Weekend Economists Salute America's Turkeys November 26-29, 2009

[Demeter]

Yes, the markets are closed, which means WEE is open! In order to preserve my fingers, I'll just keep this posting running the whole 4 days. Unless it gets too long, in which case, look for a link to part 2....


Are you able to set your anxieties, paranoia and doubts aside for this special weekend?

If you can, you are probably in the minority, but more power to you! You will be leaders with the energy to keep the Movement going.


Are you cooking with your hands, while doing contingency planning in your head? Then you are the brainpower that will get us all through trying times.

Are you feeling like pulling the covers over your head and waiting for another day? You aren't alone. Take comfort in your numbers, and know that when you are ready to take that first step, WEE will be with you, providing the best information and analysis available and providing a support group.

So, before the turkey has to go into the oven, before rolling out the pie crust, have at it! Post what you have.

And from all of us to all of you, Happy Turkey Day!

ANY TIE-INS TO FOOD AND DRINK ARE PURELY INTENTIONAL, TO INCREASE YOUR APPETITE!

[muriel_volestrangler]

1. Dubai debt worry ripples across assets

Debt problems in Dubai hit global stocks, helped lift bonds and took the dollar away from a 14-year low against the yen on Thursday.

Gold climbed to a new record high before falling back as the dollar rose.
...
Dubai said on Wednesday it was asking creditors of Dubai World and property group Nakheel to agree a debt standstill as it restructures Dubai World, the conglomerate that spearheaded the emirate's breakneck growth.
...
There were sharp losses in Europe, where the pan-European FTSEurofirst 300 index .FTEU3 fell more than 2 percent.

http://www.reuters.com/article/businessNews/idUSTRE5AN54C20091126

London Stock Exchange trading hit by technical glitch

Trading on the London Stock Exchange (LSE) has been brought to a halt by technical difficulties.

The LSE said it had been affected by connectivity issues and at 1033 GMT had placed all orders for shares into an "auction call period".
...
The FTSE 100 index of leading shares was down 99.84 points, or 1.9%, at 5,264.97 when trading was interrupted.

Share markets across the world have been trading lower on Thursday after the investment company Dubai World asked for a six-month delay on repaying its debts, raising concerns about Dubai's financial health.

http://news.bbc.co.uk/1/hi/business/8380607.stm

It's been closed for 3 hours now.

[Demeter]

3. Very Interesting

First the FAA, now the London Stock Exchange....

[Demeter]

8. Here's Another: Ebay site crashes due to surge in listings

http://www.ft.com/cms/s/0/905f1d70-d766-11de-b578-00144feabdc0.html

Ebay became a victim of its own success at the weekend after a surge in the number of items for sale caused the world’s largest online auction site to crash.

Millions of shoppers were first unable to search for items on the website on Saturday, during the crucial weeks before Christmas, after a computer system failure.

Ebay said there had been a huge rise in the number of items listed for sale on its site in the run-up to the holiday season this year. It currently has more than 200m live listings, 33 per cent more than at this time last year.

On Sunday, the company’s website still said it was working to resolve the technical problems, which had first been noticed at about 11am Pacific Standard Time on Saturday.

It will be one of the worst outages suffered by the company in recent years. Ebay could be left with a hefty bill to compensate sellers for losses caused by the outage....Many sellers have complained that they received much lower prices for their goods because people were unable to bid....

The number of merchants selling items on the site usually rises in the weeks before Christmas, but this year’s rise has been particularly steep because Ebay has encouraged large retailers to sell through the site, which until recently was the preserve of individuals and smaller retailers. Some existing sellers have criticised the policy for putting a strain on the system.

In its early days of operation, about 10 years ago, Ebay suffered frequent computer failures, but it has been more reliable recently.

“This is the certainly the worst for a long time,” said Mr Holland. “It will affect people more than 10 years ago, because there are so many people now who depend on selling through Ebay for their livelihood.”

[muriel_volestrangler]

40. London index closed down 3.2% - biggest fall since March

The UK's FTSE 100 index lost 3.2%, its biggest one-day fall since March, after Dubai World asked creditors to postpone upcoming repayments until May 2010.

Banks were hit particularly hard on concerns over Dubai's ability to pay back its debts.
...
French and German shares also declined, with France's Cac index ending down 3.2%, and Germany's Dax losing 3.4%.

http://news.bbc.co.uk/1/hi/business/8381258.stm

Dubai not too big to fail?

Dubai is not too big to fail. That seems to be the message of the surprise 6 month debt standstill at Dubai World, the most indebted offshoot of the UAE's most indebted emirate.

International markets have been jarred by the news, perhaps as much by the timing as the decision itself (US investors, with markets closed for Thanksgiving, feel more vulnerable than most).

But if you have a lot of money resting on Dubai coming through their dramatic boom and bust story intact, this is indeed a major shock.

Put simply: everyone in the markets thought that, in the end, the federal government in Abu Dhabi would stand by all of Dubai's bad bets. Apparently, they won't.

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2009/11/dubai_not_too_big_to_fail.html

[Ghost Dog]

42. Thanksgiving No Holiday for World Markets (Big news, Large moves)

LONDON, Nov. 26, 2009 Thanksgiving No Holiday for World Markets
Stocks Tumble Overseas Amid Fears over Dubai Investment Firm and Weak U.S. Dollar

(AP) World stock markets tumbled Thursday as investors fretted over the debt problems at Dubai World, a government investment company, and the continuing slide in the dollar, which earlier fell to a 14-year low against the yen.

Markets are usually relatively quiet when Wall Street is closed for a holiday, as it is Thursday for Thanksgiving Day. Not so today, as the rest of the world digested the stunning news from Dubai that the government's flagship investment company was in financial trouble.

European markets followed Asia lower with the FTSE 100 index of leading British shares closing down 170.68 points, or 3.2 percent, at 5,194.13, having been out of action earlier for over three hours because of technical problems. Germany's DAX fell 188.85 points, or 3.2 percent, to 5,614.17 while the CAC-40 in France was 129.93 points, or 3.4 percent, lower at 3,679.23.

Sentiment in stocks was dented by the news that Dubai World, which is thought to have debts totaling around $60 billion, has asked creditors if it can postpone its forthcoming payments until May. That stoked fears of a potential default and contagion around the global financial system, particularly in banks and emerging markets.

...

Banks bore the brunt of the selling in Europe, amid fears of potential exposure to Dubai. In London, Royal Bank of Scotland PLC was down nearly 8 percent, making it the biggest faller on the FTSE. In Germany, Deutsche Bank was the biggest faller on the DAX, down around 6 percent.

Investors were also keeping a close eye on associated developments in the currency markets after the dollar slid to a new 14-year low of 86.27 yen, while the euro pushed up to a fresh 15-month high of $1.5141. By late afternoon London time, the dollar had recouped some ground and was trading at 86.55 yen, down 0.9 percent on the day, while the euro was 1 percent lower at $1.4988.

The continued appreciation in the value of the yen continued to dent Japanese stocks as investors worry that the rising currency will have a detrimental effect on the country's exports. Japan's Nikkei 225 stock average fell 58.40 points, or 0.6 percent, to 9,383.24.

Kit Juckes, chief economist at ECU Group, said the developments in Dubai and in the currency markets are related as the fall in risk appetite has pushed money into government bonds and into safe haven currencies such as the Swiss franc and the yen. This, he said, is "testing the tolerance of central banks to see their currencies cause further damage to their economies." Already there have been unconfirmed reports that the Swiss National Bank has intervened to buy dollars to prevent the export-sapping appreciation of the Swiss franc.

...

Across all markets, there is a growing awareness that investors may use the upcoming year-end to lock-in whatever profits have been made over the last 12 months.

Gold has been one of the biggest high-flyers over the last few months, having gained over 10 percent in November alone. It continued to rise Thursday as investors bought it up as a safe haven. It hit a new record high earlier of $1,196.8 an ounce, before falling back modestly. By late afternoon London time, gold was down 0.4 percent at $1,182.50 an ounce.

Oil also fell alongside stocks - the two have traded alongside each other for much of this year. Benchmark crude for January delivery was down $1.85, or 2.4 percent, at $76.11 a barrel. On Wednesday, it rose $1.94.

Earlier in Asia, the Shanghai index tanked 119.19 points, or 3.6 percent, to close at 3,170.98, its biggest one-day fall since August 31, while Hong Kong's Hang Seng shed 1.8 percent to 22,210.41.

Elsewhere in Asia, markets in Australia, Singapore, Taiwan and Indonesia closed lower.

/... http://www.cbsnews.com/stories/2009/11/26/business/main5788522.shtml

[Demeter]

2. Dilbert Bastes the Turkeys from His Cubicle

http://dilbert.com/dyn_file/str_strip/74832/gif/strip.print/

http://dilbert.com/dyn_file/str_strip/74831/gif/strip.print/

http://dilbert.com/dyn_file/str_strip/74829/gif/strip.print/

[Demeter]

33. And Somebody set It to Song

http://www.youtube.com/watch?v=GzA9xaQaYEA&feature=player_embedded

[Demeter]

4. Recession to leave permanent scars

http://www.ft.com/cms/s/0/9cedc026-d858-11de-b63a-00144feabdc0.html

On a blustery November morning at an airfield outside London, an enormous second-hand car auction is buzzing; demand is so great that average prices have risen 27 per cent over the past year. “The turnround started in January and we haven’t looked back since,” says Tim Naylor of British Car Auctions.

The global recovery is now evident across the world. The risk of a double-dip recession remains. In recent weeks, though, the US, eurozone and Japan have all reported that their economies grew again in the third quarter. Some trade-dependent economies are setting records as they bounce back. Singapore has enjoyed the fastest rise in national income over the past six months since quarterly records began in 1975.

But though the recovery is real, so are the scars from the global recession. Some will be permanent and many will heal only very slowly. From global output on a persistently lower path than expected before the crisis, to severely weakened public finances, to the evils of long-term unemployment, to rising inequality and to a permanently altered balance of global economic power, the effects of the 2008-09 financial crisis and recession are akin to those of a war.

Carmen Reinhart of the University of Maryland, who has jointly compiled the definitive history of financial exuberance followed by crisis with Kenneth Rogoff of Harvard University, says: “More money has been lost because of the four words ‘This time is different’ than at the point of a gun.”

Spanish unemployment at almost a fifth of the workforce with a budget deficit expected to reach 10 per cent of national income is just one legacy of the culture of easy credit-fuelled growth followed by last year’s collapse.

In California, neighbourhoods in cities such as Palmdale and Lancaster have been left empty because of mortgage foreclosures that have continued unabated. Unemployment across the state – the most populous in the US – is running at more than 12 per cent, and the state’s budget is in crisis.

The economics profession, so adept at chronicling the “Great Moderation” of economic shocks since the mid-1980s, has been forced to shelve this work. Delving deeper into history and scanning a wide horizon, it is producing evidence and clues about how lasting the scars are likely to be.

The emerging consensus – for the advanced world at least – is that they will be deep and long-lived. In its recent World Economic Outlook, the International Monetary Fund examined 88 banking crises between 1970 and 2002 and found, on average, that countries do not earn back all the lost ground after the recession slips into people’s memories. In its database, it found that seven years after a crisis, output had fallen by 10 per cent compared with the pre-crisis path. Economic growth generally returned to the pre-crisis rate, but the loss of output seems permanent.

This average result is far from uniform, but the persistent output loss was statistically significant and, in 90 per cent of the banking crises it studied, ranged between 7 per cent and 13 per cent. After seven years, the IMF found that three separate and equally-sized forces tended to prevent economies rebounding to their pre-crisis trends.

First, the employment rate is persistently lower, as the pre-crisis boom sucked labour into parts of the economy – such as residential construction in the US – which is no longer required in large numbers. Reallocation of labour across sectors takes time and if the initial surge in unemployment persists, former employees lose skills, contacts and attachment to working. These losses are permanent.

Second, the capital stock takes a permanent knock as some plant and equipment is scrapped prematurely, while other companies struggle to invest in viable projects because banks restrict credit to shore up their finances.

Third, labour and capital tend to combine to produce less than before, perhaps because innovative companies cannot raise capital or, as the IMF says, “productivity may also suffer due to less innovation, as research and development spending tends to be scaled back in bad times”.

These effects were particularly important for countries with high investment rates before the crisis.

From his joint analysis of financial crises over 800 years, Prof Rogoff told US radio: “These are very traumatic events. They have political consequences that you can see for decades. They have profound consequences on how the economy is structured. This is going to influence a whole generation that’s been through this.”

The sober tone of studies of past banking crises is evident in a study published last week in the Organisation for Economic Co-operation and Development’s Economic Outlook.

Although it calculates the initial effect of the crisis on potential output is only 3.5 per cent, this comes at a time when rich country economic speed limits are “still expected to slow from the 2-2¼ per cent a year achieved over the seven years before the crisis to around 1¾ per cent in the medium-term, primarily reflecting the impact of ageing populations on potential employment growth”.

Not all economists are so certain the scars are inevitable. Drawing on Rogoff and Reinhart’s book title This time is different, Stephen Cecchetti, Marion Kohler and Christian Upper argue on VoxEU.org that this crisis has little in common with those studied by others. “The current crisis is less similar to all of the crises in our database than, say, the Japanese financial crisis of the 1990s is to either the crisis experienced by Ecuador in 1998 or the one that took place in Bulgaria during the transition,” they write, predicting that the particular circumstances of this recession suggests output should reach its pre-crisis level by the second half of 2010.

That would represent a much faster recovery in advanced economies than expected. But even so, they do not think the scars will heal quickly. “Regardless of whether crisis-country output returns to its pre-crisis level slowly or quickly, it is still likely to have lasting costs,” they say.

[Demeter]

6. US GDP growth revised down to 2.8%

http://www.ft.com/cms/s/0/2b70671c-d8fa-11de-99ce-00144feabdc0.html

US gross domestic product grew at an adjusted annual rate of 2.8 per cent, the commerce department said on Tuesday, down from a previously estimated expansion of 3.5 per cent, but still breaking a dire stretch of four straight quarters of contraction.

The revision was in line with economists’ estimates, reflecting weaker consumption, a rise in imports and slimmer non-residential investment. Consumer spending grew by 2.9 per cent, down from the 3.4 per cent that was originally reported....

[Demeter]

5. Irish public sector workers strike

http://www.ft.com/cms/s/0/68b1bb6c-d8ff-11de-99ce-00144feabdc0.html

Irish government employees staged their biggest strike in at least three decades on Tuesday, with about 250,000 workers protesting against plans to cut pay to contain the budget deficit.

All schools were closed. Hospitals cancelled elective surgery appointments. All but emergency services faced disruption as nurses, teachers, firefighters and other state employees joined the stoppage against plans to cut €1.3bn (£1.7bn, $1.9bn) from the public sector pay bill...

[Demeter]

7. AIG and Greenberg settle dispute

http://www.ft.com/cms/s/0/3f857e9a-da17-11de-b2d5-00144feabdc0.html

AIG and Hank Greenberg have agreed to settle all the remaining lawsuits between them, in a deal that will see the insurer return a Persian rug and photographs of its former chief executive with Chinese leaders and the company’s founder.

The US insurer, rescued last year with more than $180bn (£108bn) of government money, will reimburse legal fees of up to $150m for Mr Greenberg and Howard Smith, AIG’s former chief financial officer, subject to a review by an independent third party.

The settlement also covers CV Starr, an insurance firm headed by Mr Greenberg that underwrote some of AIG’s business, and Starr International Company, his private investment group. Mr Greenberg will retrieve photographs of himself with Cornelius Vander Starr, the group’s founder, and with Chinese authorities in AIG’s Shanghai building.

The settlement enables Mr Greenberg to write his memoirs, by giving “reasonable access to, and/or copies of” archival materials. Both sides agreed not to make public statements disparaging the other, ending a period of hostile exchanges after Mr Greenberg’s departure when AIG was hit by an accounting scandal in 2005.

In August, Mr Greenberg and other former AIG executives agreed to pay $115m to settle shareholder lawsuits over the 2005 restatement of its accounts, people familiar with the situation said at the time.

Mr Greenberg also won a jury ruling in July after AIG had claimed that Starr International was liable for $4.3bn of shares held for a now-terminated AIG compensation plan.

AIG, 80 per cent owned by the government, said that it was pleased to settle the matter.

“The resolution of these long-running disputes will remove a significant distraction and expense and allow AIG to better focus its efforts on paying back taxpayers and restoring the value of our franchise for the benefit of all our stakeholders,” said Robert Benmosche, AIG’s chief executive.

“I want to express my appreciation for Bob Benmosche’s help, and the help of the AIG board, in resolving them,” said Mr Greenberg. “I look forward to assisting AIG in trying to preserve and restore as much value as possible for all of AIG’s stakeholders.”

[Demeter]

9. Bets rise on rich country bond defaults

http://www.ft.com/cms/s/0/f4f9a4f0-d791-11de-b578-00144feabdc0.html

The mounting level of debt in the industrialised world is prompting a growing number of investors to use the derivatives market to bet on the chance of rich governments defaulting on bonds.

The volume of activity in sovereign credit default swaps – which measure the cost to insure against bond defaults – linked to the US, UK and Japan have doubled in the past year because of concerns about their public finances.

CDS volumes for Italy, which has one of the highest debt burdens of the developed economies, are now the highest for an individual country, according to the Depository Trust & Clearing Corporation.

In contrast, the outstanding volume of CDS linked to emerging nations such as Russia, Brazil, Ukraine and Indonesia have been flat or fallen in the past 12 months as investors have become less interested in trading the risks of those countries.

In the past, the CDS market for developed countries was sluggish, because few investors saw the need to buy or sell protection against a risk of default that seemed exceedingly remote.

However, rising debt levels and growing political and economic uncertainty have created a more active market, with more investors now seeking insurance. Meanwhile, many banks are prepared to offer protection in exchange for a fee.

This fee has recently jumped, since the cost to insure the debt of developed countries has increased since the summer of last year, while the cost of insuring emerging market debt has fallen.

Gary Jenkins, head of fixed income research at Evolution, said: “The biggest single risk hanging over the bond markets is the rapid rise in public debt in the industrialised world.

“If we get to a point where the market thinks the levels of debt are unsustainable, then we will see an almighty sell-off in the government bond markets, with yields soaring. Governments need to take action to cut deficits and debt.”

Fitch Solutions, the data arm of the Fitch Group, said that there was almost as much uncertainty in the CDS market about the outlook for the developed economies and their bond markets as there was for emerging economies.

Comparisons between Italy and Brazil are often used by strategists as an example of the contrasting fortunes of the developed and emerging world.

Italy’s ratio of debt to gross domestic product is forecast to rise to 127.3 per cent in 2010.

On the other hand, Brazil’s debt-to-GDP ratio is forecast to stabilise at 65.4 per cent in 2010.

Nigel Rendell, senior emerging markets strategist at RBC Capital Markets, said: “It is not surprising that investors are increasingly worried about debt in the industrialised world. Debt to GDP of more than 100 per cent is difficult to sustain.”

[Demeter]

13. See Dubai Posting upthread

[Demeter]

10. CARE FOR A BEVERAGE? Coca-Cola aims to triple China sales

http://www.ft.com/cms/s/0/b860d1ee-d79b-11de-b578-00144feabdc0.html

Coca-Cola is planning to more than double its number of bottling plants in China in the coming decade as part of its aim to triple the size of its sales to the country’s rapidly emerging middle class....Coca-Cola’s plans to expand in China are a central part of its push to double revenues – and those of its bottlers – from almost $100bn now to $200bn in the next 10 years ARE THEY NUTS? THAT'S A RIDICULOUS PLAN.

Coca-Cola executives say they expect 60 per cent of the new growth to come from China, India and other emerging markets, with only 15 per cent from developed markets.

China, already Coca-Cola’s third-largest national market by revenues, has an average per capita consumption of 28 Coca-Cola products per year – on a par with poor African countries and well below the 199 Coca-Cola products per capita drunk last year in Brazil.

[Demeter]

11. S&P raises fears over health of some banks

http://www.ft.com/cms/s/0/d9944da0-d863-11de-b63a-00144feabdc0.html

A study by Standard & Poor’s, one of the world’s leading credit ratings agencies, has raised questions over the financial strength of some of the biggest banks ahead of new rules that could require them to raise more funds.

The analysis by S&P showed that HSBC is the best capitalised bank in the world, while Switzerland’s UBS, Citigroup of the US and several of Japan’s biggest banks are among the weakest.

The ranking of 45 of the world’s leading banks will unnerve investors, highlighting once again the capital shortfall that institutions still need to make up over the coming years.

Although some banks will be able to top up capital through retained profits, analysts expect a string of rights issues from weaker banking groups as they try to raise tens of billions of dollars.

S&P’s risk-adjusted capital (RAC) ratios – a measure of balance sheet strength – foreshadow the new capital ratio regime expected to be set by the Basel committee on banking supervision early next year.

Its report, published on Monday, gave HSBC a 9.2 per cent ratio, compared with barely 2 per cent for the likes of UBS, Citigroup and Mizuho.

The assessment, which measured banks’ financial strength at the end of June, offered a different picture of banks’ relative strength to that under the current “Basel II” rules on capital adequacy. Under existing rules, UBS had an end-June “tier one” ratio – the standard measure of capital strength – of more than 13 per cent, compared with 10 per cent for HSBC.

The RAC ratio reflects banks’ leverage – asset volumes as a proportion of equity – and factors in greater risk-weightings on assets.

Bernard de Longevialle, who led the analysis, said: “Our study shows that capital for the majority of banks remains a relative weakness.”

Only nine of the 45 banks studied had a ratio above 8 per cent, the minimum level to cover forecast levels of stress.

The S&P ratio strips out national peculiarities, such as regulatory authorisation for high levels of hybrid debt in a bank’s capital make-up, dragging down the ratios of Japanese, German and Swiss banks.

S&P plans to use its RAC ratio as an element of future credit ratings analysis.

Basel II rules are currently being overhauled and are expected to move away from current definitions of “core tier one”, which measures equity strength, and “tier one”, which ranks capital instruments such as hybrid debt virtually on a par with equity. Risk weightings applied to certain assets will also be increased.

[Demeter]

32. Quelle Surprise! Most Big Banks Lack Capital By Edward Harrison

http://www.nakedcapitalism.com/2009/11/quelle-surprise-most-big-banks-lack-capital.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

My post title is an ode to Yves Smith, who likes to feign surprise when the blindingly obvious finally comes into plain view for all to see. The latest sign that underneath the surface weakness remains at large financial institutions comes courtesy of Standard & Poors. According to the Telegraph’s Ambrose Evans-Pritchard, S&P believes many are horribly short of capital.

Every single bank in Japan, the US, Germany, Spain, and Italy included in S&P’s list of 45 global lenders fails the 8pc safety level under the agency’s risk-adjusted capital (RAC) ratio. Most fall woefully short.

The most vulnerable are Mizuho Financial (2.0), Citigroup (2.1), UBS (2.2), Sumitomo Mitsui (3.5), Mitsubishi (4.9), Allied Irish (5.0), DZ Deutsche Zentral (5.3), Danske Bank (5.4), BBVA (5.4), Bank of Ireland (6.2), Bank of America (5.8), Deutsche Bank (6.1), Caja de Ahorros Barcelona (6.2), and UniCredit (6.3).

While some banks may look healthy under normal Tier 1 and leverage targets, critics claim these measures can be highly misleading since they fail to discriminate between high-risk and low-risk uses of leverage. The system failed to pick up the danger signals before the financial crisis. The supposedly moderate leverage of US banks in 2007 proved to be a spectacularly useless indicator.

This shouldn’t come as a shocker. Recently, I mentioned that Citigroup was well-capitalized according to standard metrics due to government bailout money. But questions linger about whether this profile masks large holes in Citi’s balance sheet. Irrespective, Credit Suisse believes that regulatory hurdles for Citigroup will restrict its earnings potential. The S&P article bears this out.

S&P has shifted to a tougher code. It is less tolerant of hybrid capital – a liability rather than an asset, and no defence in a crunch – and insists that banks must quadruple capital put aside to cover trading desks. Private equity exposure will be treated more harshly.

The Bank for International Settlements unveiled its own version in September. The regulatory framework worldwide is clearly shifting in this direction, a move that will hit some banks harder than others. "We expect banks to continue strengthening capital ratios over the next 18 months to meet more stringent requirements. Failure to achieve this could put renewed pressure on ratings," said Bernard de Longevialle, S&P’s credit strategist.

If S&P understands the weaknesses masked by measures such as Tier 1 capital or even tangible common equity as proxies for bank health, I suspect national regulators do as well. However, the recovery to date has been built on the back of avoidance of this unpleasant fact lest we risk a renewed bout of panic and another downturn. Under no circumstances do policy makers want large financial institutions to be subject to tougher regulations before they have rebuilt capital via government purchases of toxic assets, government backstops, low interest rates, and a steep yield curve.

Tougher rules at this juncture may prove "pro-cyclical", if banks respond by cutting loans. This may perpetuate the credit crunch for smaller borrowers unable to tap the bond markets. "There is a risk that the increase in regulatory capital requirements could weigh on banks’ ability to finance recovery," said Mr de Longevialle.

Below is a list of the safest institutions according to S&P. While I expected to see HSBC and Standard Chartered on the list, Santander is a notable absence. Also a bit surprising, Deutsche Bank, generally deemed to have weathered the storm (despite large CRE exposure), is one of the weakest, not the strongest. I never would have expected Dexia, ING and Barclays to be on the list of strongest. And Nordea still has large exposure to the Baltics. But ING and Dexia have received large bailouts from the Benelux governments. See my list of bank writedowns for specific events by institution.

The "safest" global bank is HSBC (9.2), followed by Dexia (9.0), ING (8.9) and Nordea (8.8). UK banks fare relatively well: Standard Chartered (8.1) is in the top quintile; Barclays (6.9) is in the middle. The study left out RBS and Lloyds because their status is unclear. Chinese banks – the world’s largest – were excluded.

On the whole, this report leaves me more convinced than ever that a double dip recession would tip us into a 1931-style panic. When I make the Obama-Hoover analogy, this is what I am referring to. As Barack Obama pushes forward with his deficit reduction scheme, perhaps 1931 should be top of mind more than 1937 — or 1994 as seems to be the case for him.

[Demeter]

12. Fortune Cookie from Sun Tzu (for the White House)

"In all history, there is no instance of a country having benefited from
prolonged warfare. Only one who knows the disastrous effects of a long war
can realize the supreme importance of rapidity in bringing it to a close.":


Sun Tzu- (c.500-320 B.C.) name used by the unknown Chinese
authors of the sophisticated treatise on philosophy, logistics, espionage,
strategy and tactics known as 'The Art of War' - Source: The Art of War

[Demeter]

14. Obama and GOP differ over recipe for jobs, economy

http://news.yahoo.com/s/ap/20091126/ap_on_bi_ge/us_obama_economy

[Demeter]

15. In Debt We Trust - America Before the Bubble Bursts VIDEO 1.5 HOUR

In Debt We Trust is the latest film from Danny Schechter, "The News Dissector," director of the internationally distributed and award-winning WMD (Weapons of Mass Deception), an expose of the media's role in the Iraq War.

The Emmy-winning former ABC News and CNN producer's new hard-hitting documentary investigates why so many Americans are being strangled by debt. It is a journalistic confrontation with what former Reagan advisor Kevin Phillips calls "Financialization"--the "powerful emergence of a debt-and-credit industrial complex."

http://www.informationclearinghouse.info/article17267.htm

[Demeter]

16. Still Doing God’s Work on Wall Street By Robert Scheer

http://www.truthdig.com/report/item/still_doing_gods_work_on_wall_street_20091125/

Jail, anyone? Perhaps that’s too harsh, and at any rate premature, but is anyone ever going to be held accountable for the behind-the-scenes sweetheart deals that passed tens of billions of taxpayer dollars through the AIG shell game to the very banks that caused the financial meltdown? Or for the many other acts of double-dealing that left one out of three American homeowners owing much more than their houses were worth while the folks who swindled them were rewarded with hundreds of billions in public money?

Undoubtedly not, since the same folks who are most culpable wrote the laws that made this, and the other scams at the heart of the banking collapse, perfectly legal. And guess what? They’re back at work in the government, writing the new laws that will, they claim, prevent us from being had once again. As a telling example of that process at work, check the official response of the Department of Treasury to the devastating report by the special inspector general for the Troubled Asset Relief Program (TARP), Neil M. Barofsky, titled “Factors Affecting Efforts to Limit Payments to AIG Counterparties.” The main factor was that Timothy Geithner followed the lead of Goldman Sachs CEO Lloyd “I’m Doing God’s Work” Blankfein in crowding the lifeboats with bankers.

Geithner, now treasury secretary, was previously the president of the Federal Reserve Bank of New York (FRBNY), where he negotiated the deal to pay Goldman Sachs and the other top banks in full to cover their bad bets on securitized mortgages. Barofsky’s report concluded that Geithner’s scheme represented a “backdoor bailout” for the financial hustlers at the center of the market fiasco. Noting that Geithner denies that was his intention, the report states, “Irrespective of their stated intent, however, there is no question that the effect of FRBNY’s decisions—indeed, the very design of the federal assistance to AIG—was that tens of billions of dollars of Government money was funneled inexorably and directly to AIG’s counterparties.”

Not surprisingly, the Treasury Department that Geithner now heads defended his actions in not forcing “haircuts” on the full dollar-for-dollar payoff by AIG to the banks while he was at the New York Fed: “The government could not unilaterally impose haircuts on creditors, and it would not have been appropriate for the government to pressure counterparties to accept haircuts by threatening to retaliate in some way through its regulatory power.”

Nonsense, argues Eliot Spitzer, who as New York attorney general was way ahead of the curve in challenging Wall Street arrogance. Writing in Slate on Monday, Spitzer points out: “Pressuring Goldman and the other counterparties to offer concessions would have forced them to absorb the consequences of making suspect deals with an insurance company that was essentially a Ponzi scheme.”

The Ponzi scheme was based on the collateralized debt obligations (CDOs) in which the bankers traded and which AIG had insured with the credit default swaps (CDSs) that they sold but failed to back with adequate funding. Now Geithner’s Treasury concedes that AIG “should never have been allowed to escape tough, consolidated supervision.” But none of AIG’s scams were regulated, nor were any of the others at the center of the larger financial debacle, because of laws pushed through Congress by Geithner’s boss, Lawrence Summers, when they both were in the Clinton administration. Specifically, they prevented regulation of those opaque CDOs and CDSs that would come to derail the world’s economy.

As the inspector general’s report stated: “In 2000, the Commodity Futures Modernization Act (CFMA) … barred the regulation of credit default swaps and other derivatives.” Why did the financial geniuses of the Clinton administration seek to prevent that obviously needed regulation? Because the Clintonistas believed the Wall Street guys knew what they were doing and that what was good for them was good for us lesser folk. As Summers, who is the top economic adviser in the Obama White House, put it in congressional testimony back then: “The parties to these kinds of contracts are largely sophisticated financial institutions that would appear to be eminently capable of protecting themselves from fraud and counterparty insolvencies.”

Sounds nonsensical today: The inspector general’s report notes that AIG, because of the deregulatory law that Summers and Geithner pushed through, was “able to sell swaps on $72 billion worth of CDOs to counterparties without holding reserves that a regulated insurance company would be required to maintain.” But why, then, is Summers once again running the show with Geithner when both have made careers of exhibiting total contempt for the public interest? Because there is no accountability for the high rollers of finance, no matter who happens to be president.

[Demeter]

17. Geithner, under fire, defends AIG bailout

http://www.reuters.com/article/newsOne/idUSTRE5AI2Z820091119

By David Lawder and Emily Kaiser

WASHINGTON (Reuters) - U.S. Treasury Secretary Timothy Geithner on Thursday defended the costly bailout of insurer AIG and urged swift regulatory reform to safeguard the economy from the failure of big financial firms.

Before Congress' Joint Economic Committee, Geithner faced fierce criticism of his role in the rescue of American International Group Inc (AIG.N) in 2008, when he was president of the New York Federal Reserve Bank.

Geithner said AIG's failure posed as significant a risk to the economy as the collapse of investment bank Lehman Brothers, which sparked a panic that froze global trade and threatened to topple the entire financial system.

"The United States of America ... came into this crisis without anything like the basic tools countries need to contain financial panics," he said. "Coming into AIG, we had basically duct tape and string."

The AIG bailout has become a symbol of outrage over the failings of Wall Street and the government's $700 billion bailout fund, complicating the White House's efforts to get a regulatory reform bill passed.

Congress has been wrangling over how best to revamp financial rules to give the government tools to prevent another crisis, while striking the right balance between clamping down on risky lending and hampering the flow of credit.

The U.S. House of Representatives Financial Services Committee has been working on a bill for weeks, and the Senate Banking Committee kicked off a similar effort on Thursday.

Senator Richard Shelby, the top Republican on the Senate panel, said he would not support a bill put forward by Senator Christopher Dodd, the Democrat who chairs the committee, and called for a "complete rewrite.

PRESSURE ON BAILOUTS, CHINA

Geithner said because the United States had no authority to seize and wind down complex financial firms that were in danger of collapse, it had no choice but to step in when the failure of AIG appeared imminent in September 2008.

A jump in the unemployment rate to above 10 percent has sparked complaints that Washington was quick to rescue Wall Street but ignored the plight of those who lost their jobs in a recession blamed partly on reckless lending.

Representative Peter DeFazio, an independent-minded Democrat from Oregon, told MSNBC television on Wednesday that Geithner should not be in his job.

At the hearing on Thursday, Representative Kevin Brady, a Republican, similarly called for Geithner's resignation over his handling of the economy and AIG.

"Conservatives agree that as point person, you failed. Liberals are growing in that consensus as well," Brady said during a tense exchange with Geithner. "For the sake of our jobs, will you step down from your post?"

Geithner responded by defending the actions he and others in the Obama administration took to restore financial calm and economic growth, and the White House later rose to his defense.

"Secretary Geithner has helped steer the American economy back from the brink," said White House spokeswoman Jennifer Psaki. "We invite anyone with good ideas, whether they agree with us or not, to be a part of the productive effort toward (an economic) solution."

In another tense moment, Senator Charles Schumer, a Democrat, criticized Geithner for treading too softly on the controversial issue of China's yuan currency, which Schumer has long argued is intentionally undervalued.

Schumer and Senator Lindsey Graham, a Republican, on Thursday (NOV 19) asked the U.S. Commerce Department to investigate whether China was manipulating its currency to give it a trade advantage.

Geithner used his testimony to press the case for action on reforms before momentum faded and argued that the largest institutions need oversight from a single, strong regulator.

"The regulation of the largest, most interconnected firms requires tremendous institutional capacity, clear lines of authority and single-point accountability. This is no place for regulation for council or by committee," he said.

As part of a sweeping reform plan, the Obama administration has proposed that the Federal Reserve be given powers to oversee the largest firms. Geithner's comments signaled opposition to proposals to give that authority to a council of existing regulators instead of to the central bank.

(Additional reporting by Rachelle Younglai; Editing by Padraic Cassidy and Dan Grebler)

[Demeter]

28. Government Admits AIG Folly By Ian Mathias

http://dailyreckoning.com/government-admits-aig-folly/

Brace yourselves for a shocking report from the U.S government: After months of research and we don’t even want to know how much money, an independent investigator has concluded that the government wasted a ton of money bailing out AIG.

You don’t say!

Special Inspector General Neil Barofsky, the man tasked with policing the TARP, released a report last week that focused on the transactions between the New York Fed, led by Tim Geithner, and AIG’s counterparties. As was evident to, ummm… everyone, Barofsky concluded that the Fed blew it by not demanding any concessions from the major holders of AIG credit default swaps — like Hank Paulson’s alma mater, Goldman Sachs. The N.Y. Fed paid out these contracts in full even though they would have been worth far less had Mr. Geithner not stepped in and bailed out AIG. That cost the American taxpayer “tens of billions of dollars,” the report finds.

“Geithner’s already tattered reputation took a major blow with his investigation,” Dan Amoss notes. “He does not come out looking so good. I wouldn’t be surprised if President Obama replaced Geithner in 2010, given the mounting evidence that he was handing out taxpayer money and guarantees willy-nilly during the 2008 AIG panic.

“With more information about the performance of loans and mortgages in the coming months, the market’s attention could easily shift back to the capital adequacy of the U.S. banking system. And with waning political support for government subsidies, bank executives may have to start taking their lumps the old-fashioned way: raise as much dilutive equity capital as necessary to absorb credit losses. Bank shareholders and bondholders — not taxpayers — should be responsible for their own lending follies.

“Bank stocks are among the riskiest stocks to own.”

FROM HIS LIPS TO GOD'S EAR

[Demeter]

34. Goldman/AIG Conspiracy Theories: There’s a Reason They Won’t Go Away

http://www.nakedcapitalism.com/2009/11/goldmanaig-conspiracy-theories-theres-a-reason-they-wont-go-away.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

Note: this post is by Thomas Adams, at Paykin Krieg and Adams, LLP, and a former managing director at Ambac and FGIC, with some minor additions by yours truly. This is a significant piece of some puzzles he, some other experts who prefer to remain anonymous, and I have been pushing on for several months.

As we have been reading the latest coverage on the AIG bailout from the SIGTARP report and the Treasury Secretary Geithner’s Congressional testimony, a nagging question remains unresolved: why did AIG get bailed out but the monoline bond insurers did not?

The business that caused AIG to blow up was the same that caused the bond insurers to blow up – collateralized debt obligations backed by sub-prime mortgage bonds (ABS CDOs). This was actually one of the few business that AIG Financial Products had in common with the monolines. AIG didn’t participate in municipal insurance, MBS or other ABS deals, which were all important for the monolines.

Certainly, AIG was larger than any of the bond insurers, but in aggregate, the bond insurers had a tremendous amount of ABS CDO exposure, which at the peak was probably over $300 billion. Despite AIG’s claims to have withdrawn from subprime at the end of 2005, we have identified particular 2006 deals with substantial subprime content that AIG most assuredly did guarantee.

In addition, the monolines had exposure to many other assets classes that AIG did not which created chaos for the holders of those bonds when the monolines were downgraded. The chain reaction risk of the bond insurers was arguably greater, when you throw in the damage to the aucton rate securities market, which was rooted in the muni market. In 2007, MBIA had over $650 billion of par insured, Ambac had about $500 billion, FSA had about $380 billion and FGIC had about $300 billion. Throwing in CIFG and XLCA, the total insured par of the monolines was about $2 trillion – this amount certainly would qualify as large enough to be “systemic risk” if the insurers were allowed to fail.

In contrast, while AIG’s aggregate insured par was greater, the only portion that really presented a systemic risk exposure was the CDS and structured finance exposures, which had an aggregate par exposure of about $400-500 billion. a persuasive argument could be made that the monolines were just as intertwined in the financial system as AIG and, thanks to their municipal exposure, presented as great or greater a systemic risk to the financial markets and the economy.

Yet AIG was bailed out and the monolines were not.

So what happened? How did the monolines get dropped and AIG get rescued? The popular reason given has been that AIG was so big that they affected all segments of the economy, whereas the monolines were only midsized and not critical to the economy. i believe that SIGTARP repeated this version of events last week. I understand that Treasury Secretary Geithner last week repeated this notion and added new information – that he was concerned about the cascading risk of AIG’s non CDS exposure.

While this produces a bigger par exposure for AIG, these other areas did not have the huge risks of loss, have largely remained functional, and did not have the issue of collateral posting. The risk were at the parent level, at AIG FP; the bulk of AIG’s business was written by regulated subsidiaries whose claims-paying ability would not be impaired by an AIG FP failure. So, in my view, this is a fairly weak, after the fact argument. A more plausible case might be made that AIG also had a securities lending business that had sprung a $20 billion leak, but that wee problem hasn’t gotten much mention in the official defenses.

I have a different interpretation. I should note that I am a former employee of a bond insurer, so I admit to a bias. However, I my general perspective had been, until recently, that neither AIG or the bond insurers should have been rescued.

When I was at FGIC, Deutsche Bank, Lehman, Bear and UBS were all over my company with sales coverage for CDO deals. But we never heard much from Goldman. I was actually surprised to see that they were so big with John Paulson’s CDO adventures (as recently disclosed in “The Best Trade Ever”), because I never thought they were that big in the CDO market.

One big reason I didn’t know Goldman was so big in CDOs – they didn’t work with the monolines.

Goldman wanted their counterparties to post collateral so they would have protection against corporate downgrades. The monolines refused to have collateral posting requirements in their CDS contracts. The rating agencies supported them in this position on the argument that maintaining their AAA rating was “fundamental to their business”.

AIG, on the other hand, agreed to collateral posting requirements. in fact, they used this as a competitive advantage – they got more business because of it and marketed their flexibility on this issue to the banks. There were two the key distinctions between the monolines and AIG – first, AIG had other businesses, whose losses could threaten AIG’s financial guarantee business while monolines promised to pay claims first, to protect investors. Second, AIG had a history of negotiating before they paid claims (there is an interesting history with a ABS film receivables deal where AIG refused to pay, while the monolines covered similar deals and did not have the same “out” in their policies. this deal did serious damage to AIG’s reputation in the ABS market and shut them out of many deals). So despite their AAA rating, AIG was not as trusted by the structured finance and CDS market – there was a fear that AIG would wiggle out of their obligations in a way that the monolines would not.

All of the other banks got comfortable with the monolines not having to post collateral for CDS trades because of their AAA ratings. Goldman never did.

Of course, Goldman was one of the few banks that clearly set out to profit from shorting CDOs. They obviously realized that if their CDS counterparty was on the hook for a lot of ABS CDOs that were going to blow up, the insurance provider would likely get downgraded. If the downgrade of the insurer was very likely, the only way the short-CDO strategy worked was if the insurer would post collateral.

So Goldman only used AIG, who would provide protection against their downgrade, which Goldman knew would happen because they were stuffing AIG with toxic ABS CDOs.

The banks that used the monolines for their ABS CDOs were making a major error by taking on the monoline downgrade risk without protection, especially if they knew that the ABS CDOs were toxic. So I suspect that most of the banks did not really know that the ABS CDOs would be as toxic as they turned out to be.

This is, of course, what happened. The ABS CDOs blew up, the bond insurers got downgraded, the banks that used them got crushed because their hedges against their CDO risks were now in jeopardy. A death spiral between the monolines and the banks ensued (the ARS meltdown added to the troubles). Goldman didn’t care, because they had collateral posted by AIG once AIG got downgraded..

All of the banks who faced the monolines had to start considering commutation deals with the monolines because it was obvious the monolines did not have enough capital to cover all of the CDO losses. in these commutations, the banks accepted payments as low as 40 cents on the dollar.

Most of the monoline ratings roubles had unfolded earlier in 2008 – many of them had been downgraded, several commutations had already occurred by the time of the AIG bailout. AIG managed to put off the threat of serious downgrade for a long time, despite the junk in their portfolio (as 2008 progressed, it was a mystery to me and many others why the onolines were being downgraded but AIG was not). While AIG had been downgraded to AA some time earlier, this hadn’t caused much of a disruption because the real trigger for collateral posting was if they went below AA. For a variety of reasons, this wasn’t a threat until September of 2008.

I hate to get sucked into the vampire squid line of thinking about Goldman, but the only explanation i can think of for why AIG got rescued and the monolines did not is because Goldman had significant exposure to AIG and did not have exposure to the monolines.

When it became clear that AIG could face bankruptcy, Goldman’s plan to profit by shorting ABS CDOs was threatened. While they had the collateral posted, thanks to the downgrades, this collateral could be tied up or lost if AIG went bankrupt. This was a real crisis for Goldman – they thought they had outsmarted the subprime market with their ABS CDOs and outsmarted all of the other banks by getting collateral posting from AIG when they got downgraded. But if AIG went away, this strategy would have blown up and cost Goldman billions.

All of this is essentially factual and based, for the most part, on public information.

As a matter of speculation, i believe that Goldman and their helpers deliberately pumped up the media with the threats that the subprime market posed in order to hasten the collapse of the subprime market. this allowed them to realize their gains sooner from shorting ABS CDOs – they had become impatient waiting for it to blow up.

In addition, I believe that Goldman and their helpers – including their many connections with the White House and the Fed – pumped up concerns about the systemic risk that the market was facing from a Lehman and AIG failure, so that they could force the government to step in and bail out AIG. This would also explain why Lehman was not bailed out. Lehman didn’t really matter to Goldman. But the fear created by Lehman’s failure served as a good excuse for why they should rescue AIG.

I have been wondering why the sub-prime market blow up led to such a massive crisis when subprime and structured finance had experienced big problems before without the issue of systemic risk and financial market collapse.
Certainly, the ABS CDOs were toxic and caused big holes, but not so big that it couldn’t be addressed by an RTC type of clearing system. Various analyst reports of the bad subprime deals (and ABS CDOs) makes it pretty clear that the 2006-2007 vintages were the worst and will probably only create about $500-700 million of aggregate losses. Terrible, but not insurmountable.

This leads me to conclude that the bailout was prompted by fear mongering and deliberate strategies and manipulation on the part of Goldman and a few select others, to make sure that AIG would be bailed out to protect their trades in shorting ABS CDOs.

i believe that John Paulson benefited from this bailout, on his $5 billon or so of ABS CDOs with AIG. But not as much as Goldman benefited themselves, via Abacus and, perhaps, other deals.

AIG, Goldman and ABS CDOs were tied together at the center of the crisis. From Goldman’s perspective, all of the other participants were secondary – they had no exposure to the monolines and they were probably hedged against the other banks. The only loose end was the collateral posted by AIG.

The final question that this raises for me: would it have been cheaper for the government and the taxpayer to have bailed out the bond insurers instead of AIG? The total amount of CDOs and credit default swaps that would have needed to be guaranteed would have been smaller. In the number of investors across the market that would have benefited would probably have been larger. The auction rate securities market, the muni market, the investors that held bond insurer exposure to MBS and ABS would have all benefited. None of these markets were aided by AIG’s bailout.

But a bond insurer bailout would not have helped Goldman much and the AIG bailout did.

Yves here. Note I differ with Tom on how much Goldman could or did pump up subprime fears. A lot of people focused on Jan Hatzius’ bearish calls on financial system losses, but quite a few people in a position to know claim that Hatzius is not the sort to take commercially expedient views. But once the asset-backed commercial paper started imploding in August 2007, the officialdom was very much engaged. So if one can connect the dots between Goldman and the fear and loathing that hit the ABCP market (recall all paper was repudiated as in being possibly tainted by subprime), the story becomes very tidy.

Update 1:50 PM Another possible gap in this line of thinking are the now-infamous AIG regulatory capital swaps, which allowed European banks to carry much less equity (or put it another way, pump up their balance sheets much bigger than they would have otherwise been). But there has been a remarkable lack of coverage of this issue. That would be one reason to save AIG and not the monolines.

There isn’t any evidence that this issue factored into official thinking. That could mean that the officialdom has scrupulously avoided mentioning it (as in why alert the peasants that their tax dollars are supporting profligate Eurobanks), but Sorkin’s Too Big to Fail makes clear that AIG itself was not on top of how badly the ship was leaking, so if AIG didn’t bring this issue up as a need to be rescued, no one would have factored that into their decisions. One way to be certain would be to compel disclosure of the phone logs during the AIG scramble. A absence of calls to European banking regulators would be indirect confirmation that these swaps were not one of the proximate causes of the AIG rescue.

[Demeter]

35. Goldman's secret moral pathology

http://www.marketwatch.com/story/15-signs-wall-street-pathology-is-spreading-2009-11-24?siteid=rss&rss=1

15 symptoms of a Wall Street disease destroying democracy and capitalism

By Paul B. Farrell, MarketWatch

ARROYO GRANDE, Calif. (MarketWatch) -- In "The Battle for the Soul of Capitalism" Jack Bogle no longer sees Adam Smith's "invisible hand" driving "capitalism in a healthy, positive direction."

Today, his "Happy Conspiracy" of Wall Street plus co-conspirators in Washington and Corporate America are spreading a contagious "pathological mutation of capitalism" driven by the new "invisible hands" of this new "mutant capitalism," serving their selfish agenda in a war to totally control America's democracy and capitalism.
.

The "Goldman Conspiracy" is the perfect B-school case study of Wall Street's secret contagious pathology, with insiders like Lloyd Blankfein, Henry Paulson and others pocketing billions more of the firm's profits than shareholders, evidence the new "mutant capitalism" has replaced Adam Smith's 1776 version which historically endowed the soul of American democracy as well as our capitalistic system.

Sadly for America Goldman's disease is rapidly becoming a pandemic spreading beyond Wall Street's too-greedy-to-fail banks, infecting our economy, markets and government as it metastasizes globally.

What are the symptoms of this growing "soul sickness," this "pathological mutation of capitalism" Bogle fears? Recently we reviewed the consequences of this "soul sickness."

Today we'll paraphrase news reports about 15 symptoms spreading "soul sickness" beyond the boundaries of this Goldman case study: These are the 15 signs of a moral pathology undermining not just banking but American democracy and capitalism.


1. Gross denial of any moral damage caused by their rampant greed

Seeking Alpha: "Goldman is America's most hated corporation." We cheer as Rolling Stone's Matt Taibbi calls Goldman "a giant vampire squid wrapped around the face of humanity." Banks triggered a global crisis. Main Street suffers. Greedy bank CEOs raid the Treasury then stuff $30 billion in their bonus pockets, up 60% from last year. They are our 21st century General Motors, convinced "What's good for Goldman is good for America." We saw how that arrogance ended. Wall Street has similar suicidal symptoms.


2. Narcissistic egomaniacs with secret 'God complexes'

London Times' John Arlidge interviewed Goldman CEO Blankfein: "He paid himself $68 million in 2007, now worth more than $500 million, yet insists he's a blue-collar guy. He says banking has a 'social purpose,' just a banker 'doing God's work.'" When I was at Morgan Stanley in the 1970s the firm ran an ad: "If God Wanted To Do a Financing, He Would Call Morgan Stanley."

Today, all of Wall Street is dual diagnosed: They're morally blind money addicts who believe they're "God's chosen." AA would say: They haven't "bottomed," won't recover from their disease till a disaster hits, with another market meltdown and the "Great Depression 2." Then maybe they'll "quit playing God."


3. Paranoid obsessives about secrecy, guilt and non-disclosure

Bloomberg: "New York Fed's Secret Deal: Taxpayers paid $13 billion more than necessary when government officials, acting in secret, made deals with banks on AIG, buying $62 billion of credit-default swaps from AIG." The government would eventually cover about $180 billion in AIG swaps backing toxic CDOs when Paulson and Ben Bernanke double-teamed to bailout Goldman, saving them from bankruptcy.


4. Power-hungry need to control government using Trojan Horses

Wall Street Journal: "For a year Goldman said it wouldn't have suffered damage if AIG collapsed. But a new report kills that claim. TARP inspector general found that then New York Fed Chair Tim Geithner gave away the farm. If AIG had collapsed, Goldman would have had to cover the losses itself. They couldn't collect on the protection of AIG swaps." Yes, Goldman was bankrupt. But friends in high places always save them.
5. Borderline personalities who regularly ignore conflicts of interest

New York Times: "Before becoming Treasury secretary in 2006, Hank Paulson agreed to hold himself to a higher ethical standard than his predecessors. He specifically said he'd avoid his old buddies at Goldman where he was CEO. Later Congress saw many conflicts of interest, not just meetings but favorable treatment for his buddies at Goldman."


6. Pathological liars incapable of honesty even with own investors

McClatchy News: "Goldman secretly bet on the U.S. housing crash after peddling more than $40 billion of securities backed by 200,000 risky home mortgages. But they never told their investors they were also secretly betting that a drop in housing prices could wipe out the value of those securities." Paulson knew, stayed silent. "Only later did their investors discover Goldman's triple-A investments were junk. Did Goldman's failure to disclose its bets on an imminent housing crash violate securities laws?" Boston University Prof. Laurence Kotlikoff says: "This is fraud, should be prosecuted." But it won't be in the new "mutant capitalism."

Members of AA say you know when an alcoholic is lying: Their lips are moving. Same with Wall Street: Think liar's poker. It's in their DNA. They're compulsive liars trapped in a culture of secrecy. They lie, the lies cascade, memory slips, more lies are necessary, they cannot stop lying. Goldman sure can't ... look, their lips are moving again.


7. Sole fiduciary duty to insiders, not investors, never the public

New York Examiner: "Goldman was at the heart of the subprime market, selling subprime junk as no-risk AAA bonds, then gambling, hedging, shorting their investors. Goldman traded like Enron. That set up the meltdown. The Fed and Goldman's ex-CEO at Treasury saved Goldman. Taxpayers got stuck with the bill. Bailout overseer Elizabeth Warren called this reckless gambling. Trend forecaster Gerald Celente calls it mafia-style looting.


8. Moral issues are PR glitches, violations of 'don't get caught' rule

USA Today says "Goldman Sachs should be celebrating. Yet, the mood at the investment bank seems to be one of crisis about the public backlash over employees' bonuses." So Goldman's on a PR blitz in a bid to undo the damage. They canceled their Christmas party. Also launched a $500 million program for small businesses. Get it? They can't see their moral failings, only a PR problem, so they hire PR agents and crisis managers first.


9. Charitable donations are tax and PR opportunities, not moral issues

New York Times: Examined Goldman charitable foundation's tax filing: Thick as a phone book with more than 200 pages of trades. "Never seen anything like it," said Verne Sedlacek, president of Commonfund, a $25 billion fund for universities and nonprofits. The money to Goldman's foundation is dwarfed by insiders' bonuses. The foundation got $400 million, gave away $22 million. Bonuses were 20 times more. Even the New York Post said "Goldman's Born Again Image is Laughable." They're sleaze-ball cheapskates.


10. When exposed in a massive fraud, feign humility, fake an apology

CBS MoneyWatch: "Blankfein now says he's 'sorry for the role Goldman played in the housing crisis: We participated in things that were clearly wrong.'" Wrong? Sounds more like he's admitting to something "clearly criminal." Reread: Isn't he admitting guilt to a fraud; cheating millions of homeowners, shareholders, taxpayers? Then laughs at us with phony "restitution," a fund of $100 million annually for five years to small-business owners. Financial Times says "$100 million is the profits from one good trading day. In 3Q '09 they had 36 days better than that." Unfortunately, these crooks will get away with it.


11. When bankruptcy threatens, bribe friends in 'Happy Conspiracy'

Barron's: While Geithner was "showcasing what a great investment Washington made in Goldman, the 23% return on the $5 billion of the taxpayers money, Warren Buffett's deal made him a fabulous 120% return. Goldman's stock ran up to $180 from $115, a gain of $2.8 billion. Add 8% discount on warrants, another $3.2 billion to him."


12. Engage co-conspirators to cover up, distract, do your dirty work

Reuters: "Former Merrill Lynch CEO John Thain was fired after a scandal over the billions in Merrill bonuses. He says big insider bonuses don't cause excessive risk-taking nor the financial crisis." He blames "poor risk management, excessive leverage and too much liquidity for too long. But even if they tie bonuses to long-term performance, that won't prevent the next collapse." Why? They'll find new ways to break the moral code.


13. As money-hungry vultures they will prey on vulnerable Americans

McClatchy News: "An obscure Goldman subsidiary spent years buying hundreds of thousands of subprime mortgages, many from the more unsavory lenders. They repackaged them as high-yield bonds. The bottom fell out. Now, after years of refusing to disclose they owned the mortgages, the secret is out and Goldman has become one of America's biggest, greediest foreclosers." Yes, the vampire squid wants pounds of flesh.


14. Treat everyone not in the 'Happy Conspiracy' with tough love

HuffPost's Leo Leopold warns: "Each day reveals how we've traded away our sense of decency and the common good in exchange for pure greed. Unemployment means hunger. The Agriculture Department reports 49 million Americans don't have enough food, up 13 million over the last year, highest number ever." Wall Street treats anyone not in the "Happy Conspiracy" as morally defective capitalists in need of "tough love."


15. Addicts consumed by money: 'Jesus would throw them out ...'

New York Times' Maureen Dowd: "Goldman's trickle-down catechism isn't working. We have two economies. In the past decade Wall Street's shared little with society. Their culture is totally money-obsessed. There's always room for a bigger house, bigger boat. If not, you're falling behind. It's an addiction. And Washington's done little to quell it. Geithner coddles wanton bankers. Obama's absent. 'Saturday Night Live' was tougher. And as far as doing God's work: The bankers who took taxpayer money, pocketing obscene bonuses: They're the same greedy types Jesus threw out of the temple."

Warning: Washington, Main Street, none of us has "clean hands." We're all in bed with the "Happy Conspiracy," touched by greed, turning a blind eye to Wall Street's rapidly metastasizing moral and spiritual pathology: So ask yourself, do you believe America's widespread "lack of a moral compass" will eventually trigger another, bigger market and economic meltdown, pushing America into the next "Great Depression II?"

[Demeter]

37. Charitable Giving (BY GOLDMAN SACHS "DOING GOD'S WORK")

http://epicureandealmaker.blogspot.com/2009/11/charitable-giving.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+blogspot%2Fepicureandealmaker+%28The+Epicurean+Dealmaker%29


In an otherwise less than sympathetic piece on the public relations travails of the Vampire Squid everybody loves to hate, Financial Times journalist Chrystia Freeland credits the investment bank's recently announced 10,000 Small Businesses initiative as "cleverly conceived" and "designed for maximum effect." I have to disagree.

Like many of you, I am sure, I was impressed when I heard Goldman was going to donate $500 million to a myriad of small businesses, which are widely perceived to be the primary engines of job creation in our economy. Oh goody, I thought: half a billion bucks mainlined into the veins of those businesses best able to kick start the economy back into rude health. What a coup.

Then I read the blasted thing. It is not pretty. Sixty percent of the committed funds will be distributed for "lending and philanthropic support," but this will be directed through "Community Development Financial Institutions." Call me a skeptic, but this does not sound like high powered money coursing directly into the working capital accounts of productive enterprises which can use it. Instead, it sounds like a $300 million slush fund for the functional equivalent of community NGOs. The remaining forty percent—200 million clams—will go toward "education."

Oh great, Lloyd, that's just what every small businessman needs: an education. After all, everybody knows what the owner of a chain of dry cleaners or a machine tool factory really needs is "scholarships," greater "educational capacity," and mentoring by some half-assed social worker out of an abandoned storefront. Why stop there, though? Why not endow a hundred spots at Harvard Business School in perpetuity so Hmong immigrants can learn to apply CAPM and discounted cash flow analysis to their corner delicatessens? 1

Either that, or you could pull your head out of your ass and actually lend some money to these guys instead. Heck, set up a small business lender with half a billion in capital, lever it up ten to one, and loan five billion dollars out to struggling small businesses. You might actually spur some real economic growth, rather than employing an army of aspiring bureaucrats to fill out scholarship applications in triplicate. Plus, you might finally earn some respect from a country which suspects you and your peers are constitutionally incapable of taking a crap without consulting the Harvard Business Review or the McKinsey Handbook of Corporate Obfuscation for instructions. 2

This idea scales attractively, too: Put in a billion of equity, and loan out ten billion, and people might even stop whispering disparaging remarks about the size of your junk in the corridors of Capitol Hill. Now there's a return on capital.

* * *

On the other hand, given that you run an investment bank, if you want to raise some serious money for charity, you could always open a Swear Jar. Just make sure it's big enough.

1 Well, okay, that was a cheap shot. You and I both know doing any such thing would destroy the exclusivity and aura of an HBS education, which would be a societal catastrophe too terrible to contemplate. (Not to mention wasting two years out of the lives of otherwise productive elements of the economy.) Just kidding, bro.
2 I mean really, who comes up with this shit? I know you couldn't give a damn about tiny ass businesses which will never grow large enough to become paying customers of your firm, but you are theoretically announcing this program for public effect, no? Why not make it clear, simple, and understandable, instead of a convoluted, bureaucratic mess apparently derived from some EU functionary's wet dream? Bank? Lending? Ring a bell?

[Demeter]

18. Plain Talk: Restore law and split up banks

http://host.madison.com/ct/news/opinion/column/dave_zweifel/article_69ccafc6-42a4-50b2-8c23-a0903cb1e66c.html

Ten years ago, the Republican-controlled Congress — egged on by that champion deregulator, former Texas Sen. Phil Gramm — passed legislation that arguably did more to plunge the United States into our crippling great recession than anything else: It repealed the Great Depression era’s Glass-Steagall Act.

Then on Nov. 12, 1999, an acquiescent Democratic president, Bill Clinton, signed the repeal into law.

Glass-Steagall stood as a firewall between commercial banks and Wall Street since 1933, when the country’s leaders heeded the lessons of the 1929 stock market crash and set in place strict regulations in an attempt to prevent such an economic calamity from happening again.

But the country’s financial institutions chafed for decades under Glass-Steagall’s restrictions. If only commercial banks could merge with investment banks and insurance companies, they argued, it would be so much better for the nation’s economy. Gramm, who infamously insisted that the U.S. had become a nation of whiners when the economy started to tank in the fall of 2008, fought for years to repeal Glass-Steagall and finally got his way. Get government out of the way of the free marketplace, he argued, ignoring the fact that historically conservative banks would be joining the high-risk investment community and all the pitfalls it represents.

The repeal sanctioned the formation of the conglomerate Citigroup, for example, permitting commercial bank Citicorp’s merger with Travelers insurance corporation. Citigroup, which now included Citibank, Smith Barney, Primerica and Travelers, combined banking, securities and insurance services under one giant and, as we painfully learned, “too big to fail” financial institution.

That’s how we got today’s Bank of America, JPMorgan Chase and the many other giants that participated in dicing and slicing subprime mortgages, and traded in complicated hedge funds, derivatives and other financial manipulations, which commercial banks were forbidden to do for more than 65 years.

Now some of the biggies are coming to recognize the peril they and the country are in as a result. Last week, JPMorgan CEO James Dimon called the idea that any bank is too big to fail “ethically bankrupt” and added that regulators should have the power to let them fail.

Even Citigroup’s co-founder, John Reed, said earlier this month that he’s sorry for creating the monster and that it was a big mistake when the bank merged with Travelers, opening the door to massive risk.

Indeed, Reed said Glass-Steagall should be restored, joining former Federal Reserve Chairman Paul Volcker, who has been trying to convince the Obama administration of the need to return to the act’s strict regulation. That would mean breaking up the “too big to fail” institutions and restoring banks to being banks and investment houses to their own businesses.

Breaking up the biggies would go a long way toward returning stability to the broken system, in which taxpayers are asked to save the conglomerates from their own bad behavior and then forced to sit by while the behemoths return to big profits and obscene bonuses.

U.S. Sen. Bernie Sanders, the Vermont independent, has introduced legislation that would require the Treasury Department to identify the so-called “too big to fail” conglomerates and force them to break up within a year.

Meanwhile, the Madison-based Center for Media and Democracy has started a new project called BanksterUSA to rally support for Sanders’ legislation and advocate for prosecution of Wall Street executives who purposely manipulated markets for their private gain. Its motto is: “Too big to fail, but not too big for jail!” More information is on its website at www.BanksterUSA.org.

After what we’ve gone through and what millions of innocent out-of-work Americans are still going through, it truly is time to restore Glass-Steagall and rid ourselves of these “too big to fail” conglomerates.

Dave Zweifel is editor emeritus of The Capital Times. [e-mail]

[Demeter]

19. David Freddoso: Your congressman's padded retirement plan

http://www.washingtonexaminer.com/opinion/columns/Your-congressman_s-padded-retirement-plan-8551967-70368302.html

After serving 18 years in Congress, former Rep. William Jefferson of Louisiana, a Democrat, will continue his service in a different federal institution -- prison. He was sentenced recently to serve 13 years for bribery.

But his fellow prisoners will have to forgive Jefferson if he grins and whistles as he stamps out license plates. That's because he is still eligible for a guaranteed $50,000 pension in his first year of retirement, which will increase each year thereafter with the cost of living.

Opinion polls show that Americans today have a special contempt for Congress. They might be even more upset if they knew what kind of retirement deal congressmen have given themselves at the taxpayers' expense. It's a much better deal than the taxpayers are getting as they watch their retirement savings collapse in the bear stock and real estate markets.

Congressmen who serve for at least five years get a very generous defined benefit pension plan in retirement -- the kind that doesn't exist anymore in the private sector because it's impossible to fund. It's far more generous than that of even the longest-serving federal employees.

Members who took office before 1984 get the best deal -- a generous 2.5 percent of the average of their top three years' salary for each year of service. Their total includes years of military and other government service.

Although the payout in the first year of retirement is limited to 80 percent of their last year's salary, it grows automatically each year with the cost of living. Appropriations Chairman David Obey, for example, could quit his job this January and take home $139,200 in 2010. In a decade or so, with cost-of-living adjustments, he could be making more than his current salary of $174,000. He isn't the only one.

To get that kind of deal in retirement, you would need at least $2 million in your 401(k) and a healthy bull market from now until you die.

In the 1980s, congressional pensions were reformed along with the rest of the federal retirement system. That means that congressmen elected in 1984 and later don't get a deal quite so sweet. They take home 1.7 percent of their "high three" for each of the first 20 years, and 1 percent for each year thereafter.

But on top of their defined benefit plan, these newer members of Congress still get the ordinary man's retirement -- a 5 percent match on contributions to the Federal Thrift Savings Plan (much like a 401(k)), plus Social Security.

The corrupt Jefferson is a special case. He can exploit a loophole in the 2007 law supposedly depriving corrupt members from taking home their pensions. Because he took all of his bribes before the law was signed that September.

Jefferson might not be the last to find the loophole. In July 2007, the Wall Street Journal reported that Republican Rep. Don Young of Alaska, was under investigation for possibly taking unreported gifts from lobbyists up until 2006.

And Rep. Charlie Rangel, D-N.Y., has admitted to under-reporting his outside income and assets on his congressional disclosure forms between 2002 and 2006, which could constitute perjury. (Rangel claims it was just an oversight -- he forgot about millions of dollars in business transactions over that period.)

If they ever face legal problems, both Rangel and Young have a strong case for defending their pensions, based on the timing of any alleged wrongdoing. Both of these very senior members of Congress are eligible for $139,200 in their first year of retirement.

Even if we don't begrudge them their oversized paycheck, do our congressmen -- even the bad ones -- deserve a retirement that is more than twice as nice as most ordinary working people enjoy?

SEE LINK FOR UP TO THE MINUTE PENSIONS FOR ALL CONGRESS!

[Demeter]

23. Social Security: The Hidden Problem By Allen W. Smith

http://dissidentvoice.org/2009/11/social-security-the-hidden-problem/

There is much debate today about how solvent Social Security is, but most of the debate is over when the trust fund will run out of money, not about whether or not the trust fund actually holds real assets. The conventional wisdom, prior to the economic downturn, was that the trust fund had enough money to pay full Social Security benefits until about 2041. That date has now been revised to about 2037.

In order to understand the true status of the trust fund we need to go back to 1982, and then chronicle the events that have taken place since that date. In 1982, the Presidential Commission on Social Security, chaired by Alan Greenspan, warned that Social Security would face serious problems when the baby boomers began to retire about 2010, unless Congress took immediate action to begin building up a reserve in the trust fund that could be drawn down in order to pay full benefits to the baby-boom generation.

In 1983, Congress enacted the legislation recommended by the Greenspan Commission, which included a hefty hike in payroll taxes. In essence, the legislation required the baby-boom generation to pay enough taxes to fund the benefits of the previous generation, as was customary, plus enough additional taxes to prepay most of the cost of their own benefits, which was not customary.

That payroll tax hike has generated about $2.5 trillion of surplus Social Security revenue to date. If the money had been saved and invested, as it was supposed to be, Social Security would be in good shape today. But the money was neither saved nor invested in anything. Instead, it has been used as a giant slush fund to pay for tax cuts, wars, and other government programs for the past 25 years. The government has “borrowed,” or “stolen” every dime of the surplus Social Security revenue. If the government eventually repays the looted money, we can say that the government “borrowed” the money. Unfortunately, no provisions have been made for repaying the money. Furthermore, it may not be politically feasible to raise taxes for the purpose of replacing tax revenue that was misspent in the first place. If the looted money is never be repaid, it will have clearly been “stolen” from American workers who paid the extra Social Security taxes.

This is the hidden Social Security problem. The trust fund holds no real assets. This was made clear by David Walker, Comptroller General of the GAO, in a speech given January 21, 2005. Walker said, “There are no stocks or bonds or real estate in the trust fund. It has nothing of real value to draw down.” On April 5, 2005, President George W. Bush shocked many Americans, during a speech at West Virginia University at Parkersburg, when he openly admitted, “There is no trust fund, just IOUs that I saw firsthand that future generations will pay—will pay for either in higher taxes, or reduced benefits, or cuts to other critical government programs.”

The government was successful in keeping this big dirty secret from the American people for a long time, but, little by little, the secret is slipping out. Even the 2009 Social Security Trustees Report acknowledges the problem with the following words. “Neither the redemption of trust fund bonds, nor interest paid on those bonds, provides any new net income to the Treasury, which must finance redemptions and interest payments through some combination of increased taxation, reductions in other government spending, or additional borrowing from the public.” Because of the empty trust fund, in just seven years, when the cost of Social Security benefits begin to exceed payroll tax revenue for the first time in a quarter-century, either benefits will have to be decreased, or taxes will have to be increased.

[Demeter]

20. $4.8 trillion - Interest on U.S. debt

http://money.cnn.com/2009/11/19/news/economy/debt_interest/

Unless lawmakers make big changes, the interest Americans will have to pay to keep the country running over the next decade will reach unheard of levels.

By Jeanne Sahadi, CNNMoney.com senior writer
Last Updated: November 19, 2009: 1:05 PM ET

NEW YORK (CNNMoney.com) -- Here's a new way to think about the U.S. government's epic borrowing: More than half of the $9 trillion in debt that Uncle Sam is expected to build up over the next decade will be interest.

More than half. In fact, $4.8 trillion.

If that's hard to grasp, here's another way to look at why that's a problem.

In 2015 alone, the estimated interest due - $533 billion - is equal to a third of the federal income taxes expected to be paid that year, said Charles Konigsberg, chief budget counsel of the Concord Coalition, a deficit watchdog group.

On the bright side - such as it is - the record levels of debt issued lately have paid for stimulus and other rescue programs that prevented the economy from falling off a cliff. And the money was borrowed at very low rates.

But accumulating any more interest on what the United States owes at this point is like extreme sport: dangerous.

All the more so because interest rates will rise when private sector borrowers return to the debt market and compete with the government for capital. At that point, the country's interest payments could jack up very fast.

"When interest rates rise even a small amount, the interest payments go up a lot because of the size of the debt," Konigsberg said.

The Congressional Budget Office, which made the $4.8 trillion forecast, already baked some increase in rates into the cake. But there is always a chance those estimates may prove too conservative.

And then it's Vicious Circle 101 - well known to anyone who has gotten too into hock with Visa and MasterCard.

The country depends heavily on borrowing to fund what it wants to do. But the more debt it racks up, the more likely it becomes that creditors could demand a higher interest rate for making new loans to the government.

Higher rates in turn make it harder to pay off the underlying debt because more and more money is going to pay off interest - money, by the way, which is also borrowed.

And as more money goes to interest, creditors may become concerned that the country can't pay down its principal and lawmakers will have less to fund all the things government is supposed to do.

"

olicymakers would be less able to pay for other national spending priorities and would have less flexibility to deal with unexpected developments (such as a war or recession). Moreover, rising interest costs would make the economy more vulnerable to a meltdown in financial markets," the CBO wrote in its most recentlong-term budget outlook.

So far, that crisis of confidence hasn't happened. And no one can predict with any certainty whether or when it could occur.

But should it occur, the change could be abrupt.

That's because the government frequently rolls over - or refinances - the debt it has issued as it comes due.

In other words, when a Treasury bond or note matures, the government must pay the investor the face value on that debt. In order to do that, the Treasury borrows money to pay back the investor, which means the debt would be refinanced at whatever the going interest rates are at the time.

Just how much churn is there? Of late, a fair bit it seems. A Treasury borrowing advisory committee reported in early November that "approximately 40 percent of the debt will need to be refinanced in less than one year."

Since rates may well stay low over the next year, it's possible that debt could be refinanced at the same or even lower rates. But that situation won't last forever.
So what will Washington do?

To help mitigate the potential risk of rising rates, the Treasury has said it would start increasing the average maturity of the new debt it issues. That way the debt it refinances in the next couple of years will be locked in at lower rates for longer periods of time.

And the Obama administration has promised to produce a deficit-reduction plan that would aim to bring down annual deficits to roughly 3% of GDP over the next several years, below the 4% to 5% currently projected.

If that happens, the $4.8 trillion in interest payments that CBO estimates for the next decade could go down if interest rates don't increase as much as CBO expects.

"There will be less debt outstanding than if we don't get the deficit down. It may also reduce since less debt means less pressure on interest rates," said William Gale, co-director of the Tax Policy Center.

But whether they can do that within a few years of an economic recovery is another matter. "Even under the president's <2010> budget as evaluated by the CBO we do not get anywhere close to that," Gale said.

That could mean the president's 2011 budget proposals would have to make a lot of changes to get closer to the 3% goal. Unpopular changes like tax hikes and spending cuts.

Budget hawks hope the president will push for a deficit-reduction commission to come up with ways to cut the deficit and then propose legislation that lawmakers would only be able to vote for or against. The reason: There is no political will to make the tough calls. Especially in a mid-term election year. To top of page

[Demeter]

21. Wave of Debt Payments Facing U.S. Government

http://www.nytimes.com/2009/11/23/business/23rates.html?_r=4&pagewanted=1&hp

The United States government is financing its more than trillion-dollar-a-year borrowing with i.o.u.’s on terms that seem too good to be true.

But that happy situation, aided by ultralow interest rates, may not last much longer.

Treasury officials now face a trifecta of headaches: a mountain of new debt, a balloon of short-term borrowings that come due in the months ahead, and interest rates that are sure to climb back to normal as soon as the Federal Reserve decides that the emergency has passed.

Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. Other forecasters say the figure could be much higher.

[Demeter]

22. American Casino: An edgy, fast-paced documentary on the financial meltdown By Mike Whitney

http://www.informationclearinghouse.info/article24038.htm

Andrew and Leslie Cockburn have produced the best movie of the year. American Casino tells the story of the financial crisis, which started with the meltdown in subprime lending and ended up triggering the deepest slump since the Great Depression. The Cockburn's skillfully uncover the truth behind the headlines, shining a light on the negligent regulators, the colluding Fed, the unscrupulous ratings agencies, the mercenary banks, the venal mortgage lenders, and the long daisy-chain of opportunists and fraudsters who gorged themselves on the spoils from the biggest swindle in history. This is this generation's big story and it is deftly conveyed by master narrators, Mr. and Mrs. Cockburn.

The movie begins in downtown Manhattan, the camera shifting quickly from one looming skyscraper to the next. This is Wall Street, the epicenter of the financial universe. With the edgy wail of bebop in the background, Cockburn fixes his lens on Senator Phil Gramm and Fed chairman Alan Greenspan, the two policymakers most responsible for the market blowup. In testimony before a congressional committee,"Maestro" Greenspan reluctantly admits that he discovered a "flaw" in his theory of how markets work. Director Cockburn contrasts Greenspan's feeble defense with sweeping visuals of the endless rows of boarded up homes in downtown Baltimore where the foreclosure epidemic has turned large parts of the city into a ghost-town. This is the Greenspan/Gramm legacy, the triumph of deregulation.

American Casino explains the most complex aspects of the financial collapse in terms that everyone can understand. The movie is an informal tutorial on Wall Street's "innovations", including a brief rundown on collateralized debt obligations (CDOs), mortgage-backed securities (MBSs) and credit default swaps (CDSs). These are the notorious debt-instruments which clogged the credit markets and sent stocks into a nosedive. The Cockburn's also interview a number of people who played a part in the market crash. We get a glimpse of the ratings agency executive who caved in to the investment banks and gave them the triple A ratings they wanted, but didn't deserve. There's a brief segment with a mortgage lender who routinely filed false income statements which allowed unqualified loan applicants to be approved. There's also a clip of a financial technician who packed B-rated junk into CDOs that were offloaded to gullible Korean investors. What's most disturbing about American Casino, is that it shows how normal people eagerly participated in a profit-skimming operation that was based on repackaging and peddling dodgy loans to credulous investors. These people knew what they were doing was wrong, but did it anyway.

American Casino transitions seamlessly from Wall Street to intercity Baltimore, and then onto the abandoned housing developments in California's Central Valley. Here, we see the true cost of deregulation measured in terms of the lives it has ruined. The Cockburn's allow a few articulate African Americans, who were trapped in predatory lending scams, to relay the story of an entire Baltimore community. Not surprisingly, these mortgage ripoffs were engineered by some of the most highly-respected banks in the country. Wells Fargo is one name that pops up repeatedly. African Americans were four times more likely to be given subprime loans even though the vast majority of applicants met the standards for conventional prime mortgages. To their credit, the Cockburn's stand alone in showing the role that racial discrimination played in the housing crisis. This is clearly the civil rights issue of our time.

American Casino is not your typical dispassionate documentary. The Cockburn's sympathies are never in doubt as they stitch together a number of gut-wrenching stories which help to illustrate how the trading of financial exotica in an "anything goes" market, ended up destroying the lives of millions of ordinary working people. This is what separates the movie from the desensitized version of events we read in the mainstream press. It's not enough to know who was responsible or what crimes they may have committed. We need to see the faces of the victims and hear their stories first-hand. These are the people whose lives will be forever marred by the reckless, high-stakes gambling of Wall Street speculators.

[Demeter]

24. Thrift Spoils Everything in a Consumer Economy

http://dailyreckoning.com/thrift-spoils-everything-in-a-consumer-economy/

“Those damned consumers and their whiny confidence readings!” the Feds must be cursing. Sentiment dropped to its lowest in three months, according to the Reuters/University of Michigan preliminary index. Apparently the consumers aren’t reading the papers. Don’t they know a recovery is underway?

After all, the S&P finished up for a second straight week, higher by around 2.5% since Monday’s open. The markets are 60% above the 12-year low set back in March, and within a whisper of recouping half the losses since they fell from their 2007 records.

“What’s not to be confident about?” the Feds wonder – incredulous that foreclosed families are not whistling the same recovery tune. They point out that the banks are back to lavishing record-level bonuses on their top brass…trading desks are wheeling and dealing again…everything under the sun is worth more (in dollar terms) than it was a few months ago…AND, unemployment is still a few percent lower than Estonia’s record high…

And yet, despite all this “good” news, those consumers are trying to pay down their debt. Why, they’re just spoiling the party! We can almost hear those disgruntled DC goons now…

“Just because those ungrateful saps don’t have jobs, doesn’t mean they shouldn’t be pulling their weight to aid the recovery. Why aren’t they out there buying more stuff from the department stores? Don’t they know we’re broke? This is the time to spend, spend, spend! And don’t give me that ‘tapped out credit line’ hogwash either. Why, look at our national credit card. It’s in a despicable state…but has that stopped us from doing our bit to spend our way out of trouble? I should think not!”

If only our unemployed brothers and sisters read the paper they would know that true economic recovery – the sustainable, nation inspiring kind – only comes from plasma television lay-aways and gratuitous Visa purchases at the individual level. Well, at least that’s what their government expects of them.

But the individual is not like his government. He cannot, for example, amass exorbitant debts to his neighbor and then simply print off the money in his basement to repay them. If the Feds catch him in the act, he is charged with counterfeiting and sent to the slammer. The Feds don’t like competition, you see, and currency debasement is their racket. To them, the smell of freshly-inked bills is an anodyne for the inconvenient pains of real world economics...

[Demeter]

25. Isn't this just like 1982 all over again? The short answer: no, it isn't.

[Demeter]

26. Bill Bonner Talks Turkey

...As our friend Nassim Taleb says, a turkey's life is very agreeable...until the very last day. Until then, his whole life is a bull market. Everything looks good. Good food. A roof over his head. Plenty of company. Even free health care. The MPT guys would look at his history. They'd see no volatility. Every day, the turkey gains weight. Every day things get better. They'd see all reward and no risk. They'd say 'every investor should have turkeys in his portfolio.'

The chartists, too. They'd look at the turkey's life and see a line moving steadily up. 'Is this a winner or what," they'd say to each other.

And what about the economists? Well, the old-timers would be suspicious. 'There's no such thing as all upside...there's no boom without a bust,' they'd grumble. But the young fellows wouldn't listen. They'd plump for the turkeys without hesitation, confident that if anything were to go wrong, Ben Bernanke and Tim Geithner would set it right lickety-split.

And now, they think the Bernanke-Geithner team has just pulled off a save. Thanks to them, the turkeys who ran Wall Street - and invested in it - have been spared. America is getting back to work.

But what kind of work?

Alas, it's the work of a DEPRESSION - de-leveraging, busting up, working out loans, defaulting on debt...going chapters 11 and 7.

Yes, dear reader, the recession is over. Welcome back to the Depression. The number crunchers reported a positive GDP growth figure for the last quarter of 3.5%. Everyone cheered. Now, the crunchers admit that they were a little too optimistic. The real number is only 2.8%. But it's still positive. So the recovery is still on...

Sort of. If you deconstruct the numbers, and pull out all the feds' hot money effects, you'll probably find that the economy is not growing at all. How could it be? It's a consumer economy. Consumers aren't consuming...

The Wall Street Journal reports that "One in four borrowers underwater."

Mortgage delinquencies at a record high, adds The New York Times.

Real joblessness is at 17.5%, reports CNBC.

Insiders are selling 17 of their own shares for every one that they buy.

"Consumers lose appetite for dining out," says The Los Angeles Times.

The National Retail Federation thinks holiday sales will be 1% lower than last year. And last year they were depressed.

But The New York Times is worried about us over here in England. "Lost decade feared for British economy," says a headline.

As we pointed out yesterday, the US economy has already suffered a lost decade. No employment growth in the last ten years. No gains in the stock market. No household income growth. As near as we can tell, the whole nation is just another decade older and deeper in debt.

But that's the way it works, isn't it? A bull market on Wall Street...or a boom in the economy...they're just like a turkey's life. It's all fine...until it ain't fine any more.

And now, we're going to let you in on the secret. You can pass this on to the White House and the Fed if you like.

How can you really get an economy out of a depression? Well, you have to get into a depression first. Then, you can get out.

The cure for a depression, in other words, is a depression. Nothing else will do. Mistakes need to be addressed and corrected. Losses need to be recognized and written off. Bad decisions need to be put right.

So, bring on the depression! Get it on. Get it over with.

Too bad the feds don't get it at all.

[Demeter]

27. The US Shadow Economy is Larger Than Australia’s GDP…and Growing

http://dailyreckoning.com/the-us-shadow-economy-is-larger-than-australias-gdp-and-growing/

In tough economic times people turn to creative measures in order to get by, and Americans are behaving no differently. With high unemployment informal entrepreneurs, in particular the kind that don’t pay taxes, are coming out of the woodwork. After all, necessity is the mother of invention.

According to the Christian Science Monitor, “the shadow economy makes up a larger portion of the economies of countries like Greece (25 percent) or Mozambique (more than 40 percent) than it does in the US. But because America’s economy is so much bigger, its shadow economy amounts to nearly 8 percent of its gross domestic product (GDP) — in the ballpark of $1 trillion, estimates Friedrich Schneider, an economics professor at Johannes Kepler University in Linz, Austria. That’s bigger than the GDP of Turkey or Australia.”

http://features.csmonitor.com/economyrebuild/2009/11/12/americas-shadow-economy-is-bigger-than-you-think-and-growing/

[Tansy_Gold]

30. I think I mentioned this on either WEE or SMW a few weeks ago

so I'm glad to see some reporting on it.

I personally know at least four six unemployed persons who are either supporting themselves entirely on grey-market enterprises or significantly supplementing meager above-ground incomes (social security, pensions) with unreported cash income. And I know at least three others who are employed but are adding to their income with untaxed cash from unreported activities.

Back in the late 70s and early 80s, IIRC, the underground economy in the US was estimated at 10% of GDP, and that was when we still had a thriving manufacturing sector.


TG

[Tansy_Gold]

29. How Capitalism Failed Us (long but worth it)

thanks to karmadillo in GD

and interesting that it's reprinted on the CBS website. Kinda makes you go hmmmmmmmmmmmmm........




http://www.cbsnews.com/stories/2009/11/25/opinion/main5774783.shtml

How Capitalism Failed Us
Rebecca Solnit : Remembering People Power: Seattle 1999 and Berlin 1989



(CBS) Rebecca Solnit is the author of A Paradise Built in Hell: The Extraordinary Communities that Arise in Disaster and co-author with her brother David of The Battle of the Story of the Battle of Seattle. This piece originally appeared on TomDispatch.
--------------------------------------------------------------------------------

Next month, at the climate change summit in Copenhagen, the wealthy nations that produce most of the excess carbon in our atmosphere will almost certainly fail to embrace measures adequate to ward off the devastation of our planet by heat and chaotic weather. Their leaders will probably promise us teaspoons with which to put out the firestorm and insist that springing for fire hoses would be far too onerous a burden for business to bear. They have already backed off from any binding deals at this global summit. There will be a lot of wrangling about who should cut what when, and how, with a lot of nations claiming that they would act if others would act first. Activists -- farmers, environmentalists, island-dwellers -- around the world will try to write a different future, a bolder one, and if anniversaries are an omen, then they have history on their side.

A decade ago, and a decade before that, popular power turned the tide of history. November 30, 1999, was the day that activists shut down a World Trade Organization (WTO) meeting in Seattle and started to chart another course for the planet than the one that corporations and their servant nation-states had presumed they'd execute without impediment. Since then, events have strayed increasingly far from the WTO's road map for global domination and the financial scenarios that captains of industry once liked to entertain.

Until that day when tens of thousands of protestors poured into the streets of Seattle (as well as other cities from Winnipeg to Athens, Limerick to Seoul), the might of the corporations made their agenda seem nothing short of inevitable -- and then, suddenly, it wasn't. Disrupted by demonstrators outside its door and, on the inside, by dissent from poor nations galvanized by the ruckus, the meeting collapsed in confusion. Today, the WTO is puny compared to its ambitions only a decade ago.

The mass civil disobedience in the streets was, in a way, an answer to another landmark day a decade earlier: November 9, 1989, when the Berlin Wall fell and tens of thousands of Germans swarmed across the forbidden zone splitting their once and future capital city to celebrate, and eventually to reunite their nation. The fall of the Wall is now often remembered as if the gracious acquiescence of officialdom brought it about. It was not so.

"I announced the wall would open, but it was only the pressure by the people that made it possible," said Gunter Schabowski, then-East German Communist Party central committee spokesperson, earlier this year. Had those East Germans not shown up and overwhelmed the guards at the Wall, nothing would have changed that night. In fact, popular will toppled several regimes that season. Thanks to creative civil-society organizing, steadfastness, astonishing courage, and imagination, Poland, Czechoslovakia, and Hungary also slipped out of the Soviet bloc and so out of a version of communism tantamount to totalitarianism as well.

There was a lot of triumphalism in the West thereafter. From the White House to business magazines and newspapers came a drumbeat of pronouncements that communism had failed and capitalism had triumphed. As it happened, those weren't the binaries at stake in the astonishing uprisings that season in Eastern Europe, or in the failed uprising in Tiananmen Square in the Chinese capital Beijing that spring. People certainly wanted freedom, but it wasn't the freedom to trade mysterious debt instruments and buy Double Whoppers, exactly. Nor was it capitalism, but civil society, very nearly its antithesis, that had risen up and brought down the Wall. The real binary then was: civil society versus top-down authoritarianism -- and framed that way, our situation didn't look quite as good as Washington and the media then made out.

Nevertheless, for a decade afterward, it wasn't that easy to argue with the logic of capitalism's triumph, since even China was making a beeline for a market economy and, in the process, doing an especially good job of proving that capitalism and democracy were separate phenomena. It was also the decade of the North American Free Trade Agreement (NAFTA), the first of a series of broad international treaties meant to secure the terms of corporate power for a long time to come. Its implementation on January 1, 1994, prompted the Zapatistas, the indigenous peasants of southern Mexico's jungle, to rise up against the treaty, which promised -- and has now delivered -- a grim new chapter in the deprivation and dispossession of Mexico's majority. Like the fall of the Berlin Wall, the rise of the Zapatistas came as a great shock.

The Sucking Sound and the Turning Tide

Few remember how dissent against NAFTA was dismissed and even mocked in the era when the treaty was debated, signed, and ratified. In his debate with Bill Clinton and the elder George Bush during the 1992 presidential campaign, Ross Perot was ignored when he said, "We have got to stop sending jobs overseas." He was ridiculed for describing the "giant sucking sound" of those jobs heading south. Which, of course, they did -- and then on to China in a financial race to the bottom; while cheap corn raised by Midwestern agribusiness also went south where it bankrupted Mexico's small farmers.

Cheap food, cheap labor, cheap products turned out to be very, very expensive for the majority of us. It's a sign of how much things have changed that Hillary Clinton felt compelled to lie in last year's presidential campaign, claiming she had long been against NAFTA. In that, she was just a weathervane for changing times.

After all, in the decade since Seattle, most of South America liberated itself not just from a legacy of American-supported dictators and death squads, but from the economic programs those instruments existed to enforce.

Venezuela lent Argentina enough money to pay off its debts to the International Monetary Fund (IMF), that earlier instrument for imposing free-market ideology and corporate profit. Various other countries did the same, and the continent largely freed itself from the imposition of neoliberal policies that mainly benefited Washington and international corporations. The IMF was so impoverished by Latin American divestment -- which went from 80% of its loans to about 1% -- that it's been reduced to selling off its gold reserves. The World Bank is doing well only by comparison. By 2005, the tide had clearly turned, and the power of these institutions and of the so-called Washington Consensus that went with them was on the wane.

That tide had just begun to turn 10 years ago, when New York Times columnist Thomas Friedman referred to the people in the streets of Seattle as "a Noah's ark of flat-earth advocates, protectionist trade unions and yuppies looking for their 1960's fix." He charged, "What's crazy is that protesters want the W.T.O. to become precisely what they accuse it of already being -- a global government. They want it to set more rules -- their rules, which would impose our labor and environmental standards on everyone else."

Nice though our labor and environmental standards might have been elsewhere too, most of us didn't want the WTO to do anything or to have any power. As the Direct Action Network organizing leaflet from August 1999 put it, the WTO's "overall goal is to eliminate `trade barriers,' frequently including labor laws, public health regulations, and environmental protection measures."

That day in Seattle a crane dangled a pair of gigantic banners shaped like arrows: the first, inscribed "Democracy," pointed one way; the second, labeled "WTO," pointed the other. The leaflet and banners were pieces of a carefully organized resistance, and it's important to remember that events like the Velvet Revolution in Czechoslovakia 20 years ago or the shutdown of the WTO weren't just spontaneous uprisings; they were the fruit of long toil. While the right and too many American media outlets like to remember a fictitious Seattle that was nothing but a cauldron of activist violence (while ignoring serious police violence), too many on the left wanted to think of it as a miraculous convergence rather than the result of careful coalition-building, strategizing, outreach, and all the usual labors.

Straying Far from the Blueprint for Our Era

In the twenty-first century, free-trade agreements came down with their own version of swine flu, a disease likely generated on a gigantic Smithfield Farms hog-raising operation in Veracruz, Mexico, and nicknamed the NAFTA flu. NAFTA itself has been widely reviled. Presidential candidate Manuel Lopez Obrador campaigned in Mexico's 2006 election on promises to renegotiate it; Hillary disowned it. The plan for a hemisphere-wide Free Trade Area of the Americas (FTAA) was met with massive opposition in Miami in 2003. It crashed and burned in Argentina in 2005 and has since been abandoned.

Latin America went its own way while the Bush Administration locked its attention on the Middle East. Indigenous peoples in Ecuador and Bolivia had a particularly rousing set of victories, while the people of Cochabamba, Bolivia, astonishingly, defeated U.S.-based Bechtel Corporation's privatization of their water, and Ecuadorans are suing Chevron for environmental devastation in what could be the biggest corporate settlement in history -- $27 billion.

Meanwhile, the WTO lurched from one meeting to another, safe in the Doha round from pesky protesters, if not from the dissent of developing nations. It was again besieged by activists in 2003 in Mexico -- in scale and impact another Seattle -- and then further battered in 2005 in Hong Kong. The next ministerial conference of the WTO actually convenes in Geneva on November 30th, a decade to the day since the Seattle shutdown, still attempting to resolve issues that arose in Doha. Of course, in the meantime, sneakier bilateral trade agreements have taken the place of big multilateral ones, but this has hardly been the triumphant era predicted a decade earlier. Even Iraq hardly proved the hog trough the big oil and contracting corporations had anticipated.

In fact, for the corporations nothing much has turned out as planned. Capitalism itself failed a little more than a year ago. Or rather the bizarrely rigged corporate-run market economies that determine at least some portion of nearly everyone's life on Earth imploded in a frenzy of deregulated fecklessness and weirdly disassociative procedures. Then, they were propped up by governments in a way that made the phrase "socialism for the rich" truer than ever. For a while, the same business newspapers that had celebrated capitalism's triumph in 1999 were proclaiming "the end of American capitalism as we knew it" and the "collapse of finance."

It was as though the world economy had been a car driven by a drunk. Even if we have now let that drunk back behind the wheel, at least his credibility and the logic of what he claimed to be doing have been irreparably harmed. On the twentieth anniversary of the fall of the Berlin Wall, Time Magazine's cover story was: Why Main Street Hates Wall Street and it told readers in its opening passage that they should be furious. The fall of Wall Street, you could call it, if you want to hear the echo from Berlin.

Oil-price hikes, the misadventures in turning food into biofuels, and economic meltdowns have had other consequences. Michael Pollan wrote in the New York Times more than a year ago:

"In the past several months more than 30 nations have experienced food riots, and so far one government has fallen. Should high grain prices persist and shortages develop, you can expect to see the pendulum shift decisively away from free trade, at least in food. Nations that opened their markets to the global flood of cheap grain (under pressure from previous administrations as well as the World Bank and the I.M.F.) lost so many farmers that they now find their ability to feed their own populations hinges on decisions made in Washington... and on Wall Street. They will now rush to rebuild their own agricultural sectors and then seek to protect them by erecting trade barriers. Not only the Doha round, but the whole cause of free trade in agriculture is probably dead..."

Another death knell for the sunny corporate vision of globalization had nothing to do with ideology; it was about oil, since the more it cost to ship things around the world the less financial sense it made to do so. As the New York Times put it this August:

"Cheap oil, the lubricant of quick, inexpensive transportation links across the world, may not return anytime soon, upsetting the logic of diffuse global supply chains that treat geography as a footnote in the pursuit of lower wages. Rising concern about global warming, the reaction against lost jobs in rich countries, worries about food safety and security, and the collapse of world trade talks in Geneva last week also signal that political and environmental concerns may make the calculus of globalization far more complex."

The passages cited above came from the New York Times, not the Nation or Mother Jones. Which is to say that if communism failed 20 years ago, then capitalism staggered 10 years ago in Seattle, and fell to its knees a year ago. The crises of petroleum and food costs only augment this reality. But the crisis of climate change matters more than all the rest.

Futures that Work

There are endless questions and conundrums about the largely unforeseen situation in which we now find ourselves, all six billion of us. One of them is: if capitalism and communism both failed, what's the alternative? The big tent of subversions and traditions called the left hasn't, in recent times, done a very good job of providing pictures of the possibilities available to us. Still, perhaps the answer to what the political and social alternatives might be will prove very close to what a sustainable world in the face of climate change might look like: small, local, smart, flexible economies and technologies, democracy as direct as possible, an elimination of excess wealth as part of a leveling that might also eliminate dire poverty.

Some of our hope for the future has to be that, one day, the ecological and the economic can be aligned so that, among other things, petroleum and coal become increasingly expensive, as well as increasingly offensive, ways to run our machines. Will we be creative enough to embrace change before crashing systems and wild weather force change on us in the form of an unbearable crisis? Decisions about the nature of that change to come must be made by the citizenry, which seems to be fairly willing to face change when it gets its facts straight, rather than by wealthier nation-states and their leaders who seem, at this juncture, more interested in protecting business than life on Earth.

To survive the coming era, we need to re-imagine what constitutes wealth and well-being and what constitutes poverty. This doesn't mean telling the destitute not to hope for decent housing, adequate food, and some chance at education, as well as some pleasures and power. It means paring back on the mad consumption machine that has been the engine of the global economy, even though what it produces is often enough entirely distinct from what's actually needed. American life as it is now lived is poor in security, confidence, connectedness, agency, contemplation, calm, leisure, and other things that you aren't going to buy at Wal-Mart, or at Neiman Marcus for that matter. If we can see what's poor about the way we are, we can see what would be enriching rather than impoverishing about change.

Anniversaries of a whole host of revolutions seem to fall in years ending in nine -- from 1789 in France to 1959 in Cuba and 1979 in Nicaragua. And then, in our calendar of nines, there was the fall of the Wall and the Battle of Seattle. The "revolution" that got us into this era of climate change, however, can't be dated that way. It was the industrial revolution, a gradual shift to an era of mechanization made possible by, and paralleled by, the rise of fossil-fuel consumption. We can't, and shouldn't, undo this revolution, but we need to reject some of its premises and recognize some of its costs, including alienation, degradation, and commodification.

We need a postindustrial revolution of appropriate technologies, both in the developed world and in the developing one, so that, for example, kerosene lanterns and wood-burning stoves will be replaced not by conventional appliances but by elegant solar technologies.

There needs to be another revolution in addition to these, one that finishes decolonizing the world so that Europe and the United States are no longer using the lion's share of resources and emitting the lion's share of carbon per capita. The WTO, the IMF, and other instruments of neoliberalism existed to keep that world-as-it-was going; the revolt in Seattle was against their ideology as well as their impact, and the decade-old graffiti that said, "We are winning," had a point.

The "we" that could win and needs to win in the climate change wars isn't the United States itself. As Bill McKibben recently wrote of President Obama, "The announcement yesterday from the APEC meeting in Singapore that next month's Copenhagen climate talks will be nothing more than a glorified talking session makes it clear that he has, at least for now, punted on the hard questions around climate. The world won't be able to get started on solving our climate problem, and the obstacle is -- as it has been for the last two decades -- the United States." The citizens of the U.S. need to revolt, again, against their nation's failure of vision and responsibility, in solidarity with the rest of the people of the world, and the animals, and the plants, and the coral reefs, and the coastlines, and the rivers, the glaciers, the ice caps, and the weather as we now know it, or once knew it. That's why November 30th is going to be a global day of action.

Everything is going to change either as runaway climate change takes hold, with its concomitant destruction and suffering, or because a set of programs will be embraced that forestall the worst and return our planet to an atmospheric carbon level of 350 parts per million, now considered the necessary standard to avoid environmental catastrophe. We're already at 390 parts per million. Unfortunately, a lot of the nations in the key Copenhagen negotiations have fixed on an outdated notion that the world as we know it can survive at 450 parts per million, which would conveniently mean that relatively moderate adjustments are needed.

Remembering how dramatically -- and unexpectedly -- things have changed in the recent past is part of the toolbox for making a deeper, far more necessary change possible. Surely, the extraordinary power of ordinary people in Berlin and Seattle provides us with the kinds of history lessons, the riches we need, to start learning to count.






By Rebecca Solnit:
Reprinted with permission from TomDispatch.

[Demeter]

31. A few thoughts about the limitations of government By Edward Harrison

http://www.nakedcapitalism.com/2009/11/a-few-thoughts-about-the-limitations-of-government.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+NakedCapitalism+%28naked+capitalism%29

In this post:

A few thoughts about the limitations of government

Our founding fathers

How large should government be?

How policy helps frame the debate

Where we are headed

In a recent post, “Stop the madness now!” I voiced my growing concern with the direction in which the country is headed. I am not alone in my anxiety. Despite recent improvements in the economy, most recent polls show that Americans are more alarmed now than they were early in the year when things looked rather bleak. While these concerns have manifested themselves in various ways depending in large part on political affiliation, it is clear much of the worry centers on jobs – or the lack thereof.

Policy makers have been ‘wildly’ successful in stabilizing the economy in the U.S. and elsewhere. Given the enormity of the financial crisis, it is unrealistic to have expected a far better economic situation than the present one. Nevertheless, disenchantment with the economic direction has reached a fever pitch and put the Obama Administration on its back foot.

In my view, this is not just because the economy remains weak. Americans are angry because the economic policies used to try to fix our predicament have been both unfair and opaque. They have favored special interests like big banks and much of the maneuvering has been done in secret. All of this has increased distrust of government and weakened the Obama Administration.

The result of the increasing distrust of government has been a renewed questioning of the role and limitation of government in the American economy.

When thinking about government and its role and size, there are three camps of thought.

1. Big Government. Supporters of big government believe that government can do good. In this view, an increase in the size of government is not just needed but necessary in a severe economic downturn in order to fill the void left by the private sector’s fragility. The large scale fiscal stimulus enacted in 2001 at the beginning of President Bush’s first term, in 2008 at the tail end of the Bush Administration, and in 2009 during the Obama Administration are examples of Big Government in action.

2. Limited Government. People in this camp believe that government must always be held in check – even in times of economic distress. If not, a self-perpetuating bureaucracy develops, with a cadre of individuals dependent on government and wedded to institutions or programs which no longer have great value. In this view, expanding government is like moving to into bigger house; the new space must be filled with stuff, with size justifying the need for possessions rather than the need for space justifying the size.

3. Small Government. Individuals in this camp see government as a parasite which, while necessary in small measure, always and everywhere raises the specter of despotism and cronyism. In this view, government must be kept as small (and as local) as possible because it feeds on society and on power to usurp property and wealth for its own use and that of its cronies.

Our founding fathers

The United States were founded by individuals who were distrustful of government, many looking to escape tyranny, taxes and religious persecution. The founding fathers were largely in the limited government camp, with many falling into the third small government group. We need look no further than the U.S. Constitution for evidence of this instinctive distrust of government...MORE AT LINK

[Demeter]

36. Pimco’s Gross Increases Government Debt to Most in Five Years

http://www.bloomberg.com/apps/news?pid=20601087&sid=aN78quNzqd5Y&pos=5

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., increased his holdings of government-related debt to 63 percent, the highest proportion since July 2004.

Gross boosted his $192.6 billion Total Return Fund’s investment in Treasuries, so-called agency debt and other U.S. government-linked bonds from 48 percent of assets in September while reducing his position in mortgages to the smallest since May 2004, according to data on Pimco’s Web site yesterday.

Gross said in his December investment outlook last week that the “systemic risk” of new asset bubbles is rising with the Federal Reserve keeping interest rates at record lows. Under what Pimco has termed the “new normal,” investors should be prepared for lower-than-average historical returns with heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy.

With unemployment at a 26-year high of 10.2 percent, Gross said the central bank is unlikely to raise interest rates until nominal gross domestic product increases 4 percent to 5 percent for another 12 months.

“With unemployment in the double digits and likely to stay close to that for the next six months despite job creation ahead, the Fed has no where to go,” Gross, co-founder and co- chief investment officer of Pimco, said in a Bloomberg Television interview on Nov. 19 from Newport Beach, California....

[Demeter]

38. VIVA CHAVEZ! How Capitalism Failed Us

http://www.cbsnews.com/stories/2009/11/25/opinion/main5774783.shtml


...Venezuela lent Argentina enough money to pay off its debts to the International Monetary Fund (IMF), that earlier instrument for imposing free-market ideology and corporate profit. Various other countries did the same, and the continent largely freed itself from the imposition of neoliberal policies that mainly benefited Washington and international corporations. The IMF was so impoverished by Latin American divestment -- which went from 80% of its loans to about 1% -- that it's been reduced to selling off its gold reserves. The World Bank is doing well only by comparison. By 2005, the tide had clearly turned, and the power of these institutions and of the so-called Washington Consensus that went with them was on the wane....

AND THAT'S WHY SOUTH AND CENTRAL AMERICA ARE COMING INTO THEIR OWN, WHY THE US IS GOING TO GET THROWN OUT OF HONDURAS, COLOMBIA AND ECUADOR, AND WHY I'M SERIOUSLY THINKING OF EMIGRATING.

DON'T FORGET, IT WAS TIMMY'S STELLAR FUCKUP IN INDONESIA THAT TURNED THE IMF INTO THE LAUGHINGSTOCK IT IS TODAY. HE AND LARRY SUMMERS ARE THE ECONOMIC LAUREL AND HARDY "THIS IS ANOTHER FINE MESS YOU'VE GOTTEN ME INTO!"

[Demeter]

39. I Have to Go Make Pie Now

Talk amongst yourselves. I'll be back tomorrow (even if the markets are open, I have to make up for the lackluster previous weekend...) or maybe tonight, if the tryptophan doesn't get me....

[Dr.Phool]

41. Awright you turkeys!

Happy Thanksgiving.

I'm going next door this evening, for dinner at the SIL's house. I stuffed and baked a turkey yesterday, with my whole wheat, apple, walnut, and cranberry stuffing. I've got to have left-overs!

Make sure you have enough alcohol on hand to prevent you from venturing outside the house tomorrow. However, CompUSA has a sweet deal on a Garmin GPS, but I think it can be had online. If not, who care? I'm staying home. Well, I am going to the dog park.

[DemReadingDU]

45. Happy Turkey Day to everyone!

Have been at daughter's house, then she talked us into seeing movie 2012. Click the video tab to see trailer.
Lots of symbolism in the movie compared to today, such as some people are aware of an impending disaster but wait until the last minute to tell citizens. http://www.whowillsurvive2012.com/



Hey, aren't the markets open tomorrow until 1pm?

[AnneD]

48. As my darling daughter opioned.....

where else but America would you celebrate genocide by throwing a gluttonous feast.

We didn't mind the Italians or the French, but we should have let the damned English freeze and starve. Damn small pox covered blankets. With the French and Italians we got better food and wine. I say that because again I celebrated Thanksgiving with me fav Italian American family.

Any way, Happy Day of the Dead. I have a bushel basket of tomatoes ready to lob at you.

Northern Exposure-Thanksgiving

The Indians in Cicely celebrate Thanksgiving by throwing tomatoes at white people. Joel is Ed's first victim and he is angered because in his words he is "definitely not white." The town gets decorated with skulls and pumpkins as they also celebrate "The Day of the Dead." Joel also gets bad news in a letter telling him that he must serve another year on his contract. Mike's latest reactions to the environment are caused by something he can't trace so he thinks about moving to Greenland. Chris waxes nostalgic and decides that the something missing from his life is "the joint" when he finds a can of beans that he remembers from Thanksgiving.

www.youtube.com/watch?v=kYL5IqrSaVk

[kickysnana]

43. My sister wants everyone to know how unethical TCF Bank is..

She has always lived hand to mouth and when TCF closed up headquarters in Minnesota and reopened in no-regulation South Dakota I closed my account. And when the new account rules came out from them in September that were oked in piggybacked on the paperless check legislation, thank you Congress, I told her to be careful.

Knowing that there would be an automatic deposit of $117 on Tuesday as well as an auto bill pay of $45, she checked her balance on Monday and it was $57 and some cents. She paid for her medicine copays $45 and put $10 in her gas tank. She checks her balance on Tuesday and it showed she had $2 and some cents. She had another autopay coming in the next day but the $117 should have covered it.

Unknown to her the bank put a hold on her $57 and bounced her two checks and charged her $75 but that would not be posted for another two days. The next day they took the charges out first. Put a hold on for the payment due the next day. Then put the largest to smallest 3 transactions which all bounced. Then charged her another $105. The same thing happened the next day but her online balance did not show the holds or the check bounce fees. On Thursday when she first saw the Monday overdrafts she had already accumulated $395 in fees. When she called them on following Monday, if they had not held checks and not done highest to lowest check payouts she would have had at most one overdraft for the $12.50 but she probably would have deposited money before close of business on Friday if they had not eaten up what she had already put in.

The first CS person she talked to on Thursday said that it was her fault and they would not reduce the fees. When she called back on Monday they said they would wave $170. Her ex-husband had done a cost analysis for a major bank in Minneapolis and it costs banks with mailing out a notice, .50 to process the total daily overdrafts in one day.

Disclaimer: Yes they had a contract blah, blah, blah, and it was her responsibility to know the rules blah, blah, blah but TCF made $14 million dollars on overdraft charges in 2007 before the changes that caught my sister last week. Charging someone $225 for what amounted to about $2.25 cost to them is unethical. TCF markets to low income and elderly. Also I know of a business was about to have a $3.6 overdraft last week but it appears they do not have to pay any fees for overdrafts on that account and were notified by phone the day before so they could fix it.

[DemReadingDU]

44. Karl Denninger wrote about this a couple months ago

This is an opinion article written to Clarksdale, Mississippi newspaper, about assessing customers extra fees through overdraft charges. Basically, a person is charged multiple overdraft fees because the bank held smaller earlier transactions and processed the largest amount first, even though it was the last transaction. This resulted in multiple overdraft charges, instead of one charge. Of course, not all banks do this, but the big banks do. Here is an article about a lawsuit against the big banks.

7/27/09 Wachovia, BofA, Citibank Sued Over 'Bad-Faith' Overdraft Fees
http://www.law.com/jsp/article.jsp?id=1202432536214

Here is the opinion article in the Clarksdale newspaper:
*****************************
Beware the overdraft
15/08/2009
Karl Denninger

You would have to be living under a rock to not know that the banks have received hundreds of billions of taxpayer largesse in the form of direct handouts and various “loan programs,” administered by either our government or The Federal Reserve.

You might not, however, be quite as aware of how banks have quietly set up their processing systems to rip you off at every opportunity.
At the center of this is the “overdraft.” Let’s examine how this used to work.

First, banks all close their “book day” around 2:00 PM. Some sooner, some a bit later, but all have a cut-off for “today” that is not their closing hour of (typically) 5:00 PM. Anything that comes in supposedly gets posted to your account that day.

Prior to these (quietly made) changes if you had $1,000 in your account and wrote a $950 check for rent, a $200 check for the electric bill, a $50 check at the grocery store, a $20 check at the local hairdresser and a $25 check at the cleaners you’d get nailed with a single “overdraft” charge for the $950 check; the others would go through.

It used to be that if you went to the ATM and tried to withdraw $200 but didn’t have it, you’d get a “transaction declined” message and no money. I know: when I was in college I occasionally would try to take out money I didn’t have, only to be told “NO!”

A few years ago the banks started intentionally re-ordering your transactions in order from largest to smallest. That results in the $950 check being paid and the rest overdrawing your account, generating four separate $30 overdraft fees instead of one.

Worse, if you have a deposit for $1,000 the same day, making your account “good” (or so you think) the bank will process the debits (that is, your checks) before your deposits, resulting in overdraft charges even though the money is in fact there!

If you have electronic banking you can actually see this happen – you can go make a couple of $20 purchases with your debit card, log into your bank account, see the $20 charges posted and then later in the day the transactions will be “re-ordered” so as to process the larger items that show up later first.

Insult is added to injury with your debit card. These transactions are electronic: The bank knows if the debit is good (or not) before it processes it. That is, when you’re standing in line at Starbucks if you don’t have sufficient money in your account the bank knows before it “approves” that transaction – but they’ll approve it anyway, turning your $5 latte into a $40 one without any warning to you at all.

Even ATM machines will do this – they’ll “give” you money you don’t have, and most banks will not warn you that you’re about to incur an overdraft fine that averages $30 per offense.
Finally, if you buy gasoline or stay in a hotel the merchant will place a “hold” on your account for more than the final purchase amount as a “guarantee” that your account is good. This is typically $100 at a gas station and can be as much as $100 over your expected bill per night in a hotel. When the transaction is finalized these “holds” are supposed to be removed, but usually are not – they instead expire a couple of days later. Needless to say the “hold” counts against your balance and can easily result in “overdraft” fees that are in fact false – there was more than enough money in the account to clear the transaction but the “hold” caused you get fined – in this case for something you didn’t do.

The effective interest rate on such “overdraft fees” is thousands of percent a year. The banks justify this on “convenience,” in point of fact, however, I’ve yet to find anyone who thinks its “convenient” to pay $40 for a latte or $50 for a movie ticket – all undisclosed at the time of purchase.

This practice resulted in thirty eight billion dollars in profits for banks last year - all of it unearned and a result of nothing other than pure robbery of the people. As a final insult many banks will not allow you to “opt out” of these “automatic” overdraft services (that is, decline transactions you can’t fund instead of paying them and fining you) and none will get rid of the “re-ordering” they do internally.

Our so-called “regulators,” including The Fed and Congress, have refused to address these abuses. Even in the so-called “consumer protections” that The Fed and Congress put in place recently with regards to credit cards, these abusive practices were entirely ignored. Their impact tends to fall on the less-wealthy who live paycheck-to-paycheck and the proliferation of debit cards has just made the situation worse.

I have but one question for the banksters, Federal Reserve and Congress: if you’re going to hold people up, especially those who are of limited means to protest and fight back, don’t you think you should use a gun?

http://www.blues-star.com/

From Karl Denninger's blog...
Note - This forum requires donation or 6-month length registration.
http://www.tickerforum.org/cgi-ticker/akcs-www?post=107425

[Demeter]

46. TCF Is Where I Bank

And they have done stuff like that to me, too. And then it takes a WEEK before the postcard arrives in the mail!

I now use them mainly to upload money to INGDirect, where I do all the automatic payments, and where I can have an overdraft protection of $500 at minimal rates (like 7% annual) whenever its activated. They also pay decent interest on any positive balance, and with instant linking, I can bail out my kid or my sister can bail me out in a crisis.

It's been a lifesaver. Once you figure out how to live in the cloud bank, it takes a lot of stress off. And the people on the phone are so incredibly friendly and helpful...


I liked my "bricks" bank better before the merger, when it was called Great Lakes. I didn't know they had shifted from Minn to SDakota. Figures.

Would also explain why Monday's direct deposits don't show up until Tuesday, now.

[DemReadingDU]

47. No bank closings this Friday? n/t

[Demeter]

50. Not A One

Public servants do get paid holidays.

Also the FDIC is $8B in the red until the banks fork over the extorted money.

[AnneD]

49. I have always been fascinated....

by the Ferengies. I am a big Star Trek fan and enjoy studying Economics, so Ferengies as a future aspect of business has always been of particular interest. I was always curious about the Rules of Acquisition as a mission statement or guidline....so for you hard core wonks, here goes:

Rules of Acquisition.

Once you have their money ... never give it back.
Never pay more for an acquisition than you have to.
Never allow family to stand in the way of opportunity.
A man is only worth the sum of his possessions. (From Enterprise, episode "Acquisition"; sloppy script-writing, as rule 6 (see above) was already given in DS9)
Keep your ears open.
Small print leads to large risk.
Opportunity plus instinct equals profit.
Greed is eternal.
Anything worth doing is worth doing for money.
A deal is a deal ... until a better one comes along.
A contract is a contract is a contract (but only between Ferengi).
A Ferengi without profit is no Ferengi at all.
Satisfaction is not guaranteed.
Never place friendship above profit.
A wise man can hear profit in the wind.
Nothing is more important than your health--except for your money.
There's nothing more dangerous than an honest businessman.
Never make fun of a Ferengi's mother ... insult something he cares about instead.
It never hurts to suck up to the boss.
Peace is good for business.
War is good for business.
She can touch your lobes but never your latinum.
Profit is its own reward.
Never confuse wisdom with luck.
Expand, or die.
Don't trust a man wearing a better suit than your own.
The bigger the smile, the sharper the knife.
Never ask when you can take.
Good customers are as rare as latinum -- treasure them.
There is no substitute for success.
Free advice is seldom cheap.
Keep your lies consistent.
The riskier the road, the greater the profit.
Win or lose, there's always Hyperian beetle snuff.
Home is where the heart is ... but the stars are made of latinum.
Every once in a while, declare peace. It confuses the hell out of your enemies.
Beware of the Vulcan greed for knowledge.
The flimsier the product, the higher the price.
Never let the competition know what you're thinking.
Ask not what your profits can do for you, but what you can do for your profits.
Females and finances don't mix.
Enough ... is never enough.
Trust is the biggest liability of all.
Nature decays, but latinum lasts forever.
Sleep can interfere with profit. (DS9 season 2, episode 7 - "Rules of Acquisition")
Faith moves mountains ... of inventory.
There is no honour in poverty.
Dignity and an empty sack is worth the sack.
Treat people in your debt like family ... exploit them.
Never have sex with the boss's sister.
Always have sex with the boss.
You can't free a fish from water.
Everything is for sale, even friendship.
Even a blind man can recognize the glow of latinum.
Wives serve, brothers inherit.
Only fools pay retail.
There's nothing wrong with charity ... as long as it winds up in your pocket.
Even in the worst of times someone turns a profit.
Know your enemies ... but do business with them always.
Not even dishonesty can tarnish the shine of profit.
Let others keep their reputation. You keep their money.
Never cheat a Klingon ... unless you're sure you can get away with it.
It's always good business to know about new customers before they walk in the door.
The justification for profit is profit.
New customers are like razortoothed grubworms. They can be succulent, but sometimes they can bite back.
Employees are rungs on the ladder of success. Don't hesitate to step on them.
Never begin a negotiation on an empty stomach.
Always know what you're buying.
Beware the man who doesn't make time for oo-mox.
Latinum lasts longer than lust.
You can't buy fate.
Never be afraid to mislabel a product.
More is good ... all is better.
A wife is a luxury ... a smart accountant is a necessity.
A wealthy man can afford anything except a conscience.
Never allow doubt to tarnish your love of latinum.
When in doubt, lie.
Deep down everyone's a Ferengi.
No good deed ever goes unpunished.
When Morn leaves, it's all over.

[Ghost Dog]

65. "Satisfaction is not guaranteed."

And there you have it.

[Demeter]

51. Welcome Back, Everybody!

Well, this Dubai default is proving to be the Turkey of 2009. Do you remember we saw it coming? The artificial islands they were building, the guest workers fleeing for their lives after their jobs were cut and their debts weren't?

http://images.google.com/imgres?imgurl=&imgrefurl=http://www.skidubai.com/dubai/projects/&usg=__G20t8ZNt-4USOT0N4fHjJNMjeHU=&h=266&w=440&sz=40&hl=en&start=19&um=1&itbs=1&tbnid=jKDgqtyIbyHeoM:&tbnh=77&tbnw=127&prev=/images%3Fq%3Ddubai%2Bartificial%2Bislands%26hl%3Den%26client%3Dfirefox-a%26rls%3Dorg.mozilla:en-US:official%26sa%3DX%26um%3D1

A building boom in the emirate has led to a whole host of chart breakers, in categories including highest apartment, biggest mall, and one of the world's most unique resorts.

HYDROPOLIS
This hotel, the world's first underwater luxury resort, brings new meaning to the "ocean-view room." Situated 66 feet below the surface of the Persian Gulf, Hydropolis will feature 220 guest suites. Reinforced by concrete and steel, its Plexiglas walls and bubble-shaped dome ceilings offer sights of fish and other sea creatures. It's scheduled to open in late 2007. Joachim Hauser



THE PALM ISLANDS
The three artificial islands that make up the Palm (comprising the Palm Jumeirah, the Palm Jebel Ali, and the Palm Deira) are the world's biggest man-made islands. Each was built from a staggering 1 billion cubic meters of dredged sand and stone, taken from Dubai's sea bed and configured into individual islands and surrounding breakwaters. The complex will house a variety of tourist attractions, ranging from spas and diving sites to apartments and theaters. The entire complex is designed to collectively resemble a date palm tree when seen from the sky. Al Nakheel Properties



THE WORLD
Ever wish the world was smaller? This group of more than 250 man-made islands was designed to resemble the entire world when seen from the air. The islands, which range from 250,000 to 900,000 square feet, can be bought by individual developers or private owners -- starting at $6.85 million.

The only way to get between each island is by boat...or yacht, given the clientele. A notable engineering feat: The project incorporates two protective breakwaters to protect the islands from waves, consisting of one submerged reef (the outer breakwater) and an above-water structure (the inner breakwater).



And what a turkey it is! Plenty of meat on it, plump and juicy!

[Demeter]

52. Global markets hit by fresh Dubai jitters

http://www.ft.com/cms/s/0/e3da189c-da63-11de-9c32-00144feabdc0.html

Stock markets across the globe suffered fresh falls on Friday as global investors scrambled to understand the implications of Dubai World’s restructuring and unexpected debt standstill.

The lack of information about Dubai’s flagship government-owned holding company, made worse by a religious holiday in the Middle East, prompted indiscriminate selling of stocks linked to the region. The cost of insuring against default in emerging markets around the world also leapt.

In Japan, the Nikkei 225 lost 3.2 per cent to close at 9,081.52, its biggest one-day decline in almost eight months. In Seoul, the Kospi fell 4.7 per cent to 1,524.50, a four-month low. Australia’s S&P/ASX 200 lost 2.9 per cent to 4,572.10, while Hong Kong’s Hang Seng dropped 4.8 per cent to 21,134..50.

The selling spread to Europe, where the FTSE 100 at one point slumped 1.8 per cent but regained ground to trade down 0.4 per cent at 5,175.3. The FTSE Eurofirst 300 fell 0.5 per cent to 983.2. US futures pared losses but still point to the S&P 500 opening down 2 per cent from the new high for the year it achieved ahead of Thursday’s Thanksgiving holiday, when US markets remained closed....

,,,A conference call on Thursday for bondholders of Nakheel, the Dubai-owned property company at the centre of the storm, collapsed after phone lines were swamped with callers.

Nakheel, wholly owned by Dubai World, is due to redeem a $3.5bn bond next month. The bonds were trading on Friday at 40 cents on the dollar, almost 70 below their 109 redemption price as investors lowered their expectations that payments would be made following Dubai World’s call for a six-month standstill.

The conference call was organised by QVT, a New York hedge fund. A fund executive confirmed that it was reorganising the call with a greater phone capacity but declined to comment further.

“People are panicking: This whole process counters everything that the rulers have been saying and the way it has been communicated before the holidays so no one can get any information is confusing,” said one hedge fund manager.

The cost of insuring Dubai’s debt against default jumped more than 100 basis points on Friday to 670, meaning that it now costs $670,000 annually for every $10m of debt covered for five years...

[Demeter]

53. Dollar hits 14-year low on yen

http://www.ft.com/cms/s/0/f93521e2-da44-11de-b2d5-00144feabdc0.html

[Demeter]

54. Europe warns China on trade backlash threat

http://www.ft.com/cms/s/0/ff768ece-da62-11de-9c32-00144feabdc0.html

China could face a protectionist backlash next year because of a huge over- expansion of industrial capacity in recent months that may lead to a surge in cheap exports, a European business group said on Thursday.

The government’s massive stimulus measures to revive the economy have exacerbated the already serious problem of manufacturing overcapacity, the European Chamber of Commerce in China said in a report. Industries such as steel, cement and plastics were still “blindly expanding”, it said....

...Although the primary focus of the stimulus has been infrastructure, the spill-over effect has been continued expansion in steel, aluminium, cement and chemicals. The wind-power equipment and oil refining sectors were also facing overcapacity, the European chamber said.

Mr Wuttke estimated overcapacity in China’s steel sector at 100m to 200m tonnes, or 15-30 per cent of total capacity. Much stemmed from some 150m tonnes of illegal or unauthorised capacity, equivalent to the steel industries of Japan and South Korea combined.

Overcapacity was potentially damaging not just because of the risk of bad loans, he said, but it also limited companies’ ability to invest in innovation and made it harder to enforce environmental rules.

Yu Yongding, one of China’s leading economists, has raised similar concerns. In a speech this week, he said there was evidence of waste in some of the spending and warned China could face “very large inflation pressure in the future”.

[Demeter]

55. Hajj climax marked by 3m worshippers

http://www.ft.com/cms/s/0/a7ac3586-daad-11de-933d-00144feabdc0.html

Amid regional tensions and a swine flu scare, about 3m Muslims dressed in simple white attire assembled on Thursday on the plain of Mount Arafat, east of the holy city of Mecca, to mark the climax of the world’s biggest annual pilgrimage, or hajj...

[Demeter]

56. Golden Note From Dailyreckoning,com

Gold is on track for its best monthly performance in a decade. The money metal reached $1,180 earlier this week, another all-time high. There's buzz that India, which bought 200 metric tons of gold from the International Monetary Fund earlier this month, might well buy the rest of the 203.3 metric tons the IMF has put up for sale...

[Demeter]

57. Freak Show By Bill Bonner

http://dailyreckoning.com/freak-show-2/


Governments benefit from 'teaser' rates. Wait 'til they come to an end...

There are so many breathtaking things going on around us we practically suffocate. Last week, three-month US Treasury-bills yielded all of 0.015% interest. Some yields were below zero. In effect, investors gave the government money. The government thanked them and promised to give them back less money three months later. How do you explain this strange transaction? Was there a full moon?

Moonlight on the week of November 6 must have been especially intense. Bids totaled a record $361 billion for just $86 billion worth of T- bills. This was $100 billion more than the peak set during the credit crisis a year ago. What? A third of a trillion dollars, per week, gives itself up to the hard labor of government service and asks for nothing in return?

Even lending to the government for much longer period yields little to the investor. The 10-year yield is only 3.32%. Thirty-year lenders get only 100 basis points more. And this in a currency that is melting faster than polar ice. Gold, the traditional bank reserve, is soaring in comparison. Not surprising; the US dollar money supply - measured by the US monetary base - rose 147% over the past 24 months.

The only thing rising faster than the demand for government debt is the supply of it. All major governments of the West - and Japan - are now borrowing as if their lives depended on it. The IMF predicts that Britain's ratio of public debt to GDP will rise 50% between 2007 and 2014. In America, the increase is forecast to take taxpayers nearly to the debt levels of WWII. Those estimates are probably far too low, since they depend on an economic 'recovery' that will almost certainly prove to be a disappointment. The purpose of a depression is to get rid of bad debts and correct bad investment decisions. But an economy cannot correct itself unless it is allowed to enter a correction. When you try to prevent it, you get a zombie economy in constant need of freshly borrowed blood. Debts rise, but with no recovery. As reported on this back page, former US Office of Management and Budget director David Stockman expects a zombie economy in the US, with deficits twice as great as those now projected...that is, of $2 trillion per year, not $1 trillion. This will send US debt beyond WWII levels...up to Japan- like heights.

Other governments, too, are likely to see similar swelling in their public debt limbs. All right-thinking economists and commentators have come to the same conclusion - that fiscal and monetary stimulus must continue until the 'recovery' is more manifest. Worse, they've been trapped by the logic of Keynesianism itself. Now, everything is 'stimulus.' Nothing can be cut. The boils cannot be lanced.

When you come to the end of a war, spending is naturally reduced.

Deficits can go home with the troops. Debts can be paid down. But there is no end in sight for these deficits. Because only a small part of them is the direct consequence of the war against depression. Instead, they are merely the inevitable result of governments that spend too much money. In the US this "structural deficit" is estimated by the IMF at 3.7% of GDP. In Japan and Britain it is twice that amount.

Whatever else can be said of it, this freak show cannot go on forever. The US has $2 trillion worth of short-term bills that must be refinanced in the next 12 months. It must also refinance about $1 trillion more of notes and bonds. That's without adding any additional debt! So put a deficit of $1.5 trillion on top of that and you have $4.5 trillion of financing for the US alone.

But the US is not the only one fishing in this pond. Japan's national debt already measures 200% of its GDP and is increasing rapidly. So far, Japan's deficits have been financed internally. The Japanese saved 20% of their household incomes in 1980. But the Japanese are aging. When they retire, people cease saving and begin drawing on savings to cover living expenses. At the current pace, the household savings rate should fall to zero in 5 years. Then, who will buy Japan's bonds? Who will cover Japan's deficits? The same people who are supposed to cover America's deficits?

Taken all together, the world's governments will need $1 trillion per month, in financing, over the next 12 months, according to an estimate in the Financial Times. Who has that kind of money? Total US savings are only $700 billion. Even the Chinese, if they put their entire cash pile to it, could only fund the deficits for about 67 days' worth. Warren Buffett? Less than 48 hours.

There is also the problem of paying the interest on rising debt loads. Thanks to the forgetfulness or credulity of the world's lenders, borrowers now benefit from exceptionally low rates - just like the 'teaser' rates once accorded to sub-prime lenders. But the tease will come to an end soon. Even the Obama Administration forecasts interest payments to rise from $200 billion at present to $700 billion by 2019. This assumes interest rates only regress to 'normal.' But "hot money" from the feds has acted like spent nuclear fuel; every fish in the financial pond now seems to have two heads and a bag over both of them. The freaks of November 2009 may be replaced by things perhaps no less strange, but in a different way. The last time gold was over $800 lenders to the US government demanded yields in excess of 18% in order to part with their money. That was odd too. But it had very different consequences for investors.

[Demeter]

58. Lack of Medicare Appointee Puzzles Congress

http://www.nytimes.com/2009/08/18/health/policy/18health.html?_r=3&hp

President Obama has made health care his top priority. He says the cost of Medicare and Medicaid is “the biggest threat” to the nation’s fiscal future. But to the puzzlement of Congress and health care experts around the country, Mr. Obama has not named anyone to lead the agency that runs the two giant programs.

The agency, the Centers for Medicare and Medicaid Services, is the largest buyer of health care in the United States. Its programs are at the heart of efforts to overhaul the health care system. If it had an administrator, that person would be working with Congress on legislation and could be preparing the agency for a new, expanded role.

“The vacancy stands out like a sore thumb,” said Dr. Denis A. Cortese, president of the Mayo Clinic, often cited by the White House as a health care model.

“In effect,” Dr. Cortese said, “Medicare is the nation’s largest insurance company. The president and Congress function as the board of directors.

“Under a strong administrator, it could take the lead in making major changes in the health care delivery system, so we’d get better outcomes and better service at lower cost.”

The agency provides health insurance to 98 million people, pays 1.2 billion claims a year and has an annual budget of more than $700 billion. It has a pervasive influence on medical care, regulating hospitals, doctors, health plans, laboratories and almost every other type of health care provider. When Medicare decides to cover a new treatment or adopts a new payment policy, private insurers often follow its lead.

Trying to remake the health care system without a Medicare administrator is like fighting a war without a general.

“You need a general,” said Senator John D. Rockefeller IV, Democrat of West Virginia and chairman of the health subcommittee of the Finance Committee. Of the job vacancy, Mr. Rockefeller said: “It’s a big problem. I can’t explain it.”

Administration officials said they were searching for someone with the right mix of managerial experience and clinical expertise.

“We’re working hard to find the best fit to steer C.M.S. during this critical period,” said Reid H. Cherlin, a White House spokesman. “We look forward to nominating an administrator soon.”

The agency has not had a regular Senate-confirmed administrator since October 2006, when Dr. Mark B. McClellan stepped down. Its chief operating officer, Charlene M. Frizzera, has been the acting administrator since January.

Mr. Cherlin said the agency was “running at 100 percent capacity” and continued to provide vital services.

But Dr. John C. Lewin, chief executive of the American College of Cardiology, said that, in the absence of an administrator, many decisions were being made by “a beleaguered bureaucracy.”

Since Mr. Obama took office, more than a half-dozen people have been seriously considered for the top job running Medicare and Medicaid. Some have been interviewed by White House officials, but the names sank from view as fast as they bubbled to the surface.

Among those who have been considered are Dr. Donald M. Berwick, president of the Institute for Healthcare Improvement, a nonprofit group in Cambridge, Mass.; Dr. Glenn D. Steele Jr., president of the Geisinger Health System, in Pennsylvania; and Dr. Nicholas J. Wolter, chief executive of the Billings Clinic in Montana.

Some insiders suggest that the president is waiting for Congress to finish work on health care legislation, so he could pluck an administrator from Capitol Hill — someone like Elizabeth J. Fowler, chief health counsel for the Senate Finance Committee, or Jack C. Ebeler, a top aide at the House Committee on Energy and Commerce.

“It’s an extremely important position,” said Senator Ron Wyden, Democrat of Oregon, “and it’s extremely important to have a talented person in that post for health reform.”

Senator Orrin G. Hatch of Utah, a senior Republican member of the Finance Committee, said the delay in naming a Medicare administrator was “of great concern.”

“Medicare is in real trouble,” Mr. Hatch said, noting that its hospital insurance trust fund was expected to run out of money in 2017.

The delay in choosing a health secretary, after former Senator Tom Daschle withdrew from consideration because of tax problems, may have delayed the selection of a Medicare administrator. Some candidates have been reluctant to sell financial holdings in the health care industry. Some apparently wanted more authority than they could have in an administration where health policy is directed from the White House.

Thomas S. Crane, a health lawyer who used to work at the Department of Health and Human Services, said the Medicare agency was “running on autopilot.” For example, he said, “officials are deferring decisions on serious policy questions involving Medicare fraud and abuse.”

To help finance coverage for the uninsured, Mr. Obama and Democrats in Congress propose to squeeze more than $400 billion in savings from Medicare over the next 10 years. They want doctors, hospitals and nursing homes to work together in teams, with Medicare payments eventually based on the quality of care.

They also contemplate huge changes in Medicaid, the program for low-income people, financed jointly by the federal government and the states.

All the major health care bills moving through Congress would use Medicaid as a vehicle for expanding coverage, adding perhaps 11 million people to the rolls, an increase of about 20 percent.

Vernon K. Smith, a former Medicaid director in Michigan who is now a consultant to many states, said the Centers for Medicare and Medicaid Services desperately needed an administrator to address “the future fiscal stability of the Medicaid program.”

[Demeter]

59. Sounds Like a Vote of NO CONFIDENCE from the Experts

If Obama can't find someone willing to put up with his "plans" for Medicare and Medicaid they must really stink.

After seeing what he's done in economic and foreign policy, he gets no benefit of my doubt anymore.

[Demeter]

60. "Public Option versus Co-ops: The Market Test"

http://economistsview.typepad.com/economistsview/2009/08/public-option-versus-coops-the-market-test.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+EconomistsView+%28Economist%27s+View+%28EconomistsView%29%29

What do prediction and financial markets have to say about the prospect of dropping the public option and replacing it with health care co-ops? Arin Dube has an answer (which is a follow-up to this post):

Public Option versus “Co-ops”: The Market Test, by Arin Dube: President Obama says he is serious about making sure we have a competitive alternative to the private health insurance companies to drive down costs. However, he is now apparently open to the idea of “health co-operatives” that will be regional purchasing pools operating independently of the federal government. How well will these co-ops achieve his stated goals? To assess this, we can start with his own words and those of his subordinates. Well, to be precise, how various investors reacted to these words.


http://economistsview.typepad.com/.a/6a00d83451b33869e20120a5561c42970c-800wi
Exhibit A

Exhibit A shows how investors in the Intrade prediction market reacted to signals from the Obama administration on Sunday August 16 that they are willing to ditch the public health insurance option. In the market’s assessment, the likelihood of a federally administered health plan passing fell from around 35% to around 20%, the biggest one-day drop since the prediction market started in June.

So as the public option’s condition went to critical, and “co-ops” started looking increasingly likely, how did investors in the top 4 private health insurance companies react? As exhibit B shows, champagne bottles were popped.


http://economistsview.typepad.com/.a/6a00d83451b33869e20120a5561c6b970c-800wi
Exhibit B

On a day when the broader stock market took a hit (dropping 2.2% at the time of writing), these four companies with a combined market cap of $80 billion saw their prices rise an average of 3%. Actually, if you dot the i’s and cross the t’s in calculating “abnormal returns”** for these four companies, it comes to be 5.8%. All in all, statements by the Obama administration over the weekend helped investors of private health insurance markets make around $4.6 billion.

So, as the market’s assessed likelihood of the public option passing dropped by 15 percentage points, share prices rose by around 6 percentage. If you are willing to extrapolate based on this event, going from a public option to “co-ops” would be worth around 40% of the value of these companies, or around $32 billion. This is similar to the results from my previous analysis of how market reacted to announcements by members of the Senate Finance Committee.

President Obama may have harsh words for the insurance companies. But those are not the words investors in these companies are paying attention to. They are paying attention to whether President Obama will sign a bill with vague “co-ops” or demand a public option. And the reaction by these investors bodes poorly for “co-ops” fulfilling their role as a serious competitive alternative to private insurance companies.

*****　

** Abnormal returns are calculated as – beta * . Betas for AET, UNH, WLP and CI are 1.3, 1.14, 1.15 and 1.88 respectively (from Google Finance).

Arindrajit Dube is an economist at UC Berkeley Institute for Research on Labor and Employment who is joining the Department of Economics at the University of Massachusetts, Amherst. His work focuses on labor and health economics topics, as well as political economy.

[Demeter]

61. Insurance Fraud In the health-care reform debate, the insurance lobby is wolf in sheep's clothing

http://www.prospect.org/cs/articles?article=insurance_fraud

When Barack Obama made the election promise of ambitious health-care reform in his first year in office, anyone who had paid attention to the issue would have predicted that the battle would be fierce. But one of the most curious developments of this debate has been that the group one would have thought would be leading the charge against reform – the health-insurance companies – has largely stayed quiet. They haven't aired attack ads, as they did in 1993, nor have they sent their representatives to the talk shows to blast the president and his efforts.

Before we start rethinking whether the insurance companies are as malevolent as they've been made out to be (spoiler alert – yes, they are), it's worth noting just how remarkable their relative absence from this debate has been. Whatever else you can say about them, they're not the ones whipping up fear of "death panels," or comparing Obama to Hitler, or screeching about "socialized medicine." In fact, if you didn't know about their history, you might think they've been desperately hoping for positive change.

When the industry does raise its head, it poses not just as an advocate for reform but as an opponent of its own abuses. Witness this television adfrom America's Health Insurance Plans (AHIP), the insurance company lobby, which must surely stand as one of the most shamelessly hypocritical pieces of advertising in American political history:

http://www.youtube.com/watch?v=R36YJl8SagU&feature=player_embedded

"Illness doesn't care where you live," the narrator says sympathetically, "or if you're already sick, or if you lose your job. Your health insurance shouldn't either." The ad ends with the hope that "the words ‘pre-existing condition' a thing of the past." So say the people who won't insure you if you have a pre-existing condition and who will cut you off if you get a serious illness. It's kind of like a gang of home invaders expressing the fervent hope that people will get better alarm systems and stronger deadbolts.

What's going on? In simple terms, they cut a deal. It may not be written down on paper, but it goes like this: If the government imposes an individual mandate, forcing all Americans to buy health insurance – and thus guaranteeing us millions of new customers – we won't stand in the way of new regulations curbing some of our worst abuses. And this is their defense when those abuses are brought up. We've already agreed to those new regulations, they'll say, so why do we need to talk about it anymore? Let's just make sure there's no public option people can choose, because that would just be a step too far.

But here's a question: If the insurance companies have finally come to understand that it's wrong to kick people off their coverage when they get sick; and it's wrong to deny coverage to people who have previously been sick; and it's wrong to hide lifetime limits in the fine print, forcing people into bankruptcy if they face a serious illness; and it's wrong to discriminate against pregnant women and their families; why don't they stop doing these things? Like, how about today? Why are they waiting for Congress to outlaw their most abominable practices?

They won't do that, of course. They're hoping to squeeze every dollar they can out of patients in the current system, up until the last possible day they can. And things are going great for them at the moment. According to the Kaiser Family Foundation, the average premium for a family plan in 1999 was $5,791. By 2008, the average premium was $12,680. So over a decade in which inflation increased prices by 29 percent, the price of family health insurance went up 119 percent. UnitedHealth, probably the most despicable of America's health insurers (look at any health-insurance industry scandal, and UnitedHealth is likely leading the way) just announced that in the second quarter of 2009, they made a profit of $859 million, every dollar squeezed from patient premiums and through the avoidance of what the industry calls "medical losses," meaning when they reluctantly pay for care.

So somewhere today, a family is being told by one insurer after another that they can't have coverage because of their pre-existing conditions. Somewhere today, a woman who was just diagnosed with cancer has been informed that her insurer is dropping her from her plan, because when she got the diagnosis, they began an investigation of her to see if they could come up with a pretext for kicking her off, and they struck gold when they discovered she forgot to tell them about a years-ago visit to a dermatologist for acne. Somewhere today, a family is filing for bankruptcy, because even though they had insurance, once one of them got sick, they quickly reached their "lifetime cap" of coverage, so the company to which they've dutifully paid premiums will no longer pay for their care. Somewhere today, a couple celebrating the birth of their child just got a call from a collection agency, because even though they had insurance, the fine print of their plan contained a series of riders detailing how the insurance company will essentially refuse to pay for all but a tiny portion of the costs of a pregnancy (read Sarah Wildman's horrifying and revealing tale of how her insurance company did this to her).

So if the insurance industry really wants to demonstrate its good faith on health-care reform, here's what it could do: End these practices now. Don't wait to see what's in the final bill. Do it now. Stop denying coverage for pre-existing conditions. Stop rescinding the policies of people who get sick. Let people keep their coverage when they leave a job if they keep paying the premiums. Stop discriminating against pregnant women. You want to atone for your sins? Changing these policies would be a good place to start.

A final note: The one provision the insurance industry has been fighting tooth and nail is the inclusion of a public option. Their argument -- one that is echoed by their conservative allies -- is that any public plan would inevitably (by what mechanism they never say) drive the good-hearted insurance companies out of business, leaving people with an oppressive single-payer government health-insurance system. So I hereby challenge not just any insurance company representative but any conservative officeholder (current or former – I'm looking at you, Sarah and Newt), political professional, activist, pundit, or regular person who complains about the terrifying specter of government-run health care, to take the following pledge: When I become eligible at age 65, I will refuse health coverage under Medicare. After all, Medicare is an awful single-payer, big-government program, and we know they want no part of that. So who's going to take me up on it? Anyone?


photoPaul Waldman is a senior correspondent for the Prospect and the author of Being Right is Not Enough: What Progressives Must Learn From Conservative Success.

[Demeter]

62. Structurally High Unemployment For A Decade Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com/2009/08/structurally-high-unemployment-for.html


Inquiring minds are digging into the July 2009 Opinion Survey on Bank Lending Practices.

The survey shows that bank lending standards continue to tighten at varying rates by loan category.

Calculated Risk discussed the survey in Lending Standards Tighten, Loan Demand Weakens. Here is a chart from the article. The annotations in pink and purple and the thoughts below are mine.

http://3.bp.blogspot.com/_nSTO-vZpSgc/Son_RlBJ8DI/AAAAAAAAGq4/coCuqF3gsY4/s1600/Non-Residential+Structures+Investment.png

Interestingly, the last two recessions began just as investment in non-residential structures peaked. The stock market peaked at the same time.

Note that investment continued to decline long after the last recession was over. Also note when the stock market bottomed following the last recession.

Are we in for a repeat? In regards to investment, odds are high we are in for a repeat (if not something much worse). The stock market? You tell me. What I will suggest is the stock market is 50% overvalued at this point.

That valuation can be corrected in one of three ways:

1) Time - Earnings improve over 5 years with the stock market going nowhere
2) Price - The bottom is not in and a significant pullback, perhaps even another crash is in store
3) Some combination of time and price

I vote for door number 3, but any scenario is possible.

From the loan survey:

9. Apart from normal seasonal variation, how has demand for commercial real estate loans changed over the past three months?

http://4.bp.blogspot.com/_nSTO-vZpSgc/SooOeEY_sfI/AAAAAAAAGsI/19NIpvX2HuM/s400/loan-survey+2009-q2+cre+question.png

CRE Demand Still Collapsing

Demand for commercial real estate loans is still collapsing. Massive overcapacity and weak consumer demand are the two key reasons.

The implications are severe.

Commercial Real estate was a massive driver for jobs in the post-2000 recession. Think of all the retail stores that were built: Walmart (WMT), Target (TGT), Home Depot (HD), Lowes (LOW), Walgreen (WAG), Nordstrom (JWN), Abercrombie & Fitch Co. (ANF), etc.

Think of the grocery store buildout that followed the buildout of residential subdivisions: Safeway (SWY), Kroher (KR), Whole Foods (WFMI), and Osco-Jewel & SuperValue (SVU).

Now think of all the merchandise it took to fill those stores and the trucking (and trucking jobs) involved to keep stores stocked for consumers whose demand was thought to be insatiable.

Grocery store demand is still present given that people have to eat. However, the demand for new stores (and new hires) isn't. As for the rest of the retail sector, it's as I said on April 18, 2008: Shopping Center Economic Model Is History.

Currently we are in the midst of the Worst Performance Ever For Back-To-School Sales. Expect Christmas season to be miserable again.

Consumer demand is dead. That demand is not coming back anytime soon, and there is no driver for jobs if it doesn't.

Harsh Reality From Bernanke

In the Incredible Shrinking Boomer Economy I noted a harsh reality quote of Bernanke:

"It takes GDP growth of about 2.5 percent to keep the jobless rate constant. But the Fed expects growth of only about 1 percent in the last six months of the year. So that's not enough to bring down the unemployment rate."

Pray tell what happens if GDP can't exceed 2.5% for a couple of years? What about a decade (or on and off for a decade)?

If you have come to the conclusion that we are going to have structurally high unemployment for a decade, you have come to the right conclusion. Ask yourself: Is that what the stock market is priced for?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

[Ghost Dog]

63. Blame Larry Summers (Mike Whitney) MUST READ

http://counterpunch.org/whitney11272009.html

Barack Obama's chief economic advisor, Lawrence Summers, is determined to sabotage a second round of stimulus. And, he's getting plenty of help, too. Congressional Democrats are dragging their feet because they're worried about the political backlash and midterm elections, the GOP deficit hawks are looking for a way they can derail the Obama agenda and reestablish their bone fides as fiscal conservatives, and the bailout-traumatized American people are simply opposed to anything that generates more red ink. Even Obama has joined the fray and started badmouthing stimulus stressing the importance of living within our means and trimming the deficits. So it looks like a done-deal; no more stimulus. There's only one problem, without another blast of stimulus the economy is headed for the skids.

Summers knows this because he is an extremely bright and competent economist. With Summers, the issue is loyalty, not intelligence. To prove this point, consider Summers comments in a Washington Post editorial (September of 2008) where he explains what needs to be done to put the economy back on track:

... snip ...

To repeat: "Monetary policy has little scope to stimulate the economy given how low interest rates already are and the problems in the financial system."

Bingo. Zero-percent rates don't give any traction in a liquidity trap. That's why economists push for fiscal stimulus; jobs programs, state aid, and extended unemployment benefits. That's the only way to narrow the output gap and rev up economic activity. Summers doesn't even challenge the idea; in fact, he makes the case for fiscal stimulus. Of course, that was then, and now is now. Here's another clip of Summers stirring up the masses at the Brookings Institute with his thundering Fidel Castro impersonation:

"Between 2000 and 2007 – a period of solid aggregate economic growth – the typical working-age household saw their income decline by nearly $2000. The decline in middle-class incomes even as the incomes of the top 1% skyrocketed has a number of causes, but one of them is surely rising asset prices and the fact that financial sector profits exploded to the point to where they represented 40% of all corporate profits in 2006.

Confidence today will be enhanced if we put measures in place that assure that the coming expansion will be more sustainable and fair in the distribution of benefits than its predecessor."

Larry Summers carrying-on about "distribution of benefits"? Huh? So how does the Redistributionist-in-Chief feel about stimulus now? Here's a clip from Thursday's Wall Street Journal:

"The White House is lukewarm about proposals by congressional Democrats to introduce broad legislation to create jobs, instead favoring targeted measures that would be less likely to inflate the deficit, administration officials said.

“Mr. Obama is keen to avoid any measures suggestive of a second, big-ticket stimulus. With about half of the February stimulus spending spoken for, the measure has created about 640,000 jobs, fewer than the number of jobs lost in January alone.

"There is no discussion of a package like a second stimulus, but we are working closely with Congress and consulting with outside experts to determine the right policies and the right steps," said White House deputy press secretary Jennifer Psaki. ("Weighing Jobs and Deficits", Elizabeth Williamson, Wall Street Journal)

Apparently, Summers has had time to rethink his populism and do a 180. Team Obama plans to create jobs by initiating tax credits and lending to small businesses. Sound familiar? In other words, the only way that millions of dejected workers will get any relief is if private industry can be enriched in the process. That's why "there is no discussion of a second stimulus." Because Summers is an industry rep who primary task is to ensure the smooth transfer of public wealth to corporate plutocrats. He even opposed the extension of unemployment benefits believing that greater hardship would push wages down even further.

Indeed, from Summer’s point of view, the America Rescue and Recovery Act has worked out just dandy. The unions are getting walloped, 8 million people are out of work, the labor market is in the worst shape it's been since the Great Depression, and the blood-flow of stimulus is about to get choked-off sometime in the next two quarters. Hey, it's morning in America!

But, as we noted earlier, Summers is a good economist, so maybe there is an economic reason for his opposition to more stimulus. Could it have to do with the output gap? Since Lehman Bros collapsed, the output gap (which is the difference between an economy’s actual output and its potential output) has been at record lows. That means that there is not sufficient demand to take up the slack in the economy. The only way to resolve that problem (when the Fed is in a liquidity trap and consumers are slashing spending) is to get money into the hands of people who will spend it. That means more government spending, thus, more stimulus. But how much more?

... big snip ...

This is really quite grim. At this growth rate it’s far from clear that we’re doing anything to reduce the output gap — the gap between what the economy could produce and what it’s actually producing. Correspondingly, there’s no reason now for even a bit of optimism on unemployment.

When the 3.5% advance number came out, I took to warning people that even if the economy continued to grow at that rate, we wouldn’t see anything like full employment until late in Sarah Palin’s second term. Given the latest number, the date at which we can expect to see a return to full employment is … never.

And that’s if growth continues at this rate. The odds are good that growth will slow down next year: the stimulus has already had its peak effect on growth and will turn into a net drag in the second half, the inventory bounce — which was a major factor in 3rd quarter growth, such as it was — will fade out. Basically, we may be in a technical recovery, but we’re not recovering. (Paul Krugman, "Gee, that’s De Pressing" The Conscience of a Liberal, New York Times)

There's no recovery. Figure it out. Bank profits went up last quarter, but lending went down significantly. Now, that's a neat trick. How did they manage that?

They did it with the money they're getting from the Fed. Bernanke has provided broken banks and other financial institutions with trillions of dollars that are being diverted into high-risk assets, carry trades (with the zero-rate dollar as the funding currency) and speculative derivatives bets. The same bubble that just blew up a year ago has been reflated thanks to Bernanke's largesse and gigantic re-leveraging. Main Street is in a Depression, but Wall Street is doing just fine.

Even so, there is no sign of inflation anywhere and the government is able to borrow capital at record low costs. Last week 3-month Treasuries went negative while the 2-year T-bill has fallen off a cliff. Why? Because Bernanke ended the guarantee on money markets so investors are fleeing to safety again. Ordinary retail investors who can't do bigtime cross-border currency transactions or High Frequency Trading, need a place to hide. Hence, USTs. They're forking over their money to Uncle Sam for under 1 percent interest. It's highway robbery. At the same time, consumer credit is shrinking, bank lending is down, and 1 out of 4 homeowners is upside-down. Money is not moving and the economy is on a ventilator. We need more stimulus.

But there won't be another round of stimulus because Summers and his sniveling companion Geithner won't allow it. They have other plans. Oh yeah, Wall Street and the banking Goliaths will still get as much monetary stimulus as they need (under the phony moniker of "quantitative easing", liquidity swaps, or excess reserves) But as for the working slob -- zilch.

Summers’ assignment is to bring the broader economy to its knees; to crush big labor by keeping unemployment high, to force state and local and governments to privatize more public assets and services, and to generate as much human misery as possible. In short, Summers is laying the groundwork for structural adjustment within the US, a policy which reflects his ongoing commitment to multinational corporations and neoliberalism. It's the shock doctrine redux. These people are monsters.

[Tansy_Gold]

64. Hey, Mike! Get the beans outta yer ears! I was saying this a year ago!

ITYS

[Demeter]

66. Why Iceland and Latvia Won't (and Can't) Pay for the Kleptocrats' Ripoffs

http://www.counterpunch.org/hudson08182009.html

The Specter of Debt Revolt Is Haunting Europe
Why Iceland and Latvia Won't (and Can't) Pay for the Kleptocrats' Ripoffs

By MICHAEL HUDSON

In the wake of the world crash populations are asking not only whether debts should be paid, but whether they can be paid! If they can’t be, then trying to pay will only shrink economics further, preventing them from becoming viable. This is what has led past structural adjustment programs to fail.

For the past decade Iceland has been a kind of controlled experiment, an extreme test case of neoliberal free-market ideology. What has been tested has been whether there is a limit to how far a population can be pushed into debt-dependency. Is there a limit, a point at which government will draw a line against by taking on public responsibility for private debts beyond any reasonable capacity to pay without drastically slashing public spending on education, health care and other basic services?

The problem for the post-Soviet economies such as Latvia is that independence in 1991 did not bring the hoped-for Western living standards. Like Iceland, these countries remain dependent on imports for their consumer goods and capital equipment. Their trade deficits have been financed by the global property bubble – borrowing in foreign currency against property that was free of debt at the time of independence. Now these assets are fully “loaned up,” the bubble has burst and payback time has arrived. No more credit is flowing to the Baltics from Swedish banks, to Hungary from Austrian banks, or to Iceland from Britain and the Netherlands. Unemployment is rising and governments are slashing healthcare and education budgets. The resulting economic shrinkage is leaving large swaths of real estate with negative equity.

Can Iceland and Latvia pay the foreign debts run up by a fairly narrow layer of their population? The European Union and International Monetary Fund have told them to replace private debts with public obligations, and to pay by raising taxes, slashing public spending and obliging citizens to deplete their savings. Resentment is growing not only toward those who ran up these debts – Iceland’s bankrupt Kaupthing and Landsbanki with its Icesave accounts, and heavily debt-leveraged property owners and privatizers in the Baltics and Central Europe – but also toward the neoliberal foreign advisors and creditors who pressured these governments to sell off the banks and public infrastructure to insiders. Support in Iceland for joining the EU has fallen to just over a third of the population, while Latvia’s Harmony Center party, the first since independence to include a large segment of the Russian-speaking population, has gained a majority in Riga and is becoming the most popular national party. Popular protests in both countries have triggered rising political pressure to limit the debt burden to a reasonable ability to pay.

This political pressure came to a head over the weekend in Reykjavik’s Parliament. The Althing agreed a deal, expected to be formalized today, which would severely restrict payments to the UK and Netherlands in compensation for their cost in bailing out their domestic Icesave depositors.

This agreement is, so far as I am aware, the first since the 1920s to subordinate foreign debt to the country’s ability to pay. Iceland’s payments will be limited to 6 per cent of growth in gross domestic product as of 2008. If creditors take actions that stifle the Icelandic economy with austerity and if emigration continues at current rates to escape from the debt-ridden economy, there will be no growth and they will not get paid.

A similar problem was debated eighty years ago over Germany’s World War I reparations. But policy makers are still confused over the distinction between squeezing out a domestic fiscal surplus and the ability to pay foreign debts. No matter how much a government may tax its economy, there is a problem of turning the money into foreign currency. As John Maynard Keynes explained, unless debtor countries can export more, they must pay either by borrowing (German states and municipalities borrowed dollars in New York and cashed them in for domestic currency with the Reichsbank, which paid the dollars to the Allies) or by selling off domestic assets. Iceland has rejected these self-destructive policies.

There is a limit to how much foreign payment an economy can make. Higher domestic taxes do not mean that a government can turn this revenue into foreign exchange. This reality is reflected in Iceland’s insistence that payments on its Icesave debts, and related obligations stemming from the failed privatization of its banking system, be limited to some percentage (say, 3 percent) of growth in gross domestic product (GDP). There is assumption that part of this growth can be reflected in exports, but if that is not the case, Iceland is insisting on “conditionalities” of its own to take its actual balance-of-payments position into account.

The foreign debt issue goes far beyond Iceland itself. Throughout Europe, political parties advocating EU membership face a problem that the Maastricht convergence criterion for membership limits public debt to 60 percent of GDP. But Iceland’s external public-sector debt – excluding domestic debt – would jump to an estimated 240 percent of GDP if it agrees to UK and Dutch demands to reimburse their governments for the Icesave bailouts. Meanwhile, EU and IMF lending to the Baltics to support their foreign currency – so that mortgages can be kept current rather than defaulting – likewise threaten to derail the membership process that seemed on track just a short time ago.

Austerity programs were common in Third World countries from the 1970s to the 1990s, but European democracies have less tolerance for so destructive an acquiescence to foreign creditors for loans that were irresponsible at best, outright predatory at worst. Families are losing their homes and emigration is accelerating. This is not what neoliberals promised.

Populations are asking not only whether debts should be paid, but whether they can be paid! If they can’t be, then trying to pay will only shrink economics further, preventing them from becoming viable. This is what has led past structural adjustment programs to fail.

Will Britain and the Netherlands accept this new reality? Or will they cling to neoliberal – that is, pro-creditor – ideology and keep on stubbornly insisting that “a debt is a debt” and that is that. Trying to squeeze out more debt service than a country could pay requires an oppressive and extractive fiscal and financial regime, Keynes warned, which in turn would inspire a nationalistic political reaction to break free of creditor-nation demands. This is what happened in the 1920s when Germany’s economy was wrecked by imposing the rigid ideology of the sanctity of debt.

A similar dynamic is occurring from Iceland to the Baltics. The EU is telling Iceland that in order to join, it must pay Britain and Holland for last autumn’s Icesave debts. And in Latvia, the EU and IMF have told the government to borrow foreign currency to stabilize the exchange rate to help real estate debtors pay the foreign-currency mortgages taken out from Swedish and other banks to fuel its property bubble, raise taxes, and sharply cut back public spending on education, health care and other basic needs to “absorb” income. Higher taxes are to lower import demand and also domestic prices, as if this automatically will make output more competitive in export markets.

But neither Iceland nor Latvia produce much to export. The Baltic States have not put in place much production capacity since gaining independence in 1991. Iceland has fish, but many of its quota licenses have been pledged for loans bearing interest that absorbs much of the foreign exchange from the sale of code. Interest charges also absorb most of the revenue from its aluminum exports, geothermal and hydroelectric resources.

In such conditions a pragmatic economic principle is at work: Debts that can’t be paid, won’t be. What remains an open question is just how they won’t be paid. Will many be written off? Or will Iceland, Latvia and other debtors be plunged into austerity in an attempt to squeeze out an economic surplus to avoid default?

Failure to recognize the limited ability to pay runs the danger of driving over-indebted countries out of the Western orbit. Iceland’s population is upset at the EU’s backing of the bullying tactics of Britain and Holland trying to extract reimbursement for bailing out their Icesave depositors – €2.6 billion to Britain and €1.3 billion to Holland. Social Democrats won April’s Althing election on a platform of joining the EU, but burdening the country with these Icesave debts would prevent it from meeting the Maastricht criteria for joining the EU. This makes it appear as if Europe is more concerned with debt collection than with getting new members.

Of most serious concern are the long-term consequences of replacing defaults by debt pyramiders and outright kleptocrats with a new public debt to international government agencies – debt that is much less easy to write off. Eva Joly, the French prosecutor brought into sort out Iceland’s banking kleptocracy, warned earlier this month that if Iceland succumbs to current EU demands, “Just a few tens of thousands of retired fishermen will be left in Iceland, along with its natural resources and a key geostrategic position at the mercy of the highest bidder – Russia, for example, might well find it attractive.” The post-Soviet countries already are seeing voters shift away from Europe in reaction to the destructive policies the EU has been supporting.

Neither Britain nor Holland, neither the EU nor IMF have provided a scenario for just how Iceland is supposed to pay the debts that are being claimed. How much will personal income and living standards have to fall? What government programs must be cut back? How many defaults on domestic mortgages and personal debts will result, and how much unemployment? How much emigration will occur? The models being employed treat these dimensions of the economic problem as “externalities,” but they are central to how the economic system works in practice.

The question is whether neoliberal ideology will give way to economic reality, or whether economic policy will retain the blinders that typically characterize short-term creditor-oriented policies? What is blocking a more reasonable pro-growth policy, Ms. Joly observed, is that “the Swedish presidency of the EU does not seem to be in a hurry to improve regulation of the financial sectors, and the committees with an economic focus in the Parliament are, more than ever, dominated by liberals, particularly British liberals.” So Europe continues to impose a shortsighted economic ideology. Therefore, she concluded: “Mr. Brown is wrong when he says that he and his government have no responsibility in the matter. Firstly, Mr. Brown has a moral responsibility, having been one of the main proponents of this model which we can now see has gone up the spout. … Could anyone realistically think that a handful of people in Reykjavik could effectively control the activities of a bank in the heart of the City? … the European directives concerning financial conglomerates seem to suggest that EU member states that allow such establishments into their territories from third countries must ensure that they are subject to the same level of control by the authorities of the country of origin as that provided for by European legislation. … a failure on the part of the British authorities on this point … would not be particularly surprising considering the ‘performance’ of other English banks … during the financial crisis? If so, Mr. Brown’s activism in relation to this small country might be motivated by a wish to appear powerful in the eyes of his electorate and taxpayers …”

Some inconvenient financial truths and ideological blind spots

Most deposit insurance settlements for insolvent institutions are merely technical in scope: how much are depositors insured for, and how soon will they get paid? But the Icesave problem is so large in magnitude that it raises more legally convoluted economy-wide questions. The Althing’s stance on Iceland’s foreign debt – and the abuses of its kleptocratic domestic bank privatizers – represents a quantum leap, a phase change in global debtor/creditor relations.

No doubt this is why creditors and neoliberals will fight Iceland’s brave show so vehemently, angrily, unfairly and extra-legally. For starters, Gordon Brown did not follow the proper agreed-upon legal procedures last October 6 when he closed down Landsbanki’s Icesave branches and the Kaupthing affiliates. Under normal conditions Iceland would have availed itself of the right under European law to pay out depositors in an orderly manner. But Mr. Brown prevented this by directing Britain’s deposit-insurance agency to pay Icesave depositors as if they were covered by UK insurance. It was a rash decision that could turn out to be one of the biggest blunders of his career. The Icesave branches were legally extensions of Landsbanki in Iceland, covered by Iceland’s deposit insurance scheme, not that of Britain.

Iceland’s Depositors’ and Investors’ Guarantee Fund (TIF) is privately funded by domestic banks, not public like America’s Federal Deposit Insurance Corp. (FDIC) or Britain’s Financial Services Agency (FSA). Reflecting Iceland’s neoliberal philosophy at the time the banks were privatized, the TIF lacked the capital to cover the losses that ensued. It was like America’s A.I.G. insurance conglomerate, whose premiums were set far too low to reflect the actual risk involved. The problem is typical of the neoliberal “rational market” idea that debts cannot create a problem, but merely reflect asset prices that in turn reflect prospective income.

In an environment that saw Northern Rock and the Royal Bank of Scotland fail, Iceland’s Commerce Ministry wrote to Clive Maxwell at Britain’s Treasury on October 5 to assure him that the government would stand behind the TIF in reimbursing Icesave depositors in accordance with EU directives. Yet three days later, Chancellor of the Exchequer Alistair Darling claimed that Iceland was refusing to pay. On this pretense Mr. Brown used emergency anti-terrorist laws enacted in 2001 to freeze Icelandic funds in Britain. He did so despite Iceland’s promise to abide by the EU rules. Icelandic authorities were given no voice in how to resolve the matter. Britain and the Netherlands (as they acknowledge in the proposed agreement with which they confronted Icelandic negotiators on June 5, 2009) merely “informed” Icelandic authorities, without following the rules and consulting with them to get permission for their quick bailout of depositors.

This affectsthe question of who is legally responsible for British and Dutch reimbursement of Icesave and Kaupthing depositors. The relevant EU law gives the responsible authorities a breathing space of three months to proceed with settlement – with a further six-month period where necessary. This would have enabled Iceland to collect from British bank clients such as the retail entrepreneur (and major Kaupthing stockholder) Kevin Stanford, who borrowed billions of euros, far in excess of what was proper under banking rules. It is now known that Icelandic banks in Britain were emptying out their deposits by making improper loans to British residents. But rather than helping Iceland move in a timely manner to recover deposits that Landsbanki and Kaupthing had lent out, Britain’s precipitous action plunged it into financial anarchy. The Serious Fraud team has started to help with the investigation and recovery process only in the past few weeks – now that the funds are long gone!

On November 4, ECOFIN, the EU’s financial oversight agency, held an informal ministerial meeting and “agreed, under very unusual circumstances,” to examine the financial crisis into which the Icebank and Kaupthing insolvencies had plunged the country. The EU proposed that the problem be resolved by five financial officials. But Iceland worried that such individuals tend to take a hard-line creditor-oriented position. Seeing how Britain and the Netherlands had acted on their own without regard for how their actions were hurting Iceland, Finance Minister Arni Mathiesen wisely wrote on November 7 to Christine Lagarde, President of the ECOFIN Council, that Iceland’s government would not participate in the review of Iceland’s obligations under Directive 94/19/EC.

The EU directive dealt only with the collapse of individual banks, assuming this problem to be merely marginal in scope and hence readily affordable by signatory governments. But “the amount involved could be up to 60 per cent of Iceland’s GDP,” Mr. Mathiesen explained. The directive left Iceland in legal limbo regarding “the exact scope of a State’s obligations … in a situation where there is a complete meltdown of the financial system.” The directive simply did not envision systemic collapse of a developed Western European economy. Such is the state of today’s mainstream equilibrium theory – an ideological argument that economies automatically stabilize and hence no government policy is needed, no public oversight or regulation.

It is a set of assumptions and junk economics that kleptocrats, crooks and neoliberals love, as it has enabled them to get very, very wealthy and then run to government claiming that a Katrina-like accident has occurred that requires them to be fully bailed out or the economy will collapse without their self-serving wealth-seeking services. This “rational market” mysticism is what now passes for economic science. And it is in the name of this junk science that EU financial officials and indeed, central bankers throughout the world are indoctrinated with blinders that do indeed enable them to find every collapse of their theories “unanticipated.”

The question that needed to be confronted head-on was how to take account of Iceland’s “very unusual circumstances” stemming from its unwarranted faith in neoliberal theory that assumed finance and the debt overhead would never pose a structural problem, but would only serve to facilitate economic growth. At issue was the “sanctity of debt” ideology that took no account of the broad economic context and growth prospects. “Iceland has to make sure that its deposit-guarantee scheme has adequate means and is in a position to indemnify depositors,” the Finance Minister wrote. The problem was macroeconomic in character, but the bank insurance scheme was only for 1 per cent of deposits – under conditions where the country’s main three banks all were driven under by the combination of bad or outright kleptocratic management and Britain’s freezing of Icelandic funds in the aftermath of the Icesave collapse. On November 25 an IMF team calculated that “A further depreciation of the exchange rate of 30 per cent would cause a further precipitous rise in the debt ratio (to 240 percent of GDP in 2009) and would clearly be unsustainable.”

Gordon Brown has spent much of 2009 trying to pressure the IMF to collect for Kaupthing’s insolvency as well as that of Landesbanki’s Icesave accounts. In Parliament on May 6 he announced his intention to ask the IMF to pressure Iceland to reimburse depositors in Kaupthing affiliates. He was reminded that unlike the Icesave branches, these were incorporated as British entities, making their accounts the responsibility of British regulation and deposit insurance. What was improper was his crass treatment of the IMF as a debt collector for the creditor nations, using it as a supra-legal lever to pressure Iceland to pay money that its negotiators felt they did not owe under EU rules. This was the position even of the neoliberal former Prime Minister and Governor of the Central Bank, Mr. Oddson himself.

Why bring such pressure to bear if the obligation is clearly specified in the contract? It looked like Mr. Brown wanted to avoid blame by paying British bank depositors and assuring them that foreigners would pay. He proved to be incorrigible, pressuring the EU to tell Iceland that it could not negotiate to join until it settled “its” Icesave debt to Britain. And the Dutch Foreign Affairs Minister Maxime Verhagen was equally explicit on July 21. In an official statement he warned his Icelandic counterpart that it was “absolutely necessary” for Iceland to approve the compensation deal agreed for people who lost savings when internet bank Icesave went bankrupt. deal. “A solution to the problems round Icesave could lead to the speedy handling of Iceland’s request to join the European Union,” the minister hinted. “It could show that Iceland takes EU guidelines seriously.” What it showed, of course, was that the EU was letting Britain and the Dutch use extortionate threats to veto membership if they did not get what they wanted: the nearly €4 billion in bailout reimbursement plus interest at 5.5%.

It would be hard to imagine what could have been more effective in deterring Icelandic desire for membership in the EU. On July 23 the Law Faculty at the University of Iceland discussed the details and criticized the confidential agreement – without even having access to it. Britain and the Netherlands insisted that the terms and details of the agreement not be published, on pain of the leakers facing prosecution. But apparently through a secretarial error it appeared on the Internet on July 27! The result was an explosion of anger, not only at Britain and the Dutch but at its own financial negotiators for not simply walking out when the authoritarian terms were dictated at political and financial gunpoint.

The flames were fanned further on July 31 when Wikileaks published a Kaupthing report from September 25, 2008, detailing the loans to insiders that had helped drive the bank into insolvency. Major stockholders had borrowed against their bank stock to bid it up in price and give the appearance of prosperity and solvency. (Evidently deciding that the time had come to take the money and run, the bank owners emptied out the coffers by making loans to themselves. This signaled the death knell for any further fantasies about “efficient markets” in today’s neoliberalized jungle of financial deregulation.

Despite the fact that Kaupthing had been nationalized by Iceland’s government, it sued to block Iceland’s national TV network from broadcasting the details. This backfired, being the equivalent of getting a book banned in Boston – every publisher’s publicity dream! The imbroglio got the entire nation fascinated, prompting so many Icelanders to go on-line to read the document that the gag order was lifted on August 4. The response was a shocked fury at the crooked behavior whose backwash threatened to engulf the nation in a bad foreign debt deal.

On August 1, Eva Joly, who had been hired as a federal prosecutor a half-year earlier, published her article in Le Monde that appeared in many other countries, criticizing Britain’s behavior. But most disturbing of all was publication of the hard-line draft agreement that British and Dutch negotiators had handed to Iceland’s finance minister on June 5, 2009. It failed utterly to reflect the caveats that Icelandic negotiators had insist on the previous November. Bolstered by Gordon Brown’s shrill rhetoric and Britain’s insistence that the terms be kept secret, the EU’s harsh take-it-or-leave-it stance created an atmosphere in which the Althing had little choice but to draw a line and insist that any Icesave settlement had to reflect Iceland’s reasonable ability to pay. Icesave was caricatured as “Iceslave” signifying the debt peonage with which Iceland was threatened. The finance minister (a former Communist leader) seemed out of his depth in having knuckled under in the face of pressure to capitulate to unyielding British negotiators.

Why Iceland's move is so important for international financial restructuring

Iceland has decided that it was wrong to turn over its banking to a few domestic oligarchs without any real oversight or regulation, on the by-now discredited assumption that their self-dealing somehow will benefit the economy.

The amount of debt that can be paid is limited by the size of the economic surplus – corporate profits and personal income for the private sector, and the net fiscal revenue paid to the tax collector for the public sector. But for the past generation neither financial theory nor global practice has recognized any capacity-to-pay constraint. So debt service has been permitted to eat into capital formation and reduce living standards.

As an alternative is to such financial lawlessness, the Althing asserts the principle of sovereign debt at the outset in responding to British and Dutch demands for Iceland’s government to guarantee payment of the Icesave bailout:

The preconditions for the extension of government guarantee according to this Act are:

1. That … account shall be taken of the difficult and unprecedented circumstances with which Iceland is faced with and the necessity of deciding on measures which enable it to reconstruct its financial and economic system. This implies among other things that the contracting parties will agree to a reasoned and objective request by Iceland for a review of the agreements in accordance with their provisions.

2. That Iceland’s position as a sovereign state precludes legal process against its assets which are necessary for it to discharge in an acceptable manner its functions as a sovereign state.

Instead of imposing the kind of austerity programs that devastated Third World countries from the 1970s to the 1990s and led them to avoid the IMF like a plague, the Althing is changing the rules of the financial system. It is subordinating Iceland’s reimbursement of Britain and Holland to the ability of Iceland’s economy to pay.


This weekend’s pushback is a quantum leap that promises (or to creditors, threatens) to change the world’s financial environment. For the first time since the 1920s the capacity-to-pay principle is being made the explicit legal basis for international debt service. The amount to be paid is to be limited to a specific proportion of the growth in Iceland’s GDP (on the assumption that this can indeed be converted into export earnings). After Iceland recovers, the payment that the Treasury guarantees for Britain for the period 2017-2023 will be limited to no more than 4 per cent of the growth of GDP since 2008, plus another 2 per cent for the Dutch. If there is no growth in GDP, there will be no debt service. This means that if creditors take punitive actions whose effect is to strangle Iceland’s economy, they won’t get paid.

Iceland promises to be merely the first sovereign nation to lead the pendulum swing away from an ostensibly “real economy” ideology of free markets to an awareness that in practice, this rhetoric turns out to be a junk economics favorable to banks and global creditors.

As far as I am aware, this agreement is the first since the Young Plan for Germany’s reparations debt to subordinate international debt obligations to the capacity-to-pay principle.

No doubt the post-Soviet countries are watching, along with Latin American, African and other sovereign debtors whose growth has been stunted by the predatory austerity programs that IMF, World Bank and EU neoliberals imposed in recent decades. The post-Bretton Woods era is over. We should all celebrate.

Michael Hudson is Distinguished Prof. of Economics at UMKC. In 2006 he was Prof. of Economics and Director of Economic Research at the Riga Graduate School of Law in Latvia. His website is michael-hudson.com.

[DemReadingDU]

67. Are We Really Better Off Than We Were a Year Ago?

video at link...

11/25/09 Are We Really Better Off Than We Were a Year Ago?

Posted Nov 25, 2009 11:00am EST

There IS plenty to be thankful for this Thanksgiving. We've certainly come a long way (baby) from a year ago.

Let's not forget, avoiding a second Great Depression was no foregone conclusion in the immediate wake of Lehman's collapse. Then there's our portfolios. True, your 401(k) and IRA are probably less plentiful than a few years ago but the statements sure look a lot better now than they did heading into March of this year.

Many choke up the (relatively) good news to a stronger economy.

Many, but not all.

Gluskin Sheff’s David Rosenberg (formerly chief economist with Merrill Lynch) recently told Barron's he's not sure we're better off than we were after Lehman.

Here's just some of the reasons why:

* Since Lehman, we have lost 6.2 million jobs
* The unemployment rate is 10.2% now, versus 6.2% the day before Lehman collapse
* Real gross domestic product is still down 3% since the summer of 2008
* Housing starts are down 30%
* Auto sales are down 23%
* Bank credit has contracted by $500 billion, or 8%
* Household net worth is down $7 trillion
* Home prices are down an average of 10%
* Apartment-vacancy rates are up a percentage point to 11.1%
* Consumer confidence is down 11 points
* The budget deficit has tripled

It's hard to argue with these facts. But allow me to play devil's advocate.

A few of the most important economic metrics are headed in the right direction.

Yes, job losses have ballooned since Lehman. However, the pace of job losses is slowing. Today's initial job claims proves this point: The four-week moving average fell below 500,000 for first time since the week of Nov. 7, 2008.

On the housing front, the Case-Shiller home price index for September rose for the fifth straight month.

And, while not as robust as first reported, GDP was positive for the third quarter.

But, as Aaron and Henry point out, the banks are still the key to our fate. Until they feel comfortable enough to lend it's hard to imagine we're in the midst of a V-shaped recovery, at least one that will last.

click for video...
http://finance.yahoo.com/tech-ticker/article/379461/Are-We-Really-Better-Off-Than-We-Were-a-Year-Ago