Weekend Economists Double Whammy Weekend! March 13-15, 2009

[Demeter]

Well, not only do we have daylight savings time (and temps still going down to 10F and below at night in Michigan!)

but this weekend runs from Friday the 13th to the Ides of March! Oy veh!

Thank the gods and goddesses that the markets are CLOSED!

But, our minds are open and thirsting for news, analysis, and speculation on the bewildering world of money!


http://www.youtube.com/watch?v=rkRIbUT6u7Q


No, I'm not at all cynical, why do you say that?




by the way...

This week marks the two-year anniversary of the financial crisis. It was on the 12th of March 2007 that New Century Financial, one of the biggest subprime lenders in the United States, sprang a leak. Trading in its shares was halted as the company headed to bankruptcy. --DailyReckoning.com

[Demeter]

1. Scientists a step closer to ‘reading minds’

http://www.ft.com/cms/s/0/6652c3cc-0f27-11de-ba10-0000779fd2ac.html?ftcamp=rss

A machine to read the mind came a step closer on Thursday, when scientists at University College London released the results of an experiment in which brain scans revealed the location of people moving around a virtual reality environment.

Demis Hassabis, co-author of the study, said it was “a small step towards the idea of mind reading, because just by looking at neural activity we were able to say what someone was thinking”.

The experiment, published in the journal Current Biology, is significant for neuroscience as it shows for the first time that memories are laid down in specific structures or patterns in the hippocampus, a brain region that is crucial for navigation, memory recall and imagining future events.

Four volunteers navigated around a room in a computerised virtual reality game while the researchers examined their hippocampus with an fMRI scanner. The researchers had spent time with the subjects “training” the analytical software to recognise their spatial memories.

“Surprisingly, just by looking at the brain data we could predict exactly where they were in the virtual reality room,” said Eleanor Maguire, project leader.

“In other words we could ‘read’ their spacial memories.”

But Dr Hassabis said it would be at least 10 years – and probably much longer – before the technique could be used in forensic investigations, for example to tell whether a suspect was lying about whether they had been at a crime scene.

[Dr.Phool]

21. I tried reading some Republican minds, a while back.

I kept drawing a blank. Hmmmm


The Ides Of March? I knew there was a reason I have to pick up my Republican BIL at the airport Sunday.

Now, it's time for vodka, Moyers and Maher.

[Tansy_Gold]

33. Today's economists NOT reading minds

I was listening to NPR's Science Friday yesterday, on which Ira Flatow was interviewing some scientists regarding the mathematical and physical underpinnings of the stock market. Since I'm neither a mathematician nor a physicist, I didn't understand a lot of the stuff they were talking about, but when the one guy began comparing the behavior of the stock market to chemistry and physics and the behavior of particles, then I began to wonder if they were all completely off their rockers.

The stock market isn't particles. It's people. And people don't always behave in rational ways. If you mix the same chemicals together, the same substances, over and over you're going to get the same result. Water freezes at 32 degrees Fahrenheit. There are differences for salinity (which isn't the same as plain ol' H2O) or whatever, but given the same circumstances, water turns to ice at a predictable point.

People don't do that. And when the one guy suggested that the markets needed MORE physicists, MORE "quants" to do the quantitative analysis of the markets, I let loose with an expletive.

Where are the people-watchers? Where are the sociologists? the social psychologists? The anthropologists?

When I looked just at the basics, the Wikipedia page on economic sociology, I noticed right away that few of the names listed there are EVER mentioned in the discussions on the economy. We get the postings from the economists, but when was the last time we heard from or even heard mentioned Brooke Harrington? Lane Kenworthy?

I've had numerous discussions with the BF about how sociology examines the way people function as societies, in particular how the cultural history of the U.S. with its base in religious dissent has shaped our current culture. He's more of a left libertarian (meaning, he has no clue what he is) but he does not grasp that the interactions of people we don't even know and/or were dead long before we were born can influence our individual decisions and attitudes.

That's one of the reasons I immediately protested Obama's appointments of Rubin and Summers and Geithner -- I saw the continuation of this traditional even conservative economic policy, skewed in favor of property rights over human rights, individual gain over social gain, patriarchy over community. Marx understood this, and I think Keynes did, too. And to a certain extent, much of that seems to be little more than an extension of commonsense logic based on observations of the human parade.

So this morning, having a few extra minutes to "play" before I hit the list of week-end chores, I just went googling. I discovered that what's posted on Lane Kenworthy's blog (discovred/accessed via SASE.org, Society for the Advancement of Socio-Economics) is nearly as incomprehensible to me as SMW was a few months ago. The names were unfamiliar, the publications totally unknown to me. What that told me, of course, is that this information, these names, these books and papers and articles aren't making their way, at least not on a regular basis, to SMW and WEE.

It looks like I've got a lot of work ahead of me. . . . .


And that prospect is delightfully exciting to




Tansy Gold

[Demeter]

38. The Number Crunchers Are Trying to Treat People Like Particles

Random motion, statistical analysis, quantum mechanics, and other scientific guessing methods work just fine for insensate, inanimate objects.

Aside from the Bushbots, most people are neither insensate nor inanimate. And they object to being treated like objects, sometimes very violently.

You are absolutely right, Tansy, that they are using the wrong sciences here. Hell, they aren't even using what knowledge exists in economics!

[Danascot]

43. Related: Recipe for Disaster: The Formula That Killed Wall Street

http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all

[Tansy_Gold]

45. "Does Wall Street Need More Physicists?"

http://www.npr.org/templates/player/mediaPlayer.html?action=1&t=4&islist=true&id=5&d=03-13-2009


It's interesting that the discussion addresses the quantitative analysis but then the psychological (and ultimately socio-psychological) aspects are brought in -- until they start talking about physically wiring the traders to "measure" their fear level on the trading floor. Bizarre.



TG

[Downwinder]

63. This is the Theory Jack built.

from the collection "Space
Child's Mother Goose" by Frederick Winsor and Marian
Parry (Simon and Schuster, 1956)

This is the Theory Jack built.
This is the Flaw
That lay in the Theory Jack built.
This is the Mummery
Hiding the Flaw
That lay in the Theory that Jack built.
This is the Summary
Based on the Mummery
Hiding the Flaw
That lay in the Theory that Jack built.
This is the Constant K
That saved the Summary
Based on the Mummery
Hiding the Flaw
That lay in the Theory that Jack built.
This is the Erudite Verbal Haze
Cloaking Constant K
That saved the Summary
Based on the Mummery
Hiding the Flaw
That lay in the Theory that Jack built.
This is the Turn of a Plausible Phrase
That thickened the Erudite Verbal Haze
Cloaking Constant K
That saved the Summary
Based on the Mummery
Hiding the Flaw
That lay in the Theory that Jack built.
This is the Chaotic Confusion and Bluff
That hung on the Turn of a Plausible Phrase
That thickened the Erudite Verbal Haze
Cloaking Constant K
That saved the Summary
Based on the Mummery
Hiding the Flaw
That lay in the Theory that Jack built.
This is the Cybernetics and Stuff
That covered Chaotic Confusion and Bluff
That hung on the Turn of a Plausible Phrase
That thickened the Erudite Verbal Haze
Cloaking Constant K
That saved the Summary
Based on the Mummery
Hiding the Flaw
That lay in the Theory that Jack built.
This is the button to Start the Machine
To make with the Cybernetics and Stuff
To cover Chaotic Confusion and Bluff
That hung on the Turn of a Plausible Phrase
That thickened the Erudite Verbal Haze
Cloaking Constant K
That saved the Summary
Based on the Mummery
Hiding the Flaw
That lay in the Theory that Jack built.
This is the Space Child with Brow Serene
Who Pushed the Button to Start the Machine
That made with the Cybernetics and Stuff
Without Confusion, exposing the Bluff
That hung on the Turn of a Plausible Phrase
And, shredding the Erudite Verbal Haze
Cloaking Constant K
Wrecked the Summary
Based on Mummery
Hiding the Flaw
And Demolished the Theory that Jack built.

[Demeter]

65. BRILLIANT!

[CatholicEdHead]

59. Math wizzes help create Credit Derivatives in the first place

which got us into this mess. Very few people really understand the complexity of them.

[Demeter]

61. Not to Mention Their Irrelevance to the Reality of the Market

[Demeter]

2. Can't Wait 10 Years? Liechtenstein eases bank secrecy rules (follows Switzerland)

http://www.ft.com/cms/s/0/b85d298a-0ed9-11de-ba10-0000779fd2ac.html



Liechtenstein agreed to relax its vaunted bank secrecy rules on Thursday and accept standards on international tax co-operation set by the Organisation for Economic Co-operation and Development.

The move came ahead of an announcement on Friday by Switzerland, which is expected to announce concessions on bank secrecy in response to mounting international pressure on financial centres that have the strictest forms of client confidentiality.

Liechtenstein said it would negotiate new rules with other countries to encourage wealthy foreigners holding undeclared accounts to come forward voluntarily. The first talks on the initiative, discussed at length with the OECD, are due on Friday with Germany and then the UK next month.

Monaco, which, like Liechtenstein and Andorra, was put on an OECD list of “un-cooperative tax havens” in 2000, said it was reviewing its position, but did not expect to reach a conclusion for several weeks. Andorra indicated it would move to repeal bank secrecy rules.

Liechtenstein will go not so far as to abolish bank secrecy. But the principality will co-operate more fully with foreign tax authorities and will end the confusing distinction, also retained by Switzerland, between tax evasion, a civil offence, and tax fraud, a crime.

Critics of Switzerland and Liechtenstein argue that the strict distinction has hampered foreign tax authorities’ attempts to gain information, as local authorities only co-operate on tax fraud.

Liechtenstein’s move comes days after Singapore said it would relax its bank secrecy rules, which are among the strictest in the world. Hong Kong announced plans to allow the exchange of tax information last month.

Restrictions on access to bank information for tax purposes remain in Austria, Luxembourg, and a number of offshore centres, including Panama. Luxembourg has said it would participate in talks on transparency, so long as they included other EU territories, such as the Channel Islands.

The separate bilateral accords Liechtenstein hopes to negotiate are seen as a longer-term solution for dealing with tax evasion. Specialist lawyers argue the problem is global, and attempts to crack down on one country will only prompt a flight of assets elsewhere.

Prince Alois, Liechtenstein’s hereditary ruler, said its “fresh approach” would be more productive for all concerned than threats of discovery. He argued Liechtenstein’s initiative could serve as a global template.

“We think we have come up with an approach that is much more attractive to all concerned. This is a chance to secure a really long-term solution,” he said.

He declined to say whether Liechtenstein would seek amnesties or just moderate fines for foreign clients of its banks who decided to come forward.

When news of Liechtenstein’s plan first seeped out last year, some countries indicated they would be unwilling to negotiate such settlements. But Prince Alois said the principality had received strong indications of interest, both from other states and intergovernmental organisations.

[Demeter]

3. EU to plead for stronger financial regulation

http://www.ft.com/cms/s/0/2a20f560-0f0c-11de-ba10-0000779fd2ac.html


The European Union will make a “now or never” plea for stronger global financial regulation at next month’s G20 summit, but will rule out more fiscal expansion to conquer the recession, EU policymakers said on Thursday.

“I would like our ambition matched by others, regarding new rules for supervision and regulation of the financial system,” said José Manuel Barroso, European Commission president. “The EU should go to the G20 summit saying, ‘It’s now or never’.”

Mr Barroso was referring to the April 2 meeting in London of the world’s 20 main advanced and emerging economies, an event where the US, the EU, China and others will compare notes on their fiscal stimulus plans and discuss the regulatory reforms needed to reduce the possibility of another global financial crisis.

The Europeans are worried that the US, home to some of the world’s largest and most lightly regulated financial centres, lacks enthusiasm for a detailed set of international rules on regulation.

For its part, the EU is calling for a “comprehensive, ambitious and globally co-ordinated approach towards regulatory reform, ensuring that all financial markets, products and participants are regulated or subject to oversight”, according to a policy paper agreed by EU finance ministers this week.

In particular, the Europeans are emphasising the need to prevent systemic risk, by regulating hedge funds and private equity investment vehicles more tightly and by clamping down on excessive leverage and risk-taking.

The transatlantic differences are not unbridgeable. US and European officials point out that both sides agree in principle on measures such as more effective oversight of derivatives markets and a stronger capital requirements regime for banks.

Meanwhile, the EU’s 27 governments have closed ranks behind the view that Europe does not need to adopt a bigger discretionary fiscal stimulus, as Lawrence Summers, the White House economic adviser, has suggested, because it has already introduced anti-recession spending programmes that are similar in scope to that of the US.

“We should resist the temptation to call for new initiatives before we have evaluated the initiatives that we’ve already launched,” Mr Barroso told a meeting of the Lisbon Council, a Brussels-based think-tank. “Europe has not proved itself incapable of acting. Quite the opposite.”

The headline US stimulus figure of $787bn is much larger than the €200bn in the EU’s official economic recovery plan, approved in December. But a comparison fails to take account of the vast expenditure on unemployment benefits and other welfare programmes that is triggered in Europe by a recession, EU officials say.

“It has never happened before in economic history that 27 countries have decided at the same time to launch an economic programme of this magnitude,” Mr Barroso said.

It was possible to exaggerate the risk of protectionism spreading as a result of the recession, he added. “My own feeling is that there’s been more talk about protectionism than actual protectionism going on,” he said.

Michael Heise, chief economist at Allianz, the giant German insurer, said the EU’s fiscal stimulus, interest rate cuts and massive injections of liquidity by central banks, coupled with low energy and commodity prices, would produce an upturn in the European economy sooner than many analysts were predicting.

But he told the Financial Times: “One problem is that the stimulus programmes will only last for 18 months to two years. Then you risk having another slowdown, because from the point of view of fiscal consolidation we’re really going to have to put the brakes on somehow.”

ALL THIS INTERNATIONAL CO-OPERATION REALLY GIVES ME THE CREEPS! TOO MUCH DEJA-VU!

[Demeter]

4. Swiss action sparks talk of ‘currency war’

http://www.ft.com/cms/s/0/a9ec76dc-0f40-11de-ba10-0000779fd2ac.html

The Swiss National Bank moved to weaken the Swiss franc on Thursday, the first time a big central bank has intervened in the foreign exchange markets since Japan sought to weaken the yen in 2004.

The bank’s move, which sparked fears that other countries could follow suit, comes as the value of the Swiss franc has soared as investors seek a haven from the recent market turmoil. In October, after the collapse of Lehman Brothers, it rose to a record high of about SFr1.43 against the euro, a level it has come close to again in recent weeks.

But it fell to its lowest level this year on Thursday after the SNB said the currency’s strength represented an “inappropriate tightening of monetary conditions” as it battled against a slowdown in the Swiss economy.

“In view of this development, the SNB has decided to purchase foreign currency on the foreign exchange market to prevent any further appreciation of the Swiss franc against the euro,” the central bank said.

The Swiss franc dropped 2.6 per cent to SFr1.5192 against the euro and dropped 3.2 per cent to $1.1894 against the dollar.

Analysts said the move was likely to increase talk that countries were set to engage in a bout of competitive devaluation.

“Let the currency wars begin,” said Chris Turner at ING Financial Markets.

Countries around the world faced with the constraint of zero interest rate levels might feel it was acceptable to intervene to weaken their currencies in order to ease monetary conditions, he said, adding that other export-dependent economies such as Japan would “probably be at the head of the queue”.

Michael Woolfolk at Bank of New York Mellon agreed.

“Market intervention by a major central bank such as the SNB opens up the door for other central banks, namely the Bank of Japan, to follow suit,” he said. “The yen is widely perceived in Japan to be overvalued.”

The SNB also cut its interest rates by 25 basis points, taking its three-month Libor target range down to zero to 0.75 per cent, and announced plans to adopt a quantitative easing approach to monetary policy.

Analysts said the move towards quantitative easing was sparked by a drastic revision to the central bank’s forecast for growth, which is now expected to fall between 2.5 and 3 per cent in 2009, much worse than its previous forecast of a drop of between 0.5 and 1 per cent.

The SNB said economic conditions had deteriorated sharply since its last policy meeting in December and that there was a risk of deflation over the next three years.

“Decisive action is thus called for, to forcefully relax monetary conditions,” the central bank said.

[Demeter]

5. Geithner looks for a trade-off over IMF

http://www.ft.com/cms/s/0/d71e688e-0f3d-11de-ba10-0000779fd2ac.html



Not even an understaffed US Treasury is afraid of doubling up its bets. This week, in the face of European scepticism of its demands for global fiscal stimulus, Tim Geithner, US Treasury secretary, upped the stakes by proposing a massive expansion of the International Monetary Fund and sweeping reforms to the global financial architecture.

But at the heart of Washington’s strategy, experts say, lurks an attempted trade-off. The emerging world gets more say over the running of the world economy, and Europe gets more IMF cash to bail out the crisis-hit countries on its eastern periphery. In return, the US is trying to recruit the IMF to its campaign to press the rest of the world – and particularly recalcitrant European finance ministers – to increase fiscal stimulus.

Arvind Subramanian at the Peterson Institute in Washington says: “The US is hoping that the need to help out eastern Europe will overcome the stand-off over fiscal policy.”

The fund has led large loan packages for Ukraine, Hungary and Latvia and has been negotiating with Romania and Turkey. While the EU seems likely to find its own funds to rescue any eurozone country that requires them, it has looked to the IMF to lead the response to crises in states further east. In return the US wants the IMF to act as a global fiscal cop, monitoring whether countries keep to a benchmark of spending 2 per cent of gross domestic product to boost demand...

[amandabeech]

67. Wasn't it at the IMF that Geithner screwed up on the Asian financial crisis ?

Or was it the world bank?

[Demeter]

69. IMF, Actually

I posted that in the past week somewhere....here it is!

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=103&topic_id=430907&mesg_id=431073

[amandabeech]

93. Yes, that's where I read it!

Thanks for posting that article originally and thanks for retrieving the link!

[Demeter]

6. Gates regains top spot in Forbes rich list

http://www.ft.com/cms/s/0/7117e278-0ee2-11de-ba10-0000779fd2ac.html


NEW YORK, March 11 - Microsoft founder Bill Gates is the richest man again, overtaking investor Warren Buffett, as the global financial meltdown wiped out $2,000bn from the net worth of the world’s billionaires, Forbes Magazine said.

The number of billionaires in the world fell by nearly a third to 793 in the past year, with large numbers dropping off the list in Russia, India and Turkey. Mr Gates regained his title as the richest man in the world, with $40bn after slipping to third last year when he was worth $58bn.

Mr Buffett, last year’s richest man, fell to second place with $37bn, down from $62bn. Mexican telecommunications tycoon Carlos Slim took third place with $35bn, down from $60bn.

Collectively, the top three billionaires lost $68bn in the year to February 13, when Forbes took a snapshot of wealth around the world to compile its annual list of billionaires.

Steve Forbes, chief executive of Forbes Magazines, said that while few would shed a tear for the plight of a billionaire, it was bad for the economy when entrepreneurs were in trouble.

”Billionaires don’t have to worry about their next meal, but if their wealth is declining and you’re not creating numerous new billionaires, it means the rest of the world is not doing very well,” he told reporters. ”The typical billionaire is down at least one third on their net worth.”

The net worth of the world’s billionaires fell from $4,400bn to $2,400bn, while the number of billionaires was down to 793 from 1,125. ”It’s the first time since 2003 that we have lost billionaires, but we’ve never before lost anywhere near this number,” said Luisa Kroll, senior editor of Forbes.

”It’s really hard to find something to cheer about unless you get some perverse pleasure in realising that some of the most successful... people in the world... can’t figure out this global economic turmoil better than the rest of us.”

New York City replaced Moscow as home to the most billionaires, with 55. Russia, which saw the number of super- rich soar in recent years, suffered among the biggest shocks, with the number of billionaires down to 32 from 87.

Other developing countries that saw fast growth in previous years were hit hard as well, including Turkey, where the number of billionaires fell to 13 from 35, partly due to the collapse in the value of the lira currency, and India. Indian businessman Anil Ambani, the biggest gainer on last year’s list, was the biggest loser this time, with $32bn wiped out over the last 12 months...


The only person in the top 20 who did not lose money was New York Mayor Michael Bloomberg, whose net worth was revised up to $16bn from $11.5bn because of a revaluation of his media company, Bloomberg LP, Forbes said. He is now the richest man in New York, jumping from 65 in the world to 17.

........
Among those conspicuous by their absence from the list was Facebook founder Mark Zuckerberg, one of last year’s stars when he became the youngest self-made billionaire to make the list. Also dropping out were big name casualties of the financial crisis on Wall Street – former American International Group chief executive Maurice ”Hank” Greenberg and former Citigroup chief executive Sanford Weill.

Allen Stanford, the Texan accused of an $8bn fraud by US regulators, was also booted off the list. Crime, however, did not disqualify one notable new entry to the list – Mexican drug lord Joaquin ”Shorty” Guzman, who is among the world’s most wanted men and now worth $1bn. ”He is not available for interviews,” Ms Kroll said. ”But his financial situation is doing quite well.”

[Demeter]

7. Forget About "Recovery" (James Kunstler)

http://www.worldnewstrust.com/wnt-reports/commentary/forget-about-recovery-james-kunstler.html

...Now it has come to light, just last week in the wake of AIG's latest bail-out, that previous AIG bail-out money to the tune of $50 billion was distributed to a set of banks including Goldman Sachs (former employer of then Treasury Secretary Hank Paulson and then New York Federal Reserve Governor Tim Geithner), plus Morgan Stanley, Merrill Lynch, Mr. Lewis's Bank of America, and a long list of European banks with operations in the USA. Since the transactions took place in New York State, the investigation of these irregularities alone could solve the unemployment problem here if NY Attorney General Cuomo were given a free hand in hiring staff to depose everyone involved -- including the hiring of caterers to bring in coffee and meals for round-the-clock proceedings.

All of this raises another awkward question: where is United States Attorney General Eric Holder in this situation? Surely the federal statutes offer some grounds for inquiring about the misuse of Treasury funds -- and many other issues arising from Wall Street's stupendous orgy of misbehavior. What I'm hearing out in the blogosphere is a growing clamor to call people to account before we are really able to move on to the massive task-list that awaits us in rebuilding our economy.

The bigger question for now is whether any of these authorities will act effectively before the public simply goes apeshit and starts burning down Greenwich, Connecticut. The dangerous shift in public mood is liable to occur with shocking swiftness, in the manner of "phase change," where one moment you see a bewildered bunch of flabby clown-citizens vacuously enraptured by "American Idol," and the next moment they are transformed into a vicious mob hoisting flaming brands to the window treatments of a hedge funder's McMansion. The moment of opportunity for avoiding that outcome is looking sickeningly slim right now.

Another thing that President Obama can set into motion anytime -- and pull himself back to the head of the curve of leadership -- is to either by executive order or by proposal to congress, shut down the credit default swap system for a period of time while procedures are drawn up to place all these dubious contracts in a "clearing" market, where the holders of them will have to come clean about what they're sitting on. The lack of this procedure is allowing zombie banks to hold the United States hostage for never-ending bail-out ransoms. None of these banks are going to survive another six months anyway, so the basic blackmail motif that the whole money system will collapse if ransoms are not paid is a bluff that has to be called sooner or later in any case. So Mr. Obama might as well get on with it.

Once these two matters are dealt with -- an earnest start-up of prosecutions and disabling the credit default swap blackmail racket -- then perhaps a stressed-out and impoverished public might be induced to not go apeshit and instead get on with the mighty task of rebuilding our nation along lines that have a plausible future.

[Demeter]

8. Global Financial Assets Lost $50 Trillion Last Year, ADB Says

http://www.bloomberg.com/apps/news?pid=20601068&sid=aZ1kcJ7y3LDM&refer=economy

March 9 (Bloomberg) -- The value of global financial assets including stocks, bonds and currencies probably fell by more than $50 trillion in 2008, equivalent to a year of world gross domestic product, according to an Asian Development Bank report.

Asia excluding Japan probably lost about $9.6 trillion, while the Latin American region saw the value of financial assets drop by about $2.1 trillion, said Claudio Loser, a former International Monetary Fund director and the author of the report that was commissioned by the ADB. The report didn’t give a breakdown of asset declines in other regions...



Global Recession

The global economy is likely to shrink for the first time since World War II, and trade will decline by the most in 80 years, the World Bank said yesterday. Its assessment is more pessimistic than an IMF report in January predicting 0.5 percent global growth this year.

Developing nations will bear the brunt of the contraction and they will face a shortfall of between $270 billion and $700 billion to pay for imports and service debts, the Washington- based World Bank said.

“This crisis is the first truly universal one in the history of humanity,” former IMF Managing Director Michel Camdessus said at an ADB forum in Manila today. “No country escapes from it. It has not yet bottomed out.”....

[Demeter]

9. Trickle Down Misery

http://www.ipsnews.net/news.asp?idnews=45980



Analysis by Abid Aslam

WASHINGTON, Mar 4 (IPS) - The world's poorest people had nothing to do with the financial gimmickry that has brought the global economy to its knees but they are paying a heavy price for it and relief seems a long way off.

Poverty is increasing and the spectre of political upheaval looms over developing countries whose export earnings have dwindled amid tumbling commodity prices and sluggish global trade. Foreign investment and aid budgets are being cut. The resilience of remittances from migrant workers is being tested by a deep and still-unfolding recession.

As Dominique Strauss-Kahn, head of the International Monetary Fund (IMF), puts it: "After hitting first the advanced economies and then the emerging economies, a third wave from the global financial crisis is now hitting the world's poorest and most vulnerable countries."

In jeopardy, he adds, are "the major achievements of higher growth, lower poverty, and greater political stability that many low-income countries have made over the past decade."

Soaring food and fuel prices pushed 130 million to 155 million people in developing countries into poverty in 2008 and the World Bank reckons another 53 million people could join them this year. This would bring the total of those living at or below the international poverty line of two dollars a day to more than 1.5 billion people.

.....

Banks in rich countries lapped up 380 billion dollars of public money in the last three months of 2008 alone, he says. By contrast, seven billion dollars in extra aid would enable low-income countries to meet key education goals agreed by the international community.

Nor are global investors likely to be of use. Net flows of private capital to emerging markets - the wealthiest of the developing countries - plunged by nearly 50 percent from 929 billion dollars in 2007 to 466 billion dollars in 2008, according to the Institute of International Finance. The global banking lobby expects this year's total to fall to 165 billion dollars.

In many cases, critical financing will have to come not from donors or investors but from migrant workers who send money to their families back home. In good times and bad, these remittances have eclipsed official aid to countries ranging from Jamaica to Pakistan and the Philippines, in some cases generating up to one-fifth of national income.

Migrant workers sent home 305 billion dollars in 2008, up from 281 billion dollars in 2007, even as private investment in the developing world collapsed, the World Bank reckons. Unlike donors, almost all of which have yet to honour 1970s promises to allot less than one percent of national income for aid, migrants typically remit around five percent of their earnings.

Here, too, the outlook is worrying. Remittances grew last year but at a slower rate. In Mexico, they actually fell by 3.6 percent. No one seems to know what impact a severe global recession would have but the bank expects remittances to fall by about six percent this year before recovering in 2010.

The bank's prediction could prove overly optimistic. Jobs are evaporating everywhere as businesses fold or announce cuts in posts and plant. The International Labour Organisation (ILO) expects the global unemployment rate to reach 6.5 percent this year, with 30 million more people out of work than in 2007. The rate could rise further, to 7.1 percent for a loss of 50 million jobs since 2007, it says. Official figures tend to understate the problem.

Even those with jobs will find themselves increasingly vulnerable. Over the course of this year, says the ILO, 53 percent of people in formal employment could find themselves walking a high wire with no safety net to catch them if they suddenly lose their income.

If migrants lose their jobs and return home in significant numbers, remittances will swell as they repatriate their savings but then fall dramatically as a longstanding source of economic lifeblood dries up.

[Demeter]

10. IN CASE THERE ARE ANY DOUBTS: Depression Dynamic Ensues as Markets Revisit 1930s

http://www.bloomberg.com/apps/news?pid=20601109&sid=aIGfhz6uFJcg&refer=home

March 9 (Bloomberg) -- The U.S. economy’s vital signs may not confirm a diagnosis of depression. The symptoms increasingly point to one.

As in the Great Depression, world trade is collapsing, wealth is evaporating and the banking system is broken. Deflation is a growing threat as companies slash production, pay and prices. And leaders worldwide are having difficulty making headway in halting the self-perpetuating decline.

“We are tracking 1929-1930,” says Barry Eichengreen, a professor of economics and political science at the University of California, Berkeley.

The result: This contraction may leave a lasting imprint on the economy and society, just as the Depression did. In the wake of the devastation of the 1930s, Americans swore off stocks, husbanded their own resources and looked to the government for help. Now, another generation might draw some of the same lessons from the deepest economic collapse of their lifetime.

“This is going to scar the collective psyche,” says Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania. “People will become much more conservative in borrowing, lending and investing.”

There’s no official definition of what qualifies as a depression. In the 1930s, the unemployment rate rose to 25 percent and the economy shrank by more than a quarter.

....

Economist Robert Barro defines a depression as a 10 percent fall in per-capita gross domestic product and consumption. The Harvard University professor sees roughly a 30 percent chance of that occurring now...The economy contracted at a 6.2 percent annual rate in the last quarter of 2008 and will shrink at a 7 percent rate in the first three months of 2009, projects Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc. in New York.

Defining Depression

Bradford DeLong, a former Treasury official who is now a professor at Berkeley, says a depression is a two-year period with unemployment at 10 percent or above. He says that’s possible, though not likely. The jobless rate rose to 8.1 percent in February, a 25-year high.

Some industries are already in a depression, led by housing, where the decline accelerated in recent months as the credit crisis intensified. During the last four years, residential investment is down by 37 percent. That compares with an 80 percent drop in spending on home building from 1929 to 1932.


...In the auto industry, U.S. sales have fallen 55 percent from their July 2005 peak. Production of cars and trucks plunged in January to an annual rate of 3.9 million, the lowest since the Federal Reserve began keeping records in 1967, and 67 percent below the January 2005 level.


...The financial-services industry has also been decimated. Since the crisis began in the middle of 2007, institutions worldwide have racked up $1.2 trillion in credit losses and writedowns. Announced job cuts have topped 280,000.

“You’ve had a major disruption of the financial system, just like the 1930s,” says Mark Gertler, a New York University professor who collaborated on research about the Depression with Fed Chairman Ben S. Bernanke. In the 30s, more than 10,000 banks went bust.

Hoarding Capital

That disruption is making it hard for Bernanke and his fellow policy makers to get much traction in their efforts to stop the economic decline. Strapped with losses, banks are hoarding capital rather than lending.

This type of breakdown happens only two or three times a century and can lead to a “downward vortex” in which weaknesses in the economy and the financial industry feed on each other and are difficult to break, Lawrence Summers, director of the White House’s National Economic Council, said Feb. 26. “It’s the kind of vicious cycle Franklin Roosevelt talked about,” he told a forum in Arlington, Virginia.

Particularly worrying, says Stanford University professor Robert Hall, is the collapse of the jobs market. Over the past four months, payrolls have plunged 2.6 million.

Summers has also voiced concern about a return of deflation, which wreaked havoc on the economy during the Great Depression. As wages fell back then, workers had a harder time paying their debts, aggravating the banking industry’s woes.

Pay Cuts

In an echo of those troubles, GM, FedEx Corp. and casino company Wynn Resorts Ltd. are among businesses slashing pay for more than 100,000 workers as they cut costs to counter declining demand.

There are other echoes. Since hitting a peak in October 2007, the Dow Jones Industrial Average has fallen 54 percent. Over a similar length of time -- from 1929 to 1931 -- the average fell 55 percent. It ultimately dropped 89 percent from its 1929 high before beginning to recover in mid-1932.

Combined with collapsing house prices, the free-fall in the stock market will destroy $23 trillion worth of U.S. wealth, reckons Lawrence Lindsey, a former senior White House official who now heads his own consulting company in Arlington, Virginia.

Like the Great Depression, the current economic decline is global. The International Monetary Fund says this will be the first time since World War II that the U.S. and other industrial nations will suffer a simultaneous decline in their economies...

[Demeter]

11. Few things are as costly as free money.

http://www.dailyreckoning.com/stocks-rally-while-big-companies-fail/


When the Spanish Galleons came back from the New World with cargoes of gold and silver coins, the Spaniards thought they'd hit the jackpot. All of a sudden, Iberia had plenty of money. Historians report that the Spanish neglected their fields and their manufactures; now they had easy money to spend. Prices rose quickly. Then, when the treasure ships stopped coming, the Spanish were broke. Spain - and Portugal too - went into a decline that lasted four centuries.

In the late 1990s, America got in the habit of getting shiploads of stuff from Asia - and paying for it only with pieces of green paper. Pretty soon, Americans too neglected their own factories - though not their fields. Let the Asians sweat, they said. We'll think!

Not much serious thinking has taken place in the United States of America for the last 20 years. Instead, people preferred comforting illusions and conceited claptrap. We have the 'strongest, most dynamic economy the world had ever seen,' they congratulated themselves.

Of course, you don't need to think - not when you ship is coming in. But now that the ship is sinking you'd expect people would put on their life jackets and their thinking caps. Nope. Now they look to the government for the free money. Yesterday's news told us that Congress is now spending away $1 billion per hour.

[Demeter]

12. FROM THE SAME SOURCE: a Dear Reader with a comment:

"I have been reading your comments regularly for a past few years, during which I was a Managing Director at Lehman Brothers and, thereafter, at Deutsche Bank. I am now semi-retired, living in the English countryside and watching the meltdown from afar. In my youth I was drawn to Austrian and Libertarian thinking and, as I progressed in the financial industry, never forgot these roots. Now I feel fortunate to have that grounding as it helps me to better understand what is really going on.

"During 2004-07 I saw the financial industry stacking up the powder kegs that would eventually blow up. I tried on occasion to warn people. But my warnings fell on deaf ears at Lehman and elsewhere, but not for the reasons you might think.

"I recall numerous conversations with senior people at various global financial firms on topics ranging from Fed policy, to the US/UK housing markets, securitisation and its potential pitfalls, the CDS tangle, and so on. One thing that is clear to me is that key people at these firms were aware for the most part what risks they were taking. They knew that it was all going to blow up someday, if not so spectacularly as it now has done. But they all believed that somehow they would be quicker and cleverer than rival firms, that they would effectively hedge themselves and they would get out first, before things got really ugly. As you well know, that sort of collective "greater fool theory" mindset is characteristic of bubbles and, if widely held, almost ensures that liquidity will dry up suddenly as markets turn for the worse.

"Believe me, they knew they were playing with fire to a much greater extent than is currently acknowledged. They blame 'animal spirits' and 'market forces' when they were, in fact, the most important market participants. No wonder a hedge didn't work if most major global financial institutions held the exact same hedge! If you are curious I can fill you in on some of the details although I suspect you know much of this already.

"In any event, I admire you and those few who are tirelessly pointing out that it was most emphatically not the free-market, but rather central banking and misguided regulation, that got us into this mess. You are doing the next generation a great service. Sadly, the current generation is probably beyond help at this point. I hope and pray that, like a phoenix, a form of proper, free-market capitalism rises from the ashes of the current conflagration.

[Demeter]

13. GREAT DEPRESSION SURVIVAL GUIDE, PART II by Chris Mayer

http://www.dailyreckoning.com/great-depression-survival-guide-part-ii/

"Although most Americans think of the 1930s as a decade of economic stagnation, the period was far from being one of unalloyed decline." - Robert Sobel, The Age of Giant Corporations

Robert Sobel's book is our chief guide for the second leg of the Great Depression Survival Guide. As his book's title lets on, it was the larger companies that did the best.

To illustrate this point, let's start with the auto industry. In 1929, the auto industry sold more cars than it ever sold before - 5.3 million units. But the wrecking ball called the Great Depression hit the auto industry especially hard. By 1932, only 1.3 million units were sold.

As you might imagine, plenty of automakers never made it out of the Great Depression. Moon, Kissell, Elcar, Marmon and others all disappeared. What they all had in common was that they were small. Some were specialty carmakers, serving a small niche that got a lot smaller - too small to make a business out of it. Novelties - like Franklin's air-cooled engines - were desirable when times were good, but no one wanted to pay for them when times turned bad.

But the Big Three - GM, Ford and Chrysler - survived. In fact, the falling away of the competition helped that. It allowed them to fill in and consolidate markets. So we have our first takeaway.

The survivors often had large-scale operations and were leaders in their industries. Smaller companies had a harder time dealing with the Great Depression, as Sobel shows in his book. But the sales and profits of the largest companies increased during the 1930s.

What else did the Great Depression survivors have in common? Here are more of my thoughts based on Sobel's research...

The survivors were self-financing. They didn't need their bankers as a source of funds. In fact, most of large Corporate America didn't need their bankers for loans. The flush times of the 1920s led to the near disappearance of corporate bank debt by 1929. Banks had to go elsewhere to find borrowers. They began to finance real estate heavily and broker loans for the purchase of stocks and bonds. Ultimately, the banks got in trouble with these bets, but most of larger industrial America stood on its own bottom.

Take the Gulf Oil Co., for instance. In 1929, the company produced 90 million barrels of oil. It was like granite as far as financial strength goes. In the 1930s, Gulf was able to expand operations, gain a foothold in the rich Kuwaiti oil fields, increase its advertising budget, pursue undersea exploration and refinance what debt it had at attractive rates. "Most of this would have been impossible were it not for the firm's strong position on the eve of the Depression," writes Sobel.

The winners also often had great leaders. GM had Alfred Sloan as its president through 1937. Sloan was a brilliant strategist and organizer. The harsh environment of the 1930s rewarded tight ships and the accumulation of small advantages. These were things at which Sloan excelled.

In fact, Sobel goes on to say that GM actually benefited in a number of ways from the Great Depression. "A management aware of possibilities and adequate financing could hold its own and even flourish during the Depression," Sobel writes.

Sobel finds other examples in other industries, everything from American Can in the tin industry to the New York Yankees in baseball. "Good leadership and finances could expand and dominate in the 1930s," Sloan concludes. Hence, we reaffirm once again the value of a good operator, a point I stress in these pages.

Industries that were hard to get into did best. Another other important point here is that Sobel finds industries with high capital costs that kept competitors out did better than those with low barriers to entry.

This one also makes intuitive sense. In a depression, money is tight. And if it takes bucket loads of money to crack into an industry, it's not likely to happen. The chemical industry held up well in part because to get in the business required heavy capital spending on equipment and research and marketing. Companies like DuPont, Monsanto and Union Carbide held onto market-leading positions simply because there was no threat of new entrants.

Oil refineries, too, were another example. Sobel estimates that one barrel of gasoline capacity required $240 of capital. By the end of the '30s, it would cost you $320 to add one barrel of capacity. On a per worker basis, the refinery industry was about 10 times more capital- intensive than the typical American manufacturer. Those high costs discouraged new competitors and kept prices for gasoline up. It's no surprise, then, that price of gasoline did not go down in the 1930s.

Productivity gains helped. Since money was tight and business was slow, you had to be innovative to squeeze out profits. You had to husband your resources carefully, like a caravan mindful of its water supply as it crosses the Sinai Desert.

In the oil business for example, oilmen got much better at finding oil. Necessity is the mother of invention, after all.

Crude prices fell in the 1930s, from $1.27 a barrel in 1929 to only 67 cents a barrel by '33. So the oil biz had to rely on new technologies to improve results. And it did. For instance, in 1929, about a third of all drilling resulted in a dry hole.

By 1937, that figure was down to 22%.

That's just one example among many in the oil industry, and other industries as well. In general, Sobel finds that output per man - productivity - increased 20% in the 1930s.

Expanding markets also helped. Despite what you might think, demand for everything didn't topple over in the 1930s. Demand for gasoline, for instance, declined only in 1932. From then on, the number of cars and trucks on the road went up every year. And so did the demand for gasoline. That helped the oil companies. Oil also got some help from other industries. The rise of aviation in 1930s required fuel. The oil companies made that fuel. And the demand for highways required asphalt, also made by the oil companies.

Some industries today will also see expanding markets for their goods. It seems obvious, but the point was often overlooked at the time - and so, too, it is overlooked today: There is some base-line level of consumption for things like energy, food and water - even in depressions. This base-line consumption is bound to rise, if for no other reason than population rises over time. You can't say the same thing for decorative balls sold at Target for $4.99 a pop, or for fancy $30 candleholders at Pier 1. If you want to be sure your money sees the other side of this thing, stick with the necessities.

"The principal preoccupation of almost everybody in the 1930s was getting by," the great A.J. Liebling wrote in May 1963.

It's a good point to remember as you think about investing today. "Almost everybody" is key, though. For the companies that shared the characteristics highlighted above - such as the large-scale leaders with good financing and top managers in expanding markets - the 1930s was a time of opportunity.

Regards,

Chris Mayer

[Demeter]

14. I CANNOT LOCATE PART ONE, SORRY!

[Demeter]

15. Geithner Loves the Market so Give him Banking Vouchers / Benjamin R. Barber

http://www.huffingtonpost.com/benjamin-r-barber/geithner-loves-the-market_b_174344.html

This week on Charlie Rose, Secretary of the Treasury Timothy Geithner said explicitly what has been implicitly all along in President Obama's approach to ailing banks and financial institutions. Responding to Rose's unusually tough questioning about why government has asked so little of the banks getting billions in bailouts, Geithner said the market is the solution to the market's meltdown, and that any attempt by government to interfere via nationalization or overly intrusive mandatory instructions would get in the way of the free market as it dealt with the crisis.

Now real market fundamentalists have made clear that this would mean keeping government out of the crisis altogether and letting Citibank and other wounded companies follow Lehman Brothers and Bear Stearns down the drain.

But Geithner doesn't love the market that much: he wants it both ways - big taxpayer bucks into bank coffers, but let the banks decide what to do with them (OK, maybe lay off those publication relations disaster bonuses and corporate jets). All risk to those civic shareholders known as taxpayers, all profits to the bankers and their private shareholders known as investors.

Well I have an alternative plan that doesn't (god forbid!) involve nationalization or government mandates, but compels the banks to spend government bucks for the purposes intended by Congress when it OK'd the bailout: vouchers. Submit the banks to the privatizing discipline of vouchers that has been used in the education and housing markets, and is the logic behind food stamps. (You can't spend them on movies or a ballgame, you gotta buy food with them.)

Keep giving out the dough to the banks but leave them with no choice but to pass the bucks on to you and me in the form of credit and loans. The banks can negotiate and administer the loans, government doesn't get involved in banking, but they will be working with federal vouchers rather than cash. And that means government bailout funds won't turn into greenbacks until they are actually in the hands of small businessmen, home mortgage applicants or consumers. If bankers stuff them into the vault to be used to pay off toxic debt or acquire some other failing bank, they will be worthless. Put a shelf life of say three to six months on them and banks will have to make these vouchers available as loans and credit. Or else. Use 'em or lose 'em.

With vouchers, the government (and the taxpayers whose money the government is giving away) can truly pass the buck without worrying that the buck will stop with the banks. And Geithner can relax, knowing nobody can call him a bank nationalizer or closet socialist. After all, what is more market than vouchers?

[Demeter]

16. Mother Jones: What Economic Crisis? By Nick Baumann

http://www.motherjones.com/politics/2009/03/10-people-who-are-profiting-global-economic-crisis

"Everyone is suffering," President Obama said in his speech to a joint session of Congress in late February. He was referring to the global financial and economic crisis, but he didn't have it exactly right. There are some people who are doing well: dollar-store owners, bankruptcy lawyers, gun manufacturers (sales are up!), short-sellers of stock, foreclosure experts, and so on. But some individuals who are doing well are doing really well. Here's a rundown of 10 of the financial crisis' biggest winners:

SEE LINK FOR DETAILS

John Paulson:

Andrew Lahde:

Sir Fred Goodwin:

James Chanos:

Prem Watsa:

Shawn Kolahi:

Jerry Haworth:

Meredith Whitney:

Jamie Dimon:

John Maynard Keynes: The great economist may be dead, but the past 20 or so months have been perhaps his finest hours since his theories fell out of favor in the late 1970s. Paul Krugman, a Nobel Prize winner in economics, calls the current era a "Keynesian moment." And N. Gregory Mankiw, the chairman of George W. Bush's Council of Economic Advisors, wrote late last year that "if you were going to turn to only one economist to understand the problems facing the economy, there is little doubt that the economist would be John Maynard Keynes." When left-wing Democrat Krugman and right-wing Republican Mankiw agree, you know they're probably on to something. "The essential framework constructed by Keynes—that recessions are caused by a failure of demand, and that at the very least government should not respond to an economic slowdown by paring back its largesse—is no longer in dispute," The New Republic's Jonathan Chait wrote last week. Indeed, many world governments, including America's, are trying to jumpstart demand by increasing government spending—the fiscal stimulus you've heard so much about. Krugman writes, "In the long run, it turns out, Keynes is anything but dead."

[Demeter]

17. GRAND ILLUSION - THE FEDERAL RESERVE

http://www.opednews.com/articles/GRAND-ILLUSION--THE-FEDER-by-Jim-Quinn-090310-732.html

EXHAUSTIVE ARTICLE AND SCREED ON THE FED, WHAT IS IT, WHAT IS IT DOING, WHAT SHOULD WE DO ABOUT IT?

[hamerfan]

34. Thanks Demeter!

This article on the Fed should be bookmarked by anyone interested in its history. I always knew it was a quasi-government entity with the good of the American people not its top priority.
If we as a nation could have a do-over of the year 1913, maybe we'd get it right this time!
Thanks again!
hamerfan

[Demeter]

37. This Particular Article Is A Bit Slanted

but I think the facts are correct....

[Demeter]

18. the contrarian - Double Whammy Hits Taxpayers by Dave McGill

http://www.thedailycrock.com/?p=576



In an ironic twist on the “Back to the Future” theme, it appears that our children and grandchildren will be funding a large portion of the current-day job losses being experienced by their parents and grandparents.

In the continuing saga of history’s greatest rummage sale, Merck Co. announced this week that it would acquire Schering Plough Corporation in a deal worth $41.1 billion, thus creating the world’s second largest pharmaceutical company.

So what does this have to do with our children and grandchildren? Well, first of all, the Troubled Asset Relief Program, affectionately known as TARP, will be funded, of course, by borrowings that will eventually be largely paid off by these youngsters. And secondly, it turns out, TARP was instrumental in structuring the massive purchase by Merck.

According to the L.A. Times, the deal was made possible by the financing provided by JPMorgan Chase & Co., Goldman Sachs Group, Citigroup Inc. and Bank of America Corp., four institutions that have received a total of $130 billion in TARP funds. The Times report stated that the Merck transaction “would be virtually impossible to complete if the banks had not received money from the Treasury Department under TARP.”

Ok, so what does this have to do with current day job losses? Well, according to press reports, the acquisition is expected to result in 16,000 layoffs, and it is widely recognized that an initial estimate such as this, usually turns out to be on the low side.

At the same time, over in another corner of the frantic bargain basement sale, Pfizer is in the process of cementing its position as the world’s largest pharmaceutical company through its $68 billion acquisition of Wyeth.

And - guess what - the same four banks are involved in the financing. And the projected job loss, in this case, will be 19,000, a small percentage of which will be overseas.

All told, the banks are providing $31 billion in loans for both transactions.

So there you have it. Present and future taxpayers are coughing up $130 billion for these four banks, and this is having the effect, in just these two deals, of costing nearly 35,000 of them their jobs.

I don’t know the average salary being paid by the drug companies but, based on conversations with company officers, and given the fact that they are largely staffed by professionals and high-end sales staffs, an average annual salary of $80,000 would probably be a conservative estimate.

If that is true, then, and just to put this in perspective, the 35,000 job cuts anticipated from these two situations alone would represent an aggregate annual income stream of $2.8 billion that is being taken away from the workforce. And that does not include the ripple effect that the job losses will have in communities where entire company sites will be eliminated.

Furthermore, TARP is having a similar effect within the financial sector itself. On the last day of 2008, for example, the PNC Financial Services Group out of Pittsburgh received $7.579 billion in TARP funds and before the end of that same day, it acquired National City Corp. for $5.08 billion. Then, last month, PNC announced it was cutting 5,800 jobs “as part of its integration.”

These are all significant numbers and President Obama may well become concerned that TARP may be offsetting some of the gains the administration is attempting to achieve in the workforce. It seems to be getting uncomfortably apparent that the MIJO (Money In/Jobs Out) scenario is threatening to become a key ingredient of TARP, at least from the standpoint of its beneficiaries.

And, like most other problems that have any relationship to our political process, we perhaps should ask ourselves if this apparent travesty could have anything to do with our system of campaign finance....

[Dr.Phool]

35. Translation: We're bankrolling our own destruction.

Same shit, different flies.

[KoKo]

111. An interesting article ..good to here "Center for Responsive Politics" view on this...

It's still not enough to counter CNBC/Fox/Bloomberg Financial...and the MSM...but HEY it's good to read. At least a few are trying to tell the truth. Thanks for posting...I've bookmarked the site.

[Demeter]

19. Good Night Folks! I'm Putting My Cold to Bed

My sister got Dad into the hospital finally, so I'm taking my Kid's latest gift and trying to put me out of its misery....

I'll be back Saturday, in the morning, but I leave you with this inspiration:

http://www.youtube.com/watch?v=LNMVMNmrqJE&feature=related

[Dr.Phool]

20. I'm glad she got him taken care of.

I hope the hospital and your sister can get him straightened out.

See you tomorrow!:hi:

[DemReadingDU]

22. Good morning!

Glad your dad is getting checked out.

Take care of yourself too.

:hi:

[Demeter]

25. Good Morning!

I'm staying in and getting some extra sleep today. No wonder the Kid was so cranky--this is a nasty cold she gave me! But first a little more posting....

[DemReadingDU]

23. Columbus Ohio - Sentencing scheduled for National Century’s Missing 'Bird'

3/13/09 National Century's Parrett to be sentenced in absentia

A convicted executive on the run from the law will be sentenced in absentia towards the end of the month.

Rebecca Parrett, co-founder and former vice chairwoman of Dublin-based National Century Financial Enterprises Inc., will be sentenced in U.S. District Court in Columbus March 27 on nine counts of fraud, money laundering and conspiracy. She is facing up to 75 years in prison.

A jury convicted the 60-year-old Parrett and four other executives in March 2008 of planning and executing a nearly decade-long scheme at National Century that defrauded investors out of nearly $2 billion. After her conviction, Parrett was allowed to return to her home in Carefree, Ariz., to await sentencing. She used the opportunity to escape, and federal law enforcement has been searching for her ever since.

The U.S. Marshals launched a Web site in January dedicated to her capture, rebeccaparrett.com.

Parrett’s hearing is one of three National Century-related sentencings scheduled for March 27. U.S. District Judge Algenon Marbley also will hand down punishments for former National Century CEO Lance Poulsen and Karl Demmler, a longtime Poulsen friend. They were convicted of fraud and witness tampering, respectively.
http://columbus.bizjournals.com/columbus/stories/2009/03/09/daily42.html


link backwards to previous articles...
http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=102&topic_id=3780657&mesg_id=3780727

[DemReadingDU]

24. Atlanta competing for GMAC headquarters

3/13/09 Atlanta competing for GMAC headquarters

GMAC LLC is eyeing Atlanta for a major corporate relocation, according to commercial real estate brokers.

The 90-year-old financial services giant is reportedly considering moving its Detroit headquarters to Charlotte, N.C. GMAC CEO Al de Molina — a Bank of America veteran — and other executives live in the Queen City.

But Atlanta brokers say GMAC is also scouting Hotlanta for at least 250,000 square feet, or nearly 10 floors of office space.

GMAC would be a huge catch for Atlanta at a time when its financial sector has been decimated by layoffs and unemployment is edging closer to 9 percent. In Buckhead, Atlanta’s financial center, four new office towers are under construction.

“Atlanta has lots of new and inexpensive office space. Charlotte has some, too, but not quite as much as Atlanta,” said Mark Vitner, an economist with Charlotte-based Wachovia Corp.

“Charlotte does have plenty of bankers that GMAC would be able to hire quickly and not pay to relocate,” Vitner said.

GMAC was a subsidiary of General Motors Corp. until November 2006, when GM sold a majority interest in GMAC to FIM Holdings LLC, an investment consortium led by Cerberus FIM Investors LLC. GMAC has three primary lines of business — auto finance, mortgages and insurance — and has $189 billion in assets and operations in 40 countries.

It had revenue last year of $18.4 billion, and employed 22,700 at year-end.

On Feb. 20, The Detroit News reported GMAC may move its headquarters to Charlotte, but reported it would keep its auto finance business in Detroit.

A GMAC spokeswoman said the company has no plans to move its headquarters.

“For the past quarter-century, GMAC has headquartered its business in Detroit and has no current plans to change that status,” she told Atlanta Business Chronicle in a March 10 e-mail.

“We have large and significant business operations and staffs in a variety of U.S. and non-U.S. cities, including the addition of an expanding corporate center in Charlotte ... where many of our senior executives are located. Otherwise, it is not productive to speculate on possible future changes,” she wrote in the e-mail.

GMAC’s real estate footprint stretches from Minnesota to Georgia.

In Detroit, GMAC leases about 220,000 square feet from GM through a lease expiring in November 2016, according to the company’s annual report filed Feb. 27 with the Securities and Exchange Commission.

In New York, it leases 18,000 square feet of office space under a lease that expires in July 2011, and in Charlotte it leases 26,000 square feet under a lease expiring in May 2009.

The company’s primary U.S. insurance operations are in Southfield, Mich. Other significant offices are in Maryland Heights, Mo., and Winston-Salem, N.C.

The primary offices of its ResCap residential finance operation are in Fort Washington, Pa., and Minneapolis.

GMAC already has a big presence in metro Atlanta, with one of its four regional business centers in Duluth.

GMAC also has an automotive finance facility in Duluth and a personal insurance facility at Georgia 400 and Abernathy Road.

The company employs about 250 people across metro Atlanta, a spokeswoman said.

GMAC
Primary U.S. offices:


Detroit — 220,000 square feet. Lease expires November 2016.
New York — 18,000 square feet. Lease expires in July 2011.
Charlotte — 26,000 square feet. Lease expires in May.

http://atlanta.bizjournals.com/atlanta/stories/2009/03/16/story2.html?b=1237176000%5E1793206

[Demeter]

26. Got to See Dilbert!

http://dilbert.com/dyn_file/str_strip/44416/gif/strip.print/

[Demeter]

27. Thoughts on Walking Away From Your Home Loan

http://www.nytimes.com/2009/03/14/your-money/mortgages/14money.html?_r=1&ref=business


If you’re among the millions of people who will not qualify for the Obama administration’s program to help troubled homeowners, you’re probablywondering what you’re supposed to do now.

Perhaps you no longer have enough income to pay your loans. Or you can afford the payments but don’t qualify for refinancing under the new plan because the value of your home is too far below the balance of the loan. If you’re far enough underwater, you’re probably questioning the wisdom of writing a monthly check on a place that may take 10 or 15 years to get back to the value it had two or three years ago. It isn’t easy to come up with the answer, and if you have moral misgivings about not making good on your mortgage, a religious officiant may offer as much useful guidance as a financial planner.

In an economic environment like this one, however, the consequences of giving up on your mortgage may not be as painful as they were a few years ago. Yes, it’s almost always preferable to negotiate a better deal on your existing mortgage than to walk away. But if you can’t work things out with your lender, you probably won’t be sued. You shouldn’t receive a major tax bill either. And the damage to your credit will not be permanent or insurmountable.

Let’s look at these last three in order....SEE LINK FOR DETAILS!

[Demeter]

28. Regulator: Before Banks Collapsed, They Pleaded With Feds To Let Them Fudge Their Books

http://www.huffingtonpost.com/2009/03/13/regulator-before-banks-co_n_174850.html

Before financial institutions have collapsed over the past several months, they have come to the Financial Accounting Standards Board, pleading for a change in mark-to-market accounting rules so that they can continue to appear to be solvent on their balance sheets.

Robert Herz, head of the FASB, told a panel of lawmakers Thursday that the loudest critics of fair market accounting practices have been the very same banks that have gone belly up when regulators would not let them adjust their accounting.

"There seems to be a clamoring for changing mark-to-market rules that seems to come largely from institutions that may be insolvent," Rep. Alan Grayson (D-Fla.) said to Herz at a meeting of the Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.

Grayson said that, from Herz' testimony, it seemed that "there may be institutions that are insolvent and they haven't been forced to write down their books to the point yet, and those are maybe the same institutions that are asking us to modify the mark-to-market rules so that they won't have to admit that they're bankrupt. Is that correct?"

MORE AT LINK

Grayson, reached in Florida, said the he was grateful for Herz' candidness and insisted that changing mark-to-market accounting rules was no way to get out of the current economic mess.

"That's representative of exactly the kind of thing that's put us in this position in general," he said. "We have people who break every rule in the book and then they think that the answer to their problems is to break more rules. It's given us some real insight into the human nature and the pathology of the people who have created these problems for America."

Just as the the institutions Herz referred to were requesting accounting changes, large banks are again calling for modifications.

"Why are we having this conversation now at all?" Grayson asked. "I think the real reason this has come up now is because a lot of the institutions are genuinely insolvent and don't want to admit it. The people who are in charge of those institutions don't want to have to give up their multimillion-dollar jobs and turn companies over to receivers who will see all the mistakes they have made."

For Grayson, the rules exist for a reason. "The reason why we have these rules in the first place is to be able to distinguish the successful companies from companies that are broke. That's why we have these rules. That's why we have accounting," he said. "There's an underlying truth to accounting, and it's very important to preserve that truth."

[Demeter]

29. Steve Waldman Believes Banking Industry Sick Since At Least the S&L Crisis

http://www.nakedcapitalism.com/2009/03/steve-waldman-believes-banking-industry.html

In two recent Surowiecki posts (SEE LINK FOR LINKS), Surowiecki points out that during the banking crises of the early eighties and early nineties, banks were arguably as insolvent as our banks are today, but hey, with a little time and without any radical changes, everything turned out great....

The fundamental difference between my perspective and Surowiecki's is that I don't think those previous recoveries were real. My view is that the crisis that we're in now is precisely the same crisis we've been in since at least the S&L crisis. We've had a cancer, with some superficial remissions, but fundamentally, for the entire period from the 1980s to 2008, our financial system in general and our banks in particular have been broken. They have profited from allocating capital poorly, from funneling both domestic loans and an international deficit into poor investments (current consumption, luxury housing) rather than any objective that might justify arduous promises to repay. We all got a reprieve during the 1990s, because internet enthusiasm persuaded many investors to fund our consumption via equity investment, which we could wash away relatively painlessly in a stock market crash. Debt investors don't go so quietly. Thanks to the cleverness of our banking system, we have a very great many lenders, both domestic and foreign, who've invested in trash but who demand to be made whole at threat of social and political upheaval. That is the failure of our banks. That they are insolvent provides us with an occasion to hold them accountable, and to reshape them, without corroding the rule of law or respect for private property...

There are profound economic problems in the United States and elsewhere that our financial system has proved adept at papering over rather than solving. Those of us who've played Cassandra over the years have been regularly ridiculed as just not getting it, as economic illiterates and trade atavists. Unfortunately, as Dean Baker frequently points out, the people who could never see the problems are the only ones invited to the table when the world cries out for solutions. The solutions on that table are those Surowiecki tentatively endorses, weather the storm, take some time to repair, the temple is structurally sound. But the temple is not sound. We either build a decent financial system, or suffer real consequences, in unnecessary toil and lost treasure, in war and conflict over false promises set down in golden ink.

The banking crisis and the high unemployment rate are not the crisis, they are symptoms. This is not "dynamo trouble", it is a progressive disease, and what is failing is the morphine. Those of us who believe that financial capitalism is a good idea, that it could be the solution, not the problem, do their cause no favors by resisting radical changes to a corrupt and dysfunctional facsimile of the thing. We need to approach financial capitalism as engineers, and to largely rearchitect a crumbling design. If we don't, we may be so unfortunate as to suffer yet another superficial remission. But error accumulates, and error on the scale now perpetrated by national and international financial institutions are unlikely to be without consequence.


I'd love him to tease this out further, and I am a bit too fried to give this a long form treatment, but let me volunteer a few thoughts:

A very short and grossly simplified history of banking in the last 40 years is banks used to be tightly controlled, profitable, and not (for the most part) able to do much damage. For instance, deposit rates were regulated. Nevertheless, very creative banks nevertheless managed to get themselves in lots of trouble (Citibank and its buddies in the sovereign lending crisis, for instance).

The inflation of the 1970s created a huge mess for this model. Even with regulated deposits (and depositors were very unhappy with negative real yields and aggressively sought other cash-stowage options), many banks also funded some of their balance sheet in the money markets. You had spectacles like banks bleeding on their credit card portfolios (and remember, those yielded a lot better than a lot of other types of loans) because short term rates shot up to 22%.

Various aspects of banking were deregulated (deposit rates, usury ceilings,interstate banking, the division between banking and securities was chipped away at over years, with the playing field pretty much open before Glass Steagall was formally abolished in the late 1990s).

But the interest rate volatility was and still is a real mess for banks. From what I can tell, the hedges (using product design to put more of the risk back on customers, explicit hedges, astute asset liability management) only partly remedy this problem. In an increasingly competitive environment, my impression is banks have not been able to extract enough additional margin for assuming this risk. Anyone know of any work in this area?

Second is that investment banks ate commericial banks lunches for a very long time. I read from time to time that the reason securitization became more prevalent was that banks felt it was less attractive to hold assets on their balance sheets, i.e., this was an opportunistic move.

While technically, that isn't wrong, that isn't how I'd frame it. I recall when I was at McKinsey in the mid 1980s and securitization was taking off that one of the standard charts showed banks that securitization was cheaper than on balance sheet intermediation due to the cost of bank equity and FDIC insurance. That was seen as a bad thing for banks back then because it meant they were losing market share big time to investment banks.

Third is bank consolidation proved to be a very bad idea, and I see NO ONE addressing this issue. It isn't simply because it created huge concentration and too many too big to fail banks (a lot of countries have highly concentrated banking systems, such as Canada and Australia, but their banks are kept on shorter leashes).

The reason is that bank consolidation delivers NO economic benefits. The big lie is big banks are more efficient. They aren't. Every study ever done of banks in the US has found that once banks reach a certain size threshold, they exhibit a slightly increasing cost curve, meaning they are more expensive to operate.

But you might protest, when those banks buy each other, they may big noises about cutting costs. Right. They could have taken those costs out without a merger. It just gave cover for measures that would be too painful to execute in stand-alone entities.

The real reason for bank mergers is CEO pay is highly correlated with a bank's total assets (and the CEO of the acquired bank is enriched sufficiently to get his acquiescence).

And worse, big banks have completely abandoned the notion that the knowledge that local managers have by virtue of being in a community (in terms of improving lending decisions) has value and can be leveraged. Instead, they all went full bore for FICO and other faux-science credit scoring models, and have perilous little to fall back on now that those have proven to be badly flawed.

I do think Waldman is on to something here, and hope his post elicits further comment. I'd be particularly curious to see John Hempton pick this one up, since he keeps defending the native earning power of US banks.

[KoKo]

105. A Direct Link and a lttle more of the article

(Thanks for Posting this BTW...it's something to think about)

---------
The fundamental difference between my perspective and Surowiecki's is that I don't think those previous recoveries were real. My view is that the crisis that we're in now is precisely the same crisis we've been in since at least the S&L crisis. We've had a cancer, with some superficial remissions, but fundamentally, for the entire period from the 1980s to 2008, our financial system in general and our banks in particular have been broken. They have profited from allocating capital poorly, from funneling both domestic loans and an international deficit into poor investments (current consumption, luxury housing) rather than any objective that might justify arduous promises to repay. We all got a reprieve during the 1990s, because internet enthusiasm persuaded many investors to fund our consumption via equity investment, which we could wash away relatively painlessly in a stock market crash. Debt investors don't go so quietly. Thanks to the cleverness of our banking system, we have a very great many lenders, both domestic and foreign, who've invested in trash but who demand to be made whole at threat of social and political upheaval. That is the failure of our banks. That they are insolvent provides us with an occasion to hold them accountable, and to reshape them, without corroding the rule of law or respect for private property...

http://www.nakedcapitalism.com/2009/03/steve-waldman-believes-banking-industry.html

[DemReadingDU]

30. Chris Martenson: The Six Stages of Awareness

Wednesday, October 8, 2008, 4:04 pm, by cmartenson

The text below is from a past seminar. It is a very loose adaptation of the Kubler-Ross "Five Stages of Grief" framework.

Often a broad new awareness results in a series of emotional responses that mimic the grief associated with loss. I have termed these the Six Stages of Awareness.

Each of us here is somewhere along this progression. Most of us will inevitably pass through all six stages, each at a different speed, not always in order, and some will skip a few stages.

While we read each others' comments at this site (and elsewhere), my hope is that we can find acceptance and understanding of the fact that each person is at a slightly different stage of acceptance and awareness.

Each person needs to process the stage they are currently in and that is perfectly okay with me (within normal bounds of civility and appropriateness, of course).


Today is about examining some data in a whole new way. I am going to provide you with a new framework for viewing this data, a scaffolding on which to drape this data, that is probably built a little differently than the one you already have. The information is absolutely vital and critical to your future, but it will be worthless if we examine it in the same way that it has been presented to us by what I’ll term ‘our popular culture.’

So your first opportunity today will be the opportunity to change your thinking.

I must warn you; this will not be easy for some of you. I know this from experience. You may well find yourself progressing through something akin to the five stages of grief throughout the day, and throughout the next few months. Awareness can be troubling enough to mirror the process of grief, and knowing this can be an important means of grounding oneself.

click to read the six stages...
http://www.chrismartenson.com/martensonreport/six-stages-awareness

[Demeter]

31. China's Wen Worries About Safety of Treasuries, Asks for Reassurance

http://www.nakedcapitalism.com/2009/03/chinas-wen-worries-about-safety-of.html

Ooh, the posturing is getting interesting. As we noted in Links last night, Timothy Geithner has already climbed down from his "currency manipulator" saber rattling by pressing the G-7 to deliver a much more China-friendly statement on what they'd like to see it do with the yuan (the original version urged letting it appreciate. the watered down one merely called for "a more flexible exchange rate".)

China seems to be pressing for advantage in advance of the upcoming G-20 meetings. From Bloomberg:

China, the U.S. government’s largest creditor, is “worried” about its holdings of Treasuries and wants assurances that the investment is safe, Premier Wen Jiabao said.

“We have lent a huge amount of money to the United States,” Wen said at a press briefing in Beijing today after the annual meeting of the legislature. “Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”

China should seek to “fend off risks” as it diversifies its $1.95 trillion in foreign-exchange reserves and will safeguard its own interests, Wen said...

Delegates of China’s legislative advisory body suggested that the biggest foreign holder of U.S. debt diversify away from Treasuries into more risky assets at the annual meeting that started on March 3.

Jesse Wang, executive vice president of China Investment Corp., said on March 4 that his $200 billion sovereign wealth fund may invest in “undervalued” commodity assets. Zhang Guobao, head of the National Energy Administration, said China should invest more in commodities instead of hoarding the U.S. dollar, the official Xinhua News Agency reported on March 7.


Now on one level, this verges on silly. The problem is that the Chinese carried a national strategy on blindly and are now stuck with unforeseen consequences. Remember, in the wake of the 1997 Asian crisis, the harsh IMF program imposed on Thailand and Indonesia left spectators in the region resolving never to get in the position to suffer a similar fate. The cause was hot money inflows, which led currencies to rise. When it left, the currencies plummeted and borrowers in foreign currencies suffered and often failed. The solution was therefore to build up big foreign exchange reserves so as to fight a sudden fall, which was done by pegging currencies cheap (which of course also buffered them from a further decline). The choice of Treasuries was by default, as the safest and most liquid place to park funds.

And as much as buying hard assets like commodities sounds like a good idea, those markets are small compared to the Treasury market. China cannot deploy all that much there without distorting prices, which would put it back at square zero, save buying underlying operations (mines, agricultural land) rather than commodities themselves.

But China persisted with the strategy as it got hooked on export-led growth. If it had bothered thinking about it, China HAD to know its Treasury holding would be worth less down the road. It was pegging the currency cheap, and when it eventually rose to a more normal level, dollar holdings would be worth less. Perhaps the officials believed the day of reckoning would never come.

But Wen is pointing at a completely different issue, that of the ability of Uncle Sam to honor its debts. This would seem remarkable to some until you consider the following:

Moody's warned of the risk of a US downgrade in the next 10 years BEFORE all the emergency expenditures and financial firm emergency operations started

Standard and Poor's said consolidation of Freddie and Fannie might impair the US's rating (um, we aren't going to let them go, so the distinction between consolidation and what we have now looks largely cosmetic).

Credit default swaps on US 5 year debt, last I saw, was 100 basis points. Not all that long ago, it was 2, assuming you could even get a quote, the idea of a CDS on govvies seemed ludicrous. The US now seen as far from a risk free credit


And in case you think the credit risk is exaggerated, consider. The US already partially defaulted on its debt.

Recall how Bretton Woods operated. Rather than go back to a gold standard at the end of World War II (its defect is a deflationary bias, which made the Great Depression worse), the US instead pegged its currency at $35 an ounce and other countries set rates of conversion in dollar or pound sterling terms. By 1965, the value of dollar claims by foreigners on America's gold reserves at the $35/oz. rate were greater than the actual supply. The US defaulted on its $35 par value when Nixon cancelled Bretton Woods by suspending the convertibility of dollars into gold. As Michael Hudson noted (hat tip reader Rajiv):

The $75 billion that the U.S. Treasury to the world’s central banks at 1968‐1972 prices and exchange‐rates would be repaid with the equivalent of perhaps less than $40 billion in purchasing power as measured by the original debt. To the extent that gold was revalued and part of this $75 billion repaid in bullion, the gold tonnage price of this dollar borrowing would be written down to less than one‐fifth of its original value as measured by the year‐end 1974 price of almost $200 an ounce


And if you don't buy the gold valuation (remember, it had been the value peg until broken), consider that the resulting floating rate regime saw a big depreciation of the greenback against most major currencies.

In other words, the idea of a US partial default is far from a loony line of conversation; we did it less than 40 years ago.

And in light of that history, why is Wen asking for assurances? None can be made. So what concession might he be looking to extract instead? Now that China's trade surpluses have fallen sharply, it has no particular reason to buy Treasuries at anything like its recent volumes.

As we said, this message is most likely to be posturing for domestic consumption, but China could also be putting stakes in the ground. Watch for the next move in this gambit.

[Demeter]

32. Pat Paulsen and the Smothers Brothers--Flash from the Past!

http://www.youtube.com/watch?v=x4kWLUnorTU&eurl=http://journals.democraticunderground.com/madfloridian/3744&feature=player_embedded

[tclambert]

50. I'm ancient enough to remember The Smothers Brothers Show and Pat Paulsen.

They were great. The Jon Stewart of their day.

I loved Paulsen's line, "They said Social Security would take care of our old people. We've been paying into it all this time, and what good has it done? There are more old people than when it started. So if we can't be constructive, let's forget it."

[Tansy_Gold]

57. Oh, me too!

And I remember when Pat Paulsen ran for president. He woulda done a darn sight better'n booooosh.



Tansy Gold, who may even have a Smothers Brothers album around here somewhere or other

[KoKo]

112. Me Too...Remember when they "went down." Still we had more then, than we do now

in some ways...didn't we? Until they cancelled Smothers and the "PTB" started to dismantle PBS and put the screws on everyone else. Still there were some good movies...but then they got to them too...bit by bit...bit by bit.

[Demeter]

114. It was another era, to be sure

As different from today as the flapper was to McCarthyism.

I asked my grandmother once if she was a flapper--she said no, only a certain class of woman had the leisure and money and I suppose lack of morals.

I'm feeling very old. Although Jon Stewart is bringing back the feel of Laugh-In and Smother's Brothers' sarcasm and finger-pointing.

[Demeter]

36. Bank of America Says ‘Thank Goodness’ for Countrywide (Update1)

http://www.bloomberg.com/apps/news?pid=20601087&sid=aXOdO.gs_ee0&refer=home

March 13 (Bloomberg) -- Bank of America Corp.’s mortgage- origination business, the largest in the U.S., is booming after the purchase of Countrywide Financial Corp. and as lower loan rates push a wave of refinancing, the unit’s chief said.

“Volume is good, application quality is holding up and the acquisition of Countrywide is really paying off for us with the additional capacity,” Barbara Desoer, head of mortgage, home equity and insurance, said in a telephone interview yesterday. “Thank goodness we have it.”

Kenneth Lewis, Bank of America’s chief executive officer, told reporters yesterday he expects the Charlotte, North Carolina-based company to make money this year after posting a profit in January and February. Last month, he said its “stars” so far in 2009 were businesses acquired with Countrywide, the largest U.S. home lender, and Merrill Lynch & Co.

The average rate on a typical 30-year fixed mortgage was 5.03 percent in the week ended yesterday, according to Freddie Mac. Federal Reserve purchases of mortgage bonds helped drive rates down from 6.46 percent in late October, to a record 4.96 percent in mid-January. Bank of America isn’t yet sure exactly how much its lending will be boosted by the flexibility that the U.S. last month gave Fannie Mae and Freddie to help consumers with little or no home equity refinance, Desoer said.

Desoer, 56, also said that the bank is seeking to make more “jumbo” mortgages, which start at $417,000 in most areas and up to $729,750, the limits for now U.S.-run mortgage firms Fannie and Freddie. The company’s is offering “extremely competitive” rates on jumbo mortgages offered directly to consumers, she said.

‘Balance-Sheet Capacity’

“Bank of America has balance-sheet capacity and we’ve allocated it to jumbos given our presence in some of the states and regions where that’s important,” she said. “We’re very much open for business.”

The bank sees an opportunity to do more of the loans with Merrill Lynch’s “mass-affluent” customers, even as it continues to integrate the acquired company, she said. Its Web site says it offers $800,000 30-year fixed-rate loans with 20 percent down payments in New York for 6 percent, versus the 6.78 percent average in the state, according to Bankrate.com.

To keep up with mortgage demand, Bank of America has added roughly 3,000 employees to its origination unit, including about 1,000 new to the company and 500 shifted from its home-equity division, as well temporary workers, Desoer said. The staff totals about 25,000, Dan Frahm, a spokesman, said.

New Mortgages

Desoer wouldn’t discuss the recent performance of home loans already on its books, saying only “you know what’s happening with” home prices and unemployment “and the potential impact those can have on borrowers being under stress.”

Margins on new mortgages sold off as government-supported mortgage bonds, such as those guaranteed by Fannie and Freddie, are higher than a year ago, she said. U.S. efforts to keep rates on those loans low will be an “extended event,” she added.

Bank of America’s mortgage-servicing business has more than doubled its staff that deals with troubled borrowers to 5,000 in the past year. Still, the company hasn’t always provided the best service, in part because of the volume of calls for help, Desoer said.

“We do not claim to be delivering the customer experience in every single case the way we would be proud of, but we are committed to getting there,” she said. “On a day where there’s been something in the media and the call volume goes through the roof, we are not good. And we apologize for that.”

Loan Modifications

Another hindrance has been the different standards for modifying loans guaranteed by different companies, within mortgage bonds or held for investment, or HFI, at the bank, she said. A federal program announced last month may change that.

Having “one program will help to some degree because the staff will be more fungible,” she said. “Where you need the Fannie expert for a modification, versus a Freddie expert, versus an HFI expert now, those teams become more fungible. That’s an advantage where existing staff will become more productive.”

Desoer said that her bank expects to shift its reworking of loans under a settlement with more than 30 state attorneys general over charges of fraudulent lending at Countrywide, which it acquired last year, to the similar federal protocols. It hasn’t yet reached an agreement to do so, she added.

Those Countrywide modifications are subject to a lawsuit by a hedge fund that alleges Bank of America is paying for the settlement with funds due to mortgage-bond investors. Desoer said that it isn’t changing loans where investors haven’t agreed to permit the modifications, and hopes bondholder objections to aspects of the federal program don’t impair it.

The Consumer

“Clearly, the direction from Treasury in the wording of their announcement is this becomes usual and customary and that’s what we’re hoping the outcome is,” she said. “And we don’t see any major obstacles. But, as you mention, there are people with perspectives that may take different actions.”

The bank isn’t “going to do anything to put a contract at risk, but, at the same time, we’re thrilled that there’s a standard and we have a head start because of the AG settlement.”

Bank of America and its units accepted capital and guarantees from the federal rescue program of $163 billion, and the bank posted a $1.79 billion fourth-quarter loss. Its aid package was expanded in January after losses at Merrill Lynch spiraled beyond what Lewis expected.

Trying to understand the long-term effects of help for homeowners is something Desoer’s team does “a lot,” she said.

“What’s the consumer psychology that will survive?” she said. “How impacted will the U.S. consumer be by this downturn? How much will be temporarily changed, versus how much will be permanently changed, in their view of debt?”


I MUST BE SICKER THAN I THOUGHT. I'M HAVING HALLUCINATIONS!

ON FURTHER THOUGHT: MAYBE I SHOULD BREAK OUT THE ALCOHOL. KILL THE PAIN, AND GIVE MYSELF AN EXCUSE--DTs!

[Demeter]

64. RETAIL SALES REPORT (Has the Bottom Been Reached?)

http://angrybear.blogspot.com/2009/03/retail-sales-report.html

SEE LINK FOR GRAPHS

It is interesting how today's report on nominal retail sales is being ignored almost across the board among the economic bloggers.

January and February retail sales are above the December low. The three month moving average is still below the December moving average, but if the March report is decent the very low December report drops out of the three month moving average so the first quarter number is likely to be above the fourth quarter number.

In January real personal consumption expenditures were 0.1% above the fourth quarter level
and this report implies that the January real PCE data will be revised up. This and the good February report implies that in the first quarter real GDP, real PCE could be higher than in the fourth quarter. Since the plunge in real PCE contributed some 3.0 percentage points of the 6.2% drop in fourth quarter real GDP this is a very good report.

Of course some of this gain will be offset by falling inventories, but this is the first solid sign of an economic bottom to show up in the data.

Part of the gain was a very strong pop in gas station sales, but even when you back that out, the data is still showing signs of bottoming.


Even if you back out gas station and food store sales you still get roughly the same results.

This strength in retail sales probably stems largely from the impact of falling energy prices on
real incomes. This together with the normal January increase in government pay, social security inflation adjustments and other transfer payments means that despite falling nominal private wage and salary payments in recent months real income still rose.

But it also means that the recent rebound in oil prices is especially dangerous. If energy prices continue to climb it means that the recent pop in real incomes could reverse and this would make it extremely difficult to sustain this improvement in retail sales.

P.S. Technical note. February sales fell -0.1%, but given the normal margin of error this means
they could have been (+/- 0.5%). Since the first data is only a one-third sample often the most important information in the report is how last months data was revised. January sales were revised to show a 1.8% gain as compared to a 1.0% gain originally reported.

[Demeter]

85. On NPR Marketplace This Morning

The lady interviewed said that the uptick in sales was the annual Social Security payment increase and some unemployment payment increase and nothing more.

[antigop]

39. NY TImes Feb. 2007: Officials Reject More Oversight of Hedge Funds

http://www.nytimes.com/2007/02/23/business/23hedge.html?_r=1

The Bush administration said Thursday that there was no need for greater government oversight of the rapidly growing hedge fund industry and other private investment groups to protect the nation’s financial system.

Instead, the administration, in an agreement it reached with the independent regulatory agencies, announced that investors, hedge fund companies and their lenders could adequately take care of themselves by adhering to a set of nonbinding principles.

The principles, many already being followed by the sharpest investors and best-run companies, say that investors should not take risks they cannot tolerate and should carefully evaluate the strategies and management skills of hedge funds. They also call for funds to make clear and meaningful disclosures to investors.

The decision came after months of study by a presidential working group of top officials and regulators. They looked at both the hedge fund industry, which has more than $1 trillion in assets, and the management of private equity firms, which take direct control and ownership of companies rather than relying on large numbers of outside stockholders.

The group’s conclusions reflected both the strong antiregulatory ideology of the administration and the formidable influence of Wall Street and the increasingly wealthy hedge fund industry among both Democrats and Republicans in Washington.

[antigop]

40. Greider: Fixing the Fed

http://www.thenation.com/doc/20090330/greider?rel=hp_picks

Congress and the Obama administration face an excruciating dilemma. To restore the crippled financial system, they are told, they must put up still more public money--hundreds of billions more--to rescue the largest banks and investment houses from failure. Even the dimmest politicians realize that this will further inflame the public's anger. People everywhere grasp that there is something morally wrong about bailing out the malefactors who caused this catastrophe. Yet we are told we have no choice. Unless taxpayers assume the losses for the largest financial institutions by buying their rotten assets, the banking industry will not resume normal lending and, therefore, the economy cannot recover.

This is a false dilemma. Other choices are available. Throwing more public money at essentially insolvent banks is like giving blood transfusions to a corpse and hoping for Lazarus--or, as banking analyst Christopher Whalen puts it, pouring water into a bucket with a hole in the bottom. So far Washington has poured nearly $300 billion into the bucket, and Treasury Secretary Timothy Geithner has suggested it may take another $1 trillion or more to complete the banks' resurrection. The president has budgeted $750 billion for the task. Morality aside, that sounds nutty.

Here is a very different way to understand the problem: to restore the broken financial system, Washington has to fix the Federal Reserve. Though this is not widely understood, the central bank has lost its ability to govern the credit system--the nation's overall lending and borrowing. The Fed's control mechanisms have been severely undermined by a generation of deregulation and tricky innovations that have substantially shifted credit functions from traditional banks to lightly regulated financial markets. When the Fed tried to apply its old tools, starting in the 1980s, the credit system perversely produced opposite results--an explosion of debt the policy-makers could not restrain. In its present condition, the Fed may even make things worse.

[Demeter]

46. The Same Way One "Fixes" a Cat or Dog?

[KoKo]

106. Obama seems to have the ear of Bush Economists...his speech to the Buisness Roundtable on C-Span

Repeat, today, Sunday, showed that he's responding to the Right and Wall St. who criticized him for being "too gloomy" and not to his LEFT that SUPPORT HIM and know the SCORE about what has been done to our Economy and Everyday Working Americans in the last 30 years.

Obama sort of said: "Consumers. (OMG..has Obama gone to Dark Side calling us "Consumers), need to realize things aren't as bad or as good as we might think and if they want to purchase something they should...but I still believe it's good for American's to be saving because this is what the foundation of America is...putting away stuff for your kids educations...etc."

This is a paraphrase of what Obama said to "Business Rountable" reported today (Sunday) on C-Span. I'm reporting to you what "I HEARD" as the message from Obama. The full speech seemed to be a "little of Bush..."Go Spend" and a little of Obama's Campaign Speeches..."Save, because this is a good country and times are going to be tough but we can make it through."

I wish Obama listened less to "Politico" and "NYT/WaPo" and more to the Bloggers who worked so hard to get him elected.

But, I do believe that if we go too deep into recession Obama has an excellent opportunity to CUT DEEPLY the MILITARY/INDUSTRIAL COMPLEX! I have to hope that this is his "Fail Safe" and that his rhetoric is just responding to the the "Lock Guard the GOP still has on our Mainstream Media," and he knows this and is playing the game.

I actually have more faith in Michelle "turning Obama" from his "Chicago School" than Obama himself might do...so I still have much hope for him/them as a team...but OMB it's tough going through this with all we on the Left are hoping for for CHANGE WE CAN BELIEVE IN!

[Demeter]

41. Rosy Projections of Pensions' Investment Earnings?

http://www.nakedcapitalism.com/2009/03/guest-post-rosy-projections-of-pensions.html


Ed Mendel of Capitol Weekly writes that public pension funds’ rosy forecasts pose problems:

Pension funds have been hit hard by the stock market crash, losing about a third of their value in some cases, and there may be another problem.

Before the crash, some financial experts warned that pension funds were making overly optimistic projections of investment earnings in the decades ahead, often assuming about 8 percent a year.

Investment earnings, the heart of a modern pension system, are usually expected to provide two-thirds or more of the revenue needed to pay retiree benefits in the future.

In public employee retirement systems, a rosy forecast of future earnings means that fewer taxpayer dollars have to be spent to provide generous retirement benefits.

The giant California Public Employees Retirement System assumes annual earnings averaging 7.75 percent in the decades ahead. The California State Teachers Retirement System assumes 8 percent.

Lowering the projection of earnings by even a percentage point or two would create a funding gap of tens of billions of dollars.

SEE MORE AT LINK

[antigop]

89. Written back in 2001... Guaranteed profits: The fiction of pension accounting

http://query.nytimes.com/gst/fullpage.html?res=9C02E7D6123CF934A35751C1A9679C8B63

HERE'S one explanation for the rising stock market as 2001 nears an end: Some companies are locking in profits for next year by buying stocks this year.

If that sounds ridiculous, it is. Whether profits will be made on stocks bought now is unknowable. No reasonable accounting system would let you book profits just because you bought the stocks.

But we are not dealing with a reasonable accounting system. We are dealing with pension accounting, American style. The amount of expense, or profit, that companies report from their pension systems are not based on the actual profits earned by investments in the pension fund. Instead, companies report profits as if the pension investments earned what was assumed when the year began.

That's where the current buying comes from. Many companies assume they will make 9 percent or more on pension investments, with some forecasting more than 11 percent. With interest rates as low as they are now, they clearly can't make anything like that on investment-grade bonds, which make up a significant proportion of most pension portfolios. Adding more stocks is the only way to make such an optimistic number possibly believable. Otherwise, they would have to reduce the assumption -- and next year's reported profits.

[antigop]

90. Warren Buffett has warned about this for some time

Here is a recent Fortune article...but I know Warren has warned about pension fund estimates before this.

http://money.cnn.com/2008/02/29/news/companies/berkshire_annual_report.fortune/index.htm


Pension problems ahead

Natural disasters aren't the only worry on Buffett's mind. He is also concerned about the bill that will come due when U.S. companies are forced to tell shareholders they have been pumping up their earnings by under funding their pension plans.

Most big companies have been vastly overestimating the kind of returns their pension plans can realistically expect to earn, Buffett writes. He writes that a survey of S&P 500 companies with pension plans shows the companies on average expect their pension assets to earn an annual return of 8%. With more than a quarter of those assets invested in cash and bonds, Buffett writes, the implicit expected annual stock investment return is 9.2% - and that's after fees. "How realistic is this expectation?" Buffett asks.

Not very, he finds. He writes that the Dow Jones Industrial Average surged from 66 to 11,497 during the 20th century. That is a huge rise - yet it averages out to just 5.3% compounded annually, Buffett writes. What's more, were the DJIA to repeat that 5.3% average annual gain throughout the 21st century, its value on Dec. 31, 2099, would approach 2 million.

"It's amusing that commentators regularly hyperventilate at the prospect of the Dow crossing an even number of thousands," he writes. "If they keep reacting that way, a 5.3% annual gain for the century will mean they experience at least 1,986 seizures during the next 92 years. While anything is possible, does anyone really believe this is the most likely outcome?"
...
With all that in mind, why are companies making investment assumptions that could be vastly overstated? Buffett believes it's a case of CEOs manufacturing earnings growth now, at the expense of problems that will manifest themselves only later. Assuming higher returns means having to set aside less money now to build their pension funds. "What is no puzzle ... is why CEOs opt for a high investment assumption," he writes. "It lets them report higher earnings. And if they are wrong, as I believe they are, the chickens won't come home to roost until long after they retire."

[antigop]

91. More here....

http://www.uslaw.com/library/Corporate_&_Securities_Law/Warren_Buffett_Juicing_Earnings_Pension_Plan_Assumptions.php?item=68850

[Demeter]

42. Will Banks Start to Walk Their Talk? Don't Hold Your Breath (Mark to Market Edition)

http://www.nakedcapitalism.com/2009/03/will-banks-start-to-walk-their-talk.html


The new meme from big embattled banks, starting with Citigroup's leaked Pandit memo yesterday and Bank of America CEO Ken Lewis' declaration that the bank will be profitable in 2009, is that things will be OK and all this talk of nationalization is unwarranted.

I'll reserve judgement till the fat lady sings. The record of financial crises suggests the housing market has lower to go (which is consistent with the notion that prices need to revert to historical norms relative to incomes and rents) and that unemployment is far from its peak (the Reinhart/Rogoff historical comparisions suggest US unemployment will reach 12%).

The flip side is the point made by John Hempton: US banks earn fat spreads, so their earnings power is good (for those who read his detailed post, note some have raised objections to some of his assumptions). That has been enhanced by the Fed's near zero Fed Funds rate. And as we have noted, the fat interest spreads that are good for banks are not so good for borrowers. Yes, some have raised concerns about the requirement that banks participate in various "get the housing market going" programs may work to their detriment, but frankly, we are skeptical that these programs will come close to reaching the number of homeowners Team Obama bandied about.

So the 2009 picture boils down to how much the big banks have in the way of writeoffs, AND let us not forget, how well they do in their trading operations. Ken Lewis seems to still be depicting BofA as a conventional bank, and ignoring that Merrill could deliver losses and further writedowns.

Ah, but relief is coming on that front too. I must confess that I did not watch the Senate hearings, but mark to market looks to be dead. From Bloomberg "Lawmakers Tell FASB to Change Fair-Value ‘Quickly’ ":

U.S. Representative Paul Kanjorski said regulators must act “quickly” to give companies more leeway in applying the fair-value accounting rule that banks blame for exacerbating the financial crisis.

“If the regulators and standard setters do not act now to improve the standards, then the Congress will have no other option than to act itself,” Kanjorski, the Pennsylvania Democrat who leads a House Financial Services capital markets subcommittee, said at a hearing today. Fair-value, which requires companies to mark assets to reflect market prices, has “produced numerous unintended consequences,” he said....

Kanjorski said he isn’t advocating suspending the rule, because such a move would bring back “the very kind of subjectivity and sleight of hand that made mark-to-market necessary in the first place.”

Eliminating fair-value “would diminish the quality and transparency of reporting, and could adversely affect investors’ confidence in the markets,” Herz said. The rule “can help to more promptly reveal underlying problems at financial institutions.”

Guidance being prepared by Norwalk, Connecticut-based FASB will encourage companies and auditors to use their own judgments in valuing assets, Herz said.


You cannot have it both ways. The Senate is trying to pretend it is going to keep fair value accounting in a somehow friendlier form, but friendlier to the industry means the financial statements are no longer reliable. They cannot be trusted. Anyone who thinks so needs to recall the example I keep harping on, Lehman. Even with mark to market accounting, Lehman delivered $100 billion in losses to unsecured creditors on a $600 billion and change balance sheet. That level of misvaluation should be impossible (absent exempted categories like Level 3 assets, which are openly phony baloney). If this wasn't accounting fraud (and I am inclined to believe it was) then the existing rules were so loose you could steer a supertanker through them. Lehman says there is ALREADY too much play in the existing rules, not too little.

You cannot be half pregnant here. Either you have objective standards or you don't. The notion that subjective valuations will be permitted and they won't be abused is utter fantasy.

MUCH MORE AT LINK

So yes, the banks may look just ducky soon. They are going to continue to get plenty of subsidies from the authorities, via super low interest rates. the fancy new facilities that will boost their profits, such as the new $1 trillion asset backed facility (I think TABSF, but I can no longer keep them all straight, which is no doubt part of the point).

In the meantime, the taxpayer will continue to subsidize banks, the banks will get to keep the upside, and (as in credit cards) charge fat spreads. Ain't capitalism wonderful?

If the banks were really doing as well as their PR suggests, they would not need to use the to be launched public private garbage barge operation. Do you think there is a snowball's chance in hell of that happening?

We are going straight down the Japan path: propping up banks rather than forcing them to recognize losses, and providing the same sort of accommodative accounting to boot. All it did for them was kick the can down the road a few years, at considerable cost to its society. But that's what you get when the executive and regulators are unwilling to challenge the primacy of the banking class.

Update 3/13. 12:30 AM: You gotta love Floyd Norris:

If mark-to-market accounting is to blame for the current financial crisis, then the National Weather Service is to blame for Hurricane Katrina; if it hadn’t told us the hurricane hit New Orleans, the city would never have flooded....

Sadly, a victory for the bankers would not help them much. Even if it were true that banks would be held in higher regard now if they had not been forced to write down the value of their bad assets — and that is, at best, debatable — changing the rules now would be counterproductive. Would you trust banks more? Would other banks be more inclined to trust banks?...

Although you would not know it from the angry complaints, the accounting board’s Statement 157 did not require mark-to-market accounting. That was already required under earlier rules. What it did do was clarify how such values should be determined. That stopped banks from defining “market value” as meaning whatever they chose it to mean.

Conrad Hewitt, who was chief accountant at the Securities and Exchange Commission when it conducted a Congressionally mandated review of the issue late last year, said at a recent Pace University accounting forum that he asked all the complainers if they had a better way to determine market value than the one prescribed by Statement 157. None did

[Danascot]

44. Weekend Opinionator: The Magi of the Meltdown

A nice thread of economic wonkiness for those of us who get excited about such things.

"It’s been something of a watershed week for the nation’s financial crisis: we’ve had the one-year anniversary of the serving of the disaster’s appetizer course, the collapse of Bear Stearns; the noted philanthropist Bernie Madoff has thrown himself on the mercy of the court, if not the folks he took to the cleaners; the Dow Jones Industrial Average had its biggest one-day percentage gain since all the excitement began (bringing us all the way up to late-’90s levels!); General Electric (remember when it was the bluest of chips) finally lost its triple-A credit rating; the Labor Department informed us that 5.3 million Americans are now receiving unemployment benefits, the most since it began keeping that statistic; and some of the banks you and the Opinionator have graciously helped to stay in business have decided that perhaps we were asking too much of them in return (such as, ahem, making their executives let shareholders have a say before they decide to fork tens of millions over to themselves) and that now they think they’ll go back to doing things on their own.

"Oh, and the second richest man in America informed us that the economy has “fallen off a cliff.”

http://opinionator.blogs.nytimes.com/2009/03/13/weekend-opinionator-the-magi-of-the-meltdown/

[Demeter]

47. Some Banks, Feeling Chained, Want to Return Bailout Money By STEPHEN LABATON

http://www.nytimes.com/2009/03/11/business/economy/11bailout.html?_r=1




WASHINGTON — The list of demands keeps getting longer.

Financial institutions that are getting government bailout funds have been told to put off evictions and modify mortgages for distressed homeowners. They must let shareholders vote on executive pay packages. They must slash dividends, cancel employee training and morale-building exercises, and withdraw job offers to foreign citizens.

As public outrage swells over the rapidly growing cost of bailing out financial institutions, the Obama administration and lawmakers are attaching more and more strings to rescue funds.

The conditions are necessary to prevent Wall Street executives from paying lavish bonuses and buying corporate jets, some experts say, but others say the conditions go beyond protecting taxpayers and border on social engineering.

Some bankers say the conditions have become so onerous that they want to return the bailout money. The list includes small banks like the TCF Financial Corporation of Wayzata, Minn.,

(DEMETER: HEY LOOK! THAT'S MY BANK! I DIDN'T KNOW THEY GOT MONEY!)

and Iberia Bank of Lafayette, La., as well as giants like Goldman Sachs and Wells Fargo.

They say they plan to return the money as quickly as possible or as soon as regulators set up a process to accept the refunds. On Tuesday, Signature Bank of New York announced that because of new executive pay restrictions in the economic stimulus package, it notified the Treasury that it intended to return the $120 million it had received from the government only three months ago.

Other institutions like Johnson Bank of Racine, Wis., initially expressed interest in seeking bailout funds but have now changed their minds. Bank executives told The Milwaukee Journal Sentinel that one reason they rejected the government money was to avoid any disruption in the bank’s role in the local community, including supporting the zoo or opera company if they chose to.

One of the biggest concerns of the banks is that the program lets Congress and the administration pile on new conditions at any time.

The demands to modify mortgages or forestall evictions are especially onerous, some bank executives and experts say, because they could prompt some institutions to take steps that could lead to greater losses.

“We are taking an approach that wants the banks to help the economy and whether it is ultimately good for a particular bank is secondary,” said L. William Seidman, the former senior regulator during the savings and loan bailout. “Weak banks are being asked to do things that will erode their position.”

A senior Treasury official involved in the bailout effort said the administration was carefully trying not to do anything that could harm the banks and was giving financial incentives to modify mortgages. The official said the restrictions were part of a larger effort to clean up bank balance sheets and assist the economy.

“We’re having to take some very unpleasant actions when the alternatives are so much worse,” said the official, who spoke on condition of not being identified.

But a growing chorus of industry experts are warning that asking weak banks to carry out the government’s economic and social policies could increase the drain on the public purse. These experts say that the financial assistance, while helpful in the short run, could force weak banks to engage in lending practices that will lose even more money, and that the government inevitably will become more heavily involved in dictating how banks do business.

“I honestly believe the people in power pushing this policy see it as a win-win — as something that is good for the banking industry and good for homeowners and others,” said Douglas J. Elliott, a former investment banker who is now an economics fellow at the Brookings Institution. “But there is a slippery slope and there are potentially significant negative consequences.”

Mr. Elliott says that by modifying loans, banks that are already fragile could wind up losing more money.

“What gets us in real trouble,” he said, “is when we try to fudge things and pretend that something is in the direct interest of both the government and the financial institutions when it in fact costs the banks money or increases their risk levels.”

Take Fannie Mae and Freddie Mac, the housing-finance companies that the government now controls. In recent months, they have been told to spend billions of dollars buying bundles of mortgages for which there are no other buyers, and to let homeowners refinance their loans — even if they have no equity.

Such commands are echoes of the 1990s, when Fannie and Freddie tried to balance dueling mandates that required them to make a profit for their shareholders and to serve a public mission of increasing homeownership.

In service of both shareholders and what they asserted was the public good, they borrowed extensively in order to buy and hold mortgages in their own investment portfolios. They purchased billions of dollars in risky subprime mortgages.

As a consequence of having a public mandate, they also had a credit line with the Treasury and their risky business strategies were viewed by the markets as being guaranteed by the government.

To satisfy both mandates, the companies also faced fewer restrictions and were allowed to take on more debt than other financial companies. But when buyers began defaulting and home prices plunged, the companies nearly collapsed and last fall were placed under government conservatorship. Mr. Elliott said that some banks participating in the bailout program are now in the same conflicting position that Fannie Mae and Freddie Mac were in.

He and other experts also worry that, by relying on weak banks to carry out the administration’s or Congress’s policies, officials are not biting the bullet and shutting down weak banks that may be insolvent.

At the height of the savings and loan crisis in the 1980s and 1990s, Congress and regulators adopted new rules known as “prompt corrective action” that required the government to quickly close weak financial institutions if they could not raise money to absorb mounting losses.

The rules were a response to a consensus that keeping weak institutions open longer, under an earlier practice known as forbearance, damaged healthy banks competing with the government-subsidized ones and ultimately destabilized the banking system. By shutting weakened institutions before their losses grew, prompt corrective action was also seen as less costly to taxpayers and the deposit insurance fund.

Administration officials say that some of the banks at issue today are simply too large to be seized by the government, making comparisons to the savings and loan crisis less meaningful.

Moreover, they say, the public outrage over the growing cost of the bailout makes it politically imperative that they exert greater control over the way the money is being spent.

But by keeping weak banks operating, the markets continue to sink and taxpayer costs are mounting, outside experts said. “The current policy is likely to result in weaker banks,” Mr. Seidman said. “And keeping insolvent banks in operation does not benefit the system.”

Some community bankers, whose institutions are stronger than the large money center banks, agree.

C. R. Cloutier, the president of MidSouth Bank of Lafayette, La., and a survivor of the savings and loan debacle, said that his institution received $20 million from the rescue fund because he and his board believed it was patriotic and would help them offer loans during a recession.

But faced with what he says is an unwarranted stigma of participating in the program, as well as the new restrictions on banks taking the money, he is now considering whether to return the money, as other institutions have sought to do.

“Two things you learn in the banking business,” Mr. Cloutier said. “The first is, concentration is bad. We now have 64 percent of deposits in eight institutions. The second rule is, your first loss is your best loss. Get it over with. Don’t pump water in a dead fish.”

[Demeter]

48. A think-nugget from Arnold Kling inspires a very long riff...

http://interfluidity.powerblogs.com/posts/1236919677.shtml

Arnold Kling offers a very concise view of the financial intermediation:

he nonfinancial sector would love to issue risky long-term liabilities to fund investments, while consumers would love to hold riskless short-term assets to maintain liquidity. The financial sector intermediates by holding risky long-term assets and issuing riskless short-term liabilities. The more the financial sector expands, the more long-term investment is undertaken in the economy.

In order for the financial sector to do its job properly, it needs to enjoy the right amount of confidence from the public. With too little confidence, the economy suffers from credit scarcity and insufficient long-term investment. With too much confidence, the economy suffers from bubbles and excess credit creation, followed by crashes.

I think this is an eloquent statement of a very common view. It also beautifully isolates the problem with how we have constructed financial intermediation.

I am certain it is true that the nonfinacial sector would love to hold short-term risk-free assets, especially if they pay a high return. It is also true that businesses that invest in real projects and seek to minimize financial risk would prefer to issue long-term liabilities that try to match payouts to lenders with expected project cashflows. However, this gap is not, in fact, intermediable. An intermediary that claims to offer truly riskless assets against investments in risky projects must rely upon subsidy, subterfuge, or both.

An intermediary can "add value" by reducing investors' risk in comparison to disintermediated investment, by for example, investing in a better-diversified portfolio than an investor would. An intermediary can very effectively reduce liquidity risks to investors, again by since idiosyncratic liquidity demands are themselves diversifiable. But risk reduction via these techniques can never reduce risk to zero. In fact, investing via an intermediary can never alter the fact that 100% of invested capital is at risk — business performance is not uncorrelated and projects can fail completely. Also, usually idiosyncratic liquidity demand occasionally become highly correlated, due to bank runs or real need for cash. Statistical attempts to quantify these risks are misleading at best, as the distributions from which inferences are drawn are violently nonstationary — the world is always changing, the past is never a great guide to the future for very long. Fundamentally, the value intermediaries can add by diversifying over investments and liquidity requirements is very modest, and ought to be acknowledged as such.

Furthermore, if diversifying across operation and liquidity risk was the value provided by financial intermediaries, they should have largely been competed out of the business, as investors can buy and sell diverse portfolios of liquid securities as easily as investing in bank deposits, either constructing them directly or purchasing diverse vehicles, like ETFs or ABS.

So, what is the "value-add" of the financial sector? Let's go back to Arnold's think-nugget. Investors cannot, on their own, create short-term truly riskless assets that pass through the returns of risky and illiquid busines projects. So, we can see why there's demand for banks: They do give the people what they want, on both sides of the funding equation. But, as we've already seen, in reality they can't give the people what they want without subsidy or subterfuge. Either some truly riskless guarantee has to backstop both liquidity and solvency risk, or intermediaries have to lie and pretend that their assets are riskless.

Note that insurance is an insufficient means of squaring this circle. If a bank purchases private sector deposit insurance or liquidity commitments, that is an asset purchase that may reduce its overall portfolio risk, but that cannot eliminate it, especially during times when correlations run high. A private sector insurance policy is a risky asset. Governments can offer riskless liquidity insurance and insurance against the nominal (but not real) value of financial sector liabilities. But it cannot do so at "a market rate". Government is structurally the monopoly seller of this form of insurance for assets denominated in the currency that it issues. Further, the risks it must insure cannot be actuarially priced without heroic assumptions — the distribution of systemic risk is nonstationary, the future is everchanging and extrapolations always break eventually. (It's fair to say, however, that zero is too low a price.)

So how does the financial sector seem to offer risk-free assets against risky projects? I think "constructive ambiguity" is the right phrase. The government provides subsidies in the form of literally priceless deposit and liquidity backstops, but those are explicitly limited. Banks work to diligently to increase both the level of insurance and degree to which assets are perceived to be insured by becoming so large that social costs of a bank default on even notionally risky assets are thought to exceed the costs to government of paying out on insurance policies to which it never agreed. Even a very careful observer cannot tell a priori whether many assets offered are genuinely riskless or not, that is to what degree the risk-free status of bank assets is due to subsidy, and to what degree to subterfuge. But there is an ingenious tinkerbell aspect to the risk status of bank assets: If, with a bit of subterfuge, risky assets can be sold as riskless assets, then the social costs of default rise, since asset holders will not have privately managed the risk that the asset might fail. The increase in social costs created by a mischaracterization of a risky asset as riskless, however, alters the likelihood that an asset will be de facto insured. There is a game theoretic equilibrium, that works to the advantage of intermediaries and their customers on both sides of the funding stream, whereby banks offer assets in large quantities as though they are risk-free, and investors accept and treat those assets as risk-free, and by believing together in what is formally not true, they create costs to the sovereign so larger if it is not true that if the sovereign makes it true. This is an equilibrium, a predictable outcome, not an aberration. And it does happen all the time.

In theory, this is a repeated game, and governments might eliminate the bad equilibrium by committing to bearing social costs that are higher than the immediate costs of providing ex post insurance, in order to prevent the subsidy-extracting equilibrium from taking hold. That's what people who'd like to see a lot of banks go bust due to "moral hazard" concerns think should happen. But, if governments are unable to credibly commit to accepting large social costs, investors, borrowers, and intermediaries will test them by trying to extract the subsidy of infinite insurance. In practice, it's clear that governments have rarely been able to credibly commit to stick to the letter of their limited insurance commitments.

Alternatively, governments can accept the extraction of a de facto insurance subsidy, but supervise intermediaries to try to mitigate the cost of future claims. But that's a difficult task, as all private sector actors, borrowers, lenders, and intermediaries, have an incentive to maximize the subsidy extracted from the state, and will collude in creative ways to do so. (Of course, eventually these actors pay taxes, but even if they are sufficiently far-sighted to consider that, the distribution of benefits from the extracted subsidy is not coincident with the distribution of expected tax liabilities or inflation costs.) As long as it is possible to create a situation where the social costs of failure imply a bail-out, creative financiers will work to capture the huge value of what is essentially an option on an entire macroeconomy (even a global economy).

So, what is to be done? Here are some suggestions:

1.Eliminate the "constructive ambiguity" that permits private sector actors to offer apparently risk-free, instantaneously redeemable securities. Eliminate government insurance of deposits and all other assets except for direct obligations of the state. This is insufficient — AIG, for example, has extracted a very large bailout despite having never offered insured deposits, and there have been bank bailouts since long before formal deposit insurance. But banks' ability to muddy the waters between explicitly guaranteed and other assets seems to facilitate the process by which investors naively or cynically confuse risky for risk-free assets. Banking crises are larger and more frequent than any other sort of financial crisis that compels a state subsidy.

2.Keep financial firms small enough and sufficiently well compartmentalized from one another that a failure of one or several does not create social costs large enough to force a sovereign payout. Discourage portfolio correlation by creating a fiduciary obligation of independent evaluation that places agents who copycat or herd in jeopardy of investor lawsuits.

3. When possible, disintermediate. Nonfinancial firms are subject to clear operational risks, which forces direct investors to manage risks privately. Risk-management by private investors reduces the social cost of failure that compels government bailouts. Nonfinacial firms sometimes succeed at extracting bailouts, but much more rarely and with a larger fraction of the costs borne by investors than when financial firms do so.

4. Prefer equity to debt arrangements. All business risks must eventually be borne by investors. Debt financing concentrates enterprise risk among equity holders, and enables debt-holders to manage their investment risk less carefully. Risk-management by private investors reduces the social cost of failure that compels government bailouts.

5. Vaccinate investors by maintaining some level of asset price risk. Governments should limit liquidity and promote short-term price volatility of risky assets, perhaps quite artificially, to ensure that investors are always provisioning to manage risk. Risk-management by private investors reduces the social cost of failure that compels government bailouts.

6. Carefully ration risk-free obligations offered by the state. As Winterspeak likes to point out, states do not need to issue debt to fund themselves in their own currency. States can more equitably and transparently promote price stability via taxation than by borrowing and intervening in sprawling debt markets. Government debt ought not be viewed as loans to fund operations, but as a form of insurance offered by the state to private savers in strictly limited quantity, in order that people of modest means don't have to perform the work and bear the risk of managing uncertain investments. Governments should strive to guarantee a near-zero, but always positive, real return on these obligations, permitting risk-averse savers to transport purchasing power into the future, but not magnify real wealth. Those who want a high return must do the work and bear the risk of achieving it. The state should not guarantee that.

I know that the political economy of these suggestions is, well, iffy. But one should never underestimate how much political economy considerations might change during the turbulence of a global financial crisis.

[Demeter]

49. Entrenched Managements: Yet One More Reason Why TARP = CRAP

http://www.informationarbitrage.com/2009/03/entrenched-managements-yet-one-more-reason-why-tarp-crap.html


Citigroup is up almost 80% over the past few days, while Bank of America has nearly doubled. Each CEO has come out with a bullish statement, Citi to the effect of "We're raking it in" while B of A has defiantly exhorted "We don't need no more stinkin' money." These words helped set off a frantic rally, as market sentiment has, almost overnight, been flipped on its head. Could things have looked more bleak last week? I don't think so. But today's feeling was downright optimistic. Did we get a plethora of new data to cause this reassessment? Not that I saw. Have we seen credit spreads dramatically tighten in line with the equity markets bullish rampage of the past few days? Nope. So what gives? At least as it relates to the financials, the key message is this: TARP has turned big-time CEOs into traders with losing books swinging for the fences. Not exactly what Congress or the Treasury had in mind when they decided to bail out the biggest, most complicated financial institutions. With our money.

Clearly much of the price appreciation is due to a vicious short-covering rally that Messrs. Pandit and Lewis kicked off. But the fact is, what do they have to lose? If they can fool us long enough, credit spreads will come in and recovery will become a self-fulfilling prophecy. Otherwise, Congress (read: the US taxpayer) will bail them out once again. Citi, B of A and AIG have each had multiple bites of the bailout apple, so what's another bite among friends? They are inclined to do this because their reputations are already severly damaged; in essence, short of outright fraud, they can't get any worse. Therefore, they are motivated to throw caution to the wind, be super-positive and hope for the best. If new management with fresh reputations were on the scene, the would be much less inclined to release bullish statements without empirical data to back it up. This is a major flaw of TARP: letting incumbent managements stay around. It has created perverse motives that serve neither the troubled institutions nor its shareholders very well.

How are buyers of Citi going to feel if they enter at $2, think it's going to $5 because of Vik's words and then see it crater to $0.80 based on deteriorating fundamentals and the need for additional dilutive equity issuances? i'll tell you how - pissed off. Now you can say "caveat emptor," and you'd be right. But wouldn't you rather have new managements with motivations aligned with those of shareholders, instead of old managements motivated to rehabilitate their reputations? Rather than be so focused on capping pay, how about insisting that a new slate of managers take over as well as some new independent directors? I think this would yield far better outcomes for everyone involved. Congress and Treasury have taken their eye off the ball. Time for a little less populist BS and a little more common sense reform.

[tclambert]

51. My son, the engineer, says today is PIe Day.

3.14

[Demeter]

52. Democrats draw up plan for second stimulus bill

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/4973841/Democrats-draw-up-plan-for-second-stimulus-bill.html

SOMEHOW THIS DEVELOPMENT SLID UNDER THE RADAR IN THE US--COULD IT BE BECAUSE WE HAVE NO 4TH ESTATE WORTHY OF THE NAME?


Democrats in the US Congress are drawing up plans for a second stimulus bill amid fears the first $787 billion package was not big enough to kick start the US economy.

Just weeks after Congress approved the largest rescue package in US history, Nancy Pelosi, the speaker of the House of Representatives, said "we have to keep the door open" to another stimulus.

David Obey, the chairman of the appropriations committee, said he has instructed his staff to start drafting another stimulus proposal, though he emphasised no deadlines or timelines had been set. Their remarks followed a meeting with economists who warned that only 2.5 million jobs would be "saved or created" over the next year, rather than the 3.5 million forecast by President Barack Obama.

Mark Zandi of Moody's Economy.com, who has also visited the White House, was the leading voice warning that more taxpayer money should be pumped into the economic bloodstream, even though the first round of government spending and tax cuts has yet to take effect.

The spectre of a second stimulus will alarm Republicans, who opposed the first package nearly unanimously, as well as conservative Democrats.

However some, mainly left-leaning, economists argued from the start that more money should be spent. They claim they have been vindicated by a series of grim statistics on Wall Street and in the jobs market since the stimulus bill was passed three weeks ago.

The Dow Jones index has fallen by 17 per cent since Mr Obama’s inauguration. Unemployment climbed to 8.1 per cent by the end of February, as another 651,000 jobs were lost. Most experts forecasting the rate will reach close to nine per cent by the end of the year.

Amid warnings of a long-lasting recession, or another Great Depression, even some economists friendly to Mr Obama have criticised him for doing too little.

Paul Krugman, the Nobel Prize-winning economist and columnist, wrote in the New York Times: “Economic policy is falling behind the curve, and there’s a real growing danger that it will never catch up.”

The administration hopes that when it releases its detailed plans for bank restructuring that economic confidence will pick up. It is currently conducting “stress tests” of the 19 biggest banks, which could result in the government taking significant stakes in the banks.

Ahead of a meeting of G20 finance ministers in Horsham, West Sussex this weekend, Tim Geithner, the Treasury Secretary, has called on other major economies to boost their stimulus spending to US levels. Although the White House has not ruled out a second stimulus, it maintains enough has been done to revive confidence in the domestic economy in the short term.

Robert Gibbs, the president’s press secretary, said: “The president and his economic team believe that the steps we took will have a concrete impact on getting our economy moving again. The focus throughout this administration is doing all that we can to move the spending that’s been authorised by Congress.”

Mr Obama will soon be preoccupied with a major battle on his hands to force a $3.6 trillion budget through Congress, which includes major initiatives such as raising taxes on the wealthy to pay for health care reform and a cap and trade system on carbon emissions.

The White House has not ruled out further action, but maintains that it has done enough to revive confidence in the economy in the short term.

Mr Obama will soon have a major battle on his hands to force a $3.6 trillion budget through Congress.

Robert Gibbs, the president's press secretary, said: "The president and his economic team believe that the steps we took will have a concrete impact on getting our economy moving again. The focus throughout this administration is doing all that we can to move the spending that's been authorised by Congress."

[Demeter]

53. Cities Are Selling Stimulus Funds to Each Other

http://www.motherjones.com/mojo/2009/03/cities-are-selling-stimulus-funds-each-other

— By Josh Harkinson | Tue March 10, 2009 4:48 PM PST

In Los Angeles County, cities are buying federal stimulus funds from each other at deep discounts, turning what was supposed to be a targeted infusion of cash into a huge auction.

It all started when the county's Metropolitan Transportation Agency decided to hand out $44 million from the federal stimulus package in the form of $500,000 transportation grants to each of the county's 88 cities. But some cities didn't have any shovel-ready transportation projects. So with MTA's blessing, they're selling the grants to the highest bidder:

La Habra Heights, a city of 6,000, has sold its $500,000 in federal funds to the city of Westlake Village for $310,000 cash. Irwindale, population 1,500, also sold its $500,000 to Westlake Village, for $325,000 cash.

The city of Rolling Hills, population 1,900, sold its $500,000 share to the city of Rancho Palos Verdes for $305,000 cash. The city of Avalon has reached an agreement to swap its $500,000 with L.A. County.

This is Southern California that we're talking about--the land of eternal gridlock. MTA could have redirected the money to a nearly infinite list of other transportation projects. But chief planning officer Carol Inge told the Pasadena Star-News that the agency didn't want to do that because "our board wanted to give every city at least a chance to benefit from the stimulus package."

I'm sure many cities have higher priorities than transportation. And I would have liked to have seen more direct aid to ailing local governments in the stimulus bill. Still, MTA's approach strikes me as a bit too creative. What's next, stimuls money credit default swaps?

UPDATE: After this post appeared, MTA reversed course and invalidated these sales. It now says that the stimulus funds can only be swapped for other county money targeted for transit projects. But this probably won't end the controversy. MTA is still handing out a half million bucks to all 88 cities in the county, including the tiny Irwindale, population 1,446. That's $345 per Irwindalian, just for transportation. With that they could hire a worker to dig through the yellow pages and dial up free limos for everyone. H/T to TotalCapitol in the comments.

[Demeter]

54. Haircut Time For Bondholders By Mike Whitney

http://informationclearinghouse.info/article22202.htm


"The only function of economic forecasting is to make astrology look respectable." John Kenneth Galbraith


March 12, 2009 "Information Clearing House" -- When George Soros recently said that the financial system had "effectively disintegrated", it caused quite a flap. But Soros was not exaggerating. The financial system has disintegrated. What we are experiencing now is just the fallout from that event. This is easier to understand by using an analogy. Imagine watching the demolition of a hundred-story skyscraper. After the explosives detonate and the building implodes, the chunks of debris and the shattered glass begin to fall to the ground below. That's where we are right now. The financial super-structure has already been blown to bits, but a thick shower of fragments keeps raining down on earth. Rising unemployment, falling consumer confidence, severe contraction of the economy, growing pessimism; these are all the knock-on effects of a full-blown system collapse.


Take a look at this chart and you'll see what I mean. The chart explains in simple, graphic terms everything that one needs to know about the financial crisis.




As you can see, the upper part of the graph disappears in 2008, as though it was surgically removed. That is because in 2008, the source of funding for residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), consumer asset-backed securities (which include everything from student loans, credit cards, and auto loans) and home equity loans has almost completely dried up. In fact, all that's left of the previously vibrant credit markets, is the agency mortgage-backed securities sold through Fannie Mae and Freddie Mac which rely exclusively on government funding. Apart from government sponsored GSEs, their is no mortgage credit.

What does it all mean? It means that Wall Street's credit-generating mechanism has disintegrated cutting off 40 percent of the blood-flow to the economy. This is why the drop in spending has been so sudden and precipitous. No economy, however strong, can reduce credit by 40 percent without sliding into a depression. Every area of industry, trade, investment, commerce and consumption has been battered. No sector has been spared. Look closely at the chart and you will see why housing will continue to plummet, because the primary funding mechanism for selling mortgages no longer exists; all the applications are now shoveled over to Fannie and Freddie. Wall Street has gone A.W.O.L.

The often repeated mantra "the banks aren't lending" is a myth. The banks are lending; it is the wholesale funding apparatus that's broken. That's why the Fed's low interest rates have had little effect, because they don't increase sales in the secondary market where MBS and other complex investments are sold. Those markets are frozen due to investor angst. People are scared out of their wits. Toxic subprime mortgages poisoned the well and now investors have boycotted the entire market for structured debt-instruments. Until there is some resolution on the true value of the underlying assets, the market will remain paralyzed. Investors want price discovery, something that is basic to every market. Here's what Bank of America's CEO Ken Lewis said in the Wall Street Journal on Monday:

"The banks aren't lending. This claim is simply not true. Yes, banks have tightened lending standards after a period in which standards were too lax. But, according to Federal Reserve data, bank credit has actually increased over the course of this recession, and business lending is trending up modestly so far in 2009. Also, mortgage finance volume is booming as a result of low interest rates. What's gone from the system is the easy credit that got us into this mess, as unregulated nonbank lenders have disappeared, and the market for many asset-backed securities has all but dried up. Most banks are making as many loans as we responsibly can, given the recessionary environment."


The collapse of securitization (the bundling of pools of loans into securities sold at market) has sucked more than $1.2 trillion from the credit markets and forced a cycle of deleveraging throughout the financial system. The idea that securities-based lending was viable was predicated on the Radian belief that self-interested speculators could sustain the flow of credit to the system. That notion turned out to be catastrophically wrong. Not only did financial institutions increase their risk exposure by loading up on long-term illiquid assets, (MBS, CDOs, CDSs) they also borrowed heavily on those dodgy assets so they could skim the cream off the top and add to their 7-digit incomes and lavish bonuses. For the better part of a decade, the only things that worried the Wall Street oligarchs was whether the larder at the vacation bungalow on the French Riviera needed restocking or if their were any early morning tee times available at St Andrews. PIMCO's Bill Gross gave an apt summary of shadow banking system in a newsletter to his investors last year:

"Our modern shadow banking system craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever. Financial derivatives of all descriptions are involved but credit default swaps (CDS) are perhaps the most egregious offenders. While margin does flow periodically to balance both party’s accounts, the conduits that hold CDS contracts are in effect non-regulated banks, much like their hedge fund brethren, with no requirements to hold reserves against a significant "black swan" run that might break them. Jimmy Stewart—they hardly knew ye! According to the Bank for International Settlements (BIS), CDS totaling $43 trillion were outstanding at year end 2007, more than half the size of the entire asset base of the global banking system. Total derivatives amount to over $500 trillion, many of them finding their way onto the balance sheets of SIVs, CDOs and other conduits of their ilk comprising the Frankensteinian levered body of shadow banks.

Pyramid schemes and chain letters collapse because there is no more credit to feed them. As the system of modern day levered shadow finance slows to a crawl, or even contracts at the edges, its ability to systemically fertilize economic growth must be called into question."

The problem is not simply that securitization has blown up, but that Geithner and pal Bernanke are determined to sift through through the rubble to see if they can fit the pieces together again. It's Humpty Dumpty redux. This is what Bernanke's Term Asset-Backed Securities Loan Facility (TALF) is really all about; another pointless attempt to fire-up Wall Street's failed credit assembly-line, securitization. TALF is set to begin in the middle of March and will ultimately get up to $1 trillion of Fed funding for securitized loans made on credit cards, car loans and student loans. But the plan ignores the fact that the wholesale credit markets already conked out after their first big stress-test and that consumers are no longer in a position to increase their debt-load. Consumer debt is already at 100 percent of GDP, and that's before the recession slashed home equity values by 30 percent and 401ks by 40 percent. That is why personal savings have gone from negative territory in 2006 to positive 5 percent in just 2 quarters. Attitudes towards consumption have done an about-face almost overnight. Bernanke's TALF isn' t necessary; what's needed is debt relief and a smaller financial system that meets the new reality.

Besides, what's the point of moving toxic assets from one balance sheet to another or providing another handout to the scamsters and flim flam men at the hedge funds and private equity firms? They're the ones who drove the system into the ditch in the first place. Peter Eavis of the Wall Street Journal explains:

"The Fed needs to lure investors back into the market for these asset-backed securities, or ABS, where new issuance has almost disappeared This has led to a contraction in lending to consumers, deepening the recession. In the fourth quarter of 2008, there wasn't any issuance of U.S. credit-card ABS, compared with $23 billion a year before, according to Dealogic...

The TALF ladles out that leverage, and it may well work in kick-starting the moribund market. For instance, investors can borrow $92 million to buy $100 million of bonds backed with prime auto loans. An investment firm would have levered its equity over 12 times, which could provide annual returns of over 20% on prime-auto ABS assuming no credit impairment." (Wall Street Journal, The Fed goes for brokerage)

Sound familiar? What's even worse than providing the leverage for the hedge fund sharpies, is the fact that the Fed will not require that investors to post collateral (like a bank) and---if the assets fall in value-- investors can just "walk away" leaving taxpayers to eat the losses. Such a deal! It's another shameless $1 trillion corporate welfare boondoggle disguised as a financial rescue plan. This shows that the reprobate Fed and its accomplices at Treasury are still committed to keeping the credit monopoly in private hands whether it destroys the country or not. The best remedy would be abandon the securitization model altogether (if only for the time being) so resources could be devoted to more pressing issues like jobs programs and debt relief. These would have an immediate stimulative effect on economy by revving up consumer spending and restoring faith in government. Otherwise, we're just dumping more money into a dysfunctional system.


Whether the Obama administration fixes the credit markets or not, it will still have to recapitalize the banking system. The most efficient way would be to take over insolvent institutions, separate the bad assets, protect the depositors and give management the "pink slip". The problem with removing the bad assets, however, is the sheer magnitude of the losses. There's enough red ink here to stretch from sea to shining sea. Here's David Smick in the Washington Post:

"Here's the problem: Today's true market value of the U.S. banks' toxic assets (that ugly stuff that needs to be removed from bank balance sheets before the economy can recover) amounts to between 5 and 30 cents on the dollar. To remain solvent, however, the banks say they need a valuation of 50 to 60 cents on the dollar. Translation: as much as another $2 trillion taxpayer bailout.

That kind of expensive solution could send the president's approval rating into a nose dive. Consider: $2 trillion is about two-thirds of the tax revenue the federal government collects each year." (Tim Geithner's Black Hole, David Smick Washington Post)

And, it's not just the expense that keeps Geithner from taking swift action either. It's also the prospect of systemic failure from unregulated counterparty contracts, mainly credit default swaps, which have tied all the major banks together in an lethal net of highly-leveraged bets. If one of the financial giants sheds its mortal coil and keels over, the others will follow like lemmings. This is why the government took over AIG and has provided a $160 billion bailout, to stop the dominoes from tumbling through the global system. Geithner has decided that its wiser to make excuses and try to run out the clock, than stumble blindly through the derivatives minefield. Unfortunately, the clock is ticking and the problems can't wait.. The loss of wealth is already so huge that it has blown a gaping capital-hole in the financial system triggering an unprecedented slowdown similar to the 1930s. According to Bloomberg:

"The value of global financial assets including stocks, bonds and currencies probably fell by more than $50 trillion in 2008, equivalent to a year of world gross domestic product, according to an Asian Development Bank report."...Blackstone's CEO Stephen Schwarzman said on Tuesday that "Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half. This is absolutely unprecedented in our lifetime."

As capital is destroyed and credit tightens, consumers have gotten more defensive, inventories are bulging, unemployment is rising, retail and housing have continued to nosedive, asset values are shrinking, profits are dwindling and the economy has succumbed to the slow strangulation of a credit-python. Deflation has spread across all sectors; strengthening the dollar and pushing oil and commodities downward. Equities are in a deep slump that will only get worse. The S&P has already dropped 56 percent from its peak and is quickly somersaulting downward. Deflation is everywhere.

David Rosenberg, Economist at Merrill Lynch summed it up like this in "Depression-Style Jobs Report":


"In addition to credit contraction, asset deflation, profit compression and employment destruction, we are also in a vicious inventory reduction phase in the manufacturing sector. If our forecast is correct, this would then suggest that the capacity utilization rate in manufacturing will make a new all-time low of 66.6% from 68% in January. The employment data also tell us that there is a very high probability that wages and salaries deflated -0.3% in February as well. How we end up getting any sustained inflation pressure, or backup in bond yields for that matter, as the economy moves further and further away from any semblance of “full employment” in either the labor or product market, is totally beyond us.

The Fed’s balance sheet and the balance sheet of the federal government are expanding at record rates. But these reflationary efforts should be seen as a partial antidote, not a panacea, to the deflationary effects brought on from the unprecedented contraction in the largest balance sheet on the planet: The $55 trillion US household balance sheet. Based on what house prices and equity valuation have been doing this quarter, we are likely in for a total loss of household net worth approximating $7 trillion this quarter alone, which would bring the cumulative decline in consumer wealth to $20 trillion. This wealth loss exceeds the combined expansion of the Fed’s and government balance sheet by a factor of ten. That should put the reflation-deflation debate into perspective." (David Rosenberg, Economist at Merrill Lynch summed it up like this in "Depression-Style Jobs Report": Mish's Global Economic Trend Analysis)

Clearly, the capital hole in the center of the US economy is too humongous to be filled with Obama's paltry $787 billion stimulus. (Most of the stimulus is back-loaded anyway. Only $200 billion will be spent creating jobs in 2009) When businesses and consumers stop spending; the government has to pick up the slack or the economy gets hammered. Obama's job is to "go big and go long" and ignore the braying of the liquidationists and crybaby Republican's in the Congress. This is not the time for cold feet. Cinch up the jockstrap, and do what's needed. Dazzle the naysayers with footwork. If Obama does not meet the challenge and accept the unavoidably huge deficits, thousands of businesses will default, unemployment will skyrocket, and world trade will grind to a halt. Consider this warning from economics professor Barry Eichengreen in the San Francisco Chronicle: "We must keep Trade from falling off a cliff"


"Americans may not realize it, but the biggest threat to economic stability is not falling home prices and retail spending but collapsing world trade. The value of global merchandise exports was down fully 45 percent in November 2008 from 12 months before. This is a terrifying number.

Nothing remotely comparable has ever happened before - not even in the Great Depression of the 1930s.

This is a body blow to an already staggering U.S. economy. U.S. exports in the fourth quarter of last year fell by more than 25 percent in constant dollars. California is being hit especially hard: outbound container traffic from the Ports of Long Beach and Los Angeles was down 30 percent in December 2008 from a year earlier.

It's not surprising that when global growth slows, trade growth slows. But this trade implosion is unprecedented even for a major recession.( Barry Eichengreen San Francisco Chronicle: "We must keep Trade from falling off a cliff")

Trade credit has dried up and reversed capital flows; another casualty of the credit market crackup. Globalization has returned to the realm of (corporate) wishful thinking; look for it in the "fiction" section of the library. No sandal-clad, fist-waving anarchist put the torch to global trade (regrettably) it was crushed by a poorly-designed financial system that split into matchwood at the first strong breeze. So, how in the world are Bernanke and Geithner going to recapitalize the banks and "keep them in private hands" in the most hostile economic environment in memory?


The only hope is to do the unthinkable; dispatch the FDIC storm troopers to the teetering banks on Friday night and shut down the biggest offenders pronto. Don't wait another minute. The real reason Geithner is stalling is because he's afraid that foreign bondholders will cut him off at the knees and stop purchasing US debt. That's a threat that has to be taken seriously, but it shouldn't stop him from doing his job. John Hussman explains it all in his weekly comment "Buckle Up":


"The misguided policy response from Washington has focused almost exclusively on squandering public money and burdening our children with indebtedness in order to defend the bondholders of mismanaged financial institutions....

Make no mistake. Buying up “troubled assets” will not materially ease this crisis, nor will it even improve the capital position of financial institutions. Homeowners will continue to default because their payment obligations have not been restructured to any meaningful extent. We are simply protecting the bondholders of mismanaged financial institutions, even though that bondholder capital is more than sufficient to cover the losses without harm to customers. Institutions that cannot survive without continual provision of public funds should be taken into receivership, their assets should be restructured to better ensure repayment, their stockholders should be wiped out, bondholders should take a major haircut, customer assets should (and will) be fully protected, and these institutions should be re-issued to the markets when the economy stabilizes." (John P. Hussman Ph.D., Hussman Funds, Buckle Up, www.hussmanfunds.com )

Bondholders own everything and they shouldn't be trifled with. They represent foreign banks, governments, sovereign wealth funds, and industry giants. They can afford the losses better than the taxpayer, but they won't be happy about it. There's bound to be retaliation and gnashing of teeth. It will require a carefully executed strategy to avoid a bloodbath; a surprise incision with a razor-sharp scalpel followed by an Obama-led public relations campaign to placate the enraged bondholders. It won't be easy, but it has to be done, and fast. Unfortunately, we are no where near the point where anyone at Treasury or the Fed will set aside the corporate agenda long enough to do the people's work. That's why Geithner will have to go. Bernanke, too.

[Demeter]

55. Madoff and Company Spent Nearly $1 Million on Washington Influence

http://informationclearinghouse.info/article22201.htm


The man behind a $50 billion Ponzi scheme that has roiled Wall Street and shaken up the nonprofit world was also a long-time contributor to Democrats, the nonpartisan Center for Responsive Politics has found. Bernard Madoff was arrested last Thursday and charged with operating a fraudulent money-management business with which he advised investors, hedge funds and institutions, including charitable foundations. Madoff made a fortune, and he played politics with some of that money. In total, he and his wife, Ruth, have given $238,200 to federal candidates, parties and committees since 1991, with Democrats getting 88 percent of that. Overall, Madoff and other individuals at his company, Bernard L. Madoff Investment Securities, gave $372,100 in campaign contributions since 1991, with 89 percent to Democrats. The firm spent $590,000 on lobbying in the last 11 years, all but $10,000 of it with the lobbying firm of Lent, Scrivner & Roth. A search for funds with "Madoff" in their title in lawmakers' personal investments did not find any members of Congress with their own funds invested with him.

The following party committees, PACs and current members of Congress have received contributions from Madoff and his wife since the 1992 election cycle:


Name Party Total

Democratic Senatorial Campaign Cmte D $102,000

Securities Industry Assn $31,000

Wyden, Ron D $13,000

Schumer, Charles D $12,000

Markey, Edward J D $10,000

Securities Industry & Financial Mkt Assn $10,000

Lautenberg, Frank R D $8,600

Merkley, Jeff D $2,300

Clinton, Hillary D $2,000

Rangel, Charles B D $2,000

Towns, Edolphus D $2,000

Dodd, Christopher J D $1,500

Ackerman, Gary D $1,200

Dingell, John D D $1,000

Obey, David R D $1,000

Matheson, Jim D $250

National Abortion Rights Action League $250

[Demeter]

56. Reforming the Global Financial System--Flushing the Parasites By Nikki Alexander

http://informationclearinghouse.info/article22199.htm

Prologue

When Benjamin Franklin was called before the British Parliament in 1757 and asked to account for the prosperity in the American colonies. He replied, "That is simple. In the colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one." It was the struggle for financial sovereignty that precipitated the American Revolution when the (Rothschild) Bank of England forced the colonists to give up their own currency.

That war never ended.

Throughout his political life Thomas Jefferson fought off the covert attempts of European bankers to control the nation’s money supply through a privately-owned central bank. Andrew Jackson succeeded in defeating these racketeers, nationalizing the banks and paying off the public debt. Our country then flourished without inflation. When Abraham Lincoln issued ‘greenbacks’ that deprived private bankers of their monopoly control of the nation’s money supply he was assassinated. The international bankers battled for more than a century to establish a private central bank in the United States with the exclusive right to print their own fiat notes and exchange them for government debt. They succeeded in 1913 with The Federal Reserve Act, a covert coup that authorized a private central bank to create money out of nothing, lend it to the government with interest and control the national money supply, expanding or contracting it at will. Representative Charles Lindbergh called the Act "the worst legislative crime of the ages." Fifty years later, President John F. Kennedy almost restored our Constitutional monetary system when he issued debt-free Treasury Notes. He too was assassinated.

The Systemic Usury Parasite

In 1913 our sovereign authority to create interest-free money was unconstitutionally transferred to a transnational private banking cartel that has systemically infected our economy with a staggering national debt in the tens of trillions of dollars. Eighty-five cents of every dollar is now consumed as “interest” by the systemic usury parasite, draining its host of vital resources and collapsing our economy in bankruptcy. Ours is not the only nation to succumb to systemic parasitism.

The Systemic Usury Parasite has infected 170 countries, feeding itself through the central bank syndicate, a shareholder-owned consortium of private banks. Each central bank parasite has an exclusive monopoly on its host government’s monetary system, with the power to create public debt and expand or contract the host’s economy at will. Coordinating their monetary policies with each other through the Bank for International Settlements, the central bankers meet behind closed doors, appoint their own governors and set their own rules. Their books are not subject to audit by the individual governments that host them. The Bank for International Settlements originated as a Nazi money laundering operation<1> and serves today as the cashiers window for the global casino.<2> The IMF and World Bank tentacles of this parasite, infect unsuspecting governments with insurmountable debt, forcing these nations through “structural adjustment” policies to rob their taxpayers, slash beneficial social programs, transfer public assets to private owners and sell the nation’s treasures to transnational predators at fire sale prices. Government treasuries are the parasite’s host. Why rob just one bank when you can rob the whole nation? And why rob just one country when you can rob them all? Flushing the global economy of this systemic parasite begins with understanding how its debilitating web of debt is manufactured.

Although governments have inherent authority to create their own money, they foolishly borrow it from central banks, with interest. A central bank fabricates fiat notes (paper money) and credit by “lending” them into existence, in return for treasury bonds of the host government ~ taxpayer IOUs. This “money” has no pre-existing substance in reality and is conjured up through accounting entries. It is literally created out of nothing. The central bank first lends these accounting entries to its private owners and then to its downline commercial banks with interest. The commercial banks are permitted to lend nine times the amount of their borrowed accounting entries held “in reserve”. This nine-fold multiplication of borrowed accounting entries is described as “fractional reserve banking.” When borrowers accept these accounting entry loans they create massive inflation of the money supply which devalues the currency. These accounting entry loans must be “paid back” with compound interest that multiplies exponentially. More money must then be fabricated to pay this interest. Thus, all “money” that enters circulation is actually debt contrived by fictitious accounting entries. Every fiat dollar is an IOU from a borrower to a lender. A debt-based monetary system can never achieve equilibrium because compound interest always overwhelms the escalating money supply and eventually causes systemic collapse.

Organized Crime

Today the nation is essentially bankrupt and hoping Barack Obama’s team of Wall Street advisors will forestall economic collapse. This expectation is equivalent to hoping that Al Capone will make our streets safe. The economic recovery team is a Trojan horse filled with the same Wall Street racketeers that infected the global economy with a quadrillion dollar derivatives bubble, using deliberately deregulated mechanisms. They have successfully held the nation hostage with a universal credit freeze and threats of systemic collapse if trillions of dollars in ransom demands are not met. But why would our government agree to double its public debt to save ruthless gamblers from bankruptcy? Why would our government re-victimize taxpayers who did not participate in this global fraud and whose investments, retirement savings, pension plans and real estate values have already been eviscerated by these swindlers? The answer is that the Treasury Secretary and Federal Reserve Chairman have historically represented a parasitic transnational crime syndicate, not the host government and its taxpayers.

The US Government is an instrument of the organized crime syndicate described alternatively as the Washington Consensus, the Octopus, the Shadow Government, the New World Order and Wall Street. This syndicate of transnational racketeers includes bankers, interlocking corporate directors, American, European and Asian “royal” families, cocaine and opium drug traffickers, illegal weapons dealers and kingpin controllers of blood diamonds, gold and oil. From the very beginning of America’s fledgling democracy these international predators surreptitiously gained control of the railroads, banks, oil and vital infrastructure, using a maze of corporations, offshore banks and holding companies that disguised foreign ownership of national resources.<3> During the 19th and 20th centuries this syndicate secured private ownership of vital infrastructure and natural resources worldwide by engineering wars and assassinating democratic leaders. They financed Trotsky, Lenin and Hitler, using syndicate members within the Treasury and Federal Reserve to protect “their” international assets. Thomas Lamont, a JP Morgan banker, who was the US Treasury’s representative at the 1919 Treaty of Versailles negotiations, personally raised $100 million to finance Benito Mussolini. William Boyce Thompson, director of the New York Federal Reserve traveled to Russia to destabilize the Bolshevik Revolution, ensuring that railroads, banks, oil and vital resources would remain in private hands.<4> Across the globe democratically elected leaders were deposed or assassinated that dared to return natural resources to their people. Two notorious Nazi collaborators,<5> Allen Dulles (CIA director) and his brother John Foster Dulles (Secretary of State), were Wall Street attorneys who worked for the syndicate to brutally suppress every democratic uprising that threatened their control over national assets that rightfully belong to sovereign nations.

General Smedley Butler is best remembered today for his oft-quoted statement in the socialist newspaper Common Sense in 1935: "I helped make Mexico and especially Tampico safe for American oil interests in 1914. I helped make Haiti and Cuba a decent place for the National City Bank boys to collect revenues in. I helped in the raping of half a dozen Central American republics for the benefit of Wall Street. The record of racketeering is long. I helped purify Nicaragua for the international banking house of Brown Brothers in 1909-12. I brought light to the Dominican Republic for American sugar interests in 1916. I helped make Honduras 'right' for American fruit companies in 1903. In China in 1927 I helped see to it that Standard Oil went its way unmolested.... Looking back on it, I felt I might have given Al Capone a few hints. The best he could do was to operate his racket in three city districts. We Marines operated on three continents."<6>

Wall Street racketeers who bribed members of Congress to deregulate Wall Street, could not have held our nation hostage without collusion from the Treasury Secretary and Federal Reserve Chairman. They are members of the crime syndicate that loots governments through the central bank system and private equity firms like JP Morgan, Citigroup, Bank of America, Goldman Sachs and Carlyle. Treasury Secretary Henry Paulson, a Goldman Sachs CEO, is also a member of Robber Barons, Inc ~ the IMF Board of Governors. Treasury Secretary Lawrence Summers organized the looting of Russia, stripping one trillion dollars from Russia’s struggling economy and shifting state-owned assets to private owners. Larry Summers succeeded Robert Rubin as Treasury Secretary in 1999, marking their success in repealing Depression-era laws that banned the merger of banks, brokers, insurance firms and investment banks. A former co-chairman of Goldman Sachs, Rubin joined CEO Sanford Weill at Citigroup, the first financial institution to fully embrace the Rubin-led repeal. At Rubin’s urging, Citigroup thrived by bundling loans as securities (mortgages, credit card loans, auto loans, student loans) and selling them as collateralized debt obligations (CDOs). Concurrently Larry Summers championed the deregulation of financial derivatives, ensuring the globalization of losses from those securities. With $2 trillion in junk loans, Citigroup fraud has metastasized to 100 countries making it too infectious to quarantine (“too big to fail”). Rubin protégés advised Obama that taxpayers should assume responsibility for $306 billion of Citigroup’s junk loans.<7> Rockefeller owns Citigroup and JP Morgan Chase, two of the investment banks that own the Federal Reserve. Obama’s Treasury Secretary, Timothy Geithner, is a Board Director at the central bank headquarters, the Bank for International Settlements, and is a protégé of Henry Kissinger, Robert Rubin and Lawrence Summers.

Financial Terrorism

Author Bernard Lietaer, a former central banker, writes in “The Future of Money:”

"Your money's value is determined by a global casino of unprecedented proportions: $2 trillion are traded per day in foreign exchange markets, 100 times more than the trading volume of all the stock markets of the world combined. Only 2% of these foreign exchange transactions relate to the "real" economy reflecting movements of real goods and services in the world, and 98% are purely speculative. This global casino is triggering the foreign exchange crises which shook Mexico in 1994-95, Asia in 1997 and Russia in 1998. These emergencies are the dislocation symptoms of the old Industrial Age money system."

These emergencies are also the hallmark of the transnational crime syndicate controlling the global economy through financial terrorism. Collapsing healthy economies with currency speculation, fabricating trillions of dollars in fictitious debt and destroying productive businesses with short selling, these vultures have swarmed across the globe devouring one nation after another. The US is their current target.

Another Board Director at the predatory Bank for International Settlements, Federal Reserve Chairman Alan Greenspan, used the standard Rockefeller-Rothschild blueprint for engineering the US financial collapse: deliberately expanding cheap credit to inflate the web of debt, entice rampant speculation and then suddenly withholding credit to violently contract the economy. A tactic used by Rothschild’s Bank of England to rob and control its colonies, this violent contraction catalyzes waves of foreclosures, bankruptcies and layoffs that force sellers to accept pennies on the dollar for their assets. Alternatively described as Milton Friedman’s economic ‘Shock Treatment’ and Henry Kissinger’s blueprint for “making the economy scream,” this financial terrorism is a psychopathic formula to bring a nation to its knees.

Instead of allowing a handful of corrupt Wall Street investment banks to implode from well-deserved bankruptcy, The Swindler Bailout engineered by the US Treasury and Federal Reserve extorts trillions of taxpayer dollars to purchase worthless junk loans from racketeers, reimburse speculators for their gambling losses, finance mergers and acquisitions to devour healthy banks and concentrate unearned wealth in expanded syndicate banking monopolies. Government loans could have been directly issued to victims of predatory lenders to refinance the mortgages that have devastated home values nationwide. Instead, taxpayer loans to the generators of these toxic assets reward criminals and simultaneously drain the US Treasury. Insurmountable debt, engineered by the Systemic Usury Parasite and compounded by the Swindler Bailout, lays the groundwork for “structurally adjusting” the American economy, permanently stripping citizens of their remaining assets, health care protection and their confiscated wages held in trust by the Social Security Administration. This premeditated Grand Theft is the prelude for national insolvency and subsequent sale of the nation’s assets to transnational pirates.<8>

Disintegration is a Blessing

Reuters reported in February that renowned investor George Soros said the world financial system has effectively disintegrated, adding that there is yet no prospect of a near-term resolution to the crisis. We needn’t wait to see how thugs might resolve the crisis. It would be much wiser to take the path of least resistance and prevent economic collapse by making the systemic correction that is long overdue.

Imagine for a moment that worldwide governments had retained their exclusive authority to create money and control credit and had strictly regulated the transparent movement of capital within their own borders. Had they remained autonomous, systemic global collapse would not have been possible. US investment banks could not have infected foreign banks and collapsed Iceland’s economy. Small, autonomous units counteract systemic risk by isolating disease and preventing it from metastasizing to the whole system, as nature wisely demonstrates. This “disintegration” of the world financial system is an opportunity to dis – integrate every transnational conglomerate that binds all systems together in one monolithic web of systemic debt. Autonomous interest-free monetary systems that support small community banks, small farms and local producers of goods and services would protect self-sustaining economies from the systemic risk caused by the contagious collapse of intertwined conglomerates. Monopoly strangleholds on any commodity or economic system are lethal by nature. The greater their scope, the greater the risk of contagious catastrophic collapse ~ a fact we are now witnessing.

Dis – integrating the parasitic central bank syndicate that is strangling every country with insurmountable debt must be accompanied by effective quarantine of the global gambling casino: replace the Glass-Steagall firewall between commercial banks (public savings) and reckless investment banks; strictly regulate commodities futures and derivatives trades; ban over-the-counter transactions that are not transparent; criminalize anti-social speculation that artificially drives up the price of essential commodities and threatens public welfare; prosecute naked short sellers that collapse healthy businesses; enforce anti-trust laws that separate large investment sectors in finance, insurance, and real estate; dis – integrate every multinational conglomerate that is too criminal to care and too big to jail; end the fabrication of accounting entry debt by reforming the monetary system to issue and regulate credit through a transparent and strictly controlled public agency and localize every system that is critical to social functioning.

Isolating and strictly regulating Wall Street and offshore casinos to prevent gambling addicts from devastating the productive economy may eventually protect the global financial system from organized crime but its victims will never be reimbursed for their losses. Productive workers who lost their life savings and retirement pensions slowly accumulated over a lifetime of contributing have been thoroughly robbed by sociopaths who instantly amassed unearned wealth by parasitic gambling that contributes nothing of value. They will retire, without being prosecuted, in luxury.

The Mechanics of Money

Money is not a commodity. It is a token of value. Any two people can transfer whatever they like as a medium of exchange. We agree as a group to use one medium of exchange to simplify transactions. The purpose of inventing a medium of exchange is to sustain the flow of goods and services circulating in an economy. If we agreed to use gold or feathers as tokens, the medium of exchange would be finite and too scarce to meet everyone’s needs ~ and a finite physical commodity can be monopolized by individuals who might hoard the tokens and constrict the flow of goods and services that are needed by everyone in society. Paper is plentiful. In theory, we agree to the fiction that paper money and computer credits have value in order to produce and exchange the commodities we need. But they have no intrinsic value.

The pieces of paper and computer entries that are fabricated by private corporations, what we call money, can and should be created and regulated by a legitimate public agency. It is irrational to transfer this vital social function to private corporations that thrive on usury and destabilize economies by expanding and contracting fabricated credit. Usury is not a fact of life, an inherent condition one finds throughout the natural world. It is a man-made concept that could create opportunities for cultures to expand productive activities but which has been historically used by parasites that eventually kill the host.

Money and credit can and should be used to keep the economy flowing, facilitating the exchange of real goods and productive services that meet the needs of society ~ without fabricating debilitating and fictitious debt. This, in fact, was the intention of Article 1, Section 8 of the United States Constitution that authorized only Congress to coin money and regulate its value. The founders of our nation understood that a government does not need to borrow its money from a private corporation. It has the power to create its own money. We are that government and that power belongs to us.

Our government has the constitutional authority to create money and issue credit without ever charging interest or creating debt. It can directly spend this money into circulation and extinguish excess currency to prevent inflation. Or it can charge a reasonable interest rate and use this revenue in lieu of taxes. Publicly-owned community banks could charge a moderate interest rate that is returned to depositors as dividends, or it could be used to generate revenue for implementing worthwhile social projects. Monetary science comes equipped with mathematical formulas to achieve permanent monetary equilibrium through a set of principles that balance the money supply and maintain currency stability, eliminating recessions, depressions, inflation and deflation forever. A debt-free monetary system can be mathematically regulated to facilitate the flow of goods and services as a public service. The mechanics have been understood for centuries. All that is required is social consensus.

Decentralizing the banking system would dis-integrate the global stranglehold of transnational racketeers and provide protection from future systemic collapse. Geraldine Perry has suggested that if banks are to remain privately owned they must be required to operate as independent businesses with 100% reserves and use their own capital for loans, not fictitious accounting entries and not other people's money. The national money supply would be issued by a public monetary authority. Banks would operate as any other business should and they would be regulated by the local governmental entities where they are located, thereby eliminating the need for a national regulatory scheme.

Completely abolishing the privatization of the national money and credit supply would liberate human energy to create a world of abundance in which every human community could produce and exchange the goods and services it needs without ever being enslaved by fictitious debt. Government control of the national money supply would prevent inflation and escalating debt by issuing constitutional interest-free money. Moderate interest rates could then be used to finance the operations of city, state and federal government in lieu of taxes. Two brilliant authors, attorney Ellen Brown and historian Stephen Zarlenga have articulated sound mechanics for a publicly-owned monetary system. All that remains is public demand for this reform.

What is most essential to liberating humankind from centuries of covert suppression by parasitic racketeers is financial sovereignty. Political freedom without economic freedom is meaningless. The self-induced implosion of a corrupt financial system provides our generation with a precious opportunity to secure the blessings of liberty envisioned by our ancestors and finish the American Revolution.

Nikki Alexander is a freelance writer and fine art painter living in southern California.

<1> Three excellent BIS articles: http://www.argumentations.com/Argumentations/StoryDetail_7174.aspx;

http://www.afghanvoice.com/index.php/business/economics/controlling-the-world's-monetary-system- the-bank-for-international-settlements/ ; http://www.bilderberg.org/bis.htm#visit;

<2> Geraldine Perry, “The World According to Derivatives,” (http://thetwofacesofmoney.com)

<3> Linda Minor, “Follow the Yellow Brick Road: From Enron to Harvard”

(http://www.newsmakingnews.com/lindaminor/lm3,19,02harvardtoenron,pt1.htm)

<4> Antony Sutton, “Wall Street and the Bolshevik Revolution”

<5> Antony Sutton, “Wall Street and the Rise of Hitler”

Jerry Fresia, “Toward an American Revolution: Exposing the Constitution and Other Illusions”

Charles Higham, “Trading With the Enemy: An Expose of the Nazi-American Money Plot, 1933-1949”

<6> Smedley Butler, (http://home.iprimus.com.au/korob/fdtcards/Butler.htm)

<7> Michael Chossudovsky, “Who are the Architects of Economic Collapse?”

Jeff Gates, “All Too Familiar,” (http://www.criminalstate.com/blog/?tag+robert-rubin)

<8> Russ Winter, “The US: The World’s Biggest Blue Light Special”




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[DemReadingDU]

58. Today is Pi day!

Just realized today is 3.14
http://en.wikipedia.org/wiki/Pi_Day


I missed square root day 3/3/09
http://en.wikipedia.org/wiki/Square_root_day

[Demeter]

62. Oh, NOW I Get It!

I Blame the illness...

[Demeter]

60. Bedtime, Everyone!

Sis gave me an update. Dad had a small clot block part of the brain in the occipital region, so vision in one eye is mildly affected. He has atrial fibrillation, which is why the clot formed, but not severe enough for a pacemaker.

Had he been taking his medication....but that would be too simple and smart....after all, medicine could give one side effects! Had he a primary care physician, but that would mean trusting a doctor and being truthful and cooperative...and keeping appointments,...

So now she is going to have to pry him out of that house and up to her place so she can see he gets on the program...you're a better man than I am, Gunga Din!

And when she can't take any more, we can ship him here for assisted living. That will go over like a lead balloon.

Expecting him to stay in his enormous house, and keep it and himself going is ridiculous. He won't let strangers in, because they might take stuff or something.

If I ever get that old and paranoid, you have permission to euthanize me.

Wash hands thoroughly after reading...I have a really miserable cold.

Continuing our Cabaret:
“So What”


You say fifty marks. I say one hundred marks, a
difference of fifty marks-
Why should that stand in our way?
As long as the room gets let,
the fifty that I will get
is fifty more that I had yesterday,
Ja?

When you're as old as I..
is anyone as old as I?-
What difference does it make?
An offer comes, you take.


For the sun will rise
And the moon will set
And learn how to settle
For what you get.
It will all go on if we're here or not
So who cares? So what?
So who cares? So what?

When I was a girl,
My summers were spent by the sea.
So what?
And I had a maid
Doing all of the house-work, not me.
So what?
Now I scrub all the floors
And I wash down the walls
And I empty the chamber pot.
If it ended that way,
Then it ended that way,
And I shrug and I say:
So what?

For the sun will rise
And the moon will set
And learn how to settle
For what you get.
It will all go on if we're here or not
So who cares? So what?
So who cares? So what?

When I had a man,
My figure was dumpy and fat.
So what?
Through all of our years
He was so disappointed in that.
So what?
Now I have what he missed
And my figure is trim,
But he lies in a churchyard plot
If it wasn't to be
That he ever would see
The uncorseted me,
So what?

For the sun will rise
And the moon will set
And learn how to settle
For what you get.
It will all go on if we're here or not
So who cares? So what?
So who cares? So what?

So once I was rich
And now all my fortune is gone,
So what?
And love disappeared
And only the memory lives on,
And so what?

If I've lived through all that
(And I've lived through all that)
Fifty marks doesn't mean a lot.
If I like that you're here
(And I like that you're here)
Happy New Year, my dear,
So what?

For the sun will rise
And the moon will set
And learn how to settle
For what you get.
It will all go on if we're here or not
So who cares? So what?
So who cares? So what?

It all goes on.
So who cares? Who cares?
Who cares? So what?

http://www.youtube.com/watch?v=aRpp2tg8Z-8

[DemReadingDU]

71. Good morning, Hope you are feeling better

Glad your dad is being taken care of.

[Demeter]

73. Well, I Survived the Night

It's my sinuses--permanently damaged by second-hand smoke.

Thank you for your concern. We'll just have to see if Dad is willing to exert the self-discipline needed to recover and live healthy. There's always hope that lightning has struck some sense into a man....because as Saul of Tarsus demonstrated, that's about what it takes. (Although I personally think as Paul he was still more than a little whacked out).

[antigop]

66. A.I.G. planning $165 million in bonuses after huge bailout

http://www.nytimes.com/2009/03/15/business/15AIG.html

The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.

The payment of so much money at a company at the heart of the financial collapse that sent the broader economy into a tailspin almost certainly will fuel a popular backlash against the government’s efforts to prop up Wall Street. Past bonuses already have prompted President Obama and Congress to impose tough rules on corporate executive compensation at firms bailed out with taxpayer money.

[Hugin]

68. I guess they can't just break the contracts like they do with Unions.

"the firm was contractually obligated to pay"

:eyes:

Biggest Self-reinforcing BS Award.

[Demeter]

72. We Just Can't Join the Right KIND of Unions!

I AM a union member--in a half-assed way. SEIU. This is a recent development. Solidarność!

[Demeter]

70. Put AIG Out of Our Misery Then!

They should know better than to mess with Madame LaFarge when she's got a massive head cold.

OFF WITH THEIR HEADS! SHUT DOWN AIG LONDON!

[Demeter]

74. Primer on Pyramids: Blame the Economists, Not Economics

http://www.guatemala-times.com/opinion/syndicated/roads-to-prosperity/887-blame-the-economists-not-economics.html





CAMBRIDGE - As the world economy tumbles off the edge of a precipice, critics of the economics profession are raising questions about its complicity in the current crisis. Rightly so: economists have plenty to answer for.

It was economists who legitimized and popularized the view that unfettered finance was a boon to society. They spoke with near unanimity when it came to the "dangers of government over-regulation." Their technical expertise - or what seemed like it at the time gave them a privileged position as opinion makers, as well as access to the corridors of power.

Very few among them (notable exceptions including Nouriel Roubini and Robert Shiller) raised alarm bells about the crisis to come. Perhaps worse still, the profession has failed to provide helpful guidance in steering the world economy out of its current mess. On Keynesian fiscal stimulus, economists' views range from "absolutely essential" to "ineffective and harmful."

Dani Rodrik

Dani Rodrik Dani Rodrik, Professor of Political Economy at Harvard University’s John F. Kennedy School of Government, is the first recipient of the Social Science Research Council’s Albert O. Hirschman Prize. His latest book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.
On re-regulating finance, there are plenty of good ideas, but little convergence. From the near-consensus on the virtues of a finance-centric model of the world, the economics profession has moved to a near-total absence of consensus on what ought to be done.

So is economics in need of a major shake-up? Should we burn our existing textbooks and rewrite them from scratch?

Actually, no. Without recourse to the economist's toolkit, we cannot even begin to make sense of the current crisis.

Why, for example, did China's decision to accumulate foreign reserves result in a mortgage lender in Ohio taking excessive risks? If your answer does not use elements from behavioral economics, agency theory, information economics, and international economics, among others, it is likely to remain seriously incomplete.

The fault lies not with economics, but with economists. The problem is that economists (and those who listen to them) became over-confident in their preferred models of the moment: markets are efficient, financial innovation transfers risk to those best able to bear it, self-regulation works best, and government intervention is ineffective and harmful.

They forgot that there were many other models that led in radically different directions. Hubris creates blind spots. If anything needs fixing, it is the sociology of the profession. The textbooks at least those used in advanced courses - are fine.

Non-economists tend to think of economics as a discipline that idolizes markets and a narrow concept of (allocative) efficiency. If the only economics course you take is the typical introductory survey, or if you are a journalist asking an economist for a quick opinion on a policy issue, that is indeed what you will encounter. But take a few more economics courses, or spend some time in advanced seminar rooms, and you will get a different picture.

Labor economists focus not only on how trade unions can distort markets, but also how, under certain conditions, they can enhance productivity. Trade economists study the implications of globalization on inequality within and across countries. Finance theorists have written reams on the consequences of the failure of the "efficient markets" hypothesis. Open-economy macroeconomists examine the instabilities of international finance. Advanced training in economics requires learning about market failures in detail, and about the myriad ways in which governments can help markets work better.

Macroeconomics may be the only applied field within economics in which more training puts greater distance between the specialist and the real world, owing to its reliance on highly unrealistic models that sacrifice relevance to technical rigor. Sadly, in view of today's needs, macroeconomists have made little progress on policy since John Maynard Keynes explained how economies could get stuck in unemployment due to deficient aggregate demand. Some, like Brad DeLong and Paul Krugman, would say that the field has actually regressed.

Economics is really a toolkit with multiple models - each a different, stylized representation of some aspect of reality. One's skill as an economist depends on the ability to pick and choose the right model for the situation.

Economics' richness has not been reflected in public debate because economists have taken far too much license. Instead of presenting menus of options and listing the relevant trade-offs - which is what economics is about - economists have too often conveyed their own social and political preferences. Instead of being analysts, they have been ideologues, favoring one set of social arrangements over others.

Furthermore, economists have been reluctant to share their intellectual doubts with the public, lest they "empower the barbarians." No economist can be entirely sure that his preferred model is correct. But when he and others advocate it to the exclusion of alternatives, they end up communicating a vastly exaggerated degree of confidence about what course of action is required.

Paradoxically, then, the current disarray within the profession is perhaps a better reflection of the profession's true value added than its previous misleading consensus. Economics can at best clarify the choices for policy makers; it cannot make those choices for them.

When economists disagree, the world gets exposed to legitimate differences of views on how the economy operates. It is when they agree too much that the public should beware.

Dani Rodrik, Professor of Political Economy at Harvard University's John F. Kennedy School of Government, is the first recipient of the Social Science Research Council's Albert O. Hirschman Prize. His latest book is One Economics, Many Recipes: Globalization, Institutions, and Economic Growth.

[Demeter]

75. Is It Time to Retrain B-Schools? By KELLEY HOLLAND

http://www.nytimes.com/2009/03/15/business/15school.html?_r=1&ref=business


JOHN Thain has one. So do Richard Fuld, Stanley O’Neal and Vikram Pandit. For that matter, so does John Paulson, the hedge fund kingpin...The master’s of business administration, a gateway credential throughout corporate America, is especially coveted on Wall Street; in recent years, top business schools have routinely sent more than 40 percent of their graduates into the world of finance.

But with the economy in disarray and so many financial firms in free fall, analysts, and even educators themselves, are wondering if the way business students are taught may have contributed to the most serious economic crisis in decades.

“It is so obvious that something big has failed,” said Ángel Cabrera, dean of the Thunderbird School of Global Management in Glendale, Ariz. “We can look the other way, but come on. The C.E.O.’s of those companies, those are people we used to brag about. We cannot say, ‘Well, it wasn’t our fault’ when there is such a systemic, widespread failure of leadership.”

MUCH MORE AT LINK


WHERE'S THAT STAMP, TANSY?

[Hugin]

80. Jeeze, I don't know where to start with this...

It might take me all day and every tool in the house to explain how screwed up the B-schools are and what they get wrong.

I suppose, I'd start with dismantling the premise that Corporations are People and People are a Commodity. Explaining those facts alone would take a Semester.

Of course, any reference to Ayn Rand, Supply-side, or Reagan would earn a student in my class an automatic trip to the 'think' bench.

[Tansy_Gold]

81. the stamp is right here on my desk, where it always is

Of course, this is a no brainer.

Anecdote: Back in about 2000, one of my women's studies professors taught a b-school class in global business management. Seriously. And she came back to our dept. office after every class just shaking her head. (She was good friends with the regular prof who was on sabbatical or something and had agreed to fill in for him.) The problem, she suggested and I agreed, was that the students had no background in social sciences. They knew nothing about human behavior. "Management" to them meant "making a profit." I helped her grade some of their exams. About half just didn't get it. at all. not even close.

T-Bird, by the way, is just down the street, literally, from the ASU-West campus where this happened.
http://www.thunderbird.edu/ Ranked #1 grad school in international business management. go figure.



Tansy Gold

[antigop]

83. tansy--not all b-school grads lack background in social sciences

You may even find some b-school grads posting on the SMW thread.

[Tansy_Gold]

84. I never said they did, so my apology if I gave that impression

Mine was only an anecdotal observation based on a very small sample from one school. And I don't think ASU-West is any powerhouse in the world of business schools.

The point Dr. Cabrera was making, however, seemed to be that he had no clue what the b-schools in general had done wrong. I merely offered my response that it seemed like a no-brainer that they HAD done something wrong. (sidebar -- on their website, if you click through enough stuff, you'll find Thunderbird's Board of Trustees and their Board of Fellowes -sic-. I honestly do not go looking for these things.)

And I then expanded on that by offering an anecdote about one class in one school.

And of course most of us have little clue about the backgrounds of our fellow DUers. Anyone can claim to have a PhD in economics or mathematics or global business, but we don't require background checks or official transcripts. (Thank goodness! ;-))

But again, after listening to the NPR program about physicists modeling the markets after the "behavior" of subatomic particles, I really have to wonder if there's sufficient emphasis on the social and behavioral sciences in most business school programs. Maybe we need fewer quants and more quals.

I suspect, though, that those who post on DU for the most part do have more background in the soft sciences.


TG

[antigop]

87. You don't have to get your background in the social/behavioral sciences in b-school

You can get excellent courses as an undergrad.

[Demeter]

92. You Have to Have Some Respect for and Value People

to take those courses in the first place.

[Tansy_Gold]

94. Well exactly, Demeter. And I'm not meaning to disparage EVERY

graduate from EVERY business school. Obviously the people like Krugman and Roubini came from . . . somewhere.

And I think most undergrad programs require some social sciences, some history, whatever, regardless what the individual student's plans for graduate school may be.

But to address Dr. Cabrera's specific comment that he thought they'd gone wrong somewhere, IMHO maybe the b-schools need to add some emphasis on other issues. Maybe one of those issues is the soft sciences.

One of BF's best friends has a PhD in economics from Berkeley, and I get to listen to this guy's pronouncements on the economy (second-hand) all the time, as if they were pearls from the lips of god. His undergrad background, however, is in mathematics, so I perceive what looks to me like a hard-science bias in his commentary. BF -- having no academic background in math, econ, biz, or soc -- tends to take the PhD's word over my mere MAIS. The problem is that when a mathematical model is used, the formula has to work for all variables. Human beings don't operate that way, and human beings are the ones who make the decisions to act -- whether it's to lie or cheat or steal or give away their money or save or spend or buy a Ford over a Toyota or vice versa. Where's the formula that produces a perfectly predictable answer for that?

Humans don't always act logically, Ayn Rand's bullshit notwithstanding. And most of us, being far from paragons of virtue like John Galt, should be damn glad we don't. Maybe, just from Tansy Gold's perspective, if the b-schools put a little more emphasis on the human element, on the history of the contrariness of the species and the many forms that contrariness takes, there might be less reliance on mathematical models of what SHOULD happen and what OUGHT to happen in a given set of circumstances.

But the other thing that's important is that I think our b-school students need to understand that they are going to be operating in an economic system that is for the most part profit-driven capitalism and that such a system has its own built-in contrariness. Furthermore, they need to learn how and why that system rose to its current ascendancy, and what the repercussions of that ascent have been, not only for those who have benefited from that ascent but for those who have been the victims.


Tansy Gold

[Demeter]

95. I Think The First Lesson Must Be: "Crime Does Not Pay"

Including a comprehensive study of what constitutes a crime.

Then we can send Congress, Business, Religion, et al. back for remedial education.

[antigop]

102. They were REQUIRED courses in my undergrad--you couldn't graduate w/o them

Please don't blame the b-schools. People should have these courses/background before they ever enter b-school.

<edit> And my undergraduate degree was math/comp sci.

[Tansy_Gold]

108. I'm not BLAMING the b-schools, at least not solely.

Consider again that it was the president of the #1 ranked global business grad school who suggested maybe they'd done something wrong. I didn't start this fight! ;-)

Obviously, of course, there are other factors: the general business climate, the indoctrination in capitalist ideology that most of us get from before kindergarten, the lack of even a basic understanding of other economic systems. Our culture, based on a capitalist/mercantilist/Calvinist model, encourages the notion that wealth in and of itself is good; the means by which wealth is acquired may or may not be perfect, but wealth can and often does erase the sins committed in acquiring it.

What I'm suggesting is that the occasional required undergrad class(es) in sociology, history, race/class/gender issues, etc., may have been ignored or dismissed or insufficiently reinforced in the business schools. Their job, after all, is to train people for the business world, and that's a world dominated by the profit motive. Do they have an obligation to temper that motive so that it doesn't devolve into naked greed? :shrug: I dunno. But when the president of Thunderbird wonders if they've done something wrong that contributed to this horrendous collapse, I have the right to offer my observations, don't I?

I looked at what Thunderbird requires for its program. http://www.thunderbird.edu/prospective_students/ft_degrees/mbagm/curriculum/core_curriculum/core_desc.htm

These are the required core courses for the MBA in Global Management program:

Foundations
International Political Economy
Fundamentals of Accounting
Financial Accounting & External Reporting
Managerial Decision-making
Fundamentals of Finance
Financial Management
Global Financial Management
International Economics
Data Analysis
Global Operations Management
Managing Projects
Competing Through People
Competing Through Strategy
Global Marketing
Regional Business Environment: Asia, Europe, Latin America or North America
Cross-Cultural Communication
Global Negotiations (Traditional Program only)
Global Strategy
Global Leadership

Then I looked at the list of courses for the focus areas listed as global finance, entrepreneurship, developement, management and marketing. Of all the advanced courses, these were the only three that even remotely (IMHO, you understand; yours may be different) addressed social issues:

GF 5804 CONFLICT MANAGEMENT AND SOCIAL CHANGE
(1.5 hours) Economic development and social change can offer tremendous business opportunities for global managers. At the same time, the development process can lead to social, cultural, economic, and political conflicts. This course explores the roots of such conflicts, and methods of conflict management such as negotiations and multicultural communications. The course can also have a mediation certification component for those interested in official mediation recognition for their career options. Prerequisite: GM 4000, GM 4600/4620/4640 or 4660, and GM 4801.


GF 5806 STRATEGIES IN INTERNATIONAL DEVELOPMENT
(3 hours) This course examines development prospects and policy in less developed and transition economies. Issues include trade, investment, foreign aid, international debt, technology transfer, poverty, environment, social development, and sustainable development. The roles of international and regional organizations, government policy, and domestic and foreign corporations are explored. Prerequisite: GM 4000 and GM 4600/4620/4640 or 4660.


GF 5883 INTERNATIONAL BUSINESS ETHICS
(1.5 hours) Management of international business ethics and global corporate social responsibility is integral to the skill set of the global manager. This case-based course examines national laws such as the Foreign Corrupt Practices Act; corporate codes of conduct; issues of bribery, corruption, and labor standards including with respect to global outsourcing; and the contribution of corporate ethics to brand integrity. Prerequisite: GM 4000 and GM 4600/4620/4640 or 4660.
http://www.thunderbird.edu/prospective_students/ft_degrees/mbagm/curriculum/focus_areas/focus_desc.htm


Maybe this isn't enough. Maybe I'm looking at the whole thing from the wrong perspective. Maybe the graduates from a graduate school whose primary (and maybe sole) focus is on international business aren't going to be the leaders of the economy. Maybe only those who go on for PhDs will be the leaders, and these mere MBAs don't need further education in social sciences. Maybe all they need to know is how to turn a profit.

And maybe because Thunderbird's focus is on international business, they don't need to teach anything about how the corporation's success may be the society's destruction. Maybe they don't need to know anything about labor history and peasant uprisings and how governments influence/effect revolutions in their de facto colonies. Will they see United Fruit as a successful company or a catastrophe? Will they ever ask their students to look at the world of business through another lens?

That's what I'd say to Dr. Cabrera if I had the opportunity to address him. That's not likely to happen. I finished with ASU West in 2003 and I'm nowhere near 59th & Greenway in Glendale, AZ any more.

Then again, maybe he'll read the DU journal of


Tansy Gold

[Demeter]

115. Ah, Tansy! We're On YOUR Side!

Just adding a little color commentary. You're absolutely right, and we know it and are grateful for your hanging around with us.

[Tansy_Gold]

117. It's the other way around, Demeter

I'm very grateful that you guys allow me to be on YOUR side.


:yourock:



Tansy Gold (who is making stupid typos 'cause it's late at night and she's still workin')

[Demeter]

76. Reflections on the latest dead cat bounce or bear market sucker’s rally Nouriel Roubini

http://www.rgemonitor.com/roubini-monitor/255995/reflections_on_the_latest_dead_cat_bounce_or_bear_market_suckers_rally

It is déjà vu all over again. We have already seen this Groundhog Day movie at least six times over and over again in the last year or so: the market starts to rally – this time around about 8% in a week - and the chorus of optimists starts to say that this is the bottom of the economic and financial crisis and that we are at the beginning of a sustained stock market rally that signals the true end of this bear market.

Even before the latest bear market rally started last week I wrote the following on March 2nd:

Of course you cannot rule out another bear market sucker’s rally in 2009, most likely in Q2 or Q3: the drivers of this rally will be the improvement in second derivatives of economic growth and activity in US and China that the policy stimulus will provide on a temporary basis: but after the effects of tax cut will fizzle out in late summer and after the shovel-ready infrastructure projects are done the policy stimulus will slack by Q4 as most infrastructure projects take year to be started let alone finished; similarly in China the fiscal stimulus will provide a fake boost to non-tradeable productive activities while the traded sector and manufacturing continues to contract. But given the severity of macro, household, financial firms and corporate imbalances in the US and around the world this Q2 or Q3 sucker’s market rally will fizzle out later in the year like the previous 5 ones in the last 12 months....


And indeed, as predicted, in the last week another bear market rally has started in earnest; the latest rally is just a dead cat bounce. Let us explain next in much detail why this is another bear market rally…

[Demeter]

77. YVES : On Traders Behaving Badly and Cognitive Bias

http://www.nakedcapitalism.com/2009/03/on-traders-behaving-badly-and-cognitive.htm

IT'S ABOUT JIM CRAMER'S STARTLING ADMISSION OF CRIME

[Demeter]

78. YVES ON AIG: A Token Reining in of AIG Bonuses (Banana Republic Watch)

http://www.nakedcapitalism.com/2009/03/token-reining-in-of-aig-bonuses-banana.html



...Note that these actions all took place in the waning days of the Bush Administration, after Obama had been elected, In other words, it was just about certain no action would be taken to curtail these payments. And there were apparently some retention bonuses I missed; the WaPo article now says they cover 4,700 employees (oh, and they have been rebranded "retention pay") for a total of $600 million. I'm cynical enough to wonder if 2700 were added to the pot and paid small amounts to greatly lower the average (which is now $127,000. Recall earlier that the range had been $92,000 to $4 million)

Some readers had pointed out that certain property & casualty businesses at AIG would feature a lot of customized deals, so losing key individuals there could be detrimental. But life insurance? When AIG pays better than most?

I am also no longer up to date on the state of the art in M&A land, but corporate divisions are (well were) put on the block all the time. I doubt there is much (any) precedent for such a high percentage of staff being offered such large inducements to stay, particularly in such a weak job market.

So the Geithner-Liddy spat is just a bit of theater, to make the great unwashed American public think that Team Obama is on top of all of its financial services industry invalids. ...

Since the WaPo excerpt did not make it explicit, the Financial Products group was the one that entered into the credit default swaps that brought the company to its knees. Given the fact that AIG keeps coming back for more money, I see no evidence that this group is doing a good, or even remotely competent, job.

Reader input on what has happened to comp levels in CDS land is encouraged.

Update 12:30 AM The New York Times adds some key details:

The American International Group, which has received more than $170 billion in taxpayer bailout money from the Treasury and Federal Reserve, plans to pay about $165 million in bonuses by Sunday to executives in the same business unit that brought the company to the brink of collapse last year.

Word of the bonuses last week stirred such deep consternation inside the Obama administration that Treasury Secretary Timothy F. Geithner told the firm they were unacceptable and demanded they be renegotiated, a senior administration official said. But the bonuses will go forward because lawyers said the firm was contractually obligated to pay them.

The payments to A.I.G.’s financial products unit are in addition to $121 million in previously scheduled bonuses for the company’s senior executives and 6,400 employees across the sprawling corporation. Mr. Geithner last week pressured A.I.G. to cut the $9.6 million going to the top 50 executives in half and tie the rest to performance.


This is the problem with not declaring bankrupt firms bankrupt. Then the bonuses COULD be clawed back, via fraudulent conveyance. Instead, we not only witness looting, but add insult to injury by having Liddy defending payment of bonuses out of a bust enterprise.

[Demeter]

79. Madoff trumped by Swiss gigolo

http://network.nationalpost.com/np/blogs/francis/archive/2009/03/11/gigolo.aspx


....As the seeker of the Haute-Swindle, I have been forced to turn my attention this week to a much more satisfying fraudster, Helg Sgarbi who has been dubbed the “Swiss gigolo”. Better yet, he is a serial seducer. His “career of crime” spanned years and consisted of picking up lots of rich, and dim, European females in fancy places. Sgarbi is a lawyer, speaks six languages and worked at Credit Suisse until the mid-1990s. He was also a reserves officer in the Swiss military.

He defrauded Germany’s richest woman, heiress Susanne Klatten of BMW, of C$11.5 million after the two indulged in a torrid affair. He was also convicted of defrauding three more German women of around C$4 million identified in court as “H”, “R” and “S”.

Unlike Madoff’s tame Ponzi scheme, this full-blown fraud involves juicy references to sex, secret cash payments, cults, revenge, the mafia and Klatten’s family links to the Nazis.

The Sting

Sgarbi’s downfall began in 2007 at an exclusive spa in Austria in 2007 where he was also preying on two wives of German industrialists. He hooked Klatten at a poolside exchange by pretending he was a Swiss James Bond, according to her recollection leaked to the German press. She was reading The Alchemist, a fable about pursuing one’s dreams.

“My favorite book,” he reportedly said, pulling up a seat beside her.

She asked: “What do you do?”

“I'm a special adviser to the Swiss government,” he lied. “In tricky conflict situations.”

“Isn't that dangerous?” she asked.

“Sometimes,” he replied.

Weeks later he met her in the south of France and the affair began. Shortly after, he began the shakedown, telling her that he was involved in a car accident in the United States which left a girl paralyzed. He convinced her to give him C$11.5 million for the girl's treatment plus to pay off the girl’s mafia father who sought a revenge payment.

The gullible, and financially cunning, Ms. Klatten told police she met Mr. Sgarbi in a parking garage and handed over these millions to him in 500-Euro notes inside a cardboard box.

Upping the ante

Sgarbi then demanded that she leave her family and invest $367 million in a trust to finance their new life together. When she refused, he threatened to release secretly filmed videos of their affair, taped by an accomplice from a room next door at the Holiday Inn in Munich.

She balked so he demanded $62 million not to tell her family, the heads of her companies and the media. He lowered the demand to $18 million but in January 2008 she went to the police and he was arrested.

Ever since, the case has gripped Europe’s media. Klatten is a ranking member of Germany’s economic “aristocracy”. Her father was the late Herbert Quandt and she owns 22 per cent stake of BMW plus 88% of chemical giant Altana. Her personal fortune was estimated by Forbes Magazine last year at around US$9.6 billion.

Mrs. Klatten did not attend the trial and her lawyer made no statement to the court. Reports are that the mother of three remains married.

Sgarbi confessed to his crimes, but refused to divulge where the money was. Even so, he received a lesser sentence because the judge believed that his confession spared his victims the public embarrassment of identification and testimony in court.

“I deeply regret what has happened and apologize to the aggrieved ladies in this public hearing,” Sgarbi told the court.

Old wounds

The issue of revenge and Nazis surfaced too. Klatten’s grandfather was Gunther Quandt, who advised Hitler on economic affairs and ran slave-manned factories which made armaments. Sgarbi reportedly told police that his grandfather had been enslaved in one of the Quandt factories.

But his targets were not only German women. In 2001, he defrauded a French countess 50 years his senior of C$17 million but returned the money after her friends went to police claiming he had swindled her, according to Stern Magazine. He also reportedly served a six-month sentence in Switzerland for a similar sexual swindle.

Sgarbi's main accomplice is suspected to be Ernano Barretta, a mysterious 64-year-old Italian faith healer who ran a cult which also specialized in parting females from their fortunes. He is due to go on trial in Italy later this month. An Italian report suggested that the men may have been out for revenge because their families suffered during the war.

[antigop]

82. Madoff: The Chase Connection (J.P. Morgan Chase's Ties to Madoff)

http://www.portfolio.com/business-news/portfolio/2009/03/13/JP-Morgan-Chases-Ties-to-Madoff

How much did Bernard Madoff's bankers know about his fraud?

Madoff's disclosure Thursday that he had deposited billions of dollars of his investors' money into a bank account instead of buying securities seems certain to focus attention on the bank, J.P. Morgan Chase.

The charges Madoff pleaded guilty to include money laundering. In the statement he read during his guilty plea in federal court in Manhattan, Madoff said he didn't invest clients' money in securities, as he had promised. "Instead, those funds were deposited in a bank account at Chase Manhattan Bank," he said. Chase Manhattan now is part of J.P. Morgan Chase.

Madoff acknowledged transferring money deposited in the Chase account to accounts operated by a Madoff-owned firm in London, and then transferring the money back again to the U.S., partly to make it appear falsely that he was executing trades in European markets, as he had claimed to federal regulators. In fact, Madoff admitted, he made no trades at all with investors' funds.

It's against the law for a bank to accept funds that it knows, or has reason to believe, were derived from fraud. It's obliged to report suspicions of fraud to authorities. So far there has been no indication that Chase is the subject of any investigation or suspected of any wrongdoing. But based on Madoff's disclosure in court, investors' lawyers, desperate to find deep pockets to sue, almost certainly will begin making inquiries—and some say they have already.

[Demeter]

86. It Would Be One Thing If There Were 6,5, 4 or Even 3 Degrees of Separation

but these guys are like Siamese twins!

[antigop]

88. It's a big club and you ain't in it -- George Carlin

I'm not in it either.

[Demeter]

96. A Belated Comment on Citi's Lehman-esque Leak

http://www.nakedcapitalism.com/2009/03/belated-comment-on-citis-lehman-esque.html

Readers may recall that during Lehman's demise, a pitched battle was underway between some short sellers, epitomized by David Einhorn of Greenlight Capital. Einhorn raised questions about Lehman's financial statements, specifically, inconsistencies and rosy looking valuations. The struggle became weirdly personalized, as Lehman sought to burnish the image of charismatic CFO Erin Callen, as contrasted with the presumed to be evil company wrecking Einhorn. Of course, if the real performance (as opposed to what the reports said) was as bad as Einhorn's line of inquiry suggested, it was management that had done the company-wrecking, but that level of detail is often lost on CNBC.

And one of the regular features of the Lehman versus its detractors affair was leaks to the media, leaks of a sort that even if the firm had done it in a way that it had plausible deniability, were clearly intended to reach outside parties, particularly the media.

Now let us turn to Citi. Recall what transpired, per the Wall Street Journal:

Citigroup Inc. was profitable in the first two months of 2009 and is having its best quarter in a year and a half, Chief Executive Vikram Pandit said in an internal memo aimed at boosting employee and investor confidence in his struggling bank.


Yves here. This is simply stunning. The Journal says up front a supposed internal memo was in fact intended to reassure investors. In other words, Journal says the information was expected to be distributed broadly, as it was. And let's go back to see the detail:

The bank posted revenues -- excluding asset write-downs -- of $19 billion in January and February, Mr. Pandit said in the memo. For the full quarter, earnings before taxes and set-asides for problem loans are $8.3 billion, assuming revenues fill in at last year's rate and expenses are in line with the fourth quarter, the CEO said. Mr. Pandit warned, however, that market volatility in March could alter the results.


Let us further consider the context. The night before the Journal had a front page story which was none too favorable to the struggling bank:

Barely a week after the third rescue of Citigroup Inc., U.S. officials are examining what fresh steps they might need to take to stabilize the bank if its problems mount, according to people familiar with the matter.

Federal officials describe the discussions, which are wide-ranging and preliminary, as "contingency planning." Regulators are trying to ensure that they are prepared if Citigroup takes a sudden turn for the worse, which they aren't expecting, these people say.


So the very next day, Citi decides to tell the world they have it wrong, things are really on the mend.

Now consider: statements by public companies about their financial condition, operations, and results are not held to a mere standard of accuracy (as in narrowly true) but "not misleading". The critical language is:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange....To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading


Now the beauty of this little leak is that it covered a two month period, which means it cannot be compared directly with the quarterly results. It does not include writedowns (which I would argue makes it misleading). As the Financial Times' Lex noted:

But investors should not lose their heads. The headline-grabbing revenue number, of course, does not include costs or writedowns. Besides, Citi exceeded $20bn in adjusted revenues for eight quarters up until the end of September. Even in the nightmare final quarter of last year, revenues excluding writedowns were still a respectable $13.4bn. So Citi having a bumper top line is nothing to get excited about. That “profitable” remains unquantified gives no comfort as to what extent writedowns have eaten into that haul. That is the problem. In volatile markets, flow businesses such as foreign exchange or cash equities will always do well.


And Tyler Durden noted there could have been double counting in connection with the partial sale of Smith Barney.

Dunno about you, but this looks to me like a bald faced attempt to manipulate the stock price, and it certainly worked.

Now Citi has only resorted to Fuld-esque tactics this time, as far as we recall (we've seen a few stories that looked like PR plants, but those are a standard fixture in corporate America), but this is not a welcome development.

Even more puzzling is why the markets overall took such cheer, as opposed to just the now shrunken financials. Banks are enjoying fat spreads on any lending these days, thanks to super low borrowing rates and lending rates that have not fallen as much (indeed, pretty much anyone with a credit card has gotten notification of rate increases on balances). High real interest rates (and thus high bank spreads) are a typical feature of deflation (Japan was, until recently, something of an exception here. Companies were so loath to borrow that rates to borrowers have also plunged). What is good for the banks is not necessarily good for recovery.

[Demeter]

99. Citigroup Executives Gain $2.2 Million in Stock Bets

http://www.bloomberg.com/apps/news?pid=20601087&sid=ab3VmhTulLyc&refer=home

March 12 (Bloomberg) -- Four Citigroup Inc. executives who bought the bank’s stock last week generated a $2.2 million paper profit within nine days, regulatory filings show.

The executives, including director Roberto Hernandez, benefited as the company’s stock climbed 47 percent from March 10 through yesterday’s close of markets, after Chief Executive Officer Vikram Pandit said in a memo that the bank is having the best quarter since 2007. Their buying spree was the first by bank insiders since Jan. 14, filings show....

MOTIVE, OPPORTUNITY, MEANS

[Demeter]

97. Cuomo Asserts That Traders Looted Merrill

http://www.nakedcapitalism.com/2009/03/cuomo-asserts-that-traders-looted.html

I must confess I skipped past the headlines on New York Attorney General Andrew Cuomo's latest salvo at Bank of America and Merrill over the Merrill bonus payments in December.

Recall that those bonuses were paid earlier than usual so as to occur before the closing of the Merrill sale. Merrill contends it informed the Charlotte bank (and payments of that sort would have to be approved, otherwise it would be a violation of the merger agreement and could have jeopardized the deal).

The latest wrinkle, which generated a flurry of press reports, was that Cuomo had taken a new tack, charging that Merrill had misled Congress as to when the payments would be made. But for my money, the juiciest bit came at the end in the New York Times story:

Mr. Cuomo claimed that Merrill traders had mismarked their books as of early December in an effort to get higher bonuses.

“It appears that some of these losses may have been booked by Merrill employees who marked down their portfolios only after their 2008 bonuses were set,” the attorney general wrote in the filing. “Despite the gargantuan unexpected losses, Merrill did not reconsider its bonus awards” and Bank of America did not request or demand that Merrill reduce its bonus pool, he wrote.


This is a particularly strong and damaging claim. I've read repeatedly of people who worked with traders saying that they would engage in strategies (not clearly described) that would lead them to show high profits though year end that they would wind up giving back (and often more) early in the next year. The idea was that they'd make so much on their trumped up performance that it didn't matter if they were fired next year. But a lot of types of behavior could produce this result, so it's hard to know what sort of trader chicanery was afoot. And without names, or descriptions of the nefarious deeds, its too vague to treat as substantiated.

But here, if Cuomo is correct, we have what amounts to fraud, and brazen to boot. And the exaggerated profits would also seem to be a books and records violation for senior management.

This could get very interesting. The investigations are finally getting to where the rubber hits the road.

[Demeter]

98. Panics and Booms, a lesson from 1897 by Rolfe Winkler, CFA

http://optionarmageddon.ml-implode.com/2009/03/11/panics-and-booms-1897/



(Thanks to Patrick for an absolute gem. Earlier this week, he linked to a fantastic newspaper article written in 1902. That article actually reprinted a paper written five years previously, entitled “Panics and Booms” by L.M. Holt. When Holt wrote the paper, the economy was at the tail end of a depression. Holt argued that booms always follow busts, so folks should anticipate the return of flush times. Fast-forward five years, a new boom was in full swing, and the newspaper republished Holt’s paper as a warning that the next depression was due around 1910, give or take. The Bank Panic of 1907 arrived a bit ahead of schedule.

It’s a great read, particularly now when most observers remain conflicted about what kind of economic funk we’re in. Mr. Holt described quite clearly the economic conditions we face today, a depression created by over-indebtedness. And he offers a prescription for how to dig ourselves out: pay back debt. It’s a prescription I endorse wholeheartedly.

The paper is so good, for posterity’s sake, I have reproduced it here in full. Another reason: Irving Fisher generally gets credit for having created the “debt deflation theory of depressions,” but Holt beat him to it by 36 years. Enjoy!)

“Panics and Booms”

L.M. Holt

Ever since the establishment of the human race on this planet there has been a gradual increase of population and a more rapid consumption of wealth.

Wealth is the result of labor, and without labor there can be no wealth.

Men live and pass away, but as they cannot take their wealth with them a large percentage accumulates for the benefit of their successors. Hence the wealth of the world today, per capita, is much greater than ever before, and it is continually on the increase.

The transfer of wealth, or property, from one person to another creates business. Under favorable conditions, transfers are numerous and business is brisk. Under unfavorable conditions transfers are few and business is dull.

During periods of business activity there is work for all, and this of itself makes greater business activity. During periods of business depression there is not work for all, and this of itself makes business dull and unprofitable.

The existence of either one of these conditions leads necessarily to the other. It is an impossibility for either prosperous times or depressed times to continue permanently.

(This is where it starts to get good…)

During prosperous times, there being work for all, all are supplied with the means of accumulating wealth, and thus all are enabled to provide themselves, and families with all the necessaries, and many of the luxuries, of life; and hence, during the prosperous times the demand for goods and property increases and soon the demand exceeds supply, and then prices advance.

This rule, which is applied to the laborer, is also applied to the business man. Prosperous times induce business men to branch out in their several lines of trade….The volume of trade being large, each gets a corresponding proportion of it. Many business men find that they can do more business than is allowed by their limited capital. They then buy on credit.

Prices are continually advancing, therefore they are able to make margins of profit not only on the capital furnished by themselves, but on the capital furnished through their credit.

This rule also applies to people dealing in real estate. The country is growing; money is easy; the times are good; business is prosperous and therefore speculation is favored. A man worth $5000 can buy four times that amount of property using his credit, and sometimes he buys ten times that amount or more. While prices are advancing he not only gets the benefits of the advance in the price of the property represented by the capital furnished by himself, but also on the capital furnished by his credit.

When prices of property and goods during a period of business depression are falling, the loss does not come on the entire property, but only on that portion of it represented by the cash capital the man has invested in it. The debt never shrinks until the real investment is all gone.

(A fantastically simple description of leverage, that is, investing with borrowed money as a way to amplify potential gains at the risk of greater losses. How quaint that Holt seems impressed by “ten times” leverage. He would blush at the leverage ratios permissible today.

A quick tutorial on leverage for the unfamiliar. The more money borrowed to buy an asset, the higher the buyer’s return on equity when times are flush. If you buy a $100,000 house with only $5,000 down and the price increases to $125,000, the return on your equity investment is 400%. ($25,000 increase in price / $5,000 initial investment = 400% return). A cash basis investor who pays the full price of the house up front has a much more meager return, 25%. ($125k / $100k = 25% return). The flip side is that when prices fall, the leveraged investor sees his equity wiped out quickly. The guy who paid cash has lots of cushion.)

All people in a given section of country use their credit at the same time because they are all governed by the same local conditions. Hence, there is a fictitious stimulation of prices which must come to an end. This end brings a financial depression which must necessarily follow a period of business activity.

(A “fictitious stimulation of prices.” We have our own word for that: “bubble.”0

When the people arrive at a point where their credit limit is reached there is necessarily a decrease in the demand for goods and property, and soon the supply becomes greater than the demand and prices begin to decline. This stops speculation. Thousands of people engaged in manufacturing or producing articles of general use are thus thrown out of employment, and this causes a still further decrease in the demand for goods and hence a further decline in prices. Those who have purchased on credit find themselves subjected to heavy losses because they are compelled to sustain the depreciation on goods they do not own—that is, goods bought on credit. Because of this decrease in valuations all are compelled to economize in order to adjust their expenses to the new order of things, they being compelled to pay off the accumulated indebtedness with the decreased income. This economy of the masses still further decreases the demand for goods and property and this still further increases the supply over the demand, and decreases the prices, throwing more people out of employment and increasing the depressed condition of business.

(Fisher, eat your heart out!)

The business man feels the change in conditions as well as the laborer. Doing business largely on borrowed capital he loses all the capital employed in the business, not alone on the money furnished by himself. The value of the business shrinks, but the debt remains the same or increases. Bankruptcy stares the business world in the face. The weaker go under while the stronger pull through, and sometimes make fortunes at a little later date out of the misfortunes of others.

Here is a condition of hard times. A large percentage of laboring people of the world are thrown out of employment. Every time a man stops work—stops producing—his purchasing ability is impaired, the demand for goods becomes less and prices are lowered.

During the period of depression—the debt-paying period—the people at large are forced to economize. The earning capacity of all classes has been decreased. A large percentage of people are thrown out of steady employment and wages are reduced for those who do secure labor. Some earn enough to pay expenses of living economically, while others do not and are compelled to live in part on the limited accumulation of former more prosperous years.

(Holt notes that depression coincides with the period during which debt gets paid back. Economic expansion coincides with the expansion of debt, with the period during which debts are rolled over rather than paid back. The bigger the debt hole we dig for ourselves—via bailouts, stimulus, etc.,—the longer our payback period. More debt, in other words, will only exacerbate the depression.)

Many business men continue in business: some are able to meet running expenses, while others prefer to lose a little each month, awaiting a return of better times rather than to lose more heavily by retiring entirely from business. Many cannot stand the pressure and quite business, forced to lose the accumulation for years.

During the years of depression, values of all kinds of property shrink. In the case of incumbered property this shrinkage falls entirely on the margin and not on the debt. Sometimes it wipes out the margin and a portion of the debt also. Sometimes the margin is so nearly wiped out that the alleged owner of the property transfers his interest in the property to the one who holds the claim against it, and another debt is paid. Sometimes the holder of the debt declines to thus take the property and releases the owner.

(More on leverage. Assets “incumbered” with debt leave their owners very vulnerable. What Holt refers to as “margin” we refer to as equity. Equity, “during the years of depression,” may be substantially “wiped out.”)

A person who does business on a partial credit basis, on borrowed capital, makes larger profits during periods of prosperity when the prices are advancing than he who is on a cash basis, but he sustains larger losses during periods of depression when prices are dropping.

If a man could change quickly from a credit system to a cash basis as soon as the period of prosperity closes he would be all right, but he is in debt, and the debt must be paid, and hence it is not usually practical to make the change. If it were he would not be in debt.

Gradually the surplus debts of the country are paid and the people breathe easier again. People live within their incomes and temporarily learn economical habits. Men smoke fewer and cheaper cigars and ladies purchase fewer ribbons and occasionally fix over a bonnet and dress instead of getting new ones.

A time is finally reached when people begin to get out of debt and they begin to live a little better, buy more of the necessities of life and some of the luxuries. As the number of people in such improved condition increases, trade begins to pick up, larger orders are sent to the factories, more wheels are set in motion, more operatives are employed and more people are placed in position to buy more goods, which in turn starts more mills and gives employment to still more men.

(Note how the pre-existing condition for healthy economic growth is first getting out of debt.

Deficit spending won’t stimulate anything. It will just sow the seeds of an even deeper depression. The sooner we get out of debt, the better off we’ll be.)

Thus the business of the country is forced into an active condition, and thus business activity increases in geometrical progression until wages reach their maximum point, factories are running to their utmost capacity, prices of all kinds of goods and all kinds of property advance, and people begin to purchase again more than they have the money to pay for—some because they want profits on increasing valuations and others simply because of extravagant ideas of living.

Money is plenty, credits are good, and the masses are good pay because all kinds of property are convertible into legal tender. Improvements, public and private, are pushed to their utmost extent, fancy prices are paid for real estate because it can be sold readily again at still more fancy prices. Individuals of limited capital hold thousands and hundreds of thousands of dollars worth of property on which only a small payment has been made. An advance of five per cent on the price of the property is an advance of 50 or 100 per cent or more on the cash investment. Another transfer is made and another soul is made happy. In short a speculative boom has struck the country again gradually but surely. This speculative boom is not the result of any movement on the part of the people or any portion of them to create a boom, but it is the result of natural laws of business and is just as certain to materialize as a good crop is sure to be the result of favorable climatic conditions.

It is not, perhaps, in order here to discuss the millionaire question or inquire into the trust combinations which threaten to disturb so seriously the business interests of the country. It is, however, safe to say that those who think during a period of business activity that such activity will always continue are just as much mistaken as are those who believe during a period of business depression that such business depression will never come to an end.

Good times will follow bad times and bad times will follow good times just as surely as darkness follows day and day follows darkness. Those periods always have followed each other and they always will.

The seeds of prosperity are sown during the periods of financial depression and the seeds of hard times are just as surely down during the period of business activity and speculative boom. There is not question as to the soundness of this conclusion. There is no question that these changes will come. The only question is—when?

At the close of a speculative boom the change comes like a thief in the night. In fact a thief in the night would be a welcome visitor to many instead of the change which puts in an appearance, but the change from a financial depression to better times comes gradually—so gradually that for months there is a difference of opinion as to whether a change for the better has actually commenced or not.

Glance for a moment over the financial history of the century just closing, and see what has been the condition of the country. During 1837 the country was in the midst of a financial panic. Again during the year 1857—twenty years later—there was another panic. In 1837 a financial crisis struck the eastern states and the great banking house of Jay Cook & Co. was found among the financial wrecks scattered throughout that section of the country. In 1875 that same panic reached the Pacific Coast, closing the doors of the Bank of California of San Francisco, together with many other banking institutions, including the then popular banking house of Temple and Workman in our own Los Angeles—a bank that failed for over a million dollars and never paid a cent on the dollar to the many unfortunate depositors.

In 1893 the next panic struck the United States after having wrecked so many banking institutions in South America, Australia, and other parts of the world.

During the year 1886, when the late speculative boom was getting under good headway in Southern California, Hon. D.C. Reed, now mayor of the City of San Diego, gave a banquet at the Horton House in that city, to which he invited business men from all points in Southern California. In response to the sentiment, “The Prosperity of Southern California,” the writer, among others, briefly reviewed many of the principles herein laid down and following the line of thought that waves of prosperity and depression follow each other with more or less regularity, predicted that somewhere between the years of 1892 and 1895 this country would again enter upon a period of business depression that would be very severe on the business activity of the country. The local speculative boom of 1886-7 broke long before this predicted period, but the universal panic which swept over the civilized world did not appear until the time predicted—1893. It appears to require, under present business conditions, from eighteen to twenty years for the country to pass through a complete cycle from one business depression to another.

After the panic of 1875 it took the people of Southern California five years to get ready for business again in 1880. A similar period after the panic of 1893 ought to place this country again in line for business activity. The panic of 1893 was more widespread in its operations that that of 1875; but locally, it was not so severe, as comparatively little money was lost by depositors by falling banks in Southern California four years ago, whereas in 1875 the loss was heavy.

Again so far as Southern California is concerned the past five years has dealt very kindly with our people. Southern California increased its population from 200,000 in 1890 to over 300,000 in 1896. Los Angeles city has increased in population from 50,000 in 1890 to 103,000 in 1897, more than doubled.

In actual wealth, Southern California has kept pace with the increase of population, although on account of the business depression of the country and the decrease in valuation all over the world, this increase in wealth is not so apparent. With the extraordinary increase in population and wealth in Los Angeles city during the past seven years, nothing short of a financial depression all over the country could have prevented that city from experiencing a speculative boom of great magnitude.

If Southern California in general and Los Angeles city in particular can make such a showing during a period of financial depression, what will be the result when the clouds roll by and prosperous times are enjoyed again throughout the country at large?

It is a difficult matter to make the people believe that our country is now entering upon another period of prosperity. Each one has a remedy for hard times. And each one sticks firmly to the proposition that better times cannot come again until his remedy has been applied. These remedies are mostly of a political nature. One man believes that a high protective tariff is all that is necessary to restore prosperity to the country, and another thinks the free coinage of silver and gold on a basis of 16 to 1 without making any suggestion to any other nation about the matter would bring good times. There is no question but the legislation on both these questions or either of them would affect the main proposition. Wise legislation will always assist in bringing prosperity, and unwise legislation will always retard the coming of better times, but no legislation, no matter what it be, can prevent the incoming tide any more than the little child on the sandy beach with its little shovel can, by piling up a ridge of sand, stay the incoming surf.

“The statement that, except for the temporary depression in prices the volume of business transacted is now larger than it was in 1892—the year of the greatest prosperity—has been questions by some. But a comparison of prices this week in the leading branches of manufacture, not only confirms that view, but shows a remarkable similarity to the course of prices in the early months of 1879, when the most wonderful advance in production and prices ever known in this or any other country was close at hand. The key of the situation is the excessive production of some goods in advance of an expected increase in demand. So, in 1879, consumption gradually gained, month by month, until suddenly it was found that the demand was greater than the possible supply. All know how prices then advanced and the most marvelous progress in the history of any country resulted within two years. Reports from all parts of the country now show that retail distribution of products is unusually large and increasing.”

This is a remarkably clear statement of the facts of the case, and is evidence from unquestionable authority that the position taken herein is correct.

Local conditions in Southern California will affect the issue here, and they appear in our favor. The building of the breakwater at San Pedro by the government will insure another transcontinental railroad from the east to Los Angeles via Utah. Then a 1 cent a pound tariff on citrus fruits, the building or more beet-sugar factories and the improvement of the vast water power of the mountain streams, and the setting of that power to work building up and enriching the country—all these and more will help along the good work.

Capitalists are now active, laying the foundations solidly for future operations in this, God’s corner of the universe; and while we would not advise people to stand still and see the salvation of the Lord, still it is pretty certain that those who stand will see it, although they will not be benefited thereby so much as they would be if they didn’t stand still.

The coming boom is not here today and it will not be here tomorrow, but he who has no faith that a period of very busy business activity, accompanied by a speculative boom is close at hand, would do well to place himself under the fostering care of a good, reliable guardian.

[DemReadingDU]

100. ABC: Economic Forecaster Predicts "Greatest Depression"

3/12/09 Economic Forecaster Predicts "Greatest Depression"

Economic trends forecaster Gerald Celente bears news nobody wants to hear: the economic crisis is going to get worse. ABC6 Anchor John Deluca travelled to New York to talk with Mr. Celente, who has been featured by major newspapers and television networks, and asked the question on everyone's mind: how much worse?

Is it all crazy talk? Watch 4 minute video
http://www.abc6.com/news/41131932.html

[DemReadingDU]

101. The Dow: 1929 vs. 2009

http://solari.com/blog/?p=2292

[DemReadingDU]

103. The Fed Did Indeed Cause the Housing Bubble

3/15/09 The Fed Did Indeed Cause the Housing Bubble by Catherine Austin Fitts

To: The Wall Street Journal

Re: “The Fed Didn’t Cause the Housing Bubble”

By: Alan Greenspan, former Chairman of the Federal Reserve

Dated: Wednesday, March 11, 2009


Ladies and Gentlemen:

In his article on your opinion page, “The Fed Didn’t Cause the Housing Bubble,” (see link below)Alan Greenspan attributes the housing bubble to lower interest rates between 2002 and 2005. That’s amazing to me.

My company served as lead financial advisor to the Federal Housing Administration between 1994 and 1997. I watched both the Administration and the Federal Reserve aggressively implement the policies that engineered the housing bubble. These are described at my website and in my on-line book,Dillon Read & the Aristocracy of Stock Profits (http://www.dunwalke.com).

One story, for example, is the following:
“In 1995, a senior Clinton Administration official shared with me the Administration’s targets for Fannie Mae and Freddie Mac mortgage volumes in low- and moderate-income communities. We had recently reviewed the Administration’s plans to increase government mortgage guarantees — most of these mortgages would also be pooled and sold as securities to investors. Even in 1995, I could see that these plans would create unserviceable debt loads in communities struggling with the falling incomes expected from globalization. Homeowners would default on mortgages while losses on mortgage-backed securities would drain retirement savings from 401(k)s and pension plans. Taxpayers would ultimately be hit with a large bill . . . but insiders would make a bundle. I looked at the official and said that the Administration was planning on issuing more mortgages than there were houses or residents. “Shut up, this is none of your business,” the official snapped back.”

From: “Sub-Prime Mortgage Woes Are No Accident” (http://solari.com/news/announcements/08-07-07/)

One of the dirty little secrets behind the housing bubble is the long standing partnership of narcotics trafficking and mortgage fraud and the use of the two in combination to target and destroy minority and poor communities with highly profitable economic warfare. This model is global. It is operating in counties throughout the world as well as in US communities.

Of all the actions that the Federal Reserve took to engineer this housing bubble, the one that I would note is Mr. Greenspan’s efforts to pacify Congresswoman Waters regarding allegations of government sponsored narcotics trafficking at a time when open Congressional hearings would have contributed to an important discussion of the operations engaging in mortgage fraud in minority communities. See, “Financial Coup d’Etat,” Chapter 16 at the link above.

“On December 18, 1997, the CIA Inspector General delivered Volume I of their report to the Senate Select Committee on Intelligence regarding charges that the CIA was complicit in narcotics trafficking in South Central Los Angeles. Washington, D.C. ’s response was compatible with attracting the continued flow of an estimated $500 billion–$1 trillion a year of money laundering into the U.S. financial system. Federal Reserve Chairman Alan Greenspan in January 1998 visited Los Angeles with Congresswoman Maxine Waters — who had been a vocal critic of the government’s involvement in narcotics trafficking — with news reports that he had pledged billions to come to her district. In February Al Gore announced that Water’s district in Los Angeles had been awarded Empowerment Zone status by HUD (under Secretary Cuomo’s leadership) and made eligible for $300 million in federal grants and tax benefits.”

Alan Greenspan is a liar. The Federal Reserve and its long standing partner, the US Treasury, engineered the housing bubble, including the fraudulent inducement of America at part of a financial coup d’etat. Our bankruptcy was not an accident. It was engineered at the highest levels.

Your publication of Greenspan’s breezy and bogus history of the housing bubble insults your readership.

Best Regards,

Catherine Austin Fitts
Assistant Secretary of Housing - Federal Housing Commissioner, Bush I

http://solari.com/blog/?p=2293


3/11/09 The Fed Didn't Cause the Housing Bubble by Alan Greenspan
http://online.wsj.com/article/SB123672965066989281.html

[antigop]

104. It's even worse...WSJ today reports AIG to pay bonuses of $450 million

http://online.wsj.com/article/SB123707854113331281.html

American International Group Inc. will pay $450 million in bonuses to employees in its financial products unit. That division was at the heart of AIG's collapse last fall, which compelled the U.S. government to provide $173.3 billion in aid to keep it running.

Chief Executive Edward Liddy told Treasury Secretary Timothy Geithner in a letter dated Saturday that the next payments to employees of the financial products unit -- whose woes caused massive losses at the giant insurer -- are due on Sunday, and added "quite frankly, AIG's hands are tied."

[Hugin]

109. "quite frankly, AIG's hands are tied."

The conflict of interest inherent in the situation is breathtaking.

Sure, they should give them the money, but, then the Govt should hound them mercilessly about it... Did they pay their taxes? Do they have any outstanding warrants? etc... etc... Just like they do to any other Welfare recipients.


Ah, it's times like these when it would be nice to have Elliot Ness on the payroll.

[Tansy_Gold]

110. I think they should have their tax returns audited every single year.

If they don't like that idea, well, hey, they know what they can do.

[Demeter]

107. I'm Calling It a Day, Folks--Keep on Keeping On!

and as for me---http://youtube.5aa5.com/viewVXRQV5z9GL8.html

[CatholicEdHead]

113. Fed chief Ben Bernanke: recession could end this year if gov't stabilizes banking system

WASHINGTON - America's recession "probably" will end this year if the government succeeds in bolstering the banking system, Federal Reserve Chairman Ben Bernanke said Sunday in a rare television interview.

In carefully hedged remarks in a taped interview with CBS' "60 Minutes," Bernanke seemed to express a bit more optimism that this could be done.

Still, Bernanke stressed — as he did to Congress last month — that the prospects for the recession ending this year and a recovery taking root next year hinge on a difficult task: getting banks to lend more freely again and getting the financial markets to work more normally.

"We've seen some progress in the financial markets, absolutely," Bernanke said. "But until we get that stabilized and working normally, we're not going to see recovery

http://www.startribune.com/business/41289887.html

[Demeter]

116. Tell Us Another Bedtime Story, Ben!

What a loser. Not even an original thought.

On another issue:

Would you believe the hospital discharged Dad in under 24 hours?

I hope this is a sign that he's in better shape than we could have hoped, and not a sign that even with insurance one is treated like a nuisance.


Well, I don't envy Ozy! He's going to have a wringer of a week.