and frequency of trading – which is the whole point.

    In fact, the tax is highly progressive. The Tax Policy Center estimates that 75 percent of it would be paid by the richest fifth of taxpayers, and 40 percent by the top 1 percent.

    It's hardly a radical idea.

    Between 1914 and 1966, the United States itself taxed financial transactions. During the Great Depression, John Maynard Keynes urged wider use of such a tax to reduce excessive speculation by financial traders. After the Wall Street crash of October 1987, even the first President George Bush endorsed the idea.

    Americans are fed up with Wall Street's financial games. Excessive speculation contributed to the near meltdown of 2008 – which cost millions of people their jobs, savings, and homes.

    So why is it only Bernie Sanders who's calling for a financial transactions tax? Why aren't politicians of all stripes supporting it? And why isn't it a major issue in the 2016 election?

    Because a financial transactions tax directly threatens a major source of Wall Street's revenue. And, if you hadn't noticed, the Street uses a portion of its vast revenues to gain political clout.

    So even though it's an excellent idea championed by a major candidate, a financial transactions tax isn't being discussed this election year because Wall Street won't abide it.

    Which maybe one of the best reasons for enacting it.

    vlade , April 20, 2016 at 5:58 am

    important point – UK has FTT on stocks, it's called stamp duty. despite that, footsie is considered one of the most important non us markets worldwide… so cries of how it would kill the sector are a bit overdone..

    mind you, the rise of cfds and similar to bypass sd led to issues of its own

    Anonymous , April 20, 2016 at 6:06 am

    Need a tax on the derivatives market.

    Yves Smith Post author , April 20, 2016 at 6:36 am

    I would think that would be part of the plan, particularly given the volumes. Sanders tends to do himself a disservice by staying at the 30,000 foot level, which is where execs generally are anyhow. But he doesn't have enough surrogates going into the weeds on his behalf.

    JeffC , April 21, 2016 at 12:13 pm

    Sanders' plan includes a smaller tax on bond trades-0.1%? unreliable memory here-and a smaller one yet on derivatives trades.

    Teddy , April 20, 2016 at 6:42 am

    I'm more of a right winger, but this is one Sanders proposal I can fully support. There's something seriously wrong with an economy that spends gigantic sums on building tunnels for optic cables so transactions can be processed two miliseconds faster. This automated flash trading is against everything financial markets are supposed to be about, it's even against everything that speculation is supposed to be about. I also agree with Yves's assessment that this isn't about revenue extraction, but about curtailing harmful activities. However, given high levels of corruption in US politics and huge profits this new industry enjoys, is such an idea even feasible?

    hemeantwell , April 20, 2016 at 10:49 am

    an idea even feasible?

    I believe I can appreciate why your statement took that discouraged turn. But the next move would be to say that, if such a good idea is made infeasible by a corrupt political order, doesn't that then contribute to its indictment? That's one reason why the current political situation is so changed from ten years ago.

    Paul Jurczak , April 20, 2016 at 7:25 am

    I would add underclocking the stock exchange to augment the effect of transaction tax. It is perfectly sufficient for healthy economic activity to settle the transactions only in equal discrete time intervals, say once every minute. This would starve all HFT parasites, reduce the size of financial sector and its rent extraction from productive economic activity.

    EndOfTheWorld , April 20, 2016 at 7:52 am

    Why is this important proposal being ignored? Bribery.

    RUKidding , April 20, 2016 at 11:25 am

    Possible.

    Sanders' campaign has been mostly kept dark by the M$M (which includes National Propaganda Radio). If one hears/reads much about Sanders in the usual sources, it's usually to patiently explain why he simply cannot win.

    It's exceedingly rare to hear/read much of what the substance of Sanders' campaign compromises, and mostly then, what you'll hear is fatuous twaddle about Sanders' proposal (which isn't fatuous but is presented that way) about free college.

    So one has to come to blogs, such as this one, to learn more. Too bad most citizens don't do that, but that's the way it is. And there's a reason for it. Clearly Sanders, at least, annoys the .01%. They don't want his message getting out. There's a reason for that, as well.

    HotFlash , April 20, 2016 at 8:07 am

    Hmm, I took this as another mark of Bernie's genius. I figure that the 'free public college education' was not only a demonstrable and desirable social good but also a nice carrot to sell the FTT.

    Agree w/Teddy and others about the unfairness of a market that permits nano-second trading for the suitably connected. Secondary market trading beyond basic liquidity does not benefit the real economy. The beneficiaries are speculators and managers whose remuneration is tied to share prices - that is, useless eaters.

    Melk39 , April 20, 2016 at 8:54 am

    The reason it is being ignored is because Bernie touted the tax as way to pay for college for all. The tax on financial transactions makes most people's eyes glaze over, but they are very interested in the idea of free college. So I get the hook, but this means the the tax debate never occurs, all the discussion is about free college. Now both ideas have merit, but each should have its own debate. It would be also a way to build a consensus around a broader policy of finally reigning in Wall Street, including bring back the best parts of Glass Stegall. That's how you get the discussion going. Decouple and debate.

    gadawson , April 20, 2016 at 9:09 am

    The benefits of free academic tuitions are so large they are inestimable due to the myriad of benefits that would cascade throughout the economy. Why would anyone oppose such and how is such a plan pushed aside? Only through the greatest imbalance of invisible intransigent power the world has ever known.

    Doctor Duck , April 20, 2016 at 9:33 am

    This is an important idea, but I don't think I've ever heard at what point such a tax would be imposed. If a large majority of high-speed automated trading results in cancelled trades, it would be of little use in curbing that if it were only applied to completed transactions.

    HotFlash , April 20, 2016 at 12:23 pm

    The point is not necessarily to raise revenue (please, MMT anyone?) but to control behaviour. Putting a drag on HST would in itself be a public good. As I have said before, free tuition is a way to sell a tax on financial transactions. Debate all you like, but decoupling will lose the tax.

    Doctor Duck , April 20, 2016 at 12:59 pm

    I concur that a drag on HFT would be a public good. But my question doesn't imply raising revenue, rather how such a tax would be a drag on HFT in particular. A tax on transactions would (by definition it seems) not apply to cancelled transactions. So how would it impact the behavior of HFT, which relies heavily on cancelled trades, any more than it would any trading?

    Probably "quantized" settling as proposed in another comment would have a greater effect.

    steelhead23 , April 20, 2016 at 1:59 pm

    You are right. If the purpose of the tax is to discourage HFT, the tax should be levied on each and every bid, not just completed transactions. According to Eric Hunsader HFT traders pay big bucks so they can have millisecond faster access to the market – which they use to place multiple bids they never intend to complete, thereby manipulating price, creating volume interest where little exists, etc. To end HFT you would have to tax each bid (at an very small rate, say .01%).

    JSR , April 20, 2016 at 9:52 am

    Are things like ETF's included in this? I understand the need to curb many of the dangerous games of all the value detracting speculation and trading etc,. What I'm struggling with is I may make a few trades a year simply to rebalance my portfolio (amount of trades depends on whether markets are volatile or steady) once certain levels of over/under are reached. My rough calculation of this .05% tax, is it would cost me $500-$1000 maybe more a year. Not outrageous but a sizable enough increase for an infrequent trader/investor and I'm pretty sure, not part of the problem that is trying to be solved here. Plus, as if I'm not angry enough at Wall Street (I used to work in the industry, left of my own volition) it makes me wonder if I'm not being financially penalized for their greed and criminality. I want to support this but I hope there will be a little nuance (not too much though to ruin the whole purpose) to not ensnare everyone who makes a trade once in awhile.

    FluffytheObeseCat , April 20, 2016 at 3:16 pm

    "it would cost me $500-$1000 maybe more a year"

    Unlikely. I suspect the 0.5% mark is an initial bargaining position. What everyone seems to be anxious to forget (or have forgotten) is that Sen. Bernie "amendment king" Sanders has been in Congress for a loonnng time. If he's floating 0.5% in position papers, policy proposals, etc., it's because he's aiming to get 0.1 – 0.2% enacted. 200 bucks a year won't injure anyone who can manage to maintain a brokerage account.

    If the guy were truly the absent-minded, flyaway-haired nutty old dodderer the MSM wants him to be, he'd never have made it this far in life.

    Pat , April 20, 2016 at 9:57 am

    I realize that probably most of the objection to this is being fueled by the large houses own high frequency trading. I mean when you finance your own algorithms to figure out how to micro trade at high volume…you are talking about a lot of money. But I would also bet that some of it is the mutual fund and individual trader sector of the market. It isn't really about hurting the small investor, it is about discouraging the small investor from trading as frequently. They are seeing their commissions get cut, because Mom and Pop don't like the tax and put the brakes on. The stability of our economy and of our markets be damned, not to mention customer service.

    Jim A. , April 20, 2016 at 10:23 am

    My worry is that the financial giants would put enough lawyers on this to try and try to create a way to avoid paying this financial tax in pretty much the same way that they figured out how to not pay title recording fees. They would create an exchange (no doubt called something different) that would own large numbers of shares and trade some sort of "future" or agreement to transfer amongst each other. Can you have a 1 second future contract? .01 second?

    RUKidding , April 20, 2016 at 11:19 am

    You echo a concern I have about this as well. These parasites and their shyster lawyers are very good at finding or creating loopholes that benefits them, alone.

    That said, it's worth investigating and attempting to implement. It's equally worth more wide-spread discussion about why it's needed and what's happening, but I won't hold my breath on that score.

    There have been one or two programs highlighting these high speed transactions on NPR, fwiw, albeit I don't believe – no surprise – that any solution was suggested.

    RN , April 20, 2016 at 10:24 am

    More practical solutions will be (1) to delink capital gains tax from income tax and (2) to collect capital gains tax at source.

    Benedict@Large , April 20, 2016 at 11:14 am

    Correct. No tax by the sovereign issuer of the currency has as it's purpose the raising of revenue, of which the sovereign issuer already has an infinite supply. Taxes by the sovereign issuer merely serve to regulate demand.

    Of course, try to explain to anyone inside the beltway how their currency actually works, and they'll think you are crazy. They've been told incorrectly for 40 years, and DAMMIT! That's enough to make it right.

    Beniaminio , April 20, 2016 at 11:21 am

    Forgive my ignorance, but I don't see why a blanket transaction tax of 0.5% or whatever would be preferable to a transaction tax of 5-10% applicable to the actual bad actors, i.e., the high-frequency traders. It seems like it would be easy enough to assess a genuinely punitive tax against the actual "speculators" who are flipping shares over the course of single trading session, i.e., to tax both HFT and day-trading out of existence. I also fail to see how a transaction tax of general application would significantly inhibit insider trading.

    I think Reich is being a bit tone-deaf here. In a ZIRP environment, conservative investors are effectively foisted into the stock market, and are then reviled as speculators. Is it no longer politically acceptable for the little people to invest accumulated capital? We can't all live off of political consulting and paid speeches like former Clinton-era cabinet ministers.

    FluffytheObeseCat , April 20, 2016 at 3:30 pm

    Oh, please. I've been "in the market" in mutual funds and lesser amounts of directly held stock for 20 years. If I traded enough to generate +$200 in transaction taxes, it would be a sign that I was getting bad advice, & was stupid enough to take it. If Bernie's transaction tax were enacted, it would eradicate most institutional HFT efforts in under a year. Over a decade, it's greatest benefit may be in slowing the erosion of middle class wealth by reducing excessive trading and associated fee skimming.

    The guys in dress shirts in your local MSSB office in flyover are not actually your friends, and their service fees are much, much larger than they need to be in this era of electronic trading.

    Beniamino , April 20, 2016 at 11:07 pm

    Guys in dress shirts in flyover country? Uh …. what? I'm not sure I'm following but you appear to be saying that you've conducted less than $40,000 in stock & mutual fund trades over the course of twenty years; in other words you don't care about the actual merits of this transaction-tax proposal because you don't have any money to invest anyway. Not a particularly compelling argument. At any rate, I thought the point of the proposal was to curb rank speculation, not to discourage old ladies from buying utility stocks. So why not target the actual speculators?

    Chauncey Gardiner , April 20, 2016 at 11:30 am

    Sanders' proposal of a securities transaction tax is being ignored for the same underlying reason proposals to tax accumulated wealth have been ignored.

    "Behind every great fortune there is a great crime." -Balzac

    Carly , April 20, 2016 at 2:11 pm

    The bottom line of why this tax is ignored is the majority of people who vote doesn't understand how the markets work. So they don't understand how this would work and help. They keep voting for people who won't make any significant changes to our society. Hillary won't be any different she is going to be the same old horse leading the way. Sheeple !

    F. Korning , April 20, 2016 at 2:31 pm

    Cancelled and no-op trades wielded with impunity are the root of the HFT problem. I'm not sure why many here are claiming a tax wouldn't affect cancellations. The tax should be punitive especially for order cancellations under a reasonable holding period. It should also be much higher for non-listed OTC derivatives, repos, and all manner of exotic structured products, special vehicles, and dark pool (un)liquidity. The point is to force skin in the game.

    The Infamous Oregon Lawhobbit , April 20, 2016 at 2:43 pm

    Our gentle host wrote, "I want to clarify one key issue about a transaction tax. Its purpose is not to raise revenue. Its purpose is to discourage excessive trading, which is socially unproductive."

    Makes perfect sense – it's the old adage, "If you tax something, you get less of it. The more you tax, the less you get."

    And if the revenue generated covers enforcement costs, that's weevils in the porridge!

    Angry Panda , April 20, 2016 at 3:25 pm

    The bond part puzzles me to some extent. At least as applied to below investment grade stuff, because obviously Treasuries and IG are different animals.

    First, the whole "high speed, high frequency" thing. Much of the time, it really isn't. I mean, these are instruments that still trade through humans (via the phone or Bloomberg chat), and many of even $500 million plus issues don't trade very often, period. In many bonds probably the most volume you see is immediately after issuance, and that's more a matter of people either flipping a small allocation or topping up to get to their target, with the dealer often pretty much setting up the trades with their allocation strategy. So that's a different animal than straight-up speculation (high frequency or otherwise).

    Second, ok, you're "taxing" bonds effectively 1/8 (0.1%, but I'm rounding as bonds are actually quoted in eighths, maybe sixteenths sometimes), presumably paid by one or both counterparties (split equally between buyer and seller?). I…don't see how that is going to alter much of the trading that goes on. The bid-ask is effectively a bit wider, your mark when you buy something is a little lower (if you use bid-side), people complain more than usual. But High Yield is generally not something where paying up 1/8 is going to make or break your trading strategy, unlike with equities (where the high frequency guys play on fractions of fractions). At most you're looking at trades in "on the margin" issues having a tougher time getting done in stable markets (because in a hot market everyone pays up anyway, while in a rout there is often no bid, period).

    All a long way of saying, bonds – fine. Define the word "bonds". Treasuries? IG? HY? Structured? And you want to realize how much in revenues from that?

    Equities, on the other hand – no brainer. Tax away. If anything, tax them more than is currently proposed, because the point – to me – is not to raise revenue, but to severely disincentivize speculation (of either the high frequency or the regular kinds). Imagine, for example, if the tax was at 10% of the pre-commission trade value (i.e. just shares times price), payable by both buyer and seller. "But Panda, you'll destroy secondary equity trading!" Precisely, children, because at the end of the day most of such contributes absolutely nothing productive to either the society or the economy. Now, maybe I'm much more extreme than the consensus, but my point is that what Sanders is currently proposing is well within what the industry can "eat" without changing its behaviour too much, in my opinion.

    Lyle , April 20, 2016 at 3:55 pm

    Of course before deregulation of commissions the US had a private version of the financial transaction tax in terms of the fixed commissions. One way to compare is to look at commissions compared to the modern commission+ ftt. If the commissions were greater than unless you believe the market 30 years ago was defective it won't make a lot of difference.

    [May 05, 2016] Why the worst of the oil rout might already be behind us

    Alberta Oil Magazine

    The surplus in early 2016 was closer to about 500,000 b/d, he says, and should continue to fall. "The oversupply in the market is grossly overstated," King says.

    A lag in output data is partly due to the high estimates, King says, and surpluses are likely to be much lower in the coming months as surplus numbers begin to catch up with the real decreases in supplies. "People are still suggesting it's one million or two million barrels per day-it's nothing even close to that."

    FirstEnergy sees prices for West Texas Intermediate averaging $55 for 2017, then rising to $66.25 over 2018 and $74 in 2019, according to its quarterly market update. "In 2017 you'll start to see things look a little bit better," King said. "The market in our view is reaching a balanced position. Inventories are starting to roll over, demand is doing great and supplies are coming off-the three basics you need for better pricing."

    Some analysts have suggested the gradual rise in WTI prices could trigger a simultaneous rise in U.S. shale oil production, which would ultimately offset any gains in prices. King said this scenario was unlikely, as many producers have already locked in their 2016 spending programs, and capital markets remain tight and the high-yield debt market continues to sputter.

    [May 05, 2016] When Neoliberalism Was Young A Lookback on Clintonism before Clinton

    IMPORTANT: Neoliberalism as Peters defines it is nothing but elegant concern trolling–claiming to be the staunchest defenders of the lowest order, when really that's just a way to reinforce a crab-bucket mentality that keeps the true elites from making any sacrifices towards a more equitable society.
    Notable quotes:
    "... The New Republic ..."
    "... The Washington Monthly ..."
    "... These were the men who made Jonathan Chait what he is today. Chait, after all, would recoil in horror at the policies and programs of mid-century liberals like Walter Reuther or John Kenneth Galbraith or even Arthur Schlesinger, who claimed that "class conflict is essential if freedom is to be preserved, because it is the only barrier against class domination." We know this because he recoils in horror today he so resolutely opposes the more tepid versions of that liberalism that we see in the Sanders campaign. ..."
    "... Note the disavowal of all conventional ideologies and beliefs, the affirmation of an open-minded pragmatism guided solely by a bracing commitment to what works. It's a leitmotif of the entire manifesto: Everyone else is blinded by their emotional attachments to the ideas of the past. We, the heroic few, are willing to look upon reality as it is, to take up solutions from any side of the political spectrum, to disavow anything that smacks of ideological rigidity or partisan tribalism. ..."
    "... The New Republic ..."
    "... Above all, neoliberals loathed unions, especially teachers unions. They still do , except insofar as they're useful funding devices for the contemporary Democratic Party. ..."
    "... But reading Peters, it's clear that unions were, from the very beginning, the main target. The problems with unions were many: they protected their members's interests (no mention of how important unions were to getting and protecting Social Security and Medicare); they drove up costs, both in the private and the public sector; they defended lazy, incompetent workers ("We want a government that can fire people who can't or won't do the job.") ..."
    "... On the one hand, Peters showed how much the neoliberal was indebted to the Great Society ethos of the 1960s. That ethos was a departure from the New Deal insofar as it took its stand with the most desperate and the most needy, whom it set apart from the rest of society. Michael Harrington's The Other America ..."
    "... On the other hand, Peters showed how potent, and potently disabling, that kind of thinking could be. In the hands of neoliberalism, it became fashionable to pit the interests of the poor not against the power of the wealthy but against the working class that had been made into a middle class by America's unions. (We still see that kind of talk among today's Democrats, particularly in debates around free trade, where it is always the unionized worker-never the well paid journalist or economist or corporate CEO -who is expected to make sacrifices on behalf of the global poor. Or among Hillary Clinton supporters, who leverage the interests of African American voters against the interests of white working-class voters, but never against the interests of capital.) ..."
    "... There are striking parallels in this to the observation I've made, reading a lot lately, about historical civil rights/racial justice struggles. To wit, one of the greatest drags on the effectiveness of the Civil Rights Movement has been the ability of social/financial elites to make sure that advancement for poor people of color came out of the hides of the working class, rather than from the elites' share. This is clear from the backgrounders on the housing market in e.g. Slatter's Family Properties or Boyle's The Arc of Justice , or the description of the Boston busing issue in I think Perlstein's The Invisible Bridge . ..."
    "... For middle-class white homeowners, living in a neighborhood that became mixed-race really did mean the loss of most of the family capital; it's deplorable that it was due to racism, but individuals' anti-racism wasn't going to let them resell at the price they'd paid, nor keep them from the pernicious effects of living in a now-redlined neighborhood. ..."
    "... Just the same, for the white populations of Boston's poor neighborhoods, it was all too obvious that Black students were being bused into their schools, not those of the wealthy – which you'll still see today when school-choice means slightly-better schools get hit with more demand than their resources can manage, not that any kid can go to an elite public school (let alone a private one). ..."
    "... At the end of the day, neoliberalism as Peters defines it is nothing but elegant concern trolling–claiming to be the staunchest defenders of the lowest order, when really that's just a way to reinforce a crab-bucket mentality that keeps the true elites from making any sacrifices towards a more equitable society. ..."
    "... These arguments about semantics are stupid. At one time terms like "conservative", "liberal", "neoconservative", etc. may have meant different things, but we sure as hell know what they mean now. It's just debate team intellectual obfuscation. Meanings change as society needs them to. For instance Republican once implied being against racism. Today, not so much. Still "Republicans" are called "Republicans". ..."
    "... Chait knows what "neoliberal" means, he just doesn't like the reality of what it means and what it might imply about him. ..."
    coreyrobin.com
    It was an odd tweet.

    On the one hand, Chait was probably just voicing his disgruntlement with an epithet that leftists and Sanders liberals often hurl against Clinton liberals like Chait.

    On the other hand, there was a time, not so long ago, when journalists like Chait would have proudly owned the term neoliberal as an apt description of their beliefs. It was The New Republic , after all, the magazine where Chait made his name, that, along with The Washington Monthly , first provided neoliberalism with a home and a face.

    Now, neoliberalism, of course, can mean a great many things , many of them associated with the right. But one of its meanings-arguably, in the United States, the most historically accurate-is the name that a small group of journalists, intellectuals, and politicians on the left gave to themselves in the late 1970s in order to register their distance from the traditional liberalism of the New Deal and the Great Society. The original neoliberals included, among others, Michael Kinsley, Charles Peters, James Fallows, Nicholas Lemann, Bill Bradley, Bruce Babbitt, Gary Hart, and Paul Tsongas. Sometimes called "Atari Democrats," these were the men-and they were almost all men-who helped to remake American liberalism into neoliberalism, culminating in the election of Bill Clinton in 1992.

    These were the men who made Jonathan Chait what he is today. Chait, after all, would recoil in horror at the policies and programs of mid-century liberals like Walter Reuther or John Kenneth Galbraith or even Arthur Schlesinger, who claimed that "class conflict is essential if freedom is to be preserved, because it is the only barrier against class domination." We know this because he recoils in horror today he so resolutely opposes the more tepid versions of that liberalism that we see in the Sanders campaign.

    It's precisely the distance between that lost world of 20th century American labor liberalism and contemporary liberals like Chait that the phrase "neoliberalism" is meant, in part , to register.

    We can see that distance first declared, and declared most clearly, in Charles Peters's famous " A Neoliberal's Manifesto ," which Tim Barker reminded me of last night. Peters was the founder and editor of The Washington Monthly , and in many ways the éminence grise of the neoliberal movement. In re-reading Peters's manifesto-I remember reading it in high school; that was the kind of thing a certain kind of nerdy liberal-ish sophomore might do-I'm struck by how much it sets out the lineaments of Chait-style thinking today.

    The basic orientation is announced in the opening paragraph:

    We still believe in liberty and justice for all, in mercy for the afflicted and help for the down and out. But we no longer automatically favor unions and big government or oppose the military and big business. Indeed, in our search for solutions that work, we have to distrust all automatic responses, liberal or conservative.

    Note the disavowal of all conventional ideologies and beliefs, the affirmation of an open-minded pragmatism guided solely by a bracing commitment to what works. It's a leitmotif of the entire manifesto: Everyone else is blinded by their emotional attachments to the ideas of the past. We, the heroic few, are willing to look upon reality as it is, to take up solutions from any side of the political spectrum, to disavow anything that smacks of ideological rigidity or partisan tribalism.

    That Peters wound up embracing solutions in the piece that put him comfortably within the camp of GOP conservatism (he even makes a sop to school prayer) never seemed to disturb his serenity as a self-identified iconoclast. That was part of the neoliberal esprit de corps: a self-styled philosophical promiscuity married to a fairly conventional ideological fidelity.

    Listen to how former New Republic owner Marty Peretz described (h/t Tim Barker) that ethos in his lookback on The New Republic of the 1970s and 1980s:

    My then-wife and I bought the New Republic in 1974. I was at the time a junior faculty member at Harvard, and I installed a former student, Michael Kinsley, as its editor. We put out a magazine that was intellectually daring, I like to think, and politically controversial.

    We were for the Contras in Nicaragua; wary of affirmative action; for military intervention in Bosnia, Rwanda and Darfur; alarmed about the decline of the family. The New Republic was also an early proponent of gay rights. We were neoliberals. We were also Zionists, and it was our defense of the Jewish state that put us outside the comfort zone of modern progressive politics.

    Except for gay rights and one or two items in that grab bag of foreign interventions, what is Peretz saying here beyond the fact that his politics consisted mainly of supporting various planks from the Republican Party platform? That was the intellectual daring, apparently.

    Returning to that first paragraph of Peters's piece, we find the basic positions of the neoliberal persuasion: opposition to unions and big government, support for the military and big business.

    Above all, neoliberals loathed unions, especially teachers unions. They still do , except insofar as they're useful funding devices for the contemporary Democratic Party.

    But reading Peters, it's clear that unions were, from the very beginning, the main target. The problems with unions were many: they protected their members's interests (no mention of how important unions were to getting and protecting Social Security and Medicare); they drove up costs, both in the private and the public sector; they defended lazy, incompetent workers ("We want a government that can fire people who can't or won't do the job.")

    Against unions, or conventional unions, Peters held out the promise of ESOPs , where workers would forgo higher wages and benefits in return for stock options and ownership. He happily pointed to the example of Weirton Steel :

    …where the workers accepted a 32 percent wage cut to keep their company alive. They will not be suckers because they will own the plant and share in the future profits their sacrifice makes possible. It's better for a worker to keep a job by accepting $12 an hour than to lose it by insisting on $19.

    (Sadly, within two decades, Weirton Steel was dead, and with it, those future profits and wages for which those workers had sacrificed in the early 1980s.)

    But above all, Peters and other neoliberals saw unions as the instruments of the most vile subjugation of the most downtrodden members of society:

    A poor black child might have a better chance of escaping the ghetto if we fired his incompetent middle-class teacher.

    The urban public schools have in fact become the principal instrument of class oppression in America, keeping the lower orders in their place while the upper class sends its children to private schools.

    And here we see in utero how the neoliberal argument works its magic on the left.

    On the one hand, Peters showed how much the neoliberal was indebted to the Great Society ethos of the 1960s. That ethos was a departure from the New Deal insofar as it took its stand with the most desperate and the most needy, whom it set apart from the rest of society. Michael Harrington's The Other America , for example, treated the poor not as a central part of the political economy, as the New Deal did. The poor were superfluous to that economy: there was America, which was middle-class and mainstream; there was the "other," which was poor and marginal. The Great Society declared a War on Poverty, which was thought to be a project different from from managing and regulating the economy.

    On the other hand, Peters showed how potent, and potently disabling, that kind of thinking could be. In the hands of neoliberalism, it became fashionable to pit the interests of the poor not against the power of the wealthy but against the working class that had been made into a middle class by America's unions. (We still see that kind of talk among today's Democrats, particularly in debates around free trade, where it is always the unionized worker-never the well paid journalist or economist or corporate CEO -who is expected to make sacrifices on behalf of the global poor. Or among Hillary Clinton supporters, who leverage the interests of African American voters against the interests of white working-class voters, but never against the interests of capital.)

    Teachers' unions in the inner cities were ground zero of the neoliberal obsession. But it wasn't just teachers' unions. It was all unions:

    In both the public and private sector, unions were seeking and getting wage increases that had the effect of reducing or eliminating employment opportunities for people who were trying to get a foot on the first run of the ladder.

    And it wasn't just unions that were a problem. It was big-government liberalism as a whole:

    Too many liberals…refused to criticize their friends in the industrial unions and the civil service who were pulling up the ladder. Thus liberalism was becoming a movement of those who had arrived, who cared more about preserving and expanding their own gains than about helping those in need.

    That government jobs are critical for women and African Americans -- as Annie Lowrey shows in a excellent recent piece -- has long been known in traditional liberal and labor circles. That that fact has only recently been registered among journalists-who, even when they take the long view, focus almost exclusively, as Lowrey does, on the role of GOP governors in the aughts rather than on these long-term shifts in Democratic Party thinking-tells us something about the break between liberalism and neoliberalism that Chait believes is so fanciful.

    Oddly, as soon as Peters was done attacking unions and civil-service jobs for doling out benefits to the few-ignoring all the women and people of color who were increasingly reliant on these instruments for their own advance-he turned around and attacked programs like Social Security and Medicare for doing precisely the opposite: protecting everyone.

    Take Social Security. The original purpose was to protect the elderly from need. But, in order to secure and maintain the widest possible support, benefits were paid to rich and poor alike. The catch, of course, is that a lot of money is wasted on people who don't need it.

    Another way the practical and the idealistic merge in neoliberal thinking in is our attitude toward income maintenance programs like Social Security, welfare, veterans' pensions, and unemployment compensation. We want to eliminate duplication and apply a means test to these programs. They would all become one insurance program against need.

    As a practical matter, the country can't afford to spend money on people who don't need it-my aunt who uses her Social Security check to go to Europe or your brother-in-law who uses his unemployment compensation to finance a trip to Florida. And as liberal idealists, we don't think the well-off should be getting money from these programs anyway-every cent we can afford should go to helping those really in need.

    Kind of like Hillary Clinton criticizing Bernie Sanders for supporting free college education for all on the grounds that Donald Trump's kids shouldn't get their education paid for? (And let's not forget that as recently as the last presidential campaign, the Democratic candidate was more than willing to trumpet his credentials as a cutter of Social Security and Medicare , though thankfully he never entertained the idea of turning them into means-tested programs.)

    It's difficult to make sense of what truly drives this contradiction, whereby one liberalism is criticized for supporting only one segment of the population while another liberalism is criticized for supporting all segments, including the poor.

    It could be as simple as the belief that government should work on behalf of only the truly disadvantaged, leaving everyone else to the hands of the market. That that turned out to be a disaster for the truly disadvantaged-with no one besides themselves to speak up on behalf of anti-poverty programs, those programs proved all too easy to eliminate, not by a Republican but by a Democrat -seems not to have much troubled the sleep of neoliberalism. Indeed, in the current election, it is Hillary Clinton's support for the 1994 crime bill rather than the 1996 welfare reform bill that has gotten the most attention, even though she proudly stated in her memoir that she not only supported the 1996 bill but rounded up votes for it.

    Or perhaps it's that neoliberals of the left, like their counterparts on the right , simply came to believe that the market was for winners, government for losers. Only the poor needed government; everyone else was made for capitalism. "Risk is indeed the essence of the movement," declared Peters of his merry band of neoliberal men, and though he had something different in mind when he said that, it's clear from the rest of his manifesto that the risk-taking entrepreneur really was what made his and his friends' hearts beat fastest.

    Our hero is the risk-taking entrepreneur who creates new jobs and better products. "Americans," says Bill Bradley, "have to begin to treat risk more as an opportunity and not as a threat."

    Whatever the explanation for this attitude toward government and the poor, it's clear that we're still living in the world the neoliberals made.

    When Clinton's main line of attack against Sanders is that his proposals would increase the size of the federal government by 40%, when her hawkishness remains an unapologetic part of her campaign, when unions barely register except as an ATM for the Democratic Party, and Wall Street firmly declares itself to be in her camp, we can hear that opening call of Peters-"But we no longer automatically favor unions and big government or oppose the military and big business"-shorn of all awkward hesitation and convoluted formulations, articulated instead in the forthright syntax of common sense and everyday truth.

    Perhaps that is why Jonathan Chait cannot tell the difference between liberalism and neoliberalism.

    Update (April 29)

    I wrote a follow-up post here , in which I respond to Chait's response.

    1. Phil Perspective April 27, 2016 at 9:30 pm | #
      What a scumbag Peters is. It's more of a crime, however, that Mother Jones hired one of Peters's flunkies. reply
  • SocraticGadfly April 27, 2016 at 10:13 pm | #
    Jon Chait, Obama's journalistic fellator-in-chief. Possibly has passed My Head Is Flat Friedman as Acela Corridor's chief writer of political dreck. reply
  • SocraticGadfly April 27, 2016 at 10:36 pm | #
    Oh, and free #ImWithHer T-shirts for all:

    https://photos.google.com/share/AF1QipNyEhYtblnbdre1nYTW9pvxeri8AW-A_s7JEBAI0ZSS_enpcDGqthfKTGNmwbWhpQ?key=RWJQQUtBQ0NGOFZvMHJfblJ0T1E1SW1oWjNFc2R3

  • Harold April 30, 2016 at 12:00 pm | #
    And the T-shirts are white, I'm sure.

    I'm trying to come up with a good acronym for "Conservative in All But Name," for Clinton and Chait and all their ilk, because DINO just isn't strong enough.

  • Harold April 30, 2016 at 12:02 pm | #
    Sorry, I posted before I clicked the link. What I should have said is, "And all the real #ImWithHer T-shirts are white, I'm sure." reply
  • John Maher April 28, 2016 at 12:10 am | #
    All alums of U Michigan have a bounded middle class rationality they do not realize is white privilege. And their football team still can not beat a bunch of half-wits from Ohio State.

    Prof. Robin:I know this is not an advice column but my problem is all my friends roll their eyes when I use the phrase 'neoliberal'. They assume it is jargon or a cliche. I asked them and only a few actually have a clue as to what 'neoliberal' means. And they still support Hillary. Help! We all know Mrs. Clinton will be our next president, but I am beginning to think even an impossible Trump victory would actually be less damaging than another series of neoliberal encroachments upon what has not yet been amalgamated in the political economy.

    No comment upon the rejection of neoliberalism in the land where it all began as theory? Austria? And the alliance of the extreme right and greens?

  • pols April 28, 2016 at 12:17 am | #
    Thanks for another excellent piece. I couldn't help but think William Graham Sumner upon hearing Peters' disdain for unions. His version is actually harsher. He not only wants to take from B to help C and D but blame B for all of C and D's problems.

    Needless to say, this isn't exactly company any self-respecting liberal would want to keep.

  • phatkhat April 28, 2016 at 12:44 am | #
    Great essay! Will definitely share it around!
  • lazycat1984 April 28, 2016 at 2:09 am | #
    The more I read Peters' essay, the more the word "Objectivist" comes to mind. I had always thought, prior to this column that 'neoliberal' meant a reboot of liberalism in the 19th century sense, which seems to be the sense most economists use it in. Sometimes these labels take on a life of their own. reply
  • Raven Onthill April 28, 2016 at 7:51 am | #
    It seems to me that the common thread connecting the opposition to inclusive social insurance programs and, at the same time, unions is a kind of supremacism: the supremacism of the people who are just a rung above the bottom of the social ladder and want desperately to not be on the bottom. It's odd to see in people who in fact are many rungs from the bottom, but class anxiety is something that most of us experience from time to time.

    It's late – or early – and I wonder if I'll still believe this after more sleep – but it seems to me that this is the thinking of social climbers. Consider Mr. Collins of Pride and Prejudice , having attained a bit of status, and both proud of it and desperate to hang on to it. Or, for that matter, consider the Clintons .

  • Carl Weetabix April 30, 2016 at 5:50 pm | #
    The only people more cutthroat than the old rich, are the new rich. reply
  • Cleveland Frowns April 28, 2016 at 8:30 am | #
    Excellent post as always. I'm not quite understanding the part about how "Clinton supporters … leverage the interests of African American voters against the interests of white working-class voters." It's not that I don't believe the claim, I just can't come up with any examples.
  • Carl Weetabix April 30, 2016 at 5:54 pm | #
    I think he means Hillary trying to turn black voters against Sanders who in theory at least better represents white working-class voters interests better. reply
  • Reza Afshari April 28, 2016 at 9:48 am | #
    Very well articulated. I think you should develop this to an article for the Nation. It is very timely and much needed. Thank you for writing it. reply
  • Roquentin April 28, 2016 at 10:04 am | #
    This was a really good post. This blog is often like an oasis in the midst of a desert of neoliberal (Ha!), reactionary garbage. I have all kinds of things to say about it.

    First and foremost, in recent years I've fallen more under the sway of a Hegelian mode of thinking about political movements, history, and the world. There is no clear example of the dialectical movement of a concept than that of "freedom" or "liberty." What Neoliberalism represents historically is when the concepts and contradictions of Liberalism as it was practiced in the New Deal era were finally turned against themselves and a reversal of it into its opposite. All concepts and notions cut both ways, freedom and liberty are no different. Above all else, that's what neoliberalism, from the Chicago/Austrian School to hack pundits like Chait represent. They have turned the core principles of liberalism on itself and used them to shore up justification for hierarchy and oppression.

    You discuss this in your book, when talking about how freedom for the right means freedom of the owner and freedom of those in power in a more general sense. These questions are central to our entire historical epoch, particularly in the US, and we need to move beyond them. Marxist/socialist ideas and concepts are sorely needed, and the whole political conversation in the US has been built for nearly a century on avoiding any use of them. I maintain that New Deal liberalism was always going to become Neoliberalism, it was inevitable that these concepts would be inverted and if the postwar American Consensus could be reached again it produce the same world we currently inhabit a second time.

  • Will G-R April 28, 2016 at 11:20 am | #
    @Roquentin: Which itself is an ironic little mirror of the contradictions that transformed our concept of "liberalism" in the first place from a principled defense of economic non-interference to a pragmatic support for robust interventionism. It's readily apparent in Mill's On Liberty itself, where the attempt at a utilitarian defense of the laisser-faire principle can ultimately only stand if he carves out exceptions large enough to drive a New Deal or a Great Society through, and thus the original free-market doctrines are left sitting around abandoned, ready to be picked up by neoliberal defenders of inherited wealth and power. Of course Mill also manages to shape this utilitarianism into a vaguely principled apologia for global empire ("Despotism is a legitimate mode of government in dealing with barbarians provided the end be their improvement" and so on) but after all this sort of racism has always been common throughout the Western political mainstream, notably including precisely the sorts of working-class folks who might have once voted for Wilson and FDR and who now vote for Trump. reply
  • alex April 28, 2016 at 10:45 am | #
    Although outside of the 20th century American scope of this argument-very valuable in its historical specificity-I find the richest conceptual or genealogical expression of the difference between liberalism and neoliberalism to be Foucualt's distinction between Adam Smith and Gary Becker.

    If the ethos of classical liberalism is the partner in exchange, that of neoliberalism is the entrepreneur of the self.

    This analytic remains salient in understanding the neoliberal movement in the late 20th century U.S., even if it introduces slippages in the meaning of liberalism as it is used in Europe versus the United States. The Wendy Brown book linked above does a nice job developing this type of argument.

  • John Maher April 28, 2016 at 12:09 pm | #
    I will share that during election night when Clinton won his first term I was sitting in the same room with Schlesinger, Jr. while we were all watching the precincts report and he was very much into it when the hostess began gyrating and screaming "MY PRESIDENT! MY PRESIDENT!" and that there was no talk of the looming shadow of the neoliberal and all present assumed on some level that the result was a return and validation of the welfare state after Reagan-Bush, the Republic after the terror. Even in the false advertising of the political arena, expectations have never been so confounded for the working class and intellegensia alike. reply
  • ronp April 28, 2016 at 2:55 pm | #
    I think H. Clinton will be fine if elected, the past is the past (well not really), but saying that I really wish electoral success in this country could happen with a purely working class focus – something like Robert Reich's most recent post - http://robertreich.org/ . Could be more workable as the racism of the white working class diminishes, hopefully struggling white middle class racism diminishes too. Left wing policies poll pretty well now, we need to get the poor to vote though.
  • ecb April 28, 2016 at 2:58 pm | #
    As the poor are to neo/liberalism so the "oppressed" are to its partner, the cultural "left".
  • Cavoyo April 28, 2016 at 4:58 pm | #
    "Except for gay rights and one or two items in that grab bag of foreign interventions, what is Peretz saying here beyond the fact that his politics consisted mainly of supporting various planks from the Republican Party platform?"

    There's the old joke that a libertarian is a Republican that smokes pot. Maybe a neoliberal, then, is a Republican that supports gay marriage?

  • TIercelet April 29, 2016 at 3:33 pm | #
    There are striking parallels in this to the observation I've made, reading a lot lately, about historical civil rights/racial justice struggles. To wit, one of the greatest drags on the effectiveness of the Civil Rights Movement has been the ability of social/financial elites to make sure that advancement for poor people of color came out of the hides of the working class, rather than from the elites' share. This is clear from the backgrounders on the housing market in e.g. Slatter's Family Properties or Boyle's The Arc of Justice , or the description of the Boston busing issue in I think Perlstein's The Invisible Bridge .

    For middle-class white homeowners, living in a neighborhood that became mixed-race really did mean the loss of most of the family capital; it's deplorable that it was due to racism, but individuals' anti-racism wasn't going to let them resell at the price they'd paid, nor keep them from the pernicious effects of living in a now-redlined neighborhood.

    Just the same, for the white populations of Boston's poor neighborhoods, it was all too obvious that Black students were being bused into their schools, not those of the wealthy – which you'll still see today when school-choice means slightly-better schools get hit with more demand than their resources can manage, not that any kid can go to an elite public school (let alone a private one).

    At the end of the day, neoliberalism as Peters defines it is nothing but elegant concern trolling–claiming to be the staunchest defenders of the lowest order, when really that's just a way to reinforce a crab-bucket mentality that keeps the true elites from making any sacrifices towards a more equitable society.

    In other words, an old monster to be slain with an old weapon–solidarity, but newly sharpened and strengthened by the knowledge that it must transcend racial and regional and even class divisions.

  • Carl Weetabix April 30, 2016 at 5:48 pm | #
    These arguments about semantics are stupid. At one time terms like "conservative", "liberal", "neoconservative", etc. may have meant different things, but we sure as hell know what they mean now. It's just debate team intellectual obfuscation. Meanings change as society needs them to. For instance Republican once implied being against racism. Today, not so much. Still "Republicans" are called "Republicans".

    Chait knows what "neoliberal" means, he just doesn't like the reality of what it means and what it might imply about him.

  • lazycat1984 April 30, 2016 at 11:29 pm | #
    Exactly. Sorry to indulge in pedantry myself…you are correct.
  • aprudy April 30, 2016 at 7:03 pm | #
    What I love about this essay so much is the ways it echoes what Ken Sharpe taught us in the Fall '83 version of his Latin American Comparative Politics course… I'm pretty sure it was in reference to Jeannie Kirkpatrick but it was a general statement about neoliberals and neocons: This is very close to the exact words – "Anyone who tells you "The harsh reality is…" or "The fact of the matter is…" is either lying to you or hiding a very great deal of what they know to be true."
  • [May 04, 2016] Peak Fracking, Perpetually Higher Oil Prices

    Notable quotes:
    "... As a warning to investors, EIA (Energy Information Administration) and IEA (International Energy Agency) data is reliable; however, their judgments are politically motivated. ..."
    "... Also, there is no "glut" of oil. The market need is to power a 365-day food cycle. The reported "glut" is a storage problem of having 33.8 Days of Supply, 10 days more than the 24 Days of Supply typical for the past decade. ..."
    May 2, 2016 | Seeking Alpha

    UGA increased from $20.40 on February 2016 to $28 in April.

    Fracked oil wells deplete quickly, and account for half of US oil production.

    The current drilling rig count is 420. To sustain fracking production at least 1,840 drilling rigs are required (rig count in December 2014) to replace depleting wells.

    As a warning to investors, EIA (Energy Information Administration) and IEA (International Energy Agency) data is reliable; however, their judgments are politically motivated. Here is a graph by the Dallas Federal Reserve on how, year after year, EIA forecasts repeatedly estimated oil prices would drop as the 2008 economic collapse approached.

    ...As with failing to warn of higher oil costs in the ramp to the 2008 economic collapse, the EIA is failing to warn the nation of the economic consequences of Peak Fracking. This provides investors a knowledge gap.

    ... ... ...

    To better understand oil geology and economics here are two links:

    The mega-trends will force oil prices higher much faster than most believe.

    Also, there is no "glut" of oil. The market need is to power a 365-day food cycle. The reported "glut" is a storage problem of having 33.8 Days of Supply, 10 days more than the 24 Days of Supply typical for the past decade. Economic fragility is created by not having 365 Days of Supply to meet the needs of a 365-day food cycle; Examples: 1973 Oil Embargo, 1979 Iranian Revolution. Having 33.8 Days of Supply is only a 9% safety factor on a survival need. Take away the 18 Days of Supply required to fill pipelines and there is a 4% safety margin on a non-elastic survival need. Fragility is extreme.

    [May 04, 2016] A 4.5-Million-Barrel Per Day Oil Shortage Looms Wood Mackenzie

    Notable quotes:
    "... a true crisis is looming-and for the moment, there is no apparent way around it. ..."
    "... Wood Mac's exploration research vice-president told Offshore magazine that "In the last four years the industry has seen disappointing - largely gas prone - exploration results, with the volume of liquids discovered annually falling from around 19 billion barrels between 2008 and 2011 to 8 billion barrels between 2012 and 2015." ..."
    May 03, 2016 | OilPrice.com

    A report by Wood Mackenzie has warned the world may face a daily oil shortage of 4.5 million barrels by 2035. The amount represents around half of the global consumption estimate of the International Energy Agency (IEA) for 2016. In other words, a true crisis is looming-and for the moment, there is no apparent way around it.

    The most obvious reason is that energy companies don't want to spend money on exploration when prices are so disappointingly low. Many of them simply can't afford to spend on exploration if they want to survive in today's price environment. Ironically, their long-term survival can only be guaranteed by further exploration spending.

    A lot of costly projects have been shelved since the summer of 2014 when oil prices started falling, with the initial investments basically written off. Reviving these projects will cost more money. Where this money will come from is unclear-there is no certainty where oil prices are going in the near term, let alone any longer period, and the European Commission today forecasted $41/barrel oil for the rest of this year and just over $45 for 2017.

    ... ... ...

    The third part of the problem is reserves replacement. New exploration is not just a form of art for art's sake, or a means of expansion to boost bottom lines. It's an essential part of the operations of an oil business. Oil is finite, and in order to stay profitable, an oil company needs to maintain a consistent rate of reserves replacement.

    And here's more bad news: Last year, the seven biggest oil companies in the West only replaced 75 percent of their reserves. This is seriously bad news, especially combined with the fact that many new discoveries made in the last four years have disappointed.

    Wood Mac's exploration research vice-president told Offshore magazine that "In the last four years the industry has seen disappointing - largely gas prone - exploration results, with the volume of liquids discovered annually falling from around 19 billion barrels between 2008 and 2011 to 8 billion barrels between 2012 and 2015."

    Related:

    [May 01, 2016] Why I (Belatedly) Blew the Whistle on the SECs Failure to Properly Investigate Goldman Sachs

    Notable quotes:
    "... By James A. Kidney, former SEC attorney. Originally published at Watch the Circus ..."
    "... Pro Publica ..."
    "... Pro Publica's ..."
    "... The New York Times ..."
    "... The New York Times ..."
    "... The New York Times ..."
    "... The New York Times ..."
    "... Dodd-Frank at best imposes generalized rules about bank size and other generic issues, rather than addressing the kinds of fraudulent actions that actually occurred. It is appropriate for the SEC or Federal Reserve to impose narrower changes in corporate practice to address specific kinds of fraud. They are called "undertakings" and are often imposed by civil settlements with the SEC or in litigated relief. It did not happen with the Big Bank frauds. ..."
    "... The only reason to keep the information secret is to prevent embarrassment to the SEC or to those people who made decisions for the agency. Most of them left the SEC years ago. For public consumption, I have tried to redact all names of the non-supervisory personnel in the Division of Enforcement who worked on Goldman. I also must add that, as the emails show, for a period of time those dedicated investigators were excited about the notion of bringing at least a slightly broader action than their supervisors wanted. As is the case with much of the Division of Enforcement, the worker bees try hard and usually are fearless. It is their bosses who frequently suppress their enthusiasm for policy, political, or personal reasons. ..."
    "... The author is trying very hard to be nice to the point of being delusional. This is criminality and corruption through and through, and it didn't end in '08. Don't be sad… get mad. ..."
    "... This man has risked a lot to do what he did. He's lost more than many of you will realize. If he can't just crap on the old life and the old profession, please, cut the man a little slack. You don't want to be him. ..."
    "... James A. Kidney, former trial attorney with the Securities and Exchange Commission, retired from the SEC in 2014 at the age of 66 after 24 years working there. Looks like he had a full career, although had to put up with a lot of bullshit, and possibly soured some relationships on his way out. ..."
    "... Very similar situation here. Going on 50, unemployed in my chosen field, etc. And yes, its hard to just walk away sometimes… I have to keep my mind focused ahead instead of looking back. ..."
    "... I know other whistleblowers and internal dissenters who wound up losing their jobs who initially blame themselves, than come to accept that the system in which they operated was fundamentally corrupt, that even if some people locally really were trying to do the right thing, it was bound to either 1. go nowhere, 2. be allowed to proceed to a more meaningful level if it was cosmetic or served some larger political purpose or 3. got elevated because the organization was suddenly in trouble and they needed to burnish their cred in a big way (a variant of 2, except with 3, you might have a something serious take place by happenstance of timing). ..."
    "... (other whistleblowers) ..."
    "... (other whistleblowers) ..."
    "... (other whistleblowers) ..."
    "... (other whistleblowers) ..."
    "... the system in which they operated ..."
    "... (some employees) ..."
    "... 'investigating fraud' ..."
    April 24, 2016

    Yves here. Two things struck me about Jim Kidney's article below. One is that he still wants to think well of his former SEC colleagues. I know other whistleblowers and internal dissenters who wound up losing their jobs who initially blame themselves, than come to accept that the system in which they operated was fundamentally corrupt, that even if some people locally really were trying to do the right thing, it was bound to either 1. go nowhere, 2. be allowed to proceed to a more meaningful level if it was cosmetic or served some larger political purpose or 3. got elevated because the organization was suddenly in trouble and they needed to burnish their cred in a big way (a variant of 2, except with 3, you might have a something serious take place by happenstance of timing). Kidney does criticize corrosive practices, particularly the SEC stopping developing its own lawyers and becoming dependent on the revolving door, but his criticisms seem muted relative to the severity of the problems.

    Number two, and related, are the class assumptions at work. The SEC does not want to see securities professionals at anything other than bucket shops as bad people. At SEC conferences, agency officials are virtually apologetic and regularly say, "We know you are honest people who want to do the right thing." Please tell me where else in law enforcement is that the underlying belief.

    By James A. Kidney, former SEC attorney. Originally published at Watch the Circus

    The New Yorker and Pro Publica websites today posted an article by Pro Publica's Jesse Eisinger about the de minimis investigation by the Securities and Exchange Commission into the conduct of Goldman Sachs in the sale of derivatives based on mortgage-backed securities during the run-up to the Great Recession of 2008. The details of the SEC's failure to aggressively pursue Goldman in the particular investigation, Abacus, and its refusal to investigate fully misconduct by Goldman and other "Too Big to Fail" banks, stands not only as a historic misstep by the SEC and its Division of Enforcement, but undermines the claim that the Obama Administration has been "tough on Wall Street." The Pro Publica version contains links to a few of the documents I provided.

    No one in authority who was involved in the Goldman investigation ever gave me an explanation for why the effort was so slight. Mr. Eisinger's article doesn't offer any explanation from the one investigation participant brave enough to comment. The details of the investigation into Abacus at my level as trial counsel, which I provided to Pro Publica earlier this year, compels the conclusion that the SEC, its chairman at the time, Mary Schapiro, and the leadership of the Division of Enforcement were more interested in a quick public relations hit than in pursuing a thorough investigation of Goldman, Bank of America, Citibank, JP Morgan and other large Wall Street firms.

    Although the emails and documents I produced to Pro Publica stemming from my role as the designated (later replaced) trial attorney for the Division of Enforcement are excruciatingly boring to all but the most dedicated securities lawyer, even a lay person can observe that the Division of Enforcement was more anxious to publicize a quick lawsuit than to follow the trail of clues as far up the chain-of-command at Goldman as the evidence warranted. Serious consideration also never was given to fraud theories in any of the Big Bank cases stemming from the Great Recession that would better tell the story of how investors were defrauded and who was responsible, due either to dereliction or design.

    Instead, the SEC restricted its investigation to the narrowest theory of liability, had to be pressed (by me) to go even one short rung above the lowest level Goldman supervisor in its investigation (which took months to push through, though investigative subpoenas are frequently issued on far less in far smaller cases) and finally dropped other investigations of Goldman in return for a $550 million settlement announced July 15, 2010. To my knowledge (I retired in March 2014), the SEC never again pursued Goldman for its mortgage securities fraud or other major fraud. There is no evidence on the SEC website that it did so.

    Nearly six years later, long after the statute of limitations for securities fraud expired and individuals, pension funds and corporate entities are no longer able to bring private actions against the Big Banks, the Department of Justice announced another settlement with Goldman for its deceptive conduct in the sale of mortgage-backed securities. In this one, Goldman agreed to pay more than $5 billion "in connection with its sale of residential mortgage-backed securities."

    At a minimum, it can be said that the SEC left 90 percent of the money on the table at a time when a more aggressive investigation of the company, as well as others, could have counted for something by disclosing, in a detailed court complaint, Wall Street wrongs that might have helped policy makers better address the subject and allow damaged individuals and entities to bring their own lawsuits.

    It is very important to emphasize emphatically several points. First, I have zero evidence, and would be very surprised, if any of the individuals at the Division of Enforcement, including senior supervisors or the SEC chairman or associate commissioners, acted unlawfully or were motivated principally to protect Goldman and other big banks. All of these people appeared well-intentioned from their point of view, even they never really explained, to me, or to many others at the Commission, their motives in limiting investigations. The most senior level supervisors left more lucrative jobs in the private sector to head the Division of Enforcement, taking plum jobs but at significant personal sacrifice. (They then returned to even more lucrative employment or even more high-profile public positions.) All of them were gentlemen. These factors make it all the more surprising that I never got a clear answer as to why the investigation was so constipated, as it obviously was. Its range was clearly limited from the outset: we will sue the bank and not look hard for evidence of individual participation beyond the lowest levels.

    By the same token, it is unfair to assume as a fact that any of the individuals at Goldman not sued, or anyone at Paulson & Co., violated the securities laws, civilly or criminally. Like any citizen, they are entitled to a day in court. Absent such opportunity, they are innocent of any wrongdoing. Arguments in my internal correspondence that evidence was sufficient to sue should be viewed only as that - arguments.

    So my point in releasing these documents to Pro Publica is not to chastise or hold up to public criticism those involved at the SEC, Paulson & Co. or Goldman, though criticism of the process and of the underlying financial conduct certainly is inevitable. All of these institutions have substantial influence in the investment industry. Rather, it is to bring to light the actual conduct of one of several SEC investigations into Big Bank fraud leading up to the 2008 financial crisis.

    As I told Mr. Eisinger when I met him, I hoped he would go to the individuals in charge of the SEC investigation at the time and find out why the investigation was so limited. I have spent six years wondering what is the true answer to that question. Perhaps there were sound reasons, other than the urge to get out a quick press release, which led experienced criminal prosecutors with histories in Wall Street to smother a major investigation by limiting it to the lowest level employee possible, to express total resistance to even investigating further up the chain of command, and ignoring without serious explanation and analysis what I and others, including my own immediate supervisors, viewed as the more appropriate theory for civil prosecution. I hope there are such reasons. As a trial attorney at the SEC for over 20 years, I bled SEC blue. I believed that the agency usually tried to do the best it could, using analog era procedures and processes to combat fraud in a digital age. I am saddened to release this information. But the notion that "the Administration was tough on Wall Street" must be addressed by facts, not press releases and self-serving interviews, else the system's problems cannot be adequately addressed and repaired to deal with the next financial crisis.

    Not only is the issue of how the financial sector enforcement agencies handled the wrongs of the Great Recession an important political issue, but it is important to history. It is important that the facts not be shielded from the public so that we can all learn for the future. And it is a melancholy thought that, presented with the opportunity for a rigorous investigation and airing of facts in civil or criminal proceedings gone, history will be denied a fairer story of both the financial crisis itself and how the government responded.

    As many news organizations have noted , the taxpayer and Goldman shareholders will pay the combination of penalties and repayments in the DOJ settlement. No individual was named as liable in the civil settlement with Goldman nor in any of the other similar, and even larger, financial settlements entered into with the Department of Justice, all of which are vastly greater than what the SEC obtained in its "quick hit, one and done" enforcement actions. DOJ must be credited with what appears to have been a far more thorough investigation of wrongdoing than the SEC performed, but the public is properly mystified that no individuals were charged, criminally or civilly, although the DOJ press releases contains the usual caveat that "the investigation continues."

    The settlements with Goldman and other Big Banks were resolved under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA), which allows the Feds to ignore the normal five-year statute of limitations for fraud, but does not permit suit by private party victims. As has been the practice with DOJ when dealing with Wall Street, no criminal charge was brought. In fact, no complaint was filed in any of these cases. Instead, DOJ entered into contractual arrangements with the banks. Failing to fulfill their obligations under the contract would subject them to civil enforcement as a breach of contract matter, not a contempt charge in federal District Court.

    Contrary to claims by politicians, it is clear that the Obama Administration has not been hard-hitting on Wall Street fraudsters. The large fines obtained by the Department of Justice, while a short-term pinch, are simply a cost of doing business. Relying on fines to penalize rich Wall Street banks, which, after all, specialize in making money and do it well, if not always honestly, is like fining Campbell Soup in chicken broth. It costs something, but doesn't change anything in the way of operations or personnel.

    Despite billions in fines representing many more billions in fraud, the enforcement agencies of the United States have been unable to find anyone responsible criminally or civilly for this huge business misconduct other than a janitor or two at the lowest rung of the companies. Nor have they sought to impose systemic changes to these banks to prevent similar frauds from happening again.

    Yessir, according to the Obama administration, Goldman Sachs, JP Morgan, Bank of America, Citibank and other institutions made their contributions to tearing down the economy, but no one was responsible. They are ghost companies. And nothing needs to be done to prevent such intent or dereliction in the future.

    Law enforcement by contract? Clearly, the banks made it a condition of settlement that no complaint, civil or criminal, be filed. That might gum up the works by requiring state regulators to take action under their own rules, or cause other collateral consequences.

    Ah, say the defenders of the status quo, don't forget about Dodd-Frank, the unwieldy legislation passed by feckless Democrats influenced by big money contributors and their own fear of appearing too aggressive (a particular Democratic Party contagion). Dodd-Frank was and is a virtual chum pool for Wall Street lawyers and lobbyists, leaving most of the substance to regulatory agencies such as the SEC and the Federal Reserve, who for years have been significantly captured by those they are supposed to regulate. The private sector lawyers and lobbyists have open doors to these places to "help" write the rules and add complexity, which they later complain about in court, challenging those same rules as too complex.

    Dear citizen, just remember this: complexity favors fraud, and certainly favors Wall Street and corporate America. You can't understand the rules and neither can Congress or all but the most dedicated experts. That's a lot of room to disguise misdeeds. To take a current example, which came to my attention just before completing this post, Congress is trying to use sentencing reform, generally thought of as intending to remove inequities from the criminal justice system, to also make it even tougher to prosecute and punish white-collar crime. Is this why the Koch Brothers suddenly show such public attention to the poor and needy by favoring such legislation? See this discussion of adding the "mens rea" requirement to such legislation. Burying an important but legalistic issue in otherwise liberal leaning legislation is a current example of disguising lax enforcement of white-collar crime in a complicated package. As one Democratic congressman suggested, how can a liberal vote against sentencing reform? The explanation of the badger buried in the woodpile is too complicated for the average voter.

    Not coincidentally, adding a requirement to the law that it is a defense to either the crime itself or to sentencing that "I didn't know my acts were against the law" is a get out of jail free card as the complexity of laws addressed to ever more sophisticated business misconduct grows. Wall Street clearly has shown no shame in using the defense that "no one knew". Can't blame them. It has worked so far. Maybe they don't even need new legislation.

    I was told repeatedly when I entered the Goldman investigation that synthetic CDOs were just too complex for me to understand. Of course, it appeared to be plain vanilla fraud selling a product designed to fail but nicely packaged for chumps to buy. Claims of complexity hide many easily understood sins.

    At least for the major sins, we don't need even more complex regulations. Instead, put leadership in place who will aggressively enforce the laws we have already. That would raise plenty of eyebrows and put some bums in prison, or at least make them pay civil and criminal penalties personally. As many have noted, prison or, at least, personal financial liability, beats corporate concessions every time and pays back in future reluctance to break the law. The country should try it sometime.

    So back to little me, a small and ineffective cog in the larger system. Why is this release of documents so long after the investigation?

    My friends know that I have been upset since 2010 about the way the SEC handled the Goldman case and, in my view (confirmed by other trial lawyers), that it became a template for other SEC civil suits against the Big Banks. In 2011 I wrote an anonymous letter to The New York Times complaining about the lack of investigative effort by the Division of Enforcement and the impact of the "revolving door" bringing Wall Street defense lawyers into the highest reaches of the SEC. This is a practice that Obama has continued at most departments and agencies having to do with the financial system, following in Bill Clinton's footsteps. The New York Times letter was based entirely on publicly available information.

    I was dismayed to not find any follow-up to my letter in The New York Times . I gave up trying to bring attention to the investigative lassitude of the agency. Interest appeared to be over.

    A year after I retired, I sent a copy of the letter to The Times , under a cover letter identifying myself. One of the addressees on the original letter called and told me the original letter never was received. The caller suggested that was because I misaddressed it to the old location of The New York Times . I felt foolish, of course, but I guess that in 2014, when the letter was finally received, The Times didn't see fit to follow-up the information even knowing its source. This was another indication to me that the time for debate over the law enforcement treatment of wrong doers on Wall Street had passed.

    Once, years earlier and only for a brief time, the SEC was an agency that was at least sometimes fearless of Wall Street institutions. In those days, the directors of the Division of Enforcement were home-grown, not imported from Wall Street law firms. After 1996, that ended. Every director since has been nurtured as a Wall Street defense lawyer. The decline in performance has followed an expected arc. No one has seemed bothered by this. It seems the phrase "lawyers represent client interests" is sufficient explanation to insulate this practice from critics. In this view (pushed by lawyers), lawyers are the only people in America who are not influenced by their work experience, including friendships and defense of client practices. They are SO exceptional! So give it up, Jim, I finally told myself. It's the nature of Washington to put foxes in hen houses and claim they are protecting the fowl.

    But in April 2015, Sen. Bernie Sanders announced his presidential candidacy, based principally on anger over how Wall Street has escaped being held seriously responsible for its misdeeds. If you credit Sanders with nothing else, praise him for not letting go of the notion of justice for those who suffered and those who caused pain and anger for millions. Yes, the banks are not solely responsible for the Great Recession, but they contributed more than their fair share and leveraged immensely the damage initially caused by others.

    Sanders was not treated seriously. The publications I read made it clear that Sanders was, like Donald Trump, a flash in the pan. Jeb Bush and Hillary Clinton would be nominated. Anger against Wall Street and inequality were issues, but not worthy vehicles for a political campaign. Nothing here. Move on.

    It turns out that the ravages caused by Wall Street are the gift that keeps on giving. As Sanders campaigned with far more success than predicted, and Secretary of State Clinton defended President Obama as "tough on Wall Street," it was evident that my small contribution to correcting the record might be timely.

    So here it is.

    Do I think Obama is responsible for the ineffective and embarrassing lay downs at the SEC and DOJ? Yes, I do. I have no idea if the President communicated to his law enforcement appointees that they should "go easy on Wall Street." Rarely is such overt instruction necessary in Washington. But it is not hard to believe that in some fashion he did send such signals, since he came into office with a mantra of letting bygones be bygones, including in the far more important arena of the false narratives for invading Iraq.

    In any event, the chairman of the SEC and the attorney general are appointed by the President. At a minimum, we can say with certainty that Obama was satisfied with their performance. It is difficult to conceive that, as a Harvard educated lawyer who also taught law at the University of Chicago, it never crossed his mind how massive civil or criminal misconduct could go on without the supervision or knowledge of at least mid-level executives. Certainly, the public criticism was brought to his attention. His response was to create a joint task force on the subject of fraud in general. Its main visible public function is to collect all the press releases on fraud prosecutions, including small-time fraud, on one website . It also offers advice to "elders" on how to avoid fraudulent scams. The pro forma mention of the task force in DOJ's announcement of the Goldman settlement signals that the Task Force doesn't do much. Again, law enforcement by press release.

    The alternative possibility, never mentioned because it is preposterous, is that big Wall Street firms so lack supervision of their lower level employees that fraud on a huge scale can be conducted without the knowledge of even mid-level executives. At the SEC, at least, such a conclusion should call for application of its "regulatory" function to impose supervisory conditions on the banks. No such action was ever undertaken. Instead, it was "pay up some money and nevermind."

    Dodd-Frank at best imposes generalized rules about bank size and other generic issues, rather than addressing the kinds of fraudulent actions that actually occurred. It is appropriate for the SEC or Federal Reserve to impose narrower changes in corporate practice to address specific kinds of fraud. They are called "undertakings" and are often imposed by civil settlements with the SEC or in litigated relief. It did not happen with the Big Bank frauds.

    I believe that the American public is entitled to accurate information about how their government works, including the important regulatory agencies. One way to do this is to fully disclose how the sausage is made, especially when the process is defective. Self-promoting press releases swallowed by a fawning business press is not sufficient. I knew I would not disclose any non-public information about the Goldman investigation while the lawsuit against Fabrice Tourre was pending. He was the one guy at Goldman the SEC sued personally. In fact, I think he was the only guy employed by any of the big banks sued personally. (Another fellow who worked with the banks - not for the banks - was sued in another case. He was found not liable, with the jury asking how come higher-ups were not in the dock and urging the investigation to continue. It wasn't.) The Tourre case concluded a few years ago with a verdict against the defendant. All appeals are exhausted. The statute of limitations has expired for private actions. Disclosure of the information I had can do no harm to the public or to pending litigation.

    The only reason to keep the information secret is to prevent embarrassment to the SEC or to those people who made decisions for the agency. Most of them left the SEC years ago. For public consumption, I have tried to redact all names of the non-supervisory personnel in the Division of Enforcement who worked on Goldman. I also must add that, as the emails show, for a period of time those dedicated investigators were excited about the notion of bringing at least a slightly broader action than their supervisors wanted. As is the case with much of the Division of Enforcement, the worker bees try hard and usually are fearless. It is their bosses who frequently suppress their enthusiasm for policy, political, or personal reasons.

    As final egotistical end note, I must say that, despite all of my personal reservations about his dedication to effective law enforcement in the financial sector, I voted for the President twice. I will vote for whoever is the Democratic nominee. But I ask myself: Is this the best that two political parties given de facto monopoly over selection of presidential candidates can do?

    Whoever is nominated and elected, Republican or Democrat, I hope that he or she will recognize the need to end the practice of hiring Wall Street personnel to run our financial enforcement agencies. They should begin by looking to home-trained personnel to lead the major departments and agencies, such as Treasury, the SEC and the Department of Justice, including the chief of the Antitrust Division. These are the people who are responsible for these institutions on a daily basis and also understand the nature and importance of their mission. They have a career stake in doing an effective job. Outsiders are, in general, more interested in resume polishing for the next private job. Additionally, much great talent leaves these agencies for their own more lucrative private careers when they see their own chances for advancement blocked by outsiders or their energies trying to fairly but aggressively enforce the law sapped by timid leadership.

    One party has chastised our government on every occasion for nearly 40 years and shows no intention of reining in Big Business or Wall Street. Directly or by implication, these attacks tarnish government employees in general, making a public service career less attractive to our most talented citizens. The other party has been indifferent or ineffective in its defense of civil service and has addressed financial sector wrongs by adding to the complexity of the system rather than cutting through it. As a result, some of our businesses are above the law.

    Something has got to change. It will. The question is, will it be for the better?

    Gaylord , April 24, 2016 at 4:40 am

    The author is trying very hard to be nice to the point of being delusional. This is criminality and corruption through and through, and it didn't end in '08. Don't be sad… get mad.

    James Levy , April 24, 2016 at 6:24 am

    When it's your career, you get sad.

    A little history: I was hired, first as an adjunct, then a tenure-track professor, by the interdisciplinary Freshman teaching unit at my old university. Two years before I would have come up for tenure (and gotten it) they axed the program and switched me, against its will, to the History Department. And they reset my tenure clock to zero. Long story short, they were never going to tenure me. So I slogged on and earned my pay and got my two kids through high school. By then, my wife wanted out of the suburbs and said she was leaving, preferably with me, but leaving. So we moved to the country. This cut me off from the academic life (and nice $72,000 a year paycheck) that I had struggled for years to enter and excel in.

    So what? So, It's gone. I'm cut off. My intended life's work is ruined. At 51 I'm an unemployed naval historian with two books and seven refereed journal articles and I can't get an interview for a full-time job at a community college. How painful is this? It's murder. Hurts all the time. No more exciting lectures to give. No more university library at my beck and call. No more access to journals. No more conferences. It's an occasional one-off course and driving a delivery van.

    This man has risked a lot to do what he did. He's lost more than many of you will realize. If he can't just crap on the old life and the old profession, please, cut the man a little slack. You don't want to be him.

    H. Alexander Ivey , April 24, 2016 at 6:58 am

    Mr Levy, I am very sympathetic to your situation – long story short, I was in the forefront of the late 70s to the present, layoffs in various industries where I found myself game-fully employed. I too, no longer believe I will ever be employed full time at any job.

    But I argue that it is not that the gods do not favour us; it is that we are the outcome of bad gov't policies and unregulated (regulated for the consumer) businesses practices. Hence, my lack of sympathy or willingness to tolerate breast beating (see my April 24, 2016 at 6:44 am posting) by those who put us here.

    ahimsa , April 24, 2016 at 7:48 am

    @James Leavy

    Not sure I follow you?

    James A. Kidney, former trial attorney with the Securities and Exchange Commission, retired from the SEC in 2014 at the age of 66 after 24 years working there. Looks like he had a full career, although had to put up with a lot of bullshit, and possibly soured some relationships on his way out.

    From Bloomberg: SEC Goldman Lawyer Says Agency Too Timid on Wall Street Misdeeds

    inode_buddha , April 24, 2016 at 7:57 am

    Very similar situation here. Going on 50, unemployed in my chosen field, etc. And yes, its hard to just walk away sometimes… I have to keep my mind focused ahead instead of looking back.

    Are there any yacht clubs nearby you? There is like 4 of them within 10 minutes of me (I'm on the Great Lakes) You could teach sailing and rigging no doubt. Bonus: Union crane operators are required to know their rigging – they may need teachers too.

    Norb , April 24, 2016 at 10:54 am

    More than ever, I am convinced the capitalist system needs to be rejected as the means determining how goods and services are delivered. The injustice and inequality generated are too great. Finding a positive expressive outlet for this dissatisfaction will require leadership- and a new vision for the future.

    The amount of social damage being inflicted by the elite is almost beyond comprehension. Since they have successfully insulated themselves form the consequences of their actions, they remain aloof and uncaring for the plight of ordinary people, not to mention the health of the planet. This system will continue to cut more and more people off from the benefits of collective social action and effort. The work of the many, supporting the desires of the few cannot stand.

    We all have to decide the level of inequality we are willing to live with. How people answer this question will naturally sort them into common communities. Leave the isolated gated communities to the elite. Careerism, like capitalism, is a dead end if your position cannot be guaranteed. The amount of talent and passion for work wasted under the current system is another undercounted fact. Sustainability and democracy are not compatible with capitalism.

    Getting mad is only the beginning. The anger must be directed in some productive fashion. Any resistance to the current order must have broad social support and that support only has strength if self-reliant. Building these self-reliant structures is what the future will hold. If the plutocrats can build a world for themselves, why can't the common man. It only takes work,discipline, and control over the means of production.

    Workers without power, influence, and the means to obtain life necessities are slaves. Is the best the human mind can conceive a life of benevolent serfdom?

    By the way, I believe I would enjoy sitting in on one of your lectures. I'm sure I would learn much- and be a better man for it.

    local to oakland , April 24, 2016 at 11:43 am

    @James Levy … sorry to hear. I know a few who have been chewed up by the academic meat grinder. I hope you can find a productive outlet for your scholarship. Exile is hard.

    I have been helped by the stoics, and Dante.

    Ben , April 24, 2016 at 10:01 am

    And now GS is caught in the middle of 1MDB bond issue scandal using fraudulent and information.

    H. Alexander Ivey , April 24, 2016 at 6:44 am

    "The explanation of the badger buried in the woodpile is too complicated for the average voter."

    That's it! Stop right there! I will not let you (speaking to the author) BS your guilty conscience over my internet link. The average voter clearly knows they are getting screwed, that Wall Street and the voter's own bank is ripping the voter off, and most clearly, that the justice department, from state and local to federal, is enabling this injustice.

    You sir, are swimming with sharks. Your morality is "is it legal?", your justification is "for the shareholder". Therefore, you refuse to see the mendacity and instead excuse it for ignorance.

    JACK SKWAT , April 24, 2016 at 7:39 am

    I know other whistleblowers and internal dissenters who wound up losing their jobs who initially blame themselves, than come to accept that the system in which they operated was fundamentally corrupt, that even if some people locally really were trying to do the right thing, it was bound to either 1. go nowhere, 2. be allowed to proceed to a more meaningful level if it was cosmetic or served some larger political purpose or 3. got elevated because the organization was suddenly in trouble and they needed to burnish their cred in a big way (a variant of 2, except with 3, you might have a something serious take place by happenstance of timing).

    Wow, that's a mouthful – and it's only one sentence. Whilst I love your pieces, I've noticed that many of the articles – at least the run up summation to the articles – tend to be written in a stream-of-consciousness style that, frankly, is hard to digest. This seems to be the case more now than in the past. I don't know if you're harried or on an impossible schedule, but could you please make your syntax easier to read? Thanks from a long-time reader and donator.

    readerOfTeaLeaves , April 24, 2016 at 3:18 pm

    Because it's a Sunday and I have time to goof off, one potential revision - b/c I believe what Mr Kidney has to say is important enough for me to spend a few minutes on one potential suggestion. I've amended and added what I hope are accurate meanings:

    ----
    Focusing on these as the key subject /verb pairs:
    I know (other whistleblowers)
    (other whistleblowers) [lost their jobs]
    (other whistleblowers) [blamed themselves – initially]

    (other whistleblowers) [finally… accept]
    the system in which they operated … [was corrupt]
    … even if… (some employees) tried to [be competent]

    (It - there's a problem with 'it' as the subject, because we are unclear what 'it' refers back to - I'll interpret 'it' as 'investigating fraud' ) was bound to…
    -------------–

    I know other whistleblowers and internal dissenters. They wound up losing their jobs.
    Initially, they blamed themselves, until they finally came to accept that the system in which they operated was so fundamentally corrupt that they could not retain a sense of their own integrity while working within the organization.

    Despite the fact that some people really were trying to do the right thing, for reasons that I will explain, investigating fraud was bound to go in one of only three directions:
    1. fraud would not be investigated at all,
    2. fraud investigation would serve the agency's need for better public relations - in other words, the appearance of fraud investigation would be allowed to proceed, but only if it was merely cosmetic (or served some larger political purpose), or else
    3. fraud investigation became temporarily elevated, but only because the organization* was suddenly in trouble – and consequently, needed to burnish its credibility by actually investigating fraud.

    (Although 3 is a variant of 2, in the third option, credible fraud investigation could occur if, and only if, political necessity enabled competent SEC employees to actually investigate fraud in order to maintain the reputation of the SEC).

    [NOTE: *It's not entirely clear here whether 'the organization' is the target business, or whether it is the SEC (which would need to burnish it's cred in the face of bad publicity)]
    ------------

    Not sure how close I came to the author's intended meanings, but I thought that I'd give it a shot.

    Yves Smith Post author , April 24, 2016 at 4:25 pm

    The sentence parses correctly even though it is long. Stream of consciousness often does not parse correctly, plus another characteristic is the jumbling of ideas or observations. The point is to try to recreate the internal state of the character.

    For instance, from David Lodge's novel "The British Museum Is Falling Down":

    It partook, he thought, shifting his weight in the saddle, of metempsychosis, the way his humble life fell into moulds prepared by literature. Or was it, he wondered, picking his nose, the result of closely studying the sentence structure of the English novelists? One had resigned oneself to having no private language any more, but one had clung wistfully to the illusion of a personal property of events. A find and fruitless illusion, it seemed, for here, inevitably came the limousine, with its Very Important Personage, or Personages, dimly visible in the interior. The policeman saluted, and the crowd pressed forward, murmuring 'Philip', 'Tony', 'Margaret', 'Prince Andrew'.

    More generally:

    The Stream of Consciousness style of writing is marked by the sudden rise of thoughts and lack of punctuations.

    The sentence may be longer than you like but this is not stream of consciousness. A clear logical structure ("first, second, third") is the antithesis of stream of consciousness.

    fiscalliberal , April 24, 2016 at 8:13 am

    I fail to see why fraud is not prosecuted. We can get cute with fancy words but fraud is clear and simple. Also – Enron results in SARBOX which seems to be clearly ignored. Yves – do we know of any SARBOX prosecutions? Clinton started deregulation, Bush implemented deregulation and Obama maintains it. No wonder the kids are mad. The financial industry makes the Koch brothers look like pikers.

    Yves Smith Post author , April 24, 2016 at 4:30 pm

    There is actually a high legal bar to prosecuting fraud.

    I have written at length re Sarbox and the answer is no. And under Sarbox, you don't need to prosecute, you can start with a civil case and flip it to criminal if you get strong enough evidence in discovery. There was only one case (IIRC, with Angelo Mozilo) where the SEC filed Sarbox claims, one in which it also filed securities law claims. The judge threw out the Sarbox claims with no explanation. I assume it was because the judge regarded that as doubling up: you can do Sarbox or securities law (the claims to have some similarity) but not both. But the SEC as it so often does seems to have lost its nerve after that one.

    afisher , April 24, 2016 at 9:22 am

    Interestingly, the SEC has been warned about more of the same type of fraud: https://www.sec.gov/comments/s7-16-15/s71615-60.pdf

    I don't know if an election would have consequences and if a new administration headed by Sanders would make it the SEC more responsible to the taxpayers and not the investors / banks.

    It only took a decade for Markopolos to have his ponzi scheme information read by SEC.

    diptherio , April 24, 2016 at 9:48 am

    I want to like this guy, I really do. But then he goes and says stuff like this:

    The most senior level supervisors left more lucrative jobs in the private sector to head the Division of Enforcement, taking plum jobs but at significant personal sacrifice. (They then returned to even more lucrative employment or even more high-profile public positions.) All of them were gentlemen. These factors make it all the more surprising that I never got a clear answer as to why the investigation was so constipated, as it obviously was.

    So he doesn't understand how the revolving door works…or he does but he's being purposefully obtuse about it. Sacrifice my ass! Gentleman my heiny! And claiming that there's no proof of criminality when, as is pointed out above, Sarbanes-Oxley was obviously violated isn't helping things either.

    Listen dude, pick a side. It's either the American people or Wall Street crooks and their abettors in government. You don't get to have it both ways. This kind of minimization and wishy-washyness is only helping the crooks. More disappointing than I exepected.

    diptherio , April 24, 2016 at 9:59 am

    I mean, at least he lays blame at Obama's feet, and calls the fraud what it is: fraud. Good on him!

    …But then he pulls out the "vote for Dems no matter what they do!" line and I just shake my head….

    polecat , April 24, 2016 at 1:37 pm

    diptherio……. excuse me for a momen--BARFFFF!!!!!!-- Whew ……… that felt better !! ……….

    yes …I agree….these kinds of articles are nothing more than defensive measures against a growing public rage !!!

    bu…bu…but Just Us !!

    diptherio , April 24, 2016 at 5:18 pm

    these kinds of articles are nothing more than defensive measures against a growing public rage !!!

    I don't actually agree. I think the guy feels a little guilty for not doing more, now he's trying to salve his conscience. Still, he can't quite bring himself to admit that the people he was working for may well have been criminals. They were just so nice!

    Self-reflection is not comfortable, and most people don't have much tolerance for it. I think this guy's legitimately trying to do the right thing (not cover up for criminality) it's just that it's really psychologically difficult to admit certain aspects of reality. It's not like he's the only one.

    polecat , April 24, 2016 at 6:07 pm

    I find it telling that suddenly now (within the last year or so) that all these people ( people in high finance, their underlings, traders, hedge funders, and other assorted enablers of massive fraud upon the general public, are suddenly having a 'come to hayzeus' epiphany! I'm not buying whatever faux sincerity they're trying to project…….

    They've screwed millions of trusting people with their fraudulent grifting!

    reslez , April 24, 2016 at 7:09 pm

    > I find it telling that suddenly now (within the last year or so) that all these people […], are suddenly having a 'come to hayzeus' epiphany!

    Especially when it comes after a fat retirement and a lengthy career of going along. I have much more respect for people who really did put their daily bread on the line, and there are plenty of those people, a lot of whom Obama sent to jail. So, yeah, great, you finally told the truth… but where were you when the country needed you to speak out?

    perpetualWAR , April 24, 2016 at 11:32 am

    How about where the guy said "until proven guilty, they are innocent." Hahahahahahaha

    Crooks, the lot of them.

    diptherio , April 24, 2016 at 12:59 pm

    Couldn't we use civil forfeiture to go after them regardless of whether we can prove any actual crime? What's good for the average citizen is surely good for the elite banker…

    polecat , April 24, 2016 at 1:42 pm

    …but you just might need some of those 'Yehadis' to back you up ;-)

    reslez , April 24, 2016 at 7:06 pm

    It's a good thing they're gentlemen. I don't know if I could handle all the looting and self-dealing if it came from common ruffians. Truly we are fortunate to be in such hands, my fellow countrymen!

    ChrisPacific , April 26, 2016 at 12:36 am

    Yes, I had trouble getting past that line as well. Either he is being ironic or he has a massive blind spot on that point.

    Lars Jorgensen , April 24, 2016 at 10:00 am

    According to Bill Black in a ted talk 2014. After the Savings and loans debacle, where the regulators went after the worst of the worst criminals, they made 30.000 criminal referrals and 1000 procecutions with a 90% succes rate.

    Now after the 2008 crisis, which was 70 times bigger causing 10 million job losses and costing 11 trillion dolllars, the Obama administration has not made one single criminal referral. https://www.youtube.com/watch?v=-JBYPcgtnGE

    Today I fell over some information about the IMF, that the organization is exempt from legal prosecutions and taxes. Can this be true?

    From the article: "The employees who bare the IMF badge are pretty much exempt from all forms of government intervention. And, according to LisaHavenNews, the IMF "law book," the Articles of Agreement lists the reasons and requirements for exclusion from government mandate."

    http://www.truthandaction.org/revealed-imf-granted-complete-immunity-form-legal-prosecution-taxation/

    polecat , April 24, 2016 at 1:45 pm

    …..criminals are, as criminals do, as criminals take…..

    Steve in Dallas , April 24, 2016 at 2:35 pm

    Thank you, I was hoping someone would mention Bill Black.

    I'm a software/hardware product/business development engineer. In 2008, after 20 years of reading the WSJ and stunned by the sellout to Murdoch, I went to the internet independent media (IM) to follow the 'economic crisis'. Within a few months it was clear to me 1) I had learned nothing of substance reading the WSJ, 2) the U.S. MSM, education system, and government are thoroughly captured/corrupt.

    Being a 'reader' (note: I don't know anyone who reads non-fiction) for me this 'worldview transition' was quite natural, nothing really surprised me, and it was a big relief to discover such good information/analysis so easily available on the internet. However, eight years later, I have yet to meet a single person who has rejected the MSM or tuned in to what's happening, via the IM or otherwise. In fact, after leaving the university in 1990, I have yet to meet a single person with any basic understanding of (or the slightest interest in, or concern about) the extreme institutional criminality of the the Savings & Loan Crisis, Asian Economic Crisis, Technology Bubble, the 2008 crisis, or the many economic/military wars-of-aggression methodically destroying one government/economy/country after another.

    To me, nothing made the global/economic/organized/mafia criminality more clear than the 2008/2009 articles by Bill Black. Back then I again foolishly assumed people would rally behind Dr. Black to reestablish basic law enforcement against yet another obvious largest-ever "epidemic" of organized crime. Looking back, the highly organized (and very successful) criminality of the Paulson/Obama/Geithner/Bernanke/etc. cabal was truly an amazing operation to behold. Perhaps the most shocking news came in 2010 when numerous studies confirmed that the top 7% of Americans had already "profited" from the economic crisis, that the criminally organized upper class had not only increased their net wealth but, more importantly, had increased their rate of wealth accumulation relative to the bottom 93%. Still, to me, infinitely more amazing, the bottom 93% didn't, and still don't, seem to care, or if they do, they've done absolutely nothing to even start to fight back.

    Today, when reading these articles, I'm astounded how completely meek and 'unorganized' the bottom 93% are compared to the extremely vicious and organized top 7%. Year after year the wealthy elite, who's core organizing philosophy is "take or be taken, kill or be killed", increasingly wallow in dangerously high and unprecedented levels of wealth accumulated by blatant/purposeful/methodical/criminal/vicious looting while their victims, the bottom 93% 'working class', do absolutely nothing (what are they doing?…. other than playing with their phone-toys, facebook, video games, movies?). At this point, the main (only?) reason I continue to 'read' is to perhaps someday 'behold' the working class 93% attempting to educate themselves and consequently 'organize' to defend themselves.

    lightningclap , April 24, 2016 at 4:48 pm

    +1

    diptherio , April 24, 2016 at 5:21 pm

    Dude, you need to move to Austin, stat!

    lyman alpha blob , April 24, 2016 at 10:11 am

    I sympathize with Mr. Kidney and applaud him for doing what he can to try to rectify this abhorrent situation. I also applaud him for placing the blame squarely on Obama and his reasons for doing so are solid.

    What I find much harder to understand is why he would vote for Obama even in 2012 after it became apparent that Obama was ultimately responsible for stonewalling his investigation, and his complete willingness to vote for the corrupt Democrat party no matter what going forward.

    As long as enough people continue to have that attitude things will never change until the whole system comes crashing down. I'd much rather see an FDR-type overhaul of the system rather than a complete collapse as I'm rather fond of civilization. But I've come to expect the latter rather than the former so I'll be reading my weekly Archdruid report for the foreseeable future.

    Carolinian , April 24, 2016 at 10:25 am

    The most senior level supervisors left more lucrative jobs in the private sector to head the Division of Enforcement, taking plum jobs but at significant personal sacrifice. (They then returned to even more lucrative employment or even more high-profile public positions.) All of them were gentlemen. These factors make it all the more surprising that I never got a clear answer as to why the investigation was so constipated, as it obviously was.

    Yes poor babies for that "significant personal sacrifice" that resulted in "even more lucrative" private employment. The author explains the problem then scratches his head over what it might be.

    In a rational world there would be a strict separation between the regulated and the regulators. The government would hire professional experts at decent salaries and they never ever would be allowed to then move on to jobs with the regulated. Clearly the assumption underlying our current–irrational–system is that these high status technocrats are "gentlemen" with a code of honor. Welcome to the 19th century. Those long ago plutocrats in their stately English mansions were all gentlemen and therefore entitled to their privileges by their superior breeding. They were the better sort.

    Meanwhile for lesser mortals it seems totally unsurprising when laws are ignored because you hire your police from the ranks of the criminal gangs. No head scratching needed.

    Alex morfesis , April 24, 2016 at 12:31 pm

    Reid Muoio (boss of kidney @ $EC) has a brother at a major tall bldg law firm whose job is to help fortune 500 companies deal with D & O insurance issues…so when in the article Muoio says "He" did not go thru the revolving door…it was fraud by omission…his brother sits on the opposite side of these private settlement agreements…

    so is Kidney unaware…leaving us to maybe accept he was never much of an investigator…or just forgot to point it out for us…

    The world is full of govt types who tell us TINA…

    The wealthy Elliott Spitzer told us he would have loved to help "the little people" but the OCC and then scotus with waters v wachovia…except scotus ruled only direct subsidiaries get protection and the OCC specifically said the trustee operations of OCC regulated entities are also not covered/protected…

    A really big shoe
    as Ed used to remind us….

    susan the other , April 24, 2016 at 1:25 pm

    Does anyone else think this was insider demolition – not just the failure to prosecute, but the whole financial implosion in the first place? Who writes up nothing but "shitty deals" – all the while saying to each other: IBGYBG and survives to slink away? They must have had a heads up that the financial system as we had known it in the 20th c. was done. They had a heads up and then they got free passes. My only question is, Wasn't there a better way to bring down the system, an honest way that protected us all? By the end of the cold war money itself had become an inconvenience because of diminishing returns. And now the stuff is just plain dangerous because everyone who got screwed (99%) wants their fair share still. It is paralyzing our thinking. Obama maintains he personally "prevented another depression". I honestly think he might be insane. What we need is a recognition that the old system was completely irrational and it isn't coming back. And most of us are SOL. Somebody is going to figure out how to maintain both the value and usefulness of money very soon, because we've got work to do.

    cnchal , April 24, 2016 at 2:03 pm

    The GFC was the first great financial crime of this millenium, and Goldman Sachs was at the epicenter. A heist of gargantuan proportions, they didn't even need a safecracker after Bernanke spun the dials and opened the door wide.

    Imagine if the FBI and the Mafia exchanged their top leaders every few months. That's what we have here with the SEC and Wall Street.

    Bernie Sanders: The business of Wall Street is fraud and greed.
    We can add to that. The business of the SEC is to provide cover.

    polecat , April 24, 2016 at 2:10 pm

    It's all about 'their protection'….not ours!

    and Obama………..

    He's a f#cking psychopathic peacock!

    KYrocky , April 24, 2016 at 2:17 pm

    In Yves intro she shares her views, first, that Kidney still wants to think well of his former SEC colleagues and his criticisms seem muted relative to the severity of the problems, and second, that there are class assumptions at work.

    The first is obvious, as the SEC is an utter failure in its responsibility to investigate and prosecute financial criminals. While Mr. Kidney devotes a fair amount of his passages pondering how it can be that no individuals within these financial institutions bear personal responsibility, Mr. Kidney fails to see the SEC through that same lens. To say Kidney's criticism of his coworkers is muted is an understatement. The individuals at the SEC are corrupt. The individuals at the Justice Department are corrupt. Probably all nice people: husbands, wives, fathers, mothers, friends, etc. Just like those folks at the financial institutions. Mr. Kidney cuts them slack because of his personal relationships with them. Mr. Kidney chooses to give them the benefit of doubt when the totality of their professional performance at the SEC make clear this cannot be true.

    With respect to class assumptions at work, Yves illustrates with the deference shown by SEC officials and investigators toward these financial criminals and their presumption that these individuals are honest. Mr. Kidney does share some of his disappointment in President Obama and Obama's administration but fails to properly connect the dots. In short, the lack of financial crime prosecutions is the result of a deliberate, planned and orchestrated effort.

    Mr. Kindney's investigations were prevented in going forward by his superiors. He was never given an explanation for this despite his asking. But Kidney believes his superiors are all good people.

    No, they are not. They are compromised people who have placed their career employment above their sworn duty. The fact that their bosses have done the same, as have those in the Justice Department as well as President Obama, should not diminish this fact. The phrase "class assumptions" is too euphemistic when describing a system where there is no justice for the victims of financial crimes, a system where the Justice Department and Administration coordinate to shield financial criminals based on where they work.

    This is America. In today's America the fact is certain individuals are above the law because our elected officials at all levels accept that this is okay. Victims of these individuals will be prevented access to their legal recourse, and that these criminals are protected from the highest level of our government down. This goes way, way beyond class assumptions.

    readerOfTeaLeaves , April 24, 2016 at 3:31 pm

    Yves has written extensively about how corporate interests have funded academic sinecures, as well as continuing legal education seminars attended by attorneys and judges. This is part of the fallout; if you want more, check out her section of ECONned where she explains how legal thinking was perverted by business interests.

    flora , April 24, 2016 at 2:37 pm

    Thanks for this post. Glad to see the SEC story is still alive. I'm sure the SEC and Obama would prefer it quietly go away.

    dk , April 24, 2016 at 2:55 pm

    As someone who has fallen on their sword more than once (and again recently), I just want to say that "placed their career employment above their sworn duty" is accurate but also oversimplifies the situation.

    People with families tell themselves that they balance performance of most (some?) of those duties, while shirking the balance in order to protect their families (a "good" (as in, expensive) college for the kids)… this actually comes down to sustaining their social status, in a culture (political as well as corporate) where loyalty is valued equal to and above performance, and honorable action is diminished, trivialized, even ridiculed; and not just within the context of the financial industry.

    This is not at all a defense of the choice, but the choice is made in a very class-stratified social context, and arises in that general context. People take out loans to buy cars and houses, they squirrel earnings away into investments (to avoid taxes) which they are reluctant to draw from… they feel less ready to abandon their addictive income streams for honor, and fudge their responsibilities. It's not isolated to regulators, or government, or even finance. It occurs so constantly and on so many fronts that addressing specific cases doesn't make a dent in the compromise of the entire culture. And that compromise is fueled and maintained by a very twisted set of ideas about money, and career, and social status (not to mention compromises in journalism, education, science, you name it).

    Synoia , April 24, 2016 at 3:37 pm

    I read Mr kidney as being very sarcastic. I could not write this with a serious sarcastic (Lawsuit Avoiding) view:

    The most senior level supervisors left more lucrative jobs in the private sector to head the Division of Enforcement, taking plum jobs but at significant personal sacrifice. (They then returned to even more lucrative employment or even more high-profile public positions.)

    taking plum jobs but at significant personal sacrifice

    Oh really? Must have hurt. And from a legal point of view does not appear libelous.

    polecat , April 24, 2016 at 6:12 pm

    Yeah…stubbed toes only…….

    [May 01, 2016] All of the service companies indicate that rates now are at unsustainable levels.

    Notable quotes:
    "... rates are indeed down 30-35%, in some cases 40%. This fact, rather than technological improvements, largely explains lower upstream costs. And current rates are indeed unsustainable, so further cost cuts are very unlikely. ..."
    "... I personally think that upstream capex and drilling activity will increase rather slowly and will not reach 2013-14 levels any time soon. Therefore, drilling/services rates will remain well below previous peak levels in the next few years. ..."
    peakoilbarrel.com
    shallow sand , 05/01/2016 at 8:47 pm
    AlexS. All of the service companies indicate that rates now are at unsustainable levels.

    George Kaplan has a good link re this above.

    AlexS , 05/01/2016 at 9:11 pm
    shallow sand,

    rates are indeed down 30-35%, in some cases 40%. This fact, rather than technological improvements, largely explains lower upstream costs.
    And current rates are indeed unsustainable, so further cost cuts are very unlikely.

    But rates are down because of weak demand from the E&Ps. If demand surges, so will the drilling/fracking rates.

    I personally think that upstream capex and drilling activity will increase rather slowly and will not reach 2013-14 levels any time soon. Therefore, drilling/services rates will remain well below previous peak levels in the next few years.

    And I agree that Rystad's LTO production forecast seems too optimistic.

    likbez , 05/01/2016 at 10:27 pm

    Alex,

    I personally think that upstream capex and drilling activity will increase rather slowly and will not reach 2013-14 levels any time soon. Therefore, drilling/services rates will remain well below previous peak levels in the next few years.

    I agree. Decisions to cut the US presence were made by some service companies and probably will not be reversed "on the spot"

    Oil price recovery will be gradual and probably slow. There are powerful forces behind "low oil price forever" regime and they will counterattack sooner or later. This loss of control of oil price by "paper oil" producers that we saw recently might be temporary. Any reversal will increase uncertainly and low down recovery of drilling.

    Please look at Art presentation - he predicts a leg down for oil prices "soon".

    http://www.artberman.com/wp-content/uploads/Buffalo-CFA-Presentation-26-APR-2016-1.pdf

    Surge of rates alone might well make $80 instead of $70 to be the minimum realistic price at which mass drilling can be resumed for LTO. Now everybody is scared as hell (which is visible from rigs dynamics).

    And remember that LTO producers milked their best spots at a loss for more then a year now. Those spots are gone. So to make modest profits they need higher prices now. As somebody said here that reminds Toll Brothers strategy after subprime crisis.

    [May 01, 2016] U.S Onshore Production Sees Deep Decline, Can Offshore Offset It

    Notable quotes:
    "... The future decline rate will depend on many factors including the price of oil, my guess is that it will be between 1.1 percent/year and 4.7 percent/year. At 4.7 percent output in Texas would fall 210 kb/d over the next 12 months, the Bakken may fall about 200 kb/d, the rest of the lower 48 onshore maybe 100 kb/d, for a total decrease in U.S. L48 onshore C+C output of 500 kb/d in 2016. ..."
    "... from Feb 2015 to Jan 2016, the decline rate is 7 percent/year, which would result in a 500 kb/d drop in U.S. L48 OS C+C output in the next 12 months if the decline rate remains 7 percent/year and Dean's estimate is correct for Texas. ..."
    "... The decline rate from the peak in March 2015 is about 8.1 percent, if that trend continues for all of 2016, L48 OS C+C output will fall by 560 kb/d in 2016, increases in output in the Gulf of Mexico may offset this decline by 100 kb/d, if so U.S. C+C output would fall by 485 kb/d in 2016, assuming Alaska continues its 5 percent/year decline rate. ..."
    OilPrice.com

    The future decline rate will depend on many factors including the price of oil, my guess is that it will be between 1.1 percent/year and 4.7 percent/year. At 4.7 percent output in Texas would fall 210 kb/d over the next 12 months, the Bakken may fall about 200 kb/d, the rest of the lower 48 onshore maybe 100 kb/d, for a total decrease in U.S. L48 onshore C+C output of 500 kb/d in 2016.

    An alternative estimate can be found by considering U.S. lower 48 onshore (L48 OS) C+C annual decline rates.

    The chart above replaces the EIA estimate for Texas C+C with Dean's "best guess" for Texas C+C to estimate U.S. L48 OS C+C output from Feb 2015 to Jan 2016, the decline rate is 7 percent/year, which would result in a 500 kb/d drop in U.S. L48 OS C+C output in the next 12 months if the decline rate remains 7 percent/year and Dean's estimate is correct for Texas.

    The decline rate from the peak in March 2015 is about 8.1 percent, if that trend continues for all of 2016, L48 OS C+C output will fall by 560 kb/d in 2016, increases in output in the Gulf of Mexico may offset this decline by 100 kb/d, if so U.S. C+C output would fall by 485 kb/d in 2016, assuming Alaska continues its 5 percent/year decline rate.

    [Apr 30, 2016] Michael Hudson The Wall Street Economy is Draining the Real Economy naked capitalism

    Notable quotes:
    "... An interview by Gordon T. Long of the Financial Repression Authority. Originally published at his website ..."
    "... Treasury Bulletin ..."
    "... Federal Reserve Bulletin ..."
    "... Business Cycles ..."
    "... Canada In the New Monetary Order ..."
    "... "secular stagnation" means it's all a cycle ..."
    "... One of the most important distinctions that investors have to understand is the difference between secular and cyclical trends…Let us begin with definitions from the Encarta® World English Dictionary: ..."
    "... Secular – occurring only once in the course of an age or century; taking place over an extremely or indefinitely long period of time ..."
    "... Cycle – a sequence of events that is repeated again and again, especially a causal sequence; a period of time between repetitions of an event or phenomenon that occurs regularly ..."
    "... Secular stagnation is when the predators of finance have eaten too many sheeple. ..."
    "... Real estate rents in this latest asset bubble, whether commercial or residential, appear to have been going up in many markets even if the increases are slowing. That rent inflation will likely turn into rent deflation, but that doesn't appear to have happened yet consistently. ..."
    "... Barter has always existed and always will. Debt money expands and contracts the middle class, acting as a feedback signal, which never works over the long term, because the so encapsulated system can only implode, when natural resource liquidation cannot be accelerated. The whole point is to eliminate the initial requirement for capital, work. Debt fails because both sides of the same coin assume that labor can be replaced. The machines driven by dc technology are not replacing labor; neither the elites nor the middle class can fix the machines, which is why they keep accelerating debt, to replace one failed technology only to be followed by the next, netting extortion by whoever currently controls the debt machine, which the majority is always fighting over, expending more energy to avoid work, like the objective is to avoid sweating, unless you are dumb enough to run on asphalt with Nike gear. ..."
    www.nakedcapitalism.com
    April 29, 2016 by Yves Smith An interview by Gordon T. Long of the Financial Repression Authority. Originally published at his website

    GORDON LONG: Thank you for joining us. I'm Gordon Long with the Financial Repression Authority. It's my pleasure to have with me today Dr. Michael Hudson Professor Hudson's very well known in terms of the FIRE economy to-I think, to a lot of our listeners, or at least he's recognized by many as fostering that concept. A well known author, he has published many, many books. Welcome, Professor Hudson.

    MICHAEL HUDSON: Yes.

    LONG: Let's just jump into the subject. I mentioned the FIRE economy cause I know that I have always heard it coming from yourself-or, indirectly, not directly, from yourself. Could you explain to our listeners what's meant by that terminology?

    HUDSON: Well it's more than just people getting fired. FIRE is an acronym for Finance, Insurance and Real Estate. Basically that sector is about assets, not production and consumption. And most people think of the economy as being producers making goods and services and paying labor to produce them – and then, labour is going to buy these goods and services. But this production and consumption economy is surrounded by the asset economy: the web of Finance, Insurance, and Real Estate of who owns assets, and who owes the debts, and to whom.

    LONG: How would you differentiate it (or would you) with what's often referred to as financialization, or the financialization of our economy? Are they one and the same?

    HUDSON: Pretty much. The Finance, Insurance, and Real Estate sector is dominated by finance. 70 to 80% of bank loans in North America and Europe are mortgage loans against real estate. So instead of a landowner class owning property clean and clear, as they did in the 19 th century, now you have a democratization of real estate. 2/3 or more of the population owns their own home. But the only way to buy a home, or commercial real estate, is on credit. So the loan-to-value ratio goes up steadily. Banks lend more and more money to the real estate sector. A home or piece of real estate, or a stock or bond, is worth whatever banks are willing to lend against it

    As banks loosen their credit terms, as they lower their interest rates, take lower down payments, and lower amortization rates – by making interest-only loans – they are going to lend more and more against property. So real estate is bid up on credit. All this rise in price is debt leverage. So a financialized economy is a debt-leveraged economy, whether it's real estate or insurance, or buying an education, or just living. And debt leveraging means that a larger proportion of assets are represented by debt. So debt equity ratios rise. But financialization also means that more and more of people's income and corporate and government tax revenue is paid to creditors. There's a flow of revenue from the production-and-consumption economy to the financial sector.

    LONG: I don't know if you know Richard Duncan. He was with the IMF, etc, and lives in Thailand. He argues right now that capitalism is no longer functioning, and really what he refers to what we have now is "creditism." Because in capitalism we have savings that are reinvested into productive assets that create productivity, which leads to a higher level of living. We're not doing that. We have no savings and investments. Credit is high in the financial sector, but it's not being applied to productive assets. Is he valid in that thinking?

    HUDSON: Not as in your statement. It's confused.

    LONG: Okay.

    HUDSON: There's an enormous amount of savings. Gross savings. The savings we have that are mounting up are just about as large as they've ever been – about, 18-19% of the US economy. They're counterpart is debt. Most savings are lent out to borrowers se debt. Basically, you have savers at the top of the pyramid, the 1% lending out their savings to the 99%. The overall net savings may be zero, and that's what your stupid person from the IMF meant. But gross savings are much higher. Now, the person, Mr. Duncan, obviously-I don't know what to say when I hear this nonsense. Every economy is a credit economy.

    Let's start in Ancient Mesopotamia. The group that I organized out of Harvard has done a 20-study of the origins of economic structuring in the Bronze Age, even the Neolithic, and the Bronze Age economy – 3200 BC going back to about 1200 BC. Suppose you're a Babylonian in the time of Hammurabi, about 1750 BC, and you're a cultivator. How do you buy things during the year? Well, if you go to the bar, to an ale woman, what she'd do is write down the debt that you owe. It was to be paid on the threshing floor. The debts were basically paid basically once a year when the income was there, on the threshing floor when the harvest was in. If the palace or the temples would advance animals or inputs or other public services, this would be as a debt. It was all paid in grain, which was monetized for paying debts to the palace, temples and other creditors.

    The IMF has this Austrian theory that pretends that money began as barter and that capitalism basically operates on barter. This always is a disinformation campaign. Nobody believed this in times past, and it is a very modern theory that basically is used to say, "Oh, debt is bad." What they really mean is that public debt is bad. The government shouldn't create money, the government shouldn't run budget deficits but should leave the economy to rely on the banks. So the banks should run and indebt the economy.

    You're dealing with a public relations mythology that's used as a means of deception for most people. You can usually ignore just about everything the IMF says. If you understand money you're not going to be hired by the IMF. The precondition for being hired by the IMF is not to understand finance. If you do understand finance, you're fired and blacklisted. That's why they impose austerity programs that they call "stabilization programs" that actually are destabilization programs almost wherever they're imposed.

    LONG: Is this a lack of understanding and adherence to the wrong philosophy, or how did we get into this trap?

    HUDSON: We have an actively erroneous view, not just a lack of understanding. This is not by accident. When you have an error repeated year after year after year, decade after decade after decade, it's not really insanity doing the same thing thinking it'll be different. It's sanity. It's doing the same thing thinking the result will be the same again and again and again. The result will indeed be austerity programs, making budget deficits even worse, driving governments further into debt, further into reliance on the IMF. So then the IMF turns them to the knuckle breakers of the World Bank and says, "Oh, now you have to pay your debts by privatization". It's the success. The successful error of monetarism is to force countries to have such self-defeating policies that they end up having to privatize their natural resources, their public domain, their public enterprises, their communications and transportation, like you're seeing in Greece's selloffs. So when you find an error that is repeated, it's deliberate. It's not insane. It's part of the program, not a bug.

    LONG: Where does this lead us? What's the roadmap ahead of us here?

    HUDSON: A thousand years ago, if you were a marauding gang and you wanted to take over a country's land and its natural resources and public sector, you'd have to invade it with military troops. Now you use finance to take over countries. So it leads us into a realm where everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that's all rejected in favor of a rentier class evolving into an oligarchy. Basically, financiers – the 1% – are going to pry away the public domain from the government. Pry away and privatize the public enterprises, land, natural resources, so that bondholders and privatizers get all of the revenue for themselves. It's all sucked up to the top of the pyramid, impoverishing the 99%.

    LONG: Well I think most people, without understanding economics, would instinctively tell you they think that's what's happening right now, in some way.

    HUDSON: Right. As long as you can avoid studying economics you know what's happened. Once you take an economics course you step into brainwashing. It's an Orwellian world.

    LONG: I think you said it perfectly well there. Exactly. It gets you locked into the wrong way of thinking as opposed to just basic common sense. Your book is Killing the Host . What was the essence of its message? Was it describing exactly what we're talking about here?

    HUDSON: Finance has taken over the industrial economy, so that instead of finance becoming what it was expected to be in the 19 th century, instead of the banks evolving from usurious organizations that leant to governments, mainly to wage war, finance was going to be industrialized. They were going to mobilize savings and recycle it to finance the means of production, starting with heavy industry. This was actually happening in Germany in the late 19 th century. You had the big banks working with government and industry in a triangular process. But that's not what's happening now. After WW1 and especially after WW2, finance reverted to its pre-industrial form. Instead of allying themselves with industry, as banks were expected to do, banks allied themselves with real estate and monopolies, realizing that they can make more money off real estate.

    The bank spokesman David Ricardo argued against the landed interest in 1817, against land rent. Now the banks are all in favor of supporting land rent, knowing that today, when people buy and sell property, they need credit and pay interest for it. The banks are going to get all the rent. So you have the banks merge with real estate against industry, against the economy as a whole. The result is that they're part of the overhead process, not part of the production process.

    LONG: There's a sense that there's a crisis lying ahead in the next year, two years, or three years. The mainstream economy's so disconnected from Wall Street economy. What's your view on that?

    HUDSON: It's not disconnected at all. The Wall Street economy has taken over the economy and is draining it. Under what economics students are taught as Say's Law, the economy's workers are supposed to use their income to buy what they produce. That's why Henry Ford paid them $5 a day, so that they could afford to buy the automobiles they were producing.

    LONG: Exactly.

    HUDSON: But Wall Street is interjecting itself into the economy, so that instead of the circular flow between producers and consumers, you have more and more of the flow diverted to pay interest, insurance and rent. In other words, to pay the FIRE sector. It all ends up with the financial sector, most of which is owned by the 1%. So, their way of formulating it is to distract attention from today's debt quandary by saying it's just a cycle, or it's "secular stagnation." That removes the element of agency – active politicking by the financial interests and Wall Street lobbyists to obtain all the growth of income and wealth for themselves. That's what happened in America and Canada since the late 1970s.

    LONG: What does an investor do today, or somebody who's looking for retirement, trying to save for the future, and they see some of these things occurring. What should they be thinking about? Or how should they be protecting themselves?

    HUDSON: What all the billionaires and the heavy investors do is simply try to preserve their wealth. They're not trying to make money, they're not trying to speculate. If you're an investor, you're not going to outsmart Wall Street billionaires, because the markets are basically fixed. It's the George Soros principle. If you have so much money, billions of dollars, you can break the Bank of England. You don't follow the market, you don't anticipate it, you actually make the market and push it up, like the Plunge Protection Team is doing with the stock market these days. You have to be able to control the prices. Insiders make money, but small investors are not going to make money.

    Since you're in Canada, I remember the beginning of the 1960s. I used to look at the Treasury Bulletin and Federal Reserve Bulletin figures on foreign investment in the US stock market. We all used to laugh at Canada especially. The Canadians don't buy stocks until they're up to the very top, and then they lose all the money by holding these stocks on the downturn. Finally, when the market's all the way at the bottom, Canadians decide to begin selling because they finally can see a trend. So they miss the upswing until they decide to buy at the top once again. It's hilarious to look at how Canada has performed in the US bond market, and they did the same in the silver market. I remember when silver was going up to $50. The Canadians said, "Yes, we can see the trend now!" and they began to buy it. They lost their shirts. So, basically, if you're a Canadian investor, move.

    LONG: So the Canadian investors are a better contrarian indicator than the front page cover, you're saying.

    HUDSON: I'd think so. Once they get in, you know the bubble's over.

    LONG: Absolutely on that one. What are you currently writing? What is your current focus now?

    HUDSON: Well, I just finished a book. You mentioned Killing the Host . My next book will be out in about three months: J is for Junk Economics . It began as a dictionary of terms, so I can provide people with a vocabulary. As we got in the argument at the beginning of your program today, our argument is about the vocabulary we're using and the words you're using. The vocabulary taught to students today in economics – and used by the mass media and by government spokesmen – is basically a set of euphemisms. If you look at the television reports on the market, they say that any loss in the stock market isn't a loss, it's "profit taking". And when they talk about money. the stock market rises – "Oh that's good news." But it's awful news for the short sellers it wipes out. Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are happening. For instance, "secular stagnation" means it's all a cycle. Even the idea of "business cycles": Nobody in the 19 th century used the word "business cycle". They spoke about "crashes". They knew that things go up slowly and then they plunge very quickly. It was a crash. It's not the sine curve that you have in Josef Schumpeter's book on Business Cycles . It's a ratchet effect: slow up, quick down. A cycle is something that is automatic, and if it's a cycle and you have leading and lagging indicators as the National Bureau of Economic Research has. Then you'd think "Oh, okay, everything that goes up will come down, and everything that goes down will come up, just wait your turn." And that means governments should be passive.

    Well, that is the opposite of everything that's said in classical economics and the Progressive Era, when they realized that economies don't recover by themselves. You need a-the government to step in, you need something "exogenous," as economist say. You need something from outside the system to revive it. The covert idea of this business cycle analysis is to leave out the role of government. If you look at neoliberal and Austrian theory, there's no role for government spending, and no role of public investment. The whole argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19 th century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit. It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions. Obviously these financialized charges are factored into the price system and raise the cost of living and doing business.

    LONG: Well, Michael, we're-I thank you for the time, and we're up against our hard line. I know we didn't have as much time as we always like, so we have to break. Any overall comments you'd like to leave with our listeners who might be interested this school of economics?

    HUDSON: Regarding the downturn we're in, we're going into a debt deflation. The key of understanding the economy is to look at debt. The economy has to spend more and more money on debt service. The reason the economy is not recovering isn't simply because this is a normal cycle. And It's not because labour is paid too much. It's because people are diverting more and more of their income to paying their debts, so they can't afford to buy goods. Markets are shrinking – and if markets are shrinking, then real estate rents are shrinking, profits are shrinking. Instead of using their earnings to reinvest and hire more labour to increase production, companies are using their earnings for stock buybacks and dividend payouts to raise the share price so that the managers can take their revenue in the form of bonuses and stocks and live in the short run. They're leaving their companies as bankrupt shells, which is pretty much what hedge funds do when they take over companies.

    So the financialization of companies is the reverse of everything Adam Smith, John Stuart Mill, and everyone you think of as a classical economist was saying. Banks wrap themselves in a cloak of classical economics by dropping history of economic thought from the curriculum, which is pretty much what's happened. And Canada-I know since you're from Canada, my experience there was that the banks have a huge lobbying power over government. In 1979, I wrote for the IRPP Institute there on Canada In the New Monetary Order . At that time the provinces of Canada were borrowing money from Switzerland and Germany because they could borrow it at much lower interest rates. I said that this was going to be a disaster, and one that was completely unnecessary. If Canadian provinces borrow in Francs or any other foreign currency, this money goes into the central bank, which then creates Canadian dollars to spend. Why not have the central bank simply create these dollars without having Swiss francs, without having German marks? It's unnecessary to have an intermediary. But the more thuggish banks, like the Bank of Nova Scotia, said, "Oh, that way's the road to serfdom." It's not. Following the banks and the Austrian School of the banks' philosophy, that's the road to serfdom. That's the road to debt serfdom. It should not be taken now. It lets universities and the government be run by neoliberals. They're a travesty of what real economics is all about.

    LONG: Michael, thank you very much. I learned a lot, appreciate it; certainly appreciate how important it is for us to use the right words on the right subject when we're talking about economics. Absolutely agree with you. Talk to you again?

    HUDSON: Going to be here.

    LONG: Thank you for the time.

    Donald , April 29, 2016 at 7:33 am

    Interesting, but after insulting Duncan, Hudson says the banks stopped partnering with industry and went into real estate, which sounded like what Duncan said.

    I mention this because for a non- expert like myself it is sometimes difficult to tell when an expert is disagreeing with someone for good reasons or just going off half- cocked. I followed what Hudson said about the evils of the IMF, but didn't see where Duncan had defended any of that, unless it was implicit in saying that capitalism used to function better.

    Alejandro , April 29, 2016 at 9:06 am

    Michael Hudson from the interview;

    "As we got in the argument at the beginning of your program today, our argument is about the vocabulary we're using and the words you're using. The vocabulary taught to students today in economics – and used by the mass media and by government spokesmen – is basically a set of euphemisms…."Almost all the words we get are kind of euphemisms to conceal the actual dynamics that are happening."

    May consider it's about recognizing and deciphering the "doublespeak", "newspeak", "fedspeak", "greenspeak" etc, whether willing or unwitting…using words for understanding and clarifying as opposed to misleading and confusing…dialectic as opposed to sophistry.

    Michael Hudson , April 29, 2016 at 9:54 am

    What I objected to was the characterization of today's situation as "financialization." I explained that financialization is the FIRST stage - when finance WORKS. We are now in the BREAKDOWN of financialization - toward the "barter" stage.
    Treating "finance" as an end stage rather than as a beginning stage overlooks the dynamics of breakdown. It is debt deflation. First profits fall, and as that occurs, rents on commercial property decline. This is already widespread here in New York, from Manhattan (8th St. near NYU is half empty) to Queens (Austin St. in Forest Hills.).

    Leonard C.Tekaat , April 29, 2016 at 12:19 pm

    I wrote an article you might be interested in reading. It outlines a tax policy which would help prevent what you are discussing in your article. The abuse of credit to receive rents and long term capital gains.

    The title is "Congress Financialized Our Economy And Created Financial Crisis & More Poverty" Go to http://www.taxpolicyusa.wordpress.com

    SomeCallMeTim , April 29, 2016 at 5:23 pm

    Thank you for another eye-opening exposition. My political economy education was negative (counting a year of Monetarism and Austrian Economics around 1980), so I appreciate your interviews as correctives.

    From your interview answer to the question about what we, the 99+% should do,I gathered only that we should not try to beat the market. Anything more than that?

    Skippy , April 29, 2016 at 8:33 pm

    From my understanding, post Plaza banking lost most of its traditional market to the shadow sector, as a result, expanded off into C/RE and increasingly to Financialization of everything sundry.

    Disheveled Marsupial… interesting to note Mr. Hudson's statement about barter, risk factors – ?????

    Eduardo Quince , April 29, 2016 at 7:41 am

    "secular stagnation" means it's all a cycle

    Actually not.

    One of the most important distinctions that investors have to understand is the difference between secular and cyclical trends…Let us begin with definitions from the Encarta® World English Dictionary:

    Secular – occurring only once in the course of an age or century; taking place over an extremely or indefinitely long period of time

    Cycle – a sequence of events that is repeated again and again, especially a causal sequence; a period of time between repetitions of an event or phenomenon that occurs regularly

    Excerpted from: http://contrarianinvestorsjournal.com/?p=405#

    cnchal , April 29, 2016 at 8:30 am

    Secular stagnation from http://lexicon.ft.com/Term?term=secular-stagnation

    Secular stagnation is a condition of negligible or no economic growth in a market-based economy . When per capita income stays at relatively high levels, the percentage of savings is likely to start exceeding the percentage of longer-term investments in, for example, infrastructure and education, that are necessary to sustain future economic growth. The absence of such investments (and consequently of the economic growth) leads to declining levels of per capita income (and consequently of per capita savings). With the reduced percentage savings rate converging with the reduced investment rate, economic growth comes to a standstill – ie, it stagnates. In a free economy, consumers anticipating secular stagnation, might transfer their savings to more attractive-looking foreign countries. This would lead to a devaluation of their domestic currency, which would potentially boost their exports, assuming that the country did have goods or services that could be exported.

    Persistent low growth, especially in Europe, has been attributed by some to secular stagnation initiated by stronger European economies, such as Germany, in the past few years.

    Words. What they mean depends on who's talking.

    Secular stagnation is when the predators of finance have eaten too many sheeple.

    MikeNY , April 29, 2016 at 9:57 am

    Secular stagnation is when the predators of finance have eaten too many sheeple.

    This.

    digi_owl , April 29, 2016 at 7:44 am

    Sad to see Hudson parroting the line about banks lending out savings…

    Alejandro , April 29, 2016 at 9:18 am

    That's not what he said. Re-read or re-listen, please.

    Enquiring Mind , April 29, 2016 at 9:02 am

    Hudson says

    Markets are shrinking – and if markets are shrinking, then real estate rents are shrinking, profits are shrinking.

    Real estate rents in this latest asset bubble, whether commercial or residential, appear to have been going up in many markets even if the increases are slowing. That rent inflation will likely turn into rent deflation, but that doesn't appear to have happened yet consistently.

    Perhaps he meant to say that markets are going to shrink as the debt deflation becomes more evident?

    tegnost , April 29, 2016 at 9:52 am

    I think what it means is it's getting harder to squeeze the blood out of the turnip

    Synoia , April 29, 2016 at 10:06 am

    What Turnip? Its become a stone, fossilized..

    rfdawn , April 29, 2016 at 10:52 am

    Yes, I think we are into turnip country now. Figure 1 in this prior article looks clear enough – even if you don't like the analysis that went with it. Wealth inequality still climbs but income inequality has plateaued since Clinton I. Whatever the reasons for that, the 1% should be concerned – where is the ROI?

    ke , April 29, 2016 at 10:22 am

    Barter has always existed and always will. Debt money expands and contracts the middle class, acting as a feedback signal, which never works over the long term, because the so encapsulated system can only implode, when natural resource liquidation cannot be accelerated. The whole point is to eliminate the initial requirement for capital, work. Debt fails because both sides of the same coin assume that labor can be replaced. The machines driven by dc technology are not replacing labor; neither the elites nor the middle class can fix the machines, which is why they keep accelerating debt, to replace one failed technology only to be followed by the next, netting extortion by whoever currently controls the debt machine, which the majority is always fighting over, expending more energy to avoid work, like the objective is to avoid sweating, unless you are dumb enough to run on asphalt with Nike gear.

    ke , April 29, 2016 at 12:49 pm

    Labor has no problem with multiwhatever presidents, geneticists, psychologists, or economists, trying to hunt down and replace labor, in or out of turn, but none are going to be any more successful than the others. Trump is being employed to bypass the middle class and cut a deal. There is no deal. Labor is always going to pay males to work and their wives to raise children. Obviously, the majority will vote for a competing economy, and it is welcome to do so, but if debt works so well, why is the majority voting to kidnap our kids with public healthcare and education policies.

    meeps , April 29, 2016 at 5:36 pm

    I'm not sure I heard an answer to the question of what people, who might be trying to save for the future or plan for retirement, can do? Is the point that there isn't anything? Because I'm definitely between rocks and hard places…

    Robert Coutinho , April 29, 2016 at 9:29 pm

    Yeah, he basically said there is no good savings plan. Big-money interests have rigged the rules and are now manipulating the market (this used to be the definition of what was NOT allowed). Thus, they use computer algorithms to squeeze small amounts out of the market millions of times. This means that the "investments" are nothing of the sort. You don't "invest" in something for milliseconds. He said that the 1% are mostly just trying to hold on to what they have. Very few trust the rigged markets.

    ke , April 29, 2016 at 7:22 pm

    If Big G can print to infinity, print, but then why book it as debt to future generations?

    The future is already becoming the present, because the millenials aren't paying.

    Russell , April 29, 2016 at 10:00 pm

    Low rent & cheap energy are key to the arts & innovations. My model has to work for airports, starts at the fuel farm as the CIA & MI6 Front Page Avjet did. Well before that was Air America. I wonder if now American Airlines itself is a Front.

    All of America is a Front far as I can about tell. Hadn't heard that Manhattan rents were coming down. Come in from out of town, how you going to know? Not supposed to I guess.

    I got that textbook and I liked that guy John Commons. He says capitalism is great, but it always leads to Socialism because of unbridled greed.

    The frenzy to find another stable cash currency showing in Bit Coin and the discussion of Future Tax Credits while the Euro is controlled by the rent takers demands change on both sides of the Atlantic.

    We got shot dead protesting the war, and civil rights backlash is the gift that keeps giving to the Southerners looking up every day in every courthouse town, County seat is all about spreading fear and desperation.

    How to change it all without violence is going to be really tricky.

    cnchal , April 30, 2016 at 4:36 am

    Many thanks for the shout out to Canada.

    . . . So, basically, if you're a Canadian investor, move.

    LONG: So the Canadian investors are a better contrarian indicator than the front page cover, you're saying.

    HUDSON: I'd think so. Once they get in, you know the bubble's over.

    When one reads the financial press in Canada, every dollar extracted by the lords of finance is a glorious taking by brilliant people at the top of the financial food chain from the stupid little people at the bottom, but when it counts, there was silence, in cooperation with Canada's one percent.

    The story starts about five years ago, with smart meters. Everyone knows what they are, a method by which electrical power use can be priced depending on the time of day, and day of the week.

    To make this tasty, Ontario's local utilities at first kept the price the same for all the time, and then after all the meters were installed, came the changes, phased in over time. Prices were increased substantially, but there was an out. If you changed your living arrangements to live like a nocturnal rodent and washed your clothes in the middle of the night, had supper later in the evening or waited for weekend power rates you could still get low power rates, from the three tier price structure.

    The local utilities bought the power from the government of Ontario power generation utility, renamed to Hydro One, and this is where Michael Hudson's talk becomes relevant.

    The successful error of monetarism is to force countries to have such self-defeating policies that they end up having to privatize their natural resources, their public domain, their public enterprises, their communications and transportation, like you're seeing in Greece's selloffs. So when you find an error that is repeated, it's deliberate. It's not insane. It's part of the program, not a bug .

    LONG: Where does this lead us? What's the roadmap ahead of us here?

    HUDSON: A thousand years ago, if you were a marauding gang and you wanted to take over a country's land and its natural resources and public sector, you'd have to invade it with military troops. Now you use finance to take over countries. So it leads us into a realm where everything that the classical economists saw and argued for – public investment, bringing costs in line with the actual cost of production – that's all rejected in favor of a rentier class evolving into an oligarchy. Basically, financiers – the 1% – are going to pry away the public domain from the government. Pry away and privatize the public enterprises, land, natural resources, so that bondholders and privatizers get all of the revenue for themselves. It's all sucked up to the top of the pyramid, impoverishing the 99% .

    Eighteen months ago, there was an election in Ontario, and the press was on radio silence during the whole time leading up to the election about the plans to "privatize" Hydro One. I cannot recall one instance of any mention that the new Premier, Kathleen Wynne was planning on selling Hydro One to "investors".

    Where did this come from? Did the little people rise up and say to the politicians "you should privatize Hydro One" for whatever reason? No. This push came from the 1% and Hydro One was sold so fast it made my head spin, and is now trading on the Toronto Stock exchange.

    At first I though the premier was an economic ignoramus, because Hydro One was generating income for the province and there was no other power supplier, so one couldn't even fire them if they raised their prices too high.

    One of the arguments put forward by the 1% to privatize Hydro One was a classic divide and conquer strategy. They argued that too many people at Hydro One were making too much money, and by privatizing, the employees wages would be beat down, and the resultant savings would be passed on to customers.

    Back to Michael Hudson

    . . . The whole argument for privatization, for instance, is the opposite of what was taught in American business schools in the 19th century. The first professor of economics at the Wharton School of Business, which was the first business school, was Simon Patten. He said that public infrastructure is a fourth factor of production. But its role isn't to make a profit . It's to lower the cost of public services and basic inputs to lower the cost of living and lower the cost of doing business to make the economy more competitive. But privatization adds interest payments, dividends, managerial payments, stock buybacks, and merges and acquisitions . Obviously these financialized charges are factored into the price system and raise the cost of living and doing business .

    Power prices have increased yet again in Ontario since privatization, and Canada's 1% are "making a killing" on it. There has been another change as well. Instead of a three tier price structure, there are now two, really expensive and super expensive. There is no longer a price break to living like a nocturnal rodent. The 1% took that for themselves.

    Procopius , April 30, 2016 at 8:10 am

    I am so tired of seeing that old lie about Old Henry and the $5 a day. I realize it was just a tossed off reference to something most people believe for the purpose of describing a discarded policy, but the fact is very, very few of Old Henry's employees ever got that pay. See, there were strings attached.

    Old Henry hired a lot of spies, too. He sent them around to the neighborhoods where his workers lived (it was convenient having them all in Detroit). If the neighbors saw your kid bringing a bucket of beer home from the corner tavern for the family, you didn't get the $5.

    If your lawn wasn't mowed to their satisfaction, you didn't get the $5. If you were thought not to bathe as often as they liked, you didn't get the $5. If you didn't go to a church on Sundays, you didn't get the $5. If you were an immigrant and not taking English classes at night school, you didn't get the $5. There were quite a lot of strings attached. The whole story was a public relations stunt, and Old Henry never intended to live up to it; he hated his workers.

    [Apr 30, 2016] My Top 5 Movies About Unemployment

    Christianity Today
    Erin Brockovich

    2000 | Rated R
    directed by Steven Soderbergh
    Based on the true story of an unemployed mother of three who forced her way into a job as a legal clerk and built an anti-pollution case against a California utility company. Erin Brockovich has become a name for someone with tenacity and perseverance.

    The Journey of Natty Gann

    1985 | Rated PG
    directed by Jeremy Kagan
    Disney's family-friendly adventure demonstrates how tough the Great Depression was on kids, namely the teenage girl of the title who journeys across America to reunite with her father. Grounded by strong performances, including a young John Cusack, this gem serves as a fine introduction of a difficult subject to younger viewers.

    Tootsie

    1982 | Rated PG
    directed by Sydney Pollack
    This light-hearted, quirky comedy stars Dustin Hoffman as an unemployed actor who pretends to be a woman for a full-time role in a soap opera. Beneath the hilarity is a sobering reminder that landing a job sometimes requires thinking outside the box, to say the least.

    Up in the Air

    2009 | Rated R
    directed by Jason Reitman
    George Clooney is stellar as a veteran hatchet man who has lost his ability to form meaningful relationships, living a life on the road. Ultimately this is a poignant drama about identity and what defines us. If we are nothing more than our occupation, what remains when that is gone?

    Russ Breimeier, a freelance film critic who lives in Indianapolis, was unemployed for two years until recently landing a part-time job.

    [Apr 30, 2016] Over 50, Unemployed, Depressed and Powerless

    Notable quotes:
    "... I know what it feels like to be marginalized because you're out of work. To be judged by others as if there's something wrong with you. To grow increasingly depressed, demoralized and despairing as three months turns into six months and that goes on for a year or more; as rejection after rejection becomes crushing, humiliating, and leaves you feeling worthless. ..."
    "... All money-related impacts aside, you lose confidence. You wear out. You start to give up ..."
    Daily Plate of Crazy

    Are you over 50, unemployed, depressed and feeling powerless? For that matter, are you any age and feeling hopeless because you can't seem to land a job?

    Frustrated Middle Age Man

    The recession may be officially over, and for some segments of the population, things are looking up. But too many are still sinking or hanging on by the skin of their teeth. Long-term unemployment or underemployment has become a way of life.

    This issue, for me, is personal.

    I know what it feels like to be marginalized because you're out of work. To be judged by others as if there's something wrong with you. To grow increasingly depressed, demoralized and despairing as three months turns into six months and that goes on for a year or more; as rejection after rejection becomes crushing, humiliating, and leaves you feeling worthless.

    All money-related impacts aside, you lose confidence. You wear out. You start to give up. And you don't even make it into the "statistics." It's been too long since your last employment relationship.

    Overqualified, Over-Educated, Over 50

    Despite my fancy educational background and shiny corporate career history, for a number of years I was unable to obtain work that was even remotely close to using my skills. Paying me a living wage? Let's not even discuss it. I must have applied to 100 positions over the course of several years, attended the usual networking events, and schmoozed every contact I could come up with.

    No go. I suffered from the three O's: Overqualified, Over-educated and Over 50, though I may not have looked it. That last? If you ask me, age was the kicker. Throughout that period, as post-divorce skirmishes continued to flare (further complicating matters), I nonetheless took every project I could eke out of the woodwork, supplemented by debt.

    Hello, bank bail-out? How about a few bucks for those of us who foot the bill in tax dollars?

    The Borrowing Trap

    Now and then, an acquaintance will make an off-hand remark about those who borrow money or live on credit cards. The assumption is that credit purchases are frivolous, or that the person who racks up consumer debt does so out of irresponsibility and poor judgment.

    Never assume. Yours truly? I borrowed to put food on the table. I borrowed to pay for school supplies for my kids. I borrowed to enable them to take advantage of academic opportunities that they earned through their own hard work. I also counted my blessings. While I had no family to assist, my kids were healthy and doing well, I was basically healthy despite chronic pain, and I was able to use credit. Borrowing is a double-edged sword of course, especially if it continues for an extended period. But for my little household, debt was the only path to survival. For all I know, it will be again.

    Fighting Your Way Back

    These days? I still live on a tight budget, I dream of recovering from the years of financial devastation "someday," and I take every gig I can get. Willingly. I've gained new skills along the way and continue to refine them, I'm always looking for another project and thrilled when I nab one, and I'm accustomed to a 12- to 14-hour workday. I put in long hours throughout my corporate career and I have no problem doing so now. In fact, I'm grateful for these workdays and I take none of them for granted. Moreover, I suggest that few of us should take our sources of income as a given.

    You know the expression - "There but for the grace of God go I." Misfortune can visit any one of us. Layoff. Accident or illness. Gray divorce. The phone call or email with no warning, saying "you're done" as you're replaced by someone 20 years younger.

    And yes, I've internalized the wisdom of this little gem: "If opportunity doesn't knock, build a door." But I also know it isn't always possible, and the secret to success is not as simple as hard work. It's aided by the assistance of others, not to mention - luck.

    Unemployed and Depressed

    Forbes reminds us of the clear links between unemployment and depression, which isn't to say that underemployment or hating your job is a picnic.

    Forbes staff writer Susan Adams cites a Gallup poll as follows:

    The longer that Americans are unemployed, the more likely they are to report signs of poor psychological well-being," says the study. "About one in five Americans who have been unemployed for a year or more say they currently have or are being treated for depression - almost double the rate among those who have been unemployed for five weeks or less.

    She goes on to note:

    The long-term unemployed, unfortunately, have good reason to be depressed. They suffer plenty of discrimination in the job market. A 2012 study by economist Rand Ghayad found that employers preferred candidates with no relevant experience, but who had been out of work for less than six months, to those with experience who had been job hunting for longer than that.

    .... ... ...

    How many of you have found yourselves laid off and unable to get another job? How many of you are struggling in midlife to create a career where once you were responsible for taking care of a family?
    •How many of you have knocked on doors and connected until your blue in the face, only to give up?
    •How many of you have drained away any savings you may have had or incurred crushing debt?
    •Have you had more success at creating new ventures for yourself - a business or freelance work?
    •Were you able to rely on the assistance of family or friends for a temporary period?
    •If you're over 50, have you found it harder? Have you had an experience similar to Cindy's?

    I'm certain that many of you have fought your way back; I'm still fighting after years, but I have seen progress. Slower than I'd like, but progress all the same.

    If someone helped you out, have you paid it forward by making connections for others?

    Please do read this comment from Cindy. I have responded as best I can. I'm sure she would welcome your suggestions.

    A Note on Despair

    To be in this position - wanting to work, needing to work, knowing you still have much to contribute but never getting a foot in the door - is deeply frustrating, horribly depressing, and leaves us feeling powerless. Add up these elements and you have the formula for despair.

    It's brutally hard to fight your way back from despair. But sometimes, an act of compassion can help.

    I've been on the receiving end of those incredible kindnesses - from strangers, from readers, and from one friend in particular, herself too long living on the edge.

    One small act of compassion can breathe new hope into the worst situation. And here's what I know with 100% certainty. We may be unemployed, we may be depressed… but we aren't powerless if we come together and try to help one another.

    ... ... ...

    [Apr 30, 2016] Over 50 and unemployed Don't panic!

    January 3, 2012 | Palmetto Workforce Connections

    When you find yourself over 50 and unemployed, the thought of finding another job may seem daunting and hopeless.

    It is quite easy to become discouraged because many people fear being stereotyped because of their age, the tough job market, or the prospect of being interviewed by someone half their age. However, there are some things the older unemployed should keep in mind while on the job search. Using the following tips will increase your chances of a short job search and create an overall more pleasant experience.

    1. Quit telling yourself that no one hires older workers. This is simply just not true. In some cases older workers have to exert more effort to overcome discrimination, but this is certainly not the case for every employer. There are even entire websites with jobs posted specifically for older workers, and a quick Google search will render you a list of those websites. Take advantage of such resources!
    2. Take advantage of new technology. Learn to blog and micro-blog, via Twitter, about your profession and interests. You should even create a LinkedIn profile (a website similar to Facebook yet has a more career oriented function) to assist it meeting people in your desired field. All of which will help you stay fine tuned on your skills, while developing new ones. Learning to use social networking will indicate to potential employers that you can adapt to change and learn new things, particularly technology, fairly quickly.
    3. Use all those hard earned contacts. Using contacts, no matter how far in the past they rest, is nothing to be ashamed of! You've probably spent most of your life working, and meeting a lot of people along the way. It is completely acceptable to reach out to former colleagues, class mates, co-workers and employers for job possibilities. Using resources like Facebook or LinkedIn are great ways to find those long lost contacts as well. Chances are they would love to hear from you and help you out if possible.
    4. Don't clutter your resume. Your resume should be tailored to each and every job you apply for. While it is important to showcase your talent and skills, how you present the information is equally important. This means keep it straight to the point and relate your past experience to the skills necessary for the job you are applying for. Essentially, don't do a history dump of every job you've ever had, instead, make each word count!
    5. Don't act superior to the interviewer. It is likely that the people interviewing you will be younger than you. But this does not mean you should look down upon them. Obviously they have earned their position, and if you play your cards right, in due time, you will earn yours! Even if you've worked more years than your interviewer has been alive, it's not okay to tell him or her that you can "teach" them anything. A better idea would be to state your experience working in a multi-generational work place.

    Use these tips to help make your job search less stressful and more positive. Whatever you do, don't throw in the towel before you've even tried. Your experience and knowledge will be recognized. All you need is the right employer to identify it.

    [Apr 30, 2016] Over 50 and out of work Program seeks to help long-term unemployed

    Nov 16 2013 | NBC News
    When Bret Lane was laid off from his telecommunications sales job after 16 years, he wasn't worried. He'd never been unemployed for more than a few days since he started working as a teenager. But months passed, and he couldn't find a job. One day, he heard the Purina plant in his Turlock, Calif., neighborhood was hiring janitors for $14 an hour. When he arrived early at 4 a.m., he counted more than 400 people lined up to interview.

    "That's when I realized things had gotten serious," said Lane, 53, who called being out of work "pure hell."

    Lane's experience is hardly unique. As of September 2013, 4 million people had been unemployed for six months or more. The economy has been slow to regain the 8.7 million jobs lost during the Great Recession, making prospects grim for many of the long-term unemployed.

    Older workers like Lane make up a larger percentage of the persistently jobless than ever before. Nearly 40 percent of unemployed workers are over the age of 45 - a 30 percent rise from the 1980s. And for this group, the job hunt can be particularly long and frustrating. Unemployed people aged 45-54 were jobless for 45 weeks on average, and those 55 to 64 were jobless for 57 weeks, according to an October 2013 Associated Press-NORC Center for Public Affairs Research poll.

    Younger workers didn't have such a hard time, perhaps because many employers perceive them to be more energetic or productive than older workers, said Linda Barrington, an economist at Cornell University's Institute for Compensation Studies. Employers "acting on such inaccurate assessments or stereotypes is what benefits younger workers and disadvantages older workers," she said.

    Addressing the emotional side of unemployment

    An innovative program based in Bridgeport, Conn., is helping to get those who are over 50 and unemployed for long periods back into the market. Platform to Employment started in 2011 when a Connecticut job center called the WorkPlace was overwhelmed by calls from "99ers"-people who had been unemployed for 99 weeks, exhausting their unemployment benefits-many of whom were older workers.

    The exact number of 99ers across the country is unknown; the Bureau of Labor Statistics hasn't distinguished between 99ers and those out of work for a year since 2010, an oversight that some say renders this group even more politically invisible. Already, the long-term unemployed face biases in hiring. It's both legal and common for employers to write "unemployed need not apply" on job postings.

    There has been virtually no public policy tackling long-term unemployment since the recession hit, said P2E founder Joe Carbone, and his program seeks to fill that gap. "These people have lost access to opportunity, which is a basic American tenet," said Carbone. "We find a way to make them competitive and feel hopeful."

    P2E is an intensive, individualized five-week bootcamp that teaches job skills and works to build job-seekers' confidence and emotional health. "We acknowledge that there are serious emotional issues for people who'd been unemployed for that long," Carbone said.

    The privately-funded program makes deals with businesses who hire P2E graduates for "internships," a few-week trial period for the would-be employee, whose salary is subsidized by the WorkPlace. Often, it leads to full-time work. According to P2E, 80 percent of their participants have been granted trial periods, and of those, more than 85 percent have been hired by employers.

    Accepting a new economic reality

    Bret Lane washes out his coffee pot at his home after a shift at a call center in San Diego, Calif., on Oct. 31. Lane was laid off after 16 years as a salesman in telecommunications and was unemployed until he got a job at a call center. Sandy Huffaker / Getty Images for NBC News

    The program has spread to 10 other cities across the United States, including San Diego, where Lane, a P2E graduate, has been employed full-time at a call center since May. After a year and nine months of unemployment, Lane sold his two-bedroom house, pared down his possessions to fit in a 5x10 storage unit, and drove to San Diego to live with his sister. That's when he saw an ad in the paper for Platform to Employment.

    He learned how to make his online resume more searchable by adding keywords, as well as how to create an impressive LinkedIn profile. "It also occurred to me that I was being discriminated against" because of age, rather than being rejected for not being good enough. Lane now makes about half of his previous salary and still lives with his sister, but he's "happy to be working again."

    This acceptance of a new economic reality is at the heart of P2E; the program isn't solving the problems of precarity, real-wage decline, or manufacturing losses so much as doing damage control.

    "I'd say 100 percent of the people who went through Platform are making less than they did previously," said Carbone. "We get them prepared for the fact that their standard of living will go down, that they probably have to change careers."

    This guidance is necessary, Barrington said. "A lot of [the long-term unemployed] came into the workforce still thinking you could work for the same company for your whole life," she said. "Someone has to sit you down and tell you that's not going to happen."

    She added that businesses need to be reminded of the value of older workers, who often bring intangible skills, such as punctuality, responsibility, and "being able to write a memo," that younger employees may not yet have.

    Heidi DeWyngaert, President of Bankwell, a holding company of several banks in Connecticut, said one of her banks hired an older worker from P2E who is succeeding on the job precisely for these reasons. "She's mature, reliable and responsible with a great attitude," said DeWyngaert.

    The program has gained so much prominence that it's become competitive in its own right. Early last year, after P2E was featured on 60 Minutes, the Bridgeport office was flooded with inquiries. The program routinely gets 1,000 applicants for around 20 spots.

    Hoping to spark a national conversation

    Vanessa Jackson, 57, saw the segment and kept track of P2E's growth until it expanded to her area in Chicago. Jackson had been unemployed off and on since 2008, when she lost her $100,000 job as a marketing manager during a corporate downsizing. "I thought, of course, I would get another comparable job," she said.

    But it didn't happen. She decided to get an MBA to "ride out the recession," but that just landed her more debt. She finally got a part-time job as a deli clerk, until she broke her arm and went on disability for 10 months. Her $300,000 401(k) account dwindled to $60,000. She sold her house in the suburbs and moved in with her boyfriend on the South Side of Chicago.

    "It was the most desperate thing in the world," Jackson said. It pained her to remember the days when recruiters would tell her she was one of "the top African-American women in marketing."

    P2E "revived my energy," she said. "It lifted the depression that was very much there."

    Jackson now works part-time as a project coordinator at a home care service agency for $13 an hour, which she admits is inadequate for her level of education. Still, she almost missed out on the opportunity. When P2E came to Chicago earlier this year, she wasn't selected at first. "It felt like applying for a job in itself," she said. "I beseeched [Chicago program manager Michael Morgan]. He said 'I admire your ambition' and let me in."

    Carbone is all too aware of P2E's limited reach. "We've helped hundreds of people, but that doesn't put even a small dent in the amount who need help," he said. Carbone hopes to spark a national conversation and, eventually, get the attention of Washington.

    "Let's be clear," Carbone said. "I wouldn't be doing this if there were appropriate and relevant government policies."

    [Apr 29, 2016] A Great Opportunity To Buy Oil For The Long Term

    April 15, 2016 | OilPrice.com

    the fundamentally unsustainable pricing that we've seen for much of 2016, particularly after the 2nd failed OPEC meeting, has been much more dependent upon speculative short positions in the market, particularly from algorithmic momentum funds. We could track the speculative short positions against the price of crude almost exactly as prices dropped below $40 the first time, with long positions decreasing to their lowest levels in five years as crude dropped under $30 a barrel.

    [Apr 29, 2016] The current meme os shale companies on 30 dollars oil is how they cut their estimate of future production costs from 52 billion at the end of 2014 to 32 billion at the end of 2015, without a major proved reserve reduction

    Feb 28, 2016 | peakoilbarrel.com

    clueless, 02/28/2016 at 1:53 pm

    I wonder what ShallowS thinks of EOG's new strategy? That is, to choose their very best of the best projects, cut costs to the bone and hope that they can make a profit.

    Good analogies are hard to come by, but I will throw one out. In 2009, at the depths of the housing collapse, what if the CEO of Toll Brothers proposed: "We are going to select our very best lots – the Crown Jewels in our inventory. Then we are going to build some of our more modest houses on them, cutting costs to the bone. We hope that we can then sell them for at least break even." Personally, if I owned the stock, I would have sold immediately.

    shallow sand, 02/28/2016 at 7:00 pm
    Clueless. You know what I think. And I do really like your Toll Brothers example. What I think is more impressive than their current meme on $30 oil is how they cut their estimate of future production costs from $52 billion at the end of 2014 to $32 billion at the end of 2015, without a major proved reserve reduction.

    But hey, Continental cut theirs from $26 billion to $11 billion. So no big deal.

    We have decided to that we too need to reduce our future production costs by 60%. The electric cooperative said no problem. So did the chemical company, our workers comp carrier , liability insurance carrier. The steel manufacturers did too , so our tubing and rods dropped 60%. The down hole and injection pump service providers were ok with that.

    Hey Clueless, even our accountant said, "No problem! Since you need to compete with OPEC and Russia, we are knocking 60% off our bill! Now go beat those Saudi's and Russians in this oil price war! Show em who is boss!"

    Seriously, we have seen some cost reductions, but nothing remotely near 40-60%. And, of course, although we pay the most to the electric coop of anyone, they just don't seem too keen on lowering rates for us.

    shallow sand, 02/28/2016 at 7:08 pm
    OFM. Look up above. I mentioned three publicly traded companies whose combined BOE was 160K BOEPD who shut in production in Q4, before the latest $10+ dollar drop.

    It's here and will continue.

    oldfarmermac, 02/28/2016 at 9:02 pm
    HI SS,

    I follow your comments very closely, and agree.

    "It's here and will continue. "

    Just about every word you post makes good sense to me.

    I am wondering about something just a little different, that being mainly HOW FAST this other companies follow after the three you wrote about.

    Let's suppose the price of oil gets up to fifty bucks. How many producers are going to be not only losing money, but bleeding cash on a day to day basis at fifty bucks? Or sixty or seventy ?

    You keep a hotel open if you generate more cash than it costs to operate it,from one day to the next, even if it is losing money overall. I am thinking most oil producers will continue to produce as long as they are generating some cash, but not much longer after that.

    Who has the highest day to day production costs in the entire industry ? Some deep water operators, most likely. They may hang on a while waiting for higher prices, or avoiding shut down and plugging expenses, but not forever.

    How long can they possibly hold on, if it costs them fifty or sixty bucks to get a barrel out of the well and to shore?

    So far as I can see, oil markets will remain COMPETITIVE.Nobody is going to pay a dime more for a liter of gasoline or diesel fuel than necessary.

    The price of oil WILL NOT go up, until either the economy picks up a good bit, or the amount of oil coming to market drops off a a little.

    All this talk about TRADERS controlling the price of oil is bullshit so far as I am concerned, until somebody shows me HOW THEY CONTROL the production and distribution of oil.

    IF the world economy actually does start going downhill, there are enough desperate for cash oil producers out there for the cutthroat pricing to continue for a long time.

    shallow sand, 02/28/2016 at 10:57 pm
    OFM. The way to look at production being shut in is not on a companywide level, but on a well by well level.

    A good well goes down with a failure, you pull it and get it back going. A not so good well goes down with a failure, you leave it. Or, you have wells that are so out of the money you just put a good coat of chemical down hole and then shut them in.

    We have wells that we would run at $10, not many, but we do. Others do not work at $60. They produce out of the same zone and can even be right next to each other.

    For example, we have a lease where one well makes almost straight oil, about 3 barrels per day, I think the pumping unit just makes six strokes per minute. The well just 330′ away makes maybe 1/2 barrel of oil per day and about 30 barrels of water per day. Furthermore, the good well is a straight hole. Bought the lease in 2005, have changed the pump twice and fixed a tubing leak once in eleven years. The not so good well has been pulled 14 times, mostly due to tubing leaks. Likely a crooked hole.

    So when not so good well goes off, at $25 oil, its stays off. If the good well goes off, it is repaired ASAP.

    Companies don't just shut everything down, unless they are very small. Normally, if they go bankrupt, the trustee will find a contractor to pump the good wells until sold, in a Chapter 7 anyway.

    [Apr 29, 2016] 50 percent of proved oil reserves may have just vanished

    Notable quotes:
    "... According to Professor Michael Jefferson, who spent nearly 20 years at Shell in various senior roles from head of planning in Europe to director of oil supply and trading, "the five major Middle East oil exporters altered the basis of their definition of 'proved' conventional oil reserves from a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent (but not real) increase in their 'proved' conventional oil reserves of some 435 billion barrels." ..."
    "... Global reserves have been further inflated, he wrote in his study, by adding reserve figures from Venezuelan heavy oil and Canadian tar sands – despite the fact that they are "more difficult and costly to extract" and generally of "poorer quality" than conventional oil. This has brought up global reserve estimates by a further 440 billion barrels. ..."
    "... Jefferson's conclusion is stark: "Put bluntly, the standard claim that the world has proved conventional oil reserves of nearly 1.7 trillion barrels is overstated by about 875 billion barrels. Thus, despite the fall in crude oil prices from a new peak in June, 2014, after that of July, 2008, the 'peak oil' issue remains with us." ..."
    April 27, 2016 | OilPrice.com

    An extensive new scientific analysis published in Wiley Interdisciplinary Reviews: Energy & Environment says that proved conventional oil reserves as detailed in industry sources are likely "overstated" by half.

    According to standard sources like the Oil & Gas Journal, BP's Annual Statistical Review of World Energy, and the US Energy Information Administration, the world contains 1.7 trillion barrels of proved conventional reserves.

    However, according to the new study by Professor Michael Jefferson of the ESCP Europe Business School, a former chief economist at oil major Royal Dutch/Shell Group, this official figure which has helped justify massive investments in new exploration and development, is almost double the real size of world reserves.

    Wiley Interdisciplinary Reviews (WIRES) is a series of high-quality peer-reviewed publications which runs authoritative reviews of the literature across relevant academic disciplines.

    According to Professor Michael Jefferson, who spent nearly 20 years at Shell in various senior roles from head of planning in Europe to director of oil supply and trading, "the five major Middle East oil exporters altered the basis of their definition of 'proved' conventional oil reserves from a 90 percent probability down to a 50 percent probability from 1984. The result has been an apparent (but not real) increase in their 'proved' conventional oil reserves of some 435 billion barrels."

    Global reserves have been further inflated, he wrote in his study, by adding reserve figures from Venezuelan heavy oil and Canadian tar sands – despite the fact that they are "more difficult and costly to extract" and generally of "poorer quality" than conventional oil. This has brought up global reserve estimates by a further 440 billion barrels.

    Jefferson's conclusion is sta